Notes

FIRST DIVISION
[G.R. No. 125355. March 30, 2000]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. COURT OF APPEALS and COMMONWEALTH
MANAGEMENT AND SERVICES CORPORATION, respondents. Court
DECISION
PARDO, J.:
What is before the Court is a petition for review on certiorari of the decision of the Court of Appeals,[1] reversing that of
the Court of Tax Appeals,[2] which affirmed with modification the decision of the Commissioner of Internal Revenue ruling
that Commonwealth Management and Services Corporation, is liable for value added tax for services to clients during
taxable year 1988.
Commonwealth Management and Services Corporation (COMASERCO, for brevity), is a corporation duly organized and
existing under the laws of the Philippines. It is an affiliate of Philippine American Life Insurance Co. (Philamlife),
organized by the letter to perform collection, consultative and other technical services, including functioning as an internal
auditor, of Philamlife and its other affiliates.
On January 24, 1992, the Bureau of Internal Revenue (BIR) issued an assessment to private respondent COMASERCO for
deficiency value-added tax (VAT) amounting to P351,851.01, for taxable year 1988, computed as follows:
"Taxable sale/receipt P1,679,155.00
10% tax due thereon 167,915.50
25% surcharge 41,978.88
20% interest per annum 125,936.63
Compromise penalty for late payment 16,000.00
TOTAL AMOUNT DUE AND COLLECTIBLE P 351,831.01"[3]
COMASERCO's annual corporate income tax return ending December 31, 1988 indicated a net loss in its operations in the
amount of P6,077.00. J lexj
On February 10, 1992, COMASERCO filed with the BIR, a letter-protest objecting to the latter's finding of deficiency VAT.
On August 20, 1992, the Commissioner of Internal Revenue sent a collection letter to COMASERCO demanding payment
of the deficiency VAT.
On September 29,1992, COMASERCO filed with the Court of Tax Appeals[4] a petition for review contesting the
Commissioner's assessment. COMASERCO asserted that the services it rendered to Philamlife and its affiliates, relating to
collections, consultative and other technical assistance, including functioning as an internal auditor, were on a "no-profit,
reimbursement-of-cost-only" basis. It averred that it was not engaged id the business of providing services to Philamlife and
its affiliates. COMASERCO was established to ensure operational orderliness and administrative efficiency of Philamlife
and its affiliates, and not in the sale of services. COMASERCO stressed that it was not profit-motivated, thus not engaged in
business. In fact, it did not generate profit but suffered a net loss in taxable year 1988. COMASERCO averred that since it
was not engaged in business, it was not liable to pay VAT.
On June 22, 1995, the Court of Tax Appeals rendered decision in favor of the Commissioner of Internal Revenue, the
dispositive portion of which reads:
"WHEREFORE, the decision of the Commissioner of Internal Revenue assessing petitioner deficiency
value-added tax for the taxable year 1988 is AFFIRMED with slight modifications. Accordingly,
petitioner is ordered to pay respondent Commissioner of Internal Revenue the amount of P335,831.01
inclusive of the 25% surcharge and interest plus 20% interest from January 24, 1992 until fully paid
pursuant to Section 248 and 249 of the Tax Code.
"The compromise penalty of P16,000.00 imposed by the respondent in her assessment letter shall not be
included in the payment as there was no compromise agreement entered into between petitioner and
respondent with respect to the value-added tax deficiency."[5]
On July 26, 1995, respondent filed with the Court of Appeals, petition for review of the decision of the Court of Appeals.
After due proceedings, on May 13, 1996, the Court of Appeals rendered decision reversing that of the Court of Tax Appeals,
the dispositive portion of which reads: Lexj uris
"WHEREFORE, in view of the foregoing, judgment is hereby rendered REVERSING and SETTING
ASIDE the questioned Decision promulgated on 22 June 1995. The assessment for deficiency value-added
tax for the taxable year 1988 inclusive of surcharge, interest and penalty charges are ordered
CANCELLED for lack of legal and factual basis."[6]
The Court of Appeals anchored its decision on the ratiocination in another tax case involving the same parties,[7] where it
was held that COMASERCO was not liable to pay fixed and contractor's tax for services rendered to Philamlife and its
affiliates. The Court of Appeals, in that case, reasoned that COMASERCO was not engaged in business of providing
services to Philamlife and its affiliates. In the same manner, the Court of Appeals held that COMASERCO was not liable to
pay VAT for it was not engaged in the business of selling services.
On July 16, 1996, the Commissioner of Internal Revenue filed with this Court a petition for review on certiorari assailing
the decision of the Court of Appeals.
On August 7, 1996, we required respondent COMASERCO to file comment on the petition, and on September 26, 1996,
COMASERCO complied with the resolution.[8]
We give due course to the petition.
At issue in this case is whether COMASERCO was engaged in the sale of services, and thus liable to pay VAT thereon.
Petitioner avers that to "engage in business" and to "engage in the sale of services" are two different things. Petitioner
maintains that the services rendered by COMASERCO to Philamlife and its affiliates, for a fee or consideration, are subject
to VAT. VAT is a tax on the value added by the performance of the service. It is immaterial whether profit is derived from
rendering the service. Juri smis
We agree with the Commissioner.
Section 99 of the National Internal Revenue Code of 1986, as amended by Executive Order (E.O.) No. 273 in 1988,
provides that:
"Section 99. Persons liable. - Any person who, in the course of trade or business, sells, barters or
exchanges goods, renders services, or engages in similar transactions and any person who imports goods
shall be subject to the value-added tax (VAT) imposed in Sections 100 to 102 of this Code."[9]
COMASERCO contends that the term "in the course of trade or business" requires that the "business" is carried on with a
view to profit or livelihood. It avers that the activities of the entity must be profit- oriented. COMASERCO submits that it is
not motivated by profit, as defined by its primary purpose in the articles of incorporation, stating that it is operating "only on
reimbursement-of-cost basis, without any profit." Private respondent argues that profit motive is material in ascertaining
who to tax for purposes of determining liability for VAT.
We disagree.
On May 28, 1994, Congress enacted Republic Act No. 7716, the Expanded VAT Law (EVAT), amending among other
sections, Section 99 of the Tax Code. On January 1, 1998, Republic Act 8424, the National Internal Revenue Code of 1997,
took effect. The amended law provides that:
"SEC. 105. Persons Liable. - Any person who, in the course of trade or business, sells, barters, exchanges,
leases goods or properties, renders services, and any person who imports goods shall be subject to the
value-added tax (VAT) imposed in Sections 106 and 108 of this Code.
"The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer,
transferee or lessee of the goods, properties or services. This rule shall likewise apply to existing sale or
lease of goods, properties or services at the time of the effectivity of Republic Act No.7716.
"The phrase "in the course of trade or business" means the regular conduct or pursuit of a commercial or
an economic activity, including transactions incidental thereto, by any person regardless of whether or not
the person engaged therein is a nonstock, nonprofit organization (irrespective of the disposition of its net
income and whether or not it sells exclusively to members of their guests), or government entity. Jjj uris
"The rule of regularity, to the contrary notwithstanding, services as defined in this Code rendered in the
Philippines by nonresident foreign persons shall be considered as being rendered in the course of trade or
business."
Contrary to COMASERCO's contention the above provision clarifies that even a non-stock, non-profit, organization or
government entity, is liable to pay VAT on the sale of goods or services. VAT is a tax on transactions, imposed at every stage
of the distribution process on the sale, barter, exchange of goods or property, and on the performance of services, even in the
absence of profit attributable thereto. The term "in the course of trade or business" requires the regular conduct or pursuit of
a commercial or an economic activity, regardless of whether or not the entity is profit-oriented.
The definition of the term "in the course of trade or business" incorporated in the present law applies to all transactions even
to those made prior to its enactment. Executive Order No. 273 stated that any person who, in the course of trade or business,
sells, barters or exchanges goods and services, was already liable to pay VAT. The present law merely stresses that even a
nonstock, nonprofit organization or government entity is liable to pay VAT for the sale of goods and services.
Section 108 of the National Internal Revenue Code of 1997[10] defines the phrase "sale of services" as the "performance of
all kinds of services for others for a fee, remuneration or consideration." It includes "the supply of technical advice,
assistance or services rendered in connection with technical management or administration of any scientific, industrial or
commercial undertaking or project."[11]
On February 5, 1998, the Commissioner of Internal Revenue issued BIR Ruling No. 010-98[12] emphasizing that a
domestic corporation that provided technical, research, management and technical assistance to its affiliated companies and
received payments on a reimbursement-of-cost basis, without any intention of realizing profit, was subject to VAT on
services rendered. In fact, even if such corporation was organized without any intention of realizing profit, any income or
profit generated by the entity in the conduct of its activities was subject to income tax. lex
Hence, it is immaterial whether the primary purpose of a corporation indicates that it receives payments for services
rendered to its affiliates on a reimbursement-on-cost basis only, without realizing profit, for purposes of determining
liability for VAT on services rendered. As long as the entity provides service for a fee, remuneration or consideration, then
the service rendered is subject to VAT.
At any rate, it is a rule that because taxes are the lifeblood of the nation, statutes that allow exemptions are construed strictly
against the grantee and liberally in favor of the government. Otherwise stated, any exemption from the payment of a tax
must be clearly stated in the language of the law; it cannot be merely implied therefrom.[13] In the case of VAT, Section
109, Republic Act 8424 clearly enumerates the transactions exempted from VAT. The services rendered by COMASERCO
do not fall within the exemptions.
Both the Commissioner of Internal Revenue and the Court of Tax Appeals correctly ruled that the services rendered by
COMASERCO to Philamlife and its affiliates are subject to VAT. As pointed out by the Commissioner, the performance of
all kinds of services for others for a fee, remuneration or consideration is considered as sale of services subject to VAT. As
the government agency charged with the enforcement of the law, the opinion of the Commissioner of Internal Revenue, in
the absence of any showing that it is plainly wrong, is entitled to great weight.[14] Also, it has been the long standing policy
and practice of this Court to respect the conclusions of quasi-judicial agencies, such as the Court of Tax Appeals which, by
the nature of its functions, is dedicated exclusively to the study and consideration of tax cases and has necessarily developed
an expertise on the subject, unless there has been an abuse or improvident exercise of its authority.[15]
There is no merit to respondent's contention that the Court of Appeals' decision in CA-G. R. No. 34042, declaring the
COMASERCO as not engaged in business and not liable for the payment of fixed and percentage taxes, binds petitioner.
The issue in CA-G. R. No. 34042 is different from the present case, which involves COMASERCO's liability for VAT. As
heretofore stated, every person who sells, barters, or exchanges goods and services, in the course of trade or business, as
defined by law, is subject to VAT. Jksm
WHEREFORE, the Court GRANTS the petition and REVERSES the decision of the Court of Appeals in CA-G. R. SP No.
37930. The Court hereby REINSTATES the decision of the Court of Tax Appeals in C. T. A. Case No. 4853.
No costs.
SO ORDERED.
SECOND DIVISION
PANASONIC COMMUNICATIONS G.R. No. 178090
IMAGING CORPORATION OF THE

PHILIPPINES (formerly MATSUSHITA
BUSINESS MACHINE CORPORATION
OF THE ),
Petitioner, Present:
Carpio, J., Chairperson,
- versus - Brion,
Del Castillo,
Abad, and
Perez, JJ.
COMMISSIONER OF INTERNAL
REVENUE, Promulgated:
Respondent.
February 8, 2010
x --------------------------------------------------------------------------------------- x
DECISION
ABAD, J.:
This petition for review puts in issue the May 23, 2007 Decision[1] of the Court of Tax Appeals (CTA) en banc in CTA EB
239, entitled Panasonic Communications Imaging Corporation of the Philippines v. Commissioner of Internal Revenue,
which affirmed the denial of petitioners claim for refund.
The Facts and the Case
Petitioner Panasonic Communications Imaging Corporation of the (Panasonic) produces and exports plain paper copiers and
their sub-assemblies, parts, and components. It is registered with the Board of Investments as a preferred pioneer enterprise
under the Omnibus Investments Code of 1987. It is also a registered value-added tax (VAT) enterprise.
From April 1 to September 30, 1998 and from October 1, 1998 to March 31, 1999, petitioner Panasonic generated export
sales amounting to US$12,819,475.15 and US$11,859,489.78, respectively, for a total of US$24,678,964.93. Believing that
these export sales were zero-rated for VAT under Section 106(A)(2)(a)(1) of the 1997 National Internal Revenue Code as
amended by Republic Act (R.A.) 8424 (1997 NIRC),[2] Panasonic paid input VAT of P4,980,254.26 and P4,388,228.14 for
the two periods or a total of P9,368,482.40 attributable to its zero-rated sales.
Claiming that the input VAT it paid remained unutilized or unapplied, on March 12, 1999 and July 20, 1999 petitioner
Panasonic filed with the Bureau of Internal Revenue (BIR) two separate applications for refund or tax credit of what it paid.
When the BIR did not act on the same, Panasonic filed on December 16, 1999 a petition for review with the CTA, averring
the inaction of the respondent Commissioner of Internal Revenue (CIR) on its applications.
After trial or on August 22, 2006 the CTAs First Division rendered judgment,[3] denying the petition for lack of merit. The
First Division said that, while petitioner Panasonics export sales were subject to 0% VAT under Section 106(A)(2)(a)(1) of
the 1997 NIRC, the same did not qualify for zero-rating because the word zero-rated was not printed on Panasonics export
invoices. This omission, said the First Division, violates the invoicing requirements of Section 4.108-1 of Revenue
Regulations (RR) 7-95.[4]
Its motion for reconsideration having been denied, on January 5, 2007 petitioner Panasonic appealed the First Divisions
decision to the CTA en banc. On May 23, 2007 the CTA en banc upheld the First Divisions decision and resolution and
dismissed the petition. Panasonic filed a motion for reconsideration of the en banc decision but this was denied. Thus,
petitioner filed the present petition in accordance with R.A. 9282.[5]
The Issue Presented
The sole issue presented in this case is whether or not the CTA en banc correctly denied petitioner Panasonics claim for
refund of the VAT it paid as a zero-rated taxpayer on the ground that its sales invoices did not state on their faces that its
sales were zero-rated.
The Courts Ruling
The VAT is a tax on consumption, an indirect tax that the provider of goods or services may pass on to his customers. Under
the VAT method of taxation, which is invoice-based, an entity can subtract from the VAT charged on its sales or outputs the
VAT it paid on its purchases, inputs and imports.[6] For example, when a seller charges VAT on its sale, it issues an invoice
to the buyer, indicating the amount of VAT he charged. For his part, if the buyer is also a seller subjected to the payment of
VAT on his sales, he can use the invoice issued to him by his supplier to get a reduction of his own VAT liability. The
difference in tax shown on invoices passed and invoices received is the tax paid to the government. In case the tax on
invoices received exceeds that on invoices passed, a tax refund may be claimed.
Under the 1997 NIRC, if at the end of a taxable quarter the seller charges output taxes [7] equal to the input taxes[8] that his
suppliers passed on to him, no payment is required of him. It is when his output taxes exceed his input taxes that he has to
pay the excess to the BIR. If the input taxes exceed the output taxes, however, the excess payment shall be carried over to
the succeeding quarter or quarters. Should the input taxes result from zero-rated or effectively zero-rated transactions or
from the acquisition of capital goods, any excess over the output taxes shall instead be refunded to the taxpayer.[9]
Zero-rated transactions generally refer to the export sale of goods and services. The tax rate in this case is set at zero. When
applied to the tax base or the selling price of the goods or services sold, such zero rate results in no tax chargeable against
the foreign buyer or customer. But, although the seller in such transactions charges no output tax, he can claim a refund of
the VAT that his suppliers charged him. The seller thus enjoys automatic zero rating, which allows him to recover the input
taxes he paid relating to the export sales, making him internationally competitive.[10]
For the effective zero rating of such transactions, however, the taxpayer has to be VAT-registered and must comply with
invoicing requirements.[11] Interpreting these requirements, respondent CIR ruled that under Revenue Memorandum
Circular (RMC) 42-2003, the taxpayers failure to comply with invoicing requirements will result in the disallowance of his
claim for refund. RMC 42-2003 provides:
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 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.
Petitioner Panasonic points out, however, that in requiring the printing on its sales invoices of the word zero-rated,
the Secretary of Finance unduly expanded, amended, and modified by a mere regulation (Section 4.108-1 of RR 7-95) the
letter and spirit of Sections 113 and 237 of the 1997 NIRC, prior to their amendment by R.A. 9337.[12] Panasonic argues
that the 1997 NIRC, which applied to its paymentsspecifically Sections 113 and 237required the VAT-registered taxpayers
receipts or invoices to indicate only the following information:
(1) A statement that the seller is a VAT-registered person, followed by his taxpayer's identification number (TIN);
(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;
(3) The date of transaction, quantity, unit cost and description of the goods or properties or nature of the service; and
(4) The name, business style, if any, address and taxpayers identification number (TIN) of the purchaser, customer or
client.
Petitioner Panasonic points out that Sections 113 and 237 did not require the inclusion of the word zero-rated for zero-rated
sales covered by its receipts or invoices. The BIR incorporated this requirement only after the enactment of R.A. 9337 on
November 1, 2005, a law that did not yet exist at the time it issued its invoices.
But when petitioner Panasonic made the export sales subject of this case, i.e., from April 1998 to March 1999, the rule that
applied was Section 4.108-1 of RR 7-95, otherwise known as the Consolidated Value-Added Tax Regulations, which the
Secretary of Finance issued on December 9, 1995 and took effect on January 1, 1996. It already required the printing of the
word zero-rated on the invoices covering zero-rated sales. When R.A. 9337 amended the 1997 NIRC on November 1, 2005,
it made this particular revenue regulation a part of the tax code. This conversion from regulation to law did not diminish the
binding force of such regulation with respect to acts committed prior to the enactment of that law.
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.[13] 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.[14]
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.[15] Unable to submit the proper invoices, petitioner Panasonic has been unable to
substantiate its claim for refund.
Petitioner Panasonics citation of Intel Technology Philippines, Inc. v. Commissioner of Internal Revenue[16] is
misplaced. Quite the contrary, it strengthens the position taken by respondent CIR. In that case, the CIR denied the claim for
tax refund on the ground of the taxpayers failure to indicate on its invoices the BIR authority to print. But Sec. 4.108-1
required only the following to be reflected on the invoice:
1. The name, taxpayers identification number (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.
This Court held that, since the BIR authority to print is not one of the items required to be indicated on the invoices
or receipts, the BIR erred in denying the claim for refund. Here, however, the ground for denial of petitioner Panasonics
claim for tax refundthe absence of the word zero-rated on its invoicesis one which is specifically and precisely included in
the above enumeration. Consequently, the BIR correctly denied Panasonics claim for tax refund.
This Court will not set aside lightly the conclusions reached by the CTA which, by the very nature of its functions,
is dedicated exclusively to the resolution of tax problems and has accordingly developed an expertise on the subject, unless
there has been an abuse or improvident exercise of authority.[17] Besides, statutes that grant tax exemptions are construed
strictissimi juris against the taxpayer and liberally in favor of the taxing authority. Tax refunds in relation to the VAT are in
the nature of such exemptions. The general rule is that claimants of tax refunds bear the burden of proving the factual basis
of their claims. Taxes are the lifeblood of the nation. Therefore, statutes that allow exemptions are construed strictly against
the grantee and liberally in favor of the government.[18]
WHEREFORE, the petition is DENIED for lack of merit.
Costs against petitioner.
SO ORDERED.
EN BANC
ABAKADA GURO PARTY LIST (Formerly AASJAS)

OFFICERS SAMSON S. ALCANTARA and ED
VINCENT S. ALBANO,
G.R. No. 168056
Petitioners,
Present:
DAVIDE, JR., C.J.,

PUNO,
PANGANIBAN,
QUISUMBING,
YNARES-SANTIAGO,
SANDOVAL-GUTIERREZ,
- versus -
CARPIO,
AUSTRIA-MARTINEZ,
CORONA,
CARPIO-MORALES,
CALLEJO, SR.,
AZCUNA,
TINGA,
CHICO-NAZARIO, and
GARCIA, JJ.
THE HONORABLE EXECUTIVE SECRETARY

EDUARDO ERMITA; HONORABLE SECRETARY
OF THE DEPARTMENT OF FINANCE CESAR
PURISIMA; and HONORABLE COMMISSIONER
OF INTERNAL REVENUE GUILLERMO PARAYNO,
JR.,
Respondents.
x-------------------------x
AQUILINO Q. PIMENTEL, JR., LUISA P.

EJERCITO-ESTRADA, JINGGOY E. ESTRADA,
PANFILO M. LACSON, ALFREDO S. LIM, JAMBY
G.R. No. 168207
A.S. MADRIGAL, AND SERGIO R. OSMEA III,

Petitioners,
- versus -
EXECUTIVE SECRETARY EDUARDO R. ERMITA,

CESAR V. PURISIMA, SECRETARY OF FINANCE,
GUILLERMO L. PARAYNO, JR., COMMISSIONER
OF THE BUREAU OF INTERNAL REVENUE,
Respondents.
x-------------------------x
ASSOCIATION OF PILIPINAS SHELL DEALERS,

INC. represented by its President, ROSARIO
ANTONIO; PETRON DEALERS ASSOCIATION
represented by its President, RUTH E. BARBIBI;
ASSOCIATION OF CALTEX DEALERS OF THE
PHILIPPINES
represented
by
its
President,
MERCEDITAS A. GARCIA; ROSARIO ANTONIO
doing business under the name and style of ANB
NORTH SHELL SERVICE STATION; LOURDES
MARTINEZ doing business under the name and style
of SHELL GATE N. DOMINGO; BETHZAIDA TAN
doing business under the name and style of ADVANCE
SHELL STATION; REYNALDO P. MONTOYA doing
business under the name and style of NEW LAMUAN
SHELL SERVICE STATION; EFREN SOTTO doing
business under the name and style of RED FIELD
SHELL
SERVICE
STATION;
DONICA
CORPORATION represented by its President, DESI
TOMACRUZ; RUTH E. MARBIBI doing business
under the name and style of R&R PETRON STATION;
PETER M. UNGSON doing business under the name
and style of CLASSIC STAR GASOLINE SERVICE
STATION; MARIAN SHEILA A. LEE doing business
under the name and style of NTE GASOLINE &
SERVICE STATION; JULIAN CESAR P. POSADAS
doing business under the name and style of
STARCARGA
ENTERPRISES;
ADORACION
MAEBO doing business under the name and style of
CMA MOTORISTS CENTER; SUSAN M. ENTRATA
doing business under the name and style of LEONAS
GASOLINE STATION and SERVICE CENTER;
CARMELITA BALDONADO doing business under the
name and style of FIRST CHOICE SERVICE
G.R. No. 168461
CENTER; MERCEDITAS A. GARCIA doing business

under the name and style of LORPED SERVICE
CENTER; RHEAMAR A. RAMOS doing business
under the name and style of RJRAM PTT GAS
STATION; MA. ISABEL VIOLAGO doing business
under the name and style of VIOLAGO-PTT SERVICE
CENTER; MOTORISTS HEART CORPORATION
represented by its Vice-President for Operations,
JOSELITO
F.
FLORDELIZA;
MOTORISTS
HARVARD CORPORATION represented by its VicePresident
for
Operations,
JOSELITO
F.
FLORDELIZA;
MOTORISTS
HERITAGE
CORPORATION represented by its Vice-President for
Operations,
JOSELITO
F.
FLORDELIZA;
PHILIPPINE STANDARD OIL CORPORATION
represented by its Vice-President for Operations,
JOSELITO F. FLORDELIZA; ROMEO MANUEL
doing business under the name and style of ROMMAN
GASOLINE STATION; ANTHONY ALBERT CRUZ
III doing business under the name and style of TRUE
SERVICE STATION,
Petitioners,
- versus -
CESAR V. PURISIMA, in his capacity as Secretary of

the Department of Finance and GUILLERMO L.
PARAYNO, JR., in his capacity as Commissioner of
Internal Revenue,
Respondents.
x-------------------------x
FRANCIS JOSEPH G. ESCUDERO, VINCENT

CRISOLOGO, EMMANUEL JOEL J. VILLANUEVA,
RODOLFO G. PLAZA, DARLENE ANTONINOCUSTODIO, OSCAR G. MALAPITAN, BENJAMIN
C. AGARAO, JR. JUAN EDGARDO M. ANGARA,
JUSTIN MARC SB. CHIPECO, FLORENCIO G.
NOEL, MUJIV S. HATAMAN, RENATO B.
MAGTUBO, JOSEPH A. SANTIAGO, TEOFISTO DL.
GUINGONA III, RUY ELIAS C. LOPEZ, RODOLFO
Q. AGBAYANI and TEODORO A. CASIO,
Petitioners,
G.R. No. 168463
- versus -
CESAR V. PURISIMA, in his capacity as Secretary of

Finance, GUILLERMO L. PARAYNO, JR., in his
capacity as Commissioner of Internal Revenue, and
EDUARDO R. ERMITA, in his capacity as Executive
Secretary,
Respondents.
x-------------------------x
BATAAN GOVERNOR ENRIQUE T. GARCIA, JR.
G.R. No. 168730
Petitioner,
- versus -
HON. EDUARDO R. ERMITA, in his capacity as the

Executive Secretary; HON. MARGARITO TEVES, in
his capacity as Secretary of Finance; HON. JOSE
MARIO BUNAG, in his capacity as the OIC
Commissioner of the Bureau of Internal Revenue; and
HON. ALEXANDER AREVALO, in his capacity as the
OIC Commissioner of the Bureau of Customs,
Promulgated:
Respondents.
September 1, 2005
x-----------------------------------------------------------x
DECISION
AUSTRIA-MARTINEZ, J.:
The expenses of government, having for their object the interest of all, should be borne by everyone, and the more man
enjoys the advantages of society, the more he ought to hold himself honored in contributing to those expenses.
-Anne Robert Jacques Turgot (1727-1781)
French statesman and economist
Mounting budget deficit, revenue generation, inadequate fiscal allocation for education, increased emoluments for health
workers, and wider coverage for full value-added tax benefits these are the reasons why Republic Act No. 9337 (R.A. No.
9337)[1] was enacted. Reasons, the wisdom of which, the Court even with its extensive constitutional power of review,
cannot probe. The petitioners in these cases, however, question not only the wisdom of the law, but also perceived
constitutional infirmities in its passage.
Every law enjoys in its favor the presumption of constitutionality. Their arguments notwithstanding, petitioners failed to
justify their call for the invalidity of the law. Hence, R.A. No. 9337 is not unconstitutional.
LEGISLATIVE HISTORY
R.A. No. 9337 is a consolidation of three legislative bills namely, House Bill Nos. 3555 and 3705, and Senate Bill No. 1950.
House Bill No. 3555[2] was introduced on first reading on January 7, 2005. The House Committee on Ways and Means
approved the bill, in substitution of House Bill No. 1468, which Representative (Rep.) Eric D. Singson introduced on
August 8, 2004. The President certified the bill on January 7, 2005 for immediate enactment. On January 27, 2005, the
House of Representatives approved the bill on second and third reading.
House Bill No. 3705[3] on the other hand, substituted House Bill No. 3105 introduced by Rep. Salacnib F. Baterina, and
House Bill No. 3381 introduced by Rep. Jacinto V. Paras. Its mother bill is House Bill No. 3555. The House Committee on
Ways and Means approved the bill on February 2, 2005. The President also certified it as urgent on February 8, 2005. The
House of Representatives approved the bill on second and third reading on February 28, 2005.
Meanwhile, the Senate Committee on Ways and Means approved Senate Bill No. 1950[4] on March 7, 2005, in substitution
of Senate Bill Nos. 1337, 1838 and 1873, taking into consideration House Bill Nos. 3555 and 3705. Senator Ralph G. Recto
sponsored Senate Bill No. 1337, while Senate Bill Nos. 1838 and 1873 were both sponsored by Sens. Franklin M. Drilon,
Juan M. Flavier and Francis N. Pangilinan. The President certified the bill on March 11, 2005, and was approved by the
Senate on second and third reading on April 13, 2005.
On the same date, April 13, 2005, the Senate agreed to the request of the House of Representatives for a committee
conference on the disagreeing provisions of the proposed bills.
Before long, the Conference Committee on the Disagreeing Provisions of House Bill No. 3555, House Bill No. 3705, and
Senate Bill No. 1950, after having met and discussed in full free and conference, recommended the approval of its report,
which the Senate did on May 10, 2005, and with the House of Representatives agreeing thereto the next day, May 11, 2005.
On May 23, 2005, the enrolled copy of the consolidated House and Senate version was transmitted to the President, who
signed the same into law on May 24, 2005. Thus, came R.A. No. 9337.
July 1, 2005 is the effectivity date of R.A. No. 9337.[5] When said date came, the Court issued a temporary restraining
order, effective immediately and continuing until further orders, enjoining respondents from enforcing and implementing
the law.
Oral arguments were held on July 14, 2005. Significantly, during the hearing, the Court speaking through Mr. Justice
Artemio V. Panganiban, voiced the rationale for its issuance of the temporary restraining order on July 1, 2005, to wit:
J. PANGANIBAN : . . . But before I go into the details of your presentation, let me just tell you a little background. You
know when the law took effect on July 1, 2005, the Court issued a TRO at about 5 oclock in the afternoon. But before that,
there was a lot of complaints aired on television and on radio. Some people in a gas station were complaining that the gas
prices went up by 10%. Some people were complaining that their electric bill will go up by 10%. Other times people riding
in domestic air carrier were complaining that the prices that theyll have to pay would have to go up by 10%. While all that
was being aired, per your presentation and per our own understanding of the law, thats not true. Its not true that the e-vat
law necessarily increased prices by 10% uniformly isnt it?
ATTY. BANIQUED : No, Your Honor.
J. PANGANIBAN : It is not?
ATTY. BANIQUED : Its not, because, Your Honor, there is an Executive Order that granted the Petroleum companies some
subsidy . . . interrupted
J. PANGANIBAN : Thats correct . . .
ATTY. BANIQUED : . . . and therefore that was meant to temper the impact . . . interrupted
J. PANGANIBAN : . . . mitigating measures . . .
ATTY. BANIQUED : Yes, Your Honor.
J. PANGANIBAN : As a matter of fact a part of the mitigating measures would be the elimination of the Excise Tax and the
import duties. That is why, it is not correct to say that the VAT as to petroleum dealers increased prices by 10%.
J. PANGANIBAN : And therefore, there is no justification for increasing the retail price by 10% to cover the E-Vat tax. If
you consider the excise tax and the import duties, the Net Tax would probably be in the neighborhood of 7%? We are not
going into exact figures I am just trying to deliver a point that different industries, different products, different services are
hit differently. So its not correct to say that all prices must go up by 10%.
ATTY. BANIQUED : Youre right, Your Honor.
J. PANGANIBAN : Now. For instance, Domestic Airline companies, Mr. Counsel, are at present imposed a Sales Tax of
3%. When this E-Vat law took effect the Sales Tax was also removed as a mitigating measure. So, therefore, there is no
justification to increase the fares by 10% at best 7%, correct?
ATTY. BANIQUED : I guess so, Your Honor, yes.
J. PANGANIBAN : There are other products that the people were complaining on that first day, were being increased
arbitrarily by 10%. And thats one reason among many others this Court had to issue TRO because of the confusion in the
implementation. Thats why we added as an issue in this case, even if its tangentially taken up by the pleadings of the parties,
the confusion in the implementation of the E-vat. Our people were subjected to the mercy of that confusion of an across the
board increase of 10%, which you yourself now admit and I think even the Government will admit is incorrect. In some
cases, it should be 3% only, in some cases it should be 6% depending on these mitigating measures and the location and
situation of each product, of each service, of each company, isnt it?
J. PANGANIBAN : Alright. So thats one reason why we had to issue a TRO pending the clarification of all these and we
wish the government will take time to clarify all these by means of a more detailed implementing rules, in case the law is
upheld by this Court. . . .[6]
The Court also directed the parties to file their respective Memoranda.
G.R. No. 168056
Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al., filed a petition for prohibition on May 27,
2005. They question the constitutionality of Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108,
respectively, of the National Internal Revenue Code (NIRC). Section 4 imposes a 10% VAT on sale of goods and properties,
Section 5 imposes a 10% VAT on importation of goods, and Section 6 imposes a 10% VAT on sale of services and use or
lease of properties. These questioned provisions contain a uniform proviso authorizing the President, upon recommendation
of the Secretary of Finance, to raise the VAT rate to 12%, effective January 1, 2006, after any of the following conditions
have been satisfied, to wit:
. . . That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate
of value-added tax to twelve percent (12%), after any of the following conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and fourfifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 %).
Petitioners argue that the law is unconstitutional, as it constitutes abandonment by Congress of its exclusive authority to fix
the rate of taxes under Article VI, Section 28(2) of the 1987 Philippine Constitution.
G.R. No. 168207
On June 9, 2005, Sen. Aquilino Q. Pimentel, Jr., et al., filed a petition for certiorari likewise assailing the constitutionality
of Sections 4, 5 and 6 of R.A. No. 9337.
Aside from questioning the so-called stand-by authority of the President to increase the VAT rate to 12%, on the ground that
it amounts to an undue delegation of legislative power, petitioners also contend that the increase in the VAT rate to 12%
contingent on any of the two conditions being satisfied violates the due process clause embodied in Article III, Section 1 of
the Constitution, as it imposes an unfair and additional tax burden on the people, in that: (1) the 12% increase is ambiguous
because it does not state if the rate would be returned to the original 10% if the conditions are no longer satisfied; (2) the
rate is unfair and unreasonable, as the people are unsure of the applicable VAT rate from year to year; and (3) the increase in
the VAT rate, which is supposed to be an incentive to the President to raise the VAT collection to at least 2 4/5 of the GDP of
the previous year, should only be based on fiscal adequacy.
Petitioners further claim that the inclusion of a stand-by authority granted to the President by the Bicameral Conference
Committee is a violation of the no-amendment rule upon last reading of a bill laid down in Article VI, Section 26(2) of the
Constitution.
G.R. No. 168461
Thereafter, a petition for prohibition was filed on June 29, 2005, by the Association of Pilipinas Shell Dealers, Inc., et al.,
assailing the following provisions of R.A. No. 9337:
1) Section 8, amending Section 110 (A)(2) of the NIRC, requiring that the input tax on depreciable goods shall be amortized
over a 60-month period, if the acquisition, excluding the VAT components, exceeds One Million Pesos (P1, 000,000.00);
2) Section 8, amending Section 110 (B) of the NIRC, imposing a 70% limit on the amount of input tax to be credited against
the output tax; and
3) Section 12, amending Section 114 (c) of the NIRC, authorizing the Government or any of its political subdivisions,
instrumentalities or agencies, including GOCCs, to deduct a 5% final withholding tax on gross payments of goods and
services, which are subject to 10% VAT under Sections 106 (sale of goods and properties) and 108 (sale of services and use
or lease of properties) of the NIRC.
Petitioners contend that these provisions are unconstitutional for being arbitrary, oppressive, excessive, and confiscatory.
Petitioners argument is premised on the constitutional right of non-deprivation of life, liberty or property without due
process of law under Article III, Section 1 of the Constitution. According to petitioners, the contested sections impose
limitations on the amount of input tax that may be claimed. Petitioners also argue that the input tax partakes the nature of a
property that may not be confiscated, appropriated, or limited without due process of law. Petitioners further contend that
like any other property or property right, the input tax credit may be transferred or disposed of, and that by limiting the
same, the government gets to tax a profit or value-added even if there is no profit or value-added.
Petitioners also believe that these provisions violate the constitutional guarantee of equal protection of the law under Article
III, Section 1 of the Constitution, as the limitation on the creditable input tax if: (1) the entity has a high ratio of input tax; or
(2) invests in capital equipment; or (3) has several transactions with the government, is not based on real and substantial
differences to meet a valid classification.
Lastly, petitioners contend that the 70% limit is anything but progressive, violative of Article VI, Section 28(1) of the
Constitution, and that it is the smaller businesses with higher input tax to output tax ratio that will suffer the consequences
thereof for it wipes out whatever meager margins the petitioners make.
G.R. No. 168463
Several members of the House of Representatives led by Rep. Francis Joseph G. Escudero filed this petition for certiorari
on June 30, 2005. They question the constitutionality of R.A. No. 9337 on the following grounds:
1) Sections 4, 5, and 6 of R.A. No. 9337 constitute an undue delegation of legislative power, in violation of Article VI,
Section 28(2) of the Constitution;
2) The Bicameral Conference Committee acted without jurisdiction in deleting the no pass on provisions present in Senate
Bill No. 1950 and House Bill No. 3705; and
3) Insertion by the Bicameral Conference Committee of Sections 27, 28, 34, 116, 117, 119, 121, 125,[7] 148, 151, 236, 237
and 288, which were present in Senate Bill No. 1950, violates Article VI, Section 24(1) of the Constitution, which provides
that all appropriation, revenue or tariff bills shall originate exclusively in the House of Representatives
G.R. No. 168730
On the eleventh hour, Governor Enrique T. Garcia filed a petition for certiorari and prohibition on July 20, 2005, alleging
unconstitutionality of the law on the ground that the limitation on the creditable input tax in effect allows VAT-registered
establishments to retain a portion of the taxes they collect, thus violating the principle that tax collection and revenue should
be solely allocated for public purposes and expenditures. Petitioner Garcia further claims that allowing these establishments
to pass on the tax to the consumers is inequitable, in violation of Article VI, Section 28(1) of the Constitution.
RESPONDENTS COMMENT
The Office of the Solicitor General (OSG) filed a Comment in behalf of respondents. Preliminarily, respondents contend
that R.A. No. 9337 enjoys the presumption of constitutionality and petitioners failed to cast doubt on its validity.
Relying on the case of Tolentino vs. Secretary of Finance, 235 SCRA

630 (1994), respondents argue that the procedural issues raised by petitioners, i.e., legality of the bicameral proceedings,
exclusive origination of revenue measures and the power of the Senate concomitant thereto, have already been settled. With
regard to the issue of undue delegation of legislative power to the President, respondents contend that the law is complete
and leaves no discretion to the President but to increase the rate to 12% once any of the two conditions provided therein
arise.
Respondents also refute petitioners argument that the increase to 12%, as well as the 70% limitation on the creditable input
tax, the 60-month amortization on the purchase or importation of capital goods exceeding P1,000,000.00, and the 5% final
withholding tax by government agencies, is arbitrary, oppressive, and confiscatory, and that it violates the constitutional
principle on progressive taxation, among others.
Finally, respondents manifest that R.A. No. 9337 is the anchor of the governments fiscal reform agenda. A reform in the
value-added system of taxation is the core revenue measure that will tilt the balance towards a sustainable macroeconomic
environment necessary for economic growth.
ISSUES
The Court defined the issues, as follows:
PROCEDURAL ISSUE
Whether R.A. No. 9337 violates the following provisions of the Constitution:
a. Article VI, Section 24, and

b. Article VI, Section 26(2)
SUBSTANTIVE ISSUES
1. Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of the NIRC, violate the following
provisions of the Constitution:
a. Article VI, Section 28(1), and

2. Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the NIRC; and Section 12 of R.A. No.
9337, amending Section 114(C) of the NIRC, violate the following provisions of the Constitution:

b. Article III, Section 1
RULING OF THE COURT
As a prelude, the Court deems it apt to restate the general principles and concepts of value-added tax (VAT), as the
confusion and inevitably, litigation, breeds from a fallacious notion of its nature.
The VAT is a tax on spending or consumption. It is levied on the sale, barter, exchange or lease of goods or properties and
services.[8] Being an indirect tax on expenditure, the seller of goods or services may pass on the amount of tax paid to the
buyer,[9] with the seller acting merely as a tax collector.[10] The burden of VAT is intended to fall on the immediate buyers
and ultimately, the end-consumers.
In contrast, a direct tax is a tax for which a taxpayer is directly liable on the transaction or business it engages in, without
transferring the burden to someone else.[11] Examples are individual and corporate income taxes, transfer taxes, and
residence taxes.[12]
In the Philippines, the value-added system of sales taxation has long been in existence, albeit in a different mode. Prior to
1978, the system was a single-stage tax computed under the cost deduction method and was payable only by the original
sellers. The single-stage system was subsequently modified, and a mixture of the cost deduction method and tax credit
method was used to determine the value-added tax payable.[13] Under the tax credit method, an entity can credit against or
subtract from the VAT charged on its sales or outputs the VAT paid on its purchases, inputs and imports.[14]
It was only in 1987, when President Corazon C. Aquino issued Executive Order No. 273, that the VAT system was
rationalized by imposing a multi-stage tax rate of 0% or 10% on all sales using the tax credit method.[15]
E.O. No. 273 was followed by R.A. No. 7716 or the Expanded VAT Law,[16] R.A. No. 8241 or the Improved VAT Law,[17]
R.A. No. 8424 or the Tax Reform Act of 1997,[18] and finally, the presently beleaguered R.A. No. 9337, also referred to by
respondents as the VAT Reform Act.
The Court will now discuss the issues in logical sequence.
PROCEDURAL ISSUE
I.
Whether R.A. No. 9337 violates the following provisions of the Constitution:
a. Article VI, Section 24, and

A. The Bicameral Conference Committee
Petitioners Escudero, et al., and Pimentel, et al., allege that the Bicameral Conference Committee exceeded its authority by:
1) Inserting the stand-by authority in favor of the President in Sections 4, 5, and 6 of R.A. No. 9337;
2) Deleting entirely the no pass-on provisions found in both the House and Senate bills;
3) Inserting the provision imposing a 70% limit on the amount of input tax to be credited against the output tax; and
4) Including the amendments introduced only by Senate Bill No. 1950 regarding other kinds of taxes in addition to the
value-added tax.
Petitioners now beseech the Court to define the powers of the Bicameral Conference Committee.
It should be borne in mind that the power of internal regulation and discipline are intrinsic in any legislative body for, as
unerringly elucidated by Justice Story, [i]f the power did not exist, it would be utterly impracticable to transact the
business of the nation, either at all, or at least with decency, deliberation, and order.[19] Thus, Article VI, Section 16
(3) of the Constitution provides that each House may determine the rules of its proceedings. Pursuant to this inherent
constitutional power to promulgate and implement its own rules of procedure, the respective rules of each house of
Congress provided for the creation of a Bicameral Conference Committee.
Thus, Rule XIV, Sections 88 and 89 of the Rules of House of Representatives provides as follows:
Sec. 88. Conference Committee. In the event that the House does not agree with the Senate on the amendment to any bill or
joint resolution, the differences may be settled by the conference committees of both chambers.
In resolving the differences with the Senate, the House panel shall, as much as possible, adhere to and support the House
Bill. If the differences with the Senate are so substantial that they materially impair the House Bill, the panel shall report
such fact to the House for the latters appropriate action.
Sec. 89. Conference Committee Reports. . . . Each report shall contain a detailed, sufficiently explicit statement of the
changes in or amendments to the subject measure.
...
The Chairman of the House panel may be interpellated on the Conference Committee Report prior to the voting thereon.
The House shall vote on the Conference Committee Report in the same manner and procedure as it votes on a bill on third
and final reading.
Rule XII, Section 35 of the Rules of the Senate states:
Sec. 35. In the event that the Senate does not agree with the House of Representatives on the provision of any bill or joint
resolution, the differences shall be settled by a conference committee of both Houses which shall meet within ten (10) days
after their composition. The President shall designate the members of the Senate Panel in the conference committee with the
approval of the Senate.
Each Conference Committee Report shall contain a detailed and sufficiently explicit statement of the changes in, or
amendments to the subject measure, and shall be signed by a majority of the members of each House panel, voting
separately.
A comparative presentation of the conflicting House and Senate provisions and a reconciled version thereof with the
explanatory statement of the conference committee shall be attached to the report.
...
The creation of such conference committee was apparently in response to a problem, not addressed by any constitutional
provision, where the two houses of Congress find themselves in disagreement over changes or amendments introduced by
the other house in a legislative bill. Given that one of the most basic powers of the legislative branch is to formulate and
implement its own rules of proceedings and to discipline its members, may the Court then delve into the details of how
Congress complies with its internal rules or how it conducts its business of passing legislation? Note that in the present
petitions, the issue is not whether provisions of the rules of both houses creating the bicameral conference committee are
unconstitutional, but whether the bicameral conference committee has strictly complied with the rules of both houses,
thereby remaining within the jurisdiction conferred upon it by Congress.
In the recent case of Farias vs. The Executive Secretary,[20] the Court En Banc, unanimously reiterated and emphasized its
adherence to the enrolled bill doctrine, thus, declining therein petitioners plea for the Court to go behind the enrolled copy
of the bill. Assailed in said case was Congresss creation of two sets of bicameral conference committees, the lack of records
of said committees proceedings, the alleged violation of said committees of the rules of both houses, and the disappearance
or deletion of one of the provisions in the compromise bill submitted by the bicameral conference committee. It was argued
that such irregularities in the passage of the law nullified R.A. No. 9006, or the Fair Election Act.
Striking down such argument, the Court held thus:
Under the enrolled bill doctrine, the signing of a bill by the Speaker of the House and the Senate President and the
certification of the Secretaries of both Houses of Congress that it was passed are conclusive of its due enactment. A review
of cases reveals the Courts consistent adherence to the rule. The Court finds no reason to deviate from the salutary rule
in this case where the irregularities alleged by the petitioners mostly involved the internal rules of Congress, e.g.,
creation of the 2nd or 3rd Bicameral Conference Committee by the House. This Court is not the proper forum for
the enforcement of these internal rules of Congress, whether House or Senate. Parliamentary rules are merely
procedural and with their observance the courts have no concern. Whatever doubts there may be as to the formal
validity of Rep. Act No. 9006 must be resolved in its favor. The Court reiterates its ruling in Arroyo vs. De Venecia, viz.:
But the cases, both here and abroad, in varying forms of expression, all deny to the
courts the power to inquire into allegations that, in enacting a law, a House of
Congress failed to comply with its own rules, in the absence of showing that there
was a violation of a constitutional provision or the rights of private individuals. In
Osmea v. Pendatun, it was held: At any rate, courts have declared that the rules adopted
by deliberative bodies are subject to revocation, modification or waiver at the pleasure
of the body adopting them. And it has been said that Parliamentary rules are merely
procedural, and with their observance, the courts have no concern. They may be
waived or disregarded by the legislative body. Consequently, mere failure to
conform to parliamentary usage will not invalidate the action (taken by a
deliberative body) when the requisite number of members have agreed to a
particular measure.[21] (Emphasis supplied)
The foregoing declaration is exactly in point with the present cases, where petitioners allege irregularities committed by the
conference committee in introducing changes or deleting provisions in the House and Senate bills. Akin to the Farias case,
[22] the present petitions also raise an issue regarding the actions taken by the conference committee on matters regarding
Congress compliance with its own internal rules. As stated earlier, one of the most basic and inherent power of the
legislature is the power to formulate rules for its proceedings and the discipline of its members. Congress is the best judge
of how it should conduct its own business expeditiously and in the most orderly manner. It is also the sole
concern of Congress to instill discipline among the members of its conference committee if it believes that said members
violated any of its rules of proceedings. Even the expanded jurisdiction of this Court cannot apply to questions regarding
only the internal operation of Congress, thus, the Court is wont to deny a review of the internal proceedings of a co-equal
branch of government.
Moreover, as far back as 1994 or more than ten years ago, in the case of Tolentino vs. Secretary of Finance,[23] the Court
already made the pronouncement that [i]f a change is desired in the practice [of the Bicameral Conference Committee]
it must be sought in Congress since this question is not covered by any constitutional provision but is only an internal
rule of each house. [24] To date, Congress has not seen it fit to make such changes adverted to by the Court. It seems,
therefore, that Congress finds the practices of the bicameral conference committee to be very useful for purposes of prompt
and efficient legislative action.
Nevertheless, just to put minds at ease that no blatant irregularities tainted the proceedings of the bicameral conference
committees, the Court deems it necessary to dwell on the issue. The Court observes that there was a necessity for a
conference committee because a comparison of the provisions of House Bill Nos. 3555 and 3705 on one hand, and Senate
Bill No. 1950 on the other, reveals that there were indeed disagreements. As pointed out in the petitions, said disagreements
were as follows:
House Bill No. 3555
House Bill No.3705
Senate Bill No. 1950
With regard to Stand-By Authority in favor of President
Provides for 12% VAT on every sale

of goods or properties (amending
Sec. 106 of NIRC); 12% VAT on
importation of goods (amending Sec.
107 of NIRC); and 12% VAT on sale
of services and use or lease of
properties (amending Sec. 108 of
NIRC)
Provides for 12% VAT in general on sales

of goods or properties and reduced rates
for sale of certain locally manufactured
goods and petroleum products and raw
materials to be used in the manufacture
thereof (amending Sec. 106 of NIRC);
12% VAT on importation of goods and
reduced rates for certain imported
products including petroleum products
(amending Sec. 107 of NIRC); and 12%
VAT on sale of services and use or lease
of properties and a reduced rate for
certain
services
including
power
generation (amending Sec. 108 of NIRC)
Provides for a single rate of 10% VAT

on sale of goods or properties
(amending Sec. 106 of NIRC), 10%
VAT on sale of services including sale
of electricity by generation companies,
transmission
and
distribution
companies, and use or lease of
properties (amending Sec. 108 of
NIRC)
With regard to the no pass-on provision
No similar provision
Provides that the VAT imposed on power

generation and on the sale of petroleum
products shall be absorbed by generation
companies or sellers, respectively, and
shall not be passed on to consumers
Provides that the VAT imposed on sales

of electricity by generation companies
and services of transmission companies
and distribution companies, as well as
those of franchise grantees of electric
utilities shall not apply to residential
end-users. VAT shall be absorbed by
generation,
transmission,
and
distribution companies.
With regard to 70% limit on input tax credit
Provides that the input tax credit for

capital goods on which a VAT has
been paid shall be equally
distributed over 5 years or the
depreciable life of such capital
goods; the input tax credit for goods
and services other than capital goods
shall not exceed 5% of the total
amount of such goods and services;
and for persons engaged in retail
trading of goods, the allowable input
tax credit shall not exceed 11% of
the total amount of goods purchased.
Provides that the input tax credit for

capital goods on which a VAT has been
paid shall be equally distributed over 5
years or the depreciable life of such
capital goods; the input tax credit for
goods and services other than capital
goods shall not exceed 90% of the
output VAT.
With regard to amendments to be made to NIRC provisions regarding income and excise taxes
Provided for amendments to several

NIRC provisions regarding corporate
income, percentage, franchise and
excise taxes
The disagreements between the provisions in the House bills and the Senate bill were with regard to (1) what rate of VAT is
to be imposed; (2) whether only the VAT imposed on electricity generation, transmission and distribution companies should
not be passed on to consumers, as proposed in the Senate bill, or both the VAT imposed on electricity generation,
transmission and distribution companies and the VAT imposed on sale of petroleum products should not be passed on to
consumers, as proposed in the House bill; (3) in what manner input tax credits should be limited; (4) and whether the NIRC
provisions on corporate income taxes, percentage, franchise and excise taxes should be amended.
There being differences and/or disagreements on the foregoing provisions of the House and Senate bills, the Bicameral
Conference Committee was mandated by the rules of both houses of Congress to act on the same by settling said differences
and/or disagreements. The Bicameral Conference Committee acted on the disagreeing provisions by making the following
changes:
1. With regard to the disagreement on the rate of VAT to be imposed, it would appear from the Conference Committee
Report that the Bicameral Conference Committee tried to bridge the gap in the difference between the 10% VAT rate
proposed by the Senate, and the various rates with 12% as the highest VAT rate proposed by the House, by striking a
compromise whereby the present 10% VAT rate would be retained until certain conditions arise, i.e., the value-added tax
collection as a percentage of gross domestic product (GDP) of the previous year exceeds 2 4/5%, or National Government
deficit as a percentage of GDP of the previous year exceeds 1%, when the President, upon recommendation of the Secretary
of Finance shall raise the rate of VAT to 12% effective January 1, 2006.
2. With regard to the disagreement on whether only the VAT imposed on electricity generation, transmission and distribution
companies should not be passed on to consumers or whether both the VAT imposed on electricity generation, transmission
and distribution companies and the VAT imposed on sale of petroleum products may be passed on to consumers, the
Bicameral Conference Committee chose to settle such disagreement by altogether deleting from its Report any no pass-on
provision.
3. With regard to the disagreement on whether input tax credits should be limited or not, the Bicameral Conference
Committee decided to adopt the position of the House by putting a limitation on the amount of input tax that may be
credited against the output tax, although it crafted its own language as to the amount of the limitation on input tax credits
and the manner of computing the same by providing thus:
(A) Creditable Input Tax. . . .

...
Provided, The input tax on goods purchased or imported in a calendar month for use in
trade or business for which deduction for depreciation is allowed under this Code, shall
be spread evenly over the month of acquisition and the fifty-nine (59) succeeding
months if the aggregate acquisition cost for such goods, excluding the VAT component
thereof, exceeds one million Pesos (P1,000,000.00): PROVIDED, however, that if the
estimated useful life of the capital good is less than five (5) years, as used for
depreciation purposes, then the input VAT shall be spread over such shorter period: . . .
(B) Excess Output or Input Tax. If at the end of any taxable quarter the output tax
exceeds the input tax, the excess shall be paid by the VAT-registered person. If the input
tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or
quarters: PROVIDED that the input tax inclusive of input VAT carried over from the
previous quarter that may be credited in every quarter shall not exceed seventy percent
(70%) of the output VAT: PROVIDED, HOWEVER, THAT any input tax attributable to
zero-rated sales by a VAT-registered person may at his option be refunded or credited
against other internal revenue taxes, . . .
4. With regard to the amendments to other provisions of the NIRC on corporate income tax, franchise, percentage and
excise taxes, the conference committee decided to include such amendments and basically adopted the provisions found in
Senate Bill No. 1950, with some changes as to the rate of the tax to be imposed.
Under the provisions of both the Rules of the House of Representatives and Senate Rules, the Bicameral Conference
Committee is mandated to settle the differences between the disagreeing provisions in the House bill and the Senate bill.
The term settle is synonymous to reconcile and harmonize.[25] To reconcile or harmonize disagreeing provisions, the
Bicameral Conference Committee may then (a) adopt the specific provisions of either the House bill or Senate bill, (b)
decide that neither provisions in the House bill or the provisions in the Senate bill would
be carried into the final form of the bill, and/or (c) try to arrive at a compromise between the disagreeing provisions.
In the present case, the changes introduced by the Bicameral Conference Committee on disagreeing provisions were meant
only to reconcile and harmonize the disagreeing provisions for it did not inject any idea or intent that is wholly foreign to
the subject embraced by the original provisions.
The so-called stand-by authority in favor of the President, whereby the rate of 10% VAT wanted by the Senate is retained
until such time that certain conditions arise when the 12% VAT wanted by the House shall be imposed, appears to be a
compromise to try to bridge the difference in the rate of VAT proposed by the two houses of Congress. Nevertheless, such
compromise is still totally within the subject of what rate of VAT should be imposed on taxpayers.
The no pass-on provision was deleted altogether. In the transcripts of the proceedings of the Bicameral Conference
Committee held on May 10, 2005, Sen. Ralph Recto, Chairman of the Senate Panel, explained the reason for deleting the no
pass-on provision in this wise:
. . . the thinking was just to keep the VAT law or the VAT bill simple. And we were thinking that no sector should be a
beneficiary of legislative grace, neither should any sector be discriminated on. The VAT is an indirect tax. It is a pass ontax. And lets keep it plain and simple. Lets not confuse the bill and put a no pass-on provision. Two-thirds of the world have
a VAT system and in this two-thirds of the globe, I have yet to see a VAT with a no pass-though provision. So, the thinking
of the Senate is basically simple, lets keep the VAT simple.[26] (Emphasis supplied)
Rep. Teodoro Locsin further made the manifestation that the no pass-on provision never really enjoyed the support of either
House.[27]
With regard to the amount of input tax to be credited against output tax, the Bicameral Conference Committee came to a
compromise on the percentage rate of the limitation or cap on such input tax credit, but again, the change introduced by the
Bicameral Conference Committee was totally within the intent of both houses to put a cap on input tax that may be
credited against the output tax. From the inception of the subject revenue bill in the House of Representatives, one of the
major objectives was to plug a glaring loophole in the tax policy and administration by creating vital restrictions on the
claiming of input VAT tax credits . . . and [b]y introducing limitations on the claiming of tax credit, we are capping a major
leakage that has placed our collection efforts at an apparent disadvantage.[28]
As to the amendments to NIRC provisions on taxes other than the value-added tax proposed in Senate Bill No. 1950, since
said provisions were among those referred to it, the conference committee had to act on the same and it basically adopted
the version of the Senate.
Thus, all the changes or modifications made by the Bicameral Conference Committee were germane to subjects of the
provisions referred
to it for reconciliation. Such being the case, the Court does not see any grave abuse of discretion amounting to lack or
excess of jurisdiction committed by the Bicameral Conference Committee. In the earlier cases of Philippine Judges
Association vs. Prado[29] and Tolentino vs. Secretary of Finance,[30] the Court recognized the long-standing legislative
practice of giving said conference committee ample latitude for compromising differences between the Senate and the
House. Thus, in the Tolentino case, it was held that:
. . . it is within the power of a conference committee to include in its report an entirely new provision that is not found either
in the House bill or in the Senate bill. If the committee can propose an amendment consisting of one or two provisions, there
is no reason why it cannot propose several provisions, collectively considered as an amendment in the nature of a substitute,
so long as such amendment is germane to the subject of the bills before the committee. After all, its report was not final but
needed the approval of both houses of Congress to become valid as an act of the legislative department. The charge that in
this case the Conference Committee acted as a third legislative chamber is thus without any basis.[31] (Emphasis
supplied)
B. R.A. No. 9337 Does Not Violate Article VI, Section 26(2) of the Constitution on the
No-Amendment Rule
Article VI, Sec. 26 (2) of the Constitution, states:
No bill passed by either House shall become a law unless it has passed three readings on separate days, and printed copies
thereof in its final form have been distributed to its Members three days before its passage, except when the President
certifies to the necessity of its immediate enactment to meet a public calamity or emergency. Upon the last reading of a bill,
no amendment thereto shall be allowed, and the vote thereon shall be taken immediately thereafter, and the yeas and nays
entered in the Journal.
Petitioners argument that the practice where a bicameral conference committee is allowed to add or delete provisions in the
House bill and the Senate bill after these had passed three readings is in effect a circumvention of the no amendment rule
(Sec. 26 (2), Art. VI of the 1987 Constitution), fails to convince the Court to deviate from its ruling in the Tolentino case
that:
Nor is there any reason for requiring that the Committees Report in these cases must have undergone three readings in each
of the two houses. If that be the case, there would be no end to negotiation since each house may seek modification of the
compromise bill. . . .
Art. VI. 26 (2) must, therefore, be construed as referring only to bills introduced for the first time in either house of
Congress, not to the conference committee report.[32] (Emphasis supplied)
The Court reiterates here that the no-amendment rule refers only to the procedure to be followed by each house of
Congress with regard to bills initiated in each of said respective houses, before said bill is transmitted to the other
house for its concurrence or amendment. Verily, to construe said provision in a way as to proscribe any further changes to
a bill after one house has voted on it would lead to absurdity as this would mean that the other house of Congress would be
deprived of its constitutional power to amend or introduce changes to said bill. Thus, Art. VI, Sec. 26 (2) of the Constitution
cannot be taken to mean that the introduction by the Bicameral Conference Committee of amendments and modifications to
disagreeing provisions in bills that have been acted upon by both houses of Congress is prohibited.
C. R.A. No. 9337 Does Not Violate Article VI, Section 24 of the Constitution on
Exclusive Origination of Revenue Bills
Coming to the issue of the validity of the amendments made regarding the NIRC provisions on corporate income taxes and
percentage, excise taxes. Petitioners refer to the following provisions, to wit:
Section 27
28(A)(1)
28(B)(1)
34(B)(1)
116
117
119
121
148
151
236
237
288
Rates of Income Tax on Domestic Corporation

Tax on Resident Foreign Corporation
Inter-corporate Dividends
Inter-corporate Dividends
Tax on Persons Exempt from VAT
Percentage Tax on domestic carriers and keepers of Garage
Tax on franchises
Tax on banks and Non-Bank Financial Intermediaries
Excise Tax on manufactured oils and other fuels
Excise Tax on mineral products
Registration requirements
Issuance of receipts or sales or commercial invoices
Disposition of Incremental Revenue
Petitioners claim that the amendments to these provisions of the NIRC did not at all originate from the House. They aver
that House Bill No. 3555 proposed amendments only regarding Sections 106, 107, 108, 110 and 114 of the NIRC, while
House Bill No. 3705 proposed amendments only to Sections 106, 107,108, 109, 110 and 111 of the NIRC; thus, the other
sections of the NIRC which the Senate amended but which amendments were not found in the House bills are not intended
to be amended by the House of Representatives. Hence, they argue that since the proposed amendments did not originate
from the House, such amendments are a violation of Article VI, Section 24 of the Constitution.
The argument does not hold water.
Article VI, Section 24 of the Constitution reads:
Sec. 24. All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and
private bills shall originate exclusively in the House of Representatives but the Senate may propose or concur with
amendments.
In the present cases, petitioners admit that it was indeed House Bill Nos. 3555 and 3705 that initiated the move for
amending provisions of the NIRC dealing mainly with the value-added tax. Upon transmittal of said House bills to the
Senate, the Senate came out with Senate Bill No. 1950 proposing amendments not only to NIRC provisions on the valueadded tax but also amendments to NIRC provisions on other kinds of taxes. Is the introduction by the Senate of provisions
not dealing directly with the value- added tax, which is the only kind of tax being amended in the House bills, still within
the purview of the constitutional provision authorizing the Senate to propose or concur with amendments to a revenue bill
that originated from the House?
The foregoing question had been squarely answered in the Tolentino case, wherein the Court held, thus:
. . . To begin with, it is not the law but the revenue bill which is required by the Constitution to originate exclusively in the
House of Representatives. It is important to emphasize this, because a bill originating in the House may undergo such
extensive changes in the Senate that the result may be a rewriting of the whole. . . . At this point, what is important to note is
that, as a result of the Senate action, a distinct bill may be produced. To insist that a revenue statute and not only the bill
which initiated the legislative process culminating in the enactment of the law must substantially be the same as the
House bill would be to deny the Senates power not only to concur with amendments but also to propose amendments.
It would be to violate the coequality of legislative power of the two houses of Congress and in fact make the House superior
to the Senate.
Given, then, the power of the Senate to propose amendments, the Senate can propose its own version even with
respect to bills which are required by the Constitution to originate in the House.
...
Indeed, what the Constitution simply means is that the initiative for filing revenue, tariff or tax bills, bills authorizing an
increase of the public debt, private bills and bills of local application must come from the House of Representatives on the
theory that, elected as they are from the districts, the members of the House can be expected to be more sensitive to the
local needs and problems. On the other hand, the senators, who are elected at large, are expected to approach the
same problems from the national perspective. Both views are thereby made to bear on the enactment of such laws.
[33] (Emphasis supplied)
Since there is no question that the revenue bill exclusively originated in the House of Representatives, the Senate was acting
within its
constitutional power to introduce amendments to the House bill when it included provisions in Senate Bill No. 1950
amending corporate income taxes, percentage, excise and franchise taxes. Verily, Article VI, Section 24 of the Constitution
does not contain any prohibition or limitation on the extent of the amendments that may be introduced by the Senate to the
House revenue bill.
Furthermore, the amendments introduced by the Senate to the NIRC provisions that had not been touched in the House bills
are still in furtherance of the intent of the House in initiating the subject revenue bills. The Explanatory Note of House Bill
No. 1468, the very first House bill introduced on the floor, which was later substituted by House Bill No. 3555, stated:
One of the challenges faced by the present administration is the urgent and daunting task of solving the countrys serious
financial problems. To do this, government expenditures must be strictly monitored and controlled and revenues must be
significantly increased. This may be easier said than done, but our fiscal authorities are still optimistic the government will
be operating on a balanced budget by the year 2009. In fact, several measures that will result to significant expenditure
savings have been identified by the administration. It is supported with a credible package of revenue measures that
include measures to improve tax administration and control the leakages in revenues from income taxes and the
value-added tax (VAT). (Emphasis supplied)
Rep. Eric D. Singson, in his sponsorship speech for House Bill No. 3555, declared that:
In the budget message of our President in the year 2005, she reiterated that we all acknowledged that on top of our agenda
must be the restoration of the health of our fiscal system.
In order to considerably lower the consolidated public sector deficit and eventually achieve a balanced budget by the year
2009, we need to seize windows of opportunities which might seem poignant in the beginning, but in the long run
prove effective and beneficial to the overall status of our economy. One such opportunity is a review of existing tax
rates, evaluating the relevance given our present conditions.[34] (Emphasis supplied)
Notably therefore, the main purpose of the bills emanating from the House of Representatives is to bring in sizeable
revenues for the government
to supplement our countrys serious financial problems, and improve tax administration and control of the leakages in
revenues from income taxes and value-added taxes. As these house bills were transmitted to the Senate, the latter,
approaching the measures from the point of national perspective, can introduce amendments within the purposes of those
bills. It can provide for ways that would soften the impact of the VAT measure on the consumer, i.e., by distributing the
burden across all sectors instead of putting it entirely on the shoulders of the consumers. The sponsorship speech of Sen.
Ralph Recto on why the provisions on income tax on corporation were included is worth quoting:
All in all, the proposal of the Senate Committee on Ways and Means will raise P64.3 billion in additional revenues annually
even while by mitigating prices of power, services and petroleum products.
However, not all of this will be wrung out of VAT. In fact, only P48.7 billion amount is from the VAT on twelve goods and
services. The rest of the tab P10.5 billion- will be picked by corporations.
What we therefore prescribe is a burden sharing between corporate Philippines and the consumer. Why should the latter
bear all the pain? Why should the fiscal salvation be only on the burden of the consumer?
The corporate worlds equity is in form of the increase in the corporate income tax from 32 to 35 percent, but up to 2008
only. This will raise P10.5 billion a year. After that, the rate will slide back, not to its old rate of 32 percent, but two notches
lower, to 30 percent.
Clearly, we are telling those with the capacity to pay, corporations, to bear with this emergency provision that will be in
effect for 1,200 days, while we put our fiscal house in order. This fiscal medicine will have an expiry date.
For their assistance, a reward of tax reduction awaits them. We intend to keep the length of their sacrifice brief. We would
like to assure them that not because there is a light at the end of the tunnel, this government will keep on making the tunnel
long.
The responsibility will not rest solely on the weary shoulders of the small man. Big business will be there to share the
burden.[35]
As the Court has said, the Senate can propose amendments and in fact, the amendments made on provisions in the tax on
income of corporations are germane to the purpose of the house bills which is to raise revenues for the government.
Likewise, the Court finds the sections referring to other percentage and excise taxes germane to the reforms to the VAT
system, as these sections would cushion the effects of VAT on consumers. Considering that certain goods and services
which were subject to percentage tax and excise tax would no longer be VAT-exempt, the consumer would be burdened
more as they would be paying the VAT in addition to these taxes. Thus, there is a need to amend these sections to soften the
impact of VAT. Again, in his sponsorship speech, Sen. Recto said:
However, for power plants that run on oil, we will reduce to zero the present excise tax on bunker fuel, to lessen the effect
of a VAT on this product.
For electric utilities like Meralco, we will wipe out the franchise tax in exchange for a VAT.
And in the case of petroleum, while we will levy the VAT on oil products, so as not to destroy the VAT chain, we will
however bring down the excise tax on socially sensitive products such as diesel, bunker, fuel and kerosene.
...
What do all these exercises point to? These are not contortions of giving to the left hand what was taken from the right.
Rather, these sprang from our concern of softening the impact of VAT, so that the people can cushion the blow of higher
prices they will have to pay as a result of VAT.[36]
The other sections amended by the Senate pertained to matters of tax administration which are necessary for the
implementation of the changes in the VAT system.
To reiterate, the sections introduced by the Senate are germane to the subject matter and purposes of the house bills, which
is to supplement our countrys fiscal deficit, among others. Thus, the Senate acted within its power to propose those
amendments.
SUBSTANTIVE ISSUES
I.
Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of the NIRC, violate the following
provisions of the Constitution:

A. No Undue Delegation of Legislative Power
Petitioners ABAKADA GURO Party List, et al., Pimentel, Jr., et al., and Escudero, et al. contend in common that Sections 4,
5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the NIRC giving the President the stand-by
authority to raise the VAT rate from 10% to 12% when a certain condition is met, constitutes undue delegation of the
legislative power to tax.
The assailed provisions read as follows:
SEC. 4. Sec. 106 of the same Code, as amended, is hereby further amended to read as follows:
SEC. 106. Value-Added Tax on Sale of Goods or Properties.
(A) Rate and Base of Tax. There shall be levied, assessed and collected on every sale,
barter or exchange of goods or properties, a value-added tax equivalent to ten percent
(10%) of the gross selling price or gross value in money of the goods or properties sold,
bartered or exchanged, such tax to be paid by the seller or transferor: provided, that the
President, upon the recommendation of the Secretary of Finance, shall, effective
January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after
any of the following conditions has been satisfied.
(i)
value-added tax collection as a percentage of Gross Domestic
Product (GDP) of the previous year exceeds two and four-fifth percent (2
4/5%) or
(ii) national government deficit as a percentage of GDP of the previous
year exceeds one and one-half percent (1 %).
SEC. 5. Section 107 of the same Code, as amended, is hereby further amended to read as follows:
SEC. 107. Value-Added Tax on Importation of Goods.

(A) In General. There shall be levied, assessed and collected on every importation of
goods a value-added tax equivalent to ten percent (10%) based on the total value used
by the Bureau of Customs in determining tariff and customs duties, plus customs duties,
excise taxes, if any, and other charges, such tax to be paid by the importer prior to the
release of such goods from customs custody: Provided, That where the customs duties
are determined on the basis of the quantity or volume of the goods, the value-added tax
shall be based on the landed cost plus excise taxes, if any: provided, further, that the
President, upon the recommendation of the Secretary of Finance, shall, effective
January 1, 2006, raise the rate of value-added tax to twelve percent (12%) after
any of the following conditions has been satisfied.

