Fortune Tobacco Corporation vs.

Commissioner
of Internal Revenue
G.R. No. 192024 July 1, 2015
Facts: Fortune is the manufacturer/producer of
cigarette brands. Immediately prior to January 1,
1997, the cigarette brands were subject to ad valorem
tax pursuant to then Sec. 142 of the Tax Code of
1977, as amended. However, on January 1, 1997,
R.A. No. 8240 took effect causing a shift from the ad
valorem tax (AVT) system to the specific tax system.
As a result of such shift, the aforesaid cigarette
brands were subjected to specific tax under Section
142 thereof, now renumbered as Section 145 of the
Tax Code of 1997.

the CTA En Banc, but was rebuffed after the tax

tribunal found no cause to reverse the findings and
conclusions of the CTA Division.
Fortune claims that it paid a total amount of
P219,566,450.00 in overpaid excise taxes. For
Fortune, considering that the CTA found RR 17-99 to
be contrary to law, there should be no obstacle to the
refund of the total amount excess excise taxes it had
paid.
Issue: Whether there is sufficient evidence to warrant
the grant of Fortunes claim for tax refund?

Under said law the rates of excise tax on cigars and

cigarettes shall be increased by twelve percent (12%)
on January 1, 2000.

Held: No

To implement the provisions for a twelve percent

(12%) increase of excise tax on cigars and cigarettes
packed by machines by January 1, 2000, the
Secretary of Finance, upon recommendation of the
Commissioner of Internal Revenue(CIR), issued RR
No. 17-99. It provides in the last paragraph of Section
1 thereof, "that the new specific tax rate for any
existing brand of cigars, cigarettes packed by
machine, distilled spirits, wines and fermented liquor
shall not be lower than the excise tax that is actually
being paid prior to January 1, 2000."

The denial of Fortunes claim for tax refund in this

case is based on the ground that it failed to provide
sufficient evidence to prove its claim and the amount
thereof. As a result, Fortune seeks that the Court reexamine the probative value of its evidence and
determine whether it should be refunded the amount
of excise taxes it allegedly overpaid.

On 31 March 2005, Fortune filed a claim for tax credit

or refund under Section 229 of the 1997 NIRC for
erroneously or illegally collected specific taxes
covering the period June to December 31, 2004 in the
total amount of Php219,566,450.00.
On November 14, 2005, Fortune filed a Petition for
Review which was raffled to the Former First Division
of the CTA. The CIR in his Answer raised among
others that the amount of Php219,566,450.00 being
claimed by Fortune as alleged overpaid excise tax for
the period covering 1 June to 31 December 2004, is
not properly documented.
After trial on the merits, the Former First Division of
the CTA rendered the assailed Decision, dated April
30, 2009, which consistently ruled that RR 17-99 is
contrary to law and that there is insufficiency of
evidence on the claim for refund.
Fortune filed its motion for reconsideration therefrom,
and which was denied. Fortune elevated its claim to

Procedural Issue

This cannot be done. The settled rule is that only

questions of law may be raised in a petition under
Rule 45 of the Rules of Court. It is not the Supreme
Courts function to analyze or weigh all over again the
evidence already considered in the proceedings
below, the Courts jurisdiction being limited to
reviewing only errors of law that may have been
committed by the lower court. The resolution of
factual issues is the function of the lower courts,
whose findings on these matters are received with
respect. A question of law which the Court may pass
upon must not involve an examination of the probative
value of the evidence presented by the litigants. This
is in accordance with Section 1, Rule 45 of the Rules
of Court, as amended.
In fact, the rule finds greater significance with respect
to the findings of specialized courts such as the CTA,
the conclusions of which are not lightly set aside
because of the very nature of its functions which 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.
Moreover, it has been said that the proper
interpretation of the provisions on tax refund that does

not call for an examination of the probative value of

the evidence presented by the parties-litigants is a
question of law. Conversely, it may be said that if the
appeal essentially calls for the re-examination of the
probative value of the evidence presented by the
appellant, the same raises a question of fact. Often
repeated is the distinction that there is