(i) value-added tax collection as a percentage of Gross Domestic Product
(GDP) of the previous year exceeds two and four-fifth percent (2 4/5%) or
year exceeds one and one-half percent (1 %).
SEC. 6. Section 108 of the same Code, as amended, is hereby further amended to read as follows:
SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties
(A) Rate and Base of Tax. There shall be levied, assessed and collected, a value-added
tax equivalent to ten percent (10%) of gross receipts derived from the sale or exchange
of services: provided, that the President, upon the recommendation of the Secretary
of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to
twelve percent (12%), after any of the following conditions has been satisfied.
(i) value-added tax collection as a percentage of Gross Domestic Product
(GDP) of the previous year exceeds two and four-fifth percent (2 4/5%) or
year exceeds one and one-half percent (1 %). (Emphasis supplied)
Petitioners allege that the grant of the stand-by authority to the President to increase the VAT rate is a virtual abdication by
Congress of its exclusive power to tax because such delegation is not within the purview of Section 28 (2), Article VI of the
Constitution, which provides:
The Congress may, by law, authorize the President to fix within specified limits, and may impose, tariff rates, import and
export quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the national development
program of the government.
They argue that the VAT is a tax levied on the sale, barter or exchange of goods and properties as well as on the sale or
exchange of services, which cannot be included within the purview of tariffs under the exempted delegation as the latter
refers to customs duties, tolls or tribute payable upon merchandise to the government and usually imposed on goods or
merchandise imported or exported.
Petitioners ABAKADA GURO Party List, et al., further contend that delegating to the President the legislative power to tax
is contrary to republicanism. They insist that accountability, responsibility and transparency should dictate the actions of
Congress and they should not pass to the President the decision to impose taxes. They also argue that the law also
effectively nullified the Presidents power of control, which includes the authority to set aside and nullify the acts of her
subordinates like the Secretary of Finance, by mandating the fixing of the tax rate by the President upon the
recommendation of the Secretary of Finance.
Petitioners Pimentel, et al. aver that the President has ample powers to cause, influence or create the conditions provided by
the law to bring about either or both the conditions precedent.
On the other hand, petitioners Escudero, et al. find bizarre and revolting the situation that the imposition of the 12% rate
would be subject to the whim of the Secretary of Finance, an unelected bureaucrat, contrary to the principle of no taxation
without representation. They submit that the Secretary of Finance is not mandated to give a favorable recommendation and
he may not even give his recommendation. Moreover, they allege that no guiding standards are provided in the law on what
basis and as to how he will make his recommendation. They claim, nonetheless, that any recommendation of the Secretary
of Finance can easily be brushed aside by the President since the former is a mere alter ego of the latter, such that,
ultimately, it is the President who decides whether to impose the increased tax rate or not.
A brief discourse on the principle of non-delegation of powers is instructive.
The principle of separation of powers ordains that each of the three great branches of government has exclusive cognizance
of and is supreme in matters falling within its own constitutionally allocated sphere.[37] A logical
corollary to the doctrine of separation of powers is the principle of non-delegation of powers, as expressed in the Latin
maxim: potestas delegata non delegari potest which means what has been delegated, cannot be delegated.[38] This doctrine
is based on the ethical principle that such as delegated power constitutes not only a right but a duty to be performed by the
delegate through the instrumentality of his own judgment and not through the intervening mind of another.[39]
With respect to the Legislature, Section 1 of Article VI of the Constitution provides that the Legislative power shall be
vested in the Congress of the Philippines which shall consist of a Senate and a House of Representatives. The powers which
Congress is prohibited from delegating are those which are strictly, or inherently and exclusively, legislative. Purely
legislative power, which can never be delegated, has been described as the authority to make a complete law complete as
to the time when it shall take effect and as to whom it shall be applicable and to determine the expediency of its
enactment.[40] Thus, the rule is that in order that a court may be justified in holding a statute unconstitutional as a
delegation of legislative power, it must appear that the power involved is purely legislative in nature that is, one
appertaining exclusively to the legislative department. It is the nature of the power, and not the liability of its use or the
manner of its exercise, which determines the validity of its delegation.
Nonetheless, the general rule barring delegation of legislative powers is subject to the following recognized limitations or
exceptions:
(1) Delegation of tariff powers to the President under Section 28 (2) of Article VI of the Constitution;
(2) Delegation of emergency powers to the President under Section 23 (2) of Article VI of the
Constitution;
(3) Delegation to the people at large;
(4) Delegation to local governments; and
(5) Delegation to administrative bodies.
In every case of permissible delegation, there must be a showing that the delegation itself is valid. It is valid only if the law
(a) is complete in itself, setting forth therein the policy to be executed, carried out, or implemented by the delegate; [41] and
(b) fixes a standard the limits of which are sufficiently determinate and determinable to which the delegate must conform in
the performance of his functions.[42] A sufficient standard is one which defines legislative policy, marks its limits, maps out
its boundaries and specifies the public agency to apply it. It indicates the circumstances under which the legislative
command is to be effected.[43] Both tests are intended to prevent a total transference of legislative authority to the delegate,
who is not allowed to step into the shoes of the legislature and exercise a power essentially legislative.[44]
In People vs. Vera,[45] the Court, through eminent Justice Jose P. Laurel, expounded on the concept and extent of
delegation of power in this wise:
In testing whether a statute constitutes an undue delegation of legislative power or not, it is usual to inquire whether the
statute was complete in all its terms and provisions when it left the hands of the legislature so that nothing was left to the
judgment of any other appointee or delegate of the legislature.
...
The true distinction, says Judge Ranney, is between the delegation of power to make the law, which necessarily
involves a discretion as to what it shall be, and conferring an authority or discretion as to its execution, to be
exercised under and in pursuance of the law. The first cannot be done; to the latter no valid objection can be made.
...
It is contended, however, that a legislative act may be made to the effect as law after it leaves the hands of the legislature. It
is true that laws may be made effective on certain contingencies, as by proclamation of the executive or the adoption by the
people of a particular community. In Wayman vs. Southard, the Supreme Court of the United States ruled that the legislature
may delegate a power not legislative which it may itself rightfully exercise. The power to ascertain facts is such a power
which may be delegated. There is nothing essentially legislative in ascertaining the existence of facts or conditions as
the basis of the taking into effect of a law. That is a mental process common to all branches of the government.
Notwithstanding the apparent tendency, however, to relax the rule prohibiting delegation of legislative authority on account
of the complexity arising from social and economic forces at work in this modern industrial age, the orthodox
pronouncement of Judge Cooley in his work on Constitutional Limitations finds restatement in Prof. Willoughby's treatise
on the Constitution of the United States in the following language speaking of declaration of legislative power to
administrative agencies: The principle which permits the legislature to provide that the administrative agent may
determine when the circumstances are such as require the application of a law is defended upon the ground that at
the time this authority is granted, the rule of public policy, which is the essence of the legislative act, is determined by
the legislature. In other words, the legislature, as it is its duty to do, determines that, under given circumstances,
certain executive or administrative action is to be taken, and that, under other circumstances, different or no action
at all is to be taken. What is thus left to the administrative official is not the legislative determination of what public
policy demands, but simply the ascertainment of what the facts of the case require to be done according to the terms
of the law by which he is governed. The efficiency of an Act as a declaration of legislative will must, of course, come
from Congress, but the ascertainment of the contingency upon which the Act shall take effect may be left to such
agencies as it may designate. The legislature, then, may provide that a law shall take effect upon the happening of
future specified contingencies leaving to some other person or body the power to determine when the specified
contingency has arisen. (Emphasis supplied).[46]
In Edu vs. Ericta,[47] the Court reiterated:
What cannot be delegated is the authority under the Constitution to make laws and to alter and repeal them; the test is the
completeness of the statute in all its terms and provisions when it leaves the hands of the legislature. To determine whether
or not there is an undue delegation of legislative power, the inquiry must be directed to the scope and definiteness of the
measure enacted. The legislative does not abdicate its functions when it describes what job must be done, who is to do
it, and what is the scope of his authority. For a complex economy, that may be the only way in which the legislative
process can go forward. A distinction has rightfully been made between delegation of power to make the laws which
necessarily involves a discretion as to what it shall be, which constitutionally may not be done, and delegation of
authority or discretion as to its execution to be exercised under and in pursuance of the law, to which no valid
objection can be made. The Constitution is thus not to be regarded as denying the legislature the necessary resources of
flexibility and practicability. (Emphasis supplied).[48]
Clearly, the legislature may delegate to executive officers or bodies the power to determine certain facts or conditions, or the
happening of contingencies, on which the operation of a statute is, by its terms, made to depend, but the legislature must
prescribe sufficient standards, policies or limitations on their authority.[49] While the power to tax cannot be delegated to
executive agencies, details as to the enforcement and administration of an exercise of such power may be left to them,
including the power to determine the existence of facts on which its operation depends.[50]
The rationale for this is that the preliminary ascertainment of facts as basis for the enactment of legislation is not of itself a
legislative function, but is simply ancillary to legislation. Thus, the duty of correlating information and making
recommendations is the kind of subsidiary activity which the legislature may perform through its members, or which it may
delegate to others to perform. Intelligent legislation on the complicated problems of modern society is impossible in the
absence of accurate information on the part of the legislators, and any reasonable method of securing such information is
proper.[51] The Constitution as a continuously operative charter of government does not require that Congress find for itself
every fact upon which it desires to base legislative action or that it make for itself detailed determinations which it has
declared to be prerequisite to application of legislative policy to particular facts and circumstances impossible for Congress
itself properly to investigate.[52]
In the present case, the challenged section of R.A. No. 9337 is the common proviso in Sections 4, 5 and 6 which reads as
follows:
That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of
value-added tax to twelve percent (12%), after any of the following conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the
previous year exceeds two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds
one and one-half percent (1 %).
The case before the Court is not a delegation of legislative power. It is simply a delegation of ascertainment of facts upon
which enforcement and administration of the increase rate under the law is contingent. The legislature has made the
operation of the 12% rate effective January 1, 2006, contingent upon a specified fact or condition. It leaves the entire
operation or non-operation of the 12% rate upon factual matters outside of the control of the executive.
No discretion would be exercised by the President. Highlighting the absence of discretion is the fact that the word shall is
used in the common proviso. The use of the word shall connotes a mandatory order. Its use in a statute denotes an
imperative obligation and is inconsistent with the idea of discretion.[53] Where the law is clear and unambiguous, it must be
taken to mean exactly what it says, and courts have no choice but to see to it that the mandate is obeyed.[54]
Thus, it is the ministerial duty of the President to immediately impose the 12% rate upon the existence of any of the
conditions specified by Congress. This is a duty which cannot be evaded by the President. Inasmuch as the law specifically
uses the word shall, the exercise of discretion by the President does not come into play. It is a clear directive to impose the
12% VAT rate when the specified conditions are present. The time of taking into effect of the 12% VAT rate is based on the
happening of a certain specified contingency, or upon the ascertainment of certain facts or conditions by a person or body
other than the legislature itself.
The Court finds no merit to the contention of petitioners ABAKADA GURO Party List, et al. that the law effectively nullified
the Presidents power of control over the Secretary of Finance by mandating the fixing of the tax rate by the President upon
the recommendation of the Secretary of Finance. The Court cannot also subscribe to the position of petitioners
Pimentel, et al. that the word shall should be interpreted to mean may in view of the phrase upon the recommendation of the
Secretary of Finance. Neither does the Court find persuasive the submission of petitioners Escudero, et al. that any
recommendation by the Secretary of Finance can easily be brushed aside by the President since the former is a mere alter
ego of the latter.
When one speaks of the Secretary of Finance as the alter ego of the President, it simply means that as head of the
Department of Finance he is the assistant and agent of the Chief Executive. The multifarious executive and administrative
functions of the Chief Executive are performed by and through the executive departments, and the acts of the secretaries of
such departments, such as the Department of Finance, performed and promulgated in the regular course of business, are,
unless disapproved or reprobated by the Chief Executive, presumptively the acts of the Chief Executive. The Secretary of
Finance, as such, occupies a political position and holds office in an advisory capacity, and, in the language of Thomas
Jefferson, "should be of the President's bosom confidence" and, in the language of Attorney-General Cushing, is subject to
the direction of the President."[55]
In the present case, in making his recommendation to the President on the existence of either of the two conditions, the
Secretary of Finance is not acting as the alter ego of the President or even her subordinate. In such instance, he is not subject
to the power of control and direction of the President. He is acting as the agent of the legislative department, to determine
and declare the event upon which its expressed will is to take effect.[56] The Secretary of Finance becomes the means or
tool by which legislative policy is determined and implemented, considering that he possesses all the facilities to gather data
and information and has a much broader perspective to properly evaluate them. His function is to gather and collate
statistical data and other pertinent information and verify if any of the two conditions laid out by Congress is present. His
personality in such instance is in reality but a projection of that of Congress. Thus, being the agent of Congress and not of
the President, the President cannot alter or modify or nullify, or set aside the findings of the Secretary of Finance and to
substitute the judgment of the former for that of the latter.
Congress simply granted the Secretary of Finance the authority to ascertain the existence of a fact, namely, whether by
December 31, 2005, the value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year
exceeds two and four-fifth percent (2 4/5%) or the national government deficit as a percentage of GDP of the previous year
exceeds one and one-half percent (1%). If either of these two instances has occurred, the Secretary of Finance, by legislative
mandate, must submit such information to the President. Then the 12% VAT rate must be imposed by the President effective
January 1, 2006. There is no undue delegation of legislative power but only of the discretion as to the execution of a
law. This is constitutionally permissible.[57] Congress does not abdicate its functions or unduly delegate power when it
describes what job must be done, who must do it, and what is the scope of his authority; in our complex economy that is
frequently the only way in which the legislative process can go forward.[58]
As to the argument of petitioners ABAKADA GURO Party List, et al. that delegating to the President the legislative power to
tax is contrary to the principle of republicanism, the same deserves scant consideration. Congress did not delegate the power
to tax but the mere implementation of the law. The intent and will to increase the VAT rate to 12% came from Congress and
the task of the President is to simply execute the legislative policy. That Congress chose to do so in such a manner is not
within the province of the Court to inquire into, its task being to interpret the law.[59]
The insinuation by petitioners Pimentel, et al. that the President has ample powers to cause, influence or create the
conditions to bring about either or both the conditions precedent does not deserve any merit as this argument is highly
speculative. The Court does not rule on allegations which are manifestly conjectural, as these may not exist at all. The Court
deals with facts, not fancies; on realities, not appearances. When the Court acts on appearances instead of realities, justice
and law will be short-lived.
B. The 12% Increase VAT Rate Does Not Impose an Unfair and Unnecessary Additional
Tax Burden
Petitioners Pimentel, et al. argue that the 12% increase in the VAT rate imposes an unfair and additional tax burden on the
people. Petitioners also argue that the 12% increase, dependent on any of the 2 conditions set forth in the contested
provisions, is ambiguous because it does not state if the VAT rate would be returned to the original 10% if the rates are no
longer satisfied. Petitioners also argue that such rate is unfair and unreasonable, as the people are unsure of the applicable
VAT rate from year to year.
Under the common provisos of Sections 4, 5 and 6 of R.A. No. 9337, if any of the two conditions set forth therein are
satisfied, the President shall increase the VAT rate to 12%. The provisions of the law are clear. It does not provide for a
return to the 10% rate nor does it empower the President to so revert if, after the rate is increased to 12%, the VAT collection
goes below the 24/5 of the GDP of the previous year or that the national government deficit as a percentage of GDP of the
previous year does not exceed 1%.
Therefore, no statutory construction or interpretation is needed. Neither can conditions or limitations be introduced where
none is provided for. Rewriting the law is a forbidden ground that only Congress may tread upon.[60]
Thus, in the absence of any provision providing for a return to the 10% rate, which in this case the Court finds none,
petitioners argument is, at best, purely speculative. There is no basis for petitioners fear of a fluctuating VAT rate because
the law itself does not provide that the rate should go back to 10% if the conditions provided in Sections 4, 5 and 6 are no
longer present. The rule is that where the provision of the law is clear and unambiguous, so that there is no occasion for the
court's seeking the legislative intent, the law must be taken as it is, devoid of judicial addition or subtraction.[61]
Petitioners also contend that the increase in the VAT rate, which was allegedly an incentive to the President to raise the VAT
collection to at least 2 4/5 of the GDP of the previous year, should be based on fiscal adequacy.
Petitioners obviously overlooked that increase in VAT collection is not the only condition. There is another condition, i.e.,
the national government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 %).
Respondents explained the philosophy behind these alternative conditions:
1.
VAT/GDP Ratio > 2.8%
The condition set for increasing VAT rate to 12% have economic or fiscal meaning. If VAT/GDP is less than 2.8%, it means
that government has weak or no capability of implementing the VAT or that VAT is not effective in the function of the tax
collection. Therefore, there is no value to increase it to 12% because such action will also be ineffectual.
2.
Natl Govt Deficit/GDP >1.5%
The condition set for increasing VAT when deficit/GDP is 1.5% or less means the fiscal condition of government has
reached a relatively sound position or is towards the direction of a balanced budget position. Therefore, there is no need to
increase the VAT rate since the fiscal house is in a relatively healthy position. Otherwise stated, if the ratio is more than
1.5%, there is indeed a need to increase the VAT rate.[62]
That the first condition amounts to an incentive to the President to increase the VAT collection does not render it
unconstitutional so long as there is a public purpose for which the law was passed, which in this case, is mainly to raise
revenue. In fact, fiscal adequacy dictated the need for a raise in revenue.
The principle of fiscal adequacy as a characteristic of a sound tax system was originally stated by Adam Smith in his
Canons of Taxation (1776), as:
IV. Every tax ought to be so contrived as both to take out and to keep out of the pockets of the people as little as possible
over and above what it brings into the public treasury of the state.[63]
It simply means that sources of revenues must be adequate to meet government expenditures and their variations.[64]
The dire need for revenue cannot be ignored. Our country is in a quagmire of financial woe. During the Bicameral
Conference Committee hearing, then Finance Secretary Purisima bluntly depicted the countrys gloomy state of economic
affairs, thus:
First, let me explain the position that the Philippines finds itself in right now. We are in a position where 90 percent of our
revenue is used for debt service. So, for every peso of revenue that we currently raise, 90 goes to debt service. Thats interest
plus amortization of our debt. So clearly, this is not a sustainable situation. Thats the first fact.
The second fact is that our debt to GDP level is way out of line compared to other peer countries that borrow money from
that international financial markets. Our debt to GDP is approximately equal to our GDP. Again, that shows you that this is
not a sustainable situation.
The third thing that Id like to point out is the environment that we are presently operating in is not as benign as what it used
to be the past five years.
What do I mean by that?
In the past five years, weve been lucky because we were operating in a period of basically global growth and low interest
rates. The past few months, we have seen an inching up, in fact, a rapid increase in the interest rates in the leading
economies of the world. And, therefore, our ability to borrow at reasonable prices is going to be challenged. In fact,
ultimately, the question is our ability to access the financial markets.
When the President made her speech in July last year, the environment was not as bad as it is now, at least based on the
forecast of most financial institutions. So, we were assuming that raising 80 billion would put us in a position where we can
then convince them to improve our ability to borrow at lower rates. But conditions have changed on us because the interest
rates have gone up. In fact, just within this room, we tried to access the market for a billion dollars because for this year
alone, the Philippines will have to borrow 4 billion dollars. Of that amount, we have borrowed 1.5 billion. We issued last
January a 25-year bond at 9.7 percent cost. We were trying to access last week and the market was not as favorable and up
to now we have not accessed and we might pull back because the conditions are not very good.
So given this situation, we at the Department of Finance believe that we really need to front-end our deficit reduction.
Because it is deficit that is causing the increase of the debt and we are in what we call a debt spiral. The more debt you have,
the more deficit you have because interest and debt service eats and eats more of your revenue. We need to get out of this
debt spiral. And the only way, I think, we can get out of this debt spiral is really have a front-end adjustment in our revenue
base.[65]
The image portrayed is chilling. Congress passed the law hoping for rescue from an inevitable catastrophe. Whether the law
is indeed sufficient to answer the states economic dilemma is not for the Court to judge. In the Farias case, the Court
refused to consider the various arguments raised therein that dwelt on the wisdom of Section 14 of R.A. No. 9006 (The Fair
Election Act), pronouncing that:
. . . policy matters are not the concern of the Court. Government policy is within the exclusive dominion of the political
branches of the government. It is not for this Court to look into the wisdom or propriety of legislative determination. Indeed,
whether an enactment is wise or unwise, whether it is based on sound economic theory, whether it is the best means to
achieve the desired results, whether, in short, the legislative discretion within its prescribed limits should be exercised in a
particular manner are matters for the judgment of the legislature, and the serious conflict of opinions does not suffice to
bring them within the range of judicial cognizance.[66]
In the same vein, the Court in this case will not dawdle on the purpose of Congress or the executive policy, given that it is
not for the judiciary to "pass upon questions of wisdom, justice or expediency of legislation.[67]
II.
Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the NIRC; and Section 12 of R.A. No.
9337, amending Section 114(C) of the NIRC, violate the following provisions of the Constitution:

b. Article III, Section 1
A. Due Process and Equal Protection Clauses
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. argue that Section 8 of R.A. No. 9337, amending Sections 110
(A)(2), 110 (B), and Section 12 of R.A. No. 9337, amending Section 114 (C) of the NIRC are arbitrary, oppressive,
excessive and confiscatory. Their argument is premised on the constitutional right against deprivation of life, liberty of
property without due process of law, as embodied in Article III, Section 1 of the Constitution.
Petitioners also contend that these provisions violate the constitutional guarantee of equal protection of the law.
The doctrine is that where the due process and equal protection clauses are invoked, considering that they are not fixed rules
but rather broad standards, there is a need for proof of such persuasive character as would lead to such a conclusion. Absent
such a showing, the presumption of validity must prevail.[68]
Section 8 of R.A. No. 9337, amending Section 110(B) of the NIRC imposes a limitation on the amount of input tax that may
be credited against the output tax. It states, in part: [P]rovided, that the input tax inclusive of the input VAT carried over
from the previous quarter that may be credited in every quarter shall not exceed seventy percent (70%) of the output VAT:
Input Tax is defined under Section 110(A) of the NIRC, as amended, as the value-added tax due from or paid by a VATregistered person on the importation of goods or local purchase of good and services, including lease or use of property, in
the course of trade or business, from a VAT-registered person, and Output Tax is the value-added tax due on the sale or lease
of taxable goods or properties or services by any person registered or required to register under the law.
Petitioners claim that the contested sections impose limitations on the amount of input tax that may be claimed. In effect, a
portion of the input tax that has already been paid cannot now be credited against the output tax.
Petitioners argument is not absolute. It assumes that the input tax exceeds 70% of the output tax, and therefore, the input tax
in excess of 70% remains uncredited. However, to the extent that the input tax is less than 70% of the output tax, then 100%
of such input tax is still creditable.
More importantly, the excess input tax, if any, is retained in a businesss books of accounts and remains creditable in the
succeeding quarter/s. This is explicitly allowed by Section 110(B), which provides that if the input tax exceeds the output
tax, the excess shall be carried over to the succeeding quarter or quarters. In addition, Section 112(B) allows a VATregistered person to apply for the issuance of a tax credit certificate or refund for any unused input taxes, to the extent that
such input taxes have not been applied against the output taxes. Such unused input tax may be used in payment of his other
internal revenue taxes.
The non-application of the unutilized input tax in a given quarter is not ad infinitum, as petitioners exaggeratedly contend.
Their analysis of the effect of the 70% limitation is incomplete and one-sided. It ends at the net effect that there will be
unapplied/unutilized inputs VAT for a given quarter. It does not proceed further to the fact that such unapplied/unutilized
input tax may be credited in the subsequent periods as allowed by the carry-over provision of Section 110(B) or that it may
later on be refunded through a tax credit certificate under Section 112(B).
Therefore, petitioners argument must be rejected.
On the other hand, it appears that petitioner Garcia failed to comprehend the operation of the 70% limitation on the input
tax. According to petitioner, the limitation on the creditable input tax in effect allows VAT-registered establishments to retain
a portion of the taxes they collect, which violates the principle that tax collection and revenue should be for public purposes
and expenditures
As earlier stated, the input tax is the tax paid by a person, passed on to him by the seller, when he buys goods. Output tax
meanwhile is the tax due to the person when he sells goods. In computing the VAT payable, three possible scenarios may
arise:
First, if at the end of a taxable quarter the output taxes charged by the seller are equal to the input taxes that he paid and
passed on by the suppliers, then no payment is required;
Second, when the output taxes exceed the input taxes, the person shall be liable for the excess, which has to be paid to the
Bureau of Internal Revenue (BIR);[69] and
Third, if the input taxes exceed the output taxes, the excess shall be carried over to the succeeding quarter or quarters.
Should the input taxes result from zero-rated or effectively zero-rated transactions, any excess over the output taxes shall
instead be refunded to the taxpayer or credited against other internal revenue taxes, at the taxpayers option.[70]
Section 8 of R.A. No. 9337 however, imposed a 70% limitation on the input tax. Thus, a person can credit his input tax only
up to the extent of 70% of the output tax. In laymans term, the value-added taxes that a person/taxpayer paid and passed on
to him by a seller can only be credited up to 70% of the value-added taxes that is due to him on a taxable transaction. There
is no retention of any tax collection because the person/taxpayer has already previously paid the input tax to a seller, and the
seller will subsequently remit such input tax to the BIR. The party directly liable for the payment of the tax is the seller. [71]
What only needs to be done is for the person/taxpayer to apply or credit these input taxes, as evidenced by receipts, against
his output taxes.
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. also argue that the input tax partakes the nature of a property
that may not be confiscated, appropriated, or limited without due process of law.
The input tax is not a property or a property right within the constitutional purview of the due process clause. A VATregistered persons entitlement to the creditable input tax is a mere statutory privilege.
The distinction between statutory privileges and vested rights must be borne in mind for persons have no vested rights in
statutory privileges. The state may change or take away rights, which were created by the law of the state, although it may
not take away property, which was vested by virtue of such rights.[72]
Under the previous system of single-stage taxation, taxes paid at every level of distribution are not recoverable from the
taxes payable, although it becomes part of the cost, which is deductible from the gross revenue. When Pres. Aquino issued
E.O. No. 273 imposing a 10% multi-stage tax on all sales, it was then that the crediting of the input tax paid on purchase or
importation of goods and services by VAT-registered persons against the output tax was introduced.[73] This was adopted
by the Expanded VAT Law (R.A. No. 7716),[74] and The Tax Reform Act of 1997 (R.A. No. 8424).[75] The right to credit
input tax as against the output tax is clearly a privilege created by law, a privilege that also the law can remove, or in this
case, limit.
Petitioners also contest as arbitrary, oppressive, excessive and confiscatory, Section 8 of R.A. No. 9337, amending Section
110(A) of the NIRC, which provides:
SEC. 110. Tax Credits.
(A) Creditable Input Tax.
Provided, That the input tax on goods purchased or imported in a calendar month for use in trade or business for which
deduction for depreciation is allowed under this Code, shall be spread evenly over the month of acquisition and the fiftynine (59) succeeding months if the aggregate acquisition cost for such goods, excluding the VAT component thereof,
exceeds One million pesos (P1,000,000.00): Provided, however, That if the estimated useful life of the capital goods is less
than five (5) years, as used for depreciation purposes, then the input VAT shall be spread over such a shorter period:
Provided, finally, That in the case of purchase of services, lease or use of properties, the input tax shall be creditable to the
purchaser, lessee or license upon payment of the compensation, rental, royalty or fee.
The foregoing section imposes a 60-month period within which to amortize the creditable input tax on purchase or
importation of capital goods with acquisition cost of P1 Million pesos, exclusive of the VAT component. Such spread out
only poses a delay in the crediting of the input tax. Petitioners argument is without basis because the taxpayer is not
permanently deprived of his privilege to credit the input tax.
It is worth mentioning that Congress admitted that the spread-out of the creditable input tax in this case amounts to a 4-year
interest-free loan to the government.[76] In the same breath, Congress also justified its move by saying that the provision
was designed to raise an annual revenue of 22.6 billion.[77] The legislature also dispelled the fear that the provision will
fend off foreign investments, saying that foreign investors have other tax incentives provided by law, and citing the case of
China, where despite a 17.5% non-creditable VAT, foreign investments were not deterred.[78] Again, for whatever is the
purpose of the 60-month amortization, this involves executive economic policy and legislative wisdom in which the Court
cannot intervene.
With regard to the 5% creditable withholding tax imposed on payments made by the government for taxable transactions,
Section 12 of R.A. No. 9337, which amended Section 114 of the NIRC, reads:
SEC. 114. Return and Payment of Value-added Tax.
(C) Withholding of Value-added Tax. The Government or any of its political subdivisions, instrumentalities or agencies,
including government-owned or controlled corporations (GOCCs) shall, before making payment on account of each
purchase of goods and services which are subject to the value-added tax imposed in Sections 106 and 108 of this Code,
deduct and withhold a final value-added tax at the rate of five percent (5%) of the gross payment thereof: Provided, That the
payment for lease or use of properties or property rights to nonresident owners shall be subject to ten percent (10%)
withholding tax at the time of payment. For purposes of this Section, the payor or person in control of the payment shall be
considered as the withholding agent.
The value-added tax withheld under this Section shall be remitted within ten (10) days following the end of the month the
withholding was made.
Section 114(C) merely provides a method of collection, or as stated by respondents, a more simplified VAT withholding
system. The government in this case is constituted as a withholding agent with respect to their payments for goods and
services.
Prior to its amendment, Section 114(C) provided for different rates of value-added taxes to be withheld -- 3% on gross
payments for purchases of goods; 6% on gross payments for services supplied by contractors other than by public works
contractors; 8.5% on gross payments for services supplied by public work contractors; or 10% on payment for the lease or
use of properties or property rights to nonresident owners. Under the present Section 114(C), these different rates, except for
the 10% on lease or property rights payment to nonresidents, were deleted, and a uniform rate of 5% is applied.
The Court observes, however, that the law the used the word final. In tax usage, final, as opposed to creditable, means full.
Thus, it is provided in Section 114(C): final value-added tax at the rate of five percent (5%).
In Revenue Regulations No. 02-98, implementing R.A. No. 8424 (The Tax Reform Act of 1997), the concept of final
withholding tax on income was explained, to wit:
SECTION 2.57. Withholding of Tax at Source
(A) Final Withholding Tax. Under the final withholding tax system the amount of income tax withheld by the withholding
agent is constituted as full and final payment of the income tax due from the payee on the said income. The liability for
payment of the tax rests primarily on the payor as a withholding agent. Thus, in case of his failure to withhold the tax or in
case of underwithholding, the deficiency tax shall be collected from the payor/withholding agent.
(B) Creditable Withholding Tax. Under the creditable withholding tax system, taxes withheld on certain income payments
are intended to equal or at least approximate the tax due of the payee on said income. Taxes withheld on income payments
covered by the expanded withholding tax (referred to in Sec. 2.57.2 of these regulations) and compensation income
(referred to in Sec. 2.78 also of these regulations) are creditable in nature.
As applied to value-added tax, this means that taxable transactions with the government are subject to a 5% rate, which
constitutes as full payment of the tax payable on the transaction. This represents the net VAT payable of the seller. The other
5% effectively accounts for the standard input VAT (deemed input VAT), in lieu of the actual input VAT directly or
attributable to the taxable transaction.[79]
The Court need not explore the rationale behind the provision. It is clear that Congress intended to treat differently taxable
transactions with the government.[80] This is supported by the fact that under the old provision, the 5% tax withheld by the
government remains creditable against the tax liability of the seller or contractor, to wit:
SEC. 114. Return and Payment of Value-added Tax.
(C) Withholding of Creditable Value-added Tax. The Government or any of its political subdivisions, instrumentalities or
agencies, including government-owned or controlled corporations (GOCCs) shall, before making payment on account of
each purchase of goods from sellers and services rendered by contractors which are subject to the value-added tax imposed
in Sections 106 and 108 of this Code, deduct and withhold the value-added tax due at the rate of three percent (3%) of the
gross payment for the purchase of goods and six percent (6%) on gross receipts for services rendered by contractors on
every sale or installment payment which shall be creditable against the value-added tax liability of the seller or
contractor: Provided, however, That in the case of government public works contractors, the withholding rate shall be eight
and one-half percent (8.5%): Provided, further, That the payment for lease or use of properties or property rights to
nonresident owners shall be subject to ten percent (10%) withholding tax at the time of payment. For this purpose, the payor
or person in control of the payment shall be considered as the withholding agent.
The valued-added tax withheld under this Section shall be remitted within ten (10) days following the end of the month the
withholding was made. (Emphasis supplied)
As amended, the use of the word final and the deletion of the word creditable exhibits Congresss intention to treat
transactions with the government differently. Since it has not been shown that the class subject to the 5% final withholding
tax has been unreasonably narrowed, there is no reason to invalidate the provision. Petitioners, as petroleum dealers, are not
the only ones subjected to the 5% final withholding tax. It applies to all those who deal with the government.
Moreover, the actual input tax is not totally lost or uncreditable, as petitioners believe. Revenue Regulations No. 14-2005 or
the Consolidated Value-Added Tax Regulations 2005 issued by the BIR, provides that should the actual input tax exceed 5%
of gross payments, the excess may form part of the cost. Equally, should the actual input tax be less than 5%, the difference
is treated as income.[81]
Petitioners also argue that by imposing a limitation on the creditable input tax, the government gets to tax a profit or valueadded even if there is no profit or value-added.
Petitioners stance is purely hypothetical, argumentative, and again, one-sided. The Court will not engage in a legal joust
where premises are what ifs, arguments, theoretical and facts, uncertain. Any disquisition by the Court on this point will
only be, as Shakespeare describes life in Macbeth,[82] full of sound and fury, signifying nothing.
Whats more, petitioners contention assumes the proposition that there is no profit or value-added. It need not take an astute
businessman to know that it is a matter of exception that a business will sell goods or services without profit or value-added.
It cannot be overstressed that a business is created precisely for profit.
The equal protection clause under the Constitution means that no person or class of persons shall be deprived of the same
protection of laws which is enjoyed by other persons or other classes in the same place and in like circumstances.[83]
The power of the State to make reasonable and natural classifications for the purposes of taxation has long been established.
Whether it relates to the subject of taxation, the kind of property, the rates to be levied, or the amounts to be raised, the
methods of assessment, valuation and collection, the States power is entitled to presumption of validity. As a rule, the
judiciary will not interfere with such power absent a clear showing of unreasonableness, discrimination, or arbitrariness.[84]
Petitioners point out that the limitation on the creditable input tax if the entity has a high ratio of input tax, or invests in
capital equipment, or has several transactions with the government, is not based on real and substantial differences to meet a
valid classification.
The argument is pedantic, if not outright baseless. The law does not make any classification in the subject of taxation, the
kind of property, the rates to be levied or the amounts to be raised, the methods of assessment, valuation and collection.
Petitioners alleged distinctions are based on variables that bear different consequences. While the implementation of the law
may yield varying end results depending on ones profit margin and value-added, the Court cannot go beyond what the
legislature has laid down and interfere with the affairs of business.
The equal protection clause does not require the universal application of the laws on all persons or things without
distinction. This might in fact sometimes result in unequal protection. What the clause requires is equality among equals as
determined according to a valid classification. By classification is meant the grouping of persons or things similar to each
other in certain particulars and different from all others in these same particulars.[85]
Petitioners brought to the Courts attention the introduction of Senate Bill No. 2038 by Sens. S.R. Osmea III and Ma. Ana
Consuelo A.S. Madrigal on June 6, 2005, and House Bill No. 4493 by Rep. Eric D. Singson. The proposed legislation seeks
to amend the 70% limitation by increasing the same to 90%. This, according to petitioners, supports their stance that the
70% limitation is arbitrary and confiscatory. On this score, suffice it to say that these are still proposed legislations. Until
Congress amends the law, and absent any unequivocal basis for its unconstitutionality, the 70% limitation stays.
B. Uniformity and Equitability of Taxation
Article VI, Section 28(1) of the Constitution reads:
The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation.
Uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate.
Different articles may be taxed at different amounts provided that the rate is uniform on the same class everywhere with all
people at all times.[86]
In this case, the tax law is uniform as it provides a standard rate of 0% or 10% (or 12%) on all goods and services. Sections
4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the NIRC, provide for a rate of 10% (or
12%) on sale of goods and properties, importation of goods, and sale of services and use or lease of properties. These same
sections also provide for a 0% rate on certain sales and transaction.
Neither does the law make any distinction as to the type of industry or trade that will bear the 70% limitation on the
creditable input tax, 5-year amortization of input tax paid on purchase of capital goods or the 5% final withholding tax by
the government. It must be stressed that the rule of uniform taxation does not deprive Congress of the power to classify
subjects of taxation, and only demands uniformity within the particular class.[87]
R.A. No. 9337 is also equitable. The law is equipped with a threshold margin. The VAT rate of 0% or 10% (or 12%) does
not apply to sales of goods or services with gross annual sales or receipts not exceeding P1,500,000.00.[88] Also, basic
marine and agricultural food products in their original state are still not subject to the tax,[89] thus ensuring that prices at the
grassroots level will remain accessible. As was stated in Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc.
vs. Tan:[90]
The disputed sales tax is also equitable. It is imposed only on sales of goods or services by persons engaged in business with
an aggregate gross annual sales exceeding P200,000.00. Small corner sari-sari stores are consequently exempt from its
application. Likewise exempt from the tax are sales of farm and marine products, so that the costs of basic food and other
necessities, spared as they are from the incidence of the VAT, are expected to be relatively lower and within the reach of the
general public.
It is admitted that R.A. No. 9337 puts a premium on businesses with low profit margins, and unduly favors those with high
profit margins. Congress was not oblivious to this. Thus, to equalize the weighty burden the law entails, the law, under
Section 116, imposed a 3% percentage tax on VAT-exempt persons under Section 109(v), i.e., transactions with gross annual
sales and/or receipts not exceeding P1.5 Million. This acts as a equalizer because in effect, bigger businesses that qualify for
VAT coverage and VAT-exempt taxpayers stand on equal-footing.
Moreover, Congress provided mitigating measures to cushion the impact of the imposition of the tax on those previously
exempt. Excise taxes on petroleum products[91] and natural gas[92] were reduced. Percentage tax on domestic carriers was
removed.[93] Power producers are now exempt from paying franchise tax.[94]
Aside from these, Congress also increased the income tax rates of corporations, in order to distribute the burden of taxation.
Domestic, foreign, and non-resident corporations are now subject to a 35% income tax rate, from a previous 32%. [95]
Intercorporate dividends of non-resident foreign corporations are still subject to 15% final withholding tax but the tax credit
allowed on the corporations domicile was increased to 20%.[96] The Philippine Amusement and Gaming Corporation
(PAGCOR) is not exempt from income taxes anymore.[97] Even the sale by an artist of his works or services performed for
the production of such works was not spared.
All these were designed to ease, as well as spread out, the burden of taxation, which would otherwise rest largely on the
consumers. It cannot therefore be gainsaid that R.A. No. 9337 is equitable.
C.
Progressivity of Taxation
Lastly, petitioners contend that the limitation on the creditable input tax is anything but regressive. It is the smaller business
with higher input tax-output tax ratio that will suffer the consequences.
Progressive taxation is built on the principle of the taxpayers ability to pay. This principle was also lifted from Adam Smiths
Canons of Taxation, and it states:
I. The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion
to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the
state.
Taxation is progressive when its rate goes up depending on the resources of the person affected.[98]
The VAT is an antithesis of progressive taxation. By its very nature, it is regressive. The principle of progressive taxation
has no relation with the VAT system inasmuch as the VAT paid by the consumer or business for every goods bought or
services enjoyed is the same regardless of income. In
other words, the VAT paid eats the same portion of an income, whether big or small. The disparity lies in the income earned
by a person or profit margin marked by a business, such that the higher the income or profit margin, the smaller the portion
of the income or profit that is eaten by VAT. A converso, the lower the income or profit margin, the bigger the part that the
VAT eats away. At the end of the day, it is really the lower income group or businesses with low-profit margins that is
always hardest hit.
Nevertheless, the Constitution does not really prohibit the imposition of indirect taxes, like the VAT. What it simply
provides is that Congress shall "evolve a progressive system of taxation." The Court stated in the Tolentino case, thus:
The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are regressive. What it simply
provides is that Congress shall evolve a progressive system of taxation. The constitutional provision has been interpreted to
mean simply that direct taxes are . . . to be preferred [and] as much as possible, indirect taxes should be minimized. (E.
FERNANDO, THE CONSTITUTION OF THE PHILIPPINES 221 (Second ed. 1977)) Indeed, the mandate to Congress is
not to prescribe, but to evolve, a progressive tax system. Otherwise, sales taxes, which perhaps are the oldest form of
indirect taxes, would have been prohibited with the proclamation of Art. VIII, 17 (1) of the 1973 Constitution from which
the present Art. VI, 28 (1) was taken. Sales taxes are also regressive.
Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not impossible, to avoid them
by imposing such taxes according to the taxpayers' ability to pay. In the case of the VAT, the law minimizes the regressive
effects of this imposition by providing for zero rating of certain transactions (R.A. No. 7716, 3, amending 102 (b) of the
NIRC), while granting exemptions to other transactions. (R.A. No. 7716, 4 amending 103 of the NIRC)[99]
CONCLUSION
It has been said that taxes are the lifeblood of the government. In this case, it is just an enema, a first-aid measure to
resuscitate an economy in distress. The Court is neither blind nor is it turning a deaf ear on the plight of the masses. But it
does not have the panacea for the malady that the law seeks to remedy. As in other cases, the Court cannot strike down a law
as unconstitutional simply because of its yokes.
Let us not be overly influenced by the plea that for every wrong there is a remedy, and that the judiciary should stand ready
to afford relief. There are undoubtedly many wrongs the judicature may not correct, for instance, those involving political
questions. . . .
Let us likewise disabuse our minds from the notion that the judiciary is the repository of remedies for all political or social
ills; We should not forget that the Constitution has judiciously allocated the powers of government to three distinct and
separate compartments; and that judicial interpretation has tended to the preservation of the independence of the three, and a
zealous regard of the prerogatives of each, knowing full well that one is not the guardian of the others and that, for official
wrong-doing, each may be brought to account, either by impeachment, trial or by the ballot box.[100]
The words of the Court in Vera vs. Avelino[101] holds true then, as it still holds true now. All things considered, there is no
raison d'tre for the unconstitutionality of R.A. No. 9337.
WHEREFORE, Republic Act No. 9337 not being unconstitutional, the petitions in G.R. Nos. 168056, 168207, 168461,
168463, and 168730, are hereby DISMISSED.
There being no constitutional impediment to the full enforcement and implementation of R.A. No. 9337, the temporary
restraining order issued by the Court on July 1, 2005 is LIFTED upon finality of herein decision.
SO ORDERED.
EN BANC
RENATO V. DIAZ and G.R. No. 193007
AURORA MA. F. TIMBOL,
Petitioners, Present:
, C.J.,
CARPIO,
VELASCO, JR.,
LEONARDO-DE CASTRO,
BRION,
- versus - PERALTA,
BERSAMIN,*
CASTILLO,
ABAD,
VILLARAMA, JR.,
PEREZ,
MENDOZA, and
SERENO,** JJ.
THE SECRETARY OF FINANCE
and THE COMMISSIONER OF Promulgated:
INTERNAL REVENUE,
Respondents. July 19, 2011
x ---------------------------------------------------------------------------------------- x
DECISION
ABAD, J.:
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 [1] 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.
Petitioners 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. Additionally, Diaz claims that he sponsored the approval of Republic Act 7716 (the 1994 Expanded
VAT Law or EVAT Law) and Republic Act 8424 (the 1997 National Internal Revenue Code or the NIRC) at the House of
Representatives. Timbol, on the other hand, claims that she served as Assistant Secretary of the Department of Trade and
Industry and consultant of the Toll Regulatory Board (TRB) in the past administration.
Petitioners allege that the BIR attempted during the administration of President Gloria Macapagal-Arroyo to impose VAT on
toll fees. The imposition was deferred, however, in view of the consistent opposition of Diaz and other sectors to such
move. But, upon President Benigno C. Aquino IIIs assumption of office in 2010, the BIR revived the idea and would
impose the challenged tax on toll fees beginning August 16, 2010 unless judicially enjoined.
Petitioners hold the view that Congress did not, when it enacted the NIRC, intend to include toll fees within the meaning of
sale 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 fees
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.
On August 13, 2010 the Court issued a temporary restraining order (TRO), enjoining the implementation of the VAT. The
Court required the government, represented by respondents Cesar V. Purisima, Secretary of the Department of Finance, and
Kim S. Jacinto-Henares, Commissioner of Internal Revenue, to comment on the petition within 10 days from notice.[2]
Later, the Court issued another resolution treating the petition as one for prohibition.[3]
On August 23, 2010 the Office of the Solicitor General filed the governments comment.[4] The government avers that the
NIRC imposes VAT on all kinds of services of franchise grantees, including tollway operations, except where the law
provides otherwise; that the Court should seek the meaning and intent of the law from the words used in the statute; and that
the imposition of VAT on tollway operations has been the subject as early as 2003 of several BIR rulings and circulars.[5]
The government also argues that petitioners have no right to invoke the non-impairment of contracts clause since they
clearly have no personal interest in existing toll operating agreements (TOAs) between the government and tollway
operators. At any rate, the non-impairment clause cannot limit the States sovereign taxing power which is generally read
into contracts.
Finally, the government contends that the non-inclusion of VAT in the parametric formula for computing toll rates cannot
exempt tollway operators from VAT. In any event, it cannot be claimed that the rights of tollway operators to a reasonable
rate of return will be impaired by the VAT since this is imposed on top of the toll rate. Further, the imposition of VAT on toll
fees would have very minimal effect on motorists using the tollways.
In their reply[6] to the governments comment, petitioners point out that tollway operators cannot be regarded as franchise
grantees under the NIRC since they do not hold legislative franchises. Further, the BIR intends to collect the VAT by
rounding off the toll rate and putting any excess collection in an escrow account. But this would be illegal since only the
Congress can modify VAT rates and authorize its disbursement. Finally, BIR Revenue Memorandum Circular 63-2010 (BIR
RMC 63-2010), which directs toll companies to record an accumulated input VAT of zero balance in their books as of
August 16, 2010, contravenes Section 111 of the NIRC which grants entities that first become liable to VAT a transitional
input tax credit of 2% on beginning inventory. For this reason, the VAT on toll fees cannot be implemented.
The Issues Presented
The case presents two procedural issues:
1. Whether or not the Court may treat the petition for declaratory relief as one for prohibition; and
2. Whether or not petitioners Diaz and Timbol have legal standing to file the action.
The case also presents two substantive issues:
1. Whether or not the government is unlawfully expanding VAT coverage by including tollway operators and tollway
operations in the terms franchise grantees and sale of services under Section 108 of the Code; and
2. Whether or not the imposition of VAT on tollway operators a) amounts to a tax on tax and not a tax on services; b) will
impair the tollway operators right to a reasonable return of investment under their TOAs; and c) is not administratively
feasible and cannot be implemented.
The Courts Rulings
A. On the Procedural Issues:

On August 24, 2010 the Court issued a resolution, treating the petition as one for prohibition rather than one for declaratory
relief, the characterization that petitioners Diaz and Timbol gave their action. The government has sought reconsideration of
the Courts resolution,[7] however, arguing that petitioners allegations clearly made out a case for declaratory relief, an
action over which the Court has no original jurisdiction. The government adds, moreover, that the petition does not meet the
requirements of Rule 65 for actions for prohibition since the BIR did not exercise judicial, quasi-judicial, or ministerial
functions when it sought to impose VAT on toll fees. Besides, petitioners Diaz and Timbol has a plain, speedy, and adequate
remedy in the ordinary course of law against the BIR action in the form of an appeal to the Secretary of Finance.
But there are precedents for treating a petition for declaratory relief as one for prohibition if the case has far-reaching
implications and raises questions that need to be resolved for the public good. [8] The Court has also held that a petition for
prohibition is a proper remedy to prohibit or nullify acts of executive officials that amount to usurpation of legislative
authority.[9]
Here, the imposition of VAT on toll fees has far-reaching implications. Its imposition would impact, not only on the more
than half a million motorists who use the tollways everyday, but more so on the governments effort to raise revenue for
funding various projects and for reducing budgetary deficits.
To dismiss the petition and resolve the issues later, after the challenged VAT has been imposed, could cause more mischief
both to the tax-paying public and the government. A belated declaration of nullity of the BIR action would make any
attempt to refund to the motorists what they paid an administrative nightmare with no solution. Consequently, it is not only
the right, but the duty of the Court to take cognizance of and resolve the issues that the petition raises.
Although the petition does not strictly comply with the requirements of Rule 65, the Court has ample power to waive such
technical requirements when the legal questions to be resolved are of great importance to the public. The same may be said
of the requirement of locus standi which is a mere procedural requisite.[10]

B. On the Substantive Issues:
One. The relevant law in this case is Section 108 of the NIRC, as amended. VAT is levied, assessed, and collected,
according to Section 108, on the gross receipts derived from the sale or exchange of services as well as from the use or lease
of properties. The third paragraph of Section 108 defines sale or exchange of services as follows:
The phrase sale or exchange of services means the performance of all kinds of services in the Philippines for others
for a fee, remuneration or consideration, including those performed or rendered by construction and service
contractors; stock, real estate, commercial, customs and immigration brokers; lessors of property, whether personal
or real; warehousing services; lessors or distributors of cinematographic films; persons engaged in milling,
processing, manufacturing or repacking goods for others; proprietors, operators or keepers of hotels, motels,
resthouses, pension houses, inns, resorts; proprietors or operators of restaurants, refreshment parlors, cafes and
other eating places, including clubs and caterers; dealers in securities; lending investors; 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; common carriers by air and sea relative to
their transport of passengers, goods or cargoes from one place in the Philippines to another place in the Philippines;
sales of electricity by generation companies, transmission, and distribution companies; services of franchise grantees
of electric utilities, telephone and telegraph, radio and television broadcasting and all other franchise grantees except
those under Section 119 of this Code and non-life insurance companies (except their crop insurances), including
surety, fidelity, indemnity and bonding companies; and similar services regardless of whether or not the performance
thereof calls for the exercise or use of the physical or mental faculties. (Underscoring supplied)
It is plain from the above that the law imposes VAT on all kinds of services rendered in the for a fee, including those
specified in the list. The enumeration of affected services is not exclusive.[11] By qualifying services with the words all
kinds, Congress has given the term services an all-encompassing meaning. The listing of specific services are intended to
illustrate how pervasive and broad is the VATs reach rather than establish concrete limits to its application. Thus, every
activity that can be imagined as a form of service rendered for a fee should be deemed included unless some provision of
law especially excludes it.
Now, do tollway operators render services for a fee? 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[12] 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;
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 the to
another place in the .
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.
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[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.[14]
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.[15] 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.[16]
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.[17] The franchise in this case is evidenced by a Toll Operation Certificate.[18]
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.[19]
Nor can petitioners cite as binding on the Court statements made by certain lawmakers in the course of congressional
deliberations of the would-be law. As the Court said in South African Airways v. Commissioner of Internal Revenue,[20]
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. Consequently, the meaning and intention of the law must first be
sought in the words of the statute itself, read and considered in their natural, ordinary, commonly accepted and most obvious
significations, according to good and approved usage and without resorting to forced or subtle construction.
Two. Petitioners argue that a toll fee is a users tax and to impose VAT on toll fees is tantamount to taxing a tax.[21] Actually,
petitioners base this argument on the following discussion in Manila International Airport Authority (MIAA) v. Court of
Appeals:[22]
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 and Buildings constitute a port constructed by the State. Under Article 420 of the Civil Code, the
and Buildings are properties of public dominion and thus owned by the State or the Republic of the .
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.[23]
(Underscoring supplied)
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 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.[24] Thus, its airport lands and buildings are properties of public dominion beyond
the commerce of man under Article 420(1)[25] 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 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.[26] 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. [27]
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.[28]
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.[29]
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 tax[30] and 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, [31] 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.[32]
Three. Petitioner Timbol has no personality to invoke the non-impairment of contract clause on behalf of private investors
in the tollway projects. She will neither be prejudiced by nor be affected by the alleged diminution in return of investments
that may result from the VAT imposition. She has no interest at all in the profits to be earned under the TOAs. The interest in
and right to recover investments solely belongs to the private tollway investors.
Besides, her allegation that the private investors rate of recovery will be adversely affected by imposing VAT on tollway
operations is purely speculative. Equally presumptuous is her assertion that a stipulation in the TOAs known as the Material
Adverse Grantor Action will be activated if VAT is thus imposed. The Court cannot rule on matters that are manifestly
conjectural. Neither can it prohibit the State from exercising its sovereign taxing power based on uncertain, prophetic
grounds.
Four. Finally, petitioners assert that the substantiation requirements for claiming input VAT make the VAT on tollway
operations impractical and incapable of implementation. They cite the fact that, in order to claim input VAT, the name,
address and tax identification number of the tollway user must be indicated in the VAT receipt or invoice. The manner by
which the BIR intends to implement the VAT by rounding off the toll rate and putting any excess collection in an escrow
account is also illegal, while the alternative of giving change to thousands of motorists in order to meet the exact toll rate
would be a logistical nightmare. Thus, according to them, the VAT on tollway operations is not administratively feasible.
[33]
Administrative feasibility is one of the canons of a sound tax system. It simply means that the tax system should be capable
of being effectively administered and enforced with the least inconvenience to the taxpayer. Non-observance of the canon,
however, will not render a tax imposition invalid except to the extent that specific constitutional or statutory limitations are
impaired.[34] Thus, even if the imposition of VAT on tollway operations may seem burdensome to implement, it is not
necessarily invalid unless some aspect of it is shown to violate any law or the Constitution.
Here, it remains to be seen how the taxing authority will actually implement the VAT on tollway operations. Any declaration
by the Court that the manner of its implementation is illegal or unconstitutional would be premature. Although the transcript
of the August 12, 2010 Senate hearing provides some clue as to how the BIR intends to go about it,[35] the facts pertaining
to the matter are not sufficiently established for the Court to pass judgment on. Besides, any concern about how the VAT on
tollway operations will be enforced must first be addressed to the BIR on whom the task of implementing tax laws primarily
and exclusively rests. The Court cannot preempt the BIRs discretion on the matter, absent any clear violation of law or the
Constitution.
For the same reason, the Court cannot prematurely declare as illegal, BIR RMC 63-2010 which directs toll companies to
record an accumulated input VAT of zero balance in their books as of August 16, 2010, the date when the VAT imposition
was supposed to take effect. The issuance allegedly violates Section 111(A)[36] of the Code which grants first time VAT
payers a transitional input VAT of 2% on beginning inventory.
In this connection, the BIR explained that BIR RMC 63-2010 is actually the product of negotiations with tollway operators
who have been assessed VAT as early as 2005, but failed to charge VAT-inclusive toll fees which by now can no longer be
collected. The tollway operators agreed to waive the 2% transitional input VAT, in exchange for cancellation of their past
due VAT liabilities. Notably, the right to claim the 2% transitional input VAT belongs to the tollway operators who have not
questioned the circulars validity. They are thus the ones who have a right to challenge the circular in a direct and proper
action brought for the purpose.
Conclusion
In fine, the Commissioner of Internal Revenue did not usurp legislative prerogative or expand the VAT laws coverage when
she sought to impose VAT on tollway operations. Section 108(A) of the Code clearly states that services of all other
franchise grantees are subject to VAT, except as may be provided under Section 119 of the Code. Tollway operators are not
among the franchise grantees subject to franchise tax under the latter provision. Neither are their services among the VATexempt transactions under Section 109 of the Code.
If the legislative intent was to exempt tollway operations from VAT, as petitioners so strongly allege, then it would have
been well for the law to clearly say so. Tax exemptions must be justified by clear statutory grant and based on language in
the law too plain to be mistaken.[37] But as the law is written, no such exemption obtains for tollway operators. The Court
is thus duty-bound to simply apply the law as it is found.
Lastly, the grant of tax exemption is a matter of legislative policy that is within the exclusive prerogative of Congress. The
Courts role is to merely uphold this legislative policy, as reflected first and foremost in the language of the tax statute. Thus,
any unwarranted burden that may be perceived to result from enforcing such policy must be properly referred to Congress.
The Court has no discretion on the matter but simply applies the law.
The VAT on franchise grantees has been in the statute books since 1994 when R.A. 7716 or the Expanded Value-Added Tax
law was passed. It is only now, however, that the executive has earnestly pursued the VAT imposition against tollway
operators. The executive exercises exclusive discretion in matters pertaining to the implementation and execution of tax
laws. Consequently, the executive is more properly suited to deal with the immediate and practical consequences of the VAT
imposition.
WHEREFORE, the Court DENIES respondents Secretary of Finance and Commissioner of Internal Revenues motion for
reconsideration of its August 24, 2010 resolution, DISMISSES the petitioners Renato V. Diaz and Aurora Ma. F. Timbols
petition for lack of merit, and SETS ASIDE the Courts temporary restraining order dated August 13, 2010.
SO ORDERED.
SECOND DIVISION
[G.R. No. 151135. ]
CONTEX CORPORATION, petitioner, vs. HON. COMMISSIONER OF INTERNAL REVENUE, respondent.
DECISION
QUISUMBING, J.:
For review is the Decision[1] dated September 3, 2001, of the Court of Appeals, in CA-G.R. SP No. 62823, which reversed
and set aside the decision[2] dated October 13, 2000, of the Court of Tax Appeals (CTA). The CTA had ordered the
Commissioner of Internal Revenue (CIR) to refund the sum of P683,061.90 to petitioner as erroneously paid input valueadded tax (VAT) or in the alternative, to issue a tax credit certificate for said amount. Petitioner also assails the appellate
courts Resolution,[3] dated , denying the motion for reconsideration.
Petitioner is a domestic corporation engaged in the business of manufacturing hospital textiles and garments and other
hospital supplies for export. Petitioners place of business is at the Subic Bay Freeport Zone (SBFZ). It is duly registered
with the Subic Bay Metropolitan Authority (SBMA) as a Subic Bay Freeport Enterprise, pursuant to the provisions of
Republic Act No. 7227.[4] As an SBMA-registered firm, petitioner is exempt from all local and national internal revenue
taxes except for the preferential tax provided for in Section 12 (c)[5] of Rep. Act No. 7227. Petitioner also registered with
the Bureau of Internal Revenue (BIR) as a non-VAT taxpayer under Certificate of Registration RDO Control No. 95-180000133.
From to , petitioner purchased various supplies and materials necessary in the conduct of its manufacturing business. The
suppliers of these goods shifted unto petitioner the 10% VAT on the purchased items, which led the petitioner to pay input
taxes in the amounts of P539,411.88 and P504,057.49 for 1997 and 1998, respectively.[6]
Acting on the belief that it was exempt from all national and local taxes, including VAT, pursuant to Rep. Act No. 7227,
petitioner filed two applications for tax refund or tax credit of the VAT it paid. Mr. Edilberto Carlos, revenue district officer
of BIR RDO No. 19, denied the first application letter, dated December 29, 1998.
Unfazed by the denial, petitioner on , filed another application for tax refund/credit, this time directly with Atty. Alberto
Pagabao, the regional director of BIR Revenue Region No. 4. The second letter sought a refund or issuance of a tax credit
certificate in the amount of P1,108,307.72, representing erroneously paid input VAT for the period to .
When no response was forthcoming from the BIR Regional Director, petitioner then elevated the matter to the Court of Tax
Appeals, in a petition for review docketed as CTA Case No. 5895. Petitioner stressed that Section 112(A)[7] if read in
relation to Section 106(A)(2)(a)[8] of the National Internal Revenue Code, as amended and Section 12(b)[9] and (c) of Rep.
Act No. 7227 would show that it was not liable in any way for any value-added tax.
In opposing the claim for tax refund or tax credit, the BIR asked the CTA to apply the rule that claims for refund are strictly
construed against the taxpayer. Since petitioner failed to establish both its right to a tax refund or tax credit and its
compliance with the rules on tax refund as provided for in Sections 204[10] and 229[11] of the Tax Code, its claim should
be denied, according to the BIR.
On , the CTA decided CTA Case No. 5895 as follows:
WHEREFORE, in view of the foregoing, the Petition for Review is hereby PARTIALLY GRANTED. Respondent is hereby
ORDERED to REFUND or in the alternative to ISSUE A TAX CREDIT CERTIFICATE in favor of Petitioner the sum of
P683,061.90, representing erroneously paid input VAT.
SO ORDERED.[12]
In granting a partial refund, the CTA ruled that petitioner misread Sections 106(A)(2)(a) and 112(A) of the Tax Code. The
tax court stressed that these provisions apply only to those entities registered as VAT taxpayers whose sales are zero-rated.
Petitioner does not fall under this category, since it is a non-VAT taxpayer as evidenced by the Certificate of Registration
RDO Control No. 95-180-000133 issued by RDO Rosemarie Ragasa of BIR RDO No. 18 of the Subic Bay Freeport Zone
and thus it is exempt from VAT, pursuant to Rep. Act No. 7227, said the CTA.
Nonetheless, the CTA held that the petitioner is exempt from the imposition of input VAT on its purchases of supplies and
materials. It pointed out that under Section 12(c) of Rep. Act No. 7227 and the Implementing Rules and Regulations of the
Bases Conversion and Development Act of 1992, all that petitioner is required to pay as a SBFZ-registered enterprise is a
5% preferential tax.
The CTA also disallowed all refunds of input VAT paid by the petitioner prior to June 29, 1997 for being barred by the twoyear prescriptive period under Section 229 of the Tax Code. The tax court also limited the refund only to the input VAT paid
by the petitioner on the supplies and materials directly used by the petitioner in the manufacture of its goods. It struck down
all claims for input VAT paid on maintenance, office supplies, freight charges, and all materials and supplies shipped or
delivered to the petitioners and offices.
Respondent CIR then filed a petition, docketed as CA-G.R. SP No. 62823, for review of the CTA decision by the Court of
Appeals. Respondent maintained that the exemption of Contex Corp. under Rep. Act No. 7227 was limited only to direct
taxes and not to indirect taxes such as the input component of the VAT. The Commissioner pointed out that from its very
nature, the value-added tax is a burden passed on by a VAT registered person to the end users; hence, the direct liability for
the tax lies with the suppliers and not Contex.
Finding merit in the CIRs arguments, the appellate court decided CA-G.R. SP No. 62823 in his favor, thus:
WHEREFORE, premises considered, the appealed decision is hereby REVERSED AND SET ASIDE. Contexs claim for
refund of erroneously paid taxes is DENIED accordingly.
SO ORDERED.[13]
In reversing the CTA, the Court of Appeals held that the exemption from duties and taxes on the importation of raw
materials, capital, and equipment of SBFZ-registered enterprises under Rep. Act No. 7227 and its implementing rules covers
only the VAT imposable under Section 107 of the [Tax Code], which is a direct liability of the importer, and in no way
includes the value-added tax of the seller-exporter the burden of which was passed on to the importer as an additional costs
of the goods.[14] This was because the exemption granted by Rep. Act No. 7227 relates to the act of importation and
Section 107[15] of the Tax Code specifically imposes the VAT on importations. The appellate court applied the principle
that tax exemptions are strictly construed against the taxpayer. The Court of Appeals pointed out that under the
implementing rules of Rep. Act No. 7227, the exemption of SBFZ-registered enterprises from internal revenue taxes is
qualified as pertaining only to those for which they may be directly liable. It then stated that apparently, the legislative intent
behind Rep. Act No. 7227 was to grant exemptions only to direct taxes, which SBFZ-registered enterprise may be liable for
and only in connection with their importation of raw materials, capital, and equipment as well as the sale of their goods and
services.
Petitioner timely moved for reconsideration of the Court of Appeals decision, but the motion was denied.
Hence, the instant petition raising as issues for our resolution the following:
A. WHETHER OR NOT THE EXEMPTION FROM ALL LOCAL AND NATIONAL INTERNAL
REVENUE TAXES PROVIDED IN REPUBLIC ACT NO. 7227 COVERS THE VALUE ADDED TAX
PAID BY PETITIONER, A ON ITS PURCHASES OF SUPPLIES AND MATERIALS.
B. WHETHER OR NOT THE COURT OF TAX APPEALS CORRECTLY HELD THAT PETITIONER
IS ENTITLED TO A TAX CREDIT OR REFUND OF THE VAT PAID ON ITS PURCHASES OF
SUPPLIES AND RAW MATERIALS FOR THE YEARS 1997 AND 1998.[16]
Simply stated, we shall resolve now the issues concerning: (1) the correctness of the finding of the Court of Appeals that the
VAT exemption embodied in Rep. Act No. 7227 does not apply to petitioner as a purchaser; and (2) the entitlement of the
petitioner to a tax refund on its purchases of supplies and raw materials for 1997 and 1998.
On the first issue, petitioner argues that the appellate courts restrictive interpretation of petitioners VAT exemption as limited
to those covered by Section 107 of the Tax Code is erroneous and devoid of legal basis. It contends that the provisions of
Rep. Act No. 7227 clearly and unambiguously mandate that no local and national taxes shall be imposed upon SBFZregistered firms and hence, said law should govern the case. Petitioner calls our attention to regulations issued by both the
SBMA and BIR clearly and categorically providing that the tax exemption provided for by Rep. Act No. 7227 includes
exemption from the imposition of VAT on purchases of supplies and materials.
The respondent takes the diametrically opposite view that while Rep. Act No. 7227 does grant tax exemptions, such grant is
not all-encompassing but is limited only to those taxes for which a SBFZ-registered business may be directly liable. Hence,
SBFZ locators are not relieved from the indirect taxes that may be shifted to them by a VAT-registered seller.
At this juncture, it must be stressed that the VAT is an indirect tax. As such, the amount of tax paid on the goods, properties
or services bought, transferred, or leased may be shifted or passed on by the seller, transferor, or lessor to the buyer,
transferee or lessee.[17] Unlike a direct tax, such as the income tax, which primarily taxes an individuals ability to pay
based on his income or net wealth, an indirect tax, such as the VAT, is a tax on consumption of goods, services, or certain
transactions involving the same. The VAT, thus, forms a substantial portion of consumer expenditures.
Further, in indirect taxation, there is a need to distinguish between the liability for the tax and the burden of the tax. As
earlier pointed out, the amount of tax paid may be shifted or passed on by the seller to the buyer. What is transferred in such
instances is not the liability for the tax, but the tax burden. In adding or including the VAT due to the selling price, the seller
remains the person primarily and legally liable for the payment of the tax. What is shifted only to the intermediate buyer and
ultimately to the final purchaser is the burden of the tax.[18] Stated differently, a seller who is directly and legally liable for
payment of an indirect tax, such as the VAT on goods or services is not necessarily the person who ultimately bears the
burden of the same tax. It is the final purchaser or consumer of such goods or services who, although not directly and
legally liable for the payment thereof, ultimately bears the burden of the tax.[19]
Exemptions from VAT are granted by express provision of the Tax Code or special laws. Under VAT, the transaction can
have preferential treatment in the following ways:
(a) VAT Exemption. An exemption means that the sale of goods or properties and/or services and the use or lease of
properties is not subject to VAT (output tax) and the seller is not allowed any tax credit on VAT (input tax) previously paid.
[20] This is a case wherein the VAT is removed at the exempt stage (i.e., at the point of the sale, barter or exchange of the
goods or properties).
The person making the exempt sale of goods, properties or services shall not bill any output tax to his customers because the
said transaction is not subject to VAT. On the other hand, a VAT-registered purchaser of VAT-exempt goods/properties or
services which are exempt from VAT is not entitled to any input tax on such purchase despite the issuance of a VAT invoice
or receipt.[21]
(b) Zero-rated Sales. These are sales by VAT-registered persons which are subject to 0% rate, meaning the tax burden is not
passed on to the purchaser. A zero-rated sale by a VAT-registered person, which is a taxable transaction for VAT purposes,
shall not result in any output tax. However, the input tax on his purchases of goods, properties or services related to such
zero-rated sale shall be available as tax credit or refund in accordance with these regulations.[22]
Under Zero-rating, all VAT is removed from the zero-rated goods, activity or firm. In contrast, exemption only removes the
VAT at the exempt stage, and it will actually increase, rather than reduce the total taxes paid by the exempt firms business or
non-retail customers. It is for this reason that a sharp distinction must be made between zero-rating and exemption in
designating a value-added tax.[23]
Apropos, the petitioners claim to VAT exemption in the instant case for its purchases of supplies and raw materials is
founded mainly on Section 12 (b) and (c) of Rep. Act No. 7227, which basically exempts them from all national and local
internal revenue taxes, including VAT and Section 4 (A)(a) of BIR Revenue Regulations No. 1-95.[24]
On this point, petitioner rightly claims that it is indeed VAT-Exempt and this fact is not controverted by the respondent. In
fact, petitioner is registered as a NON-VAT taxpayer per Certificate of Registration[25] issued by the BIR. As such, it is
exempt from VAT on all its sales and importations of goods and services.
Petitioners claim, however, for exemption from VAT for its purchases of supplies and raw materials is incongruous with its
claim that it is VAT-Exempt, for only VAT-Registered entities can claim Input VAT Credit/Refund.
The point of contention here is whether or not the petitioner may claim a refund on the Input VAT erroneously passed on to
it by its suppliers.
While it is true that the petitioner should not have been liable for the VAT inadvertently passed on to it by its supplier since
such is a zero-rated sale on the part of the supplier, the petitioner is not the proper party to claim such VAT refund.
Section 4.100-2 of BIRs Revenue Regulations 7-95, as amended, or the Consolidated Value-Added Tax Regulations provide:
Sec. 4.100-2. Zero-rated Sales. A zero-rated sale by a VAT-registered person, which is a taxable transaction for VAT
purposes, shall not result in any output tax. However, the input tax on his purchases of goods, properties or services related
to such zero-rated sale shall be available as tax credit or refund in accordance with these regulations.
The following sales by VAT-registered persons shall be subject to 0%:
(a) Export Sales
Export Sales shall mean
...
(5) Those considered export sales under Articles 23 and 77 of Executive Order No. 226, otherwise known
as the Omnibus Investments Code of 1987, and other special laws, e.g. Republic Act No. 7227, otherwise
known as the Bases Conversion and Development Act of 1992.
...
(c) Sales to persons or entities whose exemption under special laws, e.g. R.A. No. 7227 duly registered and accredited
enterprises with Subic Bay Metropolitan Authority (SBMA) and Clark Development Authority (CDA), R. A. No.
7916, Philippine Economic Zone Authority (PEZA), or international agreements, e.g. Asian Development Bank
(ADB), International Rice Research Institute (IRRI), etc. to which the Philippines is a signatory effectively
subject such sales to zero-rate.
Since the transaction is deemed a zero-rated sale, petitioners supplier may claim an Input VAT credit with no corresponding
Output VAT liability. Congruently, no Output VAT may be passed on to the petitioner.
On the second issue, it may not be amiss to re-emphasize that the petitioner is registered as a NON-VAT taxpayer and thus,
is exempt from VAT. As an exempt VAT taxpayer, it is not allowed any tax credit on VAT (input tax) previously paid. In fine,
even if we are to assume that exemption from the burden of VAT on petitioners purchases did exist, petitioner is still not
entitled to any tax credit or refund on the input tax previously paid as petitioner is an exempt VAT taxpayer.
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.
Accordingly, we find that the Court of Appeals did not commit any reversible error of law in holding that petitioners VAT
exemption under Rep. Act No. 7227 is limited to the VAT on which it is directly liable as a seller and hence, it cannot claim
any refund or exemption for any input VAT it paid, if any, on its purchases of raw materials and supplies.
WHEREFORE, the petition is DENIED for lack of merit. The Decision dated , of the Court of Appeals in CA-G.R. SP No.
62823, as well as its Resolution of are AFFIRMED. No pronouncement as to costs.
SO ORDERED.
[G.R. No. 149073. February 16, 2005]
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. CEBU TOYO CORPORATION, respondent.
DECISION
QUISUMBING, J.:
In its Decision[1] dated July 6, 2001, the Court of Appeals, in CA-G.R. SP No. 60304, affirmed the Resolutions dated May
31, 2000[2] and August 2, 2000,[3] of the Court of Tax Appeals (CTA) ordering the Commissioner of Internal Revenue
(CIR) to allow a partial refund or, alternatively, to issue a tax credit certificate in favor of Cebu Toyo Corporation in the sum
of P2,158,714.46, representing the unutilized input value-added tax (VAT) payments.
The facts, as culled from the records, are as follows:
Respondent Cebu Toyo Corporation is a domestic corporation engaged in the manufacture of lenses and various optical
components used in television sets, cameras, compact discs and other similar devices. Its principal office is located at the
Mactan Export Processing Zone (MEPZ) in Lapu-Lapu City, Cebu. It is a subsidiary of Toyo Lens Corporation, a nonresident corporation organized under the laws of Japan. Respondent is a zone export enterprise registered with the
Philippine Economic Zone Authority (PEZA), pursuant to the provisions of Presidential Decree No. 66.[4] It is also
registered with the Bureau of Internal Revenue (BIR) as a VAT taxpayer.[5]
As an export enterprise, respondent sells 80% of its products to its mother corporation, the Japan-based Toyo Lens
Corporation, pursuant to an Agreement of Offsetting. The rest are sold to various enterprises doing business in the MEPZ.
Inasmuch as both sales are considered export sales subject to Value-Added Tax (VAT) at 0% rate under Section 106(A)(2)(a)
[6] of the National Internal Revenue Code, as amended, respondent filed its quarterly VAT returns from April 1, 1996 to
December 31, 1997 showing a total input VAT of P4,462,412.63.
On March 30, 1998, respondent filed with the Tax and Revenue Group of the One-Stop Inter-Agency Tax Credit and Duty
Drawback Center of the Department of Finance, an application for tax credit/refund of VAT paid for the period April 1, 1996
to December 31, 1997 amounting to P4,439,827.21 representing excess VAT input payments.
Respondent, however, did not bother to wait for the Resolution of its claim by the CIR. Instead, on June 26, 1998, it filed a
Petition for Review with the CTA to toll the running of the two-year prescriptive period pursuant to Section 230[7] of the
Tax Code.
Before the CTA, the respondent posits that as a VAT-registered exporter of goods, it is subject to VAT at the rate of 0% on its
export sales that do not result in any output tax. Hence, the unutilized VAT input taxes on its purchases of goods and
services related to such zero-rated activities are available as tax credits or refunds.
The petitioners position is that respondent was not entitled to a refund or tax credit since: (1) it failed to show that the tax
was erroneously or illegally collected; (2) the taxes paid and collected are presumed to have been made in accordance with
law; and (3) claims for refund are strictly construed against the claimant as these partake of the nature of tax exemption.
Initially, the CTA denied the petition for insufficiency of evidence.[8] The tax court sustained respondents argument that it
was a VAT-registered entity. It also found that the petition was timely, as it was filed within the prescription period. The CTA
also ruled that the respondents sales to Toyo Lens Corporation and to certain establishments in the Mactan Export
Processing Zone were export sales subject to VAT at 0% rate. It found that the input VAT covered by respondents claim was
not applied against any output VAT. However, the tax court decreed that the petition should nonetheless be denied because
of the respondents failure to present documentary evidence to show that there were foreign currency exchange proceeds
from its export sales. The CTA also observed that respondent failed to submit the approval by Bangko Sentral ng Pilipinas
(BSP) of its Agreement of Offsetting with Toyo Lens Corporation and the certification of constructive inward remittance.
Undaunted, respondent filed on February 21, 2000, a Motion for Reconsideration arguing that: (1) proof of its inward
remittance was not required by law; (2) BSP and BIR regulations do not require BSP approval on its Agreement of
Offsetting nor do they require certification on the amount constructively remitted; (3) it was not legally required to prove
foreign currency payments on the remaining sales to MEPZ enterprises; and (4) it had complied with the substantiation
requirements under Section 106(A)(2)(a) of the Tax Code. Hence, it was entitled to a refund of unutilized VAT input tax.
On May 31, 2000, the tax court partly granted the motion for reconsideration in a Resolution, to wit:
WHEREFORE, finding the motion of petitioner to be meritorious, the same is hereby partially granted. Accordingly, the
Court hereby MODIFIES its decision in the above-entitled case, the dispositive portion of which shall now read as follows:
WHEREFORE, finding the petition for review partially meritorious, respondent is hereby ORDERED to REFUND or, in
the alternative, to ISSUE a TAX CREDIT CERTIFICATE in favor of Petitioner in the amount of P2,158,714.46
representing unutilized input tax payments.
SO ORDERED.[9]
In granting partial reconsideration, the tax court found that there was no need for BSP approval of the Agreement of
Offsetting since the same may be categorized as an inter-company open account offset arrangement. Hence, the respondent
need not present proof of foreign currency exchange proceeds from its sales to MEPZ enterprises pursuant to Section
106(A)(2)(a)[10] of the Tax Code. However, the CTA stressed that respondent must still prove that there was an actual
offsetting of accounts to prove that constructive foreign currency exchange proceeds were inwardly remitted as required
under Section 106(A)(2)(a).
The CTA found that only the amount of Y274,043,858.00 covering respondents sales to Toyo Lens Corporation and
purchases from said mother company for the period August 7, 1996 to August 26, 1997 were actually offset against
respondents related accounts receivable and accounts payable as shown by the Agreement for Offsetting dated August 30,
1997. Resort to the respondents Accounts Receivable and Accounts Payable subsidiary ledgers corroborated the amount.
The tax court also found that out of the total export sales for the period April 1, 1996 to December 31, 1997 amounting to
Y700,654,606.15, respondents sales to MEPZ enterprises amounted only to Y136,473,908.05 of said total. Thus, allocating
the input taxes supported by receipts to the export sales, the CTA determined that the refund/credit amounted to only
P2,158,714.46,[11] computed as follows:
Total Input Taxes Claimed by respondent
P4,439,827.21
Less: Exceptions made by SGV

a.) 1996
P651,256.17
b.) 1997
104,129.13
Validly Supported Input Taxes
755,385.30
P3,684,441.91
Allocation:
Verified Zero-Rated Sales
a.) Toyo Lens Corporation
Y274,043,858.00
b.) MEPZ Enterprises
136,473,908.05
Y410,517,766.05
Divided by Total Zero-Rated Sales
Y700,654,606.15
Quotient
0.5859
Multiply by Allowable Input Tax
P3,684,441.91
Amount Refundable
P2,158,714.[52][12]
On June 21, 2000, petitioner Commissioner filed a Motion for Reconsideration arguing that respondent was not entitled to
a refund because as a PEZA-registered enterprise, it was not subject to VAT pursuant to Section 24[13] of Republic Act No.
7916,[14] as amended by Rep. Act No. 8748.[15] Thus, since respondent was not subject to VAT, the Commissioner
contended that the capital goods it purchased must be deemed not used in VAT taxable business and therefore it was not
entitled to refund of input taxes on such capital goods pursuant to Section 4.106-1 of Revenue Regulations No. 7-95.[16]
Petitioner filed a Motion for Reconsideration on June 21, 2000 based on the following theories: (1) that respondent being
registered with the PEZA as an ecozone enterprise is not subject to VAT pursuant to Sec. 24 of Rep. Act No. 7916; and (2)
since respondents business is not subject to VAT, the capital goods it purchased are considered not used in a VAT taxable
business and therefore is not entitled to a refund of input taxes.[17]
The respondent opposed the Commissioners Motion for Reconsideration and prayed that the CTA resolution be modified
so as to grant it the entire amount of tax refund or credit it was seeking.
On August 2, 2000, the Court of Tax Appeals denied the petitioners motion for reconsideration. It held that the grounds
relied upon were only raised for the first time and that Section 24 of Rep. Act No. 7916 was not applicable since respondent
has availed of the income tax holiday incentive under Executive Order No. 226 or the Omnibus Investment Code of 1987
pursuant to Section 23[18] of Rep. Act No. 7916. The tax court pointed out that E.O. No. 226 granted PEZA-registered
enterprises an exemption from payment of income taxes for 4 or 6 years depending on whether the registration was as a
pioneer or as a non-pioneer enterprise, but subject to other national taxes including VAT.
The petitioner then filed a Petition for Review with the Court of Appeals (CA), docketed as CA-G.R. SP No. 60304,
praying for the reversal of the CTA Resolutions dated May 31, 2000 and August 2, 2000, and reiterating its claim that
respondent is not entitled to a refund of input taxes since it is VAT-exempt.
On July 6, 2001, the appellate court decided CA-G.R. SP No. 60304 in respondents favor, thus:
WHEREFORE, finding no merit in the petition, this Court DISMISSES it and AFFIRMS the Resolutions dated May 31,
2000 and August 2, 2000 . . . of the Court of Tax Appeals.
SO ORDERED.[19]
The Court of Appeals found no reason to set aside the conclusions of the Court of Tax Appeals. The appellate court held as
untenable herein petitioners argument that respondent is not entitled to a refund because it is VAT-exempt since the evidence
showed that it is a VAT-registered enterprise subject to VAT at the rate of 0%. It agreed with the ruling of the tax court that
respondent had two options under Section 23 of Rep. Act No. 7916, namely: (1) to avail of an income tax holiday under
E.O. No. 226 and be subject to VAT at the rate of 0%; or (2) to avail of the 5% preferential tax under P.D. No. 66 and enjoy
VAT exemption. Since respondent availed of the incentives under E.O. No. 226, then the 0% VAT rate would be applicable
to it and any unutilized input VAT should be refunded to respondent upon proper application with and substantiation by the
BIR.
Hence, the instant petition for review now before us, with herein petitioner alleging that:
I. RESPONDENT BEING REGISTERED WITH THE PHILIPPINE ECONOMIC ZONE AUTHORITY (PEZA) AS AN
ECOZONE EXPORT ENTERPRISE, ITS BUSINESS IS NOT SUBJECT TO VAT PURSUANT TO SECTION 24 OF
REPUBLIC ACT NO. 7916 IN RELATION TO SECTION 103 OF THE TAX CODE, AS AMENDED BY RA NO. 7716.
II. SINCE RESPONDENTS BUSINESS IS NOT SUBJECT TO VAT, IT IS NOT ENTITLED TO REFUND OF INPUT
TAXES PURSUANT TO SECTION 4.103-1 OF REVENUE REGULATIONS NO. 7-95.[20]
In our view, the main issue for our resolution is whether the Court of Appeals erred in affirming the Court of Tax Appeals
resolution granting a refund in the amount of P2,158,714.46 representing unutilized input VAT on goods and services for the
period April 1, 1996 to December 31, 1997.
Both the Commissioner of Internal Revenue and the Office of the Solicitor General argue that respondent Cebu Toyo
Corporation, as a PEZA-registered enterprise, is exempt from national and local taxes, including VAT, under Section 24 of
Rep. Act No. 7916 and Section 109[21] of the NIRC. Thus, they contend that respondent Cebu Toyo Corporation is not
entitled to any refund or credit on input taxes it previously paid as provided under Section 4.103-1[22] of Revenue
Regulations No. 7-95, notwithstanding its registration as a VAT taxpayer. For petitioner claims that said registration was
erroneous and did not confer upon the respondent any right to claim recognition of the input tax credit.
The respondent counters that it availed of the income tax holiday under E.O. No. 226 for four years from August 7, 1995
making it exempt from income tax but not from other taxes such as VAT. Hence, according to respondent, its export sales
are not exempt from VAT, contrary to petitioners claim, but its export sales is subject to 0% VAT. Moreover, it argues that it
was able to establish through a report certified by an independent Certified Public Accountant that the input taxes it incurred
from April 1, 1996 to December 31, 1997 were directly attributable to its export sales. Since it did not have any output tax
against which said input taxes may be offset, it had the option to file a claim for refund/tax credit of its unutilized input
taxes.
Considering the submission of the parties and the evidence on record, we find the petition bereft of merit.
Petitioners contention that respondent is not entitled to refund for being exempt from VAT is untenable. This argument turns
a blind eye to the fiscal incentives granted to PEZA-registered enterprises under Section 23 of Rep. Act No. 7916. Note that
under said statute, the respondent had two options with respect to its tax burden. It could avail of an income tax holiday
pursuant to provisions of E.O. No. 226, thus exempt it from income taxes for a number of years but not from other internal
revenue taxes such as VAT; or it could avail of the tax exemptions on all taxes, including VAT under P.D. No. 66 and pay
only the preferential tax rate of 5% under Rep. Act No. 7916. Both the Court of Appeals and the Court of Tax Appeals found
that respondent availed of the income tax holiday for four (4) years starting from August 7, 1995, as clearly reflected in its
1996 and 1997 Annual Corporate Income Tax Returns, where respondent specified that it was availing of the tax relief under
E.O. No. 226. Hence, respondent is not exempt from VAT and it correctly registered itself as a VAT taxpayer. In fine, it is
engaged in taxable rather than exempt transactions.
Taxable transactions are those transactions which are subject to value-added tax either at the rate of ten percent (10%) or
zero percent (0%). In taxable transactions, the seller shall be entitled to tax credit for the value-added tax paid on purchases
and leases of goods, properties or services.[23]
An exemption means that the sale of goods, properties or services and the use or lease of properties is not subject to VAT
(output tax) and the seller is not allowed any tax credit on VAT (input tax) previously paid. The person making the exempt
sale of goods, properties or services shall not bill any output tax to his customers because the said transaction is not subject
to VAT. Thus, a VAT-registered purchaser of goods, properties or services that are VAT-exempt, is not entitled to any input
tax on such purchases despite the issuance of a VAT invoice or receipt.[24]
Now, having determined that respondent is engaged in taxable transactions subject to VAT, let us then proceed to determine
whether it is subject to 10% or zero (0%) rate of VAT. To begin with, it must be recalled that generally, sale of goods and
supply of services performed in the Philippines are taxable at the rate of 10%. However, export sales, or sales outside the
Philippines, shall be subject to value-added tax at 0% if made by a VAT-registered person.[25] Under the value-added tax
system, a zero-rated sale by a VAT-registered person, which is a taxable transaction for VAT purposes, shall not result in any
output tax. However, the input tax on his purchase of goods, properties or services related to such zero-rated sale shall be
available as tax credit or refund.[26]
In principle, the purpose of applying a zero percent (0%) rate on a taxable transaction is to exempt the transaction
completely from VAT previously collected on inputs. It is thus the only true way to ensure that goods are provided free of
VAT. While the zero rating and the exemption are computationally the same, they actually differ in several aspects, to wit:
(a) A zero-rated sale is a taxable transaction but does not result in an output tax while an exempted transaction is not subject
to the output tax;
(b) The input VAT on the purchases of a VAT-registered person with zero-rated sales may be allowed as tax credits or
refunded while the seller in an exempt transaction is not entitled to any input tax on his purchases despite the issuance of a
VAT invoice or receipt.
(c) Persons engaged in transactions which are zero-rated, being subject to VAT, are required to register while registration is
optional for VAT-exempt persons.
In this case, it is undisputed that respondent is engaged in the export business and is registered as a VAT taxpayer per
Certificate of Registration of the BIR.[27] Further, the records show that the respondent is subject to VAT as it availed of the
income tax holiday under E.O. No. 226. Perforce, respondent is subject to VAT at 0% rate and is entitled to a refund or
credit of the unutilized input taxes, which the Court of Tax Appeals computed at P2,158,714.46, but which we findafter
recomputationshould be P2,158,714.52.
The Supreme Court will not set aside lightly the conclusions reached by the Court of Tax Appeals which, by the very nature
of its functions, is dedicated exclusively to the resolution of tax problems and has accordingly developed an expertise on the
subject, unless there has been an abuse or improvident exercise of authority.[28] In this case, we find no cogent reason to
deviate from this well-entrenched principle. Thus, we are persuaded that indeed the Court of Appeals committed no
reversible error in affirming the assailed ruling of the Court of Tax Appeals.
WHEREFORE, the petition is DENIED for lack of merit. The assailed Decision dated July 6, 2001 of the Court of
Appeals, in CA-G.R. SP No. 60304 is AFFIRMED with very slight modification. Petitioner is hereby ORDERED to
REFUND or, in the alternative, to ISSUE a TAX CREDIT CERTIFICATE in favor of respondent in the amount of
P2,158,714.52 representing unutilized input tax payments. No pronouncement as to costs.
SO ORDERED.
SECOND DIVISION
G.R. No. 183505
REVENUE,
Petitioner,
Present:
CARPIO, J., Chairperson,

- versus -
BRION,
DEL CASTILLO,
ABAD, and
SM PRIME HOLDINGS, INC.
PEREZ, JJ.
and FIRST REALTY

DEVELOPMENT CORPORATION,
Respondents.
Promulgated:
February 26, 2010
x-------------------------------------------------------------------x
DECISION
DEL CASTILLO, J.:
When the intent of the law is not apparent as worded, or when the application of the law would lead to absurdity or
injustice, legislative history is all important. In such cases, courts may take judicial notice of the origin and history of the
law,[1] the deliberations during the enactment,[2] as well as prior laws on the same subject matter[3] to ascertain the true
intent or spirit of the law.
This Petition for Review on Certiorari under Rule 45 of the Rules of Court, in relation to Republic Act (RA) No. 9282,[4]
seeks to set aside the April 30, 2008 Decision[5] and the June 24, 2008 Resolution[6] of the Court of Tax Appeals (CTA).
Factual Antecedents
Respondents SM Prime Holdings, Inc. (SM Prime) and First Asia Realty Development Corporation (First Asia) are
domestic corporations duly organized and existing under the laws of the Republic of the . Both are engaged in the business
of operating cinema houses, among others.[7]
CTA Case No. 7079
On , the Bureau of Internal Revenue (BIR) sent SM Prime a Preliminary Assessment Notice (PAN) for value added tax
(VAT) deficiency on cinema ticket sales in the amount of P119,276,047.40 for taxable year 2000.[8] In response, SM Prime
filed a letter-protest dated .[9]
On , the BIR sent SM Prime a Formal Letter of Demand for the alleged VAT deficiency, which the latter protested in a letter
dated .[10]
On , the BIR denied the protest filed by SM Prime and ordered it to pay the VAT deficiency for taxable year 2000 in the
amount of P124,035,874.12.[11]
On , SM Prime filed a Petition for Review before the CTA docketed as CTA Case No. 7079.[12]
CTA Case No. 7085
On , the BIR sent First Asia a PAN for VAT deficiency on

cinema ticket sales for taxable year 1999 in the total amount of P35,823,680.93.[13] First protested the PAN in a letter dated
.[14]
Subsequently, the BIR issued a Formal Letter of Demand for the alleged VAT deficiency which was protested by First Asia
in a letter dated .[15]
On , the BIR rendered a Decision denying the protest and ordering First Asia to pay the amount of P35,823,680.93 for VAT
deficiency for taxable year 1999.[16]
Accordingly, on , First Asia filed a Petition for Review before the CTA, docketed as CTA Case No. 7085.[17]
CTA Case No. 7111

On , the BIR sent a PAN to First Asia for VAT deficiency on cinema ticket sales for taxable year 2000 in the amount of
P35,840,895.78. First protested the PAN through a letter dated .[18]
Thereafter, the BIR issued a Formal Letter of Demand for alleged VAT deficiency. [19] First protested the same in a letter
dated .[20]
On , the BIR denied the protest and ordered First Asia to pay the VAT deficiency in the amount of P35,840,895.78 for
taxable year 2000.[21]
This prompted First Asia to file a Petition for Review before the CTA on . The case was docketed as CTA Case No. 7111.
[22]
CTA Case No. 7272

Re: Assessment Notice No. 008-02
A PAN for VAT deficiency on cinema ticket sales for the taxable year 2002 in the total amount of P32,802,912.21 was
issued against First Asia by the BIR. In response, First Asia filed a protest-letter dated . The BIR then sent a Formal Letter
of Demand, which was protested by First Asia on .[23]
Re: Assessment Notice No. 003-03
A PAN for VAT deficiency on cinema ticket sales in the total amount of P28,196,376.46 for the taxable year 2003 was
issued by the BIR against First Asia. In a letter dated , First Asia protested the PAN. A Formal Letter of Demand was
thereafter issued by the BIR to First Asia, which the latter protested through a letter dated . [24]
On , the BIR rendered a Decision denying the protests. It ordered First Asia to pay the amounts of P33,610,202.91 and
P28,590,826.50 for VAT deficiency for taxable years 2002 and 2003, respectively.[25]
Thus, on , First Asia filed a Petition for Review before the CTA, docketed as CTA Case No. 7272.[26]
Consolidated Petitions
The Commissioner of Internal Revenue (CIR) filed his Answers to the Petitions filed by SM Prime and First Asia.[27]
On , SM Prime filed a Motion to Consolidate CTA Case Nos. 7085, 7111 and 7272 with CTA Case No. 7079 on the grounds
that the issues raised therein are identical and that SM Prime is a majority shareholder of First Asia. The motion was
granted.[28]
Upon submission of the parties respective memoranda, the consolidated cases were submitted for decision on the sole issue
of whether gross receipts derived from admission tickets by cinema/theater operators or proprietors are subject to VAT.[29]
Ruling of the CTA First Division
On , the First Division of the CTA rendered a Decision granting the Petition for Review. Resorting to the language used and
the legislative history of the law, it ruled that the activity of showing cinematographic films is not a service covered by VAT
under the National Internal Revenue Code (NIRC) of 1997, as amended, but an activity subject to amusement tax under RA
7160, otherwise known as the Local Government Code (LGC) of 1991. Citing House Joint Resolution No. 13, entitled Joint
Resolution Expressing the True Intent of Congress with Respect to the Prevailing Tax Regime in the Theater and Local Film
Industry Consistent with the States Policy to Have a Viable, Sustainable and Competitive Theater and Film Industry as One
of its Partners in National Development,[30] the CTA First Division held that the House of Representatives resolved that
there should only be one business tax applicable to theaters and movie houses, which is the 30% amusement tax imposed by
cities and provinces under the LGC of 1991. Further, it held that consistent with the States policy to have a viable,
sustainable and competitive theater and film industry, the national government should be precluded from imposing its own
business tax in addition to that already imposed and collected by local government units. The CTA First Division likewise
found that Revenue Memorandum Circular (RMC) No. 28-2001, which imposes VAT on gross receipts from admission to
cinema houses, cannot be given force and effect because it failed to comply with the procedural due process for tax
issuances under RMC No. 20-86.[31] Thus, it disposed of the case as follows:
IN VIEW OF ALL THE FOREGOING, this Court hereby GRANTS the Petitions for Review. Respondents Decisions
denying petitioners protests against deficiency value-added taxes are hereby REVERSED. Accordingly, Assessment Notices
Nos. VT-00-000098, VT-99-000057, VT-00-000122, 003-03 and 008-02 are ORDERED cancelled and set aside.
SO ORDERED.[32]
Aggrieved, the CIR moved for reconsideration which was denied by the First Division in its Resolution dated .[33]
Ruling of the CTA En Banc
Thus, the CIR appealed to the CTA En Banc.[34] The case was docketed as CTA EB No. 244.[35] The CTA En Banc
however denied[36] the Petition for Review and dismissed[37] as well petitioners Motion for Reconsideration.
The CTA En Banc held that Section 108 of the NIRC actually sets forth an exhaustive enumeration of what services are
intended to be subject to VAT. And since the showing or exhibition of motion pictures, films or movies by cinema operators
or proprietors is not among the enumerated activities contemplated in the phrase sale or exchange of services, then gross
receipts derived by cinema/ theater operators or proprietors from admission tickets in showing motion pictures, film or
movie are not subject to VAT. It reiterated that the exhibition or showing of motion pictures, films, or movies is instead
subject to amusement tax under the LGC of 1991. As regards the validity of RMC No. 28-2001, the CTA En Banc agreed
with its First Division that the same cannot be given force and effect for failure to comply with RMC No. 20-86.
Issue
Hence, the present recourse, where petitioner alleges that the CTA En Banc seriously erred:
(1)
In not finding/holding that the gross receipts derived by operators/proprietors of cinema houses from
admission tickets [are] subject to the 10% VAT because:
(2)
(a)
THE EXHIBITION OF MOVIES BY CINEMA
OPERATORS/PROPRIETORS TO THE PAYING PUBLIC IS A OF SERVICE;
(b)
UNLESS EXEMPTED BY LAW, ALL SALES OF SERVICES ARE
EXPRESSLY SUBJECT TO VAT UNDER SECTION 108 OF THE NIRC OF
1997;
(c)
SECTION 108 OF THE NIRC OF 1997 IS A CLEAR PROVISION OF
LAW AND THE APPLICATION OF RULES OF STATUTORY
CONSTRUCTION AND EXTRINSIC AIDS IS UNWARRANTED;
(d)
GRANTING WITHOUT CONCEDING THAT RULES OF
CONSTRUCTION ARE APPLICABLE HEREIN, STILL THE HONORABLE
COURT ERRONEOUSLY APPLIED THE SAME AND PROMULGATED
DANGEROUS PRECEDENTS;
(e)
THERE IS NO VALID, EXISTING PROVISION OF LAW EXEMPTING
RESPONDENTS SERVICES FROM THE VAT IMPOSED UNDER SECTION
108 OF THE NIRC OF 1997;
(f)
QUESTIONS ON THE WISDOM OF THE LAW ARE NOT PROPER
ISSUES TO BE TRIED BY THE HONORABLE COURT; and
(g)
RESPONDENTS WERE TAXED BASED ON THE PROVISION OF
SECTION 108 OF THE NIRC.
In ruling that the enumeration in Section 108 of the NIRC of 1997 is exhaustive in coverage;
(3)
In misconstruing the NIRC of 1997 to conclude that the showing of motion pictures is merely
subject to the amusement tax imposed by the Local Government Code; and
(4) In invalidating Revenue Memorandum Circular (RMC) No. 28-2001.[38]
Simply put, the issue in this case is whether the gross receipts derived by operators or proprietors of cinema/theater houses
from admission tickets are subject to VAT.
Petitioners Arguments
Petitioner argues that the enumeration of services subject to VAT in Section 108 of the NIRC is not exhaustive because it
covers all sales of services unless exempted by law. He claims that the CTA erred in applying the rules on statutory
construction and in using extrinsic aids in interpreting Section 108 because the provision is clear and unambiguous. Thus,
he maintains that the exhibition of movies by cinema operators or proprietors to the paying public, being a sale of service, is
subject to VAT.
Respondents Arguments
Respondents, on the other hand, argue that a plain reading of Section 108 of the NIRC of 1997 shows that the gross receipts
of proprietors or operators of cinemas/theaters derived from public admission are not among the services subject to VAT.
Respondents insist that gross receipts from cinema/theater admission tickets were never intended to be subject to any tax
imposed by the national government. According to them, the absence of gross receipts from cinema/theater admission
tickets from the list of services which are subject to the national amusement tax under Section 125 of the NIRC of 1997
reinforces this legislative intent. Respondents also highlight the fact that RMC No. 28-2001 on which the deficiency
assessments were based is an unpublished administrative ruling.
Our Ruling
The petition is bereft of merit.
The enumeration of services subject to VAT under Section 108 of the
NIRC is not exhaustive
Section 108 of the NIRC of the 1997 reads:

SEC. 108. Value-added Tax on of Services and Use or Lease of Properties.
(A) Rate and Base of Tax. There shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10%)
of gross receipts derived from the sale or exchange of services, including the use or lease of properties.
The phrase sale or exchange of services means the performance of all kinds of services in the Philippines for others for a
fee, remuneration or consideration, including those performed or rendered by construction and service contractors; stock,
real estate, commercial, customs and immigration brokers; lessors of property, whether personal or real; warehousing
services; lessors or distributors of cinematographic films; persons engaged in milling, processing, manufacturing or
repacking goods for others; proprietors, operators or keepers of hotels, motels, rest houses, pension houses, inns, resorts;
proprietors or operators of restaurants, refreshment parlors, cafes and other eating places, including clubs and caterers;
dealers in securities; lending investors; 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, air and water relative to their transport
of goods or cargoes; services of franchise grantees of telephone and telegraph, radio and television broadcasting and all
other franchise grantees except those under Section 119 of this Code; services of banks, non-bank financial intermediaries
and finance companies; and non-life insurance companies (except their crop insurances), including surety, fidelity,
indemnity and bonding companies; and similar services regardless of whether or not the performance thereof calls for the
exercise or use of the physical or mental faculties. The phrase sale or exchange of services shall likewise include:
(1) The lease or the use of or the right or privilege to use any copyright, patent, design or model, plan, secret formula or
process, goodwill, trademark, trade brand or other like property or right;
xxxx
(7) The lease of motion picture films, films, tapes and discs; and
(8) The lease or the use of or the right to use radio, television, satellite transmission and cable television time.
x x x x (Emphasis supplied)
A cursory reading of the foregoing provision clearly shows that the enumeration of the sale or exchange of services subject
to VAT is not exhaustive. The words, including, similar services, and shall likewise include, indicate that the enumeration is
by way of example only.[39]
Among those included in the enumeration is the lease of motion picture films, films, tapes and discs. This, however, is not
the same as the showing or exhibition of motion pictures or films. As pointed out by the CTA En Banc:
Exhibition in Blacks Law Dictionary is defined as To show or display. x x x To produce anything in public so that it may be
taken into possession (6th ed., p. 573). While the word lease is defined as a contract by which one owning such property
grants to another the right to possess, use and enjoy it on specified period of time in exchange for periodic payment of a
stipulated price, referred to as rent (Blacks Law Dictionary, 6th ed., p. 889). x x x[40]
Since the activity of showing motion pictures, films or movies by cinema/ theater operators or proprietors is not included in
the enumeration, it is incumbent upon the court to the determine whether such activity falls under the phrase similar
services. The intent of the legislature must therefore be ascertained.
The legislature never intended operators
or proprietors of cinema/theater houses to be covered by VAT
Under the NIRC of 1939,[41] the national government imposed amusement tax on proprietors, lessees, or
operators of theaters, cinematographs, concert halls, circuses, boxing exhibitions, and other places of
amusement, including cockpits, race tracks, and cabaret.[42] In the case of theaters or cinematographs, the taxes
were first deducted, withheld, and paid by the proprietors, lessees, or operators of such theaters or
cinematographs before the gross receipts were divided between the proprietors, lessees, or operators of the
theaters or cinematographs and the distributors of the cinematographic films. Section 11[43] of the Local Tax
Code,[44] however, amended this provision by transferring the power to impose amusement tax[45] on
admission from theaters, cinematographs, concert halls, circuses and other places of amusements exclusively to
the local government. Thus, when the NIRC of 1977[46] was enacted, the national government imposed
amusement tax only on proprietors, lessees or operators of cabarets, day and night clubs, Jai-Alai and race tracks.
[47]
On , the VAT Law[48] was promulgated. It amended certain provisions of the NIRC of 1977 by imposing a multi-stage VAT
to replace the tax on original and subsequent sales tax and percentage tax on certain services. It imposed VAT on sales of
services under Section 102 thereof, which provides:
SECTION 102. Value-added tax on sale of services. (a) Rate and base of tax. There shall be levied, assessed and collected, a
value-added tax equivalent to 10% percent of gross receipts derived by any person engaged in the sale of services. The
phrase sale of services means the performance of all kinds of services for others for a fee, remuneration or consideration,
including those performed or rendered by construction and service contractors; stock, real estate, commercial, customs and
immigration brokers; lessors of personal property; lessors or distributors of cinematographic films; persons engaged in
milling, processing, manufacturing or repacking goods for others; and similar services regardless of whether or not the
performance thereof calls for the exercise or use of the physical or mental faculties: Provided That the following services
performed in the Philippines by VAT-registered persons shall be subject to 0%:
(1) Processing manufacturing or repacking goods for other persons doing business outside the which goods are subsequently
exported, x x x
xxxx
Gross receipts means the total amount of money or its equivalent representing the contract price, compensation or service
fee, including the amount charged for materials supplied with the services and deposits or advance payments actually or
constructively received during the taxable quarter for the service performed or to be performed for another person,
excluding value-added tax.
(b) Determination of the tax. (1) Tax billed as a separate item in the invoice. If the tax is billed as a separate item in the
invoice, the tax shall be based on the gross receipts, excluding the tax.
(2) Tax not billed separately or is billed erroneously in the invoice. If the tax is not billed separately or is billed erroneously
in the invoice, the tax shall be determined by multiplying the gross receipts (including the amount intended to cover the tax
or the tax billed erroneously) by 1/11. (Emphasis supplied)
Persons subject to amusement tax under the NIRC of 1977, as amended, however, were exempted from the coverage of
VAT.[49]
On , then Commissioner Bienvenido A. Tan, Jr. issued RMC 8-88, which clarified that the power to impose amusement tax
on gross receipts derived from admission tickets was exclusive with the local government units and that only the gross
receipts of amusement places derived from sources other than from admission tickets were subject to amusement tax under
the NIRC of 1977, as amended. Pertinent portions of RMC 8-88 read:
Under the Local Tax Code (P.D. 231, as amended), the jurisdiction to levy amusement tax on gross receipts arising from
admission to places of amusement has been transferred to the local governments to the exclusion of the national
government.
xxxx
Since the promulgation of the Local Tax Code which took effect on June 28, 1973 none of the amendatory laws which
amended the National Internal Revenue Code, including the value added tax law under Executive Order No. 273, has
amended the provisions of Section 11 of the Local Tax Code. Accordingly, the sole jurisdiction for collection of amusement
tax on admission receipts in places of amusement rests exclusively on the local government, to the exclusion of the national
government. Since the Bureau of Internal Revenue is an agency of the national government, then it follows that it has no
legal mandate to levy amusement tax on admission receipts in the said places of amusement.
Considering the foregoing legal background, the provisions under Section 123 of the National Internal Revenue Code as
renumbered by Executive Order No. 273 (Sec. 228, old NIRC) pertaining to amusement taxes on places of amusement shall
be implemented in accordance with BIR RULING, dated and BIR RULING NO. 231-86 dated to wit:
x x x Accordingly, only the gross receipts of the amusement places derived from sources other than from admission
tickets shall be subject to x x x amusement tax prescribed under Section 228 of the Tax Code, as amended (now
Section 123, NIRC, as amended by E.O. 273). The tax on gross receipts derived from admission tickets shall be levied
and collected by the city government pursuant to Section 23 of Presidential Decree No. 231, as amended x x x or by
the provincial government, pursuant to Section 11 of P.D. 231, otherwise known as the Local Tax Code. (Emphasis
supplied)
On , the LGC of 1991 was passed into law. The local government retained the power to impose amusement tax on
proprietors, lessees, or operators of theaters, cinemas, concert halls, circuses, boxing stadia, and other places of amusement
at a rate of not more than thirty percent (30%) of the gross receipts from admission fees under Section 140 thereof. [50] In
the case of theaters or cinemas, the tax shall first be deducted and withheld by their proprietors, lessees, or operators and
paid to the local government before the gross receipts are divided between said proprietors, lessees, or operators and the
distributors of the cinematographic films. However, the provision in the Local Tax Code expressly excluding the national
government from collecting tax from the proprietors, lessees, or operators of theaters, cinematographs, concert halls,
circuses and other places of amusements was no longer included.
In 1994, RA 7716 restructured the VAT system by widening its tax base and enhancing its administration. Three years later,
RA 7716 was amended by RA 8241. Shortly thereafter, the NIRC of 1997[51] was signed into law. Several amendments[52]
were made to expand the coverage of VAT. However, none pertain to cinema/theater operators or proprietors. At present,
only lessors or distributors of cinematographic films are subject to VAT. While persons subject to amusement tax [53] under
the NIRC of 1997 are exempt from the coverage of VAT.[54]
Based on the foregoing, the following facts can be established:
(1)
Historically, the activity of showing motion pictures, films or movies by cinema/theater operators or
proprietors has always been considered as a form of entertainment subject to amusement tax.
(2)
Prior to the Local Tax Code, all forms of amusement tax were imposed by the national government.
(3)
When the Local Tax Code was enacted, amusement tax on admission tickets from theaters, cinematographs,
concert halls, circuses and other places of amusements were transferred to the local government.
(4)
Under the NIRC of 1977, the national government imposed amusement tax only on proprietors, lessees or
operators of cabarets, day and night clubs, Jai-Alai and race tracks.
(5)
services.
The VAT law was enacted to replace the tax on original and subsequent sales tax and percentage tax on certain
(6)
When the VAT law was implemented, it exempted persons subject to amusement tax under the NIRC from the
coverage of VAT.
(7)
When the Local Tax Code was repealed by the LGC of 1991, the local government continued to impose
amusement tax on admission tickets from theaters, cinematographs, concert halls, circuses and other places of amusements.
(8)
Amendments to the VAT law have been consistent in exempting persons subject to amusement tax under the
NIRC from the coverage of VAT.
(9)
Only lessors or distributors of cinematographic films are included in the coverage of VAT.
These reveal the legislative intent not to impose VAT on persons already covered by the amusement tax. This holds true
even in the case of cinema/theater operators taxed under the LGC of 1991 precisely because the VAT law was intended to
replace the percentage tax on certain services. The mere fact that they are taxed by the local government unit and not by the
national government is immaterial. The Local Tax Code, in transferring the power to tax gross receipts derived by
cinema/theater operators or proprietor from admission tickets to the local government, did not intend to treat cinema/theater
houses as a separate class. No distinction must, therefore, be made between the places of amusement taxed by the national
government and those taxed by the local government.
To hold otherwise would impose an unreasonable burden on cinema/theater houses operators or proprietors, who would be
paying an additional 10%[55] VAT on top of the 30% amusement tax imposed by Section 140 of the LGC of 1991, or a total
of 40% tax. Such imposition would result in injustice, as persons taxed under the NIRC of 1997 would be in a better
position than those taxed under the LGC of 1991. We need not belabor that a literal application of a law must be rejected if
it will operate unjustly or lead to absurd results.[56] Thus, we are convinced that the legislature never intended to include
cinema/theater operators or proprietors in the coverage of VAT.
On this point, it is apropos to quote the case of Roxas v. Court of Tax Appeals,[57] to wit:
The power of taxation is sometimes called also the power to destroy. Therefore, it should be exercised with caution to
minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and uniformly, lest the tax
collector kill the hen that lays the golden egg. And, in order to maintain the general public's trust and confidence in the
Government this power must be used justly and not treacherously.
The repeal of the Local Tax Code by the LGC of 1991 is not a legal
basis for the imposition of VAT
Petitioner, in issuing the assessment notices for deficiency
VAT against respondents, ratiocinated that:

Basically, it was acknowledged that a cinema/theater operator was then subject to amusement tax under Section 260 of
Commonwealth Act No. 466, otherwise known as the National Internal Revenue Code of 1939, computed on the amount
paid for admission. With the enactment of the Local Tax Code under Presidential Decree (PD) No. 231, dated June 28,
1973, the power of imposing taxes on gross receipts from admission of persons to cinema/theater and other places of
amusement had, thereafter, been transferred to the provincial government, to the exclusion of the national or municipal
government (Sections 11 & 13, Local Tax Code). However, the said provision containing the exclusive power of the
provincial government to impose amusement tax, had also been repealed and/or deleted by Republic Act (RA) No. 7160,
otherwise known as the Local Government Code of 1991, enacted into law on October 10, 1991. Accordingly, the
enactment of RA No. 7160, thus, eliminating the statutory prohibition on the national government to impose business
tax on gross receipts from admission of persons to places of amusement, led the way to the valid imposition of the
VAT pursuant to Section 102 (now Section 108) of the old Tax Code, as amended by the Expanded VAT Law (RA No.
7716) and which was implemented beginning January 1, 1996.[58] (Emphasis supplied)
We disagree.
The repeal of the Local Tax Code by the LGC of 1991 is not a legal basis for the imposition of VAT on the gross receipts of
cinema/theater operators or proprietors derived from admission tickets. The removal of the prohibition under the Local Tax
Code did not grant nor restore to the national government the power to impose amusement tax on cinema/theater operators
or proprietors. Neither did it expand the coverage of VAT. Since the imposition of a tax is a burden on the taxpayer, it cannot
be presumed nor can it be extended by implication. A law will not be construed as imposing a tax unless it does so clearly,
expressly, and unambiguously.[59] As it is, the power to impose amusement tax on cinema/theater operators or proprietors
remains with the local government.
Revenue Memorandum Circular No. 28-2001 is invalid
Considering that there is no provision of law imposing VAT
on the gross receipts of cinema/theater operators or
proprietors derived from admission tickets, RMC No. 282001 which imposes VAT on the gross receipts from
admission to cinema houses must be struck down. We cannot
overemphasize that RMCs must not override, supplant, or
modify the law, but must remain consistent and in harmony
with, the law they seek to apply and implement.[60]
In view of the foregoing, there is no need to discuss whether RMC No. 28-2001 complied with the procedural due process
for tax issuances as prescribed under RMC No. 20-86.
Rule on tax exemption does not apply
Moreover, contrary to the view of petitioner, respondents
need not prove their entitlement to an exemption from the
coverage of VAT. The rule that tax exemptions should be
construed strictly against the taxpayer presupposes that the
taxpayer is clearly subject to the tax being levied against
him.[61] The reason is obvious: it is both illogical and
impractical to determine who are exempted without first
determining who are covered by the provision.[62] Thus,
unless a statute imposes a tax clearly, expressly and
unambiguously, what applies is the equally well-settled rule
that the imposition of a tax cannot be presumed.[63] In fact,
in case of doubt, tax laws must be construed strictly against
the government and in favor of the taxpayer.[64]
WHEREFORE, the Petition is hereby DENIED. The assailed April 30, 2008 Decision of the Court of Tax Appeals En
Banc holding that gross receipts derived by respondents from admission tickets in showing motion pictures, films or movies
are not subject to value-added tax under Section 108 of the National Internal Revenue Code of 1997, as amended, and its
June 24, 2008 Resolution denying the motion for reconsideration are AFFIRMED.
SO ORDERED.
Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 173373
July 29, 2013
H.
TAMBUNTING
PAWNSHOP,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
INC.,
Petitioner,
DECISION
BERSAMIN, J.:
To be entitled to claim a tax deduction, the taxpayer must competently establish the factual and documentary bases of its
claim.
Antecedents
H. Tambunting Pawnshop, Inc. (petitioner), a domestic corporation duly licensed and authorized to engage in the pawnshop
business, appeals the adverse decision promulgated on April 24, 2006,1 whereby the Court of Tax Appeals En Bane (CTA
En Bane) affirmed the decision of the CTA First Division ordering it to pay deficiency income taxes in the amount of
P4,536,687.15 for taxable yaar 1997, plus 20% delinquency interest computed from August 29, 2000 until full payment, but
cancelling the compromise penalties for lack of basis.
On June 26, 2000, the Bureau of Internal Revenue (BIR), through then Acting Regional Director Lucien E. Sayuno of
Revenue Region No. 6 in Manila, issued assessment notices and demand letters, all numbered 32-1-97, assessing
Tambunting for deficiency percentage tax, income tax and compromise penalties for taxable year 1997,2 as follows:
Deficiency Percentage Tax
Taxable Sales/Receipts
P12,749,135.25
============
Percentage Tax due (5%)
P 637,456.76
Add: 20% Interest up to 7-26-00
320,513.24
--------------------
Total Percentage Tax Due
P 957,970.00
============
Deficiency Income Tax
Taxable Net Income per Return
P 54,107.36
Adjustments per investigation Section 28

Overstatement of gain/loss on auction sales
Gain/Loss per F/S
P 4,914,967.50
Gain/Loss per Audit
133,057.40
4,781,910.00
--------------------
Unsupported Security/Janitorial Expenses

Per F/S
2,183,573.02
Per Audit
358,800.00
Unsupported Rent Expenses

Per F/S
2,293,631.13
1,824,773.02
--------------------
Per Audit
434,406.77
1,859,224.35
--------------------
Unsupported Interest Expenses
1,155,154.28
Unsupported Management & Professional Fees
96,761.00
Unsupported Repairs & Maintenance
348,074.68
Unsupported 13th Month Pay & Bonus
317,730.73
Disallowed Loss on Fire & Theft
906,560.00
--------------------
Taxable Net Income per Investigation
P 11,344,295.43
============
Income Tax Due (35%)
P 3,970,503.40
Less Income Tax Paid
18,937.57
---------------------
Deficiency Income Tax
3,951,565.83
Add: 20% Interest to 7-26-00
1,799,938.23
---------------------
Total Income Tax Due
5,751,504.06
Compromise Penalties
Late Payment of Income Tax
25,000.00
Late Payment of Percentage Tax
20,000.00
Failure to Pay Withholding Tax Return for

the Months of April and May
24,000.00
----------------69,000.00
==========
On July 26, 2000, Tambunting instituted an administrative protest against the assessment notices and demand letters with
the Commissioner of Internal Revenue.3
On February 21, 2001, Tambunting brought a petition for review in the CTA, pursuant to Section 228 of the National
Internal Revenue Code of 1997,4 citing the inaction of the Commissioner of Internal Revenue on its protest within the 180day period prescribed by law.
On October 8, 2004, the CTA First Division rendered a decision, the pertinent portion of which is hereunder quoted, to wit:
In view of all the foregoing verification, petitioners allowable deductions are summarized below:
Particulars
Per Petitioner's
Financial
Statement
Per BIR's
Examination
Per Court's
Verification
Loss on Auction
Sale
P 4,914,967.50
P 133,057.40
P 133,057.40
Security & Janitorial

Services
2,183,573.02
358,800.00
736,044.26
Rent Expense
2,293,631.13
434,406.77
642,619.10
Interest Expense
1,155,154.28
1,155,154.28
Professional &
Management Fees
96,761.00
Repairs &
Maintenance
348,074.68
329,399.18
13th
Month pay &
Bonuses
317,730.73
317,730.73
Loss on Fire
906,560.00
Total
-------------------P 12,216,452.34
=============
-------------------P 926,264.17
=============
-------------------P 3,314,004.95
=============
Apparently, petitioner is still liable for deficiency income tax in the reduced amount of P4,536,687.15, computed as follows:
Net Income Per Return
P54,107.36
Add: Overstatement of Gain/Loss on Auction Sales

Gain/Loss on Auction Sales per F/S
P4,914,967.50
Gain/Loss on Auction Sales per Courts

Verification
133,057.40
4,781,910.00
------------------
Unsupported Security/Janitorial Services

Security, Janitorial Services per F/S
P2,183,573.02
Security, Janitorial Services

per Courts Verification
736,044.26
1,447,528.76
------------------
Unsupported Rent Expenses

Rent Expenses per F/S
P2,293,631.13
Rent Expenses per Courts

Verification
642,619.10
1,651,012.03
------------------
Unsupported Management & Professional Fees
96,761.00
Unsupported Repairs & Maintenance

(P348,074.68 - P329,399.18)
18,675.50
Disallowed Loss on Fire & Theft
906,560.00
---------------
Net Income
P 8,956,554.65
=============
Income Tax Due Thereon
P 3,134,794.13
Less: Amount Paid
18,937.57
------------------
Balance
P 3,115,856.56
Add: 20% Interest until 7-26-00
1,420,830.59
------------------
TOTAL INCOME TAX DUE
P4,536,687.15
=============
WHEREFORE, petitioner is ORDERED to PAY the respondent the amount of P4,536,687.15 representing deficiency
income tax for the year 1997, plus 20% delinquency interest computed from August 29, 2000 until full payment thereof
pursuant to Section 249 (C) of the National Internal Revenue Code. However, the compromise penalties in the sum of
P49,000.00 is hereby CANCELLED for lack of legal basis.
SO ORDERED.5
After its motion for reconsideration was denied for lack of merit on February 18, 2005, 6 Tambunting filed a petition for
review in the CTA En Banc, arguing that the First Division erred in disallowing its deductions on the ground that it had not
substantiated them by sufficient evidence.
On April 24, 2006, the CTA En Banc denied Tambuntings petition for review,7 disposing:
WHEREFORE, the Court en banc finds no reversible error to warrant the reversal of the assailed Decision and Resolution
promulgated on October 8, 2004 and February 11, 2005, respectively, the instant Petition for Review is hereby
DISMISSED. Accordingly, the aforesaid Decision and Resolution are hereby AFFIRMED in toto.
SO ORDERED.
On June 29, 2006, the CTA En Banc also denied Tambuntings motion for reconsideration for its lack of merit.8
Issues
Hence, this appeal by petition for review on certiorari.
Tambunting argues that the CTA should have allowed its deductions because it had been able to point out the provisions of
law authorizing the deductions; that it proved its entitlement to the deductions through all the documentary and testimonial
evidence presented in court;9 that the provisions of Section 34 (A)(1)(b) of the 1997 National Internal Revenue Code,
governing the types of evidence to prove a claim for deduction of expenses, were applicable because the law took effect
during the pendency of the case in the CTA;10 that the CTA had allowed deductions for ordinary and necessary expenses on
the basis of cash vouchers issued by the taxpayer or certifications issued by the payees evidencing receipt of interest on
loans as well as agreements relating to the imposition of interest;11 that it had thus shown beyond doubt that it had incurred
the losses in its auction sales;12 and that it substantially complied with the requirements of Revenue Regulations No. 12-77
on the deductibility of its losses.13
On December 5, 2006, the Commissioner of Internal Revenue filed a comment,14 stating that the conclusions of the CTA
were entitled to respect,15 due to its being a highly specialized body specifically created for the purpose of reviewing tax
cases;16 and that the petition involved factual and evidentiary matters not reviewable by the Court in an appeal by
certiorari.17
On March 22, 2007, Tambunting reiterated its arguments in its reply.18
Ruling
The petition has no merit.
At the outset, the Court agrees with the CTA En Banc that because this case involved assessments relating to transactions
incurred by Tambunting prior to the effectivity of Republic Act No. 8424 (National Internal Revenue Code of 1997, or
NIRC of 1997), the provisions governing the propriety of the deductions was Presidential Decree 1158 (NIRC of 1977). In
that regard, the pertinent provisions of Section 29 (d) (2) & (3)of the NIRC of 1977 state:
xxxx
(2) By corporation. In the case of a corporation, all losses actually sustained and charged off within the taxable
year and not compensated for by insurance or otherwise.
(3) Proof of loss. In the case of a non-resident alien individual or foreign corporation, the losses deductible are
those actually sustained during the year incurred in business or trade conducted within the Philippines, and losses
actually sustained during the year in transactions
entered into for profit in the Philippines although not connected with their business or trade, when such losses are not
compensated for by insurance or otherwise. The Secretary of Finance, upon recommendation of the Commissioner of
Internal Revenue, is hereby authorized to promulgate rules and regulations prescribing, among other things, the time and
manner by which the taxpayer shall submit a declaration of loss sustained from casualty or from robbery, theft, or
embezzlement during the taxable year: Provided, That the time to be so prescribed in the regulations shall not be less than
30 days nor more than 90 days from the date of the occurrence of the casualty or robbery, theft, or embezzlement giving rise
to the loss.
The CTA En Banc ruled thusly:
To prove the loss on auction sale, petitioner submitted in evidence its "Rematado" and "Subasta" books and the "Schedule of
Losses on Auction Sale". The "Rematado" book contained a record of items foreclosed by the pawnshop while the
"Subasta" book contained a record of the auction sale of pawned items foreclosed.
However, as elucidated by the petitioner, the gain or loss on auction sale represents the difference between the capital (the
amount loaned to the pawnee, the unpaid interest and other expenses incurred in connection with such loan) and the price
for which the pawned articles were sold, as reflected in the "Subasta" Book. Furthermore, it explained that the amounts
appearing in the "Rematado" book do not reflect the total capital of petitioner as it merely reflected the amounts loaned to
the pawnee. Likewise, the amounts appearing in the "Subasta" book, are not representative of the amount of sale made
during the "subastas" since not all articles are eventually sold and disposed of by petitioner.
Petitioner submits that based on the evidence presented, it was able to show beyond doubt that it incurred the amount of
losses on auction sale claimed as deduction from its gross income for the taxable year 1997. And that the documents/records
submitted in evidence as well as the facts contained therein were neither contested nor controverted by the respondent,
hence, admitted.
xxxx
In this case, petitioner's reliance on the entries made in the "Subasta" book were not sufficient to substantiate the claimed
deduction of loss on auction sale. As admitted by the petitioner, the contents in the "Rematado" and "Subasta" books do not
reflect the true amounts of the total capital and the auction sale, respectively. Be that as it may, petitioner still failed to
adduce evidence to substantiate the other expenses alleged to have been incurred in connection with the sale of pawned
items.
As correctly held by the Court's Division in the assailed decision, and We quote:
x x x The remaining evidence is neither conclusive to sustain its claim of loss on auction sale in the aggregate amount of
P4,915,967.50. While it appears that the basis of respondent is not strong, petitioner, nevertheless, should not rely on the
weakness of such evidence but on the strength of its own documents. The facts essential for the proper disposition of the
said controversy were available to the petitioner. Petitioner should have endeavored to make the facts clear to this court. Sad
to say, it failed to dispute the same with clear and convincing proof. x x x19
We affirm the aforequoted ruling of the CTA En Banc.
The rule that tax deductions, being in the nature of tax exemptions, are to be construed in strictissimi juris against the
taxpayer is well settled.20 Corollary to this rule is the principle that when a taxpayer claims a deduction, he must point to
some specific provision of the statute in which that deduction is authorized and must be able to prove that he is entitled to
the deduction which the law allows.21 An item of expenditure, therefore, must fall squarely within the language of the law
in order to be deductible.22 A mere averment that the taxpayer has incurred a loss does not automatically warrant a
deduction from its gross income.
As the CTA En Banc held, Tambunting did not properly prove that it had incurred losses. The subasta books it presented
were not the proper evidence of such losses from the auctions because they did not reflect the true amounts of the proceeds
of the auctions due to certain items having been left unsold after the auctions. The rematado books did not also prove the
amounts of capital because the figures reflected therein were only the amounts given to the pawnees. It is interesting to note,
too, that the amounts received by the pawnees were not the actual values of the pawned articles but were only fractions of
the real values.
As to business expenses, Section 29 (a) (1) (A) of the NIRC of 1977 provides:
(a) Expenses. (1) Business expenses. (A) In general. All ordinary and necessary expenses paid or incurred during
the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other compensation
for personal services actually rendered; traveling expenses while away from home in the pursuit of a trade, profession or
business, rentals or other payments required to be made as a condition to the continued use or possession, for the purpose of
the trade, profession or business, of property to which the taxpayer has not taken or is not taking title or in which he has no
equity.
The requisites for the deductibility of ordinary and necessary trade or business expenses, like those paid for security and
janitorial services, management and professional fees, and rental expenses, are that: (a) the expenses must be ordinary and
necessary; (b) they must have been paid or incurred during the taxable year; (c) they must have been paid or incurred in
carrying on the trade or business of the taxpayer; and (d) they must be supported by receipts, records or other pertinent
papers.23
In denying Tambuntings claim for deduction of its security and janitorial expenses, management and professional fees, and
its rental expenses, the CTA En Banc explained:
Contrary to petitioners contention, the security/janitorial expenses paid to Pathfinder Investigation were not duly
substantiated. The certification issued by Mr. Balisado was not the proper document required by law to substantiate its
expenses. Petitioner should have presented the official receipts or invoices to prove its claim as provided for under Section
238 of the National Internal Revenue Code of 1977, as amended, to wit:
"SEC. 238. 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 P25.00 or more, issue 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, That in the case of sales, receipts or transfers in the amount of P100.00 or more, or, regardless
of amount, where the sale or transfer is made by persons subject to value-added tax to other persons also subject to valueadded tax; or, where the receipts is issued to cover payment made as rentals, commissions, compensation 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.
The original of each receipt or invoice shall be issued to the purchases, 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 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.
With regard to the misclassified items of expenses, petitioner's statements were self-serving, likewise it failed to substantiate
its allegations by clear and convincing evidence as provided under the foregoing provision of law.
Bearing in mind the principle in taxation that deductions from gross income partake the nature of tax exemptions which are
construed in strictissimi juris against the taxpayer, the Court en banc is not inclined to believe the self-serving statements of
petitioner regarding the misclassified items of office supplies, advertising and rent expenses.
Among the expenses allegedly incurred, courts may consider only those supported by credible evidence and which appear to
have been genuinely incurred in connection with the trade or business of the taxpayer.24
xxxx
As previously discussed, the proper substantiation requirement for an expense to be allowed is the official receipt or invoice.
While the rental payments were subjected to the applicable expanded withholding taxes, such returns are not the documents
required by law to substantiate the rental expense. Petitioner should have submitted official receipts to support its claim.
Moreover, the issue on the submission of cash vouchers as evidence to prove expenses incurred has been addressed by this
Court in the assailed Resolution, to wit:
"The trend then was to allow deductions based on cash vouchers which are signed by the payees. It bears to note that the
cases cited by petitioner are pronouncements by this Court in 1980, 1982 and 1989.
However, latest jurisprudence has deviated from such interpretation of the law. Thus, this Court held in the case of PilmicoMauri Foods Corporation vs. Commissioner of Internal Revenue C.T.A. Case No. 6151, December 15, 2004;
[P]etitioners contention that the NIRC of 1977 did not impose substantiation requirements on deductions from gross
income is bereft of merit. Section 238 of the 1977 Tax Code [now Section 237] provides:
xxxx
From the foregoing provision of law, a person who is subject to an internal revenue tax shall issue receipts, sales or
commercial invoices, prepared at least in duplicate. The provision likewise imposed a responsibility upon the purchaser to
keep and preserve the original copy of the invoice or receipt for a period of three years from the close of the taxable year in
which the invoice or receipt was issued. The rationale behind the latter requirement is the duty of the taxpayer to keep
adequate records of each and every transaction entered into in the conduct of its business. So that when their books of
accounts are subjected to a tax audit examination, all entries therein could be shown as adequately supported and proven as
legitimate business transactions. Hence, petitioners claim that the NIRC of 1977 did not require substantiation requirements
is erroneous."
In order that the cash vouchers may be given probative value, these must be validated with official receipts.25
xxxx
Petitioners management and professional fees were disallowed as these were supported merely by cash vouchers, which the
Courts Division correctly found to have little probative value.26
Again, we affirm the foregoing holding of the CTA En Banc for the reasons therein stated. To reiterate, deductions for
income tax purposes partake of the nature of tax exemptions and are strictly construed against the taxpayer, who must prove
by convincing evidence that he is entitled to the deduction claimed.27 Tambunting did not discharge its burden of
substantiating its claim for deductions due to the inadequacy of its documentary support of its claim. Its reliance on
withholding tax returns, cash vouchers, lessors certifications, and the contracts of lease was futile because such documents
had scant probative value. As the CTA En Banc succinctly put it, the law required Tambunting to support its claim for
deductions with the corresponding official receipts issued by the service providers concerned.
Regarding proof of loss due to fire, the text of Section 29(d) (2) & (3) of P.D. 1158 (NIRC of 1977) then in effect, is clear
enough, to wit:
(2) By corporation. In the case of a corporation, all losses actually sustained and charged off within the taxable
year and not compensated for by insurance or otherwise.
(3) Proof of loss. In the case of a non-resident alien individual or foreign corporation, the losses deductible are
those actually sustained during the year incurred in business or trade conducted within the Philippines, and losses
actually sustained during the year in transactions entered into for profit in the Philippines although not connected
with their business or trade, when such losses are not compensated for by insurance or otherwise. The Secretary of
Finance, upon recommendation of the Commissioner of Internal Revenue, is hereby authorized to promulgate rules
and regulations prescribing, among other things, the time and manner by which the taxpayer shall submit a
declaration of loss sustained from casualty or from robbery, theft, or embezzlement during the taxable year:
Provided, That the time to be so prescribed in the regulations shall not be less than 30 days nor more than 90 days
from the date of the occurrence of the casualty or robbery, theft, or embezzlement giving rise to the loss.
The implementing rules for deductible losses are found in Revenue Regulations No. 12-77, as follows:
SECTION 1. Nature of deductible losses. Any loss arising from fires, storms or other casualty, and from robbery, theft or
embezzlement, is allowable as a deduction under Section 30 (d) for the taxable year in which the loss is sustained. The term
"casualty" is the complete or partial destruction of property resulting from an identifiable event of a sudden, unexpected, or
unusual nature. It denotes accident, some sudden invasion by hostile agency, and excludes progressive deterioration through
steadily operating cause. Generally, theft is the criminal appropriation of anothers property for the use of the taker.
Embezzlement is the fraudulent appropriation of another's property by a person to whom it has been entrusted or into whose
hands it has lawfully come.
SECTION 2. Requirements of substantiation. The taxpayer bears the burden of proving and substantiating his claim for
deduction for losses allowed under Section 30 (d) and should comply with the following substantiation requirements:
(a) A declaration of loss which must be filed with the Commissioner of Internal Revenue or his deputies within a
certain period prescribed in these regulations after the occurrence of the casualty, robbery, theft or embezzlement.
(b) Proof of the elements of the loss claimed, such as the actual nature and occurrence of the event and amount of
the loss.
SECTION 3. Declaration of loss. Within forty-five days after the date of the occurrence of casualty or robbery, theft or
embezzlement, a taxpayer who sustained loss therefrom and who intends to claim the loss as a deduction for the taxable
year in which the loss was sustained shall file a sworn declaration of loss with the nearest Revenue District Officer. The
sworn declaration of loss shall contain, among other things, the following information:
(a) The nature of the event giving rise to the loss and the time of its occurrence;
(b) A description of the damaged property and its location;

(c) The items needed to compute the loss such as cost or other basis of the property; depreciation allowed or
allowable if any; value of property before and after the event; cost of repair;
(d) Amount of insurance or other compensation received or receivable.
Evidence to support these items should be furnished, if available. Examples are purchase contracts and deeds, receipted bills
for improvements, and pictures and competent appraisals of the property before and after the casualty.
SECTION 4. Proof of loss. (a) In general. The declaration of loss, being one of the essential requirements of
substantiation of a claim for a loss deduction, is subject to verification and does not constitute sufficient proof of the loss
that will justify its deductibility for income tax purposes. Therefore, the mere filing of a declaration of loss does not
automatically entitle the taxpayer to deduct the alleged loss from gross income. The failure, however, to submit the said
declaration of loss within the period prescribed in these regulations will result in the disallowance of the casualty loss
claimed in the taxpayer's income tax return. The taxpayer should therefore file a declaration of loss and should be prepared
to support and substantiate the information reported in the said declaration with evidence which he should gather
immediately or as soon as possible after the occurrence of the casualty or event causing the loss.
xxxx
(b) Casualty loss. Photographs of the property as it existed before it was damaged will be helpful in showing the
condition and value of the property prior to the casualty. Photographs taken after the casualty which show the extent of
damage will be helpful in establishing the condition and value of the property after it was damaged. Photographs showing
the condition and value of the property after it was repaired, restored or replaced may also be helpful.
Furthermore, since the valuation of the property is of extreme importance in determining the amount of loss sustained, the
taxpayer should be prepared to come forward with documentary proofs, such as cancelled checks, vouchers, receipts and
other evidence of cost.
The foregoing evidence should be kept by the taxpayer as part of his tax records and be made available to a revenue
examiner, upon audit of his income tax return and the declaration of loss.
(c) Robbery, theft or embezzlement losses. - To support the deduction for losses arising from robbery, theft or
embezzlement, the taxpayer must prove by credible. evidence all the elements of the loss, the amount of the loss, and the
proper year of the deduction. The taxpayer bears the burden of proof, and no deduction will be allowed unless he shows the
property was stolen, rather than misplaced or lost. A mere disappearance of property is not enough, nor is a mere error or
shortage in accounts.
Failure to report theft or robbery to the police may be a factor against the taxpayer. On the other hand, a mere report of
alleged theft or robbery to the police authorities is not a conclusive proof of the loss arising therefrom. (Bold underscoring
supplied for emphasis)
In the context of the foregoing rules, the CT A En Bane aptly rejected Tam bunting's claim for deductions due to losses from
fire and theft. The documents it had submitted to support the claim, namely: (a) the certification from the Bureau of Fire
Protection in Malolos; (b) the certification from the Police Station in Malolos; (c) the accounting entry for the losses; and
(d) the list of properties lost, were not enough. What were required were for Tambunting to submit the sworn declaration of
loss mandated by Revenue Regulations 12-77. Its failure to do so was prejudicial to the claim because the sworn declaration
of loss was necessary to forewarn the BIR that it had suffered a loss whose extent it would be claiming as a deduction of its
tax liability, and thus enable the BIR to conduct its own investigation of the incident leading to the loss. Indeed, the
documents Tambunting submitted to the BIR could not serve the purpose of their submission without the sworn declaration
of loss.
WHEREFORE, the Court AFFIRMS the decision promulgated on April 24, 2006; and ORDERS petitioner to pay the costs
of suit.
SO ORDERED.
FIRST DIVISION
[G.R. No. 154028. July 29, 2005]
PHILIPPINE GEOTHERMAL, INC., petitioner, vs. THE COMMISSIONER OF INTERNAL REVENUE, respondent.
DECISION
QUISUMBING, J.:
The present petition for review on certiorari assails the September 14, 2001 Decision[1] and June 14, 2002 Resolution[2] of
the Court of Appeals in CA-G.R. SP No. 54730, which affirmed the April 21, 1999 Decision[3] of the Court of Tax Appeals
in C.T.A. Case No. 5541.
The facts of the case as found by the Court of Appeals and Court of Tax Appeals are as follows:
Petitioner is a resident foreign corporation licensed by the Securities and Exchange Commission (SEC) to engage in the
exploration, development and exploitation of geothermal energy and resources in the Philippines. In September 1971, it
entered into a service contract with the National Power Corporation (NPC) to supply steam to the latter.
From September 1995 to February 1996, petitioner billed NPC, Value Added Tax (VAT) computed at ten percent of the
service fee charged on the supply of steam. NPC did not pay the VAT. To avoid any possible tax deficiency, petitioner
remitted VAT equivalent to 1/11 of the fees received from NPC or P39,328,775.41, broken down as follows:
Exhibit
Period covered
Payment Date
10/18/95
VAT Paid
7/95 to 9/95
10/95 to 12/95
11/95
12/13/95
8,243,090.27
1/96
2/19/96
5,213,400.45
2/96
3/18/96
5,646,973.12
1/18/96
P 8,977,117.26
11,248,194.31
P 39,328,775.41
Petitioner filed an administrative claim for refund with the Bureau of Internal Revenue on July 10, 1996. According to
petitioner, the sale of steam to NPC is a VAT-exempt transaction under Sec. 103 of the Tax Code.[4] Petitioner claimed that
Fiscal Incentives Review Board (FIRB) Resolution No. 17-87, approved by President Aquino pursuant to Executive Order
No. 93,[5] expressly exempted NPC from VAT.
Since respondent failed to act on the claim, on July 2, 1997, petitioner filed a petition to toll the running of the two-year
prescriptive period before the Court of Tax Appeals.
Respondent, in his Answer,[6] averred:
...
4. The claim of petitioner Philippine Geothermal Incorporated (PGI for short) for Value-Added Tax refund has no legal
basis.
...
6. Fiscal Incentives Review Board (FIRB) Resolution 17-87 specifically restored the tax and duty exemption privileges of
the NPC, including those pertaining to its domestic purchases of petroleum and petroleum products granted under the terms
and conditions of Commonwealth Act 120 as amended, effective March 10, 1987.
However, the restoration of the tax and duty exemption privileges does not apply to importations of fuel oil (crude
equivalents) and coal, commercially-funded importations (i.e. importations which include but are not limited to those
foreign-based private financial institutions, etc.) and interest income derived from any source. Such exemption also does not
include purchases of goods and services. Hence, any contracting services of NPC is not qualified for zero-rated VAT (VAT
Ruling 250-89, October, 1989).
7. It is clear from the aforecited FIRB resolution that the tax exemption privilege granted to NPC does not include purchases
of goods and services, such as the supply of steam to NPC.
...
10. The subject taxes have been paid and collected in accordance with law and regulation.
11. In a claim for refund, it is incumbent upon petitioner to show that it is indubitably entitled thereto. Petitioners failure to
establish the same is fatal to its claim for refund.
12. .The present case is no exception to the basic rule that claims for refund are construed strictly against claimant for the
same partake of the nature of exemption from taxation.
Simply put, the sole issue in this case is whether petitioners supply of steam to NPC is a VAT-exempt transaction.
FIRB Resolution No. 17-87 dated June 24, 1987, on which petitioner anchors its claim for tax exemption, provides as
follows:
BE IT RESOLVED, AS IT IS HEREBY RESOLVED, That the tax and duty exemption privileges of the National Power
Corporation, including those pertaining to its domestic purchases of petroleum and petroleum products, granted under the
terms and conditions of Commonwealth Act No. 120 (Creating the National Power Corporation, defining its powers,
objectives and functions, and for other purposes), as amended, are restored effective March 10, 1987, subject to the
following conditions:
1. The restoration of the tax and duty exemption privileges does not apply to the following:
1.1 Importation of fuel oil (crude equivalent) and coal;
1.2 Commercially-funded importations (i.e., importations which include but are not limited to those
financed by the NPCs own internal funds, domestic borrowings from any source whatsoever,
borrowing from foreign-based private financial institutions, etc.); and
1.3 Interest income derived from any source.[7]
This Supreme Court has confirmed this exemption. In Maceda v. Macaraig, Jr.,[8] this Court ruled that Republic Act No.
358[9] exempts the NPC from all taxes, duties, fees, imposts, charges, and restrictions of the Republic of the Philippines,
and its provinces, cities and municipalities. This exemption is broad enough to include both direct and indirect taxes the
NPC may be required to pay. To limit the exemption granted the NPC to direct taxes, notwithstanding the general and broad
language of the statute, will be to thwart the legislative intention in giving exemption from all forms of taxes and
impositions, without distinguishing between those that are direct and those that are not.
A chronological review of the NPC laws will show that it has been the lawmakers intention that the NPC is to be completely
tax exempt from all forms of taxes - both direct and indirect.[10]
The ruling dated March 15, 1996, issued to petitioner by Assistant Commissioner Alicia P. Clemeno of the Bureau of
Internal Revenue, likewise confirms this exemption:
In view of the foregoing, this Office is of the opinion as it hereby holds, that the supply of steam by your client, Philippine
Geothermal, Inc. (PGI) to National Power Corporation NPC/NAPOCOR to be used in generating electricity is exempt from
the value-added tax. (BIR Ruling No. 078-95 dated April 26, 1995)[11]
On April 21, 1999, the CTA ruled that the supply of steam to NPC by petitioner being a VAT-exempt transaction, neither
petitioner nor NPC is liable to pay VAT. Petitioner, therefore, may rightfully claim for a refund of the value-added tax paid.
The CTA held,
WHEREFORE, in the light of the foregoing, RESPONDENT is hereby ORDERED to REFUND or in the alternative,
ISSUE A TAX CREDIT CERTIFICATE to PETITIONER the sum of P9,012,310.26 representing erroneously paid value
added tax.
SO ORDERED.[12]
According to the CTA, based on the evidence presented by petitioner, out of the refund claim of P39,328,775.41, only
P9,012,310.26[13] or that pertaining to output tax paid for September 1995 and the interest on late payment on peso cash
call, were not paid by NPC. As to the rest of petitioners claim, it appears that the official receipts petitioner issued to NPC
included the VAT payable shown in the Summary of Payments Received from NPC for each production period.
Petitioner raised the matter before the Court of Appeals praying that the respondent be ordered to refund the sum of
P39,328,775.41 or issue a tax credit certificate representing erroneous payments of VAT from September 1995 to February
1996.
The Court of Appeals denied the petition and affirmed the assailed decision of the Court of Tax Appeals.
Hence this appeal. Petitioner assigns the following errors to the appellate court:
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN AFFIRMING IN TOTO THE DECISION OF THE
COURT OF TAX APPEALS, BECAUSE:
A). THE DECISION OF THE COURT OF TAX APPEALS WAS BASED ON A MISAPPREHENSION OF FACTS,
NAMELY, THAT THE NPC PAID P30,316,465.15 AS VAT;
B). THE PETITIONER HAD ESTABLISHED BY UNDISPUTABLE EVIDENCE THAT IT PAID THE VAT ON THE
SUPPLY OF STEAM TO NPC; ACCORDINGLY, IT IS ENTITLED TO THE REIMBURSEMENT OF THE FULL
AMOUNT OF VAT ERRONEOUSLY PAID.[14]
The CTA Decision stated categorically that the supply of steam to NPC is exempt from VAT. However, it only granted a
partial VAT refund of P9,012,310.26, believing that only this amount was not reimbursed by NPC. The CTA ruled that
petitioner was no longer entitled to a refund of the remaining balance of P30,316,465.15, since it appears that the official
receipts petitioner issued to NPC included the VAT payable shown in the Summary of Payments Received from NPC for
each production period.
We disagree with the CTA. In this case, the only issue is the amount of refund to be granted based on the amount of tax
erroneously paid. Tax refunds are in the nature of tax exemptions, and are to be construed strictissimi juris against the entity
claiming the same.[15] Thus, the burden of proof rests upon the taxpayer to establish by sufficient and competent evidence,
its entitlement to a claim for refund. In the Bureau of Internal Revenues Ruling dated March 15, 1996, that the supply of
steam by petitioner to NPC is exempt from VAT, petitioner has indubitably established its basis for claiming a refund.
That NPC may have reimbursed petitioner the 10% VAT is not a ground for the denial of the claim for refund. The CTA
overlooked the fact that it was petitioner who paid the VAT out of its own service fee. The erroneous payments of the VAT
were only discontinued when the BIR issued its Ruling No. DA-111-96 in favor of petitioner on March 15, 1996. By then,
petitioner had already remitted a sizeable amount of P39,328,775.41 to the Government. The only recourse of petitioner is
the complete restitution of the erroneous payments of taxes.
The amount of refund should have been based on the VAT Returns filed by the taxpayer. Whether NPC had reimbursed
petitioner is not the concern of the CTA. It is solely a matter between petitioner and NPC.[16] For indirect taxes like VAT,
the proper party to question or seek a refund of the tax is the statutory taxpayer, the person on whom the tax is imposed by
law and who paid the same even when he shifts the burden thereof to another.[17]
Petitioner has the legal personality to apply for a refund since it is the one who made the erroneous VAT payments and who
will suffer financially by paying in good faith what it had believed to be its potential VAT liability.
Under the principle of solutio indebiti,[18] the government has to restore to petitioner the sums representing erroneous
payments of taxes.[19] It is of no moment whether NPC had already reimbursed petitioner or not because in this case, there
should have been no VAT paid at all.
The Summary of Payments and Official Receipts issued by a supplier is not a reliable basis for determining the VAT
payments of said supplier. The CTA grossly misappreciated the evidence and erroneously concluded in this case that NPC
paid the VAT. The CTA should have relied on the VAT Returns filed by the taxpayer to determine the actual amount remitted
to the BIR for the purpose of ascertaining the refund due. The presentation of the VAT Returns is considered sufficient to
ascertain the amount of the refund. Thus, upon finding that the supply of steam to NPC is exempt from VAT, the CTA
should have ordered respondent to reimburse petitioner the full amount of P39,328,775.41 as erroneously paid VAT.
WHEREFORE, the petition is hereby GRANTED. Respondent is ORDERED to refund or in the alternative, issue a Tax
Credit Certificate to petitioner in the sum of P39,328,775.41 as erroneously paid VAT.
SO ORDERED.
FIRST DIVISION
SILICON PHILIPPINES, INC., (Formerly INTEL
PHILIPPINES MANUFACTURING, INC.),
G.R. No. 172378

Present:
Petitioner,
CORONA, C.J., Chairperson,

VELASCO, JR.,
- versus -
LEONARDO-DE CASTRO,
DEL CASTILLO, and
PEREZ, JJ.
COMMISSIONER OF INTERNAL REVENUE,

Respondent.
Promulgated:
January 17, 2011
x-----------------------------------------------------------x
DECISION
DEL CASTILLO, J.:
The burden of proving entitlement to a refund lies with the claimant.
This Petition for Review on Certiorari under Rule 45 of the Rules of Court seeks to set aside the September 30, 2005
Decision[1] and the April 20, 2006 Resolution[2] of the Court of Tax Appeals (CTA) En Banc.
Factual Antecedents
Petitioner Silicon Philippines, Inc., a corporation duly organized and existing under and by virtue of the laws of the
Republic of the , is engaged in the business of designing, developing, manufacturing and exporting advance and large-scale
integrated circuit components or ICs.[3] Petitioner is registered with the Bureau of Internal Revenue (BIR) as a Value Added
Tax (VAT) taxpayer [4] and with the Board of Investments (BOI) as a preferred pioneer enterprise.[5]
On May 21, 1999, petitioner filed with the respondent Commissioner of Internal Revenue (CIR), through the One-Stop
Shop Inter-Agency Tax Credit and 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, broken down as follows:
Amount
Tax Paid on Imported/Locally Purchased
P 15,170,082.00
Capital Equipment
Total VAT paid on Purchases per Invoices
16,732,425.50
Received During the Period for which

this Application is Filed
Amount of Tax Credit/Refund Applied For
P 31,902,507.50[6]
Proceedings before the CTA Division

On December 27, 2000, due to the inaction of the respondent, petitioner filed a Petition for Review with the CTA Division,
docketed as CTA Case No. 6212. Petitioner alleged that for the 4 th quarter of 1998, it generated and recorded zero-rated
export sales in the amount of P3,027,880,818.42, paid to petitioner in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas;[7] and that for the said period, petitioner paid
input VAT in the total amount of P31,902,507.50,[8] which have not been applied to any output VAT.[9]
To this, respondent filed an Answer[10] raising the following special and affirmative defenses, to wit:
8. The petition states no cause of action as it does not allege the dates when the taxes sought to be refunded/credited were
actually paid;
9. It is incumbent upon herein petitioner to show that it complied with the provisions of Section 229 of the Tax Code as
amended;
10. Claims for refund are construed strictly against the claimant, the same being in the nature of exemption from taxes
(Commissioner of Internal Revenue vs. Ledesma, 31 SCRA 95; Manila Electric Co. vs. Commissioner of Internal Revenue,
67 SCRA 35);
11. One who claims to be exempt from payment of a particular tax must do so under clear and unmistakable terms found in
the statute (Asiatic Petroleum vs. Llanes, 49 Phil. 466; Union Garment Co. vs. Court of Tax Appeals, 4 SCRA 304);
12. In an action for refund, the burden is upon the taxpayer to prove that he is entitled thereto, and failure to sustain the
same is fatal to the action for refund. Furthermore, as pointed out in the case of William Li Yao vs. Collector (L-11875,
December 28, 1963), amounts sought to be recovered or credited should be shown to be taxes which are erroneously or
illegally collected; that is to say, their payment was an independent single act of voluntary payment of a tax believed to be
due and collectible and accepted by the government, which had therefor become part of the State moneys subject to
expenditure and perhaps already spent or appropriated; and
13. Taxes paid and collected are presumed to have been made in accordance with the law and regulations, hence not
refundable.[11]
On November 18, 2003, the CTA Division rendered a Decision[12] partially granting petitioners claim for refund of
unutilized input VAT on capital goods. Out of the amount of P15,170,082.00, only P9,898,867.00 was allowed to be
refunded because training materials, office supplies, posters, banners, T-shirts, books, and other similar items purchased by
petitioner were not considered capital goods under Section 4.106-1(b) of Revenue Regulations (RR) No. 7-95 (Consolidated
Value-Added Tax Regulations).[13] With regard to petitioners claim for credit/refund of input VAT attributable to its zerorated export sales, the CTA Division denied the same because petitioner failed to present an Authority to Print (ATP) from
the BIR;[14] neither did it print on its export sales invoices the ATP and the word zero-rated.[15] Thus, the CTA Division
disposed of the case in this wise:
WHEREFORE, in view of the foregoing the instant petition for review is hereby PARTIALLY GRANTED. Respondent is
ORDERED to ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner in the reduced amount of P9,898,867.00
representing input VAT on importation of capital goods. However, the claim for refund of input VAT attributable to
petitioner's alleged zero-rated sales in the amount of P16,732,425.50 is hereby DENIED for lack of merit.
SO ORDERED.[16]
Not satisfied with the Decision, petitioner moved for reconsideration.[17] It claimed that it is not required to secure an ATP
since it has a Permit to Adopt Computerized Accounting Documents such as Sales Invoice and Official Receipts from the
BIR.[18] Petitioner further argued that because all its finished products are exported to its mother company, Intel
Corporation, a non-resident corporation and a non-VAT registered entity, the printing of the word zero-rated on its export
sales invoices is not necessary.[19]
On its part, respondent filed a Motion for Partial Reconsideration[20] contending that petitioner is not entitled to a
credit/refund of unutilized input VAT on capital goods because it failed to show that the goods imported/purchased are
indeed capital goods as defined in Section 4.106-1 of RR No. 7-95.[21]
The CTA Division denied both motions in a Resolution[22] dated August 10, 2004. It noted that:
[P]etitioners request for Permit to Adopt Computerized Accounting Documents such as Sales Invoice and Official Receipt
was approved on August 31, 2001 while the period involved in this case was October 31, 1998 to December 31, 1998 x x x.
While it appears that petitioner was previously issued a permit by the BIR Makati Branch, such permit was only limited to
the use of computerized books of account x x x. It was only on August 31, 2001 that petitioner was permitted to generate
computerized sales invoices and official receipts [provided that the BIR Permit Number is printed] in the header of the
document x x x.
xxxx
Thus, petitioners contention that it is not required to show its BIR permit number on the sales invoices runs counter to the
requirements under the said Permit. This court also wonders why petitioner was issuing computer generated sales invoices
during the period involved (October 1998 to December 1998) when it did not have an authority or permit. Therefore, we are
convinced that such documents lack probative value and should be treated as inadmissible, incompetent and immaterial to
prove petitioners export sales transaction.
xxxx
ACCORDINGLY, the Motion for Reconsideration and the Supplemental Motion for Reconsideration filed by petitioner as
well as the Motion for Partial Reconsideration of respondent are hereby DENIED for lack of merit. The pronouncement in
the assailed decision is REITERATED.
SO ORDERED [23]
Undaunted, petitioner elevated the case to the CTA En Banc via a Petition for Review,[24] docketed as EB Case No. 23.
On September 30, 2005, the CTA En Banc issued the assailed Decision[25] denying the petition for lack of merit. Pertinent
portions of the Decision read:
This Court notes that petitioner raised the same issues which have already been thoroughly discussed in the assailed
Decision, as well as, in the Resolution denying petitioner's Motion for Partial Reconsideration.
With regard to the first assigned error, this Court reiterates that, the requirement of [printing] the BIR permit to print on the
face of the sales invoices and official receipts is a control mechanism adopted by the Bureau of Internal Revenue to
safeguard the interest of the government.
This requirement is clearly mandated under Section 238 of the 1997 National Internal Revenue Code, which provides that:
SEC. 238. Printing of Receipts or Sales or Commercial Invoice. All persons who are
engaged in business shall secure from the Bureau of Internal Revenue an authority to
print receipts or sales or commercial invoices before a printer can print the same.
The above mentioned provision seeks to eliminate the use of unregistered and double or multiple sets of receipts by striking
at the very root of the problem the printer (H. S. de Leon, The National Internal Revenue Code Annotated, 7th Ed., p. 901).
And what better way to prove that the required permit to print was secured from the Bureau of Internal Revenue than to
show or print the same on the face of the invoices. There can be no other valid proof of compliance with the above provision
than to show the Authority to Print Permit number [printed] on the sales invoices and official receipts.
With regard to petitioners failure to print the word zero-rated on the face of its export sales invoices, it must be emphasized
that Section 4.108-1 of Revenue Regulations No. 7-95 specifically requires that all value-added tax registered persons shall,
for every sale or lease of goods or properties or services, issue duly registered invoices which must show the word zerorated [printed] on the invoices covering zero-rated sales.
It is not enough that petitioner prove[s] that it is entitled to its claim for refund by way of substantial evidence. Well settled
in our jurisprudence [is] that tax refunds are in the nature of tax exemptions and as such, they are regarded as in derogation
of sovereign authority (Commissioner of Internal Revenue vs. Ledesma, 31 SCRA 95). Thus, tax refunds are construed in
strictissimi juris against the person or entity claiming the same (Commissioner of Internal Revenue vs. Procter & Gamble
Philippines Manufacturing Corporation, 204 SCRA 377; Commissioner of Internal Revenue vs. Tokyo Shipping Co., Ltd.,
244 SCRA 332).
In this case, not only should petitioner establish that it is entitled to the claim but it must most importantly show proof of
compliance with the substantiation requirements as mandated by law or regulations.
The rest of the assigned errors pertain to the alleged errors of the First Division: in finding that the petitioner failed to
comply with the substantiation requirements provided by law in proving its claim for refund; in reducing the amount of
petitioners tax credit for input vat on importation of capital goods; and in denying petitioners claim for refund of input vat
attributable to petitioners zero-rated sales.
It is petitioners contention that it has clearly established its right to the tax credit or refund by way of substantial evidence in
the form of material and documentary evidence and it would be improper to set aside with haste the claimed input VAT on
capital goods expended for training materials, office supplies, posters, banners, t-shirts, books and the like because Revenue
Regulations No. 7-95 defines capital goods as to include even those goods which are indirectly used in the production or
sale of taxable goods or services.
Capital goods or properties, as defined under Section 4.106-1(b) of Revenue Regulations No. 7-95, refer to goods or
properties with estimated useful life greater than 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.

Considering that the items (training materials, office supplies, posters, banners, t-shirts, books and the like) purchased by
petitioner as reflected in the summary were not duly proven to have been used, directly or indirectly[,] in the production or
sale of taxable goods or services, the same cannot be considered as capital goods as defined above[. Consequently,] the
same may not x x x then [be] claimed as such.
WHEREFORE, in view of the foregoing, this instant Petition for Review is hereby DENIED DUE COURSE and hereby
DISMISSED for lack of merit. This Court's Decision of November 18, 2003 and Resolution of August 10, 2004 are hereby
AFFIRMED in all respects.
SO ORDERED.[26]
Petitioner sought reconsideration of the assailed Decision but the CTA En Banc denied the Motion[27] in a Resolution[28]
dated April 20, 2006.
Issues
Hence, the instant Petition raising the following issues for resolution:
(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.[29]
(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.[30]
Petitioner posits that the denial by the CTA En Banc of its claim for refund of input VAT attributable to its zero-rated sales
has no legal basis because the printing of the ATP and the word zero-rated on the export sales invoices are not required
under Sections 113 and 237 of the National Internal Revenue Code (NIRC).[31] And since there is no law requiring the ATP
and the word zero-rated to be indicated on the sales invoices,[32] the absence of such information in the sales invoices
should not invalidate the petition[33] nor result in the outright denial of a claim for tax credit/refund.[34] To support its
position, petitioner cites Intel Technology Philippines, Inc. v. Commissioner of Internal Revenue,[35] where Intels failure to
print the ATP on the sales invoices or receipts did not result in the outright denial of its claim for tax credit/refund.[36]
Although the cited case only dealt with the printing of the ATP, petitioner submits that the reasoning in that case should also
apply to the printing of the word zero-rated.[37] Hence, failure to print of the word zero-rated on the sales invoices should
not result in the denial of a claim.
As to the claim for refund of input VAT on capital goods, petitioner insists that it has sufficiently proven through testimonial
and documentary evidence that all the goods purchased were used in the production and manufacture of its finished
products which were sold and exported.[38]
To refute petitioners arguments, respondent asserts that the printing of the ATP on the export sales invoices, which serves as
a control mechanism for the BIR, is mandated by Section 238 of the NIRC;[39] while the printing of the word zero-rated on
the export sales invoices, which seeks to prevent purchasers of zero-rated sales or services from claiming non-existent input
VAT credit/refund,[40] is required under RR No. 7-95, promulgated pursuant to Section 244 of the NIRC.[41] With regard
to the unutilized input VAT on capital goods, respondent counters that petitioner failed to show that the goods it
purchased/imported are capital goods as defined in Section 4.106-1 of RR No. 7-95. [42]
Our Ruling
Before us are two types of input VAT credits. One is a credit/refund of input VAT attributable to zero-rated 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
In a claim for credit/refund of input VAT attributable to zero-rated sales, Section 112 (A)[43] 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.[44] The CTA Division cited as basis Sections 113,[45] 237[46] and 238[47] of the NIRC, in
relation to Section 4.108-1 of RR No. 7-95.[48]
We partly agree 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[49] that
the ATP need not be reflected or indicated in the invoices or receipts because there is no law or
regulation requiring it.[50] 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.[51]
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 264[52] 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.
We rule 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 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.[53] (Emphasis supplied)
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 (formerly Matsushita Business Machine Corporation of the ) v.
Commissioner of Internal Revenue,[54] 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 rule-making
authority of the Secretary of Finance under Section 244[55] 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)[56] 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:
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),[57] 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.
WHEREFORE, the Petition is hereby DENIED. The assailed Decision dated September 30, 2005 and the Resolution dated
April 20, 2006 of the Court of Tax Appeals En Banc are hereby AFFIRMED.
SO ORDERED.
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 205543
June 30, 2014
SAN ROQUE POWER CORPORATION, Petitioner,

vs.
DECISION
LEONARDO-DE CASTRO, J.:
Before the Court is a Petition for Review on Certiorari under Rule 16, Section 1 of A.M. No. 05-11-07-CTA, otherwise
known as the Revised Rules of the Court of Tax Appeals, in relation to Rule 45 of the Rules of Court, filed by San Roque
Power Corporation (San Roque), seeking the reversal of the Decision1 dated June 4, 2012 and Resolution2 dated January
21, 2013 of the Court of Tax Appeals (CTA) en bane in C.T.A. EB No. 789. The CTA en bane, in its assailed Decision,
affirmed the Decision3 dated January 10, 2011 of the CTA First Division in C.T.A. Case Nos. 7744 & 7802, which
dismissed the judicial claims of San Roque for the refund or tax credit of its excess/unutilized creditable input taxes for the
four quarters of 2006; and in its assailed Resolution, denied the Motion for Reconsideration of San Roque.
San Roque is a domestic corporation principally engaged in the power-generation business. It is registered with the Board of
Investments on a preferred pioneer status for the construction and operation of hydroelectric power-generating plants, as
well as with the Bureau of Internal Revenue (BIR) as a Value-Added Tax (VAT) taxpayer.
On October 11, 1997, San Roque entered intoa Power Purchase Agreement (PPA) with the National Power Corporation
(NPC) to develop the San Roque hydroelectric facilities located at Lower Agno River in San Miguel, Pangasinan (Project)
on a build-operate-transfer basis. During the co-operation period of 25 years, commencing from the completion date of the
power station, all the electricity generated by the Project would be sold to and purchased exclusively by NPC.San Roque
commenced commercial operations in May 2003.
San Roque alleged that in 2006, it incurred creditable input taxes from its purchase of capital goods, importation of goods
other than capital goods, and payment for the services of non-residents. San Roque subsequently filed with the BIR separate
claims for refund or tax credit of its creditable input taxes for all four quarters of 2006. San Roque averred that it did not
have any output taxes to which it could have applied said creditable input taxes because: (a) the sale by San Roque of
electricity, generated through hydropower, a renewable source of energy, is subject to 0% VAT under Section 108(B)(7) of
the National Internal Revenue Code (NIRC) of 1997, as amended; and (b) NPC is exempted from all taxes, direct and
indirect, under Republic Act No. 6395, otherwise known as the NPC Charter, so the sale by San Roque of electricity
exclusively to NPC, under the PPA dated October 11, 1997, is effectively zero-rated under Section 108(B)(3) of the NIRC of
1997, as amended.4 When the Commissioner of Internal Revenue (CIR) failed to take action on its administrative claims,
San Roque filed two separate Petitions for Review before the CTA, particularly, C.T.A. Case No. 7744 (covering the first,
third, and fourth quarters of 2006) and C.T.A. Case No. 7802 (covering the second quarter of 2006). The two cases were
consolidated before the CTA First Division.
The details concerning the administrative and judicial claims of San Roque for refund or tax credit of its creditable input
taxes for the four quarters of 2006 are summarized in table form below:
Tax
Period
2006
First
Quarter
VAT Return
Filed: April 21, 2006

Amended: November 7,
2006
Administrative Claim
Filed: April 11, 2007

Amount: P2,857,174.95
Amended: March 10, 2008
Amount: P3,128,290.74
Second
Quarter
Third
Quarter
Filed: July 15, 2006

Amended: November 8,
2006
Amended: February 5,
2007
Filed: July 10, 2007

Amount: P15,044,030.82
Filed: October 19, 2006

Amended: February 5,
2007
Filed: August 31, 2007

Amount: P4,122,741.54
Filed: January 22, 2007

Amended: May 12, 2007
Filed: March 28, 2008

CTA Case No. 7744
Amount: P12,114,877.34
(for 1st, 3rd, and 4th
Quarters
of 2006)
Filed: June 27, 2008
CTA Case No. 7802
Amount: P15,548,630.55
Amended: March 10, 2008

Amount: P15,548,630.55
Amended: September 21,

2007
Amount: P3,675,574.21
Fourth
Quarter
Judicial Claim
Filed: August 31, 2007

Amount: P6,223,682.61
Amended: September 21,
2007
Amount: P5,311,012.39

CTA Case No. 7744
Amount: P12,114,877.34
Quarters
of 2006)
CTA Case No. 7744
Amount: P12,114,877.34
Quarters
of 2006)
On January 10, 2011, the CTA First Division rendered a Decision on the consolidated judicialclaims of San Roque, with the
following findings:
As to [San Roques] original applications for refund is concerned, the Commissioner of Internal Revenuehas one hundred
twenty days or until August 9, 2007, November 7, 2007 and December 29, 2007 within which to make decision. After the
lapse of the one hundred twenty[-]day period, [San Roque] should have elevated its claim with the Court within thirty (30)
days starting from August 10, 2007 to September 8, 2007 for its first quarter claim, November 8, 2007 to December 7, 2007
for its second quarter claim, and December 30, 2007 toJanuary 28, 2008 for its third and fourth quarters claims pursuant to
Section 112(D) of the NIRC in relation to Section 11 of [Republic Act No.] 1125, as amended by Section 9 of [Republic Act
No.] 9282. Unfortunately, the Petitions for Review on March 28, 2008 for the first, third and fourth quarters claims and on
June 27, 2008 for the second quarter claim, were filed beyond the 30-day period set by law and therefore, the Court has no
jurisdiction to entertain the subject matter of the case considering that the 30-day appeal period provided under Section 11
of [RepublicAct No.] 1125 is a jurisdictional requirement as held in the case of Ker & Co., Ltd. vs. Court of Tax Appeals, x
x
x:
xxxx
Likewise, if we reckoned the one hundred twenty[-]day period from the date of the amended applications for refund on
March 10, 2008 for the first and second quarters claims and September 21, 2007 for the third and fourth quarters claims,
both Petitions for Reviewwould still be denied.
With respect to the amended application for refund of input tax for the first and second quarters of 2006 on March 10, 2008,
the Commissioner of Internal Revenue has one hundred twenty days or until July 8, 2008 within which to make a decision.
After the lapse of the said 120-day period, [San Roque] had thirty days or until August 7, 2008 within which to appeal to
this Court.[San Roque], however, appealed via Petitions for Review on March 28, 2008 for its first quarter claim and on
June 27, 2008 for its second quarter claim, which are clearly before the lapse of the 120-day period. This violates the rule on
exhaustion of administrative remedies.
xxxx
The premature invocation ofthe courts intervention, like the instant Petitions for Review, is fatal to ones cause of action;
and the case is susceptible of dismissal for failure to state a cause of action. Moreover, such premature appeal will also
warrant the dismissal of the Petitions for Review inasmuch as no jurisdiction was acquired by the Court in line with the
recent pronouncement made by the Supreme Court in the case of Commissioner of Internal Revenue vs. Aichi Forging
Company of Asia, Inc.
As far as the amended application for refund covering the third and fourth quarter[s] filed on September 21, 2007 is
concerned, the Commissioner of Internal Revenue has one hundred twenty days or until January 19, 2008 within which to
make a decision. After the lapse of the said one hundred twenty day[-]period, [San Roque] should have elevated its claim
with the Court within thirty (30) daysstarting from January 20, 2008 to February 18, 2008. Unfortunately, the Petition for
Review covering said third and fourth quarter[s] was filed March 28, 2008 beyond the 30-day period set by law and
therefore, the Court has no jurisdiction to entertain the subject matter of the case.
Other issues raised now become moot and academic.5
The dispositive portion of the foregoing Decision of the CTA First Division reads:
WHEREFORE, these consolidated Petitions for Review, CTA Case Nos. 7744 covering the first, third and fourth quarter[s]
and 7802 covering [the] second quarter are hereby DISMISSEDsince the Court has no jurisdiction thereof.6
San Roque filed a Motion for Reconsideration but it was denied by the CTA First Division in a Resolution 7 dated May 31,
2011.
San Roque filed a Petition for Review before the CTA en banc, protesting against the retroactive application of
Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc.8 In Aichi, promulgated on October 6, 2010, the
Supreme Court strictly required compliance with the 120+30 day periods under Section 112 of the NIRC of 1997, as
amended.
In its Decision dated June 4, 2012, the CTA en bancupheld the application of Aichiand explained that there was no
retroactive application of the same. The 120+30 day periods had already been provided in the NIRC of 1997, as amended,
evenbefore the promulgation of Aichi. Aichi merely interpreted the provisions of Section 112 of the NIRC of 1997, as
amended.
The CTA en bancapplied the 120+30 day periods and found, same as the CTA First Division, that while San Roque timely
filed its administrative claims for refund or tax credit of creditable input taxes for the four quarters of 2006, it filed its
judicial claimsbeyond the 30-day prescriptive period, reckoned from the lapse of the 120-day period for the CIR to act on
the original administrative claims. The CTA en bancstressed that the 30-day period within which to appeal with the CTA is
jurisdictional and failure to comply therewith would bar the appeal and deprive the CTA of its jurisdiction.9
The CTA en bancfurther stated in its Decision that even if it counted the 120-day period from the filing of the amended
administrative claims for refund on March 10, 2008 for the first and second quarter claims, and on September 21, 2007 for
the third and fourth quarter claims, the CTA still did not acquire jurisdiction over C.T.A.Case Nos. 7744 and 7802.
Following the 120+30 day periods, the judicial claims of San Roque for the first and second quarters were prematurely
filed,while the judicial claims for the third and fourth quarters were filed late.
Lastly, the CTA en bancadjudged that San Roque cannot rely on San Roque Power Corporation v. Commissioner of Internal
Revenue, promulgated on November 25, 2009 [San Roque (2009)],10 which granted the claims for refund or tax credit of
the creditable input taxes of San Roque for the four quarters of 2002, on the following grounds: (a) The main issue in San
Roque (2009)was whether or not San Roque had zero-rated or effectively zero-rated sales in 2002, to which the creditable
input taxes could be attributed, while the pivotal issue inthe instant case is whether or not San Roque complied with the
prescriptive periods under Section 112 of the NIRC of 1997, as amended, when it filed its administrative and judicial claims
for refund or tax credit of itscreditable input taxes for the four quarters of 2006; (b) The claims for refund or tax credit in
San Roque (2009) involved the four quarters of 2002,when sales of electric power by generation companies to the NPC
were explicitly VAT zero-rated under Section 6 of Republic Act No. 9136, otherwise known as the Electric Power Industry
Reform Act (EPIRA) of 2001. Eventually, Republic Act No. 9337, otherwise known as the Extended VAT Law (EVAT
Law), took effect on November 1, 2005, and Section 24 of said law already expressly repealed Section 6 of the EPIRA; and
(3) In San Roque (2009), San Roque failed to comply with Section 112(A)11 of the NIRC of 1997, as amended, and
prematurely filed its administrative claim for the third quarter of 2002 on October 25, 2002, when its zero-rated sales of
electric power to NPC were made only in the fourth quarter of 2002, which closed on December 31. 2002. In the instant
case, San Roquedid not comply with the 120+30 day periods under Section 112(C) of the NIRC, as amended, thus, the CTA
did not acquire jurisdiction over the judicial claims.
In the end, the CTA en bancdecreed:
Finding no reversible error, we affirm the assailed Decision dated January 10, 2011 and Resolution dated May 31, 2011
rendered by the First Division in C.T.A. Case Nos. 7744 and 7802.
WHEREFORE, premises considered, the present Petition for Review is hereby DENIED, and accordingly DISMISSEDfor
lack of merit.12
In its Resolution dated January 21, 2013, the CTA en bancdenied the Motion for Reconsideration of San Roque.
Hence, San Roque filed the Petition at bar assigning six reversible errors on the part of the CTA en banc, viz:
I.
THE HONORABLE CTA EN BANCCOMMITTED REVERSIBLE ERROR IN DISMISSING [SAN
ROQUES] PETITIONS FOR REVIEW AND APPLYING RETROACTIVELY THE AICHI RULING IN
THAT AT THE TIME IT FILED ITS PETITIONS FOR REVIEW, [SAN ROQUE] ACTED IN GOOD
FAITH IN ACCORDANCE WITH THE THEN PREVAILING RULE AND JURISPRUDENCE
CONSISTENTLY UPHELD FOR ALMOST A DECADE BY THE HONORABLE CTA IN THE ABSENCE
THEN OF A RULING FROM THIS HONORABLE COURT.
II.
THE HONORABLE CTA EN BANCCOMMITTED REVERSIBLE ERROR IN APPLYING THE AICHI
RULING TO [SAN ROQUES] CLAIM FILED YEARS BEFORE ITS PROMULGATION IN THAT THE
AICHI RULING, WHICH LAID DOWN A NEW RULE OF PROCEDURE WHICH AFFECTS
SUSBSTANTIVE RIGHTS, SHOULD BE APPLIED PROSPECTIVELY IN LIGHT OF THE LAW AND
SETTLED JURISPRUDENCE UPHOLDING THE PRINCIPLE OF PROSPECTIVITY.
III.
THE HONORABLE CTA EN BANCCOMMITTED REVERSIBLE ERROR IN APPLYING
RETROACTIVELY THE AICHI RULING IN THAT ITS RETROACTIVE APPLICATION TO [SAN
ROQUES] PENDING CLAIM WILL BE UNJUST AND UNFAIR AND WILL CERTAINLY PRODUCE
SUBSTANTIAL INEQUITABLE RESULTS AND GRAVE INJUSTICE TO [SAN ROQUE] AND MANY
TAXPAYERS WHO RELIED IN GOOD FAITH ON ITS THEN CONSISTENT RULINGS FOR ALMOST
A DECADE.
IV.
THE HONORABLE CTA EN BANCCOMMITTED REVERSIBLE ERROR IN APPLYING
RETROACTIVELY THE AICHI RULING IN THAT ITS RETROACTIVE APPLICATION GOES
AGAINST THE BASIC POLICIES AND THE SPIRIT OF THE EPIRA LAW.
V.
[SAN ROQUE] SHOULD BE GIVEN THE SAME TREATMENT AS THOSE DECIDED IN PRECEDENT
CASES PROMULGATED PRIOR TO THE PROMULGATION OF THE AICHI RULING IN
ACCORDANCE WITH THE EQUAL PROTECTION CLAUSE OF THE CONSTITUTION AND THE
DOCTRINEOF EQUITABLE ESTOPPEL.
VI.
RECENTLY, THIS HONORABLE COURT EN BANCHAS CATEGORICALLY RULED THAT THE AICHI
RULING SHALL BE APPLIED PROSPECTIVELY.13
There is no merit in the instant Petition.
At the crux of the controversy are the prescriptive periods for the filing of administrative and judicial claims for refund or
tax credit of creditable input taxes under Section 112 of the NIRC of 1997, as amended, which provide:
SEC. 112. Refunds or Tax Credits of Input Tax.
(A) Zero-Rated or Effectively Zero-Rated Sales. Any VATregistered 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 paidattributable to such
sales, except transitional input tax, to the extent thatsuch input tax has not been applied against output tax: x x x
xxxx
(C) Period within which Refund or Tax Credit of Input Taxes shall be Made. In proper cases, the Commissioner
shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120)
daysfrom the date of submission of complete documentsin support of the application filed in accordance with
Subsection (A) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the partof the Commissioner to act
on the application within the period prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of
the decision denying the claim or after the expiration ofthe one hundred twenty day-period, appeal the decision or the
unacted claim with the Court of Tax Appeal. (Emphases supplied.)
Contrary to the assertion of San Roque, it was only in Aichithat the issue of the prescriptive periods under Section 112 of
the NIRC of 1997, as amended, was first squarelyraised before and addressed by the Court. The Court significantly ruled in
Aichithat: (a) Section 112 of the NIRC of 1997, as amended, particularly governs claims for refund or tax credit of
creditable input taxes, which is distinct from Sections 204(C) and 229 of the same statute which concern erroneously or
illegally collected taxes; (b) The twoyear prescriptive period under Section 112(A) of the NIRC of 1997, as amended,
pertains only to administrative claims for refund or tax credit of creditable input taxes, and not to judicial claims for the
same; (c) Following Commissioner of Internal Revenue v. Mirant Pagbilao Corporation,14 the two-year prescriptive period
under Section 112(A) of the NIRC of 1997, as amended, is reckoned from the close ofthe taxable quarter when the sales
were made; (d) In determining the end of the two-year prescriptive period under Section 112(A) of the NIRC of 1997, as
amended, the Administrative Code of 1987 prevails over the Civil Code, so that a year is composed of 12 calendar months;
and (e) The 120-day period, under what is presently Section 112(C) of the NIRC of 1997, asamended, is crucial in filing an
appeal with the CTA, for whether the CIR issues a decision on the administrative claim beforethe lapse of the 120-day
period or the CIR made no decision on the administrative claim after the 120-day period, the taxpayer has 30 days within
which to file an appeal with the CTA.
The Court en banchad the opportunity tofurther expound on the prescriptive periods under Section 112 of the NIRC of 1997,
as amended, in its Decision in the consolidated cases of Commissioner of Internal Revenue v. San Roque Power
Corporation, Taganito Mining Corporation v. Commissioner of Internal Revenue, and Philex Mining Corporation v.
Commissioner of Internal Revenue, promulgated in 2013 [San Roque (2013)].15
According to the Court in San Roque (2013), the prescriptive periods under Section 112 of the NIRC of 1997, asamended,
shall be interpreted as follows:
Section 112(A) and (C) must be interpreted according to its clear, plain, and unequivocal language. The taxpayer can file his
administrative claim for refund or credit at anytime within the two-year prescriptive period. If he files his claim on the last
day of the two-year prescriptive period, his claim is still filed on time. The Commissioner will have 120 days from such
filing to decide the claim. If the Commissioner decides the claim on the 120th day, or does not decide it on that day, the
taxpayer still has 30 days to file his judicial claim with the CTA. This is not only the plain meaning but also the only logical
interpretation of Section 112(A) and (C).16 (Emphasis deleted.)
The Court emphasized in San Roque (2013)that a claim for refund or tax credit, like a claim for tax exemption, is construed
strictly against the taxpayer. It cited Aichiand pointed out that one of the conditions for a judicial claim for refund or tax
credit under the VAT system is compliance with the 120+30 day mandatory and jurisdictional periods under Section 112(C)
of the NIRC of 1997, as amended.17
Guided by the aforementioned law and jurisprudence, the Court now determines whether or not San Roque complied in the
instant case with the prescriptive periods under Section 112 ofthe NIRC of 1997, as amended.
As the following tables will show, San Roque filed its administrative claims for refund or tax credit of its creditable input
taxes for the four quarters of 2006 within the two-yearprescriptive period under Section 112(A) of the NIRC of 1997, as
amended, whether reckoned from the close of the taxable quarter when the relevant zero-rated or effectively zero-rated sales
were made, in accordance with Mirantand Aichi; or from the date of filing of the quarterly VAT return and payment of the
tax due 20 days after the close of the taxable quarter, following Atlas Consolidated Mining and Development Corporation v.
Commissioner of Internal Revenue18:
According to Mirant and Aichi
Tax Period
2006
Close of Quarter
When Relevant Sales
were Made
End of the Two-Year

Prescriptive Period
Date of Filing of
Administrative
Claim
First Quarter
March 31, 2006
March 31, 2008
April 11, 2007
Second Quarter
June 30, 2006
June 30, 2008
July 10, 2007
Third Quarter
September 30, 2006
September 30, 2008
August 31, 2007
Fourth Quarter
December 31, 2006
December 31, 2008
August 31, 2007
According to Atlas
Tax Period
2006
Filing of Returns and

Payment of Taxes 20
Days after the Close
of Taxable Quarter
End of the Two-Year

Prescriptive Period
Date of Filing of
Administrative
Claim
First Quarter
April 20, 2006
April 20, 2008
April 11, 2007
Second Quarter
July 20, 2006
July 20, 2008
July 10, 2007
Third Quarter
October 20, 2006
October 20, 2008
August 31, 2007
Fourth Quarter
January 21, 200619
January 21, 2009
August 31, 2007
San Roque, however, failed to comply with the 120+30 day periods for the filing of its judicial claims, as can be gleaned
from the table below:
Tax
Period
2006
Date of
Filing of
Administrative
Claim
First
April 11, 2007
End of 120-Day Period End of 30-day Date of Actual

for
Period to File
Filing of
CIR to Decide
Appeal with
Judicial
CTA
Claim
August 9, 2007
September 8,
March 28,
No. of Days:
End of 120day
Period to
Filing
of Judicial
Claim
232 days
Quarter
200720
2008
Second
Quarter
July 10, 2007
November 7,
2007
December 7,
2007
June 27, 2008
233 days
Third
Quarter
August 31, 2007
December 29,
2007
January 28,
2008
March 28,
2008
90 days
Fourth
Quarter
August 31, 2007
December 29,
2007
January 28,
2008
March 28,
2008
90 days
Because San Roque filed C.T.A. Case Nos. 7744 and 7802 beyond the 30-day mandatory period under Section 112(C) of the
NIRC of 1997, as amended, the CTA First Division did not acquire jurisdiction over said cases and correctly dismissed the
same.
San Roque in the present case is in exactly the same position as Philex Mining Corporation (Philex) in San Roque (2013).
Hence, the ruling of the Court on the judicial claim of Philex in San Roque (2013) is worth reproducing hereunder:
Philex timely filed its administrative claim on 20 March 2006, within the two-year prescriptive period. Even if the two-year
prescriptive period is computed from the date of payment of the output VAT under Section 229, Philex still filed its
administrative claim on time. Thus, the Atlasdoctrine is immaterial in this case.The Commissioner had until 17 July 2006,
the last day ofthe 120-day period, to decide Philexs claim. Since the Commissioner did not act on Philexs claim on or
before 17 July 2006, Philex had until 17 August 2006, the last day of the 30-day period, to file its judicial claim. The CTA
EB held that 17 August 2006 was indeed the last day for Philex to file its judicial claim.However, Philex filed its Petition for
Review withthe CTA only on 17 October 2007, or four hundred twenty-six (426) days after the last day of filing. In short,
Philex was late by one year and 61 days in filing its judicial claim.As the CTA EB correctly found: Evidently, the Petition
for Review in C.T.A. Case No. 7687 was filed 426 days late.Thus, the Petition for Review in C.T.A. Case No. 7687 should
have been dismissed on the ground that the Petition for Review was filed way beyond the 30-day prescribed period; thus, no
jurisdiction was acquired by the CTA Division; x x x.
Unlike San Roque and Taganito, Philexs case is not one of premature filing but of late filing. Philex did not file any petition
with the CTA within the 120-day period. Philex did not also file any petition with the CTA within 30 days after the
expiration of the 120-day period. Philex filed its judicial claim long afterthe expiration of the 120-day period, in fact 426
days after the lapse of the 120-day period. In any event, whether governed by jurisprudence before, during, or after the Atlas
case, Philexs judicial claim will have to be rejected because of late filing.Whether the two-year prescriptive period is
counted from the date of payment of the output VAT following the Atlasdoctrine, or from the close of the taxable quarter
when the sales attributable to the input VAT were made following the Mirantand Aichidoctrines, Philexs judicial claim was
indisputably filed late.
The Atlas doctrine cannot save Philex from the late filing of its judicial claim. The inactionof the Commissioner on Philexs
claim during the 120-day period is, by express provision of law, "deemed a denial" of Philexs claim. Philex had 30 days
from the expiration of the 120-day period to file its judicial claim with the CTA. Philexs failure to do so rendered the
"deemed a denial" decision of the Commissioner final and inappealable. The right to appeal to the CTA from a decision or
"deemed a denial" decision of the Commissioner is merely a statutory privilege, not a constitutional right. The exercise of
such statutory privilege requires strict compliance with the conditions attached by the statute for its exercise. Philex failed to
comply with the statutory conditions and must thus bear the consequences.21 (Citations omitted.)
Both the CTA First Division and CTA en bancwent a step further and also computed the 120+30 day periods from the date
of filing by San Roque of its amended administrative claimson March 10, 2008 for the first and second quarters of 2006,
and on September 21, 2007 for the third and fourth quarters of 2006. According to the CTA First Division and CTA en banc,
if the 120-day period was reckoned from the dates of filing of the amended administrative claims, the judicial claims for the
first and second quarters were premature, while the judicial claims for the third and fourth quarters were late.
For the Court, there is no morepoint in considering the amended administrative claims for the first and second quarters of
2006. The amended administrative claims were filed on March 10, 2008after the 120+30 day periods for filing the
judicialclaims, counting from the date of filing of the original administrative claims for the first and second quarters of
2006, had already expired on September 8, 2007and December 7, 2007, respectively. Taking cognizance of the amended
administrative claims in such a situation would result in the revival of judicial claims that had already prescribed.
Meanwhile, San Roque filed its amended administrative claims for the third and fourth quarters of 2006 on September 21,
2007, before the end of the 120-day period for the CIR to decide on the original administrative claims for the same taxable
quarters. Nonetheless, even if the Court counts the 120+30 day periods from the dateof filing of said amended
administrative claims, the judicial claims of San Roque would still be belatedly filed:
Tax
Period
2006
Date of
Filing of
Administrative
Claim
End of 120-Day Period End of 30-day Date of Actual

No. of Days:
for
Period to File
Filing of
End of 120-day
CIR to Decide
Appeal with Judicial Claim
Period to
CTA
Filing
of Judicial
Claim
Third
Quarter
September 21,
2007
January 19,
2008
February 18,
2008
March 28,
2008
69 days
Fourth
Quarter
September 21,
2007
January 19,
2008
February 18,
2008
March 28,
2008
69 days
Unable to contest the belated filing of its judicial claims, San Roque argues against the supposedly retroactive application of
Aichiand the strict observance of the 120+30 day periods.
As the CTA en bancheld, Aichiwas not applied retroactively to San Roque in the instant case. The 120+30 day periods have
already been prescribed under Section 112(C) of the NIRC of 1997, as amended, when San Roque filed its administrative
and judicial claims for refund or tax credit of its creditable input taxes for the four quarters of 2006. The Court highlights
the pronouncement in San Roque (2013)that strict compliance with the 120+30 day periods is necessary for the judicial
claim to prosper, except for the period from the issuance of BIR Ruling No. DA-489-03 on December 10, 2003 to October
6, 2010when Aichiwas promulgated, which again reinstated the 120+30day periods as mandatory and jurisdictional.22
It is still necessary for the Court toexplain herein how BIR Ruling No. DA-489-03 is an exception to the strict observance of
the 120+30 day periods for judicial claims. BIR Ruling No. DA-489-03 affected only the 120-day period as the BIR held
therein that "a taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek judicial relief with
the CTA by way of Petition for Review. Neither is it required that the Commissioner should first act on the claim of a
particulartaxpayer before the CTA may acquire jurisdiction, particularly if the claim is about to prescribe." Consequently,
BIR Ruling No. DA-489-03 may only be invoked by taxpayers who relied on the same and prematurely filedtheir judicial
claims before the expiration of the 120-day period for the CIR to act on their administrative claims, provided that the
taxpayers filed such judicial claims from December 10, 2003 to October 6,2010. BIR Ruling No. DA-489-03 did not touch
upon the 30-day prescriptive period for filing an appeal with the CTA and cannot be cited by taxpayers, such as San Roque,
who belatedly filedtheir judicial claims more than 30 days after receipt of the adverse decision of the CIR on their
administrative claims or the lapse of 120 days without the CIR acting on their administrative claims. Pertaining to the
similarly situated Philex, the Court ruled in San Roque (2013) that:
Philexs situation is not a case of premature filing of its judicial claim but of late filing, indeed verylate filing. BIR Ruling
No. DA-489-03 allowed premature filing of a judicial claim, which means nonexhaustion of the 120-day period for the
Commissioner to act on an administrative claim. Philex cannot claim the benefit of BIR Ruling No. DA-489-03 because
Philex did not file its judicial claim prematurely but filed it long after the lapse of the 30-day period following the expiration
of the 120-day period. In fact, Philex filed its judicial claim 426 days after the lapse of the 30-day period.23
San Roque harps that the Court itself categorically declared in the following paragraph in San Roque (2013)that Aichishall
be applied prospectively:
Taxpayers should not be prejudiced by an erroneous interpretation by the Commissioner, particularly on a difficult question
of law.The abandonment of the Atlasdoctrine by Mirantand Aichiis proof that the reckoning of the prescriptive periods for
input VAT tax refund or credit is a difficult question of law. The abandonment of the Atlasdoctrine did not result in Atlas, or
other taxpayers similarly situated, being made to return the tax refund or credit they received or could have received under
Atlasprior to its abandonment. This Court is applying Mirantand Aichi prospectively.Absent fraud, bad faith or
misrepresentation, the reversal by thisCourt of a general interpretative rule issued by the Commissioner, like the reversal of
a specific BIR ruling under Section 246, should also apply prospectively.x x x.24 (Emphases included.)
The Court is not persuaded. The aforequoted paragraph should be understood in the context of the entire San Roque (2013).
The statement of the Court on applying Mirantand Aichiprospectively should be understood relative to, and never apart
from, Atlasand BIR Ruling No. DA-489-03.
The Court explained in San Roque (2013), under the heading "Effectivity and Scope of the Atlas, Mirant and Aichi
Doctrines," that:
The Atlasdoctrine, which held that claims for refund or credit of input VAT must comply with the two-year prescriptive
period under Section 229, should be effective only from its promulgation on 8 June 2007 until its abandonment on 12
September 2008 in Mirant. The Atlasdoctrine was limited to the reckoning of the two-year prescriptive period from the date
of payment of the output VAT. Prior to the Atlasdoctrine, the two-year prescriptive period for claiming refund or credit of
input VAT should be governed by Section 112(A) following the verba legisrule. The Mirantruling, which abandoned the
Atlas doctrine, adopted the verba legisrule, thus applying Section 112(A) in computing the two-year prescriptive period in
claiming refund or credit of input VAT.
The Atlasdoctrine has no relevance to the 120+30 day periods under Section 112(C) because the application of the 120+30
day periods was not in issue in Atlas. The application of the 120+30 day periods was first raised in Aichi, which adopted the
verba legisrule in holding that the 120+30 day periods are mandatory and jurisdictional. x x x.
xxxx
To repeat, a claim for tax refund or credit, like a claim for tax exemption, is construed strictly against the taxpayer. One of
the conditions for a judicial claim of refund or credit under the VAT System is compliance with the 120+30 day mandatory
and jurisdictional periods. Thus, strict compliance with the 120+30 day periods is necessary for such a claim to prosper,
whether before, during, or after the effectivity of the Atlasdoctrine, except for the period from the issuance of BIR Ruling
No. DA-489-03 on 10 December 2003 to 6 October 2010 when the Aichidoctrine was adopted, which again reinstated the
120+30 day periods as mandatory and jurisdictional.25 (Emphases supplied.)
As for BIR Ruling No. DA-489-03, the Court clarified its period of effectivity, thus:
There is no dispute that the 120-day period is mandatory and jurisdictional, and that the CTA does not acquire jurisdiction
over a judicial claim that is filed before the expiration of the 120-day period. There are, however, two exceptions to this
rule. The first exception is if the Commissioner, through a specific ruling, misleads a particular taxpayer to prematurely file
a judicialclaim with the CTA. Such specific ruling is applicable only to suchparticular taxpayer. The second exception is
where the Commissioner, through a general interpretative rule issued under Section 4 of the Tax Code, misleads all
taxpayers into filing prematurely judicial claims with the CTA. In these cases, the Commissioner cannot be allowed to later
on question the CTAs assumption of jurisdiction over such claim since equitable estoppel has set in as expressly authorized
under Section 246 of the Tax Code.
xxxx
BIR Ruling No. DA-489-03 is a general interpretative rule because it was a response to a query made, notby a particular
taxpayer, but by a government agency tasked with processing tax refunds and credits, that is, the One Stop Shop InterAgency Tax Credit and Drawback Center of the Department of Finance. This governmentagency is also the addressee, or
the entity responded to, in BIR Ruling No. DA-489-03. Thus, while this government agency mentions in its query to the
Commissioner the administrative claim of Lazi Bay Resources Development, Inc., the agency was in fact asking the
Commissioner what to do in cases like the tax claim of Lazi Bay Resources Development, Inc., where the taxpayer did not
wait for the lapse of the 120-day period.
Clearly, BIR Ruling No. DA-489-03 isa general interpretative rule. Thus, all taxpayers can rely on BIR Ruling No. DA-48903 from the time of its issuanceon 10 December 2003 up to its reversal by this Court in Aichion 6 October 2010, where this
Court held that the 120+30 day periods are mandatory and jurisdictional.26 (Emphasis supplied.)
Based on the foregoing, "prospective application" of Aichiand Mirant, in the context of San Roque (2013), only meant that
the rulings in said cases would not retroactively affect taxpayers who relied on Atlasand/or DA-489-03 when they filed their
administrative and judicial claims for refund or tax credit of creditable input taxes during the period when Atlasand DA489-03 were still in effect. Aichiand Mirantcan still be applied to cases involving administrative and judicial claims filed
prior to the promulgation of said cases and outside the period of effectivity of Atlas and DA-489-03, such as the instant
case.
WHEREFORE, premises considered, the instant Petition for Review is DENIED and the Decision dated June 4, 2012 and
Resolution dated January 21, 2013 of the Court of Tax Appeals en bane in C.T.A. EB No. 789 are AFFIRMED.
No costs.
SO ORDERED.
FIRST DIVISION
J.R.A. PHILIPPINES, INC., G.R. NO. 177127

Petitioner,
Present:
CORONA, C. J., Chairperson, -versus- VELASCO, JR.,
LEONARDO-DE CASTRO,
CASTILLO,
PEREZ, JJ.
Respondent. October 11, 2010
x--------------------------------------------------------------------------------------------------x
DECISION
DEL CASTILLO, J.:
Stare decisis et non quieta movere.
Courts are bound by prior decisions. Thus, once a case has been decided one way, courts have no choice but to resolve
subsequent cases involving the same issue in the same manner.[1] We ruled then, as we rule now, that failure to print the
word zero-rated in the invoices/receipts is fatal to a claim for credit/refund of input value-added tax (VAT) on zero-rated
sales.
This Petition for Review on Certiorari under Rule 45 of the Rules of Court seeks to set aside the January 15, 2007
Decision[2] and the March 16, 2007
Resolution[3] of the Court of Tax Appeals (CTA) En Banc.
Factual Antecedents
Petitioner J.R.A. Philippines, Inc., a domestic corporation, is engaged in the manufacture and wholesale export of jackets,
pants, trousers, overalls, shirts, polo shirts, ladies wear, dresses and other wearing apparel. [4] It is registered with the
Bureau of Internal Revenue (BIR) as a VAT taxpayer[5] and as an Ecozone Export Enterprise with the Philippine Economic
Zone Authority (PEZA).[6]
On separate dates, petitioner filed with the Revenue District Office (RDO) No. 54 of the BIR, Trece Martires City,
applications for tax credit/refund of unutilized input VAT on its zero-rated sales for the taxable quarters of 2000 in the total
amount of P8,228,276.34, broken down as follows:
1st quarter P 2,369,060.97
2nd quarter 2,528,126.02
3rd quarter 1,918,015.38
4th quarter 1,413,073.97[7]
The claim for credit/refund, however, remained unacted by the respondent. Hence, petitioner was
constrained to file a petition before the CTA.
Proceedings before the Second Division of the Court of Tax Appeals
On April 16, 2002, petitioner filed a Petition for Review[8] with the CTA for the refund/credit of the same input VAT which
was docketed as CTA Case No.
6454 and raffled to the Second Division of the CTA.
In his Answer,[9] respondent interposed the following special and affirmative defenses, to wit:
4. Petitioners alleged claim for refund is subject to administrative routinary investigation/examination by the Bureau;
5. Being allegedly registered with the Philippine Economic Zone Authority as an export enterprise, petitioners business is
not subject to VAT pursuant to Section 24 of R.A. No. 7916 in relation to Section 109 (q) of the Tax Code. Hence, it is not
entitled to tax credit of input taxes pursuant to Section 4.103-1 of Revenue Regulations No. 7-95;
6. The amount of P8,228,276.34 being claimed by petitioner as alleged unutilized VAT input taxes for the year 2000 was not
properly documented;
7. In an action for refund, the burden of proof is on the taxpayer to establish its right to refund, and failure to [do so] is fatal
to the claim for refund/ credit;
8. Petitioner must show that it has complied with the provisions of Section 204 (c) and 229 of the Tax Code on the
prescriptive period for claiming tax refund/credit;
9. Claims for refund are construed strictly against the claimant for the same partake the nature of exemption from taxation.
[10]
After trial, the Second Division of the CTA rendered a Decision[11] denying petitioners claim for refund/credit of input VAT
attributable to its zero-rated sales due to the failure of petitioner to indicate its Taxpayers Identification Number-VAT (TINV) and the word zero-rated on its invoices.[12] Thus, the fallo reads:
WHEREFORE, premises considered, the instant petition is hereby DENIED DUE COURSE, and, accordingly,
DISMISSED for lack of merit.
SO ORDERED.[13]
Aggrieved by the Decision, petitioner filed a Motion for Reconsideration[14] to which respondent filed an Opposition.[15]
Petitioner, in turn, tendered a Reply.[16]
The Second Division of the CTA, however, stood firm on its Decision and denied petitioners Motion for lack of merit in a
Resolution[17] dated October 5, 2005. This prompted petitioner to elevate the matter to the CTA En Banc.[18]
On January 15, 2007, the CTA En Banc denied the petition, reiterating that failure to comply with invoicing requirements
results in the denial of a claim for refund.[19] Hence, it disposed of the petition as follows:
WHEREFORE, the petition for review is DENIED for lack of merit. ACCORDINGLY, the Decision dated and
Resolution dated of Second Division of the Court of Tax Appeals in C.T.A Case No. 6454 are hereby AFFIRMED.
SO ORDERED.[20]
Presiding Justice Ernesto D. Acosta (Presiding Justice Acosta) concurred with the findings of the majority that there was
failure on the part of petitioner to comply with the invoicing requirements;[21] he dissented, however, to the outright denial
of petitioners claim since there are other pieces of evidence proving petitioners transactions and VAT status.[22]
Petitioner sought reconsideration[23] of the Decision but the CTA En Banc
denied the same in a Resolution[24] dated March 16, 2007. Presiding Justice Acosta maintained his dissent.
Issue
Hence, the instant Petition with the solitary issue of whether the failure to print the word zero-rated on the invoices/receipts
is fatal to a claim for credit/ refund of input VAT on zero-rated sales.
Petitioner submits that:
THE COURT OF TAX APPEALS ERRED BY DECIDING QUESTIONS OF SUBSTANCE IN A MANNER THAT IS
NOT IN ACCORD WITH LAW AND JURISPRUDENCE, IN THAT:
A.
THE INVOICING REQUIREMENTS UNDER THE 1997 TAX CODE DO NOT REQUIRE THAT INVOICES
AND/OR RECEIPTS ISSUED BY A VAT-REGISTERED TAXPAYER, SUCH AS THE PETITIONER, SHOULD BE
IMPRINTED WITH THE WORD ZERO-RATED.
B.
THE INVOICING REQUIREMENTS PRESCRIBED BY THE 1997 TAX CODE AND THE REQUIREMENT
THAT THE WORDS ZERO-RATED BE IMPRINTED ON THE SALES INVOICES/OFFICIAL RECEIPTS UNDER
REVENUE REGULATIONS NO. 7-95 ARE NOT EVIDENTIARY RULES AND THE ABSENCE THEREOF IS NOT
FATAL TO A TAXPAYERS CLAIM FOR REFUND.
C.
RESPONDENTS REGULATIONS ARE INVALID BECAUSE THEY DO NOT IMPLEMENT THE 1997 TAX
CODE BUT INSTEAD, [EXCEED] THE LIMITATIONS OF THE LAW.
D.
PETITIONER PRESENTED SUBSTANTIAL EVIDENCE THAT UNEQUIVOCALLY PROVED
PETITIONERS ZERO-RATED TRANSACTIONS FOR THE YEAR 2000.
E.
NO PREJUDICE CAN RESULT TO THE GOVERNMENT BY REASON OF THE FAILURE OF PETITIONER
TO IMPRINT THE WORD ZERO-RATED ON ITS INVOICES. PETITIONERS CLIENTS FOR ITS ZERO-RATED
TRANSACTIONS CANNOT UNDULY BENEFIT FROM ITS OMISSION CONSIDERING THAT THEY ARE NONRESIDENT FOREIGN CORPORATIONS [THAT] ARE NOT COVERED BY THE PHILIPPINE VAT SYSTEM.
F.
IN CIVIL CASE[S], SUCH AS CLAIMS FOR REFUND, STRICT COMPLIANCE WITH TECHNICAL RULES
OF EVIDENCE IS NOT REQUIRED. MOREOVER, A MERE PREPONDERANCE OF EVIDENCE WILL SUFFICE TO
JUSTIFY THE GRANT OF A CLAIM.[25]
Emphasizing that tax refunds are in the nature of tax exemptions which are strictly construed against the claimant,
respondent seeks the affirmance of the assailed Decision and Resolution of the CTA En Banc. [26] He insists that the denial
of petitioners claim for tax credit/refund is justified because it failed to comply with the invoicing requirements under
Section 4.108-1[27] of Revenue Regulations No. 7-95.
Our Ruling
The absence of the word zero-rated on the invoices/receipts is fatal
to a claim for credit/refund of input VAT
The question of whether the absence of the word zero-rated
on the invoices/receipts is fatal to a claim for credit/refund of
input VAT is not novel. This has been squarely resolved in
Panasonic Communications Imaging Corporation of the
(formerly Matsushita Business Machine Corporation of the )
v. Commissioner of Internal Revenue.[28] In that case, we
sustained the denial of petitioners claim for tax credit/refund
for non-compliance with Section 4.108-1 of Revenue
Regulations No. 7-95, which requires the word zero rated to
be printed on the invoices/receipts covering zero-rated sales.
We explained that:
Zero-rated transactions generally refer to the export sale of goods and services. The tax rate in this case is set at zero. When
applied to the tax base or the selling price of the goods or services sold, such zero rate results in no tax chargeable against
the foreign buyer or customer. But, although the seller in such transactions charges no output tax, he can claim a refund of
the VAT that his suppliers charged him. The seller thus enjoys automatic zero rating, which allows him to recover the input
taxes he paid relating to the export sales, making him internationally competitive.
For the effective zero rating of such transactions, however, the taxpayer has to be VAT-registered and must comply with
invoicing requirements. x x x
xxxx
Petitioner Panasonic points out, however, that in requiring the printing on its sales invoices of the word zero-rated, the
Secretary of Finance unduly expanded, amended, and modified by a mere regulation (Section 4.108-1 of RR 7-95) the letter
and spirit of Sections 113 and 237 of the 1997 NIRC, prior to their amendment by R.A. 9337. Panasonic argues that the
1997 NIRC, which applied to its payments specifically Sections 113 and 237 required the VAT-registered taxpayers receipts
or invoices to indicate only the following information:
(1) A statement that the seller is a VAT-registered person, followed by his
taxpayers identification number (TIN);
(2) The total amount which the purchaser [paid] or is obligated to pay to the
seller with the indication that such amount includes the value-added tax;
(3) The date of transaction, quantity, unit cost and description of the goods or
properties or nature of the service; and
(4) The name, business style, if any, address and taxpayer's identification number
(TIN) of the purchaser, customer or client.
Petitioner Panasonic points out that Sections 113 and 237 did not require the inclusion of the word zero-rated for zero-rated
sales covered by its receipts or invoices. The BIR incorporated this requirement only after the enactment of R.A. 9337 on , a
law that did not yet exist at the time it issued its invoices.
Secretary of Finance issued on December 9, 1995 and [which] took effect on January 1, 1996. It already required the
printing of the word zero-rated on the invoices covering zero-rated sales. When R.A. 9337 amended the 1997 NIRC on , it
made this particular revenue regulation a part of the tax code. This conversion from regulation to law did not diminish the
binding force of such regulation with respect to acts committed prior to the enactment of that law.
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.[29]
Consistent with the foregoing jurisprudence, petitioners claim for credit/ refund of input VAT for the taxable quarters of
2000 must be denied. Failure to print the word zero-rated on the invoices/receipts is fatal to a claim for credit/ refund of
input VAT on zero-rated sales.
WHEREFORE, the petition is hereby DENIED. The assailed Decision
dated January 15, 2007 and the Resolution dated March 16, 2007 of the Court of Tax Appeals En Banc are hereby
AFFIRMED.
SO ORDERED.
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 146984
July 28, 2006
COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
MAGSAYSAY LINES, INC., BALIWAG NAVIGATION, INC., FIM LIMITED OF THE MARDEN GROUP (HK)
and NATIONAL DEVELOPMENT COMPANY, respondents.
DECISION
TINGA, J.:
The issue in this present petition is whether the sale by the National Development Company (NDC) of five (5) of its vessels
to the private respondents is subject to value-added tax (VAT) under the National Internal Revenue Code of 1986 (Tax
Code) then prevailing at the time of the sale. The Court of Tax Appeals (CTA) and the Court of Appeals commonly ruled
that the sale is not subject to VAT. We affirm, though on a more unequivocal rationale than that utilized by the rulings under
review. The fact that the sale was not in the course of the trade or business of NDC is sufficient in itself to declare the sale as
outside the coverage of VAT.
The facts are culled primarily from the ruling of the CTA.
Pursuant to a government program of privatization, NDC decided to sell to private enterprise all of its shares in its whollyowned subsidiary the National Marine Corporation (NMC). The NDC decided to sell in one lot its NMC shares and five (5)
of its ships, which are 3,700 DWT Tween-Decker, "Kloeckner" type vessels.1 The vessels were constructed for the NDC
between 1981 and 1984, then initially leased to Luzon Stevedoring Company, also its wholly-owned subsidiary.
Subsequently, the vessels were transferred and leased, on a bareboat basis, to the NMC. 2
The NMC shares and the vessels were offered for public bidding. Among the stipulated terms and conditions for the public
auction was that the winning bidder was to pay "a value added tax of 10% on the value of the vessels." 3 On 3 June 1988,
private respondent Magsaysay Lines, Inc. (Magsaysay Lines) offered to buy the shares and the vessels for P168,000,000.00.
The bid was made by Magsaysay Lines, purportedly for a new company still to be formed composed of itself, Baliwag
Navigation, Inc., and FIM Limited of the Marden Group based in Hongkong (collectively, private respondents). 4 The bid
was approved by the Committee on Privatization, and a Notice of Award dated 1 July 1988 was issued to Magsaysay Lines.
On 28 September 1988, the implementing Contract of Sale was executed between NDC, on one hand, and Magsaysay
Lines, Baliwag Navigation, and FIM Limited, on the other. Paragraph 11.02 of the contract stipulated that "[v]alue-added
tax, if any, shall be for the account of the PURCHASER."5 Per arrangement, an irrevocable confirmed Letter of Credit
previously filed as bidders bond was accepted by NDC as security for the payment of VAT, if any. By this time, a formal
request for a ruling on whether or not the sale of the vessels was subject to VAT had already been filed with the Bureau of
Internal Revenue (BIR) by the law firm of Sycip Salazar Hernandez & Gatmaitan, presumably in behalf of private
respondents. Thus, the parties agreed that should no favorable ruling be received from the BIR, NDC was authorized to
draw on the Letter of Credit upon written demand the amount needed for the payment of the VAT on the stipulated due date,
20 December 1988.6
In January of 1989, private respondents through counsel received VAT Ruling No. 568-88 dated 14 December 1988 from
the BIR, holding that the sale of the vessels was subject to the 10% VAT. The ruling cited the fact that NDC was a VATregistered enterprise, and thus its "transactions incident to its normal VAT registered activity of leasing out personal property
including sale of its own assets that are movable, tangible objects which are appropriable or transferable are subject to the
10% [VAT]."7
Private respondents moved for the reconsideration of VAT Ruling No. 568-88, as well as VAT Ruling No. 395-88 (dated 18
August 1988), which made a similar ruling on the sale of the same vessels in response to an inquiry from the Chairman of
the Senate Blue Ribbon Committee. Their motion was denied when the BIR issued VAT Ruling Nos. 007-89 dated 24
February 1989, reiterating the earlier VAT rulings. At this point, NDC drew on the Letter of Credit to pay for the VAT, and
the amount of P15,120,000.00 in taxes was paid on 16 March 1989.
On 10 April 1989, private respondents filed an Appeal and Petition for Refund with the CTA, followed by a Supplemental
Petition for Review on 14 July 1989. They prayed for the reversal of VAT Rulings No. 395-88, 568-88 and 007-89, as well
as the refund of the VAT payment made amounting to P15,120,000.00.8 The Commissioner of Internal Revenue (CIR)
opposed the petition, first arguing that private respondents were not the real parties in interest as they were not the
transferors or sellers as contemplated in Sections 99 and 100 of the then Tax Code. The CIR also squarely defended the VAT
rulings holding the sale of the vessels liable for VAT, especially citing Section 3 of Revenue Regulation No. 5-87 (R.R. No.
5-87), which provided that "[VAT] is imposed on any sale or transactions deemed sale of taxable goods (including capital
goods, irrespective of the date of acquisition)." The CIR argued that the sale of the vessels were among those transactions
"deemed sale," as enumerated in Section 4 of R.R. No. 5-87. It seems that the CIR particularly emphasized Section 4(E)(i)
of the Regulation, which classified "change of ownership of business" as a circumstance that gave rise to a transaction
"deemed sale."
In a Decision dated 27 April 1992, the CTA rejected the CIRs arguments and granted the petition. 9 The CTA ruled that the
sale of a vessel was an "isolated transaction," not done in the ordinary course of NDCs business, and was thus not subject
to VAT, which under Section 99 of the Tax Code, was applied only to sales in the course of trade or business. The CTA
further held that the sale of the vessels could not be "deemed sale," and thus subject to VAT, as the transaction did not fall
under the enumeration of transactions deemed sale as listed either in Section 100(b) of the Tax Code, or Section 4 of R.R.
No. 5-87. Finally, the CTA ruled that any case of doubt should be resolved in favor of private respondents since Section 99
of the Tax Code which implemented VAT is not an exemption provision, but a classification provision which warranted the
resolution of doubts in favor of the taxpayer.
The CIR appealed the CTA Decision to the Court of Appeals,10 which on 11 March 1997, rendered a Decision reversing the
CTA.11 While the appellate court agreed that the sale was an isolated transaction, not made in the course of NDCs regular
trade or business, it nonetheless found that the transaction fell within the classification of those "deemed sale" under R.R.
No. 5-87, since the sale of the vessels together with the NMC shares brought about a change of ownership in NMC. The
Court of Appeals also applied the principle governing tax exemptions that such should be strictly construed against the
taxpayer, and liberally in favor of the government.12
However, the Court of Appeals reversed itself upon reconsidering the case, through a Resolution dated 5 February 2001. 13
This time, the appellate court ruled that the "change of ownership of business" as contemplated in R.R. No. 5-87 must be a
consequence of the "retirement from or cessation of business" by the owner of the goods, as provided for in Section 100 of
the Tax Code. The Court of Appeals also agreed with the CTA that the classification of transactions "deemed sale" was a
classification statute, and not an exemption statute, thus warranting the resolution of any doubt in favor of the taxpayer. 14
To the mind of the Court, the arguments raised in the present petition have already been adequately discussed and refuted in
the rulings assailed before us. Evidently, the petition should be denied. Yet the Court finds that Section 99 of the Tax Code is
sufficient reason for upholding the refund of VAT payments, and the subsequent disquisitions by the lower courts on the
applicability of Section 100 of the Tax Code and Section 4 of R.R. No. 5-87 are ultimately irrelevant.
A brief reiteration of the basic principles governing VAT is in order. VAT is ultimately a tax on consumption, even though it
is assessed on many levels of transactions on the basis of a fixed percentage. 15 It is the end user of consumer goods or
services which ultimately shoulders the tax, as the liability therefrom is passed on to the end users by the providers of these
goods or services16 who in turn may credit their own VAT liability (or input VAT) from the VAT payments they receive
from the final consumer (or output VAT). 17 The final purchase by the end consumer represents the final link in a production
chain that itself involves several transactions and several acts of consumption. The VAT system assures fiscal adequacy
through the collection of taxes on every level of consumption, 18 yet assuages the manufacturers or providers of goods and
services by enabling them to pass on their respective VAT liabilities to the next link of the chain until finally the end
consumer shoulders the entire tax liability.
Yet VAT is not a singular-minded tax on every transactional level. Its assessment bears direct relevance to the taxpayers
role or link in the production chain. Hence, as affirmed by Section 99 of the Tax Code and its subsequent incarnations, 19 the
tax is levied only on the sale, barter or exchange of goods or services by persons who engage in such activities, in the
course of trade or business. These transactions outside the course of trade or business may invariably contribute to the
production chain, but they do so only as a matter of accident or incident. As the sales of goods or services do not occur
within the course of trade or business, the providers of such goods or services would hardly, if at all, have the opportunity to
appropriately credit any VAT liability as against their own accumulated VAT collections since the accumulation of output
VAT arises in the first place only through the ordinary course of trade or business.
That the sale of the vessels was not in the ordinary course of trade or business of NDC was appreciated by both the CTA and
the Court of Appeals, the latter doing so even in its first decision which it eventually reconsidered. 20 We cite with approval
the CTAs explanation on this point:
In Imperial v. Collector of Internal Revenue, G.R. No. L-7924, September 30, 1955 (97 Phil. 992), the term
"carrying on business" does not mean the performance of a single disconnected act, but means conducting,
prosecuting and continuing business by performing progressively all the acts normally incident thereof; while
"doing business" conveys the idea of business being done, not from time to time, but all the time. [J. Aranas,
UPDATED NATIONAL INTERNAL REVENUE CODE (WITH ANNOTATIONS), p. 608-9 (1988)]. "Course of
business" is what is usually done in the management of trade or business. [Idmi v. Weeks & Russel, 99 So. 761,
764, 135 Miss. 65, cited in Words & Phrases, Vol. 10, (1984)].
What is clear therefore, based on the aforecited jurisprudence, is that "course of business" or "doing business"
connotes regularity of activity. In the instant case, the sale was an isolated transaction. The sale which was
involuntary and made pursuant to the declared policy of Government for privatization could no longer be repeated
or carried on with regularity. It should be emphasized that the normal VAT-registered activity of NDC is leasing
personal property.21
This finding is confirmed by the Revised Charter22 of the NDC which bears no indication that the NDC was created for the
primary purpose of selling real property.23
The conclusion that the sale was not in the course of trade or business, which the CIR does not dispute before this Court, 24
should have definitively settled the matter. Any sale, barter or exchange of goods or services not in the course of trade or
business is not subject to VAT.
Section 100 of the Tax Code, which is implemented by Section 4(E)(i) of R.R. No. 5-87 now relied upon by the CIR, is
captioned "Value-added tax on sale of goods," and it expressly states that "[t]here shall be levied, assessed and collected on
every sale, barter or exchange of goods, a value added tax x x x." Section 100 should be read in light of Section 99, which
lays down the general rule on which persons are liable for VAT in the first place and on what transaction if at all. It may
even be noted that Section 99 is the very first provision in Title IV of the Tax Code, the Title that covers VAT in the law.
Before any portion of Section 100, or the rest of the law for that matter, may be applied in order to subject a transaction to
VAT, it must first be satisfied that the taxpayer and transaction involved is liable for VAT in the first place under Section 99.
It would have been a different matter if Section 100 purported to define the phrase "in the course of trade or business" as
expressed in Section 99. If that were so, reference to Section 100 would have been necessary as a means of ascertaining
whether the sale of the vessels was "in the course of trade or business," and thus subject to
VAT. But that is not the case. What Section 100 and Section 4(E)(i) of R.R. No. 5-87 elaborate on is not the meaning of "in
the course of trade or business," but instead the identification of the transactions which may be deemed as sale. It would
become necessary to ascertain whether under those two provisions the transaction may be deemed a sale, only if it is settled
that the transaction occurred in the course of trade or business in the first place. If the transaction transpired outside the
course of trade or business, it would be irrelevant for the purpose of determining VAT liability whether the transaction may
be deemed sale, since it anyway is not subject to VAT.
Accordingly, the Court rules that given the undisputed finding that the transaction in question was not made in the course of
trade or business of the seller, NDC that is, the sale is not subject to VAT pursuant to Section 99 of the Tax Code, no matter
how the said sale may hew to those transactions deemed sale as defined under Section 100.
In any event, even if Section 100 or Section 4 of R.R. No. 5-87 were to find application in this case, the Court finds the
discussions offered on this point by the CTA and the Court of Appeals (in its subsequent Resolution) essentially correct.
Section 4 (E)(i) of R.R. No. 5-87 does classify as among the transactions deemed sale those involving "change of ownership
of business." However, Section 4(E) of R.R. No. 5-87, reflecting Section 100 of the Tax Code, clarifies that such "change of
ownership" is only an attending circumstance to "retirement from or cessation of business[, ] with respect to all goods on
hand [as] of the date of such retirement or cessation."25 Indeed, Section 4(E) of R.R. No. 5-87 expressly characterizes the
"change of ownership of business" as only a "circumstance" that attends those transactions "deemed sale," which are
otherwise stated in the same section.26
WHEREFORE, the petition is DENIED. No costs.
SO ORDERED.
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 167146
October 31, 2006
COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
PHILIPPINE GLOBAL COMMUNICATION, INC., respondent.
DECISION
CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari, under Rule 45 of the Rules of Court, seeking to set aside the en banc Decision
of the Court of Tax Appeals (CTA) in CTA EB No. 37 dated 22 February 2005, 1 ordering the petitioner to withdraw and
cancel Assessment Notice No. 000688-80-7333 issued against respondent Philippine Global Communication, Inc. for its
1990 income tax deficiency. The CTA, in its assailed en banc Decision, affirmed the Decision of the First Division of the
CTA dated 9 June 20042 and its Resolution dated 22 September 2004 in C.T.A. Case No. 6568.
Respondent, a corporation engaged in telecommunications, filed its Annual Income Tax Return for taxable year 1990 on 15
April 1991. On 13 April 1992, the Commissioner of Internal Revenue (CIR) issued Letter of Authority No. 0002307,
authorizing the appropriate Bureau of Internal Revenue (BIR) officials to examine the books of account and other
accounting records of respondent, in connection with the investigation of respondents 1990 income tax liability. On 22
April 1992, the BIR sent a letter to respondent requesting the latter to present for examination certain records and
documents, but respondent failed to present any document. On 21 April 1994, respondent received a Preliminary
Assessment Notice dated 13 April 1994 for deficiency income tax in the amount of P118,271,672.00, inclusive of surcharge,
interest, and compromise penalty, arising from deductions that were disallowed for failure to pay the withholding tax and
interest expenses that were likewise disallowed. On the following day, 22 April 1994, respondent received a Formal
Assessment Notice with Assessment Notice No. 000688-80-7333, dated 14 April 1994, for deficiency income tax in the
total amount of P118,271,672.00.3
On 6 May 1994, respondent, through its counsel Ponce Enrile Cayetano Reyes and Manalastas Law Offices, filed a formal
protest letter against Assessment Notice No. 000688-80-7333. Respondent filed another protest letter on 23 May 1994,
through another counsel Siguion Reyna Montecillo & Ongsiako Law Offices. In both letters, respondent requested for the
cancellation of the tax assessment, which they alleged was invalid for lack of factual and legal basis.4
On 16 October 2002, more than eight years after the assessment was presumably issued, the Ponce Enrile Cayetano Reyes
and Manalastas Law Offices received from the CIR a Final Decision dated 8 October 2002 denying the respondents protest
against Assessment Notice No. 000688-80-7333, and affirming the said assessment in toto.5
On 15 November 2002, respondent filed a Petition for Review with the CTA. After due notice and hearing, the CTA
rendered a Decision in favor of respondent on 9 June 2004. 6 The CTA ruled on the primary issue of prescription and found
it unnecessary to decide the issues on the validity and propriety of the assessment. It decided that the protest letters filed by
the respondent cannot constitute a request for reinvestigation, hence, they cannot toll the running of the prescriptive period
to collect the assessed deficiency income tax. 7 Thus, since more than three years had lapsed from the time Assessment
Notice No. 000688-80-7333 was issued in 1994, the CIRs right to collect the same has prescribed in conformity with
Section 269 of the National Internal Revenue Code of 1977 8 (Tax Code of 1977). The dispositive portion of this decision
reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the petitioner. Accordingly,
respondents Final Decision dated October 8, 2002 is hereby REVERSED and SET ASIDE and respondent is
hereby ORDERED to WITHDRAW and CANCEL Assessment Notice No. 000688-80-7333 issued against the
petitioner for its 1990 income tax deficiency because respondents right to collect the same has prescribed.9
The CIR moved for reconsideration of the aforesaid Decision but was denied by the CTA in a Resolution dated 22
September 2004.10 Thereafter, the CIR filed a Petition for Review with the CTA en banc, questioning the aforesaid
Decision and Resolution. In its en banc Decision, the CTA affirmed the Decision and Resolution in CTA Case No. 6568.
The dispositive part reads:
WHEREFORE, premises considered, the Petition for Review is hereby DISMISSED for lack of merit.
Accordingly, the assailed Decision and Resolution in CTA Case No. 6568 are hereby AFFIRMED in toto.11
Hence, this Petition for Review on Certiorari raising the following grounds:
THE COURT OF TAX APPEALS, SITTING EN BANC, COMMITTED REVERSIBLE ERROR IN AFFIRMING
THE ASSAILED DECISION AND RESOLUTION IN CTA CASE NO. 6568 DECLARING THAT THE RIGHT
OF THE GOVERNMENT TO COLLECT THE DEFICIENCY INCOME TAX FROM RESPONDENT FOR THE
YEAR 1990 HAS PRESCRIBED
A. THE PRESCRIPTIVE PERIOD WAS INTERUPTED WHEN RESPONDENT FILED TWO
LETTERS OF PROTEST DISPUTING IN DETAIL THE DEFICIENCY ASSESSMENT IN QUESTION
AND REQUESTING THE CANCELLATION OF SAID ASSESSMENT. THE TWO LETTERS OF
PROTEST ARE, BY NATURE, REQUESTS FOR REINVESTIGATION OF THE DISPUTED
ASSESSMENT.
B. THE REQUESTS FOR REINVESTIGATION OF RESPONDENT WERE GRANTED BY THE
BUREAU OF INTERNAL REVENUE.12
This Court finds no merit in this Petition.
The main issue in this case is whether or not CIRs right to collect respondents alleged deficiency income tax is barred by
prescription under Section 269(c) of the Tax Code of 1977, which reads:
Section 269. Exceptions as to the period of limitation of assessment and collection of taxes. x x x
xxxx
c. Any internal revenue tax which has been assessed within the period of limitation above-prescribed may be
collected by distraint or levy or by a proceeding in court within three years following the assessment of the tax.
The law prescribed a period of three years from the date the return was actually filed or from the last date prescribed by law
for the filing of such return, whichever came later, within which the BIR may assess a national internal revenue tax. 13
However, the law increased the prescriptive period to assess or to begin a court proceeding for the collection without an
assessment to ten years when a false or fraudulent return was filed with the intent of evading the tax or when no return was
filed at all.14 In such cases, the ten-year period began to run only from the date of discovery by the BIR of the falsity, fraud
or omission.
If the BIR issued this assessment within the three-year period or the ten-year period, whichever was applicable, the law
provided another three years after the assessment for the collection of the tax due thereon through the administrative process
of distraint and/or levy or through judicial proceedings.15 The three-year period for collection of the assessed tax began to
run on the date the assessment notice had been released, mailed or sent by the BIR. 16
The assessment, in this case, was presumably issued on 14 April 1994 since the respondent did not dispute the CIRs claim.
Therefore, the BIR had until 13 April 1997. However, as there was no Warrant of Distraint and/or Levy served on the
respondents nor any judicial proceedings initiated by the BIR, the earliest attempt of the BIR to collect the tax due based on
this assessment was when it filed its Answer in CTA Case No. 6568 on 9 January 2003, which was several years beyond the
three-year prescriptive period. Thus, the CIR is now prescribed from collecting the assessed tax.
The provisions on prescription in the assessment and collection of national internal revenue taxes became law upon the
recommendation of the tax commissioner of the Philippines. The report submitted by the tax commission clearly states that
these provisions on prescription should be enacted to benefit and protect taxpayers:
Under the former law, the right of the Government to collect the tax does not prescribe. However, in fairness to the
taxpayer, the Government should be estopped from collecting the tax where it failed to make the necessary
investigation and assessment within 5 years after the filing of the return and where it failed to collect the tax within
5 years from the date of assessment thereof. Just as the government is interested in the stability of its collections, so
also are the taxpayers entitled to an assurance that they will not be subjected to further investigation for tax
purposes after the expiration of a reasonable period of time. (Vol. II, Report of the Tax Commission of the
Philippines, pp. 321-322).17
In a number of cases, this Court has also clarified that the statute of limitations on the collection of taxes should benefit both
the Government and the taxpayers. In these cases, the Court further illustrated the harmful effects that the delay in the
assessment and collection of taxes inflicts upon taxpayers. In Collector of Internal Revenue v. Suyoc Consolidated Mining
Company,18 Justice Montemayor, in his dissenting opinion, identified the potential loss to the taxpayer if the assessment
and collection of taxes are not promptly made.
Prescription in the assessment and in the collection of taxes is provided by the Legislature for the benefit of both
the Government and the taxpayer; for the Government for the purpose of expediting the collection of taxes, so that
the agency charged with the assessment and collection may not tarry too long or indefinitely to the prejudice of the
interests of the Government, which needs taxes to run it; and for the taxpayer so that within a reasonable time after
filing his return, he may know the amount of the assessment he is required to pay, whether or not such assessment
is well founded and reasonable so that he may either pay the amount of the assessment or contest its validity in
court x x x. It would surely be prejudicial to the interest of the taxpayer for the Government collecting agency to
unduly delay the assessment and the collection because by the time the collecting agency finally gets around to
making the assessment or making the collection, the taxpayer may then have lost his papers and books to support
his claim and contest that of the Government, and what is more, the tax is in the meantime accumulating interest
which the taxpayer eventually has to pay .
In Republic of the Philippines v. Ablaza,19 this Court emphatically explained that the statute of limitations of actions for the
collection of taxes is justified by the need to protect law-abiding citizens from possible harassment:
The law prescribing a limitation of actions for the collection of the income tax is beneficial both to the Government
and to its citizens; to the Government because tax officers would be obliged to act promptly in the making of
assessment, and to citizens because after the lapse of the period of prescription citizens would have a feeling of
security against unscrupulous tax agents who will always find an excuse to inspect the books of taxpayers, not to
determine the latters real liability, but to take advantage of every opportunity to molest, peaceful, law-abiding
citizens. Without such legal defense taxpayers would furthermore be under obligation to always keep their books
and keep them open for inspection subject to harassment by unscrupulous tax agents. The law on prescription being
a remedial measure should be interpreted in a way conducive to bringing about the beneficient purpose of affording
protection to the taxpayer within the contemplation of the Commission which recommended the approval of the
law.
And again in the recent case Bank of the Philippine Islands v. Commissioner of Internal Revenue,20 this Court, in
confirming these earlier rulings, pronounced that:
Though the statute of limitations on assessment and collection of national internal revenue taxes benefits both the
Government and the taxpayer, it principally intends to afford protection to the taxpayer against unreasonable
investigation. The indefinite extension of the period for assessment is unreasonable because it deprives the said
taxpayer of the assurance that he will no longer be subjected to further investigation for taxes after the expiration of
a reasonable period of time.
Thus, in Commissioner of Internal Revenue v. B.F. Goodrich, 21 this Court affirmed that the law on prescription should be
liberally construed in order to protect taxpayers and that, as a corollary, the exceptions to the law on prescription should be
strictly construed.
The Tax Code of 1977, as amended, provides instances when the running of the statute of limitations on the assessment and
collection of national internal revenue taxes could be suspended, even in the absence of a waiver, under Section 271 thereof
which reads:
Section 224. Suspension of running of statute. The running of the statute of limitation provided in Sections 268 and 269 on
the making of assessments and the beginning of distraint or levy or a proceeding in court for collection in respect of any
deficiency, shall be suspended for the period during which the Commissioner is prohibited from making the assessment or
beginning distraint or levy or a proceeding in court and for sixty days thereafter; when the taxpayer requests for a
reinvestigation which is granted by the Commissioner; when the taxpayer cannot be located in the address given by him
in the return filed upon which a tax is being assessed or collected x x x. (Emphasis supplied.)
Among the exceptions provided by the aforecited section, and invoked by the CIR as a ground for this petition, is the
instance when the taxpayer requests for a reinvestigation which is granted by the Commissioner. However, this exception
does not apply to this case since the respondent never requested for a reinvestigation. More importantly, the CIR could not
have conducted a reinvestigation where, as admitted by the CIR in its Petition, the respondent refused to submit any new
evidence.
Revenue Regulations No. 12-85, the Procedure Governing Administrative Protests of Assessment of the Bureau of Internal
Revenue, issued on 27 November 1985, defines the two types of protest, the request for reconsideration and the request for
reinvestigation, and distinguishes one from the other in this manner:

Section 6. Protest. - The taxpayer may protest administratively an assessment by filing a written request for
reconsideration or reinvestigation specifying the following particulars:
xxxx
For the purpose of protest herein
(a) Request for reconsideration-- refers to a plea for a re-evaluation of an assessment on the basis of existing
records without need of additional evidence. It may involve both a question of fact or of law or both.
(b) Request for reinvestigationrefers to a plea for re-evaluation of an assessment on the basis of newlydiscovered evidence or additional evidence that a taxpayer intends to present in the investigation. It may also
involve a question of fact or law or both.
The main difference between these two types of protests lies in the records or evidence to be examined by internal revenue
officers, whether these are existing records or newly discovered or additional evidence. A re-evaluation of existing records
which results from a request for reconsideration does not toll the running of the prescription period for the collection of an
assessed tax. Section 271 distinctly limits the suspension of the running of the statute of limitations to instances when
reinvestigation is requested by a taxpayer and is granted by the CIR. The Court provided a clear-cut rationale in the case of
Bank of the Philippine Islands v. Commissioner of Internal Revenue 22 explaining why a request for reinvestigation, and not
a request for reconsideration, interrupts the running of the statute of limitations on the collection of the assessed tax:
Undoubtedly, a reinvestigation, which entails the reception and evaluation of additional evidence, will take more
time than a reconsideration of a tax assessment, which will be limited to the evidence already at hand; this justifies
why the former can suspend the running of the statute of limitations on collection of the assessed tax, while the
latter cannot.
In the present case, the separate letters of protest dated 6 May 1994 and 23 May 1994 are requests for reconsideration. The
CIRs allegation that there was a request for reinvestigation is inconceivable since respondent consistently and categorically
refused to submit new evidence and cooperate in any reinvestigation proceedings. This much was admitted in the Decision
dated 8 October 2002 issued by then CIR Guillermo Payarno, Jr.
In the said conference-hearing, Revenue Officer Alameda basically testified that Philcom, despite repeated
demands, failed to submit documentary evidences in support of its claimed deductible expenses. Hence, except for
the item of interest expense which was disallowed for being not ordinary and necessary, the rest of the claimed
expenses were disallowed for non-withholding. In the same token, Revenue Officer Escober testified that upon his
assignment to conduct the re-investigation, he immediately requested the taxpayer to present various accounting
records for the year 1990, in addition to other documents in relation to the disallowed items (p.171). This was
followed by other requests for submission of documents (pp.199 &217) but these were not heeded by the taxpayer.
Essentially, he stated that Philcom did not cooperate in his reinvestigation of the case.
In response to the testimonies of the Revenue Officers, Philcom thru Atty. Consunji, emphasized that it was denied
due process because of the issuance of the Pre-Assessment Notice and the Assessment Notice on successive dates.
x x x Counsel for the taxpayer even questioned the propriety of the conference-hearing inasmuch as the only
question to resolved (sic) is the legality of the issuance of the assessment. On the disallowed items, Philcom thru
counsel manifested that it has no intention to present documents and/or evidences allegedly because of the pending
legal question on the validity of the assessment.23
Prior to the issuance of Revenue Regulations No. 12-85, which distinguishes a request for reconsideration and a request for
reinvestigation, there have been cases wherein these two terms were used interchangeably. But upon closer examination,
these cases all involved a reinvestigation that was requested by the taxpayer and granted by the BIR.
In Collector of Internal Revenue v. Suyoc Consolidated Mining Company,24 the Court weighed the considerable time spent
by the BIR to actually conduct the reinvestigations requested by the taxpayer in deciding that the prescription period was
suspended during this time.
Because of such requests, several reinvestigations were made and a hearing was even held by the Conference Staff
organized in the collection office to consider claims of such nature which, as the record shows, lasted for several
months. After inducing petitioner to delay collection as he in fact did, it is most unfair for respondent to now take
advantage of such desistance to elude his deficiency income tax liability to the prejudice of the Government
invoking the technical ground of prescription.
Although the Court used the term "requests for reconsideration" in reference to the letters sent by the taxpayer in the case of
Querol v. Collector of Internal Revenue,25 it took into account the reinvestigation conducted soon after these letters were
received and the revised assessment that resulted from the reinvestigations.
It is true that the Collector revised the original assessment on February 9, 1955; and appellant avers that this
revision was invalid in that it was not made within the five-year prescriptive period provided by law (Collector vs.
Pineda, 112 Phil. 321). But that fact is that the revised assessment was merely a result of petitioner Querols
requests for reconsideration of the original assessment, contained in his letters of December 14, 1951 and May 25,
1953. The records of the Bureau of Internal Revenue show that after receiving the letters, the Bureau conducted a
reinvestigation of petitioners tax liabilities, and, in fact, sent a tax examiner to San Fernando, La Union, for that
purpose; that because of the examiners report, the Bureau revised the original assessment, x x x. In other words,
the reconsideration was granted in part, and the original assessment was altered. Consequently, the period between
the petition for reconsideration and the revised assessment should be subtracted from the total prescriptive period
(Republic vs. Ablaza, 108 Phil 1105).
The Court, in Republic v. Lopez,26 even gave a detailed accounting of the time the BIR spent for each reinvestigation in
order to deduct it from the five-year period set at that time in the statute of limitations:
It is now a settled ruled in our jurisdiction that the five-year prescriptive period fixed by Section 332(c) of the
Internal Revenue Code within which the Government may sue to collect an assessed tax is to be computed from the
last revised assessment resulting from a reinvestigation asked for by the taxpayer and (2) that where a taxpayer
demands a reinvestigation, the time employed in reinvestigating should be deducted from the total period of
limitation.
xxxx
The first reinvestigation was granted, and a reduced assessment issued on 29 May 1954, from which date the
Government had five years for bringing an action to collect.
The second reinvestigation was asked on 16 January 1956, and lasted until it was decided on 22 April 1960, or a
period of 4 years, 3 months, and 6 days, during which the limitation period was interrupted.
The Court reiterated the ruling in Republic v. Lopez in the case of Commissioner of Internal Revenue v. Sison,27 "that where
a taxpayer demands a reinvestigation, the time employed in reinvestigating should be deducted from the total period of
limitation." Finally, in Republic v. Arcache,28 the Court enumerated the reasons why the taxpayer is barred from invoking
the defense of prescription, one of which was that, "In the first place, it appears obvious that the delay in the collection of
his 1946 tax liability was due to his own repeated requests for reinvestigation and similarly repeated requests for extension
of time to pay."
In this case, the BIR admitted that there was no new or additional evidence presented. Considering that the BIR issued its
Preliminary Assessment Notice on 13 April 1994 and its Formal Assessment Notice on 14 April 1994, just one day before
the three-year prescription period for issuing the assessment expired on 15 April 1994, it had ample time to make a factually
and legally well-founded assessment. Added to the fact that the Final Decision that the CIR issued on 8 October 2002
merely affirmed its earlier findings, whatever examination that the BIR may have conducted cannot possibly outlast the
entire three-year prescriptive period provided by law to collect the assessed tax, not to mention the eight years it actually
took the BIR to decide the respondents protest. The factual and legal issues involved in the assessment are relatively
simple, that is, whether certain income tax deductions should be disallowed, mostly for failure to pay withholding taxes.
Thus, there is no reason to suspend the running of the statute of limitations in this case.
The distinction between a request for reconsideration and a request for reinvestigation is significant. It bears repetition that a
request for reconsideration, unlike a request for reinvestigation, cannot suspend the statute of limitations on the collection of
an assessed tax. If both types of protest can effectively interrupt the running of the statute of limitations, an erroneous
assessment may never prescribe. If the taxpayer fails to file a protest, then the erroneous assessment would become final and
unappealable.29 On the other hand, if the taxpayer does file the protest on a patently erroneous assessment, the statute of
limitations would automatically be suspended and the tax thereon may be collected long after it was assessed. Meanwhile
the interest on the deficiencies and the surcharges continue to accumulate. And for an unrestricted number of years, the
taxpayers remain uncertain and are burdened with the costs of preserving their books and records. This is the predicament
that the law on the statute of limitations seeks to prevent.
The Court, in sustaining for the first time the suspension of the running of the statute of limitations in cases where the
taxpayer requested for a reinvestigation, gave this justification:
A taxpayer may be prevented from setting up the defense of prescription even if he has not previously waived it in
writing as when by his repeated requests or positive acts the Government has been, for good reasons, persuaded to
postpone collection to make him feel that the demand was not unreasonable or that no harassment or
injustice is meant by the Government.
xxxx
This case has no precedent in this jurisdiction for it is the first time that such has risen, but there are several
precedents that may be invoked in American jurisprudence. As Mr. Justice Cardozo has said: "The applicable
principle is fundamental and unquestioned. He who prevents a thing from being done may not avail himself of
the nonperformance which he himself occasioned, for the law says to him in effect "this is your own act, and
therefore you are not damnified." (R.H. Stearns Co. v. U.S., 78 L. ed., 647). (Emphasis supplied.)30
This rationale is not applicable to the present case where the respondent did nothing to prevent the BIR from collecting the
tax. It did not present to the BIR any new evidence for its re-evaluation. At the earliest opportunity, respondent insisted that
the assessment was invalid and made clear to the BIR its refusal to produce documents that the BIR requested. On the other
hand, the BIR also communicated to the respondent its unwavering stance that its assessment is correct. Given that both
parties were at a deadlock, the next logical step would have been for the BIR to issue a Decision denying the respondents
protest and to initiate proceedings for the collection of the assessed tax and, thus, allow the respondent, should it so choose,
to contest the assessment before the CTA. Postponing the collection for eight long years could not possibly make the
taxpayer feel that the demand was not unreasonable or that no harassment or injustice is meant by the Government. There
was no legal, or even a moral, obligation preventing the CIR from collecting the assessed tax. In a similar case, Cordero v.
Conda,31 the Court did not suspend the running of the prescription period where the acts of the taxpayer did not prevent the
government from collecting the tax.
The government also urges that partial payment is "acknowledgement of the tax obligation", hence a "waiver on the
defense of prescription." But partial payment would not prevent the government from suing the taxpayer. Because,
by such act of payment, the government is not thereby "persuaded to postpone collection to make him feel that the
demand was not unreasonable or that no harassment or injustice is meant." Which, as stated in Collector v. Suyoc
Consolidated Mining Co., et al., L-11527, November 25, 1958, is the underlying reason behind the rule that
prescriptive period is arrested by the taxpayers request for reexamination or reinvestigation even if "he has not
previously waived it [prescription] in writing."
The Court reminds us, in the case of Commissioner of Internal Revenue v. Algue, Inc., 32 of the need to balance the
conflicting interests of the government and the taxpayers.
Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. On the other
hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for
government itself. It is therefore necessary to reconcile the apparently conflicting interest of the authorities and the
taxpayers so that the real purpose of taxation, which is the promotion of common good, may be achieved.
Thus, the three-year statute of limitations on the collection of an assessed tax provided under Section 269(c) of the Tax
Code of 1977, a law enacted to protect the interests of the taxpayer, must be given effect. In providing for exceptions to such
rule in Section 271, the law strictly limits the suspension of the running of the prescription period to, among other instances,
protests wherein the taxpayer requests for a reinvestigation. In this case, where the taxpayer merely filed two protest letters
requesting for a reconsideration, and where the BIR could not have conducted a reinvestigation because no new or
additional evidence was submitted, the running of statute of limitations cannot be interrupted. The tax which is the subject
of the Decision issued by the CIR on 8 October 2002 affirming the Formal Assessment issued on 14 April 1994 can no
longer be the subject of any proceeding for its collection. Consequently, the right of the government to collect the alleged
deficiency tax is barred by prescription.
IN VIEW OF THE FOREGOING, the instant Petition is DENIED. The assailed en banc Decision of the CTA in CTA EB
No. 37 dated 22 February 2005, cancelling Assessment Notice No. 000688-80-7333 issued against Philippine Global
Communication, Inc. for its 1990 income tax deficiency for the reason that it is barred by prescription, is hereby
AFFIRMED. No costs.
SO ORDERED.

SUPREME COURT
Manila
EN BANC
G.R. No. 115455 October 30, 1995

ARTURO M. TOLENTINO, petitioner,
vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE, respondents.
G.R. No. 115525 October 30, 1995
JUAN T. DAVID, petitioner,
vs.
TEOFISTO T. GUINGONA, JR., as Executive Secretary; ROBERTO DE OCAMPO, as Secretary of Finance;
LIWAYWAY VINZONS-CHATO, as Commissioner of Internal Revenue; and their AUTHORIZED AGENTS OR
REPRESENTATIVES, respondents.
G.R. No. 115543 October 30, 1995
RAUL S. ROCO and the INTEGRATED BAR OF THE PHILIPPINES, petitioners,
vs.
THE SECRETARY OF THE DEPARTMENT OF FINANCE; THE COMMISSIONERS OF THE BUREAU OF
INTERNAL REVENUE AND BUREAU OF CUSTOMS, respondents.
G.R. No. 115544 October 30, 1995
PHILIPPINE PRESS INSTITUTE, INC.; EGP PUBLISHING CO., INC.; KAMAHALAN PUBLISHING
CORPORATION; PHILIPPINE JOURNALISTS, INC.; JOSE L. PAVIA; and OFELIA L. DIMALANTA,
petitioners,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as Commissioner of Internal Revenue; HON. TEOFISTO T.
GUINGONA, JR., in his capacity as Executive Secretary; and HON. ROBERTO B. DE OCAMPO, in his capacity as
Secretary of Finance, respondents.
G.R. No. 115754 October 30, 1995
CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS, INC., (CREBA), petitioner,
vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.
G.R. No. 115781 October 30, 1995
KILOSBAYAN, INC., JOVITO R. SALONGA, CIRILO A. RIGOS, ERME CAMBA, EMILIO C. CAPULONG,
JR., JOSE T. APOLO, EPHRAIM TENDERO, FERNANDO SANTIAGO, JOSE ABCEDE, CHRISTINE TAN,
FELIPE L. GOZON, RAFAEL G. FERNANDO, RAOUL V. VICTORINO, JOSE CUNANAN, QUINTIN S.
DOROMAL, MOVEMENT OF ATTORNEYS FOR BROTHERHOOD, INTEGRITY AND NATIONALISM, INC.
("MABINI"), FREEDOM FROM DEBT COALITION, INC., and PHILIPPINE BIBLE SOCIETY, INC. and
WIGBERTO TAADA, petitioners,
vs.
THE EXECUTIVE SECRETARY, THE SECRETARY OF FINANCE, THE COMMISSIONER OF INTERNAL
REVENUE and THE COMMISSIONER OF CUSTOMS, respondents.
G.R. No. 115852 October 30, 1995
PHILIPPINE AIRLINES, INC., petitioner,
vs.
THE SECRETARY OF FINANCE and COMMISSIONER OF INTERNAL REVENUE, respondents.
G.R. No. 115873 October 30, 1995
COOPERATIVE UNION OF THE PHILIPPINES, petitioner,

vs.
HON. LIWAYWAY V. CHATO, in her capacity as the Commissioner of Internal Revenue, HON. TEOFISTO T.
GUINGONA, JR., in his capacity as Executive Secretary, and HON. ROBERTO B. DE OCAMPO, in his capacity as
Secretary of Finance, respondents.
G.R. No. 115931 October 30, 1995
PHILIPPINE EDUCATIONAL PUBLISHERS ASSOCIATION, INC. and ASSOCIATION OF PHILIPPINE BOOK
SELLERS, petitioners,
vs.
HON. ROBERTO B. DE OCAMPO, as the Secretary of Finance; HON. LIWAYWAY V. CHATO, as the
Commissioner of Internal Revenue; and HON. GUILLERMO PARAYNO, JR., in his capacity as the Commissioner
of Customs, respondents.
RESOLUTION
MENDOZA, J.:
These are motions seeking reconsideration of our decision dismissing the petitions filed in these cases for the declaration of
unconstitutionality of R.A. No. 7716, otherwise known as the Expanded Value-Added Tax Law. The motions, of which there
are 10 in all, have been filed by the several petitioners in these cases, with the exception of the Philippine Educational
Publishers Association, Inc. and the Association of Philippine Booksellers, petitioners in G.R. No. 115931.
The Solicitor General, representing the respondents, filed a consolidated comment, to which the Philippine Airlines, Inc.,
petitioner in G.R. No. 115852, and the Philippine Press Institute, Inc., petitioner in G.R. No. 115544, and Juan T. David,
petitioner in G.R. No. 115525, each filed a reply. In turn the Solicitor General filed on June 1, 1995 a rejoinder to the PPI's
reply.
On June 27, 1995 the matter was submitted for resolution.
I. Power of the Senate to propose amendments to revenue bills. Some of the petitioners (Tolentino, Kilosbayan, Inc.,
Philippine Airlines (PAL), Roco, and Chamber of Real Estate and Builders Association (CREBA)) reiterate previous claims
made by them that R.A. No. 7716 did not "originate exclusively" in the House of Representatives as required by Art. VI,
24 of the Constitution. Although they admit that H. No. 11197 was filed in the House of Representatives where it passed
three readings and that afterward it was sent to the Senate where after first reading it was referred to the Senate Ways and
Means Committee, they complain that the Senate did not pass it on second and third readings. Instead what the Senate did
was to pass its own version (S. No. 1630) which it approved on May 24, 1994. Petitioner Tolentino adds that what the
Senate committee should have done was to amend H. No. 11197 by striking out the text of the bill and substituting it with
the text of S. No. 1630. That way, it is said, "the bill remains a House bill and the Senate version just becomes the text ( only
the text) of the House bill."
The contention has no merit.
The enactment of S. No. 1630 is not the only instance in which the Senate proposed an amendment to a House revenue bill
by enacting its own version of a revenue bill. On at least two occasions during the Eighth Congress, the Senate passed its
own version of revenue bills, which, in consolidation with House bills earlier passed, became the enrolled bills. These were:
R.A. No. 7369 (AN ACT TO AMEND THE OMNIBUS INVESTMENTS CODE OF 1987 BY EXTENDING FROM FIVE
(5) YEARS TO TEN YEARS THE PERIOD FOR TAX AND DUTY EXEMPTION AND TAX CREDIT ON CAPITAL
EQUIPMENT) which was approved by the President on April 10, 1992. This Act is actually a consolidation of H. No.
34254, which was approved by the House on January 29, 1992, and S. No. 1920, which was approved by the Senate on
February 3, 1992.
R.A. No. 7549 (AN ACT GRANTING TAX EXEMPTIONS TO WHOEVER SHALL GIVE REWARD TO ANY
FILIPINO ATHLETE WINNING A MEDAL IN OLYMPIC GAMES) which was approved by the President on May 22,
1992. This Act is a consolidation of H. No. 22232, which was approved by the House of Representatives on August 2, 1989,
and S. No. 807, which was approved by the Senate on October 21, 1991.
On the other hand, the Ninth Congress passed revenue laws which were also the result of the consolidation of House and
Senate bills. These are the following, with indications of the dates on which the laws were approved by the President and
dates the separate bills of the two chambers of Congress were respectively passed:
1. R.A. NO. 7642

AN ACT INCREASING THE PENALTIES FOR TAX EVASION, AMENDING FOR THIS PURPOSE
THE PERTINENT SECTIONS OF THE NATIONAL INTERNAL REVENUE CODE (December 28,
1992).
House Bill No. 2165, October 5, 1992
Senate Bill No. 32, December 7, 1992
2. R.A. NO. 7643
AN ACT TO EMPOWER THE COMMISSIONER OF INTERNAL REVENUE TO REQUIRE THE
PAYMENT OF THE VALUE-ADDED TAX EVERY MONTH AND TO ALLOW LOCAL
GOVERNMENT UNITS TO SHARE IN VAT REVENUE, AMENDING FOR THIS PURPOSE
CERTAIN SECTIONS OF THE NATIONAL INTERNAL REVENUE CODE (December 28, 1992)
House Bill No. 1503, September 3, 1992
Senate Bill No. 968, December 7, 1992
3. R.A. NO. 7646
AN ACT AUTHORIZING THE COMMISSIONER OF INTERNAL REVENUE TO PRESCRIBE THE
PLACE FOR PAYMENT OF INTERNAL REVENUE TAXES BY LARGE TAXPAYERS, AMENDING
FOR THIS PURPOSE CERTAIN PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE,
AS AMENDED (February 24, 1993)
House Bill No. 1470, October 20, 1992
Senate Bill No. 35, November 19, 1992
4. R.A. NO. 7649
AN ACT REQUIRING THE GOVERNMENT OR ANY OF ITS POLITICAL SUBDIVISIONS,
INSTRUMENTALITIES OR AGENCIES INCLUDING GOVERNMENT-OWNED OR CONTROLLED
CORPORATIONS (GOCCS) TO DEDUCT AND WITHHOLD THE VALUE-ADDED TAX DUE AT
THE RATE OF THREE PERCENT (3%) ON GROSS PAYMENT FOR THE PURCHASE OF GOODS
AND SIX PERCENT (6%) ON GROSS RECEIPTS FOR SERVICES RENDERED BY
CONTRACTORS (April 6, 1993)
House Bill No. 5260, January 26, 1993
Senate Bill No. 1141, March 30, 1993
5. R.A. NO. 7656
AN ACT REQUIRING GOVERNMENT-OWNED OR CONTROLLED CORPORATIONS TO
DECLARE DIVIDENDS UNDER CERTAIN CONDITIONS TO THE NATIONAL GOVERNMENT,
AND FOR OTHER PURPOSES (November 9, 1993)
House Bill No. 11024, November 3, 1993
6. R.A. NO. 7660
AN ACT RATIONALIZING FURTHER THE STRUCTURE AND ADMINISTRATION OF THE
DOCUMENTARY STAMP TAX, AMENDING FOR THE PURPOSE CERTAIN PROVISIONS OF THE
NATIONAL INTERNAL REVENUE CODE, AS AMENDED, ALLOCATING FUNDS FOR SPECIFIC
PROGRAMS, AND FOR OTHER PURPOSES (December 23, 1993)
House Bill No. 7789, May 31, 1993
7. R.A. NO. 7717
AN ACT IMPOSING A TAX ON THE SALE, BARTER OR EXCHANGE OF SHARES OF STOCK

LISTED AND TRADED THROUGH THE LOCAL STOCK EXCHANGE OR THROUGH INITIAL
PUBLIC OFFERING, AMENDING FOR THE PURPOSE THE NATIONAL INTERNAL REVENUE
CODE, AS AMENDED, BY INSERTING A NEW SECTION AND REPEALING CERTAIN
SUBSECTIONS THEREOF (May 5, 1994)
House Bill No. 9187, November 3, 1993
Senate Bill No. 1127, March 23, 1994
Thus, the enactment of S. No. 1630 is not the only instance in which the Senate, in the exercise of its power to propose
amendments to bills required to originate in the House, passed its own version of a House revenue measure. It is noteworthy
that, in the particular case of S. No. 1630, petitioners Tolentino and Roco, as members of the Senate, voted to approve it on
second and third readings.
On the other hand, amendment by substitution, in the manner urged by petitioner Tolentino, concerns a mere matter of form.
Petitioner has not shown what substantial difference it would make if, as the Senate actually did in this case, a separate bill
like S. No. 1630 is instead enacted as a substitute measure, "taking into Consideration . . . H.B. 11197."
Indeed, so far as pertinent, the Rules of the Senate only provide:
RULE XXIX
AMENDMENTS
xxx xxx xxx
68. Not more than one amendment to the original amendment shall be considered.
No amendment by substitution shall be entertained unless the text thereof is submitted in writing.
Any of said amendments may be withdrawn before a vote is taken thereon.
69. No amendment which seeks the inclusion of a legislative provision foreign to the subject matter of a
bill (rider) shall be entertained.
xxx xxx xxx
70-A. A bill or resolution shall not be amended by substituting it with another which covers a subject
distinct from that proposed in the original bill or resolution. (emphasis added).
Nor is there merit in petitioners' contention that, with regard to revenue bills, the Philippine Senate possesses less power
than the U.S. Senate because of textual differences between constitutional provisions giving them the power to propose or
concur with amendments.
Art. I, 7, cl. 1 of the U.S. Constitution reads:
All Bills for raising Revenue shall originate in the House of Representatives; but the Senate may propose
or concur with amendments as on other Bills.
Art. VI, 24 of our Constitution reads:
All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local
application, and private bills shall originate exclusively in the House of Representatives, but the Senate
may propose or concur with amendments.
The addition of the word "exclusively" in the Philippine Constitution and the decision to drop the phrase "as on other Bills"
in the American version, according to petitioners, shows the intention of the framers of our Constitution to restrict the
Senate's power to propose amendments to revenue bills. Petitioner Tolentino contends that the word "exclusively" was
inserted to modify "originate" and "the words 'as in any other bills' (sic) were eliminated so as to show that these bills were
not to be like other bills but must be treated as a special kind."
The history of this provision does not support this contention. The supposed indicia of constitutional intent are nothing but
the relics of an unsuccessful attempt to limit the power of the Senate. It will be recalled that the 1935 Constitution originally
provided for a unicameral National Assembly. When it was decided in 1939 to change to a bicameral legislature, it became
necessary to provide for the procedure for lawmaking by the Senate and the House of Representatives. The work of
proposing amendments to the Constitution was done by the National Assembly, acting as a constituent assembly, some of
whose members, jealous of preserving the Assembly's lawmaking powers, sought to curtail the powers of the proposed
Senate. Accordingly they proposed the following provision:
All bills appropriating public funds, revenue or tariff bills, bills of local application, and private bills shall
originate exclusively in the Assembly, but the Senate may propose or concur with amendments. In case of
disapproval by the Senate of any such bills, the Assembly may repass the same by a two-thirds vote of all
its members, and thereupon, the bill so repassed shall be deemed enacted and may be submitted to the
President for corresponding action. In the event that the Senate should fail to finally act on any such bills,
the Assembly may, after thirty days from the opening of the next regular session of the same legislative
term, reapprove the same with a vote of two-thirds of all the members of the Assembly. And upon such
reapproval, the bill shall be deemed enacted and may be submitted to the President for corresponding
action.
The special committee on the revision of laws of the Second National Assembly vetoed the proposal. It deleted everything
after the first sentence. As rewritten, the proposal was approved by the National Assembly and embodied in Resolution No.
38, as amended by Resolution No. 73. (J. ARUEGO, KNOW YOUR CONSTITUTION 65-66 (1950)). The proposed
amendment was submitted to the people and ratified by them in the elections held on June 18, 1940.
This is the history of Art. VI, 18 (2) of the 1935 Constitution, from which Art. VI, 24 of the present Constitution was
derived. It explains why the word "exclusively" was added to the American text from which the framers of the Philippine
Constitution borrowed and why the phrase "as on other Bills" was not copied. Considering the defeat of the proposal, the
power of the Senate to propose amendments must be understood to be full, plenary and complete "as on other Bills." Thus,
because revenue bills are required to originate exclusively in the House of Representatives, the Senate cannot enact revenue
measures of its own without such bills. After a revenue bill is passed and sent over to it by the House, however, the Senate
certainly can pass its own version on the same subject matter. This follows from the coequality of the two chambers of
Congress.
That this is also the understanding of book authors of the scope of the Senate's power to concur is clear from the following
commentaries:
The power of the Senate to propose or concur with amendments is apparently without restriction. It would
seem that by virtue of this power, the Senate can practically re-write a bill required to come from the
House and leave only a trace of the original bill. For example, a general revenue bill passed by the lower
house of the United States Congress contained provisions for the imposition of an inheritance tax . This
was changed by the Senate into a corporation tax. The amending authority of the Senate was declared by
the United States Supreme Court to be sufficiently broad to enable it to make the alteration. [Flint v. Stone
Tracy Company, 220 U.S. 107, 55 L. ed. 389].
(L. TAADA AND F. CARREON, POLITICAL LAW OF THE PHILIPPINES 247 (1961))
The above-mentioned bills are supposed to be initiated by the House of Representatives because it is more
numerous in membership and therefore also more representative of the people. Moreover, its members are
presumed to be more familiar with the needs of the country in regard to the enactment of the legislation
involved.
The Senate is, however, allowed much leeway in the exercise of its power to propose or concur with
amendments to the bills initiated by the House of Representatives. Thus, in one case, a bill introduced in
the U.S. House of Representatives was changed by the Senate to make a proposed inheritance tax a
corporation tax. It is also accepted practice for the Senate to introduce what is known as an amendment by
substitution, which may entirely replace the bill initiated in the House of Representatives.
(I. CRUZ, PHILIPPINE POLITICAL LAW 144-145 (1993)).
In sum, while Art. VI, 24 provides that all appropriation, revenue or tariff bills, bills authorizing increase of the public
debt, bills of local application, and private bills must "originate exclusively in the House of Representatives," it also adds,
"but the Senate may propose or concur with amendments." In the exercise of this power, the Senate may propose an entirely
new bill as a substitute measure. As petitioner Tolentino states in a high school text, a committee to which a bill is referred
may do any of the following:
(1) to endorse the bill without changes; (2) to make changes in the bill omitting or adding sections or
altering its language; (3) to make and endorse an entirely new bill as a substitute, in which case it will be
known as a committee bill; or (4) to make no report at all.
(A. TOLENTINO, THE GOVERNMENT OF THE PHILIPPINES 258 (1950))

To except from this procedure the amendment of bills which are required to originate in the House by prescribing that the
number of the House bill and its other parts up to the enacting clause must be preserved although the text of the Senate
amendment may be incorporated in place of the original body of the bill is to insist on a mere technicality. At any rate there
is no rule prescribing this form. S. No. 1630, as a substitute measure, is therefore as much an amendment of H. No. 11197 as
any which the Senate could have made.
II. S. No. 1630 a mere amendment of H. No. 11197. Petitioners' basic error is that they assume that S. No. 1630 is an
independent and distinct bill. Hence their repeated references to its certification that it was passed by the Senate "in
substitution of S.B. No. 1129, taking into consideration P.S. Res. No. 734 and H.B. No. 11197," implying that there is
something substantially different between the reference to S. No. 1129 and the reference to H. No. 11197. From this
premise, they conclude that R.A. No. 7716 originated both in the House and in the Senate and that it is the product of two
"half-baked bills because neither H. No. 11197 nor S. No. 1630 was passed by both houses of Congress."
In point of fact, in several instances the provisions of S. No. 1630, clearly appear to be mere amendments of the
corresponding provisions of H. No. 11197. The very tabular comparison of the provisions of H. No. 11197 and S. No. 1630
attached as Supplement A to the basic petition of petitioner Tolentino, while showing differences between the two bills, at
the same time indicates that the provisions of the Senate bill were precisely intended to be amendments to the House bill.
Without H. No. 11197, the Senate could not have enacted S. No. 1630. Because the Senate bill was a mere amendment of
the House bill, H. No. 11197 in its original form did not have to pass the Senate on second and three readings. It was enough
that after it was passed on first reading it was referred to the Senate Committee on Ways and Means. Neither was it required
that S. No. 1630 be passed by the House of Representatives before the two bills could be referred to the Conference
Committee.
There is legislative precedent for what was done in the case of H. No. 11197 and S. No. 1630. When the House bill and
Senate bill, which became R.A. No. 1405 (Act prohibiting the disclosure of bank deposits), were referred to a conference
committee, the question was raised whether the two bills could be the subject of such conference, considering that the bill
from one house had not been passed by the other and vice versa. As Congressman Duran put the question:
MR. DURAN. Therefore, I raise this question of order as to procedure: If a House bill is passed by the
House but not passed by the Senate, and a Senate bill of a similar nature is passed in the Senate but never
passed in the House, can the two bills be the subject of a conference, and can a law be enacted from these
two bills? I understand that the Senate bill in this particular instance does not refer to investments in
government securities, whereas the bill in the House, which was introduced by the Speaker, covers two
subject matters: not only investigation of deposits in banks but also investigation of investments in
government securities. Now, since the two bills differ in their subject matter, I believe that no law can be
enacted.
Ruling on the point of order raised, the chair (Speaker Jose B. Laurel, Jr.) said:
THE SPEAKER. The report of the conference committee is in order. It is precisely in cases like this where
a conference should be had. If the House bill had been approved by the Senate, there would have been no
need of a conference; but precisely because the Senate passed another bill on the same subject matter, the
conference committee had to be created, and we are now considering the report of that committee.
(2 CONG. REC. NO. 13, July 27, 1955, pp. 3841-42 (emphasis added))
III. The President's certification. The fallacy in thinking that H. No. 11197 and S. No. 1630 are distinct and unrelated
measures also accounts for the petitioners' (Kilosbayan's and PAL's) contention that because the President separately
certified to the need for the immediate enactment of these measures, his certification was ineffectual and void. The
certification had to be made of the version of the same revenue bill which at the moment was being considered. Otherwise,
to follow petitioners' theory, it would be necessary for the President to certify as many bills as are presented in a house of
Congress even though the bills are merely versions of the bill he has already certified. It is enough that he certifies the bill
which, at the time he makes the certification, is under consideration. Since on March 22, 1994 the Senate was considering S.
No. 1630, it was that bill which had to be certified. For that matter on June 1, 1993 the President had earlier certified H. No.
9210 for immediate enactment because it was the one which at that time was being considered by the House. This bill was
later substituted, together with other bills, by H. No. 11197.
As to what Presidential certification can accomplish, we have already explained in the main decision that the phrase "except
when the President certifies to the necessity of its immediate enactment, etc." in Art. VI, 26 (2) qualifies not only the
requirement that "printed copies [of a bill] in its final form [must be] distributed to the members three days before its
passage" but also the requirement that before a bill can become a law it must have passed "three readings on separate days."
There is not only textual support for such construction but historical basis as well.
Art. VI, 21 (2) of the 1935 Constitution originally provided:
(2) No bill shall be passed by either House unless it shall have been printed and copies thereof in its final
form furnished its Members at least three calendar days prior to its passage, except when the President
shall have certified to the necessity of its immediate enactment. Upon the last reading of a bill, no
amendment thereof shall be allowed and the question upon its passage shall be taken immediately
thereafter, and the yeas and nays entered on the Journal.
When the 1973 Constitution was adopted, it was provided in Art. VIII, 19 (2):
(2) No bill shall become a law unless it has passed three readings on separate days, and printed copies
thereof in its final form have been distributed to the Members three days before its passage, except when
the Prime Minister certifies to the necessity of its immediate enactment to meet a public calamity or
emergency. Upon the last reading of a bill, no amendment thereto shall be allowed, and the vote thereon
shall be taken immediately thereafter, and the yeas and nays entered in the Journal.
This provision of the 1973 document, with slight modification, was adopted in Art. VI, 26 (2) of the present Constitution,
thus:
(2) No bill passed by either House shall become a law unless it has passed three readings on separate days,
and printed copies thereof in its final form have been distributed to its Members three days before its
passage, except when the President certifies to the necessity of its immediate enactment to meet a public
calamity or emergency. Upon the last reading of a bill, no amendment thereto shall be allowed, and the
vote thereon shall be taken immediately thereafter, and the yeas and nays entered in the Journal.
The exception is based on the prudential consideration that if in all cases three readings on separate days are required and a
bill has to be printed in final form before it can be passed, the need for a law may be rendered academic by the occurrence
of the very emergency or public calamity which it is meant to address.
Petitioners further contend that a "growing budget deficit" is not an emergency, especially in a country like the Philippines
where budget deficit is a chronic condition. Even if this were the case, an enormous budget deficit does not make the need
for R.A. No. 7716 any less urgent or the situation calling for its enactment any less an emergency.
Apparently, the members of the Senate (including some of the petitioners in these cases) believed that there was an urgent
need for consideration of S. No. 1630, because they responded to the call of the President by voting on the bill on second
and third readings on the same day. While the judicial department is not bound by the Senate's acceptance of the President's
certification, the respect due coequal departments of the government in matters committed to them by the Constitution and
the absence of a clear showing of grave abuse of discretion caution a stay of the judicial hand.
At any rate, we are satisfied that S. No. 1630 received thorough consideration in the Senate where it was discussed for six
days. Only its distribution in advance in its final printed form was actually dispensed with by holding the voting on second
and third readings on the same day (March 24, 1994). Otherwise, sufficient time between the submission of the bill on
February 8, 1994 on second reading and its approval on March 24, 1994 elapsed before it was finally voted on by the Senate
on third reading.
The purpose for which three readings on separate days is required is said to be two-fold: (1) to inform the members of
Congress of what they must vote on and (2) to give them notice that a measure is progressing through the enacting process,
thus enabling them and others interested in the measure to prepare their positions with reference to it. (1 J. G.
SUTHERLAND, STATUTES AND STATUTORY CONSTRUCTION 10.04, p. 282 (1972)). These purposes were
substantially achieved in the case of R.A. No. 7716.
IV. Power of Conference Committee. It is contended (principally by Kilosbayan, Inc. and the Movement of Attorneys for
Brotherhood, Integrity and Nationalism, Inc. (MABINI)) that in violation of the constitutional policy of full public
disclosure and the people's right to know (Art. II, 28 and Art. III, 7) the Conference Committee met for two days in
executive session with only the conferees present.
As pointed out in our main decision, even in the United States it was customary to hold such sessions with only the
conferees and their staffs in attendance and it was only in 1975 when a new rule was adopted requiring open sessions.
Unlike its American counterpart, the Philippine Congress has not adopted a rule prescribing open hearings for conference
committees.
It is nevertheless claimed that in the United States, before the adoption of the rule in 1975, at least staff members were
present. These were staff members of the Senators and Congressmen, however, who may be presumed to be their
confidential men, not stenographers as in this case who on the last two days of the conference were excluded. There is no
showing that the conferees themselves did not take notes of their proceedings so as to give petitioner Kilosbayan basis for
claiming that even in secret diplomatic negotiations involving state interests, conferees keep notes of their meetings. Above
all, the public's right to know was fully served because the Conference Committee in this case submitted a report showing
the changes made on the differing versions of the House and the Senate.
Petitioners cite the rules of both houses which provide that conference committee reports must contain "a detailed,
sufficiently explicit statement of the changes in or other amendments." These changes are shown in the bill attached to the
Conference Committee Report. The members of both houses could thus ascertain what changes had been made in the
original bills without the need of a statement detailing the changes.
The same question now presented was raised when the bill which became R.A. No. 1400 (Land Reform Act of 1955) was
reported by the Conference Committee. Congressman Bengzon raised a point of order. He said:
MR. BENGZON. My point of order is that it is out of order to consider the report of the conference
committee regarding House Bill No. 2557 by reason of the provision of Section 11, Article XII, of the
Rules of this House which provides specifically that the conference report must be accompanied by a
detailed statement of the effects of the amendment on the bill of the House. This conference committee
report is not accompanied by that detailed statement, Mr. Speaker. Therefore it is out of order to consider
it.
Petitioner Tolentino, then the Majority Floor Leader, answered:
MR. TOLENTINO. Mr. Speaker, I should just like to say a few words in connection with the point of
order raised by the gentleman from Pangasinan.
There is no question about the provision of the Rule cited by the gentleman from Pangasinan, but this
provision applies to those cases where only portions of the bill have been amended . In this case before us
an entire bill is presented; therefore, it can be easily seen from the reading of the bill what the provisions
are. Besides, this procedure has been an established practice.
After some interruption, he continued:
MR. TOLENTINO. As I was saying, Mr. Speaker, we have to look into the reason for the provisions of the
Rules, and the reason for the requirement in the provision cited by the gentleman from Pangasinan is when
there are only certain words or phrases inserted in or deleted from the provisions of the bill included in the
conference report, and we cannot understand what those words and phrases mean and their relation to the
bill. In that case, it is necessary to make a detailed statement on how those words and phrases will affect
the bill as a whole; but when the entire bill itself is copied verbatim in the conference report, that is not
necessary. So when the reason for the Rule does not exist, the Rule does not exist.
(2 CONG. REC. NO. 2, p. 4056. (emphasis added))
Congressman Tolentino was sustained by the chair. The record shows that when the ruling was appealed, it was upheld by
viva voce and when a division of the House was called, it was sustained by a vote of 48 to 5. ( Id.,
p. 4058)
Nor is there any doubt about the power of a conference committee to insert new provisions as long as these are germane to
the subject of the conference. As this Court held in Philippine Judges Association v. Prado, 227 SCRA 703 (1993), in an
opinion written by then Justice Cruz, the jurisdiction of the conference committee is not limited to resolving differences
between the Senate and the House. It may propose an entirely new provision. What is important is that its report is
subsequently approved by the respective houses of Congress. This Court ruled that it would not entertain allegations that,
because new provisions had been added by the conference committee, there was thereby a violation of the constitutional
injunction that "upon the last reading of a bill, no amendment thereto shall be allowed."
Applying these principles, we shall decline to look into the petitioners' charges that an amendment was
made upon the last reading of the bill that eventually became R.A. No. 7354 and that copies thereof in its
final form were not distributed among the members of each House. Both the enrolled bill and the
legislative journals certify that the measure was duly enacted i.e., in accordance with Article VI, Sec. 26
(2) of the Constitution. We are bound by such official assurances from a coordinate department of the
government, to which we owe, at the very least, a becoming courtesy.
(Id. at 710. (emphasis added))

It is interesting to note the following description of conference committees in the Philippines in a 1979 study:
Conference committees may be of two types: free or instructed. These committees may be given
instructions by their parent bodies or they may be left without instructions. Normally the conference
committees are without instructions, and this is why they are often critically referred to as "the little
legislatures." Once bills have been sent to them, the conferees have almost unlimited authority to change
the clauses of the bills and in fact sometimes introduce new measures that were not in the original
legislation. No minutes are kept, and members' activities on conference committees are difficult to
determine. One congressman known for his idealism put it this way: "I killed a bill on export incentives
for my interest group [copra] in the conference committee but I could not have done so anywhere else."
The conference committee submits a report to both houses, and usually it is accepted. If the report is not
accepted, then the committee is discharged and new members are appointed.
(R. Jackson, Committees in the Philippine Congress, in COMMITTEES AND LEGISLATURES: A
COMPARATIVE ANALYSIS 163 (J. D. LEES AND M. SHAW, eds.)).
In citing this study, we pass no judgment on the methods of conference committees. We cite it only to say that conference
committees here are no different from their counterparts in the United States whose vast powers we noted in Philippine
Judges Association v. Prado, supra. At all events, under Art. VI, 16(3) each house has the power "to determine the rules of
its proceedings," including those of its committees. Any meaningful change in the method and procedures of Congress or its
committees must therefore be sought in that body itself.
V. The titles of S. No. 1630 and H. No. 11197. PAL maintains that R.A. No. 7716 violates Art. VI, 26 (1) of the Constitution
which provides that "Every bill passed by Congress shall embrace only one subject which shall be expressed in the title
thereof." PAL contends that the amendment of its franchise by the withdrawal of its exemption from the VAT is not
expressed in the title of the law.
Pursuant to 13 of P.D. No. 1590, PAL pays a franchise tax of 2% on its gross revenue "in lieu of all other taxes, duties,
royalties, registration, license and other fees and charges of any kind, nature, or description, imposed, levied, established,
assessed or collected by any municipal, city, provincial or national authority or government agency, now or in the future."
PAL was exempted from the payment of the VAT along with other entities by 103 of the National Internal Revenue Code,
which provides as follows:
103. Exempt transactions. The following shall be exempt from the value-added tax:
xxx xxx xxx
(q) Transactions which are exempt under special laws or international agreements to which the Philippines
is a signatory.
R.A. No. 7716 seeks to withdraw certain exemptions, including that granted to PAL, by amending 103, as follows:
103. Exempt transactions. The following shall be exempt from the value-added tax:
xxx xxx xxx
(q) Transactions which are exempt under special laws, except those granted under Presidential Decree
Nos. 66, 529, 972, 1491, 1590. . . .
The amendment of 103 is expressed in the title of R.A. No. 7716 which reads:
AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT) SYSTEM, WIDENING ITS TAX
BASE AND ENHANCING ITS ADMINISTRATION, AND FOR THESE PURPOSES AMENDING
AND REPEALING THE RELEVANT PROVISIONS OF THE NATIONAL INTERNAL REVENUE
CODE, AS AMENDED, AND FOR OTHER PURPOSES.
By stating that R.A. No. 7716 seeks to "[RESTRUCTURE] THE VALUE-ADDED TAX (VAT) SYSTEM [BY]
WIDENING ITS TAX BASE AND ENHANCING ITS ADMINISTRATION, AND FOR THESE PURPOSES
AMENDING AND REPEALING THE RELEVANT PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE,
AS AMENDED AND FOR OTHER PURPOSES," Congress thereby clearly expresses its intention to amend any provision
of the NIRC which stands in the way of accomplishing the purpose of the law.
PAL asserts that the amendment of its franchise must be reflected in the title of the law by specific reference to P.D. No.
1590. It is unnecessary to do this in order to comply with the constitutional requirement, since it is already stated in the title
that the law seeks to amend the pertinent provisions of the NIRC, among which is 103(q), in order to widen the base of the
VAT. Actually, it is the bill which becomes a law that is required to express in its title the subject of legislation. The titles of
H. No. 11197 and S. No. 1630 in fact specifically referred to 103 of the NIRC as among the provisions sought to be
amended. We are satisfied that sufficient notice had been given of the pendency of these bills in Congress before they were
enacted
into
what
is
now
R.A.
No. 7716.
In Philippine Judges Association v. Prado, supra, a similar argument as that now made by PAL was rejected. R.A. No. 7354
is entitled AN ACT CREATING THE PHILIPPINE POSTAL CORPORATION, DEFINING ITS POWERS, FUNCTIONS
AND RESPONSIBILITIES, PROVIDING FOR REGULATION OF THE INDUSTRY AND FOR OTHER PURPOSES
CONNECTED THEREWITH. It contained a provision repealing all franking privileges. It was contended that the
withdrawal of franking privileges was not expressed in the title of the law. In holding that there was sufficient description of
the subject of the law in its title, including the repeal of franking privileges, this Court held:
To require every end and means necessary for the accomplishment of the general objectives of the statute
to be expressed in its title would not only be unreasonable but would actually render legislation
impossible. [Cooley, Constitutional Limitations, 8th Ed., p. 297] As has been correctly explained:
The details of a legislative act need not be specifically stated in its title, but matter
germane to the subject as expressed in the title, and adopted to the accomplishment of
the object in view, may properly be included in the act. Thus, it is proper to create in the
same act the machinery by which the act is to be enforced, to prescribe the penalties for
its infraction, and to remove obstacles in the way of its execution. If such matters are
properly connected with the subject as expressed in the title, it is unnecessary that they
should also have special mention in the title. (Southern Pac. Co. v. Bartine, 170 Fed.
725)
(227 SCRA at 707-708)
VI. Claims of press freedom and religious liberty. We have held that, as a general proposition, the press is not exempt from
the taxing power of the State and that what the constitutional guarantee of free press prohibits are laws which single out the
press or target a group belonging to the press for special treatment or which in any way discriminate against the press on the
basis of the content of the publication, and R.A. No. 7716 is none of these.
Now it is contended by the PPI that by removing the exemption of the press from the VAT while maintaining those granted
to others, the law discriminates against the press. At any rate, it is averred, "even nondiscriminatory taxation of
constitutionally guaranteed freedom is unconstitutional."
With respect to the first contention, it would suffice to say that since the law granted the press a privilege, the law could take
back the privilege anytime without offense to the Constitution. The reason is simple: by granting exemptions, the State does
not forever waive the exercise of its sovereign prerogative.
Indeed, in withdrawing the exemption, the law merely subjects the press to the same tax burden to which other businesses
have long ago been subject. It is thus different from the tax involved in the cases invoked by the PPI. The license tax in
Grosjean v. American Press Co., 297 U.S. 233, 80 L. Ed. 660 (1936) was found to be discriminatory because it was laid on
the gross advertising receipts only of newspapers whose weekly circulation was over 20,000, with the result that the tax
applied only to 13 out of 124 publishers in Louisiana. These large papers were critical of Senator Huey Long who controlled
the state legislature which enacted the license tax. The censorial motivation for the law was thus evident.
On the other hand, in Minneapolis Star & Tribune Co. v. Minnesota Comm'r of Revenue, 460 U.S. 575, 75 L. Ed. 2d 295
(1983), the tax was found to be discriminatory because although it could have been made liable for the sales tax or, in lieu
thereof, for the use tax on the privilege of using, storing or consuming tangible goods, the press was not. Instead, the press
was exempted from both taxes. It was, however, later made to pay a special use tax on the cost of paper and ink which made
these items "the only items subject to the use tax that were component of goods to be sold at retail." The U.S. Supreme
Court held that the differential treatment of the press "suggests that the goal of regulation is not related to suppression of
expression, and such goal is presumptively unconstitutional." It would therefore appear that even a law that favors the press
is constitutionally suspect. (See the dissent of Rehnquist, J. in that case)
Nor is it true that only two exemptions previously granted by E.O. No. 273 are withdrawn "absolutely and unqualifiedly" by
R.A. No. 7716. Other exemptions from the VAT, such as those previously granted to PAL, petroleum concessionaires,
enterprises registered with the Export Processing Zone Authority, and many more are likewise totally withdrawn, in addition
to exemptions which are partially withdrawn, in an effort to broaden the base of the tax.
The PPI says that the discriminatory treatment of the press is highlighted by the fact that transactions, which are profit
oriented, continue to enjoy exemption under R.A. No. 7716. An enumeration of some of these transactions will suffice to
show that by and large this is not so and that the exemptions are granted for a purpose. As the Solicitor General says, such
exemptions are granted, in some cases, to encourage agricultural production and, in other cases, for the personal benefit of
the end-user rather than for profit. The exempt transactions are:
(a) Goods for consumption or use which are in their original state (agricultural, marine and forest
products, cotton seeds in their original state, fertilizers, seeds, seedlings, fingerlings, fish, prawn livestock
and poultry feeds) and goods or services to enhance agriculture (milling of palay, corn, sugar cane and raw
sugar, livestock, poultry feeds, fertilizer, ingredients used for the manufacture of feeds).
(b) Goods used for personal consumption or use (household and personal effects of citizens returning to
the Philippines) or for professional use, like professional instruments and implements, by persons coming
to the Philippines to settle here.
(c) Goods subject to excise tax such as petroleum products or to be used for manufacture of petroleum
products subject to excise tax and services subject to percentage tax.
(d) Educational services, medical, dental, hospital and veterinary services, and services rendered under
employer-employee relationship.
(e) Works of art and similar creations sold by the artist himself.
(f) Transactions exempted under special laws, or international agreements.
(g) Export-sales by persons not VAT-registered.
(h) Goods or services with gross annual sale or receipt not exceeding P500,000.00.
(Respondents' Consolidated Comment on the Motions for Reconsideration, pp. 58-60)
The PPI asserts that it does not really matter that the law does not discriminate against the press because "even
nondiscriminatory taxation on constitutionally guaranteed freedom is unconstitutional." PPI cites in support of this assertion
the following statement in Murdock v. Pennsylvania, 319 U.S. 105, 87 L. Ed. 1292 (1943):
The fact that the ordinance is "nondiscriminatory" is immaterial. The protection afforded by the First
Amendment is not so restricted. A license tax certainly does not acquire constitutional validity because it
classifies the privileges protected by the First Amendment along with the wares and merchandise of
hucksters and peddlers and treats them all alike. Such equality in treatment does not save the ordinance.
Freedom of press, freedom of speech, freedom of religion are in preferred position.
The Court was speaking in that case of a license tax, which, unlike an ordinary tax, is mainly for regulation. Its imposition
on the press is unconstitutional because it lays a prior restraint on the exercise of its right. Hence, although its application to
others, such those selling goods, is valid, its application to the press or to religious groups, such as the Jehovah's Witnesses,
in connection with the latter's sale of religious books and pamphlets, is unconstitutional. As the U.S. Supreme Court put it,
"it is one thing to impose a tax on income or property of a preacher. It is quite another thing to exact a tax on him for
delivering a sermon."
A similar ruling was made by this Court in American Bible Society v. City of Manila, 101 Phil. 386 (1957) which
invalidated a city ordinance requiring a business license fee on those engaged in the sale of general merchandise. It was held
that the tax could not be imposed on the sale of bibles by the American Bible Society without restraining the free exercise of
its right to propagate.
The VAT is, however, different. It is not a license tax. It is not a tax on the exercise of a privilege, much less a constitutional
right. It is imposed on the sale, barter, lease or exchange of goods or properties or the sale or exchange of services and the
lease of properties purely for revenue purposes. To subject the press to its payment is not to burden the exercise of its right
any more than to make the press pay income tax or subject it to general regulation is not to violate its freedom under the
Constitution.
Additionally, the Philippine Bible Society, Inc. claims that although it sells bibles, the proceeds derived from the sales are
used to subsidize the cost of printing copies which are given free to those who cannot afford to pay so that to tax the sales
would be to increase the price, while reducing the volume of sale. Granting that to be the case, the resulting burden on the
exercise of religious freedom is so incidental as to make it difficult to differentiate it from any other economic imposition
that might make the right to disseminate religious doctrines costly. Otherwise, to follow the petitioner's argument, to
increase the tax on the sale of vestments would be to lay an impermissible burden on the right of the preacher to make a
sermon.
On the other hand the registration fee of P1,000.00 imposed by 107 of the NIRC, as amended by 7 of R.A. No. 7716,
although fixed in amount, is really just to pay for the expenses of registration and enforcement of provisions such as those
relating to accounting in 108 of the NIRC. That the PBS distributes free bibles and therefore is not liable to pay the VAT
does not excuse it from the payment of this fee because it also sells some copies. At any rate whether the PBS is liable for
the VAT must be decided in concrete cases, in the event it is assessed this tax by the Commissioner of Internal Revenue.
VII. Alleged violations of the due process, equal protection and contract clauses and the rule on taxation . CREBA asserts
that R.A. No. 7716 (1) impairs the obligations of contracts, (2) classifies transactions as covered or exempt without
reasonable basis and (3) violates the rule that taxes should be uniform and equitable and that Congress shall "evolve a
progressive system of taxation."
With respect to the first contention, it is claimed that the application of the tax to existing contracts of the sale of real
property by installment or on deferred payment basis would result in substantial increases in the monthly amortizations to
be paid because of the 10% VAT. The additional amount, it is pointed out, is something that the buyer did not anticipate at
the time he entered into the contract.
The short answer to this is the one given by this Court in an early case: "Authorities from numerous sources are cited by the
plaintiffs, but none of them show that a lawful tax on a new subject, or an increased tax on an old one, interferes with a
contract or impairs its obligation, within the meaning of the Constitution. Even though such taxation may affect particular
contracts, as it may increase the debt of one person and lessen the security of another, or may impose additional burdens
upon one class and release the burdens of another, still the tax must be paid unless prohibited by the Constitution, nor can it
be said that it impairs the obligation of any existing contract in its true legal sense." (La Insular v. Machuca Go-Tauco and
Nubla Co-Siong, 39 Phil. 567, 574 (1919)). Indeed not only existing laws but also "the reservation of the essential
attributes of sovereignty, is . . . read into contracts as a postulate of the legal order." (Philippine-American Life Ins. Co. v.
Auditor General, 22 SCRA 135, 147 (1968)) Contracts must be understood as having been made in reference to the possible
exercise of the rightful authority of the government and no obligation of contract can extend to the defeat of that authority.
(Norman v. Baltimore and Ohio R.R., 79 L. Ed. 885 (1935)).
It is next pointed out that while 4 of R.A. No. 7716 exempts such transactions as the sale of agricultural products, food
items, petroleum, and medical and veterinary services, it grants no exemption on the sale of real property which is equally
essential. The sale of real property for socialized and low-cost housing is exempted from the tax, but CREBA claims that
real estate transactions of "the less poor," i.e., the middle class, who are equally homeless, should likewise be exempted.
The sale of food items, petroleum, medical and veterinary services, etc., which are essential goods and services was already
exempt under 103, pars. (b) (d) (1) of the NIRC before the enactment of R.A. No. 7716. Petitioner is in error in claiming
that R.A. No. 7716 granted exemption to these transactions, while subjecting those of petitioner to the payment of the VAT.
Moreover, there is a difference between the "homeless poor" and the "homeless less poor" in the example given by
petitioner, because the second group or middle class can afford to rent houses in the meantime that they cannot yet buy their
own homes. The two social classes are thus differently situated in life. "It is inherent in the power to tax that the State be
free to select the subjects of taxation, and it has been repeatedly held that 'inequalities which result from a singling out of
one particular class for taxation, or exemption infringe no constitutional limitation.'" (Lutz v. Araneta, 98 Phil. 148, 153
(1955). Accord, City of Baguio v. De Leon, 134 Phil. 912 (1968); Sison, Jr. v. Ancheta, 130 SCRA 654, 663 (1984);
Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 371 (1988)).
Finally, it is contended, for the reasons already noted, that R.A. No. 7716 also violates Art. VI, 28(1) which provides that
"The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation."
Equality and uniformity of taxation means that all taxable articles or kinds of property of the same class be taxed at the
same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation. To
satisfy this requirement it is enough that the statute or ordinance applies equally to all persons, forms and corporations
placed in similar situation. (City of Baguio v. De Leon, supra; Sison, Jr. v. Ancheta, supra)
Indeed, the VAT was already provided in E.O. No. 273 long before R.A. No. 7716 was enacted. R.A. No. 7716 merely
expands the base of the tax. The validity of the original VAT Law was questioned in Kapatiran ng Naglilingkod sa
Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 383 (1988) on grounds similar to those made in these cases, namely, that
the law was "oppressive, discriminatory, unjust and regressive in violation of Art. VI, 28(1) of the Constitution." (At 382)
Rejecting the challenge to the law, this Court held:
As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is uniform. . . .
The sales tax adopted in EO 273 is applied similarly on all goods and services sold to the public, which
are not exempt, at the constant rate of 0% or 10%.
The disputed sales tax is also equitable. It is imposed only on sales of goods or services by persons
engaged in business with an aggregate gross annual sales exceeding P200,000.00. Small corner sari-sari
stores are consequently exempt from its application. Likewise exempt from the tax are sales of farm and
marine products, so that the costs of basic food and other necessities, spared as they are from the incidence
of the VAT, are expected to be relatively lower and within the reach of the general public.
(At 382-383)
The CREBA claims that the VAT is regressive. A similar claim is made by the Cooperative Union of the Philippines, Inc.
(CUP), while petitioner Juan T. David argues that the law contravenes the mandate of Congress to provide for a progressive
system of taxation because the law imposes a flat rate of 10% and thus places the tax burden on all taxpayers without regard
to their ability to pay.
The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are regressive. What it simply
provides is that Congress shall "evolve a progressive system of taxation." The constitutional provision has been interpreted
to mean simply that "direct taxes are . . . to be preferred [and] as much as possible, indirect taxes should be minimized." (E.
FERNANDO, THE CONSTITUTION OF THE PHILIPPINES 221 (Second ed. (1977)). Indeed, the mandate to Congress is
not to prescribe, but to evolve, a progressive tax system. Otherwise, sales taxes, which perhaps are the oldest form of
indirect taxes, would have been prohibited with the proclamation of Art. VIII, 17(1) of the 1973 Constitution from which
the present Art. VI, 28(1) was taken. Sales taxes are also regressive.
Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not impossible, to avoid them
by imposing such taxes according to the taxpayers' ability to pay. In the case of the VAT, the law minimizes the regressive
effects of this imposition by providing for zero rating of certain transactions (R.A. No. 7716, 3, amending 102 (b) of the
NIRC), while granting exemptions to other transactions. (R.A. No. 7716, 4, amending 103 of the NIRC).
Thus, the following transactions involving basic and essential goods and services are exempted from the VAT:
(a) Goods for consumption or use which are in their original state (agricultural, marine and forest
products, cotton seeds in their original state, fertilizers, seeds, seedlings, fingerlings, fish, prawn livestock
and poultry feeds) and goods or services to enhance agriculture (milling of palay, corn sugar cane and raw
sugar, livestock, poultry feeds, fertilizer, ingredients used for the manufacture of feeds).
(b) Goods used for personal consumption or use (household and personal effects of citizens returning to
the Philippines) and or professional use, like professional instruments and implements, by persons coming
to the Philippines to settle here.
(c) Goods subject to excise tax such as petroleum products or to be used for manufacture of petroleum
products subject to excise tax and services subject to percentage tax.
(d) Educational services, medical, dental, hospital and veterinary services, and services rendered under
employer-employee relationship.
(e) Works of art and similar creations sold by the artist himself.
(f) Transactions exempted under special laws, or international agreements.
(g) Export-sales by persons not VAT-registered.
(h) Goods or services with gross annual sale or receipt not exceeding P500,000.00.
(Respondents' Consolidated Comment on the Motions for Reconsideration, pp. 58-60)
On the other hand, the transactions which are subject to the VAT are those which involve goods and services which are used
or availed of mainly by higher income groups. These include real properties held primarily for sale to customers or for lease
in the ordinary course of trade or business, the right or privilege to use patent, copyright, and other similar property or right,
the right or privilege to use industrial, commercial or scientific equipment, motion picture films, tapes and discs, radio,
television, satellite transmission and cable television time, hotels, restaurants and similar places, securities, lending
investments, taxicabs, utility cars for rent, tourist buses, and other common carriers, services of franchise grantees of
telephone and telegraph.
The problem with CREBA's petition is that it presents broad claims of constitutional violations by tendering issues not at
retail but at wholesale and in the abstract. There is no fully developed record which can impart to adjudication the impact of
actuality. There is no factual foundation to show in the concrete the application of the law to actual contracts and exemplify
its effect on property rights. For the fact is that petitioner's members have not even been assessed the VAT. Petitioner's case
is not made concrete by a series of hypothetical questions asked which are no different from those dealt with in advisory
opinions.
The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere allegation, as here,
does not suffice. There must be a factual foundation of such unconstitutional taint. Considering that
petitioner here would condemn such a provision as void on its face, he has not made out a case. This is
merely to adhere to the authoritative doctrine that where the due process and equal protection clauses are
invoked, considering that they are not fixed rules but rather broad standards, there is a need for proof of
such persuasive character as would lead to such a conclusion. Absent such a showing, the presumption of
validity must prevail.
(Sison, Jr. v. Ancheta, 130 SCRA at 661)
Adjudication of these broad claims must await the development of a concrete case. It may be that postponement of
adjudication would result in a multiplicity of suits. This need not be the case, however. Enforcement of the law may give
rise to such a case. A test case, provided it is an actual case and not an abstract or hypothetical one, may thus be presented.
Nor is hardship to taxpayers alone an adequate justification for adjudicating abstract issues. Otherwise, adjudication would
be no different from the giving of advisory opinion that does not really settle legal issues.
We are told that it is our duty under Art. VIII, 1, 2 to decide whenever a claim is made that "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."
This duty can only arise if an actual case or controversy is before us. Under Art . VIII, 5 our jurisdiction is defined in terms
of "cases" and all that Art. VIII, 1, 2 can plausibly mean is that in the exercise of that jurisdiction we have the judicial
power to determine questions of grave abuse of discretion by any branch or instrumentality of the government.
Put in another way, what is granted in Art. VIII, 1, 2 is "judicial power," which is "the power of a court to hear and decide
cases pending between parties who have the right to sue and be sued in the courts of law and equity" (Lamb v. Phipps, 22
Phil. 456, 559 (1912)), as distinguished from legislative and executive power. This power cannot be directly appropriated
until it is apportioned among several courts either by the Constitution, as in the case of Art. VIII, 5, or by statute, as in the
case of the Judiciary Act of 1948 (R.A. No. 296) and the Judiciary Reorganization Act of 1980 (B.P. Blg. 129). The power
thus apportioned constitutes the court's "jurisdiction," defined as "the power conferred by law upon a court or judge to take
cognizance of a case, to the exclusion of all others." (United States v. Arceo, 6 Phil. 29 (1906)) Without an actual case
coming within its jurisdiction, this Court cannot inquire into any allegation of grave abuse of discretion by the other
departments of the government.
VIII. Alleged violation of policy towards cooperatives. On the other hand, the Cooperative Union of the Philippines (CUP),
after briefly surveying the course of legislation, argues that it was to adopt a definite policy of granting tax exemption to
cooperatives that the present Constitution embodies provisions on cooperatives. To subject cooperatives to the VAT would
therefore be to infringe a constitutional policy. Petitioner claims that in 1973, P.D. No. 175 was promulgated exempting
cooperatives from the payment of income taxes and sales taxes but in 1984, because of the crisis which menaced the
national economy, this exemption was withdrawn by P.D. No. 1955; that in 1986, P.D. No. 2008 again granted cooperatives
exemption from income and sales taxes until December 31, 1991, but, in the same year, E.O. No. 93 revoked the exemption;
and that finally in 1987 the framers of the Constitution "repudiated the previous actions of the government adverse to the
interests of the cooperatives, that is, the repeated revocation of the tax exemption to cooperatives and instead upheld the
policy of strengthening the cooperatives by way of the grant of tax exemptions," by providing the following in Art. XII:
1. The goals of the national economy are a more equitable distribution of opportunities, income, and
wealth; a sustained increase in the amount of goods and services produced by the nation for the benefit of
the people; and an expanding productivity as the key to raising the quality of life for all, especially the
underprivileged.
The State shall promote industrialization and full employment based on sound agricultural development
and agrarian reform, through industries that make full and efficient use of human and natural resources,
and which are competitive in both domestic and foreign markets. However, the State shall protect Filipino
enterprises against unfair foreign competition and trade practices.
In the pursuit of these goals, all sectors of the economy and all regions of the country shall be given
optimum opportunity to develop. Private enterprises, including corporations, cooperatives, and similar
collective organizations, shall be encouraged to broaden the base of their ownership.
15. The Congress shall create an agency to promote the viability and growth of cooperatives as
instruments for social justice and economic development.
Petitioner's contention has no merit. In the first place, it is not true that P.D. No. 1955 singled out cooperatives by
withdrawing their exemption from income and sales taxes under P.D. No. 175, 5. What P.D. No. 1955, 1 did was to
withdraw the exemptions and preferential treatments theretofore granted to private business enterprises in general, in view
of the economic crisis which then beset the nation. It is true that after P.D. No. 2008, 2 had restored the tax exemptions of
cooperatives in 1986, the exemption was again repealed by E.O. No. 93, 1, but then again cooperatives were not the only
ones whose exemptions were withdrawn. The withdrawal of tax incentives applied to all, including government and private
entities. In the second place, the Constitution does not really require that cooperatives be granted tax exemptions in order to
promote their growth and viability. Hence, there is no basis for petitioner's assertion that the government's policy toward
cooperatives had been one of vacillation, as far as the grant of tax privileges was concerned, and that it was to put an end to
this indecision that the constitutional provisions cited were adopted. Perhaps as a matter of policy cooperatives should be
granted tax exemptions, but that is left to the discretion of Congress. If Congress does not grant exemption and there is no
discrimination to cooperatives, no violation of any constitutional policy can be charged.
Indeed, petitioner's theory amounts to saying that under the Constitution cooperatives are exempt from taxation. Such
theory is contrary to the Constitution under which only the following are exempt from taxation: charitable institutions,
churches and parsonages, by reason of Art. VI, 28 (3), and non-stock, non-profit educational institutions by reason of Art.
XIV, 4 (3).
CUP's further ground for seeking the invalidation of R.A. No. 7716 is that it denies cooperatives the equal protection of the
law because electric cooperatives are exempted from the VAT. The classification between electric and other cooperatives
(farmers cooperatives, producers cooperatives, marketing cooperatives, etc.) apparently rests on a congressional
determination that there is greater need to provide cheaper electric power to as many people as possible, especially those
living in the rural areas, than there is to provide them with other necessities in life. We cannot say that such classification is
unreasonable.
We have carefully read the various arguments raised against the constitutional validity of R.A. No. 7716. We have in fact
taken the extraordinary step of enjoining its enforcement pending resolution of these cases. We have now come to the
conclusion that the law suffers from none of the infirmities attributed to it by petitioners and that its enactment by the other
branches of the government does not constitute a grave abuse of discretion. Any question as to its necessity, desirability or
expediency must be addressed to Congress as the body which is electorally responsible, remembering that, as Justice
Holmes has said, "legislators are the ultimate guardians of the liberties and welfare of the people in quite as great a degree
as are the courts." (Missouri, Kansas & Texas Ry. Co. v. May, 194 U.S. 267, 270, 48 L. Ed. 971, 973 (1904)). It is not right,
as petitioner in G.R. No. 115543 does in arguing that we should enforce the public accountability of legislators, that those
who took part in passing the law in question by voting for it in Congress should later thrust to the courts the burden of
reviewing measures in the flush of enactment. This Court does not sit as a third branch of the legislature, much less exercise
a veto power over legislation.
WHEREFORE, the motions for reconsideration are denied with finality and the temporary restraining order previously
issued is hereby lifted.
SO ORDERED.
[G.R. No. 153866. February 11, 2005]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. SEAGATE TECHNOLOGY (PHILIPPINES), respondent.
DECISION
PANGANIBAN, J.:
Business companies registered in and operating from the Special Economic Zone in Naga, Cebu -- like herein respondent -are entities exempt from all internal revenue taxes and the implementing rules relevant thereto, including the value-added
taxes or VAT. Although export sales are not deemed exempt transactions, they are nonetheless zero-rated. Hence, in the
present case, the distinction between exempt entities and exempt transactions has little significance, because the net result is
that the taxpayer is not liable for the VAT. Respondent, a VAT-registered enterprise, has complied with all requisites for
claiming a tax refund of or credit for the input VAT it paid on capital goods it purchased. Thus, the Court of Tax Appeals and
the Court of Appeals did not err in ruling that it is entitled to such refund or credit.
The Case
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, seeking to set aside the May 27, 2002 Decision[2]
of the Court of Appeals (CA) in CA-GR SP No. 66093. The decretal portion of the Decision reads as follows:
WHEREFORE, foregoing premises considered, the petition for review is DENIED for lack of merit.[3]
The Facts
The CA quoted the facts narrated by the Court of Tax Appeals (CTA), as follows:
As jointly stipulated by the parties, the pertinent facts x x x involved in this case are as follows:
1. [Respondent] is a resident foreign corporation duly registered with the Securities and Exchange Commission to do
business in the Philippines, with principal office address at the new Cebu Township One, Special Economic Zone, Barangay
Cantao-an, Naga, Cebu;
2. [Petitioner] is sued in his official capacity, having been duly appointed and empowered to perform the duties of his office,
including, among others, the duty to act and approve claims for refund or tax credit;
3. [Respondent] is registered with the Philippine Export Zone Authority (PEZA) and has been issued PEZA Certificate No.
97-044 pursuant to Presidential Decree No. 66, as amended, to engage in the manufacture of recording components
primarily used in computers for export. Such registration was made on 6 June 1997;
4. [Respondent] is VAT [(Value Added Tax)]-registered entity as evidenced by VAT Registration Certification No. 97-083000600-V issued on 2 April 1997;
5. VAT returns for the period 1 April 1998 to 30 June 1999 have been filed by [respondent];
6. An administrative claim for refund of VAT input taxes in the amount of P28,369,226.38 with supporting documents
(inclusive of the P12,267,981.04 VAT input taxes subject of this Petition for Review), was filed on 4 October 1999 with
Revenue District Office No. 83, Talisay Cebu;
7. No final action has been received by [respondent] from [petitioner] on [respondents] claim for VAT refund.
The administrative claim for refund by the [respondent] on October 4, 1999 was not acted upon by the [petitioner]
prompting the [respondent] to elevate the case to [the CTA] on July 21, 2000 by way of Petition for Review in order to toll
the running of the two-year prescriptive period.
For his part, [petitioner] x x x raised the following Special and Affirmative Defenses, to wit:
1. [Respondents] alleged claim for tax refund/credit is subject to administrative routinary investigation/examination by
[petitioners] Bureau;
2. Since taxes are presumed to have been collected in accordance with laws and regulations, the [respondent] has the burden
of proof that the taxes sought to be refunded were erroneously or illegally collected x x x;
3. In Citibank, N.A. vs. Court of Appeals, 280 SCRA 459 (1997), the Supreme Court ruled that:
A claimant has the burden of proof to establish the factual basis of his or her claim for tax credit/refund.
4. Claims for tax refund/tax credit are construed in strictissimi juris against the taxpayer. This is due to the fact that claims
for refund/credit [partake of] the nature of an exemption from tax. Thus, it is incumbent upon the [respondent] to prove that
it is indeed entitled to the refund/credit sought. Failure on the part of the [respondent] to prove the same is fatal to its claim
for tax credit. He who claims exemption must be able to justify his claim by the clearest grant of organic or statutory law.
An exemption from the common burden cannot be permitted to exist upon vague implications;
5. Granting, without admitting, that [respondent] is a Philippine Economic Zone Authority (PEZA) registered Ecozone
Enterprise, then its business is not subject to VAT pursuant to Section 24 of Republic Act No. ([RA]) 7916 in relation to
Section 103 of the Tax Code, as amended. As [respondents] business is not subject to VAT, the capital goods and services it
alleged to have purchased are considered not used in VAT taxable business. As such, [respondent] is not entitled to refund of
input taxes on such capital goods pursuant to Section 4.106.1 of Revenue Regulations No. ([RR])7-95, and of input taxes on
services pursuant to Section 4.103 of said regulations.
6. [Respondent] must show compliance with the provisions of Section 204 (C) and 229 of the 1997 Tax Code on filing of a
written claim for refund within two (2) years from the date of payment of tax.
On July 19, 2001, the Tax Court rendered a decision granting the claim for refund.[4]
Ruling of the Court of Appeals
The CA affirmed the Decision of the CTA granting the claim for refund or issuance of a tax credit certificate (TCC) in favor
of respondent in the reduced amount of P12,122,922.66. This sum represented the unutilized but substantiated input VAT
paid on capital goods purchased for the period covering April 1, 1998 to June 30, 1999.
The appellate court reasoned that respondent had availed itself only of the fiscal incentives under Executive Order No. (EO)
226 (otherwise known as the Omnibus Investment Code of 1987), not of those under both Presidential Decree No. (PD) 66,
as amended, and Section 24 of RA 7916. Respondent was, therefore, considered exempt only from the payment of income
tax when it opted for the income tax holiday in lieu of the 5 percent preferential tax on gross income earned. As a VATregistered entity, though, it was still subject to the payment of other national internal revenue taxes, like the VAT.
Moreover, the CA held that neither Section 109 of the Tax Code nor Sections 4.106-1 and 4.103-1 of RR 7-95 were
applicable. Having paid the input VAT on the capital goods it purchased, respondent correctly filed the administrative and
judicial claims for its refund within the two-year prescriptive period. Such payments were -- to the extent of the refundable
value -- duly supported by VAT invoices or official receipts, and were not yet offset against any output VAT liability.
Hence this Petition.[5]
Sole Issue
Petitioner submits this sole issue for our consideration:
Whether or not respondent is entitled to the refund or issuance of Tax Credit Certificate in the amount of P12,122,922.66
representing alleged unutilized input VAT paid on capital goods purchased for the period April 1, 1998 to June 30, 1999.[6]
The Courts Ruling
The Petition is unmeritorious.
Sole Issue:
Entitlement of a VAT-Registered PEZA Enterprise to
a Refund of or Credit for Input VAT
No doubt, as a PEZA-registered enterprise within a special economic zone,[7] respondent is entitled to the fiscal incentives
and benefits[8] provided for in either PD 66[9] or EO 226.[10] It shall, moreover, enjoy all privileges, benefits, advantages
or exemptions under both Republic Act Nos. (RA) 7227[11] and 7844.[12]
Preferential Tax Treatment
Under Special Laws
If it avails itself of PD 66, notwithstanding the provisions of other laws to the contrary, respondent shall not be subject to
internal revenue laws and regulations for raw materials, supplies, articles, equipment, machineries, spare parts and wares,
except those prohibited by law, brought into the zone to be stored, broken up, repacked, assembled, installed, sorted,
cleaned, graded or otherwise processed, manipulated, manufactured, mixed or used directly or indirectly in such activities.
[13] Even so, respondent would enjoy a net-operating loss carry over; accelerated depreciation; foreign exchange and
financial assistance; and exemption from export taxes, local taxes and licenses.[14]
Comparatively, the same exemption from internal revenue laws and regulations applies if EO 226[15] is chosen. Under this
law, respondent shall further be entitled to an income tax holiday; additional deduction for labor expense; simplification of
customs procedure; unrestricted use of consigned equipment; access to a bonded manufacturing warehouse system;
privileges for foreign nationals employed; tax credits on domestic capital equipment, as well as for taxes and duties on raw
materials; and exemption from contractors taxes, wharfage dues, taxes and duties on imported capital equipment and spare
parts, export taxes, duties, imposts and fees,[16] local taxes and licenses, and real property taxes.[17]
A privilege available to respondent under the provision in RA 7227 on tax and duty-free importation of raw materials,
capital and equipment[18] -- is, ipso facto, also accorded to the zone[19] under RA 7916. Furthermore, the latter law -notwithstanding other existing laws, rules and regulations to the contrary -- extends[20] to that zone the provision stating
that no local or national taxes shall be imposed therein.[21] No exchange control policy shall be applied; and free markets
for foreign exchange, gold, securities and future shall be allowed and maintained.[22] Banking and finance shall also be
liberalized under minimum Bangko Sentral regulation with the establishment of foreign currency depository units of local
commercial banks and offshore banking units of foreign banks.[23]
In the same vein, respondent benefits under RA 7844 from negotiable tax credits[24] for locally-produced materials used as
inputs. Aside from the other incentives possibly already granted to it by the Board of Investments, it also enjoys preferential
credit facilities[25] and exemption from PD 1853.[26]
From the above-cited laws, it is immediately clear that petitioner enjoys preferential tax treatment.[27] It is not subject to
internal revenue laws and regulations and is even entitled to tax credits. The VAT on capital goods is an internal revenue tax
from which petitioner as an entity is exempt. Although the transactions involving such tax are not exempt, petitioner as a
VAT-registered person,[28] however, is entitled to their credits.
Nature of the VAT and
the Tax Credit Method
Viewed broadly, the VAT is a uniform tax ranging, at present, from 0 percent to 10 percent levied on every importation of
goods, whether or not in the course of trade or business, or imposed on each sale, barter, exchange or lease of goods or
properties or on each rendition of services in the course of trade or business[29] as they pass along the production and
distribution chain, the tax being limited only to the value added[30] to such goods, properties or services by the seller,
transferor or lessor.[31] It is an indirect tax that may be shifted or passed on to the buyer, transferee or lessee of the goods,
properties or services.[32] As such, it should be understood not in the context of the person or entity that is primarily,
directly and legally liable for its payment, but in terms of its nature as a tax on consumption.[33] In either case, though, the
same conclusion is arrived at.
The law[34] that originally imposed the VAT in the country, as well as the subsequent amendments of that law, has been
drawn from the tax credit method.[35] Such method adopted the mechanics and self-enforcement features of the VAT as first
implemented and practiced in Europe and subsequently adopted in New Zealand and Canada.[36] Under the present method
that relies on invoices, an entity can credit against or subtract from the VAT charged on its sales or outputs the VAT paid on
its purchases, inputs and imports.[37]
If at the end of a taxable quarter the output taxes[38] charged by a seller[39] are equal to the input taxes[40] passed on by
the suppliers, no payment is required. It is when the output taxes exceed the input taxes that the excess has to be paid.[41] If,
however, the input taxes exceed the output taxes, the excess shall be carried over to the succeeding quarter or quarters.[42]
Should the input taxes result from zero-rated or effectively zero-rated transactions or from the acquisition of capital goods,
[43] any excess over the output taxes shall instead be refunded[44] to the taxpayer or credited[45] against other internal
revenue taxes.[46]
Zero-Rated and Effectively
Zero-Rated Transactions
Although both are taxable and similar in effect, zero-rated transactions differ from effectively zero-rated transactions as to
their source.
Zero-rated transactions generally refer to the export sale of goods and supply of services.[47] The tax rate is set at zero.[48]
When applied to the tax base, such rate obviously results in no tax chargeable against the purchaser. The seller of such
transactions charges no output tax,[49] but can claim a refund of or a tax credit certificate for the VAT previously charged by
suppliers.
Effectively zero-rated transactions, however, refer to the sale of goods[50] or supply of services[51] to persons or entities
whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects
such transactions to a zero rate.[52] Again, as applied to the tax base, such rate does not yield any tax chargeable against the
purchaser. The seller who charges zero output tax on such transactions can also claim a refund of or a tax credit certificate
for the VAT previously charged by suppliers.

Zero Rating and
Exemption
In terms of the VAT computation, zero rating and exemption are the same, but the extent of relief that results from either one
of them is not.
Applying the destination principle[53] to the exportation of goods, automatic zero rating[54] is primarily intended to be
enjoyed by the seller who is directly and legally liable for the VAT, making such seller internationally competitive by
allowing the refund or credit of input taxes that are attributable to export sales.[55] Effective zero rating, on the contrary, is
intended to benefit the purchaser who, not being directly and legally liable for the payment of the VAT, will ultimately bear
the burden of the tax shifted by the suppliers.
In both instances of zero rating, there is total relief for the purchaser from the burden of the tax.[56] But in an exemption
there is only partial relief,[57] because the purchaser is not allowed any tax refund of or credit for input taxes paid.[58]
Exempt Transaction
and Exempt Party
The object of exemption from the VAT may either be the transaction itself or any of the parties to the transaction.[59]
An exempt transaction, on the one hand, involves goods or services which, by their nature, are specifically listed in and
expressly exempted from the VAT under the Tax Code, without regard to the tax status -- VAT-exempt or not -- of the party
to the transaction.[60] Indeed, such transaction is not subject to the VAT, but the seller is not allowed any tax refund of or
credit for any input taxes paid.
An exempt party, on the other hand, is a person or entity granted VAT exemption under the Tax Code, a special law or an
international agreement to which the Philippines is a signatory, and by virtue of which its taxable transactions become
exempt from the VAT.[61] Such party is also not subject to the VAT, but may be allowed a tax refund of or credit for input
taxes paid, depending on its registration as a VAT or non-VAT taxpayer.
As mentioned earlier, the VAT is a tax on consumption, the amount of which may be shifted or passed on by the seller to the
purchaser of the goods, properties or services.[62] While the liability is imposed on one person, the burden may be passed
on to another. Therefore, if a special law merely exempts a party as a seller from its direct liability for payment of the VAT,
but does not relieve the same party as a purchaser from its indirect burden of the VAT shifted to it by its VAT-registered
suppliers, the purchase transaction is not exempt. Applying this principle to the case at bar, the purchase transactions entered
into by respondent are not VAT-exempt.
Special laws may certainly exempt transactions from the VAT.[63] However, the Tax Code provides that those falling under
PD 66 are not. PD 66 is the precursor of RA 7916 -- the special law under which respondent was registered. The purchase
transactions it entered into are, therefore, not VAT-exempt. These are subject to the VAT; respondent is required to register.
Its sales transactions, however, will either be zero-rated or taxed at the standard rate of 10 percent,[64] depending again on
the application of the destination principle.[65]
If respondent enters into such sales transactions with a purchaser -- usually in a foreign country -- for use or consumption
outside the Philippines, these shall be subject to 0 percent.[66] If entered into with a purchaser for use or consumption in the
Philippines, then these shall be subject to 10 percent,[67] unless the purchaser is exempt from the indirect burden of the
VAT, in which case it shall also be zero-rated.
Since the purchases of respondent are not exempt from the VAT, the rate to be applied is zero. Its exemption under both PD
66 and RA 7916 effectively subjects such transactions to a zero rate,[68] because the ecozone within which it is registered is
managed and operated by the PEZA as a separate customs territory.[69] This means that in such zone is created the legal
fiction of foreign territory.[70] Under the cross-border principle[71] of the VAT system being enforced by the Bureau of
Internal Revenue (BIR),[72] no VAT shall be imposed to form part of the cost of goods destined for consumption outside of
the territorial border of the taxing authority. If exports of goods and services from the Philippines to a foreign country are
free of the VAT,[73] then the same rule holds for such exports from the national territory -- except specifically declared
areas -- to an ecozone.
Sales made by a VAT-registered person in the customs territory to a PEZA-registered entity are considered exports to a
foreign country; conversely, sales by a PEZA-registered entity to a VAT-registered person in the customs territory are
deemed imports from a foreign country.[74] An ecozone -- indubitably a geographical territory of the Philippines -- is,
however, regarded in law as foreign soil.[75] This legal fiction is necessary to give meaningful effect to the policies of the
special law creating the zone.[76] If respondent is located in an export processing zone[77] within that ecozone, sales to the
export processing zone, even without being actually exported, shall in fact be viewed as constructively exported under EO
226.[78] Considered as export sales,[79] such purchase transactions by respondent would indeed be subject to a zero rate.
[80]
Tax Exemptions
Broad and Express
Applying the special laws we have earlier discussed, respondent as an entity is exempt from internal revenue laws and
regulations.
This exemption covers both direct and indirect taxes, stemming from the very nature of the VAT as a tax on consumption,
for which the direct liability is imposed on one person but the indirect burden is passed on to another. Respondent, as an
exempt entity, can neither be directly charged for the VAT on its sales nor indirectly made to bear, as added cost to such
sales, the equivalent VAT on its purchases. Ubi lex non distinguit, nec nos distinguere debemus. Where the law does not
distinguish, we ought not to distinguish.
Moreover, the exemption is both express and pervasive for the following reasons:
First, RA 7916 states that no taxes, local and national, shall be imposed on business establishments operating within the
ecozone.[81] Since this law does not exclude the VAT from the prohibition, it is deemed included. Exceptio firmat regulam
in casibus non exceptis. An exception confirms the rule in cases not excepted; that is, a thing not being excepted must be
regarded as coming within the purview of the general rule.
Moreover, even though the VAT is not imposed on the entity but on the transaction, it may still be passed on and, therefore,
indirectly imposed on the same entity -- a patent circumvention of the law. That no VAT shall be imposed directly upon
business establishments operating within the ecozone under RA 7916 also means that no VAT may be passed on and
imposed indirectly. Quando aliquid prohibetur ex directo prohibetur et per obliquum. When anything is prohibited directly,
it is also prohibited indirectly.
Second, when RA 8748 was enacted to amend RA 7916, the same prohibition applied, except for real property taxes that
presently are imposed on land owned by developers.[82] This similar and repeated prohibition is an unambiguous
ratification of the laws intent in not imposing local or national taxes on business enterprises within the ecozone.
Third, foreign and domestic merchandise, raw materials, equipment and the like shall not be subject to x x x internal
revenue laws and regulations under PD 66[83] -- the original charter of PEZA (then EPZA) that was later amended by RA
7916.[84] No provisions in the latter law modify such exemption.
Although this exemption puts the government at an initial disadvantage, the reduced tax collection ultimately redounds to
the benefit of the national economy by enticing more business investments and creating more employment opportunities.
[85]
Fourth, even the rules implementing the PEZA law clearly reiterate that merchandise -- except those prohibited by law -shall not be subject to x x x internal revenue laws and regulations x x x[86] if brought to the ecozones restricted area[87] for
manufacturing by registered export enterprises,[88] of which respondent is one. These rules also apply to all enterprises
registered with the EPZA prior to the effectivity of such rules.[89]
Fifth, export processing zone enterprises registered[90] with the Board of Investments (BOI) under EO 226 patently enjoy
exemption from national internal revenue taxes on imported capital equipment reasonably needed and exclusively used for
the manufacture of their products;[91] on required supplies and spare part for consigned equipment;[92] and on foreign and
domestic merchandise, raw materials, equipment and the like -- except those prohibited by law -- brought into the zone for
manufacturing.[93] In addition, they are given credits for the value of the national internal revenue taxes imposed on
domestic capital equipment also reasonably needed and exclusively used for the manufacture of their products,[94] as well
as for the value of such taxes imposed on domestic raw materials and supplies that are used in the manufacture of their
export products and that form part thereof.[95]
Sixth, the exemption from local and national taxes granted under RA 7227[96] are ipso facto accorded to ecozones.[97] In
case of doubt, conflicts with respect to such tax exemption privilege shall be resolved in favor of the ecozone.[98]
And seventh, the tax credits under RA 7844 -- given for imported raw materials primarily used in the production of export
goods,[99] and for locally produced raw materials, capital equipment and spare parts used by exporters of non-traditional
products[100] -- shall also be continuously enjoyed by similar exporters within the ecozone.[101] Indeed, the latter
exporters are likewise entitled to such tax exemptions and credits.
Tax Refund as
Tax Exemption
To be sure, statutes that grant tax exemptions are construed strictissimi juris[102] against the taxpayer[103] and liberally in
favor of the taxing authority.[104]
Tax refunds are in the nature of such exemptions.[105] Accordingly, the claimants of those refunds bear the burden of
proving the factual basis of their claims;[106] and of showing, by words too plain to be mistaken, that the legislature
intended to exempt them.[107] In the present case, all the cited legal provisions are teeming with life with respect to the
grant of tax exemptions too vivid to pass unnoticed. In addition, respondent easily meets the challenge.
Respondent, which as an entity is exempt, is different from its transactions which are not exempt. The end result, however,
is that it is not subject to the VAT. The non-taxability of transactions that are otherwise taxable is merely a necessary
incident to the tax exemption conferred by law upon it as an entity, not upon the transactions themselves.[108] Nonetheless,
its exemption as an entity and the non-exemption of its transactions lead to the same result for the following considerations:
First, the contemporaneous construction of our tax laws by BIR authorities who are called upon to execute or administer
such laws[109] will have to be adopted. Their prior tax issuances have held inconsistent positions brought about by their
probable failure to comprehend and fully appreciate the nature of the VAT as a tax on consumption and the application of
the destination principle.[110] Revenue Memorandum Circular No. (RMC) 74-99, however, now clearly and correctly
provides that any VAT-registered suppliers sale of goods, property or services from the customs territory to any registered
enterprise operating in the ecozone -- regardless of the class or type of the latters PEZA registration -- is legally entitled to a
zero rate.[111]
Second, the policies of the law should prevail. Ratio legis est anima. The reason for the law is its very soul.
In PD 66, the urgent creation of the EPZA which preceded the PEZA, as well as the establishment of export processing
zones, seeks to encourage and promote foreign commerce as a means of x x x strengthening our export trade and foreign
exchange position, of hastening industrialization, of reducing domestic unemployment, and of accelerating the development
of the country.[112]
RA 7916, as amended by RA 8748, declared that by creating the PEZA and integrating the special economic zones, the
government shall actively encourage, promote, induce and accelerate a sound and balanced industrial, economic and social
development of the country x x x through the establishment, among others, of special economic zones x x x that shall
effectively attract legitimate and productive foreign investments.[113]
Under EO 226, the State shall encourage x x x foreign investments in industry x x x which shall x x x meet the tests of
international competitiveness[,] accelerate development of less developed regions of the country[,] and result in increased
volume and value of exports for the economy.[114] Fiscal incentives that are cost-efficient and simple to administer shall be
devised and extended to significant projects to compensate for market imperfections, to reward performance contributing to
economic development,[115] and to stimulate the establishment and assist initial operations of the enterprise.[116]
Wisely accorded to ecozones created under RA 7916[117] was the governments policy -- spelled out earlier in RA 7227 -- of
converting into alternative productive uses[118] the former military reservations and their extensions,[119] as well as of
providing them incentives[120] to enhance the benefits that would be derived from them[121] in promoting economic and
social development.[122]
Finally, under RA 7844, the State declares the need to evolve export development into a national effort[123] in order to win
international markets. By providing many export and tax incentives,[124] the State is able to drive home the point that
exporting is indeed the key to national survival and the means through which the economic goals of increased employment
and enhanced incomes can most expeditiously be achieved.[125]
The Tax Code itself seeks to promote sustainable economic growth x x x; x x x increase economic activity; and x x x create
a robust environment for business to enable firms to compete better in the regional as well as the global market.[126] After
all, international competitiveness requires economic and tax incentives to lower the cost of goods produced for export. State
actions that affect global competition need to be specific and selective in the pricing of particular goods or services.[127]
All these statutory policies are congruent to the constitutional mandates of providing incentives to needed investments,[128]
as well as of promoting the preferential use of domestic materials and locally produced goods and adopting measures to help
make these competitive.[129] Tax credits for domestic inputs strengthen backward linkages. Rightly so, the rule of law and
the existence of credible and efficient public institutions are essential prerequisites for sustainable economic development.
[130]
VAT Registration, Not Application
for Effective Zero Rating,
Indispensable to VAT Refund
Registration is an indispensable requirement under our VAT law.[131] Petitioner alleges that respondent did register for VAT
purposes with the appropriate Revenue District Office. However, it is now too late in the day for petitioner to challenge the
VAT-registered status of respondent, given the latters prior representation before the lower courts and the mode of appeal
taken by petitioner before this Court.
The PEZA law, which carried over the provisions of the EPZA law, is clear in exempting from internal revenue laws and
regulations the equipment -- including capital goods -- that registered enterprises will use, directly or indirectly, in
manufacturing.[132] EO 226 even reiterates this privilege among the incentives it gives to such enterprises.[133] Petitioner
merely asserts that by virtue of the PEZA registration alone of respondent, the latter is not subject to the VAT. Consequently,
the capital goods and services respondent has purchased are not considered used in the VAT business, and no VAT refund or
credit is due.[134] This is a non sequitur. By the VATs very nature as a tax on consumption, the capital goods and services
respondent has purchased are subject to the VAT, although at zero rate. Registration does not determine taxability under the
VAT law.
Moreover, the facts have already been determined by the lower courts. Having failed to present evidence to support its
contentions against the income tax holiday privilege of respondent,[135] petitioner is deemed to have conceded. It is a
cardinal rule that issues and arguments not adequately and seriously brought below cannot be raised for the first time on
appeal.[136] This is a matter of procedure[137] and a question of fairness.[138] Failure to assert within a reasonable time
warrants a presumption that the party entitled to assert it either has abandoned or declined to assert it.[139]
The BIR regulations additionally requiring an approved prior application for effective zero rating[140] cannot prevail over
the clear VAT nature of respondents transactions. The scope of such regulations is not within the statutory authority x x x
granted by the legislature.[141]
First, a mere administrative issuance, like a BIR regulation, cannot amend the law; the former cannot purport to do any
more than interpret the latter.[142] The courts will not countenance one that overrides the statute it seeks to apply and
implement.[143]
Other than the general registration of a taxpayer the VAT status of which is aptly determined, no provision under our VAT
law requires an additional application to be made for such taxpayers transactions to be considered effectively zero-rated. An
effectively zero-rated transaction does not and cannot become exempt simply because an application therefor was not made
or, if made, was denied. To allow the additional requirement is to give unfettered discretion to those officials or agents who,
without fluid consideration, are bent on denying a valid application. Moreover, the State can never be estopped by the
omissions, mistakes or errors of its officials or agents.[144]
Second, grantia argumenti that such an application is required by law, there is still the presumption of regularity in the
performance of official duty.[145] Respondents registration carries with it the presumption that, in the absence of
contradictory evidence, an application for effective zero rating was also filed and approval thereof given. Besides, it is also
presumed that the law has been obeyed[146] by both the administrative officials and the applicant.
Third, even though such an application was not made, all the special laws we have tackled exempt respondent not only from
internal revenue laws but also from the regulations issued pursuant thereto. Leniency in the implementation of the VAT in
ecozones is an imperative, precisely to spur economic growth in the country and attain global competitiveness as envisioned
in those laws.
A VAT-registered status, as well as compliance with the invoicing requirements,[147] is sufficient for the effective zero
rating of the transactions of a taxpayer. The nature of its business and transactions can easily be perused from, as already
clearly indicated in, its VAT registration papers and photocopied documents attached thereto. Hence, its transactions cannot
be exempted by its mere failure to apply for their effective zero rating. Otherwise, their VAT exemption would be
determined, not by their nature, but by the taxpayers negligence -- a result not at all contemplated. Administrative
convenience cannot thwart legislative mandate.
Tax Refund or
Credit in Order
Having determined that respondents purchase transactions are subject to a zero VAT rate, the tax refund or credit is in order.
As correctly held by both the CA and the Tax Court, respondent had chosen the fiscal incentives in EO 226 over those in RA
7916 and PD 66. It opted for the income tax holiday regime instead of the 5 percent preferential tax regime.
The latter scheme is not a perfunctory aftermath of a simple registration under the PEZA law,[148] for EO 226[149] also has
provisions to contend with. These two regimes are in fact incompatible and cannot be availed of simultaneously by the same
entity. While EO 226 merely exempts it from income taxes, the PEZA law exempts it from all taxes.
Therefore, respondent can be considered exempt, not from the VAT, but only from the payment of income tax for a certain
number of years, depending on its registration as a pioneer or a non-pioneer enterprise. Besides, the remittance of the
aforesaid 5 percent of gross income earned in lieu of local and national taxes imposable upon business establishments
within the ecozone cannot outrightly determine a VAT exemption. Being subject to VAT, payments erroneously collected
thereon may then be refunded or credited.
Even if it is argued that respondent is subject to the 5 percent preferential tax regime in RA 7916, Section 24 thereof does
not preclude the VAT. One can, therefore, counterargue that such provision merely exempts respondent from taxes imposed
on business. To repeat, the VAT is a tax imposed on consumption, not on business. Although respondent as an entity is
exempt, the transactions it enters into are not necessarily so. The VAT payments made in excess of the zero rate that is
imposable may certainly be refunded or credited.
Compliance with All Requisites
for VAT Refund or Credit
As further enunciated by the Tax Court, respondent complied with all the requisites for claiming a VAT refund or credit.
[150]
First, respondent is a VAT-registered entity. This fact alone distinguishes the present case from Contex, in which this Court
held that the petitioner therein was registered as a non-VAT taxpayer.[151] Hence, for being merely VAT-exempt, the
petitioner in that case cannot claim any VAT refund or credit.
Second, the input taxes paid on the capital goods of respondent are duly supported by VAT invoices and have not been offset
against any output taxes. Although enterprises registered with the BOI after December 31, 1994 would no longer enjoy the
tax credit incentives on domestic capital equipment -- as provided for under Article 39(d), Title III, Book I of EO 226[152]
-- starting January 1, 1996, respondent would still have the same benefit under a general and express exemption contained in
both Article 77(1), Book VI of EO 226; and Section 12, paragraph 2 (c) of RA 7227, extended to the ecozones by RA 7916.
There was a very clear intent on the part of our legislators, not only to exempt investors in ecozones from national and local
taxes, but also to grant them tax credits. This fact was revealed by the sponsorship speeches in Congress during the second
reading of House Bill No. 14295, which later became RA 7916, as shown below:
MR. RECTO. x x x Some of the incentives that this bill provides are exemption from national and local taxes; x x x tax
credit for locally-sourced inputs x x x.
xxxxxxxxx
MR. DEL MAR. x x x To advance its cause in encouraging investments and creating an environment conducive for
investors, the bill offers incentives such as the exemption from local and national taxes, x x x tax credits for locally sourced
inputs x x x.[153]
And third, no question as to either the filing of such claims within the prescriptive period or the validity of the VAT returns
has been raised. Even if such a question were raised, the tax exemption under all the special laws cited above is broad
enough to cover even the enforcement of internal revenue laws, including prescription.[154]
Summary
To summarize, special laws expressly grant preferential tax treatment to business establishments registered and operating
within an ecozone, which by law is considered as a separate customs territory. As such, respondent is exempt from all
internal revenue taxes, including the VAT, and regulations pertaining thereto. It has opted for the income tax holiday regime,
instead of the 5 percent preferential tax regime. As a matter of law and procedure, its registration status entitling it to such
tax holiday can no longer be questioned. Its sales transactions intended for export may not be exempt, but like its purchase
transactions, they are zero-rated. No prior application for the effective zero rating of its transactions is necessary. Being
VAT-registered and having satisfactorily complied with all the requisites for claiming a tax refund of or credit for the input
VAT paid on capital goods purchased, respondent is entitled to such VAT refund or credit.
WHEREFORE, the Petition is DENIED and the Decision AFFIRMED. No pronouncement as to costs.
SO ORDERED.
SECOND DIVISION
COMMISSIONER OF G.R. Nos. 134587 & 134588
INTERNAL REVENUE,
PUNO, J.,
Chairman,
- versus - AUSTRIA-MARTINEZ,
CALLEJO, SR.,
TINGA, and
CHICO-NAZARIO, JJ.
BENGUET CORPORATION,
Respondent.
Promulgated:
July 8, 2005
x-------------------------------------------------------------------x
DECISION
TINGA, J.:
This is a petition for the review of a consolidated Decision of the Former Fourteenth Division of the Court of Appeals[1]
ordering the Commissioner of Internal Revenue to award tax credits to Benguet Corporation in the amount corresponding to
the input value added taxes that the latter had incurred in relation to its sale of gold to the Central Bank during the period of
01 August 1989 to 31 July 1991.
Petitioner is the Commissioner of Internal Revenue (petitioner) acting in his official capacity as head of the Bureau of
Internal Revenue (BIR), an attached agency of the Department of Finance,[2] with the authority, inter alia, to determine
claims for refunds or tax credits as provided by law.[3]
Respondent Benguet Corporation (respondent) is a domestic corporation organized and existing by virtue of Philippine
laws, engaged in the exploration, development and operation of mineral resources, and the sale or marketing thereof to
various entities.[4] Respondent is a value added tax (VAT) registered enterprise.[5]
The transactions in question occurred during the period between 1988 and 1991. Under Sec. 99 of the National Internal
Revenue Code (NIRC),[6] as amended by Executive Order (E.O.) No. 273 s. 1987, then in effect, any person who, in the
course of trade or business, sells, barters or exchanges goods, renders services, or engages in similar transactions and any
person who imports goods is liable for output VAT at rates of either 10% or 0% (zero-rated) depending on the classification
of the transaction under Sec. 100 of the NIRC. Persons registered under the VAT system[7] are allowed to recognize input
VAT, or the VAT due from or paid by it in the course of its trade or business on importation of goods or local purchases of
goods or service, including lease or use of properties, from a VAT-registered person.[8]
In January of 1988, respondent applied for and was granted by the BIR zero-rated status on its sale of gold to Central Bank.
[9] On 28 August 1988, Deputy Commissioner of Internal Revenue Eufracio D. Santos issued VAT Ruling No. 3788-88,
which declared that [t]he sale of gold to Central Bank is considered as export sale subject to zero-rate pursuant to Section
100[[10]] of the Tax Code, as amended by Executive Order No. 273. The BIR came out with at least six (6) other
issuances[11] reiterating the zero-rating of sale of gold to the Central Bank, the latest of which is VAT Ruling No. 036-90
dated 14 February 1990.[12]
Relying on its zero-rated status and the above issuances, respondent sold gold to the Central Bank during the period of 1
August 1989 to 31 July 1991 and entered into transactions that resulted in input VAT incurred in relation to the subject sales
of gold. It then filed applications for tax refunds/credits corresponding to input VAT for the amounts[13] of P46,177,861.12,
[14]
P19,218,738.44,[15] and P84,909,247.96.[16] Respondents applications were either unacted upon or expressly disallowed
by petitioner.[17] In addition, petitioner issued a deficiency assessment against respondent when, after applying respondents
creditable input VAT costs against the retroactive 10% VAT levy, there resulted a balance of excess output VAT.[18]
The express disallowance of respondents application for refunds/credits and the issuance of deficiency assessments against
it were based on a BIR ruling-BIR VAT Ruling No. 008-92 dated 23 January 1992-that was issued subsequent to the
consummation of the subject sales of gold to the Central Bank which provides that sales of gold to the Central Bank shall
not be considered as export sales and thus, shall be subject to 10% VAT. In addition, BIR VAT Ruling No. 008-92 withdrew,
modified, and superseded all inconsistent BIR issuances. The relevant portions of the ruling provides, thus:
1. In general, for purposes of the term export sales only direct export sales and foreign currency denominated sales, shall be
qualified for zero-rating.
....
4. Local sales of goods, which by fiction of law are considered export sales (e.g., the Export Duty Law considers sales of
gold to the Central Bank of the Philippines, as export sale). This transaction shall not be considered as export sale for VAT
purposes.
....
[A]ll Orders and Memoranda issued by this Office inconsistent herewith are considered withdrawn, modified or superseded.
(Emphasis supplied)
The BIR also issued VAT Ruling No. 059-92 dated 28 April 1992 and Revenue Memorandum Order No. 22-92 which
decreed that the revocation of VAT Ruling No. 3788-88 by VAT Ruling No. 008-92 would not unduly prejudice mining
companies and, thus, could be applied retroactively.[19]
Respondent filed three separate petitions for review with the Court of Tax Appeals (CTA), docketed as CTA Case No. 4945,
CTA Case No. 4627, and the consolidated cases of CTA Case Nos. 4686 and 4829.
In the three cases, respondent argued that a retroactive application of BIR VAT Ruling No. 008-92 would violate Sec. 246 of
the NIRC, which mandates the non-retroactivity of rulings or circulars issued by the Commissioner of Internal Revenue that
would operate to prejudice the taxpayer. Respondent then discussed in detail the manner and extent by which it was
prejudiced by this retroactive application.[20] Petitioner on the other hand, maintained that BIR VAT Ruling No. 008-92 is,
firstly, not void and entitled to great respect, having been issued by the body charged with the duty of administering the VAT
law, and secondly, it may validly be given retroactive effect since it was not prejudicial to respondent.
In three separate decisions,[21] the CTA dismissed respondents respective petitions. It held, with Presiding Judge Ernesto D.
Acosta dissenting, that no prejudice had befallen respondent by virtue of the retroactive application of BIR VAT Ruling No.
008-92, and that, consequently, the application did not violate Sec. 246 of the NIRC.[22]
The CTA decisions were appealed by respondent to the Court of Appeals. The cases were docketed therein as CA-G.R. SP
Nos. 37205, 38958, and 39435, and thereafter consolidated. The Court of Appeals, after evaluating the arguments of the
parties, rendered the questioned Decision reversing the Court of Tax Appeals insofar as the latter had ruled that BIR VAT
Ruling No. 008-92 did not prejudice the respondent and that the same could be given retroactive effect.
In its Decision, the appellate court held that respondent suffered financial damage equivalent to the sum of the disapproved
claims. It stated that had respondent known that such sales were subject to 10% VAT, which rate was not the prevailing rate
at the time of the transactions, respondent would have passed on the cost of the input taxes to the Central Bank. It also ruled
that the remedies which the CTA supposed would eliminate any resultant prejudice to respondent were not sufficient
palliatives as the monetary values provided in the supposed remedies do not approximate the monetary values of the tax
credits that respondent lost after the implementation of the VAT ruling in question. It cited
Manila Mining Corporation v. Commissioner of Internal Revenue,[23] in which the Court of Appeals held[24] that BIR VAT
Ruling No. 008-92 cannot be given retroactive effect. Lastly, the Court of Appeals observed that R.A. 7716, the The New
Expanded VAT Law, reveals the intent of the lawmakers with regard to the treatment of sale of gold to the Central Bank
since the amended version therein of Sec. 100 of the NIRC expressly provides that the sale of gold to the Bangko Sentral ng
Pilipinas is an export sale subject to 0% VAT rate. The appellate court thus allowed respondents claims, decreeing in its
dispositive portion, viz:
WHEREFORE, the appealed decision is hereby REVERSED. The respondent Commissioner of Internal Revenue is ordered
to award the following tax credits to petitioner.
1)
In CA-G.R. SP No. 37209 P49,611,914.00
2)
in CA-G.R. SP No. 38958 - P19,218,738.44
3)
in CA-G.R. SP No. 39435 - P84,909,247.96[25]
Dissatisfied with the above ruling, petitioner filed the instant Petition for Review questioning the determination of the Court
of Appeals that the retroactive application of the subject issuance was prejudicial to respondent and could not be applied
retroactively.
Apart from the central issue on the validity of the retroactive application of VAT Ruling No. 008-92, the question of the
validity of the issuance itself has been touched upon in the pleadings, including a reference made by respondent to a Court
of Appeals Decision holding that the VAT Ruling had no legal basis.[26] For its part, as the party that raised this issue,
petitioner spiritedly defends the validity of the issuance.[27] Effectively, however, the question is a non-issue and delving
into it would be a needless exercise for, as respondent emphatically pointed out in its Comment, unlike petitioners
formulation of the issues, the only real issue in this case is whether VAT Ruling No. 008-92 which revoked previous rulings
of the petitioner which respondent heavily relied upon . . . may be legally applied retroactively to respondent.[28] This
Court need not invalidate the BIR issuances, which have the force and effect of law, unless the issue of validity is so
crucially at the heart of the controversy that the Court cannot resolve the case without having to strike down the issuances.
Clearly, whether the subject VAT ruling may validly be given retrospective effect is the lis mota in the case. Put in another
but specific fashion, the sole issue to be addressed is whether respondents sale of gold to the Central Bank during the period
when such was classified by BIR issuances as zero-rated could be taxed validly at a 10% rate after the consummation of the
transactions involved.
In a long line of cases,[29] this Court has affirmed that the rulings, circular, rules and regulations promulgated by the
Commissioner of Internal Revenue would have no retroactive application if to so apply them would be prejudicial to the
taxpayers. In fact, both petitioner[30] and respondent[31] agree that the retroactive application of VAT Ruling No. 008-92 is
valid only if such application would not be prejudicial to the respondent pursuant to the explicit mandate under Sec. 246 of
the NIRC, thus:
Sec. 246. Non-retroactivity of rulings.- Any revocation, modification or reversal of any of the rules and regulations
promulgated in accordance with the preceding Section or any of the rulings or circulars promulgated by the Commissioner
shall not be given retroactive application if the revocation, modification or reversal will be prejudicial to the taxpayers
except in the following cases: (a) where the taxpayer deliberately misstates or omits material facts from his return on any
document required of him by the Bureau of Internal Revenue; (b) where the facts subsequently gathered by the Bureau of
Internal Revenue are materially different form the facts on which the ruling is based; or (c) where the taxpayer acted in bad
faith. (Emphasis supplied)
In that regard, petitioner submits that respondent would not be prejudiced by a retroactive application; respondent maintains
the contrary. Consequently, the determination of the issue of retroactivity hinges on whether respondent would suffer
prejudice from the retroactive application of VAT Ruling No. 008-92.
We agree with the Court of Appeals and the respondent.
To begin with, the determination of whether respondent had suffered prejudice is a factual issue. It is an established rule that
in the exercise of its power of review, the Supreme Court is not a trier of facts. Moreover, in the exercise of the Supreme
Courts power of review, the findings of facts of the Court of Appeals are conclusive and binding on the Supreme Court.[32]
An exception to this rule is when the findings of fact a quo are conflicting,[33] as is in this case.
VAT is a percentage tax imposed at every stage of the distribution process on the sale, barter, exchange or lease of goods or
properties and rendition of services in the course of trade or business, or the importation of goods.[34] It is an indirect tax,
which may be shifted to the buyer, transferee, or lessee of the goods, properties, or services.[35] However, the party directly
liable for the payment of the tax is the seller.[36]
In transactions taxed at a 10% rate, when at the end of any given taxable quarter the output VAT exceeds the input VAT, the
excess shall be paid to the government; when the input VAT exceeds the output VAT, the excess would be carried over to
VAT liabilities for the succeeding quarter or quarters.[37] On the other hand, transactions which are taxed at zero-rate do not
result in any output tax. Input VAT attributable to zero-rated sales could be refunded or credited against other internal
revenue taxes at the option of the taxpayer.[38]
To illustrate, in a zero-rated transaction, when a VAT-registered person (taxpayer) purchases materials from his supplier at
P80.00, P7.30[39] of which was passed on to him by his supplier as the latters 10% output VAT, the taxpayer is allowed to
recover P7.30 from the BIR, in addition to other input VAT he had incurred in relation to the zero-rated transaction, through
tax credits or refunds. When the taxpayer sells his finished product in a zero-rated transaction, say, for P110.00, he is not
required to pay any output VAT thereon. In the case of a transaction subject to 10% VAT, the taxpayer is allowed to recover
both the input VAT of P7.30 which he paid to his supplier and his output VAT of P2.70 (10% the P30.00 value he has added
to the P80.00 material) by passing on both costs to the buyer. Thus, the buyer pays the total 10% VAT cost, in this case
P10.00 on the product.
In both situations, the taxpayer has the option not to carry any VAT cost because in the zero-rated transaction, the taxpayer is
allowed to recover input tax from the BIR without need to pay output tax, while in 10% rated VAT, the taxpayer is allowed
to pass on both input and output VAT to the buyer. Thus, there is an elemental similarity between the two types of VAT
ratings in that the taxpayer has the option not to take on any VAT payment for his transactions by simply exercising his right
to pass on the VAT costs in the manner discussed above.
Proceeding from the foregoing, there appears to be no upfront economic difference in changing the sale of gold to the
Central Bank from a 0% to 10% VAT rate provided that respondent would be allowed the choice to pass on its VAT costs to
the Central Bank. In the instant case, the retroactive application of VAT Ruling No. 008-92 unilaterally forfeited or
withdrew this option of respondent. The adverse effect is that respondent became the unexpected and unwilling debtor to the
BIR of the amount equivalent to the total VAT cost of its product, a liability it previously could have recovered from the BIR
in a zero-rated scenario or at least passed on to the Central Bank had it known it would have been taxed at a 10% rate. Thus,
it is clear that respondent suffered economic prejudice when its consummated sales of gold to the Central Bank were taken
out of the zero-rated category. The change in the VAT rating of respondents transactions with the Central Bank resulted in
the twin loss of its exemption from payment of output VAT and its opportunity to recover input VAT, and at the same time
subjected it to the 10% VAT sans the option to pass on this cost to the Central Bank, with the total prejudice in money terms
being equivalent to the 10% VAT levied on its sales of gold to the Central Bank.
Petitioner had made its position hopelessly untenable by arguing that the deficiency 10% that may be assessable will only be
equal to 1/11th of the amount billed to the [Central Bank] rather than 10% thereof. In short, [respondent] may only be
charged based on the tax amount actually and technically passed on to the [Central Bank] as part of the invoiced price.[40]
To the Court, the aforequoted statement is a clear recognition that respondent would suffer prejudice in the amount actually
and technically passed on to the [Central Bank] as part of the invoiced price. In determining the prejudice suffered by
respondent, it matters little how the amount charged against respondent is computed,[41] the point is that the amount (equal
to 1/11th of the amount billed to the Central Bank) was charged against respondent, resulting in damage to the latter.
Petitioner posits that the retroactive application of BIR VAT Ruling No. 008-92 is stripped of any prejudicial effect when
viewed in relation to several available options to recoup whatever liabilities respondent may have incurred, i.e., respondents
input VAT may still be used (1) to offset its output VAT on the sales of gold to the Central Bank or on its output VAT on
other sales subject to 10% VAT, and (2) as deductions on its income tax under Sec. 29 of the Tax Code.[42]
On petitioners first suggested recoupment modality, respondent counters that its other sales subject to 10% VAT are so
minimal that this mode is of little value. Indeed, what use would a credit be where there is nothing to set it off against?
Moreover, respondent points out that after having been imposed with 10% VAT sans the opportunity to pass on the same to
the Central Bank, it was issued a deficiency tax assessment because its input VAT tax credits were not enough to offset the
retroactive 10% output VAT. The prejudice then experienced by respondent lies in the fact that the tax refunds/credits that it
expected to receive had effectively disappeared by virtue of its newfound output VAT liability against which petitioner had
offset the expected refund/credit. Additionally, the prejudice to respondent would not simply disappear, as petitioner claims,
when a liability (which liability was not there to begin with) is imposed concurrently with an opportunity to reduce, not
totally eradicate, the newfound liability. In sum, contrary to petitioners suggestion, respondents net income still decreased
corresponding to the amount it expected as its refunds/credits and the deficiency assessments against it, which when
summed up would be the total cost of the 10% retroactive VAT levied on respondent.
Respondent claims to have incurred further prejudice. In computing its income taxes for the relevant years, the input VAT
cost that respondent had paid to its suppliers was not treated by respondent as part of its cost of goods sold, which is
deductible from gross income for income tax purposes, but as an asset which could be refunded or applied as payment for
other internal revenue taxes. In fact, Revenue Regulation No. 5-87 (VAT Implementing Guidelines), requires input VAT to
be recorded not as part of the cost of materials or inventory purchased but as a separate entry called input taxes, which may
then be applied against output VAT, other internal revenue taxes, or refunded as the case may be.[43] In being denied the
opportunity to deduct the input VAT from its gross income, respondents net income was overstated by the amount of its
input VAT. This overstatement was assessed tax at the 32% corporate income tax rate, resulting in respondents overpayment
of income taxes in the corresponding amount. Thus, respondent not only lost its right to refund/ credit its input VAT and
became liable for deficiency VAT, it also overpaid its income tax in the amount of 32% of its input VAT.
This leads us to the second recourse that petitioner has suggested to offset any resulting prejudice to respondent as a
consequence of giving retroactive effect to BIR VAT Ruling No. 008-92. Petitioner submits that granting that respondent has
no other sale subject to 10% VAT against which its input taxes may be used in payment, then respondent is constituted as the
final entity against which the costs of the tax passes-on shall legally stop; hence, the input taxes may be converted as costs
available as deduction for income tax purposes.[44]
Even assuming that the right to recover respondents excess payment of income tax has not yet prescribed, this relief would
only address respondents overpayment of income tax but not the other burdens discussed above. Verily, this remedy is not a
feasible option for respondent because the very reason why it was issued a deficiency tax assessment is that its input VAT
was not enough to offset its retroactive output VAT. Indeed, the burden of having to go through an unnecessary and
cumbersome refund process is prejudice enough. Moreover, there is in fact nothing left to claim as a deduction from income
taxes.
From the foregoing it is clear that petitioners suggested options by which prejudice would be eliminated from a retroactive
application of VAT Ruling No. 008-92 are either simply inadequate or grossly unrealistic.
At the time when the subject transactions were consummated, the prevailing BIR regulations relied upon by respondent
ordained that gold sales to the Central Bank were zero-rated. The BIR interpreted Sec. 100 of the NIRC in relation to Sec. 2
of E.O. No. 581 s. 1980 which prescribed that gold sold to the Central Bank shall be considered export and therefore shall
be subject to the export and premium duties. In coming out with this interpretation, the BIR also considered Sec. 169 of
Central Bank Circular No. 960 which states that all sales of gold to the Central Bank are considered
constructive exports.[45] Respondent should not be faulted for relying on the BIRs interpretation of the said laws and
regulations.[46] While it is true, as petitioner alleges, that government is not estopped from collecting taxes which remain
unpaid on account of the errors or mistakes of its agents and/or officials and there could be no vested right arising from an
erroneous interpretation of law, these principles must give way to exceptions based on and in keeping with the interest of
justice and fairplay, as has been done in the instant matter. For, it is primordial that every person must, in the exercise of his
rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith.[47]
The case of ABS-CBN Broadcasting Corporation v. Court of Tax Appeals[48] involved a similar factual milieu. There the
Commissioner of Internal Revenue issued Memorandum Circular No. 4-71 revoking an earlier circular for being erroneous
for lack of legal basis. When the prior circular was still in effect, petitioner therein relied on it and consummated its
transactions on the basis thereof. We held, thus:
. . . .Petitioner was no longer in a position to withhold taxes due from foreign corporations because it had already remitted
all film rentals and no longer had any control over them when the new Circular was issued. . . .
....
This Court is not unaware of the well-entrenched principle that the [g]overnment is never estopped from collecting taxes
because of mistakes or errors on the part of its agents. But, like other principles of law, this also admits of exceptions in the
interest of justice and fairplay. . . .In fact, in the United States, . . . it has been held that the Commissioner [of Internal
Revenue] is precluded from adopting a position inconsistent with one previously taken where injustice would result
therefrom or where there has been a misrepresentation to the taxpayer.[49]
Respondent, in this case, has similarly been put on the receiving end of a grossly unfair deal. Before respondent was entitled
to tax refunds or credits based on petitioners own issuances. Then suddenly, it found itself instead being made to pay
deficiency taxes with petitioners retroactive change in the VAT categorization of respondents transactions with the Central
Bank. This is the sort of unjust treatment of a taxpayer which the law in Sec. 246 of the NIRC abhors and forbids.
WHEREFORE, the petition is DENIED for lack of merit. The Decision of the Court of Appeals is AFFIRMED. No
pronouncement as to costs.
SO ORDERED.
SECOND DIVISION
HITACHI GLOBAL STORAGE

TECHNOLOGIES PHILIPPINES CORP.
(formerly HITACHI COMPUTER PRODUCTS
(ASIA) CORPORATION),
Petitioner,
- versus COMMISSIONER OF INTERNAL REVENUE,
G.R. No. 174212

Present:
CARPIO, J., Chairperson,
VELASCO, JR.,*
LEONARDO-DE CASTRO,**
PERALTA, and
MENDOZA, JJ.
Promulgated:
October 20, 2010
Respondent.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
CARPIO, J.:
The Case
This is a petition for review[1] of the 22 March 2006 Decision[2] and 14 August 2006 Resolution[3] of the Court of Tax
Appeals (CTA) En Banc in CTA EB No. 54. The 22 March 2006 Decision affirmed the 9 March 2004 Decision[4] and 9
December 2004 Resolution[5] of the CTA First Division which denied petitioner Hitachi Global Storage Technologies
Philippines Corp.s (Hitachi) claim for refund or tax credit in the amount of P25,023,471.84. The 14 August 2006 Resolution
denied Hitachis motion for reconsideration.
The Facts
Hitachi is a domestic corporation engaged in the business of manufacturing and exporting computer products. Hitachi is
registered with the Bureau of Internal Revenue (BIR) as a Value-added Tax (VAT) taxpayer, evidenced by Certificate of
Registration No. 94-570-000298 and Taxpayer Identification No. 003-877-830 (VAT) issued on 28 June 1994. Hitachi is
also registered with the Export Processing Zone Authority as an Ecozone Export Enterprise.
On 4 August 2000, Hitachi filed an administrative claim for refund or issuance of a tax credit certificate before the BIR. [6]
The claim involved P25,023,471.84 representing excess input VAT attributable to Hitachis zero-rated export sales for the
four taxable quarters of 1999.
On 2 July 2001, due to the BIRs inaction, Hitachi filed a petition for review with the CTA.[7] On 9 March 2004, the CTA
First Division rendered a decision, the dispositive portion of which reads:
IN VIEW OF THE FOREGOING, petitioners claim for refund or issuance of a tax credit certificate in the
amount of P25,023,471.84 representing excess input value-added tax (VAT) payments that are attributable to zerorated export sales for the four taxable quarters of 1999 is hereby DENIED.
SO ORDERED.[8]
Hitachi filed a motion for reconsideration. In its 9 December 2004 Resolution, the CTA First Division denied
Hitachis motion.
On 26 January 2005, Hitachi filed a petition for review with the CTA En Banc. In its 22 March 2006 Decision, the CTA En
Banc affirmed the 9 March 2004 Decision and 9 December 2004 Resolution of the CTA First Division.
Hitachi filed a motion for reconsideration. In its 14 August 2006 Resolution, the CTA En Banc denied Hitachis motion.
Hence, this petition.
The Ruling of the CTA First Division
In its 9 March 2004, the CTA First Division denied Hitachis claim for refund or tax credit because of Hitachis failure to
comply with the mandatory invoicing requirements. According to the CTA First Division, Hitachis export sales invoices did
not have pre-printed taxpayers identification number (TIN) followed by the word VAT nor did the invoices bear the
imprinted word zero-rated as required in Section 113(A)[9] of the National Internal Revenue Code (NIRC) and Section
4.108-1 of Revenue Regulation No. 7-95[10] (RR 7-95). The CTA First Division also found that Hitachis export sales
invoices were not duly registered with the BIR as required under Section 237[11] of the NIRC and there was no BIR
authority to print the invoices or BIR permit number indicated in the invoices. Therefore, the CTA First Division did not
consider Hitachis export sales invoices as valid evidence of zero-rated sales of goods for VAT purposes and, consequently,
denied Hitachis claim for a refund or tax credit.
The Ruling of the CTA En Banc
The CTA En Banc affirmed the findings of the CTA First Division that Hitachi failed to comply with the mandatory
invoicing requirements under the NIRC and RR 7-95. The CTA En Banc agreed with the CTA First Division that Hitachi
failed to substantiate its alleged zero-rated sales because its export sales invoices were not duly registered with the BIR.
Neither did the export sales invoices indicate Hitachis TIN nor did they state that Hitachi was a VAT registered person.
Likewise, the word zero-rated was not imprinted on Hitachis export sales invoices. According to the CTA En Banc, the VAT
law is clear that only transactions evidenced by VAT official receipts or sales invoices will be considered as VAT
transactions for purposes of the input and output tax.
The Issues
Hitachi raises the following issues:

I. Whether Hitachis failure to comply with the requirements prescribed under Section 4.108-1 of
RR 7-95 is sufficient to invalidate Hitachis claim for VAT refund for taxable year 1999;
II. Whether Hitachi has sufficiently complied with the requirements for its claim for VAT refund
for taxable year 1999; and
III. Whether the CTA En Banc erred when it denied Hitachis claim for VAT refund for taxable
year 1999.
The Ruling of the Court
The petition has no merit.
Hitachi argues that Section 4.108-1 of RR 7-95 cannot expand the invoicing requirements prescribed by Section 113(A) of
the NIRC, in relation to Sections 237 and 106(A)(2)(a)(1),[12] by imposing the additional requirement of printing the word
zero-rated on the invoices of a VAT registered taxpayer. Hitachi also submits that the non-observance of the requirements of
(1) printing zero-rated; (2) BIR authority to print; (3) BIR permit number; and (4) registration of such receipts with the BIR
cannot result in the outright invalidation of its claim for refund.
We already settled the issue of printing the word zero-rated on the sales invoices in Panasonic v. Commissioner of Internal
Revenue.[13] In that case, we denied Panasonics claim for refund of the VAT it paid as a zero-rated taxpayer on the ground
that its sales invoices did not state on their face that its sales were zero-rated. We said:
Secretary of Finance issued on December 9, 1995 and took effect on January 1, 1996. It already required the printing of
the word zero-rated on invoices covering zero-rated sales. When R.A. 9337 amended the 1997 NIRC on November 1,
2005, it made this particular revenue regulation a part of the tax code. This conversion from regulation to law did not
diminish the binding force of such regulation with respect to acts committed prior to the enactment of that law.
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 1997 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 the 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. (Emphasis supplied)
Likewise, in this case, when Hitachi filed its claim for refund or tax credit, RR 7-95 was already in force. Section
4.108-1 of RR 7-95 specifically required the following to be reflected in the invoice:
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.
xxxx
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)
Both the CTA First Division and the CTA En Banc found that Hitachis export sales invoices did not indicate
Hitachis Tax Identification Number (TIN) followed by the word VAT. The word zero-rated was also not
imprinted on the invoices. Moreover, both the CTA First Division and the CTA En Banc found that the
invoices were not duly registered with the BIR.
Being a specialized court, the CTA has necessarily developed an expertise in the subject of taxation that this Court has
recognized time and again.[14] For this reason, the findings of fact of the CTA are generally conclusive on this Court absent
grave abuse of discretion or palpable error, which are not present in this case.[15]
Besides, tax refunds, like tax exemptions, are construed strictly against the taxpayer.[16] The claimants have the burden of
proof to establish the factual basis of their claim for refund or tax credit.[17] In this case, Hitachi failed to establish the
factual basis of its claim for refund or tax credit.
WHEREFORE, we DENY the petition. We AFFIRM the 22 March 2006 Decision and the 14 August 2006 Resolution of
the Court of Tax Appeals En Banc in CTA EB No. 54.
SO ORDERED.
SUPREME COURT
Manila
EN BANC
G.R. No. L-19707
August 17, 1967
PHILIPPINE ACETYLENE CO., INC., petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS, respondents.
Ponce Enrile, Siguion Reyna, Montecillo and Belo, for petitioner.
Office of the Solicitor General for respondents.
CASTRO, J.:
The petitioner is a corporation engaged in the manufacture and sale of oxygen and acetylene gases. During the period from
June 2, 1953 to June 30, 1958, it made various sales of its products to the National Power Corporation, an agency of the
Philippine Government, and to the Voice of America an agency of the United States Government. The sales to the NPC
amounted to P145,866.70, while those to the VOA amounted to P1,683, on account of which the respondent Commission of
Internal Revenue assessed against, and demanded from, the petitioner the payment of P12,910.60 as deficiency sales tax and
surcharge, pursuant to the following-provisions of the National Internal Revenue Code:
Sec. 186. Percentage tax on sales of other articles.There shall be levied, assessed and collected once only on
every original sale, barter, exchange, and similar transaction either for nominal or valuable considerations, intended
to transfer ownership of, or title to, the articles not enumerated in sections one hundred and eighty-four and one
hundred and eighty-five a tax equivalent to seven per centum of the gross selling price or gross value in money of
the articles so sold, bartered exchanged, or transferred, such tax to be paid by the manufacturer or producer: . . . .
Sec. 183. Payment of percentage taxes.(a) In general.It shall be the duty of every person conducting business
on which a percentage tax is imposed under this Title, to make a true and complete return of the amount of his, her,
or its gross monthly sales, receipts or earnings, or gross value of output actually removed from the factory or mill
warehouse and within twenty days after the end of each month, pay the tax due thereon: Provided, That any person
retiring from a business subject to the percentage tax shall notify the nearest internal revenue officer thereof, file
his return or declaration and pay the tax due thereon within twenty days after closing his business.
If the percentage tax on any business is not paid within the time specified above, the amount of the tax shall be
increased by twenty-five per centum, the increment to be a part of the tax.
The petitioner denied liability for the payment of the tax on the ground that both the NPC and the VOA are exempt from
taxation. It asked for a reconsideration of the assessment and, failing to secure one, appealed to the Court of Tax Appeals.
The court ruled that the tax on the sale of articles or goods in section 186 of the Code is a tax on the manufacturer and not
on the buyer with the result that the "petitioner Philippine Acetylene Company, the manufacturer or producer of oxygen and
acetylene gases sold to the National Power Corporation, cannot claim exemption from the payment of sales tax simply
because its buyer the National Power Corporation is exempt from the payment of all taxes." With respect to the sales
made to the VOA, the court held that goods purchased by the American Government or its agencies from manufacturers or
producers are exempt from the payment of the sales tax under the agreement between the Government of the Philippines
and that of the United States, provided the purchases are supported by certificates of exemption, and since purchases
amounting to only P558, out of a total of P1,683, were not covered by certificates of exemption, only the sales in the sum of
P558 were subject to the payment of tax. Accordingly, the assessment was revised and the petitioner's liability was reduced
from P12,910.60, as assessed by the respondent commission, to P12,812.16.1
The petitioner appealed to this Court. Its position is that it is not liable for the payment of tax on the sales it made to the
NPC and the VOA because both entities are exempt from taxation.
I
The NPC enjoys tax exemption by virtue of an act2 of Congress which provides as follows:
Sec. 2. To facilitate the payment of its indebtedness, the National Power Corporation shall be exempt from all
taxes, except real property tax, and from all duties, fees, imposts, charges, and restrictions of the Republic of the
Philippines, its provinces, cities and municipalities.
It is contended that the immunity thus given to the NPC would be impaired by the imposition of a tax on sales made to it
because while the tax is paid by the manufacturer or producer, the tax is ultimately shifted by the latter to the former. The
petitioner invokes in support of its position a 1954 opinion of the Secretary of Justice which ruled that the NPC is exempt
from the payment of all taxes "whether direct or indirect."
We begin with an analysis of the nature of the percentage (sales) tax imposed by section 186 of the Code. Is it a tax on the
producer or on the purchaser? Statutes of the type under consideration, which impose a tax on sales, have been described as
"act[s] with schizophrenic symptoms,"3 as they apparently have two faces one that of a vendor tax, the other, a vendee
tax. Fortunately for us the provisions of the Code throw some light on the problem. The Code states that the sales tax "shall
be paid by the manufacturer or producer," 4 who must "make a true and complete return of the amount of his, her or its gross
monthly sales, receipts or earnings or gross value of output actually removed from the factory or mill warehouse and within
twenty days after the end of each month, pay the tax due thereon."5
But it is argued that a sales tax is ultimately passed on to the purchaser, and that, so far as the purchaser is an entity like the
NPC which is exempt from the payment of "all taxes, except real property tax," the tax cannot be collected from sales.
Many years ago, Mr. Justice Oliver Wendell Holmes expressed dissatisfaction with the use of the phrase "pass the tax on."
Writing the opinion of the U.S. Supreme Court in Lash's Products v. United States,6 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 seller's obligation, but that is all. . . . 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 . . .".
It may indeed be that the incidence of the tax ultimately settles on the purchaser, but it is not for that reason alone that one
may validly argue that it is a tax on the purchaser. The exemption granted to the NPC may be likened to the immunity of the
Federal Government from state taxation and vice versa in the federal system of government of the United States. In the early
case of Panhandle Oil Co. v. Mississippi7 the doctrine of intergovernment mental tax immunity was held as prohibiting the
imposition of a tax on sales of gasoline made to the Federal Government. Said the Supreme court of the United States:
A charge at the prescribed. rate is made on account of every gallon acquired by the United States. It is immaterial
that the seller and not the purchaser is required to report and make payment to the state. Sale and purchase
constitute a transaction by which the tax is measured and on which the burden rests. . . . The necessary operation of
these enactments when so construed is directly to retard, impede and burden the exertion by the United States, of
its constitutional powers to operate the fleet and hospital. . . . To use the number of gallons sold the United States as
a measure of the privilege tax is in substance and legal effect to tax the sale. . . . And that is to tax the United States
to exact tribute on its transactions and apply the same to the support of the state.1wph1.t
Justice Holmes did not agree. In a powerful dissent joined by Justices Brandeis and Stone, he said:
If the plaintiff in error had paid the tax and added it to the price the government would have nothing to say. It could
take the gasoline or leave it but it could not require the seller to abate his charge even if it had been arbitrarily
increased in the hope of getting more from the government than could be got from the public at large. . . . It does
not appear that the government would have refused to pay a price that included the tax if demanded, but if the
government had refused it would not have exonerated the seller. . . .

. . . I am not aware that the President, the Members of the Congress, the Judiciary or to come nearer to the case at
hand, the Coast Guard or the officials of the Veterans' Hospital [to which the sales were made], because they are
instrumentalities of government and cannot function naked and unfed, hitherto have been held entitled to have their
bills for food and clothing cut down so far as their butchers and tailors have been taxed on their sales; and I had not
supposed that the butchers and tailors could omit from their tax returns all receipts from the large class of
customers to which I have referred. The question of interference with Government, I repeat, is one of
reasonableness and degree and it seems to me that the interference in this case is too remote.
But time was not long in coming to confirm the soundness of Holmes' position. Soon it became obvious that to test the
constitutionality of a statute by determining the party on which the legal incidence of the tax fell was an unsatisfactory way
of doing things. The fall of the bastion was signalled by Chief Justice Hughes' statement in James v. Dravo Constructing
Co.8 that "These cases [referring to Panhandle and Indian Motorcycle Co. v. United States, 283 U.S. 570 (1931)] have been
distinguished and must be deemed to be limited to their particular facts."
In 1941, Alabama v. King & Boozer9 held that the constitutional immunity of the United States from state taxation was not
infringed by the imposition of a state sales tax with which the seller was chargeable but which he was required to collect
from the buyer, in respect of materials purchased by a contractor with the United States on a cost-plus basis for use in
carrying out its contract, despite the fact that the economic burden of the tax was borne by the United States.
The asserted right of the one to be free of taxation by the other does not spell immunity from paying the added
costs, attributable to the taxation of those who furnish supplies to the Government and who have been granted no
tax immunity. So far as a different view has prevailed, see Panhandle Oil Co. v. Mississippi and Graves v. Texas
Co., supra, we think it no longer tenable.
Further inroads into the doctrine of Panhandle were made in 1943 when the U.S. Supreme Court held that immunity from
state regulation in the performance of governmental functions by Federal officers and agencies did not extend to those who
merely contracted to furnish supplies or render services to the government even though as a result of an increase in the price
of such supplies or services attributable to the state regulation, its ultimate effect may be to impose an additional economic
burden on the Government.10
But if a complete turnabout from the rule announced in Panhandle was yet to be made, it was so made in 1952 in Esso
Standard Oil v. Evans11 which held that a contractor is not exempt from the payment of a state privilege tax on the business
of storing gasoline simply because the Federal Government with which it has a contract for the storage of gasoline is
immune from state taxation.
This tax was imposed because Esso stored gasoline. It is not . . . based on the worth of the government property.
Instead, the amount collected is graduated in accordance with the exercise of Esso's privilege to engage in such
operations; so it is not "on" the federal property. . . . Federal ownership of the fuel will not immunize such a private
contractor from the tax on storage. It may generally, as it did here, burden the United States financially. But since
James vs. Dravo Contracting Co., 302 U.S. 134, 151, 82 L. ed. 155, 167, 58 S. Ct. 208, 114 ALR 318, this has been
no fatal flaw. . . . 12
We have determined the current status of the doctrine of intergovernmental tax immunity in the United States, by showing
the drift of the decisions following announcement of the original rule, to point up the that fact that even in those cases where
exemption from tax was sought on the ground of state immunity, the attempt has not met with success.
As Thomas Reed Powell noted in 1945 in reviewing the development of the doctrine:
Since the Dravo case settled that it does not matter that the economic burden of the gross receipts tax may be
shifted to the Government, it could hardly matter that the shift comes about by explicit agreement covering taxes
rather than by being absorbed in a higher contract price by bidders for a contract. The situation differed from that in
the Panhandle and similar cases in that they involved but two parties whereas here the transaction was tripartite.
These cases are condemned in so far as they rested on the economic ground of the ultimate incidence of the burden
being on the Government, but this condemnation still leaves open the question whether either the state or the
United States when acting in governmental matters may be made legally liable to the other for a tax imposed on it
as vendee.
The carefully chosen language of the Chief Justice keeps these cases from foreclosing the issue. . . . Yet at the time
it would have been a rash man who would find in this a dictum that a sales tax clearly on the Government as
purchaser is invalid or a dictum that Congress may immunize its contractors.13
If a claim of exemption from sales tax based on state immunity cannot command assent, much less can a claim resting on
statutory grant.
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 is billed as tax to the purchaser. The
method of listing the price and the tax separately and defining taxable gross receipts as the amount received less the amount
of the tax added, merely avoids payment by the seller of a tax on the amount of the tax. The effect is still the same, namely,
that the purchaser does not pay the tax. He pays or may pay the seller more for the goods because of the seller's obligation,
but that is all and the amount added because of the tax is paid to get the goods and for nothing else.14
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.15 Then it can no longer be contended that a sales tax is a tax on the purchaser.
We therefore hold that the tax imposed by section 186 of the National Internal Revenue Code is a tax on the manufacturer or
producer and not a tax on the purchaser except probably in a very remote and inconsequential sense. Accordingly its levy on
the sales made to tax-exempt entities like the NPC is permissible.
II
This conclusion should dispose of the same issue with respect to sales made to the VOA, except that a claim is here made
that the exemption of such sales from taxation rests on stronger grounds. Even the Court of Tax Appeals appears to share
this view as is evident from the following portion of its decision:
With regard to petitioner's sales to the Voice of America, it appears that the petitioner and the respondent are in
agreement that the Voice of America is an agency of the United States Government and as such, all goods
purchased locally by it directly from manufacturers or producers are exempt from the payment of the sales tax
under the provisions of the agreement between the Government of the Philippines and the Government of the
United States, (See Commonwealth Act No. 733) provided such purchases are supported by serially numbered
Certificates of Tax Exemption issued by the vendee-agency, as required by General Circular No. V-41, dated
October 16, 1947. . . .
The circular referred to reads:
Goods purchased locally by U.S. civilian agencies directly from manufacturers, producers or importers shall be
exempt from the sales tax.
It was issued purportedly to implement the Agreement between the Republic of the Philippines and the United States of
America Concerning Military Bases,16 but we find nothing in the language of the Agreement to warrant the general
exemption granted by that circular.
The pertinent provisions of the Agreement read:
ARTICLE V. Exemption from Customs and Other Duties
No import, excise, consumption or other tax, duty or impost shall be charged on material, equipment, supplies or
goods, including food stores and clothing, for exclusive use in the construction, maintenance, operation or defense
of the bases, consigned to, or destined for, the United States authorities and certified by them to be for such
purposes.
ARTICLE XVIII.Sales and Services Within the Bases
1. It is mutually agreed that the United States Shall have the right to establish on bases, free of all licenses; fees;
sales, excise or other taxes, or imposts; Government agencies, including concessions, such as sales commissaries
and post exchanges, messes and social clubs, for the exclusive use of the United States military forces and
authorized civilian personnel and their families. The merchandise or services sold or dispensed by such agencies
shall be free of all taxes, duties and inspection by the Philippine authorities. . . .
Thus only sales made "for exclusive use in the construction, maintenance, operation or defense of the bases," in a word,
only sales to the quartermaster, are exempt under article V from taxation. Sales of goods to any other party even if it be an
agency of the United States, such as the VOA, or even to the quartermaster but for a different purpose, are not free from the
payment of the tax.
On the other hand, article XVIII exempts from the payment of the tax sales made within the base by (not sales to)
commissaries and the like in recognition of the principle that a sales tax is a tax on the seller and not on the purchaser.
It is a familiar learning in the American law of taxation that tax exemption must be strictly construed and that the exemption
will not be held to be conferred unless the terms under which it is granted clearly and distinctly show that such was the
intention of the parties.17 Hence, in so far as the circular of the Bureau of Internal Revenue would give the tax exemptions
in the Agreement an expansive construction it is void.
We hold, therefore, that sales to the VOA are subject to the payment of percentage taxes under section 186 of the Code. The
petitioner is thus liable for P12,910.60, computed as follows:
Sales to NPC
P145,866.70
Sales to VOA
P 1,683.00
Total sales subject to tax
P147,549.70
7% sales tax due thereon
P 10,328.48
Add: 25% surcharge
Total amount due and collectible
P 2,582.12
P 12,910.60
Accordingly, the decision a quo is modified by ordering the petitioner to pay to the respondent Commission the amount of
P12,910.60 as sales tax and surcharge, with costs against the petitioner.
Reyes, J.B.L., Makalintal, Bengzon, J.P., Zaldivar, Sanchez, Angeles and Fernando, JJ., concur.
Concepcion, C.J., and Dizon, J., took no part.
SOUTHERN PHILIPPINES G.R. No. 179632
POWER CORPORATION,
VELASCO, JR., J., Chairperson,
- versus - PERALTA,
ABAD,
, and
PERLAS-BERNABE, JJ.
Respondent.
October 19, 2011

x --------------------------------------------------------------------------------------- x
DECISION
ABAD, J.:
The case is about the sufficiency of sales invoices and receipts, which do not have the words zero-rated imprinted on them,
to evidence zero-rated transactions, a requirement in taxpayers claim for tax credit or refund.
Petitioner Southern Philippines Power Corporation (SPP), a power company that generates and sells electricity to the
National Power Corporation (NPC), applied with the Bureau of Internal Revenue (BIR) for zero-rating of its transactions
under Section 108(B)(3) of the National Internal Revenue Code (NIRC). The BIR approved the application for taxable years
1999 and 2000.
On June 20, 2000 SPP filed a claim with respondent Commissioner of Internal Revenue (CIR) for a P5,083,371.57 tax
credit or refund for 1999. On July 13, 2001 SPP filed a second claim of P6,221,078.44 in tax credit or refund for 2000. The
amounts represented unutilized input VAT attributable to SPPs zero-rated sale of electricity to NPC.
On September 29, 2001, before the lapse of the two-year prescriptive period for such actions, SPP filed with the Court of
Tax Appeals (CTA) Second Division a petition for review covering its claims for refund or tax credit. The petition claimed
only the aggregate amount of P8,636,126.75 which covered the last two quarters of 1999 and the four quarters in 2000.
In his Comment on the petition, the CIR maintained that SPP is not entitled to tax credit or refund since (a) the BIR was still
examining SPPs claims for the same; (b) SPP failed to substantiate its payment of input VAT; (c) its right to claim refund
already prescribed, and (d) SPP has not shown compliance with Section 204(c) in relation to Section 229 of the NIRC as
amended and Revenue Regulation (RR) 5-87 as amended by RR 3-88.
In a Decision dated April 26, 2006, the Second Division[1] denied SPPs claims, holding that its zero-rated official receipts
did not correspond to the quarterly VAT returns, bearing a difference of P800,107,956.61. Those receipts only support the
amount of P118,945,643.88. Further, these receipts do not bear the words zero-rated in violation of RR 7-95. The Second
Division denied SPPs motion for reconsideration on August 15, 2006.
On appeal, the CTA En Banc affirmed the Second Divisions decision dated July 31, 2007.[2] The CTA En Banc rejected
SPPs contention that its sales invoices reflected the words zero-rated, pointing out that it is on the official receipts that the
law requires the printing of such words. Moreover, SPP did not report in the corresponding quarterly VAT return the sales
subject of its zero-rated receipts. The CTA En Banc denied SPPs motion for reconsideration on September 19, 2007.
The Issues Presented
The case presents the following issues:
1. Whether or not the CTA En Banc correctly rejected the invoices that SPP presented and, thus, ruled that it failed to prove
the zero-rated or effectively zero-rated sales that it made;
2. Whether or not the CTA En Banc correctly ruled that the words BIR-VAT Zero Rate Application Number 419.2000
imprinted on SPPs invoices did not comply with RR 7-95;
3. Whether or not the CTA En Banc correctly held that SPP should have declared its zero-rated sales in its VAT returns for
the subject period of the claim; and
4. Whether or not the CTA En Banc correctly ruled that SPP was not entitled to a tax refund or credit.
The Courts Rulings
One and Two. The Court reiterated in San Roque Power Corporation v. Commissioner of Internal Revenue[3] the following
criteria governing claims for refund or tax credit under Section 112(A) of the NIRC:
(1) The taxpayer is VAT-registered;
(2) The taxpayer is engaged in zero-rated or effectively zero-rated sales;
(3) The input taxes are due or paid;

(4) The input taxes are not transitional input taxes;
(5) The input taxes have not been applied against output taxes during and in the succeeding quarters;
(6) The input taxes claimed are attributable to zero-rated or effectively zero-rated sales;
(7) For zero-rated sales under Section 106(A)(2)(1) and (2); 106(B); and 108(B)(1) and (2), the acceptable foreign currency
exchange proceeds have been duly accounted for in accordance with BSP rules and regulations;
(8) Where there are both zero-rated or effectively zero-rated sales and taxable or exempt sales, and the input taxes cannot be
directly and entirely attributable to any of these sales, the input taxes shall be proportionately allocated on the basis of sales
volume; and
(9) The claim is filed within two years after the close of the taxable quarter when such sales were made.
While acknowledging that SPPs sale of electricity to NPC is a zero-rated transaction,[4] the CTA En Banc ruled that SPP
failed to establish that it made zero-rated sales. True, SPP submitted official receipts and sales invoices stamped with the
words BIR VAT Zero-Rate Application Number 419.2000 but the CTA En Banc held that these were not sufficient to prove
the fact of sale.
But NIRC Section 110 (A.1) provides that the input tax subject of tax refund is to be evidenced by a VAT invoice or official
receipt issued in accordance with Section 113. Section 113 has been amended by Republic Act (R.A.) 9337 but it is the
unamended version that covers the period when the transactions in this case took place. It reads:
Section 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 (TIN); 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. (Emphasis supplied)
The above does not distinguish between an invoice and a receipt when used as evidence of a zero-rated transaction.
Consequently, the CTA should have accepted either or both of these documents as evidence of SPPs zero-rated transactions.
Section 237 of the NIRC also makes no distinction between receipts and invoices as evidence of a commercial transaction:
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 the 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
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 internal revenue tax from compliance with the
provisions of this Section. (Emphasis supplied)
The Court held in Seaoil Petroleum Corporation v. Autocorp Group[5] that business forms like sales invoices are
recognized in the commercial world as valid between the parties and serve as memorials of their business transactions. And
such documents have probative value.
Three. The CTA also did not accept SPPs official receipts due to the absence of the words zero-rated on it. The omission,
said that court, made the receipts non-compliant with RR 7-95, specifically Section 4.108.1. But Section 4.108.1 requires
the printing of the words zero-rated only on invoices, not on official receipts:
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.
x x x x (Emphasis supplied)
Actually, it is R.A. 9337 that in 2005 required the printing of the words zero-rated on receipts. But, since the receipts and
invoices in this case cover sales made from 1999 to 2000, what applies is Section 4.108.1 above which refers only to
invoices.
A claim for tax credit or refund, arising out of zero-rated transactions, is essentially based on excess payment. In zero-rating
a transaction, the purpose is not to benefit the person legally liable to pay the tax, like SPP, but to relieve exempt entities
like NPC which supplies electricity to factories, offices, and homes, from having to shoulder the tax burden that ultimately
would be passed to the public.
The principle of solutio indebiti should govern this case since the BIR received something that it was not entitled to. Thus, it
has to return the same. The government should not use technicalities to hold on to money that does not belong to it.[6] Only
a preponderance of evidence is needed to grant a claim for tax refund based on excess payment.[7]
Notably, SPP does no other business except sell the power it produces to NPC, a fact that the CIR did not contest in the
parties joint stipulation of facts.[8] Consequently, the likelihood that SPP would claim input taxes paid on purchases
attributed to sales that are not zero-rated is close to nil.
Four. The Court finds that SPP failed to indicate its zero-rated sales in its VAT returns. But this is not sufficient reason to
deny it its claim for tax credit or refund when there are other documents from which the CTA can determine the veracity of
SPPs claim.
Of course, such failure if partaking of a criminal act under Section 255 of the NIRC could warrant the criminal prosecution
of the responsible person or persons. But the omission does not furnish ground for the outright denial of the claim for tax
credit or refund if such claim is in fact justified.
Five. The CTA denied SPPs claim outright for failure to establish the existence of zero-rated sales, disregarding SPPs sales
invoices and receipts which evidence them. That court did not delve into the question of SPPs compliance with the other
requisites provided under Section 112 of the NIRC.
Consequently, even as the Court holds that SPPs sales invoices and receipts would be sufficient to prove its zero-rated
transactions, the case has to be remanded to the CTA for determination of whether or not SPP has complied with the other
requisites mentioned. Such matter involves questions of fact and entails the need to examine the records. The Court is not a
trier of facts and the competence needed for examining the relevant accounting books or records is undoubtedly with the
CTA.
WHEREFORE, the Court GRANTS the petition, SETS ASIDE the Court of Tax Appeals En Banc decision dated July 31,
2007 and resolution dated September 19, 2007, and REMANDS the case to the Court of Tax Appeals Second Division for
further hearing as stated above.
SO ORDERED.
AT&T COMMUNICATIONS SERVICES

PHILIPPINES, INC.,
G.R. No. 182364
Petitioner,
Present:
- versus -
CARPIO MORALES, J.,
COMMISSIONER OF
Chairperson,
INTERNAL REVENUE,
BRION,
BERSAMIN,
ABAD,* and
VILLARAMA, JR., JJ.
Respondent.
Promulgated:
August 3, 2010
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
DECISION
CARPIO MORALES, J.,
AT&T Communications Services Philippines, Inc. (petitioner) is a domestic corporation primarily engaged in the business
of providing information, promotional, supportive and liaison services to foreign corporations such as AT&T
Communications Services International Inc., AT&T Solutions, Inc., AT&T Singapore, Pte. Ltd.,, AT&T Global
Communications Services, Inc. and Acer, Inc., an enterprise registered with the Philippine Economic Zone Authority
(PEZA).
Under Service Agreements forged by petitioner with the above-named corporations, remuneration is paid in U.S. Dollars
and inwardly remitted in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP).
For the calendar year 2002, petitioner incurred input VAT when it generated and recorded zero-rated sales in connection
with its Service Agreements in the peso equivalent of P56,898,744.05. Petitioner also incurred input VAT from purchases of
capital goods and other taxable goods and services, and importation of capital goods.
Despite the application of petitioners input VAT against its output VAT, an excess of unutilized input VAT in the amount of
P2,050,736.69 remained. As petitioners unutilized input VAT could not be directly and exclusively attributed to either of its
zero-rated sales or its domestic sales, an allocation of the input VAT was made which resulted in the amount of
P1,801,826.82 as petitioners claim attributable to its zero-rated sales.
On , petitioner filed with the Commissioner of Internal Revenue (respondent) an application for tax refund and/or tax credit
of its excess/unutilized input VAT from zero-rated sales in the said amount of P1,801,826.82.[1]
To prevent the running of the prescriptive period, petitioner subsequently filed a petition for review with the Court of Tax
Appeals (CTA) which was docketed as CTA Case No. 6907 and lodged before its First Division.
In support of its claim, petitioner presented documents including its Summary of Zero-Rated Sales (Exhibit DD) with
corresponding supporting documents; VAT invoices on which were stamped zero-rated and bank credit advices (Exhibits
EE-1 to EE-56); copies of Service Agreements (Exhibits N to Q); and report of the commissioned certified public
accountant (Exhibit AA to AA-22).
After petitioner presented its evidence, respondent did not, despite notice, proffer any opposition to it. He was eventually
declared to have waived his right to present evidence.
By Decision of ,[2] the CTA First Division, conceding that petitioners transactions fall under the classification of zero-rated
sales, nevertheless denied petitioners claim for lack of substantiation, disposing as follows:
In reiteration, considering that the subject revenues pertain to gross receipts from services rendered by petitioner, valid VAT
official receipts and not mere sales invoices should have been submitted in support thereof. Without proper VAT official
receipts, the foreign currency payments received by petitioner from services rendered for the four (4) quarters of taxable
year 2002 in the sum of US$1,102,315.48 with the peso equivalent of P56,898,744.05 cannot qualify for zero-rating for
VAT purposes. Consequently, the claimed input VAT payments allegedly attributable thereto in the amount of P1,801,826.82
cannot be granted. It is clear from the provisions of Section 112 (A) of the NIRC of 1997 that there must be zero-rated or
effectively zero-rated sales in order that a refund of input VAT could prosper.
x x x x[3] (emphasis and underscoring supplied)
The CTA First Division, relying on Sections 106[4] and 108[5] of the Tax Code, held that since petitioner is engaged in sale
of services, VAT Official Receipts should have been presented in order to substantiate its claim of zero-rated sales, not VAT
invoices which pertain to sale of goods or properties.
On petition for review, the CTA En Banc, by Decision of ,[6] affirmed that of the CTA First Division. Petitioners motion for
reconsideration having been denied by Resolution of , the present petition for review was filed.
The petition is impressed with merit.
A taxpayer engaged in zero-rated transactions may apply for tax refund or issuance of tax credit certificate for unutilized
input VAT, subject to the following requirements: (1) the taxpayer is engaged in sales which are zero-rated ( i.e., export
sales) or effectively zero-rated; (2) the taxpayer is VAT-registered; (3) the claim must be filed within two years after the
close of the taxable quarter when such sales were made; (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; and (5) in
case of zero-rated sales under Section 106 (A) (2) (a) (1) and (2), Section 106 (B) and Section 108 (B) (1) and (2), the
acceptable foreign currency exchange proceeds thereof have been duly accounted for in accordance with BSP rules and
regulations.[7]
Commissioner of Internal Revenue v. Seagate Technology ()[8] teaches that petitioner, as zero-rated seller, hence, directly
and legally liable for VAT, can claim a refund or tax credit certificate.
Zero-rated transactions generally refer to the export sale of goods and supply of services. The tax rate is set at zero. When
applied to the tax base, such rate obviously results in no tax chargeable against the purchaser. The seller of such transactions
charges no output tax but can claim a refund or a tax credit certificate for the VAT previously charged by suppliers. x x x
Applying the destination principle to the exportation of goods, automatic zero rating is primarily intended to be enjoyed by
the seller who is directly and legally liable for the VAT, making such seller internationally competitive by allowing the
refund or credit of input taxes that are attributable to export sales. (emphasis and underscoring supplied)
Revenue Regulation No. 3-88 amending Revenue Regulation No. 5-87 provides the requirements in claiming tax
credits/refunds:
Sec. 2. Section 16 of Revenue Regulations 5-87 is hereby amended to read as follows: x x x
(c) Claims for tax credits/refunds Application for Tax Credit/Refund of Value-Added Tax Paid (BIR Form No. 2552) shall
be filed with the Revenue District Office of the city or municipality where the principal place of business of the applicant is
located or directly with the Commissioner, Attention: VAT Division.
A photocopy of the purchase invoice or receipt evidencing the value added tax paid shall be submitted together with the
application. The original copy of the said invoice/receipt, however shall be presented for cancellation prior to the issuance
of the Tax Credit Certificate or refund. x x x (emphasis and underscoring supplied)
Section 113 of the Tax Code does not create a distinction between a sales invoice and an official receipt.
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 (TIN); 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. (emphasis, italics and underscoring supplied)
Section 110 of the 1997 Tax Code in fact provides:
Section 110. Tax Credits
A. Creditable Input Tax.
(1) Any input tax evidenced by a VAT invoice or official receipt issued in
accordance with Section 113 hereof on the following transactions shall be
creditable against the output tax:
(b) Purchase of services on which a value-added tax has actually been paid.
(emphasis, italics and underscoring supplied)
Parenthetically, to determine the validity of petitioners claim as to unutilized input VAT, an invoice would suffice provided
the requirements under Sections 113 and 237 of the Tax Code are met.
Sales invoices are recognized commercial documents to facilitate trade or credit transactions. They are proofs that a
business transaction has been concluded, hence, should not be considered bereft of probative value.[9] Only the
preponderance of evidence threshold as applied in ordinary civil cases is needed to substantiate a claim for tax refund
proper.[10]
IN FINE, the Court finds that petitioner has complied with the substantiation requirements to prove entitlement to
refund/tax credit. The Court is not a trier of facts, however, hence the need to remand the case to the CTA for determination
and computation of petitioners refund/tax credit.
WHEREFORE, the petition is GRANTED. The Decision of of the Court of Tax Appeals En Banc is REVERSED and
SET ASIDE. Let the case be REMANDED to the Court of Tax Appeals First Division for the determination of petitioners
tax credit/refund.
SO ORDERED.
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 166732
April 27, 2007
INTEL TECHNOLOGY PHILIPPINES, INC., Petitioner,

vs.
DECISION
CALLEJO, SR., J.:
Before the Court is a Petition for Review on Certiorari filed by Intel Technology Philippines, Inc. (petitioner) seeking to
reverse and set aside the Decision1 dated August 12, 2004 of the Court of Appeals (CA) in CA-G.R. SP No. 79327. The
assailed decision affirmed that of the Court of Tax Appeals denying petitioners claim for a refund or issuance of a tax credit
certificate in the amount of P11,770,181.70, allegedly representing the value-added input taxes it had paid on domestic
purchases of goods and services for the period of April 1, 1998 to June 30, 1998. Likewise sought to be reversed and set
aside is the appellate courts Resolution2 dated January 14, 2005 denying petitioners Motion for Reconsideration.
The Antecedents
Petitioner is a domestic corporation engaged primarily in the business of designing, developing, manufacturing and
exporting advanced and large- scale integrated circuit components (ICs). 3 It is registered with the Bureau of Internal
Revenue (BIR) as a value-added tax (VAT) entity in 1996 under Certificate of Registration RDO Control No. 96-540000713.4 It is likewise registered with the Philippine Economic Zone Authority (PEZA) as an Ecozone export enterprise. 5
As a VAT-registered entity, petitioner filed with the Commission of Internal Revenue its Monthly VAT Declarations and
Quarterly VAT Return for the second quarter of 1998 declaring zero-rated export sales of P2,538,906,840.16 and VAT input
taxes from domestic purchases of goods and services in the total amount of P11,770,181.70. Petitioner alleged that its zerorated export sales were paid for in acceptable foreign currency and were inwardly remitted in accordance with the
regulations of the Bangko Sentral ng Pilipinas (BSP).
On May 18, 1999, petitioner filed with the Commission of Internal Revenue, through its One-Stop Shop Inter-Agency Tax
Credit and Duty Drawback Center of the Department of Finance, a claim for tax credit/refund of VAT input taxes on its
domestic purchases of goods and services directly used in its commercial operations. Petitioners claim for refund amounted
to P11,770,181.70 covering the period April 1, 1998 to June 30, 1998.6

On June 30, 2000, when the two-year prescriptive period to file a refund was about to lapse without any action by the
Commission of Internal Revenue on its claim, petitioner filed with the Court of Tax Appeals (CTA) a petition for review
with the Commissioner of Internal Revenue (Commissioner) as respondent. 7 Petitioner alleged therein that:
3. Petitioner is engaged primarily in the business of designing, developing, manufacturing and exporting advanced
and large-scale integrated circuit components, commonly referred to in the industry as Integrated Circuits or "ICs."
As such, [it] has registered itself as a value-added tax entity pursuant to Section 107 of the Tax Code effective
January 30, 1996, pursuant to which it was issued Certificate of Registration No. 96-540-000713. Being engaged in
said business, Petitioner registered itself with the Philippine Economic Zone Authority (PEZA) as an export
enterprise and was issued Certificate of Registration No. 95-133 by the Philippine Economic Zone Authority.
Photocopies of Petitioners Certificate of Registration (BIR Form 1556) and PEZA Certificate of Registration are
hereto attached as Annexes "A" and "B," and made as integral parts hereof;
4. For the period covering April 01 to June 30, 1998, petitioner generated and recorded zero-rated export sales in
the amount of PhP2,538,906,840.16, Philippine Currency;
5. The above amount of P2,538,906,840.16 was paid to petitioner in acceptable foreign currency and was inwardly
remitted in accordance with existing regulations of the Central Bank of the Philippines pursuant to Sec. 106(A)(2)
(a)(1) of the Tax Code;
6. For the period covering April 01, 1998 to June 30, 1998, petitioner paid VAT input taxes amounting to
PhP11,770,181.70 for domestic purchases of goods and services which were attributable to petitioners zero-rated
sales of PhP2,538,906,840.16. Photocopies of petitioners quarterly VAT returns and monthly declarations for the
second taxable quarter of 1998 which was duly filed with the Respondent, and received by Respondents collection
agents, RCBC Gateway Branch are hereto attached as Annex "C," "D," "E" and "F" forming as integral parts
hereof;
7. The above VAT input taxes were paid in connection with the Petitioners trade or business and were duly
supported by invoices and/or receipts showing the information required under Sections 113 and 237 of the Tax
Code, and had not been applied against any VAT output tax liability of the Petitioner during the same period from
April 1, 1998 to June 30, 1998, or any succeeding period or periods;
xxxx
8. Being a VAT-registered entity, Petitioner is subject to the Value-Added Tax imposed under Title IV of the Tax
Code.
xxxx
9. The export sales of the petitioner are not subject to 10% value-added tax but are zero-rated. Hence, such zerorated sales will not result to any VAT output tax pursuant to Sec. 106(A)(2)(a)(1) and Sec. 108(B)(1) of the Tax
Code;
10. Petitioner, for the period covering April 01, 1998 to June 30, 1998, having generated zero-rated sales and paid
VAT input taxes in the course of its trade or business, which VAT input taxes are attributable to the zero-rated sales
and have not been applied to any VAT output tax liability of the Petitioner for said period or any succeeding quarter
or quarters nor has been issued any tax credit certificate, it follows that petitioner is entitled to the issuance of a tax
credit certificate for VAT input taxes in the amount of PhP11,770,181.70 x x x.
xxxx
11. On May 18, 1999, petitioner in compliance with the requisites provided for by law for the issuance of a tax
credit certificate filed a claim for tax credit in the total amount of PhP11,770,181.70, with respondent through the
One Stop Shop Inter-Agency Tax Credit and Duty Drawback Center per BIR Form No. 2552 entitled
APPLICATION FOR TAX CREDIT/REFUND OR VALUE-ADDED TAX PAID and Claimant Information
Sheet No. 35418. x x x
12. Respondent, however, despite such application for the issuance of a tax credit certificate above-mentioned and
notwithstanding presentation of documentary evidences in support of such application, failed to grant the tax credit
applied for. x x x8
Petitioner prayed that, after due proceedings, judgment be rendered in its favor, as follows:
WHEREFORE, it is respectfully prayed that this Honorable Court after trial render judgment:
1. Declaring Petitioner entitled to the issuance of tax credit certificate in the amount of PhP11,770,181.70
representing VAT input taxes paid by it during the period from April 01, 1998 to June 30, 1998, for which no tax
credit certificate was issued;
2. Ordering respondent to issue the tax credit certificate in favor of petitioner in the amount of PhP11,770,181.70
referred to above; and
3. Granting petitioner such other reliefs as may be just and equitable under the premises.9
The Commissioner, as respondent, opposed the petition and prayed for its dismissal. The following special and
affirmative defenses were raised:
4. Petitioner, being allegedly registered with the Philippine Economic Zone Authority, is exempt from all taxes,
including value-added tax, pursuant to Section 24 of Republic Act No. 7916, in relation to Section 103 of the Tax
Code, as amended by RA 7716. Since its sales are not zero-rated but are exempt from VAT, petitioner is not entitled
to refund of input tax pursuant to Section 4.106-1 and 4.103-1 of Revenue Regulations No. 7-95;
5. Petitioners alleged claim for refund is subject to administrative routinary investigation/examination by the
Bureau;
6. The amount of P47,582,813.72 being claimed by petitioner as alleged VAT input taxes for the period of 01 July
1997 to 31 December 1997 was not properly documented;
7. In an action for refund the burden of proof is on the taxpayer to establish its right to refund, and failure to sustain
the burden is fatal to the claim for refund/credit;
8. Petitioner must show that it has complied with the provisions of Sections 204(c) and 229 of the Tax Code on the
prescriptive period for claiming tax refund/credit;
9. Claims for refund are construed strictly against the claimant for the same partake the nature of exemption from
taxation.10
The CTA commissioned the services of an independent auditor, Eliseo Aurellado, to conduct an audit and evaluate
petitioners claim. On March 22, 2001, he submitted a Report to the CTA with the following conclusion:
In performing the above procedures, except for the net effect of the Input VAT paid on its purchases as compared to the
results of my review of supporting documents, as shown in Annex "B" no other matters came to my attention that cause me
to believe that the attached Schedule of Input VAT Paid should be adjusted. We believe that only the amounts of
P9,688,809.39 is a valid claim for tax credit. This report relates only to the application of Intel Technology Philippines, Inc.
for tax credit/refund specified on page 1 of this report and does not extend to the Financial Statements, taken as a whole, for
any period where the aforementioned tax refund is present.11
Appended thereto were the summary of purchases, statements of input VAT exception, and statements of zero-rated export
sales.12
Petitioner adduced testimonial evidence and offered the following documents in evidence:
EXHIBIT
DESCRIPTION
PURPOSE
"A"
A copy of Petitioners Certificate of To prove that Intel Technology Philippines,

Registration No. 95-133 issued by Inc. is registered with PEZA as Ecozone
Philippine Economic Zone Authority Export Enterprise.
(PEZA). This was already subject of
stipulation of facts.
"B"
A copy of Petitioners BIR Certificate of To prove that Petitioner is duly registered

Registration with RDO Control No. 96- with the Bureau of Internal Revenue.
540-000713 issued on January 30, 1996 by
Revenue District Office No. 54.
To prove that Petitioner is a duly registered

VAT entity.
This was already subject of stipulation of

facts.
"C" & "D"
"C-1" & "D-1"
Copies of the Monthly VAT Returns for the To prove that Petitioner filed its Monthly
month of April and May of 1998. These VAT Declaration for the month of April and
were already subjects of stipulation of May of 1998.
facts.
To prove that the monthly VAT Returns was
Signature of Pablo V. Pablo.
duly signed by Petitioners authorized agent.
"E"
"E-1"
Copies of Petitioners Quarterly VAT To prove that Petitioner filed its Quarterly
Return for the second quarter of 1998.
VAT return for the second quarter of 1998.
Signature of Pablo V. Pablo
This was already subject to
To prove that Petitioners authorized agent

properly signed the Quarterly VAT Return
for the second quarter of 1998.
stipulation of facts
"F" & "F-2"
"F-1"
Copies of Petitioners Amended Quarterly To prove that Petitioner filed its Amended
VAT Return for the second quarter of 1998. Quarterly VAT return for the second quarter
of 1998.
To prove that Petitioners authorized agent
This was already subject to stipulation of properly signed the Amended Quarterly VAT
Return for the second quarter of 1998.
facts.
"F-3"
Box No. 16A of the Amended Quarterly To prove that Petitioner properly reported its
VAT return for the second quarter of 1998. sales subject to zero-rated for the second
quarter of 1998.
"F-4"
Box No. 16B of the Amended Quarterly To prove that petitioner paid and remitted
VAT return for the second quarter of 1998. the output VAT for the second quarter of
1998.
"F-5"
Box No. 17 of the Amended Quarter VAT To prove that petitioner property reported its
return for the second quarter of 1998
export sales subject to zero-rated for the
second quarter of 1998 in the amount of
P2,538,906,840.160.
"F-6"
Box No. 22B of the Amended Quarterly To prove that petitioner incurred an input
VAT return for the second quarter of 1998. taxes on its domestic purchases of goods
and services for the second quarter of 1998
in the amount of P11,770,181.70.
"G" to "L" and

"H-2" and "K-
Copies of Petitioners Quarterly VAT To prove that Petitioner filed its Quarterly
Returns for the third and fourth quarters of VAT Returns for the third and fourth
2"
"G-1" to "L-1"
1998 and first and second quarters of 1999

including the amended returns for the third
quarter and first quarter of 1998 and 1999,
respectively.
quarters of 1998 and first and second

quarters of 1999 including the amended
returns for the third and first quarters of
1998 and 1999, respectively.
Signature of Pablo V. Pablo.
To prove that the Quarterly VAT returns

were properly signed by Petitioners duly
These were already subject of stipulation of authorized representative.
facts.
"H-3," "I-2,"
"K3" & "L-2"
Box No. 34 or 35 of the Quarterly VAT To prove that the Petitioner always has
returns for the third and fourth quarters of excess input VAT and the same was not
1998 and first and second quarters of 1999. utilized in the succeeding quarter or
quarters.
"M" & "N"

"M-1" & "N-1"
Copies
of
Petitioners
Claimant
Information Sheet No. 35418 including
BIR Form No. 2552 for the period April 1,
1998 to June 30, 1998 filed with the OneStop-Shop Inter-Agency Tax Credit and
Duty Drawback Center of the Department
of Finance duly stamped received last 0518-99.
To prove that Petitioner filed a claim for

refund of input taxes in the total amount of
P11,770,181.70 with the One-Stop-Shop
Inter-Agency Tax Credit and Duty
Drawback Center of the Department of
Finance last 05-18-99.
To prove that the claimant information sheet
and BIR form 2552 were signed by
Petitioners duly authorized representative.
These were already subject of stipulation of

facts.
"O"
"O-1"
"O-2"
Certification of inward remittance dated To prove that the proceeds of export sales of
March 08, 2000 issued by CITIBANK
petitioner were properly remitted in US
dollars in accordance with the regulations of
Signature of Pepper M. Lopez, CitiService the Bangko Sentral ng Pilipinas.
Officer
To prove that the Certification was properly
by
Citibanks
authorized
Amount of inward remittance in the signed
representative.
amount of US$98,000,000.00
To prove the amount of inward remittance in
the amount of US$98,000,000.00.
"P"
"P-1"
"P-2"
Certification of inward remittance dated To prove that the proceeds of export sales of
March 09, 2000 issued by RCBC
petitioner were properly remitted in US
dollars in accordance with the regulations of
the Bangko Sentral ng Pilipinas.
Signture of Ms. Araceli V.
Dyoco, Head Export Dept.
Amount of inward remittance in the
amount of US$102,499,965.00
To prove that the Certification was properly

signed
by
RCBCs
authorized
representative.
To prove the amount of inward remittance in
the amount of US$102,499,965.00.

"Q"
"Q-1" and "Q2"
Copy of the Certification issued by Mr.

Eliseo A. Aurellado, independent CPA
commissioned by the Honorable Court of
Tax Appeals.
To prove that Mr. Eliseo A. Aurellado has

issued a certification with regards to the
correctness of Petitioners summary input
VAT paid and summary of zero-rated sales.
Signature and PTR No. of Mr. Eliseo A. To prove that Mr. Eliseo A. Aurellado is the
Aurellado.
one who issued the above-mentioned
Certification and that he has the authority to
act as such.
"S"
Copy of the summary of purchases attached To prove the correctness of the input VAT
as Annex "A" to the Certification marked paid on domestic purchases of goods and
as "Annex "Q."
services for the second quarter of 1998.
"T"
"T-1"
Copy of schedule of input VAT paid with To prove the amount of input VAT paid on
exception attached as Annex "B" to the domestic purchases of goods and services
Certification marked as "Annex "Q."
with exception.
The total amount
P2,081,372.31.
of
exception
is To prove the total input VAT with exception

in the amount of P2,081,372.31.
"U-1" to "U-375," Copies of Petitioners supplier invoices and

"V-1" to V-665"
official receipts for the second quarter of
and "W-1" to "W- 1998.
424"
"X" to "X-669"
"Y"
Copies of Petitioners summary of export

sales, sales invoices, official receipts,
airway bills, export declarations and
certification of inward remittances for the
second quarter of 1998.
To prove that the input VAT paid by

Petitioner for the second quarter of 1998
except those with exception are property
supported with sales invoices and official
receipts.
To prove that Petitioner for the second

quarter of 1998 generated export sales in the
total amount of P2,538,906,840.16 and the
same were duly supported with documents.
Copy of the summary export sales To prove [that] from April 1, 1998 to June
consisting of 13 pages attached as Annex 30, 1998, Petitioner generated and recorded
"C" to the Certification marked as Exhibit
an export sales in the amount of
"Q."
P2,538,906,840.16.13
On April 21, 2003, the CTA rendered judgment denying petitioners claim for refund or issuance of a tax credit certificate.
The tax court acknowledged that petitioner is legally entitled to a refund or issuance of a tax credit certificate of its
unutilized VAT input taxes on domestic purchases of goods and service attributable to its zero-rated sales. However, the
export invoices adduced in evidence by petitioner could not be considered as competent evidence to prove its zero-rated
sales of goods for VAT purposes and for refund or issuance of a tax credit certificate because no BIR authority to print said
invoices was indicated thereon. The CTA also observed that some of the invoices do not contain the Taxpayers
Identification Number-VAT (TIN-V) of petitioner as required in Section 113, in conjunction with Section 237, of the Tax
Code. The dispositive portion of the CTA decision reads:
WHEREFORE, in view of the foregoing, petitioners claim for issuance of a tax credit certificate in the amount of
P11,770,181.70 allegedly representing its VAT input taxes on domestic purchases of goods and services for the period April
1, 1998 to June 30, 1998 is hereby DENIED.

SO ORDERED.14
Petitioner filed a Motion for Reconsideration 15 alleging that it was able to prove its export sales by the following
documentary evidence:
(1) Certifications of inward remittances marked as Exhibits "O" and "P" for the Petitioner.
(2) Airway bills.
(3) Export declarations.
(4) Certifications of Mr. Eliseo Aurellado (Exhibit "Q" for the Petitioner), the independent CPA duly commissioned
by this Honorable Court, to the effect that the petitioner made export sales for the period covered in the amount of
Php2,538, 906,840.16.16
Petitioner also alleged the following in its Supplemental Motion for Reconsideration:
The petitioner truly believes that although the invoicing requirements prescribed under Section 113 (A)(1), in relation to
Section 237 of the 1997 Tax Code, should be applied strictly in the use of invoices or receipts for purposes of substantiating
input VAT incurred, the same stringent application is not called for when the invoices or receipts are used for purposes of
substantiating actual export sales.
While the invoices or receipts being used to substantiate claim for input VAT pertain to domestic sales, the invoices or
receipts presented by the petitioner, and which were invalidated by this Honorable Court pertain to export sales. There
should be a marked difference because in domestic sales, there results a corresponding input VAT which may be possibly
claimed by the purchaser, whereas in export sales, such as those done by the petitioner, the purchaser incurs no input VAT
which it may eventually claim. Thus, for purposes of substantiation in the claim for input VAT resulting from domestic sales
the stern application of the mentioned invoicing requirements is naturally demanded. But for simple purposes of
substantiating export sales, as in the case of petitioner, it should not be as exacting especially considering that the petitioner
still has to substantiate its input VAT, which, this time, needs to hurdle the aforesaid invoicing requirements under the 1997
Tax Code.
Moreover, unlike in the substantiation of input VAT, which can only be done through the submission of domestic sales
invoices, there are other documents to show the fact of export sales such as export declarations, inward remittances and
airway bills. This gives more plausible reason why invoices or receipts being used to prove input VAT need to comply with
the invoice requirements set forth under Section 113(A)(1), in relation to Section 237, of the 1997 Tax Code. 17
Petitioner appended thereto a letter-authority dated April 17, 1997 signed by BIR Regional Director Sol Hubahib of Region
No. 9 approving its request to use computerized sales invoices.
On September 1, 2003, the CTA denied petitioners Motion for Reconsideration and Supplemental Motion for
Reconsideration.
Aggrieved, petitioner filed before the CA a petition for review of the tax courts decision. Petitioner averred that, under
Sections 113(A)(1) and 237 of the 1997 Tax Code, the following information is required to be indicated in the invoice or
receipt: (1) a statement that the seller is VAT-registered; (2) the sellers TIN; and (3) the name, business style, if any, and
address of the purchaser, customer or client. However, petitioner averred, such requirements apply only to domestic or local
sales, considering that the output tax (the input tax on the part of the local purchaser), may be claimed by the latter as a
credit against its output VAT. Thus, according to petitioner, the invoices or receipts being issued by the local seller are
required to indicate the information listed under the aforementioned provisions of the Tax Code so that the local purchaser
would have a valid basis in its claim for the crediting of the input VAT. On the other hand, such requirements do not apply to
its export sales, since no input VAT may be claimed thereon. Petitioner further pointed out that the transaction is subject to
0% rate; there is no input VAT to be claimed by its foreign purchaser; and the latter is not a VAT-registered entity in the
Philippines. Considering that no refundable or creditable input VAT results from its export sales transactions, it should not
be subjected to strict compliance with the invoicing requirements.
Petitioner also claimed that the absence of BIR authority to print its TIN-V in some of the invoices is not fatal to its claim
for refund or issuance of a tax credit certificate as to invalidate the documents used to prove its export sales. It declared that
it used computerized accounting forms as sales invoices in its export sales based on the letter-authority dated April 17, 1997
of the BIR. It was only through plain mistake and inadvertence that the sales invoices it used had no authority to print. Such
omission should not allegedly render the said sales invoices altogether invalid or inadmissible for purposes of substantiating
petitioners actual export sales covering the period April 1, 1998 to June 30, 1998. Petitioner opined that its failure to
adduce in evidence the said letter-authority of the BIR was due to its honest belief that it had already adduced sufficient
evidence to prove its actual export sales.
Petitioner submitted that while the CTA ruled that the invoices which did not indicate TIN-V were not sufficient proof of its
export sales, this constituted only a small part of the hundreds of invoices it had submitted. These defective invoices,
therefore, relate to a small chunk of the export sales it made for the covered period. If at all, the invalid invoices could only
mean that only a small part of its claim was being disallowed, not the entire claim.
On August 12, 2004, the CA rendered its Decision 18 affirming the CTA ruling. The CA ruled that while under Section
106(A)(2)(a)(1) of the Tax Code, VAT-registered entities are entitled to claim VAT refund on their input taxes if their export
sales are zero-rated, the claim is nevertheless subject to the invoicing and accounting requirements of VAT-registered
persons under Section 113 in relation to Section 237 of the Tax Code. It is therefore clear, the appellate court concluded, that
what should be proven are not only the export sales but also compliance with the requirements under the aforesaid sections
of the Tax Code.19
The CA further ruled that Revenue Regulations (RR) No. 7-95 requires VAT-registered persons to issue duly registered
receipts, and enumerates the entries that should be contained in the said duly registered receipts. Section 237 of the Tax
Code further mandates that persons required to issue receipts or invoices should register these documents with the BIR. In
fact, RR No. 2-90 restored the requirement to register and stamp receipts and invoices prior to their use. 20 Thus, VATregistered persons are directed to issue duly registered invoices for every sale or lease of goods, properties or services,
containing the required information under the law.21
According to the CA, since petitioner issued invoices with the BIRs authority to print, it must be concluded that these
invoices were not registered as they did not comply with the invoicing requirements under Section 113, and the
requirements for issuance of receipts or sales or commercial invoices under Section 237. The CA declared that an
unregistered receipt could not be used as supporting document for input tax. 22 It further explained that Revenue
Memorandum Circular (RMC) No. 42-2003 already clarified that failure to comply with invoicing requirements would
result in the disallowance of the claim for input tax by the purchaser-claimant. Hence, the CA ruled, if the claim for refund
or issuance of a tax credit certificate is based on the taxpayers zero-rated sales, but the invoicing requirements in the
issuance of sales invoices are not complied with, the claim for tax credit/refund of VAT on its purchases shall be denied.
This is because the invoices issued to its customers failed to depict that the taxpayer is VAT-registered and that its sales are
classified as zero-rated. According to the appellate court, however, 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 depreciation, whichever is
applicable.23
The CA further declared that petitioner failed to establish that its computer-generated sales invoices were duly stamped with
the approval of the BIR as shown by the letter-authority dated April 17, 1997, considering that the said letter-authority was
not presented during the trial of the case, much less attached to the petition filed before it. 24 The fallo of the CA decision
reads:
WHEREFORE, in view of the foregoing, the instant petition is DENIED. The Decision of the Court of Tax Appeals in CTA
Case No. 6128 is hereby AFFIRMED. No pronouncement as to costs.
SO ORDERED.25
Undaunted by the adverse ruling of the appellate court, petitioner now seeks recourse to this Court on the following
grounds:
I.
THE DECISION OF THE COURT OF APPEALS AFFIRMING THE DENIAL OF PETITIONERS CLAIM
FOR TAX CREDIT/REFUND IS CONTRARY TO PROVISIONS OF THE TAX CODE AND
APPLICABLE REGULATIONS AND DECISIONS OF THE HONORABLE SUPREME COURT.
II.
SECTIONS 113 AND 237 OF THE TAX CODE DO NOT REQUIRE PETITIONER TO REFLECT ITS
AUTHORITY TO PRINT IN ITS INVOICES. PETITIONER IS NOT REQUIRED BY ANY LAW OR
REGULATION TO REFLECT ITS AUTHORITY TO PRINT UPON ITS INVOICES. NEITHER IS THE
FAILURE PENALIZED BY ANY LAW OR STATUTE SUCH THAT THE INVOICES ARE RENDERED
INADMISSIBLE.
III.
THE FAILURE TO STATE THE TIN-V IN PETITIONERS EXPORT SALES INVOICES SHOULD NOT
INVALIDATE PETITIONERS CLAIM. PETITIONERS EXPORT SALES INVOICES, WHICH ARE
ADMISSIBLE, COMPETENT AND MATERIAL EVIDENCE, SUFFICIENTLY PROVE PETITIONERS
EXPORT SALES.26
The Issues
The issues to be resolved in the instant case are (1) whether the absence of the BIR authority to print or the absence of the
TIN-V in petitioners export sales invoices operates to forfeit its entitlement to a tax refund/credit of its unutilized input
VAT attributable to its zero-rated sales; and (2) whether petitioners failure to indicate "TIN-V" in its sales invoices
automatically invalidates its claim for a tax credit certification.
Petitioner contends that Sections 113 and 237 of the Tax Code, and even RR 7-95, do not require the taxpayer to reflect its
authority to print in its invoices. 27 Failure to print such authority is not even penalized by any law or statute such that the
invoices which do not contain the BIR authority for petitioner to print its sales are rendered inadmissible in evidence. 28
Further, the authority to print under Section 238 of the Tax Code is a requirement that is separate from and independent of
the information that ought to be reflected in the invoice or official receipt as mandated by Section 113, in relation to Section
237 of the Tax Code.29 The BIR has even ruled, in BIR Ruling DA-375-03, that receipts which do not reflect that the
taxpayer is VAT-registered do not automatically invalidate the claim for an input tax credit. 30 Moreover, RR 2-90 (which
the appellate court cited in the assailed decision) does not state that failure to reflect the authority to print on the face of a
sales invoice or receipt results in the outright invalidation of such sales invoice or of the claim for tax credit/refund. 31 It
insists that RMC No. 42-03, which the CA likewise relied on in the assailed decision, does not apply, for it relates to noncompliance with invoicing requirements; the authority to print is not among the information required by law or any
regulation to be reflected in petitioners invoices.32
Petitioner asserts that even if it were assumed for the sake of argument that the BIR has issued a regulation to the effect that
failure to indicate the authority to print on the face of a sales invoice would render it invalid, such regulation cannot prevail
over the law that it seeks to implement. It insists that any additional requirement imposed by the BIR for a valid claim other
than those mandated by law is invalid,33 and that the provisions of a taxing act are not to be extended by implication.34
Further, petitioner contends that it was authorized by the BIR to use a computerized accounting system 35 through the letterauthority dated April 17, 1997. 36 It avers that even if the letter-authority was not offered in evidence, the Court ought to
take judicial notice thereof as an official act of the Executive Branch. 37 Petitioner asserts that since its export sales invoices
were computer-generated under an approved computerized accounting system, it is no longer mandated to comply with the
requirements under Section 19 of RR No. 2-90 on the authentication and registration of books, registers or records, authority
to print receipts, sales or commercial invoices; and registration and stamping of receipts and invoices. Such requirements
apply only to manually generated receipts and invoices. Even granting arguendo that it was still required by RR No. 7-95 to
indicate its authority to print in its invoices, it was not mandated to obtain an authority to print as the burden of securing the
same falls upon the printer of the receipts.38
Petitioner further contends that the invoicing requirement of stating the TIN-V applies only to domestic or local sales, given
that the output tax (the input tax on the part of the local purchaser), may be claimed by the latter as a credit against its output
VAT. In such a case, the invoicing requirements should be complied with in order for the local purchaser to have a valid
basis in its claim for crediting of input VAT. This, however, does not apply in the instant case for the following reasons:
petitioners export sales with its foreign purchaser is subject to zero-rated VAT; its foreign purchaser cannot claim input VAT
as it is governed by a foreign taxing jurisdiction; and the latter is not a VAT-registered entity in the Philippines. 39 To
buttress its claim, petitioner cites the decision of the CA in Intel Technology Philippines, Inc. v. CIR. 40
In any case, petitioner argues, it sufficiently proved its export sales since, other than the subject invoices, it also submitted in
evidence the following: certifications of inward remittances; airway bills; export declarations; certification by Eliseo
Aurellado, the independent CPA duly commissioned by the tax court, attesting that petitioner made export sales of
P2,538,906,840.16 during the second quarter of 1998.
Petitioner pleads that its application for tax credit/refund should be granted to serve the higher interest of justice, equity and
fairness, and claims that technicalities should give way to its substantive rights. 41 While it may be true that taxes are the
lifeblood of the government, technicalities and legalisms, however exalted, should not be misused by the government to
keep money not belonging to it and thereby enrich itself at the expense of its law-abiding citizens.
The Respondents Counter-Arguments
For his part, respondent Commissioner, through the Office of the Solicitor General, maintains that the absence of the BIR
authority to print and the TIN-V in its export sales invoices is fatal to petitioners claim for refund. 42 Section 113 of the Tax
Code enumerates the invoicing requirements for VAT-registered persons, which include, among others, a statement that the
seller is VAT-registered and the sellers TIN. 43 Section 237 of the same Code, and Section 4.108.1 of RR No. 7-95, further
require the issuance of duly registered receipts or invoices for every sale or transaction, indicating thereon the purchasers
TIN.44
A VAT-registered person is, therefore, required to issue a receipt or invoice with a TIN for every consummated sale, and
which, following Section 19 of RR No. 2-90,45 must be duly registered with the BIR as evidenced by a stamp of the
taxpayers authority to print.46 Respondent stresses that Section 238 of the Tax Code mandates all persons engaged in
business to secure an authority to print receipts or invoices from the BIR. 47 There is an additional requirement that such
authority to print must be stamped on every receipt or invoice of a VAT-registered person. While it is not explicitly
enumerated in Sections 113 and 237 of the Tax Code as one of the invoicing requirements, it can be implied from said
provisions that such information must be reflected on the receipt or invoice, as the stamping of the said BIR authority to
print is a proof of the invoice being BIR-registered. 48 Absent the said authority to print, therefore, petitioners invoices are
considered unregistered, and thus cannot be used as supporting documents to prove its input tax and eventually, its claim for
tax refund.49
Respondent Commissioner further emphasizes that tax refunds/ credits are in the nature of tax exemptions; hence, laws
relating to them call for a strict application against the claimant. 50 The burden to prove the entitlement to the refund also
rests on the taxpayer, which, in this case, was not proven by petitioner. 51 Moreover, petitioners argument, that it was
authorized by the BIR to use a computerized accounting system and as such is no longer required to secure an authority to
print, has no leg to stand on because the April 17, 1997 letter-authority 52 from the BIR was not formally offered in
evidence.53 It insists that since the letter-authority is a mere correspondence containing matters that are not of public
knowledge and incapable of unquestionable demonstration, the Court cannot take judicial notice thereof. 54 And even if
petitioner was authorized to use computerized invoices, it was not excused from complying with the stamping and invoicing
requirements.55
Lastly, respondent contends that it is incorrect for petitioner to state that the invoicing requirement under the Tax Code finds
relevance only in domestic or local sales. The provisions of the law and the BIR regulations on invoicing do not distinguish
whether the transaction is an export or local sale.56
The Courts Ruling
The petition is partially granted.
Since the issues are interrelated, the Court shall delve into and resolve them simultaneously.
The pertinent provision of the Tax Code on VAT on the sale of goods or properties, particularly with respect to export sales,
is Section 106(A)(2)(a)(1).57 The provision reads:
Section 106. Value-added Tax on Sale of Goods or Properties.
(A) Rate and Base of Tax.-- xxx
xxxx
(2) The following sales by VAT-registered persons shall be subject to zero percent (0%) rate:
(a) Export Sales.--The term export sales means:
(1) The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of any shipping
arrangement that may be agreed upon which may influence or determine the transfer of ownership of the goods so exported
and paid for in acceptable foreign currency or its equivalent in goods or services, and accounted for in accordance with the
rules and regulations of the Bangko Sentral ng Pilipinas (BSP).
Based on the above provision, export sales, or sales outside the Philippines, are subject to VAT at 0% rate if made by a VATregistered person.58 When applied to the tax base, the 0% rate obviously results in no tax chargeable against the purchaser.
The seller of such transactions charges no output tax, but can claim a refund or tax credit certificate for the VAT previously
charged by suppliers.59
In the instant case, petitioner, as a VAT-registered as well as PEZA-registered entity engaged in the export of advanced and
large-scale ICs, is claiming a refund or issuance of a tax credit certificate in the amount of P11,770,181.70 for VAT input
taxes it paid on its domestic purchases of goods and services covering the period April 1, 1998 to June 30, 1998. For
petitioner (or other VAT-registered persons or entities whose sales are zero-rated or effectively zero-rated) to validly claim a
refund or tax credit, Section 112(A) of the Tax Code provides:
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 zerorated 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 or 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.60
Under Sections 106 (A)(2)(a)(1) in relation to 112(A) of the Tax Code, a taxpayer engaged in zero-rated or effectively zerorated transactions may apply for a refund or issuance of a tax credit certificate for input taxes paid attributable to such sales
upon complying with the following requisites: (1) the taxpayer is engaged in sales which are zero-rated (like export sales) or
effectively zero-rated; (2) the taxpayer is VAT-registered; (3) the claim must be filed within two years after the close of the
taxable quarter when such sales were made; (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; and (5) in case of zerorated sales under Section 106(A)(2)(a)(1) and (2), Section 106(B), and Section 108(B)(1) and (2), the acceptable foreign
currency exchange proceeds thereof had been duly accounted for in accordance with BSP rules and regulations. It is added
that, "where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods
or properties or services, and the amount of creditable input tax due or paid cannot be directly or entirely attributed to any
one of the transactions, it shall be allocated proportionately on the basis of the volume of the sales."
In this connection, petitioner, in order to prove that it was engaged in export sales during the second quarter of 1998, offered
in evidence copies of summary of export sales, sales invoices, official receipts, airway bills, export declarations and
certification of inward remittances during the said period. 61 In addition, petitioners Certificate of Registration with RDO
Control No. 96-540-00071362 issued by the BIR and Certificate of Registration No. 95-133 63 issued by the PEZA were
likewise offered in evidence to prove that it is a VAT-registered entity as well as an Ecozone export enterprise.
To the mind of the Court, these documentary evidence submitted by petitioner, e.g., summary of export sales, sales invoices,
official receipts, airway bills and export declarations, prove that it is engaged in the "sale and actual shipment of goods from
the Philippines to a foreign country." In short, petitioner is considered engaged in export sales (a zero-rated transaction) if
made by a VAT-registered entity. Moreover, the certification of inward remittances attests to the fact of payment "in
acceptable foreign currency or its equivalent in goods or services, and accounted for in accordance with the rules and
regulations of the BSP." Thus, petitioners evidence, juxtaposed with the requirements of Sections 106 (A)(2)(a)(1) and
112(A) of the Tax Code, as enumerated earlier, sufficiently establish that it is entitled to a claim for refund or issuance of a
tax credit certificate for creditable input taxes.
Significantly, the CTA and the CA have similarly found petitioner to be legally entitled to a claim for refund or issuance of
tax credit certificate of its unutilized VAT input taxes on domestic purchases of goods and services attributable to its zerorated sales. They denied petitioners claim, however, on the ground that it purportedly failed to comply with the invoicing
requirements under Sections 113 and 237 of the Tax Code since its sales invoices do not bear the BIR authority to print, and
several of the invoices do not indicate the TIN-V.
On the latter point, the Court disagrees with the CTA and CA. As correctly argued by petitioner, there is no law or BIR rule
or regulation requiring petitioners authority from the BIR to print its sales invoices (BIR authority to print) to be reflected
or indicated therein. Sections 113, 237 and 238 of the Tax Code provide:
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 valueadded 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. 64 (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
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.65 (emphasis supplied)
Sec. 238. Printing of Receipts or Sales or Commercial Invoices. All persons who are engaged in business shall secure
from the Bureau of Internal Revenue an authority to print receipts or sales or commercial invoices before a printer can print
the same.
No authority to print receipts or sales or commercial invoices shall be granted unless the receipts or invoices to be printed
are serially numbered and shall show, among other things, the name, business style, Taxpayer Identification Number (TIN)
and business address of the person or entity to use the same, and such other information that may be required by rules and
regulations to be promulgated by the Secretary of Finance, upon recommendation of the Commissioner.
All persons who print receipt or sales or commercial invoices shall maintain a logbook/register of taxpayer who availed of
their printing services. The logbook/register shall contain the following information:
(1) Names, Taxpayer Identification Numbers of the persons or entities for whom the receipts or sales or
commercial invoices are printed; and
(2) Number of booklets, number of sets per booklet, number of copies per set and the serial numbers of the receipts
or invoices in each booklet. (emphasis supplied)
RR 2-90, as cited by respondent Commissioner, also states in its Section 19(d) that:
Section 19. Authentication and registration of books, register, or records; authority to print receipts, sales or commercial
invoices; and registration and stamping of receipts and invoices.
xxxx
(d) Registration and stamping of receipts and invoices
Before being used, the printed receipts, sales or commercial invoices shall be registered with the revenue district officer
where the principal place of business of the taxpayer is located within thirty (30) days from the date of printing the same.
The registration of the printed receipts or invoices shall be evidenced by an appropriate stamp on the face of the taxpayers
copy of the authority to print as well as on the front cover, on the back of the middle invoice or receipt and on the back of
the last invoice or receipt of the registered booklet or pad, authenticated by the signature of the officer authorized to place
the stamp thereon. (emphasis supplied)
RR 7-95, the Consolidated VAT Regulations, also states in Section 4.108-1 that:
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 invoices or receipts and
this shall be considered as a "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.
It is clear from the foregoing that while entities engaged in business are required to secure from the BIR an authority to print
receipts or invoices and to issue duly registered receipts or invoices, it is not required that the BIR authority to print be
reflected or indicated therein. Only the following items are required to be indicated in the receipts or invoices: (1) a
statement that the seller is a VAT-registered entity followed by its TIN-V; (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; (3) date of the transaction;
(4) quantity of merchandise; (5) unit cost; (6) description of merchandise or nature of service; (7) the name, business style,
if any, and address of the purchaser, customer or client in the case of sales, receipt or transfers in the amount of P100.00 or
more, or regardless of the amount, where the sale or transfer is made by a person liable to VAT to another person also liable
to VAT, or where the receipt is issued to cover payment made as rentals, commissions, compensations or fees; and (8) the
TIN of the purchaser where the purchaser is a VAT-registered person.
It should be noted that petitioner is engaged in export sales, such that the purchasers of its goods are foreign entities, which
are, logically, not VAT-registered in our country or liable to pay VAT in our jurisdiction. Items (7) and (8) in the above
enumeration do not, thus, apply to petitioner; that is, they need not be reflected or indicated in the invoices or receipts, given
that it is an entity engaged in export sales, and the purchasers of its goods which are foreign entities are not VAT-registered
in our country nor liable to pay VAT in our jurisdiction.
In any case, the above cited provisions of law and revenue regulations do not provide that failure to reflect or indicate in the
invoices or receipts the BIR authority to print, as well as the TIN-V, would result in the outright invalidation of these
invoices or receipts. Neither is it provided therein that such omission or failure would result in the outright denial of a claim
for tax credit/refund. Instead, Section 264 of the Tax Code imposes the penalty of fine and imprisonment for, among others,
invoices or receipts that do not truly reflect or contain all the required information, to wit:
Section 264. Failure or Refusal to Issue Receipts or Sales or Commercial Invoices, Violations Related to the Printing of
such Receipts or Invoices or Other Violations.
(a) Any person who, being required under Section 237 to issue receipts or sales or commercial invoices, fails or
refuses to issue such receipts or invoices, issues receipts or invoices that do not truly reflect and/or contain all the
informations required to be shown therein or uses multiple or double receipts or invoices, shall, upon conviction for
each act or omission, be punished by a fine of not less than One thousand pesos (P1,000) but not more than Fifty
thousand pesos (P50,000) and suffer imprisonment of not less than two (2) years but not more than four (4) years.
(b) Any person who commits any of the acts enumerated hereunder shall be penalized in the same manner and to
the same extent as provided for in this Section:
(1) Printing of receipts or sales or commercial invoices without authority from the Bureau of Internal
Revenue; or
(2) Printing of double or multiple sets of invoices or receipts;
(3) Printing of unnumbered receipts or sales or commercial invoices, not bearing the name, business style,
Taxpayer Identification Number, and business address of the person or entity.
The appellate courts reliance on RMC No. 42-2003 is misplaced. The said Circular clarified, inter alia, that failure to
comply with the invoicing requirements on the documents supporting the sale of goods and services would result in the
disallowance of the claim for refund or issuance of a tax credit certificate of creditable input taxes. The said Circular
mentioned as an example the failure to state the TIN of the taxpayer in the invoice or receipt. However, in petitioners case,
the principal ground for the denial of its claim for refund or issuance of a tax credit certificate is its failure to reflect or
indicate in its invoices the BIR authority to print. As earlier discussed, the BIR authority to print is not one of the items
required by law to be reflected or indicated in the invoices or receipts. In any case, the said Circular was issued on July 15,
2003 by then Commissioner Guillermo L. Parayno, Jr., while petitioners claim was filed on May 18, 1999. Hence, RMC
No. 42-2003 cannot be applied retroactively because to do so would be prejudicial to petitioner. In a long line of cases, 66
the Court has affirmed that the rulings, circulars, rules and regulations promulgated by the Commissioner on Internal
Revenue would have no retroactive application if to so apply them would be prejudicial to the taxpayers.
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.
To stress, petitioner, as a VAT-registered entity, is engaged in export sales of advanced and large-scale ICs and, as such,
under Section 106 (A)(2)(a)(1) of the Tax Code, its sales or transactions are subject to VAT at 0% rate. Further, subject to
the requirements stated in Section 112(A), it is entitled to claim refund or issuance of a tax credit certificate for input VAT
taxes attributable to its export sales. As the Court had the occasion to explain since no output VAT was imposed on the zerorated export sales, what the government reimburses or refunds to the claimant is the input VAT paid thus, the necessity for
the input VAT paid to be substantiated by purchase invoices or official receipts. 67 These sales invoices or receipts issued by
the supplier are necessary to substantiate the actual amount or quality of goods sold and their selling price, and, taken
collectively, are the best means to prove the input VAT payments of the claimant.68
In a claim for refund or issuance of a tax credit certificate attributable to zero-rated sales, what is to be closely scrutinized is
the documentary substantiation of the input VAT paid, as may be proven by other export documents, rather than the
supporting documents for the zero-rated export sales. And since petitioner has established by sufficient evidence that it is
entitled to a refund or issuance of a tax credit certificate, in accordance with the requirements of Sections 106 (A)(2)(a)(1)
and 112(A) of the Tax Code, then its claim should not be denied, notwithstanding its failure to state on the invoices the BIR
authority to print and the TIN-V. Worthy of mentioning again is the fact that even the CTA and the CA have found petitioner
to be legally entitled to a claim for refund or issuance of a tax credit certificate of its unutilized VAT input taxes on domestic
purchases of goods and services attributable to its zero-rated sales.
What applies to petitioner, as a PEZA-registered export enterprise, is the Courts pronouncement that leniency in the
implementation of the VAT is an imperative, precisely to spur economic growth in the country and attain global
competitiveness as envisioned in our laws. 69 The incentives offered to PEZA enterprises, among which are tax exemptions
and tax credits, ultimately redound to the benefit of the national economy, enticing as they do more enterprises to invest and
do business within the zones, thus creating more employment opportunities and infusing more dynamism to the vibrant
interplay of market forces.70
Even as the Court now holds that petitioner is legally entitled to a refund or issuance of a tax credit certificate of its
unutilized VAT input taxes on domestic purchases of goods and services attributable to its zero-rated sales, the case shall
nevertheless be remanded to the CTA for proper determination and computation of petitioners tax credit/refund,
considering that in the Report 71 of the independent auditor, Eliseo Aurellado, only the amount of P9,688,809.00 was
deemed as petitioners valid claim for tax credit. 72 According to Aurellado, the difference of P2,081,372.32 from
petitioners input VAT claim of P11,770,181.70 was not supported by sufficient documentary proof. 73 The Court, not being
a trier of facts, cannot certainly decide this factual circumstance.
WHEREFORE, premises considered, the petition is PARTIALLY GRANTED. The Decision dated August 12, 2004 of the
CA in CA-G.R. SP No. 79327 is REVERSED and SET ASIDE. The instant case is REMANDED to the Court of Tax
Appeals for the determination and computation of petitioners tax credit/refund.
SO ORDERED.
SUPREME COURT
Manila
SPECIAL FIRST DIVISION
G.R. No. 167330
September 18, 2009
PHILIPPINE HEALTH CARE PROVIDERS, INC., Petitioner,

vs.
RESOLUTION
CORONA, J.:
ARTICLE II
Declaration of Principles and State Policies
Section 15. The State shall protect and promote the right to health of the people and instill health
consciousness among them.
ARTICLE XIII
Social Justice and Human Rights
Section 11. The State shall adopt an integrated and comprehensive approach to health development which
shall endeavor to make essential goods, health and other social services available to all the people at
affordable cost. There shall be priority for the needs of the underprivileged sick, elderly, disabled, women,
and children. The State shall endeavor to provide free medical care to paupers.1
For resolution are a motion for reconsideration and supplemental motion for reconsideration dated July 10, 2008 and July
14, 2008, respectively, filed by petitioner Philippine Health Care Providers, Inc.2
We recall the facts of this case, as follows:
Petitioner is a domestic corporation whose primary purpose is "[t]o establish, maintain, conduct and operate a prepaid group
practice health care delivery system or a health maintenance organization to take care of the sick and disabled persons
enrolled in the health care plan and to provide for the administrative, legal, and financial responsibilities of the
organization." Individuals enrolled in its health care programs pay an annual membership fee and are entitled to various
preventive, diagnostic and curative medical services provided by its duly licensed physicians, specialists and other
professional technical staff participating in the group practice health delivery system at a hospital or clinic owned, operated
or accredited by it.
xxx
xxx
xxx
On January 27, 2000, respondent Commissioner of Internal Revenue [CIR] sent petitioner a formal demand letter and the
corresponding assessment notices demanding the payment of deficiency taxes, including surcharges and interest, for the
taxable years 1996 and 1997 in the total amount of P224,702,641.18. xxxx
The deficiency [documentary stamp tax (DST)] assessment was imposed on petitioners health care agreement with the
members of its health care program pursuant to Section 185 of the 1997 Tax Code xxxx
xxx
xxx
xxx
Petitioner protested the assessment in a letter dated February 23, 2000. As respondent did not act on the protest, petitioner
filed a petition for review in the Court of Tax Appeals (CTA) seeking the cancellation of the deficiency VAT and DST
assessments.
On April 5, 2002, the CTA rendered a decision, the dispositive portion of which read:
WHEREFORE, in view of the foregoing, the instant Petition for Review is PARTIALLY GRANTED. Petitioner is hereby
ORDERED to PAY the deficiency VAT amounting to P22,054,831.75 inclusive of 25% surcharge plus 20% interest from
January 20, 1997 until fully paid for the 1996 VAT deficiency and P31,094,163.87 inclusive of 25% surcharge plus 20%
interest from January 20, 1998 until fully paid for the 1997 VAT deficiency. Accordingly, VAT Ruling No. [231]-88 is
declared void and without force and effect. The 1996 and 1997 deficiency DST assessment against petitioner is hereby
CANCELLED AND SET ASIDE. Respondent is ORDERED to DESIST from collecting the said DST deficiency tax.
SO ORDERED.
Respondent appealed the CTA decision to the [Court of Appeals (CA)] insofar as it cancelled the DST assessment. He
claimed that petitioners health care agreement was a contract of insurance subject to DST under Section 185 of the 1997
Tax Code.
On August 16, 2004, the CA rendered its decision. It held that petitioners health care agreement was in the nature of a nonlife insurance contract subject to DST.
WHEREFORE, the petition for review is GRANTED. The Decision of the Court of Tax Appeals, insofar as it cancelled and
set aside the 1996 and 1997 deficiency documentary stamp tax assessment and ordered petitioner to desist from collecting
the same is REVERSED and SET ASIDE.
Respondent is ordered to pay the amounts of P55,746,352.19 and P68,450,258.73 as deficiency Documentary Stamp Tax for
1996 and 1997, respectively, plus 25% surcharge for late payment and 20% interest per annum from January 27, 2000,
pursuant to Sections 248 and 249 of the Tax Code, until the same shall have been fully paid.
SO ORDERED.
Petitioner moved for reconsideration but the CA denied it. Hence, petitioner filed this case.
xxx
xxx
xxx
In a decision dated June 12, 2008, the Court denied the petition and affirmed the CAs decision. We held that petitioners
health care agreement during the pertinent period was in the nature of non-life insurance which is a contract of indemnity,
citing Blue Cross Healthcare, Inc. v. Olivares3 and Philamcare Health Systems, Inc. v. CA.4 We also ruled that petitioners
contention that it is a health maintenance organization (HMO) and not an insurance company is irrelevant because contracts
between companies like petitioner and the beneficiaries under their plans are treated as insurance contracts. Moreover, DST
is not a tax on the business transacted but an excise on the privilege, opportunity or facility offered at exchanges for the
transaction of the business.
Unable to accept our verdict, petitioner filed the present motion for reconsideration and supplemental motion for
reconsideration, asserting the following arguments:
(a) The DST under Section 185 of the National Internal Revenue of 1997 is imposed only on a company engaged in
the business of fidelity bonds and other insurance policies. Petitioner, as an HMO, is a service provider, not an
insurance company.
(b) The Court, in dismissing the appeal in CIR v. Philippine National Bank, affirmed in effect the CAs disposition
that health care services are not in the nature of an insurance business.
(c) Section 185 should be strictly construed.
(d) Legislative intent to exclude health care agreements from items subject to DST is clear, especially in the light of
the amendments made in the DST law in 2002.
(e) Assuming arguendo that petitioners agreements are contracts of indemnity, they are not those contemplated
under Section 185.
(f) Assuming arguendo that petitioners agreements are akin to health insurance, health insurance is not covered by
Section 185.
(g) The agreements do not fall under the phrase "other branch of insurance" mentioned in Section 185.
(h) The June 12, 2008 decision should only apply prospectively.
(i) Petitioner availed of the tax amnesty benefits under RA 5 9480 for the taxable year 2005 and all prior years.
Therefore, the questioned assessments on the DST are now rendered moot and academic.6
Oral arguments were held in Baguio City on April 22, 2009. The parties submitted their memoranda on June 8, 2009.
In its motion for reconsideration, petitioner reveals for the first time that it availed of a tax amnesty under RA 94807 (also
known as the "Tax Amnesty Act of 2007") by fully paying the amount of P5,127,149.08 representing 5% of its net worth as
of the year ending December 31, 2005.8
We find merit in petitioners motion for reconsideration.
Petitioner was formally registered and incorporated with the Securities and Exchange Commission on June 30, 1987. 9 It is
engaged in the dispensation of the following medical services to individuals who enter into health care agreements with it:
Preventive medical services such as periodic monitoring of health problems, family planning counseling,
consultation and advices on diet, exercise and other healthy habits, and immunization;
Diagnostic medical services such as routine physical examinations, x-rays, urinalysis, fecalysis, complete
blood count, and the like and
Curative medical services which pertain to the performing of other remedial and therapeutic processes in the
event of an injury or sickness on the part of the enrolled member.10
Individuals enrolled in its health care program pay an annual membership fee. Membership is on a year-to-year basis. The
medical services are dispensed to enrolled members in a hospital or clinic owned, operated or accredited by petitioner,
through physicians, medical and dental practitioners under contract with it. It negotiates with such health care practitioners
regarding payment schemes, financing and other procedures for the delivery of health services. Except in cases of
emergency, the professional services are to be provided only by petitioner's physicians, i.e. those directly employed by it11
or whose services are contracted by it.12 Petitioner also provides hospital services such as room and board accommodation,
laboratory services, operating rooms, x-ray facilities and general nursing care. 13 If and when a member avails of the
benefits under the agreement, petitioner pays the participating physicians and other health care providers for the services
rendered, at pre-agreed rates.14
To avail of petitioners health care programs, the individual members are required to sign and execute a standard health care
agreement embodying the terms and conditions for the provision of the health care services. The same agreement contains
the various health care services that can be engaged by the enrolled member, i.e., preventive, diagnostic and curative
medical services. Except for the curative aspect of the medical service offered, the enrolled member may actually make use
of the health care services being offered by petitioner at any time.
Health Maintenance Organizations Are Not Engaged In The Insurance Business

We said in our June 12, 2008 decision that it is irrelevant that petitioner is an HMO and not an insurer because its
agreements are treated as insurance contracts and the DST is not a tax on the business but an excise on the privilege,
opportunity or facility used in the transaction of the business.15
Petitioner, however, submits that it is of critical importance to characterize the business it is engaged in, that is, to determine
whether it is an HMO or an insurance company, as this distinction is indispensable in turn to the issue of whether or not it is
liable for DST on its health care agreements.16
A second hard look at the relevant law and jurisprudence convinces the Court that the arguments of petitioner are
meritorious.
Section 185 of the National Internal Revenue Code of 1997 (NIRC of 1997) provides:
Section 185. Stamp tax on fidelity bonds and other insurance policies. On all policies of insurance or bonds or
obligations of the nature of indemnity for loss, damage, or liability made or renewed by any person, association or
company or corporation transacting the business of accident, fidelity, employers liability, plate, glass, steam boiler,
burglar, elevator, automatic sprinkler, or other branch of insurance (except life, marine, inland, and fire insurance), and
all bonds, undertakings, or recognizances, conditioned for the performance of the duties of any office or position, for the
doing or not doing of anything therein specified, and on all obligations guaranteeing the validity or legality of any bond or
other obligations issued by any province, city, municipality, or other public body or organization, and on all obligations
guaranteeing the title to any real estate, or guaranteeing any mercantile credits, which may be made or renewed by any such
person, company or corporation, there shall be collected a documentary stamp tax of fifty centavos (P0.50) on each four
pesos (P4.00), or fractional part thereof, of the premium charged. (Emphasis supplied)
It is a cardinal rule in statutory construction that no word, clause, sentence, provision or part of a statute shall be considered
surplusage or superfluous, meaningless, void and insignificant. To this end, a construction which renders every word
operative is preferred over that which makes some words idle and nugatory.17 This principle is expressed in the maxim Ut
magis valeat quam pereat, that is, we choose the interpretation which gives effect to the whole of the statute its every
word.18
From the language of Section 185, it is evident that two requisites must concur before the DST can apply, namely: (1) the
document must be a policy of insurance or an obligation in the nature of indemnity and (2) the maker should be
transacting the business of accident, fidelity, employers liability, plate, glass, steam boiler, burglar, elevator, automatic
sprinkler, or other branch of insurance (except life, marine, inland, and fire insurance).
Petitioner is admittedly an HMO. Under RA 7875 (or "The National Health Insurance Act of 1995"), an HMO is "an entity
that provides, offers or arranges for coverage of designated health services needed by plan members for a fixed prepaid
premium."19 The payments do not vary with the extent, frequency or type of services provided.
The question is: was petitioner, as an HMO, engaged in the business of insurance during the pertinent taxable years? We
rule that it was not.
Section 2 (2) of PD20 1460 (otherwise known as the Insurance Code) enumerates what constitutes "doing an insurance
business" or "transacting an insurance business:"
a) making or proposing to make, as insurer, any insurance contract;
b) making or proposing to make, as surety, any contract of suretyship as a vocation and not as merely incidental to
any other legitimate business or activity of the surety;
c) doing any kind of business, including a reinsurance business, specifically recognized as constituting the doing of
an insurance business within the meaning of this Code;
d) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to
evade the provisions of this Code.
In the application of the provisions of this Code, the fact that no profit is derived from the making of insurance contracts,
agreements or transactions or that no separate or direct consideration is received therefore, shall not be deemed conclusive
to show that the making thereof does not constitute the doing or transacting of an insurance business.
Various courts in the United States, whose jurisprudence has a persuasive effect on our decisions, 21 have determined that
HMOs are not in the insurance business. One test that they have applied is whether the assumption of risk and
indemnification of loss (which are elements of an insurance business) are the principal object and purpose of the
organization or whether they are merely incidental to its business. If these are the principal objectives, the business is that of
insurance. But if they are merely incidental and service is the principal purpose, then the business is not insurance.
Applying the "principal object and purpose test," 22 there is significant American case law supporting the argument that a
corporation (such as an HMO, whether or not organized for profit), whose main object is to provide the members of a group
with health services, is not engaged in the insurance business.
The rule was enunciated in Jordan v. Group Health Association 23 wherein the Court of Appeals of the District of Columbia
Circuit held that Group Health Association should not be considered as engaged in insurance activities since it was created
primarily for the distribution of health care services rather than the assumption of insurance risk.
xxx Although Group Healths activities may be considered in one aspect as creating security against loss from illness or
accident more truly they constitute the quantity purchase of well-rounded, continuous medical service by its members. xxx
The functions of such an organization are not identical with those of insurance or indemnity companies . The latter are
concerned primarily, if not exclusively, with risk and the consequences of its descent, not with service, or its extension in
kind, quantity or distribution; with the unusual occurrence, not the daily routine of living. Hazard is predominant. On the
other hand, the cooperative is concerned principally with getting service rendered to its members and doing so at
lower prices made possible by quantity purchasing and economies in operation. Its primary purpose is to reduce the
cost rather than the risk of medical care; to broaden the service to the individual in kind and quantity; to enlarge the
number receiving it; to regularize it as an everyday incident of living, like purchasing food and clothing or oil and
gas, rather than merely protecting against the financial loss caused by extraordinary and unusual occurrences, such
as death, disaster at sea, fire and tornado. It is, in this instance, to take care of colds, ordinary aches and pains, minor ills
and all the temporary bodily discomforts as well as the more serious and unusual illness. To summarize, the distinctive
features of the cooperative are the rendering of service, its extension, the bringing of physician and patient together,
the preventive features, the regularization of service as well as payment, the substantial reduction in cost by quantity
purchasing in short, getting the medical job done and paid for; not, except incidentally to these features, the
indemnification for cost after the services is rendered. Except the last, these are not distinctive or generally
characteristic of the insurance arrangement. There is, therefore, a substantial difference between contracting in this way
for the rendering of service, even on the contingency that it be needed, and contracting merely to stand its cost when or after
it is rendered.
That an incidental element of risk distribution or assumption may be present should not outweigh all other factors. If
attention is focused only on that feature, the line between insurance or indemnity and other types of legal arrangement and
economic function becomes faint, if not extinct. This is especially true when the contract is for the sale of goods or services
on contingency. But obviously it was not the purpose of the insurance statutes to regulate all arrangements for assumption or
distribution of risk. That view would cause them to engulf practically all contracts, particularly conditional sales and
contingent service agreements. The fallacy is in looking only at the risk element, to the exclusion of all others present
or their subordination to it. The question turns, not on whether risk is involved or assumed, but on whether that or
something else to which it is related in the particular plan is its principal object purpose. 24 (Emphasis supplied)
In California Physicians Service v. Garrison,25 the California court felt that, after scrutinizing the plan of operation as a
whole of the corporation, it was service rather than indemnity which stood as its principal purpose.
There is another and more compelling reason for holding that the service is not engaged in the insurance business. Absence
or presence of assumption of risk or peril is not the sole test to be applied in determining its status. The question,
more broadly, is whether, looking at the plan of operation as a whole, service rather than indemnity is its principal
object and purpose. Certainly the objects and purposes of the corporation organized and maintained by the California
physicians have a wide scope in the field of social service. Probably there is no more impelling need than that of
adequate medical care on a voluntary, low-cost basis for persons of small income. The medical profession unitedly is
endeavoring to meet that need. Unquestionably this is service of a high order and not indemnity. 26 (Emphasis
supplied)
American courts have pointed out that the main difference between an HMO and an insurance company is that HMOs
undertake to provide or arrange for the provision of medical services through participating physicians while insurance
companies simply undertake to indemnify the insured for medical expenses incurred up to a pre-agreed limit. Somerset
Orthopedic Associates, P.A. v. Horizon Blue Cross and Blue Shield of New Jersey27 is clear on this point:
The basic distinction between medical service corporations and ordinary health and accident insurers is that the former
undertake to provide prepaid medical services through participating physicians, thus relieving subscribers of any further
financial burden, while the latter only undertake to indemnify an insured for medical expenses up to, but not beyond, the
schedule of rates contained in the policy.
xxx
xxx
xxx
The primary purpose of a medical service corporation, however, is an undertaking to provide physicians who will render
services to subscribers on a prepaid basis. Hence, if there are no physicians participating in the medical service
corporations plan, not only will the subscribers be deprived of the protection which they might reasonably have
expected would be provided, but the corporation will, in effect, be doing business solely as a health and accident
indemnity insurer without having qualified as such and rendering itself subject to the more stringent financial requirements
of the General Insurance Laws.
A participating provider of health care services is one who agrees in writing to render health care services to or for persons
covered by a contract issued by health service corporation in return for which the health service corporation agrees to
make payment directly to the participating provider.28 (Emphasis supplied)
Consequently, the mere presence of risk would be insufficient to override the primary purpose of the business to provide
medical services as needed, with payment made directly to the provider of these services. 29 In short, even if petitioner
assumes the risk of paying the cost of these services even if significantly more than what the member has prepaid, it
nevertheless cannot be considered as being engaged in the insurance business.
By the same token, any indemnification resulting from the payment for services rendered in case of emergency by nonparticipating health providers would still be incidental to petitioners purpose of providing and arranging for health care
services and does not transform it into an insurer. To fulfill its obligations to its members under the agreements, petitioner is
required to set up a system and the facilities for the delivery of such medical services. This indubitably shows that
indemnification is not its sole object.
In fact, a substantial portion of petitioners services covers preventive and diagnostic medical services intended to keep
members from developing medical conditions or diseases.30 As an HMO, it is its obligation to maintain the good health of
its members. Accordingly, its health care programs are designed to prevent or to minimize the possibility of any
assumption of risk on its part. Thus, its undertaking under its agreements is not to indemnify its members against any loss
or damage arising from a medical condition but, on the contrary, to provide the health and medical services needed to
prevent such loss or damage.31
Overall, petitioner appears to provide insurance-type benefits to its members (with respect to its curative medical services),
but these are incidental to the principal activity of providing them medical care. The "insurance-like" aspect of petitioners
business is miniscule compared to its noninsurance activities. Therefore, since it substantially provides health care services
rather than insurance services, it cannot be considered as being in the insurance business.
It is important to emphasize that, in adopting the "principal purpose test" used in the above-quoted U.S. cases, we are not
saying that petitioners operations are identical in every respect to those of the HMOs or health providers which were parties
to those cases. What we are stating is that, for the purpose of determining what "doing an insurance business" means, we
have to scrutinize the operations of the business as a whole and not its mere components. This is of course only prudent and
appropriate, taking into account the burdensome and strict laws, rules and regulations applicable to insurers and other
entities engaged in the insurance business. Moreover, we are also not unmindful that there are other American authorities
who have found particular HMOs to be actually engaged in insurance activities. 32
Lastly, it is significant that petitioner, as an HMO, is not part of the insurance industry. This is evident from the fact that it is
not supervised by the Insurance Commission but by the Department of Health. 33 In fact, in a letter dated September 3,
2000, the Insurance Commissioner confirmed that petitioner is not engaged in the insurance business. This determination of
the commissioner must be accorded great weight. It is well-settled that the interpretation of an administrative agency which
is tasked to implement a statute is accorded great respect and ordinarily controls the interpretation of laws by the courts. The
reason behind this rule was explained in Nestle Philippines, Inc. v. Court of Appeals:34
The rationale for this rule relates not only to the emergence of the multifarious needs of a modern or modernizing society
and the establishment of diverse administrative agencies for addressing and satisfying those needs; it also relates to the
accumulation of experience and growth of specialized capabilities by the administrative agency charged with implementing
a particular statute. In Asturias Sugar Central, Inc. vs. Commissioner of Customs,35 the Court stressed that executive
officials are presumed to have familiarized themselves with all the considerations pertinent to the meaning and purpose of
the law, and to have formed an independent, conscientious and competent expert opinion thereon. The courts give much
weight to the government agency officials charged with the implementation of the law, their competence, expertness,
experience and informed judgment, and the fact that they frequently are the drafters of the law they interpret. 36
A Health Care Agreement Is Not An Insurance Contract Contemplated Under Section 185 Of The NIRC of 1997
Section 185 states that DST is imposed on "all policies of insurance or obligations of the nature of indemnity for loss,
damage, or liability." In our decision dated June 12, 2008, we ruled that petitioners health care agreements are contracts
of indemnity and are therefore insurance contracts:
It is incorrect to say that the health care agreement is not based on loss or damage because, under the said agreement,
petitioner assumes the liability and indemnifies its member for hospital, medical and related expenses (such as professional
fees of physicians). The term "loss or damage" is broad enough to cover the monetary expense or liability a member will
incur in case of illness or injury.
Under the health care agreement, the rendition of hospital, medical and professional services to the member in case of
sickness, injury or emergency or his availment of so-called "out-patient services" (including physical examination, x-ray
and laboratory tests, medical consultations, vaccine administration and family planning counseling) is the contingent event
which gives rise to liability on the part of the member. In case of exposure of the member to liability, he would be entitled to
indemnification by petitioner.
Furthermore, the fact that petitioner must relieve its member from liability by paying for expenses arising from the
stipulated contingencies belies its claim that its services are prepaid. The expenses to be incurred by each member cannot be
predicted beforehand, if they can be predicted at all. Petitioner assumes the risk of paying for the costs of the services even
if they are significantly and substantially more than what the member has "prepaid." Petitioner does not bear the costs alone
but distributes or spreads them out among a large group of persons bearing a similar risk, that is, among all the other
members of the health care program. This is insurance.37
We reconsider. We shall quote once again the pertinent portion of Section 185:
Section 185. Stamp tax on fidelity bonds and other insurance policies. On all policies of insurance or bonds or
obligations of the nature of indemnity for loss, damage, or liability made or renewed by any person, association or
company or corporation transacting the business of accident, fidelity, employers liability, plate, glass, steam boiler, burglar,
elevator, automatic sprinkler, or other branch of insurance (except life, marine, inland, and fire insurance), xxxx (Emphasis
supplied)
In construing this provision, we should be guided by the principle that tax statutes are strictly construed against the taxing
authority.38 This is because taxation is a destructive power which interferes with the personal and property rights of the
people and takes from them a portion of their property for the support of the government. 39 Hence, tax laws may not be
extended by implication beyond the clear import of their language, nor their operation enlarged so as to embrace matters not
specifically provided.40
We are aware that, in Blue Cross and Philamcare, the Court pronounced that a health care agreement is in the nature of nonlife insurance, which is primarily a contract of indemnity. However, those cases did not involve the interpretation of a tax
provision. Instead, they dealt with the liability of a health service provider to a member under the terms of their health care
agreement. Such contracts, as contracts of adhesion, are liberally interpreted in favor of the member and strictly against the
HMO. For this reason, we reconsider our ruling that Blue Cross and Philamcare are applicable here.
Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one undertakes for a
consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. An
insurance contract exists where the following elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designed peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses among a large group of persons
bearing a similar risk and
5. In consideration of the insurers promise, the insured pays a premium.41
Do the agreements between petitioner and its members possess all these elements? They do not.
First. In our jurisdiction, a commentator of our insurance laws has pointed out that, even if a contract contains all the
elements of an insurance contract, if its primary purpose is the rendering of service, it is not a contract of insurance:
It does not necessarily follow however, that a contract containing all the four elements mentioned above would be an
insurance contract. The primary purpose of the parties in making the contract may negate the existence of an
insurance contract. For example, a law firm which enters into contracts with clients whereby in consideration of periodical
payments, it promises to represent such clients in all suits for or against them, is not engaged in the insurance business. Its
contracts are simply for the purpose of rendering personal services. On the other hand, a contract by which a corporation, in
consideration of a stipulated amount, agrees at its own expense to defend a physician against all suits for damages for
malpractice is one of insurance, and the corporation will be deemed as engaged in the business of insurance. Unlike the
lawyers retainer contract, the essential purpose of such a contract is not to render personal services, but to indemnify
against loss and damage resulting from the defense of actions for malpractice. 42 (Emphasis supplied)
Second. Not all the necessary elements of a contract of insurance are present in petitioners agreements. To begin with, there
is no loss, damage or liability on the part of the member that should be indemnified by petitioner as an HMO. Under the
agreement, the member pays petitioner a predetermined consideration in exchange for the hospital, medical and professional
services rendered by the petitioners physician or affiliated physician to him. In case of availment by a member of the
benefits under the agreement, petitioner does not reimburse or indemnify the member as the latter does not pay any third
party. Instead, it is the petitioner who pays the participating physicians and other health care providers for the services
rendered at pre-agreed rates. The member does not make any such payment.
In other words, there is nothing in petitioner's agreements that gives rise to a monetary liability on the part of the member to
any third party-provider of medical services which might in turn necessitate indemnification from petitioner. The terms
"indemnify" or "indemnity" presuppose that a liability or claim has already been incurred. There is no indemnity precisely
because the member merely avails of medical services to be paid or already paid in advance at a pre-agreed price under the
agreements.
Third. According to the agreement, a member can take advantage of the bulk of the benefits anytime, e.g. laboratory
services, x-ray, routine annual physical examination and consultations, vaccine administration as well as family planning
counseling, even in the absence of any peril, loss or damage on his or her part.
Fourth. In case of emergency, petitioner is obliged to reimburse the member who receives care from a non-participating
physician or hospital. However, this is only a very minor part of the list of services available. The assumption of the expense
by petitioner is not confined to the happening of a contingency but includes incidents even in the absence of illness or
injury.
In Michigan Podiatric Medical Association v. National Foot Care Program, Inc.,43 although the health care contracts called
for the defendant to partially reimburse a subscriber for treatment received from a non-designated doctor, this did not make
defendant an insurer. Citing Jordan, the Court determined that "the primary activity of the defendant (was) the provision of
podiatric services to subscribers in consideration of prepayment for such services." 44 Since indemnity of the insured was
not the focal point of the agreement but the extension of medical services to the member at an affordable cost, it did not
partake of the nature of a contract of insurance.
Fifth. Although risk is a primary element of an insurance contract, it is not necessarily true that risk alone is sufficient to
establish it. Almost anyone who undertakes a contractual obligation always bears a certain degree of financial risk.
Consequently, there is a need to distinguish prepaid service contracts (like those of petitioner) from the usual insurance
contracts.
Indeed, petitioner, as an HMO, undertakes a business risk when it offers to provide health services: the risk that it might fail
to earn a reasonable return on its investment. But it is not the risk of the type peculiar only to insurance companies.
Insurance risk, also known as actuarial risk, is the risk that the cost of insurance claims might be higher than the premiums
paid. The amount of premium is calculated on the basis of assumptions made relative to the insured. 45
However, assuming that petitioners commitment to provide medical services to its members can be construed as an
acceptance of the risk that it will shell out more than the prepaid fees, it still will not qualify as an insurance contract
because petitioners objective is to provide medical services at reduced cost, not to distribute risk like an insurer.
In sum, an examination of petitioners agreements with its members leads us to conclude that it is not an insurance contract
within the context of our Insurance Code.
There Was No Legislative Intent To Impose DST On Health Care Agreements Of HMOs
Furthermore, militating in convincing fashion against the imposition of DST on petitioners health care agreements under
Section 185 of the NIRC of 1997 is the provisions legislative history. The text of Section 185 came into U.S. law as early as
1904 when HMOs and health care agreements were not even in existence in this jurisdiction. It was imposed under Section
116, Article XI of Act No. 1189 (otherwise known as the "Internal Revenue Law of 1904") 46 enacted on July 2, 1904 and
became effective on August 1, 1904. Except for the rate of tax, Section 185 of the NIRC of 1997 is a verbatim reproduction
of the pertinent portion of Section 116, to wit:
ARTICLE XI
Stamp Taxes on Specified Objects
Section 116. There shall be levied, collected, and paid for and in respect to the several bonds, debentures, or
certificates of stock and indebtedness, and other documents, instruments, matters, and things mentioned and
described in this section, or for or in respect to the vellum, parchment, or paper upon which such instrument,
matters, or things or any of them shall be written or printed by any person or persons who shall make, sign, or
issue the same, on and after January first, nineteen hundred and five, the several taxes following:
xxx
xxx
xxx
Third xxx (c) on all policies of insurance or bond or obligation of the nature of indemnity for loss,
damage, or liability made or renewed by any person, association, company, or corporation transacting
the business of accident, fidelity, employers liability, plate glass, steam boiler, burglar, elevator,
automatic sprinkle, or other branch of insurance (except life, marine, inland, and fire insurance) xxxx
(Emphasis supplied)
On February 27, 1914, Act No. 2339 (the Internal Revenue Law of 1914) was enacted revising and consolidating the laws
relating to internal revenue. The aforecited pertinent portion of Section 116, Article XI of Act No. 1189 was completely
reproduced as Section 30 (l), Article III of Act No. 2339. The very detailed and exclusive enumeration of items subject to
DST was thus retained.
On December 31, 1916, Section 30 (l), Article III of Act No. 2339 was again reproduced as Section 1604 (l), Article IV of
Act No. 2657 (Administrative Code). Upon its amendment on March 10, 1917, the pertinent DST provision became Section
1449 (l) of Act No. 2711, otherwise known as the Administrative Code of 1917.
Section 1449 (1) eventually became Sec. 222 of Commonwealth Act No. 466 (the NIRC of 1939), which codified all the
internal revenue laws of the Philippines. In an amendment introduced by RA 40 on October 1, 1946, the DST rate was
increased but the provision remained substantially the same.
Thereafter, on June 3, 1977, the same provision with the same DST rate was reproduced in PD 1158 (NIRC of 1977) as
Section 234. Under PDs 1457 and 1959, enacted on June 11, 1978 and October 10, 1984 respectively, the DST rate was
again increased.1avvphi1
Effective January 1, 1986, pursuant to Section 45 of PD 1994, Section 234 of the NIRC of 1977 was renumbered as Section
198. And under Section 23 of EO47 273 dated July 25, 1987, it was again renumbered and became Section 185.
On December 23, 1993, under RA 7660, Section 185 was amended but, again, only with respect to the rate of tax.
Notwithstanding the comprehensive amendment of the NIRC of 1977 by RA 8424 (or the NIRC of 1997), the subject legal
provision was retained as the present Section 185. In 2004, amendments to the DST provisions were introduced by RA
924348 but Section 185 was untouched.
On the other hand, the concept of an HMO was introduced in the Philippines with the formation of Bancom Health Care
Corporation in 1974. The same pioneer HMO was later reorganized and renamed Integrated Health Care Services, Inc. (or
Intercare). However, there are those who claim that Health Maintenance, Inc. is the HMO industry pioneer, having set foot
in the Philippines as early as 1965 and having been formally incorporated in 1991. Afterwards, HMOs proliferated quickly
and currently, there are 36 registered HMOs with a total enrollment of more than 2 million. 49
We can clearly see from these two histories (of the DST on the one hand and HMOs on the other) that when the law
imposing the DST was first passed, HMOs were yet unknown in the Philippines. However, when the various amendments to
the DST law were enacted, they were already in existence in the Philippines and the term had in fact already been defined
by RA 7875. If it had been the intent of the legislature to impose DST on health care agreements, it could have done so in
clear and categorical terms. It had many opportunities to do so. But it did not. The fact that the NIRC contained no specific
provision on the DST liability of health care agreements of HMOs at a time they were already known as such, belies any
legislative intent to impose it on them. As a matter of fact, petitioner was assessed its DST liability only on January 27,
2000, after more than a decade in the business as an HMO. 50
Considering that Section 185 did not change since 1904 (except for the rate of tax), it would be safe to say that health care
agreements were never, at any time, recognized as insurance contracts or deemed engaged in the business of insurance
within the context of the provision.
The Power To Tax Is Not The Power To Destroy
As a general rule, the power to tax is an incident of sovereignty and is unlimited in its range, acknowledging in its very
nature no limits, so that security against its abuse is to be found only in the responsibility of the legislature which imposes
the tax on the constituency who is to pay it. 51 So potent indeed is the power that it was once opined that "the power to tax
involves the power to destroy."52
Petitioner claims that the assessed DST to date which amounts to P376 million53 is way beyond its net worth of P259
million.54 Respondent never disputed these assertions. Given the realities on the ground, imposing the DST on petitioner
would be highly oppressive. It is not the purpose of the government to throttle private business. On the contrary, the
government ought to encourage private enterprise. 55 Petitioner, just like any concern organized for a lawful economic
activity, has a right to maintain a legitimate business. 56 As aptly held in Roxas, et al. v. CTA, et al.:57
The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with caution to
minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and uniformly, lest the tax
collector kill the "hen that lays the golden egg."58
Legitimate enterprises enjoy the constitutional protection not to be taxed out of existence. Incurring losses because of a tax
imposition may be an acceptable consequence but killing the business of an entity is another matter and should not be
allowed. It is counter-productive and ultimately subversive of the nations thrust towards a better economy which will
ultimately benefit the majority of our people.59
Petitioners Tax Liability Was Extinguished Under The Provisions Of RA 9840
Petitioner asserts that, regardless of the arguments, the DST assessment for taxable years 1996 and 1997 became moot and
academic60 when it availed of the tax amnesty under RA 9480 on December 10, 2007. It paid P5,127,149.08 representing
5% of its net worth as of the year ended December 31, 2005 and complied with all requirements of the tax amnesty. Under
Section 6(a) of RA 9480, it is entitled to immunity from payment of taxes as well as additions thereto, and the appurtenant
civil, criminal or administrative penalties under the 1997 NIRC, as amended, arising from the failure to pay any and all
internal revenue taxes for taxable year 2005 and prior years.61
Far from disagreeing with petitioner, respondent manifested in its memorandum:
Section 6 of [RA 9840] provides that availment of tax amnesty entitles a taxpayer to immunity from payment of the tax
involved, including the civil, criminal, or administrative penalties provided under the 1997 [NIRC], for tax liabilities arising
in 2005 and the preceding years.
In view of petitioners availment of the benefits of [RA 9840], and without conceding the merits of this case as discussed
above, respondent concedes that such tax amnesty extinguishes the tax liabilities of petitioner. This admission,
however, is not meant to preclude a revocation of the amnesty granted in case it is found to have been granted under
circumstances amounting to tax fraud under Section 10 of said amnesty law. 62 (Emphasis supplied)
Furthermore, we held in a recent case that DST is one of the taxes covered by the tax amnesty program under RA 9480. 63
There is no other conclusion to draw than that petitioners liability for DST for the taxable years 1996 and 1997 was totally
extinguished by its availment of the tax amnesty under RA 9480.
Is The Court Bound By A Minute Resolution In Another Case?
Petitioner raises another interesting issue in its motion for reconsideration: whether this Court is bound by the ruling of the
CA64 in CIR v. Philippine National Bank65 that a health care agreement of Philamcare Health Systems is not an insurance
contract for purposes of the DST.
In support of its argument, petitioner cites the August 29, 2001 minute resolution of this Court dismissing the appeal in
Philippine National Bank (G.R. No. 148680).66 Petitioner argues that the dismissal of G.R. No. 148680 by minute
resolution was a judgment on the merits; hence, the Court should apply the CA ruling there that a health care agreement is
not an insurance contract.
It is true that, although contained in a minute resolution, our dismissal of the petition was a disposition of the merits of the
case. When we dismissed the petition, we effectively affirmed the CA ruling being questioned. As a result, our ruling in that
case has already become final.67 When a minute resolution denies or dismisses a petition for failure to comply with formal
and substantive requirements, the challenged decision, together with its findings of fact and legal conclusions, are deemed
sustained.68 But what is its effect on other cases?
With respect to the same subject matter and the same issues concerning the same parties, it constitutes res judicata.69
However, if other parties or another subject matter (even with the same parties and issues) is involved, the minute resolution
is not binding precedent. Thus, in CIR v. Baier-Nickel,70 the Court noted that a previous case, CIR v. Baier-Nickel71
involving the same parties and the same issues, was previously disposed of by the Court thru a minute resolution dated
February 17, 2003 sustaining the ruling of the CA. Nonetheless, the Court ruled that the previous case "ha(d) no bearing"
on the latter case because the two cases involved different subject matters as they were concerned with the taxable income
of different taxable years.72
Besides, there are substantial, not simply formal, distinctions between a minute resolution and a decision. The constitutional
requirement under the first paragraph of Section 14, Article VIII of the Constitution that the facts and the law on which the
judgment is based must be expressed clearly and distinctly applies only to decisions, not to minute resolutions. A minute
resolution is signed only by the clerk of court by authority of the justices, unlike a decision. It does not require the
certification of the Chief Justice. Moreover, unlike decisions, minute resolutions are not published in the Philippine Reports.
Finally, the proviso of Section 4(3) of Article VIII speaks of a decision. 73 Indeed, as a rule, this Court lays down doctrines
or principles of law which constitute binding precedent in a decision duly signed by the members of the Court and certified
by the Chief Justice.
Accordingly, since petitioner was not a party in G.R. No. 148680 and since petitioners liability for DST on its health care
agreement was not the subject matter of G.R. No. 148680, petitioner cannot successfully invoke the minute resolution in
that case (which is not even binding precedent) in its favor. Nonetheless, in view of the reasons already discussed, this does
not detract in any way from the fact that petitioners health care agreements are not subject to DST.
A Final Note
Taking into account that health care agreements are clearly not within the ambit of Section 185 of the NIRC and there was
never any legislative intent to impose the same on HMOs like petitioner, the same should not be arbitrarily and unjustly
included in its coverage.
It is a matter of common knowledge that there is a great social need for adequate medical services at a cost which the
average wage earner can afford. HMOs arrange, organize and manage health care treatment in the furtherance of the goal of
providing a more efficient and inexpensive health care system made possible by quantity purchasing of services and
economies of scale. They offer advantages over the pay-for-service system (wherein individuals are charged a fee each time
they receive medical services), including the ability to control costs. They protect their members from exposure to the high
cost of hospitalization and other medical expenses brought about by a fluctuating economy. Accordingly, they play an
important role in society as partners of the State in achieving its constitutional mandate of providing its citizens with
affordable health services.

The rate of DST under Section 185 is equivalent to 12.5% of the premium charged. 74 Its imposition will elevate the cost of
health care services. This will in turn necessitate an increase in the membership fees, resulting in either placing health
services beyond the reach of the ordinary wage earner or driving the industry to the ground. At the end of the day, neither
side wins, considering the indispensability of the services offered by HMOs.
WHEREFORE, the motion for reconsideration is GRANTED. The August 16, 2004 decision of the Court of Appeals in
CA-G.R. SP No. 70479 is REVERSED and SET ASIDE. The 1996 and 1997 deficiency DST assessment against petitioner
is hereby CANCELLED and SET ASIDE. Respondent is ordered to desist from collecting the said tax.
No costs.
SO ORDERED.
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-52306 October 12, 1981
ABS-CBN BROADCASTING CORPORATION, petitioner,
vs.
COURT OF TAX APPEALS and THE COMMISSIONER OF INTERNAL REVENUE, respondents.
MELENCIO-HERRERA, J.:
This is a Petition for Review on certiorari of the Decision of the Court of Tax Appeals in C.T.A. Case No. 2809, dated
November 29, 1979, which affirmed the assessment by the Commissioner of Internal Revenue, dated April 16, 1971, of a
deficiency withholding income tax against petitioner, ABS-CBN Broadcasting Corporation, for the years 1965, 1966, 1967
and 1968 in the respective amounts of P75,895.24, P99,239.18, P128,502.00 and P222, 260.64, or a total of P525,897.06.
During the period pertinent to this case, petitioner corporation was engaged in the business of telecasting local as well as
foreign films acquired from foreign corporations not engaged in trade or business within the Philippines. for which
petitioner paid rentals after withholding income tax of 30%of one-half of the film rentals.
In so far as the income tax on non-resident corporations is concerned, section 24 (b) of the National Internal Revenue Code,
as amended by Republic Act No. 2343 dated June 20, 1959, used to provide:
(b) Tax on foreign corporations.(1) Non-resident corporations. There shall be levied, collected, and
paid for each taxable year, in lieu of the tax imposed by the preceding paragraph, upon the amount
received by every foreign corporation not engaged in trade or business within the Philippines, from an
sources within the Philippines, as interest, dividends, rents, salaries, wages, premiums, annuities,
compensations, remunerations, emoluments, or other fixed or determinable annual or periodical gains,
profits, and income, a tax equal to thirty per centum of such amount. (Emphasis supplied)
On April 12, 1961, in implementation of the aforequoted provision, the Commissioner of Internal Revenue issued General
Circular No. V-334 reading thus:
In connection with Section 24 (b) of Tax Code, the amendment introduced by Republic Act No. 2343,
under which an income tax equal to 30% is levied upon the amount received by every foreign corporation
not engaged in trade or business within the Philippines from all sources within this country as interest,
dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or
other fixed or determinable annual or periodical gains, profits, and income, it has been determined that the
tax is still imposed on income derived from capital, or labor, or both combined, in accordance with the
basic principle of income taxation (Sec. 39, Income Tax Regulations), and that a mere return of capital or
investment is not income (Par. 5,06, 1 Mertens Law of Federal 'Taxation). Since according to the findings
of the Special Team who inquired into business of the non-resident foreign film distributors, the
distribution or exhibition right on a film is invariably acquired for a consideration, either for a lump sum
or a percentage of the film rentals, whether from a parent company or an independent outside producer,
apart of the receipts of a non-resident foreign film distributor derived from said film represents, therefore,
a return of investment.
xxx xxx xxx
4. The local distributor should withhold 30% of one-half of the film rentals paid to the non-resident
foreign film distributor and pay the same to this office in accordance with law unless the non- resident
foreign film distributor makes a prior settlement of its income tax liability. (Emphasis ours).
Pursuant to the foregoing, petitioner dutifully withheld and turned over to the Bureau of Internal Revenue the amount of
30% of one-half of the film rentals paid by it to foreign corporations not engaged in trade or business within the Philippines.
The last year that petitioner withheld taxes pursuant to the foregoing Circular was in 1968.
On June 27, 1968, Republic Act No. 5431 amended Section 24 (b) of the Tax Code increasing the tax rate from 30 % to 35
% and revising the tax basis from "such amount" referring to rents, etc. to "gross income," as follows:
(b) Tax on foreign corporations.(1) Non-resident corporations.A foreign corporation not engaged in
trade or business in the Philippines including a foreign life insurance company not engaged in the life
insurance business in the Philippines shall pay a tax equal to thirty-five per cent of the gross income
received during each taxable year from all sources within the Philippines, as interests, dividends, rents,
royalties, salaries, wages, premiums, annuities, compensations, remunerations for technical services or
otherwise, emoluments or other fixed or determinable annual, periodical or casual gains, profits, and
income, and capital gains, Provided however, That premiums shah not include reinsurance premiums.
(Emphasis supplied)
On February 8, 1971, the Commissioner of Internal Revenue issued Revenue Memorandum Circular No. 4-71, revoking
General Circular No. V-334, and holding that the latter was "erroneous for lack of legal basis," because "the tax therein
prescribed should be based on gross income without deduction whatever," thus:
After a restudy and analysis of Section 24 (b) of the National Internal Revenue Code, as amended by
Republic Act No. 5431, and guided by the interpretation given by tax authorities to a similar provision in
the Internal Revenue Code of the United States, on which the aforementioned provision of our Tax Code
was patterned, this Office has come to the conclusion that the tax therein prescribed should be based on
gross income without t deduction whatever. Consequently, the ruling in General Circular No. V-334, dated
April 12, 1961, allowing the deduction of the proportionate cost of production or exhibition of motion
picture films from the rental income of non- resident foreign corporations, is erroneous for lack of legal
basis.
In view thereof, General Circular No. V-334, dated April 12, 1961, is hereby revoked and henceforth, local
films distributors and exhibitors shall deduct and withhold 35% of the entire amount payable by them to
non-resident foreign corporations, as film rental or royalty, or whatever such payment may be
denominated, without any deduction whatever, pursuant to Section 24 (b), and pay the withheld taxes in
accordance with Section 54 of the Tax Code, as amended.
All rulings inconsistent with this Circular is likewise revoked. (Emphasis ours)
On the basis of this new Circular, respondent Commissioner of Internal Revenue issued against petitioner a letter of
assessment and demand dated April 15, 1971, but allegedly released by it and received by petitioner on April 12, 1971,
requiring them to pay deficiency withholding income tax on the remitted film rentals for the years 1965 through 1968 and
film royalty as of the end of 1968 in the total amount of P525,897.06 computed as follows:
1965
Total amount remitted
P 511,059.48
Withholding tax due thereon
153,318.00
Less:
Amount
assessed
already
89,000.00
Balance
P64,318.00
Add: 1/2% mo. int. fr. 4-16-66

to 4-16-69
11,577.24
Total
amount
collectible
P 75,895.24
due
&
1966
P373,492.24
Withholding tax due thereon
112,048.00
Less:
Amount
assessed
27,947.00
already
Balance
84,101.00
Add: 11/2%mo. int. fr. 4-1667 to 4-116-70
15,138.18
Total
amount
collectible
P99,239.18
due
&
1967
P601,160.65
Withholding tax due

thereon
180,348.00
Less: Amount already

assessed
71,448.00
Balance
108,900.00
Add: 1/2% mo. int. fr.

4-16-68 to 4-16-71
19,602.00
Total amount due &

collectible
P128,502.00
1968
Withholding
thereon
tax
Less: Amount
assessed
P881,816.92
due
already
291,283.00
92,886.00
Balance
P198,447.00
Add: 1/2% mo. int. fr. 416-69 to 4-29-71
23,813.64
Total amount
collectible
P222,260.44 1
due
&
On May 5, 1971, petitioner requested for a reconsideration and withdrawal of the assessment. However, without acting
thereon, respondent, on April 6, 1976, issued a warrant of distraint and levy over petitioner's personal as well as real
properties. The petitioner then filed its Petition for Review with the Court of Tax Appeals whose Decision, dated November
29, 1979, is, in turn, the subject of this review. The Tax Court held:
For the reasons given, the Court finds the assessment issued by respondent on April 16, 1971 against
petitioner in the amounts of P75,895.24, P 99,239.18, P128,502.00 and P222,260.64 or a total of
P525,897.06 as deficiency withholding income tax for the years 1965, 1966, 1967 and 1968, respectively,
in accordance with law. As prayed for, the petition for review filed in this case is dismissed, and petitioner
ABS-CBN Broadcasting Corporation is hereby ordered to pay the sum of P525,897.06 to respondent
Commissioner of Internal Revenue as deficiency withholding income tax for the taxable years 1965 thru
1968, plus the surcharge and interest which have accrued thereon incident to delinquency pursuant to
Section 51 (e) of the National Internal Revenue Code, as amended.
WHEREFORE, the decision appealed from is hereby affirmed at petitioner's cost.
SO ORDERED. 2
The issues raised are two-fold:
I. Whether or not respondent can apply General Circular No. 4-71 retroactively and issue a deficiency
assessment against petitioner in the amount of P 525,897.06 as deficiency withholding income tax for the
years 1965, 1966, 1967 and 1968.
II. Whether or not the right of the Commissioner of Internal Revenue to assess the deficiency withholding
income tax for the year 196,5 has prescribed. 3
Upon the facts and circumstances of the case, review is warranted.
In point is Sec. 338-A (now Sec. 327) of the Tax Code. As inserted by Republic Act No. 6110 on August 9, 1969, it
provides:
Sec. 338-A. Non-retroactivity of rulings. Any revocation, modification, or reversal of and of the rules
and regulations promulgated in accordance with the preceding section or any of the rulings or circulars
promulgated by the Commissioner of Internal Revenue shall not be given retroactive application if the
relocation, modification, or reversal will be prejudicial to the taxpayers, except in the following cases: (a)
where the taxpayer deliberately mis-states or omits material facts from his return or any document
required of him by the Bureau of Internal Revenue: (b) where the facts subsequently gathered by the
Bureau of Internal Revenue are materially different from the facts on which the ruling is based; or (c)
where the taxpayer acted in bad faith. (italics for emphasis)
It is clear from the foregoing that rulings or circulars promulgated by the Commissioner of Internal Revenue have no
retroactive application where to so apply them would be prejudicial to taxpayers. The prejudice to petitioner of the
retroactive application of Memorandum Circular No. 4-71 is beyond question. It was issued only in 1971, or three years
after 1968, the last year that petitioner had withheld taxes under General Circular No. V-334. The assessment and demand
on petitioner to pay deficiency withholding income tax was also made three years after 1968 for a period of time
commencing in 1965. Petitioner was no longer in a position to withhold taxes due from foreign corporations because it had
already remitted all film rentals and no longer had any control over them when the new Circular was issued. And in so far as
the enumerated exceptions are concerned, admittedly, petitioner does not fall under any of them.
Respondent claims, however, that the provision on non-retroactivity is inapplicable in the present case in that General
Circular No. V-334 is a nullity because in effect, it changed the law on the matter. The Court of Tax Appeals sustained this
position holding that: "Deductions are wholly and exclusively within the power of Congress or the law-making body to
grant, condition or deny; and where the statute imposes a tax equal to a specified rate or percentage of the gross or entire
amount received by the taxpayer, the authority of some administrative officials to modify or change, much less reduce, the
basis or measure of the tax should not be read into law." 4 Therefore, the Tax Court concluded, petitioner did not acquire
any vested right thereunder as the same was a nullity.
The rationale behind General Circular No. V-334 was clearly stated therein, however: "It ha(d) been determined that the tax
is still imposed on income derived from capital, or labor, or both combined, in accordance with the basic principle of
income taxation ...and that a mere return of capital or investment is not income ... ." "A part of the receipts of a non-resident
foreign film distributor derived from said film represents, therefore, a return of investment." The Circular thus fixed the
return of capital at 50% to simplify the administrative chore of determining the portion of the rentals covering the return of
capital." 5
Were the "gross income" base clear from Sec. 24 (b), perhaps, the ratiocination of the Tax Court could be upheld. It should
be noted, however, that said Section was not too plain and simple to understand. The fact that the issuance of the General
Circular in question was rendered necessary leads to no other conclusion than that it was not easy of comprehension and
could be subjected to different interpretations.
In fact, Republic Act No. 2343, dated June 20, 1959, supra, which was the basis of General Circular No. V-334, was just one
in a series of enactments regarding Sec. 24 (b) of the Tax Code. Republic Act No. 3825 came next on June 22, 1963 without
changing the basis but merely adding a proviso (in bold letters).
(b) Tax on foreign corporation.(1) Non-resident corporations. There shall be levied, collected and
received by every foreign corporation not engaged in trade or business within the Philippines, from all
sources within the Philippines, as interest, dividends, rents, salaries, wages, premiums annuities,
compensations, remunerations, emoluments, or other fixed or determinable annual or periodical gains,
profits, and income, a tax equal to thirty per centum of such amount: PROVIDED, HOWEVER, THAT
PREMIUMS SHALL NOT INCLUDE REINSURANCE PREMIUMS. (double emphasis ours).
Republic Act No. 3841, dated likewise on June 22, 1963, followed after, omitting the proviso and inserting some words
(also in bold letters).
(b) Tax on foreign corporations.(1) Non-resident corporations.There shall be levied, collected and
received by every foreign corporation not engaged in trade or business within the Philippines, from all
sources within the Philippines, as interest, dividends, rents, salaries, wages, premiums, annuities,
compensations, remunerations, emoluments, or other fixed or determinable annual or periodical OR
CASUAL gains, profits and income, AND CAPITAL GAINS, a tax equal to thirty per centum of such
amount. 6 (double emphasis supplied)
The principle of legislative approval of administrative interpretation by re-enactment clearly obtains in this case. It provides
that "the re-enactment of a statute substantially unchanged is persuasive indication of the adoption by Congress of a prior
executive construction. 7 Note should be taken of the fact that this case involves not a mere opinion of the Commissioner or
ruling rendered on a mere query, but a Circular formally issued to "all internal revenue officials" by the then Commissioner
of Internal Revenue.
It was only on June 27, 1968 under Republic Act No. 5431, supra, which became the basis of Revenue Memorandum
Circular No. 4-71, that Sec. 24 (b) was amended to refer specifically to 35% of the "gross income."
This Court is not unaware of the well-entrenched principle that the Government is never estopped from collecting taxes
because
of
mistakes
or
errors
on
the
part
of
its
8
9
agents. In fact, utmost caution should be taken in this regard. But, like other principles of law, this also admits of
exceptions in the interest of justice and fairplay. The insertion of Sec. 338-A into the National Internal Revenue Code, as
held in the case of Tuason, Jr. vs. Lingad, 10 is indicative of legislative intention to support the principle of good faith. In
fact, in the United States, from where Sec. 24 (b) was patterned, it has been held that the Commissioner of Collector is
precluded from adopting a position inconsistent with one previously taken where injustice would result therefrom, 11 or
where there has been a misrepresentation to the taxpayer. 12
We have also noted that in its Decision, the Court of Tax Appeals further required the petitioner to pay interest and
surcharge as provided for in Sec. 51 (e) of the Tax Code in addition to the deficiency withholding tax of P 525,897.06. This
additional requirement is much less called for because the petitioner relied in good faith and religiously complied with no
less than a Circular issued "to all internal revenue officials" by the highest official of the Bureau of Internal Revenue and
approved by the then Secretary of Finance. 13
With the foregoing conclusions arrived at, resolution of the issue of prescription becomes unnecessary.
WHEREFORE, the judgment of the Court of Tax Appeals is hereby reversed, and the questioned assessment set aside. No
costs.
SO ORDERED.
THIRD DIVISION
FIRST PLANTERS
G.R. No. 174134
PAWNSHOP, INC.,
Petitioner,
Present:
YNARES-SANTIAGO, J.,
Chairperson,
- versus -
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.
COMMISSIONER OF
INTERNAL REVENUE,
Promulgated:
Respondent.
July 30, 2008

x----------------------------------------------x
DECISION
AUSTRIA-MARTINEZ, J.:
First Planters Pawnshop, Inc. (petitioner) contests the deficiency value-added and documentary stamp taxes imposed upon it
by the Bureau of Internal Revenue (BIR) for the year 2000. The core of petitioner's argument is that it is not a lending
investor within the purview of Section 108(A) of the National Internal Revenue Code (NIRC), as amended, and therefore
not subject to value-added tax (VAT). Petitioner also contends that a pawn ticket is not subject to documentary stamp tax
(DST) because it is not proof of the pledge transaction, and even assuming that it is so, still, it is not subject to tax since a
documentary stamp tax is levied on the document issued and not on the transaction.
The facts:
In a Pre-Assessment Notice dated July 7, 2003, petitioner was informed by the BIR that it has an existing tax deficiency on
its VAT and DST liabilities for the year 2000. The deficiency assessment was at P541,102.79 for VAT and P23,646.33 for
DST.[1] Petitioner protested the assessment for lack of legal and factual bases.[2]
Petitioner subsequently received a Formal Assessment Notice on December 29, 2003, directing payment of VAT deficiency
in the amount of P541,102.79 and DST deficiency in the amount of P24,747.13, inclusive of surcharge and interest.[3]
Petitioner filed a protest,[4] which was denied by Acting Regional Director Anselmo G. Adriano per Final Decision on
Disputed Assessment dated January 29, 2004.[5]
Petitioner then filed a petition for review with the Court of Tax Appeals (CTA).[6] In a Decision dated May 9, 2005, the 2nd
Division of the CTA upheld the deficiency assessment.[7] Petitioner filed a motion for reconsideration[8] which was denied
in a Resolution dated October 7, 2005.[9]
Petitioner appealed to the CTA En Banc which rendered a Decision dated June 7, 2006, the dispositive portion of which
reads as follows:
WHEREFORE, premises considered, the Petition for Review is hereby DENIED for lack of merit. The assailed Decision
dated May 9, 2005 and Resolution dated October 7, 2005 are hereby AFFIRMED.
SO ORDERED.[10]
Petitioner sought reconsideration but this was denied by the CTA En Banc per Resolution dated August 14, 2006.[11]
Hence, the present petition for review under Rule 45 of the Rules of Court based on the following grounds:
I
THE HONORABLE COURT OF TAX APPEALS EN BANC GRAVELY ERRED IN FINDING PETITIONER LIABLE
FOR VAT.
II
THE HONORABLE COURT OF TAX APPEALS EN BANC GRAVELY ERRED IN RULING THAT PETITIONER IS
LIABLE FOR DST ON PAWN TICKETS.[12]
The determination of petitioner's tax liability depends on the tax treatment of a pawnshop business. Oddly, there has not
been any definitive declaration in this regard despite the fact that pawnshops have long been in existence. All that has been
stated is what pawnshops are not, but not what pawnshops are.
The BIR itself has maintained an ambivalent stance on this issue. Initially, in Revenue Memorandum Order No. 15-91 issued
on March 11, 1991, a pawnshop business was considered as akin to lending investors business activity and subject to 5%
percentage tax beginning January 1, 1991, under Section 116 of the Tax Code of 1977, as amended by E.O. No. 273.[13]
With the passage of Republic Act (R.A.) No. 7716 or the EVAT Law in 1994,[14] the BIR abandoned its earlier position and
maintained that pawnshops are subject to 10% VAT, as implemented by Revenue Regulations No. 7-95. This was
complemented by Revenue Memorandum Circular No. 45-01 dated October 12, 2001, which provided that pawnshop
operators are liable to the 10% VAT based on gross receipts beginning January 1, 1996, while pawnshops whose gross
annual receipts do not exceed P550,000.00 are liable for percentage tax, pursuant to Section 109(z) of the Tax Code of 1997.
CTA decisions affirmed the BIR's position that pawnshops are subject to VAT. In H. Tambunting Pawnshop, Inc. v.
Commissioner of Internal Revenue,[15] the CTA ruled that the petitioner therein was subject to 10% VAT under Section 108
of the Tax Code of 1997. Antam Pawnshop Corporation v. Commissioner of Internal Revenue[16] reiterates said ruling. It
was the CTA's view that the services rendered by pawnshops fall under the general definition of sale or exchange of services
under Section 108(A) of the Tax Code of 1997.
On July 15, 2003, the Court rendered Commissioner of Internal Revenue v. Michel J. Lhuillier Pawnshop, Inc.[17] in which
it was categorically ruled that while pawnshops are engaged in the business of lending money, they are not considered
lending investors for the purpose of imposing percentage taxes.[18] The Court gave the following reasons: first, under the
1997 Tax Code, pawnshops and lending investors were subjected to different tax treatments; second, Congress never
intended pawnshops to be treated in the same way as lending investors; third, Section 116 of the NIRC of 1977 subjects to
percentage tax dealers in securities and lending investors only; and lastly, the BIR had ruled several times prior to the
issuance of RMO No. 15-91 and RMC 43-91 that pawnshops were not subject to the 5% percentage tax on lending investors
imposed by Section 116 of the NIRC of 1977, as amended by Executive Order No. 273.
In view of said ruling, the BIR issued Revenue Memorandum Circular No. 36-2004 dated June 16, 2004, canceling the
previous lending investor's tax assessments on pawnshops. Said Circular stated, inter alia:
In view of the said Supreme Court decision, all assessments on pawnshops for percentage taxes as lending investors are
hereby cancelled. This Circular is being issued for the sole purpose of resolving the tax liability of pawnshops to the 5%
lending investors tax provided under the then Section 116 of the NIRC of 1977, as amended, and shall not cover issues
relating to their other tax liabilities. All internal revenue officials are enjoined from issuing assessments on pawnshops for
percentage taxes on lending investors, under the then Section 116 of the NIRC of 1977, as amended.
For purposes of the gross receipt tax provided for under Republic Act No. 9294, the pawnshops are now subject thereof.
This shall however, be covered by another issuance.[19]
Revenue Memorandum Circular No. 37-2004 was issued on the same date whereby pawnshop businesses were allowed to
settle their VAT liabilities for the tax years 1996-2002 pursuant to a memorandum of agreement entered into by the
Commissioner of Internal Revenue and the Chambers of Pawnbrokers of the Philippines, Inc. The Circular likewise
instructed all revenue officers to ensure that all VAT due from pawnshops beginning January 1, 2003, including increments
thereto, if any, are assessed and collected from pawnshops under its jurisdiction.
In the interim, however, Congress passed Republic Act (R.A.) No. 9238 on February 5, 2004 entitled, An Act Amending
Certain Sections of the National Internal Revenue Code of 1997, as amended, by Excluding Several Services from the
Coverage of the Value-added Tax and Re-imposing the Gross Receipts Tax on Banks and Non-bank Financial Intermediaries
Performing Quasi-banking Functions and Other Non-bank Financial Intermediaries beginning January 01, 2004.[20]
Pending publication of R.A. No. 9238, the BIR issued Bank Bulletin No. 2004-01 on February 10, 2004 advising all banks
and non-bank financial intermediaries that they shall remain liable under the VAT system.
When R.A. No. 9238 took effect on February 16, 2004, the Department of Finance issued Revenue Regulations No. 10-2004
dated October 18, 2004, classifying pawnshops as Other Non-bank Financial Intermediaries. The BIR then issued Revenue
Memorandum Circular No. 73-2004 on November 25, 2004, prescribing the guidelines and policies on the assessment and
collection of 10% VAT for gross annual sales/receipts exceeding P550,000.00 or 3% percentage tax for gross annual
sales/receipts not exceeding P550,000.00 of pawnshops prior to January 1, 2005.
In fine, prior to the EVAT Law, pawnshops were treated as lending investors subject to lending investor's tax. Subsequently,
with the Court's ruling in Lhuillier, pawnshops were then treated as VAT-able enterprises under the general classification of
sale or exchange of services under Section 108(A) of the Tax Code of 1997, as amended. R.A. No. 9238 finally classified
pawnshops as Other Non-bank Financial Intermediaries.
The Court finds that pawnshops should have been treated as non-bank financial intermediaries from the very beginning,
subject to the appropriate taxes provided by law, thus
Under the National Internal Revenue Code of 1977,[21] pawnshops should have been levied the 5% percentage
tax on gross receipts imposed on bank and non-bank financial intermediaries under Section 119 (now Section 121 of the Tax
Code of 1997);
With the imposition of the VAT under R.A. No. 7716 or the EVAT Law,[22] pawnshops should have been
subjected to the 10% VAT imposed on banks and non-bank financial intermediaries and financial institutions under Section
102 of the Tax Code of 1977 (now Section 108 of the Tax Code of 1997);[23]
This was restated by R.A. No. 8241,[24] which amended R.A. No. 7716, although the levy, collection and
assessment of the 10% VAT on services rendered by banks, non-bank financial intermediaries, finance companies, and other
financial intermediaries not performing quasi-banking functions, were made effective January 1, 1998;[25]
R.A. No. 8424 or the Tax Reform Act of 1997[26] likewise imposed a 10% VAT under Section 108 but the levy,
collection and assessment thereof were again deferred until December 31, 1999;[27]
The levy, collection and assessment of the 10% VAT was further deferred by R.A. No. 8761 until December 31,
2000, and by R.A. No. 9010, until December 31, 2002;
With no further deferments given by law, the levy, collection and assessment of the 10% VAT on banks, nonbank financial intermediaries, finance companies, and other financial intermediaries not performing quasi-banking functions
were finally made effective beginning January 1, 2003;
Finally, with the enactment of R.A. No. 9238, the services of banks, non-bank financial intermediaries, finance
companies, and other financial intermediaries not performing quasi-banking functions were specifically exempted from
VAT,[28] and the 0% to 5% percentage tax on gross receipts on other non-bank financial intermediaries was reimposed
under Section 122 of the Tax Code of 1997.[29]
At the time of the disputed assessment, that is, for the year 2000, pawnshops were not subject to 10% VAT under the general
provision on sale or exchange of services as defined under Section 108(A) of the Tax Code of 1997, which states: 'sale or
exchange of services' means the performance of all kinds of services in the Philippines for others for a fee, remuneration or
consideration x x x. Instead, due to the specific nature of its business, pawnshops were then subject to 10% VAT under the
category of non-bank financial intermediaries, as provided in the same Section 108(A), which reads:
SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. (A) Rate and Base of Tax. - There shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10%)
of gross receipts derived from the sale or exchange of services, including the use or lease of properties.
The phrase "sale or exchange of services" means the performance of all kinds or services in the Philippines for others for a
fee, remuneration or consideration, including x x x services of banks, non-bank financial intermediaries and finance
companies; and non-life insurance companies (except their crop insurances), including surety, fidelity, indemnity and
bonding companies; and similar services regardless of whether or not the performance thereof calls for the exercise or use of
the physical or mental faculties. The phrase 'sale or exchange of services' shall likewise include: x x x (Emphasis and
underscoring supplied)
The tax treatment of pawnshops as non-bank financial intermediaries is not without basis.
R.A. No. 337, as amended, or the General Banking Act characterizes the terms banking institution and bank as synonymous
and interchangeable and specifically include commercial banks, savings bank, mortgage banks, development banks, rural
banks, stock savings and loan associations, and branches and agencies in the Philippines of foreign banks.[30] R.A. No.
8791 or the General Banking Law of 2000, meanwhile, provided that banks shall refer to entities engaged in the lending of
funds obtained in the form of deposits.[31] R.A. No. 8791 also included cooperative banks, Islamic banks and other banks
as determined by the Monetary Board of the Bangko Sentral ng Pilipinas in the classification of banks.[32]
Financial intermediaries, on the other hand, are defined as persons or entities whose principal functions include the lending,
investing or placement of funds or evidences of indebtedness or equity deposited with them, acquired by them, or otherwise
coursed through them, either for their own account or for the account of others.[33]
It need not be elaborated that pawnshops are non-banks/banking institutions. Moreover, the nature of their business
activities partakes that of a financial intermediary in that its principal function is lending.
A pawnshop's business and operations are governed by Presidential Decree (P.D.) No. 114 or the Pawnshop Regulation Act
and Central Bank Circular No. 374 (Rules and Regulations for Pawnshops). Section 3 of P.D. No. 114 defines pawnshop as
a person or entity engaged in the business of lending money on personal property delivered as security for loans and shall be
synonymous, and may be used interchangeably, with pawnbroker or pawn brokerage.
That pawnshops are to be treated as non-bank financial intermediaries is further bolstered by the fact that pawnshops are
under the regulatory supervision of the Bangko Sentral ng Pilipinas and covered by its Manual of Regulations for NonBank Financial Institutions. The Manual includes pawnshops in the list of non-bank financial intermediaries, viz.:
4101Q.1 Financial Intermediaries

xxx
Non-bank financial intermediaries shall include the following:
(1) A person or entity licensed and/or registered with any government regulatory body as a non-bank financial intermediary,
such as investment house, investment company, financing company, securities dealer/broker, lending investor, pawnshop,
money broker x x x. (Emphasis supplied)
Revenue Regulations No. 10-2004, in fact, recognized these bases, to wit:
SEC. 2. BASES OF QUALIFYING PAWNSHOPS AS NON-BANK FINANCIAL INTERMEDIARIES. - Whereas, in
relation to Sec. 2.3 of Rev. Regs No. 9-2004 defining Non-bank Financial Intermediaries, the term pawnshop as defined
under Presidential Decree No. 114 which authorized its creation, to be a person or entity engaged in the business of lending
money, all fall within the classification of Non-bank Financial Intermediaries and therefore, covered by Sec. 4 of R.A. No.
9238.
This classification is equally supported by Subsection 4101Q.1 of the BSP Manual of Regulations for Non-Bank Financial
Intermediaries and reiterated in BSP Circular No. 204-99, classifying pawnshops as one of Non-bank Financial
Intermediaries within the supervision of the Bangko Sentral ng Pilipinas.
Ultimately, R.A. No. 9238 categorically confirmed the classification of pawnshops as non-bank financial intermediaries.
Coming now to the issue at hand - Since petitioner is a non-bank financial intermediary, it is subject to 10% VAT for the tax
years 1996 to 2002; however, with the levy, assessment and collection of VAT from non-bank financial intermediaries
being specifically deferred by law,[34] then petitioner is not liable for VAT during these tax years. But with the full
implementation of the VAT system on non-bank financial intermediaries starting January 1, 2003, petitioner is liable for
10% VAT for said tax year. And beginning 2004 up to the present, by virtue of R.A. No. 9238, petitioner is no longer liable
for VAT but it is subject to percentage tax on gross receipts from 0% to 5 %, as the case may be.
Lastly, petitioner is liable for documentary stamp taxes.
The Court has settled this issue in Michel J. Lhuillier Pawnshop, Inc. v. Commissioner of Internal Revenue,[35] in which it
was ruled that the subject of DST is not limited to the document alone. Pledge, which is an exercise of a privilege to transfer
obligations, rights or properties incident thereto, is also subject to DST, thus
x x x the subject of a DST is not limited to the document embodying the enumerated transactions. A DST is an excise tax on
the exercise of a right or privilege to transfer obligations, rights or properties incident thereto. In Philippine Home
Assurance Corporation v. Court of Appeals, it was held that:
xxxx
Pledge is among the privileges, the exercise of which is subject to DST. A pledge may be defined as an accessory, real and
unilateral contract by virtue of which the debtor or a third person delivers to the creditor or to a third person movable
property as security for the performance of the principal obligation, upon the fulfillment of which the thing pledged, with all
its accessions and accessories, shall be returned to the debtor or to the third person. This is essentially the business of
pawnshops which are defined under Section 3 of Presidential Decree No. 114, or the Pawnshop Regulation Act, as persons
or entities engaged in lending money on personal property delivered as security for loans.
Section 12 of the Pawnshop Regulation Act and Section 21 of the Rules and Regulations For Pawnshops issued by the
Central Bank to implement the Act, require every pawnshop or pawnbroker to issue, at the time of every such loan or
pledge, a memorandum or ticket signed by the pawnbroker and containing the following details: (1) name and residence of
the pawner; (2) date the loan is granted; (3) amount of principal loan; (4) interest rate in percent; (5) period of maturity; (6)
description of pawn; (7) signature of pawnbroker or his authorized agent; (8) signature or thumb mark of pawner or his
authorized agent; and (9) such other terms and conditions as may be agreed upon between the pawnbroker and the pawner.
In addition, Central Bank Circular No. 445, prescribed a standard form of pawn tickets with entries for the required details
on its face and the mandated terms and conditions of the pledge at the dorsal portion thereof.
Section 3 of the Pawnshop Regulation Act defines a pawn ticket as follows:
xxxx
True, the law does not consider said ticket as an evidence of security or indebtedness. However, for purposes of taxation, the
same pawn ticket is proof of an exercise of a taxable privilege of concluding a contract of pledge. At any rate, it is not said
ticket that creates the pawnshops obligation to pay DST but the exercise of the privilege to enter into a contract of pledge.
There is therefore no basis in petitioners assertion that a DST is literally a tax on a document and that no tax may be
imposed on a pawn ticket.
The settled rule is that tax laws must be construed in favor of the taxpayer and strictly against the government; and that a tax
cannot be imposed without clear and express words for that purpose. Taking our bearing from the foregoing doctrines, we
scrutinized Section 195 of the NIRC, but there is no way that said provision may be interpreted in favor of petitioner.
Section 195 unqualifiedly subjects all pledges to DST. It states that [o]n every x x x pledge x x x there shall be collected a
documentary stamp tax x x x. It is clear, categorical, and needs no further interpretation or construction. The explicit tenor
thereof requires hardly anything than a simple application.
xxxx
In the instant case, there is no law specifically and expressly exempting pledges entered into by pawnshops from the
payment of DST. Section 199 of the NIRC enumerated certain documents which are not subject to stamp tax; but a
pawnshop ticket is not one of them. Hence, petitioners nebulous claim that it is not subject to DST is without merit. It
cannot be over-emphasized that tax exemption represents a loss of revenue to the government and must, therefore, not rest
on vague inference. Exemption from taxation is never presumed. For tax exemption to be recognized, the grant must be
clear and express; it cannot be made to rest on doubtful implications.
Under the principle of stare decisis et non quieta movere (follow past precedents and do not disturb what has been settled),
once a case has been decided one way, any other case involving exactly the same point at issue, as in the case at bar, should
be decided in the same manner.[36]
WHEREFORE, the petition is PARTIALLY GRANTED. The Decision dated June 7, 2006 and Resolution dated August
14, 2006 of the Court of Tax Appeals En Banc is MODIFIED to the effect that the Bureau of Internal Revenue assessment
for VAT deficiency in the amount of P541,102.79 for the year 2000 is REVERSED and SET ASIDE, while its assessment
for DST deficiency in the amount of P24,747.13, inclusive of surcharge and interest, is UPHELD.
SO ORDERED.
FIRST DIVISION
COMMISSIONER OF G.R. No. 149671

INTERNAL REVENUE,
Panganiban, CJ,
Chairman,
- versus - Ynares-Santiago,
Austria-Martinez,
Callejo, Sr., and
Chico-Nazario, JJ
SEKISUI JUSHI Promulgated:
PHILIPPINES, INC.,
Respondent. July 21, 2006
x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- x
DECISION
PANGANIBAN, CJ:
usiness enterprises registered with the Philippine Export Zone Authority (PEZA) may choose between two fiscal incentive
schemes: (1) to pay a five percent preferential tax rate on its gross income and thus be exempt from all other
taxes; or (b) to enjoy an income tax holiday, in which case it is not exempt from applicable national revenue
taxes including the value-added tax (VAT). The present respondent, which availed itself of the second tax
incentive scheme, has proven that all its transactions were export sales. Hence, they should be VAT zero-rated.
The Case
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, challenging the August 16, 2001
Decision[2] of the Court of Appeals (CA) in CA-GR SP No. 64679. The assailed Decision upheld the April 26, 2001
Decision[3] of the Court of Tax Appeals (CTA) in CTA Case No. 5751. The CA Decision disposed as follows:
WHEREFORE, premises considered, the present petition for review is hereby DENIED DUE COURSE and accordingly
DISMISSED for lack of merit. The Decision dated April 26, 2001 of the Court of Tax Appeals in CTA Case No. 5751 is
hereby AFFIRMED and UPHELD.[4]
On the other hand, the dispositive portion of the CTA Decision reads:
WHEREFORE, the instant Petition for Review is PARTIALLY GRANTED. [Petitioner] is hereby ordered to refund or to
issue a Tax Credit Certificate in favor of the [Respondent] in the amount of P4,377,102.26 representing excess input taxes
paid for the period covering January 1 to June 30, 1997.[5]
The Facts
The uncontested[6] facts are narrated by the CA as follows:
Respondent is a domestic corporation duly organized and existing under and by virtue of the laws of the Philippines with
principal office located at the Special Export Processing Zone, Laguna Technopark, Bian, Laguna. It is principally engaged
in the business of manufacturing, importing, exporting, buying, selling, or otherwise dealing in, at wholesale such goods as
strapping bands and other packaging materials and goods of similar nature, and any and all equipment, materials, supplies
used or employed in or related to the manufacture of such finished products.
Having registered with the Bureau of Internal Revenue (BIR) as a value-added tax (VAT) taxpayer, respondent filed its
quarterly returns with the BIR, for the period January 1 to June 30, 1997, reflecting therein input taxes in the amount of
P4,631,132.70 paid by it in connection with its domestic purchase of capital goods and services. Said input taxes remained
unutilized since respondent has not engaged in any business activity or transaction for which it may be liable for output tax
and for which said input taxes may be credited.
On November 11, 1998, respondent filed with the One-Stop-Shop Inter-Agency Tax Credit and Duty Drawback Center of
the Department of Finance (CENTER-DOF) two (2) separate applications for tax credit/refund of VAT input taxes paid for
the period January 1 to March 31, 1997 and April 1 to June 30, 1997, respectively. There being no action on its application
for tax credit/refund under Section 112 (B) of the 1997 National Internal Revenue Code (Tax Code), as amended, private
respondent filed, within the two (2)-year prescriptive period under Section 229 of said Code, a petition for review with the
Court of Tax Appeals on March 26, 1999.
Petitioner filed its Answer to the petition asseverating that: (1) said claim for tax credit/refund is subject to administrative
routinary investigation by the BIR; (2) respondent miserably failed to show that the amount claimed as VAT input taxes
were erroneously collected or that the same were properly documented; (3) taxes due and collected are presumed to have
been made in accordance with law, hence, not refundable; (4) the burden of proof is on the taxpayer to establish his right to
a refund in an action for tax refund. Failure to discharge such duty is fatal to his action; (5) respondent should show that it
complied with the provisions of Section 204 in relation to Section 229 of the 1997 Tax Code; and (6) claims for refund are
strictly construed against the taxpayer as it partakes of the nature of a tax exemption. Hence, petitioner prayed for the denial
of respondents petition.[7]
Ruling of the Court of Tax Appeals
The CTA ruled that respondent was entitled to the refund. While the company was registered with the PEZA as an ecozone
and was, as such, exempt from income tax, it availed itself of the fiscal incentive under Executive Order No. 226. It thereby
subjected itself to other internal revenue taxes like the VAT.[8] The CTA then found that only input taxes amounting to
P4,377,102.26 were duly substantiated by invoices and Official Receipts,[9] while those amounting to P254,313.43 had not
been sufficiently proven and were thus disallowed.[10]
Ruling of the Court of Appeals
The Court of Appeals upheld the Decision of the CTA. According to the CA, respondent had complied with the procedural
and substantive requirements for a claim by 1) submitting receipts, invoices, and supporting papers as evidence; 2) paying
the subject input taxes on capital goods; 3) not applying the input taxes against any output tax liability; and 4) filing the
claim within the two-year prescriptive period under Section 229 of the 1997 Tax Code.[11]
Hence, this Petition.[12]
The Issue
Petitioner raises this sole issue for our consideration:

Whether or not respondent is entitled to the refund or issuance of tax credit certificate in the amount of P4,377,102.26 as
alleged unutilized input taxes paid on domestic purchase of capital goods and services for the period covering January 1 to
June 30, 1997.[13]
The Courts Ruling
The Petition has no merit.
Sole Issue:
Entitlement to Refund
To support the issue raised, petitioner advances the following arguments:

I. The Court of Appeals erred in not holding that respondent being registered with the Philippine Economic Zone Authority
(PEZA) as an [e]cozone [e]xport [e]nterprise, its business is not subject to VAT pursuant to Section 24 of Republic Act No.
7916 in relation to Section 103 (now Sec. 109) of the Tax Code, as amended by R.A. 7716.
II. The Court of Appeals erred in not holding that since respondent is EXEMPT from Value-Added Tax (VAT), the capital
goods and services it purchased are considered not used in VAT taxable business, hence, is not allowed any tax credit/refund
on VAT input tax previously paid on such capital goods pursuant to Section 4.106-1 of Revenue Regulations No. 7-95, and
of input taxes paid on services pursuant to Section 4.103-1 of the same regulations.
III. The Court of Appeals erred in not holding that tax refunds being in the nature of tax exemptions are construed
strictissimi juris against claimants.[14]
These issues have previously been addressed by this Court in Commissioner of Internal Revenue v. Toshiba Information
Equipment (Phils.),[15] Commissioner of Internal Revenue v. Cebu Toyo Corporation,[16] and Commissioner of Internal
Revenue v. Seagate Technology (Philippines).[17]
An entity registered with the PEZA as an ecozone[18] may be covered by the VAT system. Section 23 of Republic Act 7916,
as amended, gives a PEZA-registered enterprise the option to choose between two fiscal incentives: a) a five percent
preferential tax rate on its gross income under the said law; or b) an income tax holiday provided under Executive Order No.
226 or the Omnibus Investment Code of 1987, as amended. If the entity avails itself of the five percent preferential tax rate
under the first scheme, it is exempt from all taxes, including the VAT;[19] under the second, it is exempt from income taxes
for a number of years,[20] but not from
other national internal revenue taxes like the VAT.[21]

The CA and CTA found that respondent had availed itself of the fiscal incentive of an income tax holiday under Executive
Order No. 226. This Court respects that factual finding. Absent a sufficient showing of error, findings of the CTA as
affirmed by the CA are deemed conclusive.[22] Moreover, a perusal of the pleadings and supporting documents before us
indicates that when it registered as a VAT-entity -- a fact admitted by the parties -- respondent intended to avail itself of the
income tax holiday.[23] Verily, being a question of fact, the type of fiscal incentive chosen cannot be a subject of this
Petition, which should raise only questions of law.
By availing itself of the income tax holiday, respondent became subject to the VAT. It correctly registered as a VAT taxpayer,
because its transactions were not VAT-exempt.
Notably, while an ecozone is geographically within the Philippines, it is deemed a separate customs territory[24] and is
regarded in law as foreign soil.[25] Sales by suppliers from outside the borders of the ecozone to this separate customs
territory are deemed as exports[26] and treated as export sales.[27] These sales are zero-rated or subject to a tax rate of zero
percent.[28]
Notwithstanding the fact that its purchases should have been zero-rated, respondent was able to prove that it had paid input
taxes in the amount of P4,377,102.26. The CTA found, and the CA affirmed, that this amount was substantially supported by
invoices and Official Receipts;[29] and petitioner has not challenged the computation. Accordingly, this Court upholds the
findings of the CTA and the CA.
On the other hand, since 100 percent of the products of respondent are exported,[30] all its transactions are deemed export
sales and are thus VAT zero-rated. It has been shown that respondent has no output tax with which it could offset its paid
input tax.[31] Since the subject input tax it paid for its domestic purchases of capital goods and services remained
unutilized, it can claim a refund for the input VAT previously charged by its suppliers.[32] The amount of P4,377,102.26 is
excess input taxes that justify a refund.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. No costs, as petitioner is a government
agency.
SO ORDERED.

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FIRST DIVISION

[G.R. No. 125355. March 30, 2000]

IMAGING CORPORATION OF THE

The Issue Presented

ABAKADA GURO PARTY LIST (Formerly AASJAS)

G.R. No. 168056

DAVIDE, JR., C.J.,

THE HONORABLE EXECUTIVE SECRETARY

AQUILINO Q. PIMENTEL, JR., LUISA P.

G.R. No. 168207

A.S. MADRIGAL, AND SERGIO R. OSMEA III,

EXECUTIVE SECRETARY EDUARDO R. ERMITA,

ASSOCIATION OF PILIPINAS SHELL DEALERS,

G.R. No. 168461

CENTER; MERCEDITAS A. GARCIA doing business

CESAR V. PURISIMA, in his capacity as Secretary of

FRANCIS JOSEPH G. ESCUDERO, VINCENT

G.R. No. 168463

CESAR V. PURISIMA, in his capacity as Secretary of

BATAAN GOVERNOR ENRIQUE T. GARCIA, JR.

G.R. No. 168730

HON. EDUARDO R. ERMITA, in his capacity as the

ATTY. BANIQUED : No, Your Honor.

J. PANGANIBAN : Thats correct . . .

J. PANGANIBAN : . . . mitigating measures . . .

ATTY. BANIQUED : Yes, Your Honor.

ATTY. BANIQUED : Yes, Your Honor.

ATTY. BANIQUED : I guess so, Your Honor, yes.

ATTY. BANIQUED : Yes, Your Honor.

G.R. No. 168056

G.R. No. 168207

G.R. No. 168461

G.R. No. 168463

G.R. No. 168730

Relying on the case of Tolentino vs. Secretary of Finance, 235 SCRA

The Court defined the issues, as follows:

a. Article VI, Section 24, and

a. Article VI, Section 28(1), and

a. Article VI, Section 28(1), and

RULING OF THE COURT

The Court will now discuss the issues in logical sequence.

a. Article VI, Section 24, and

A. The Bicameral Conference Committee

Rule XII, Section 35 of the Rules of the Senate states:

Striking down such argument, the Court held thus:

House Bill No. 3555

House Bill No.3705

Senate Bill No. 1950

With regard to Stand-By Authority in favor of President

Provides for 12% VAT on every sale

Provides for 12% VAT in general on sales

Provides for a single rate of 10% VAT

With regard to the no pass-on provision

Provides that the VAT imposed on power

Provides that the VAT imposed on sales

With regard to 70% limit on input tax credit

Provides that the input tax credit for

Provides that the input tax credit for

Provided for amendments to several

(A) Creditable Input Tax. . . .

Article VI, Sec. 26 (2) of the Constitution, states:

Rates of Income Tax on Domestic Corporation

The argument does not hold water.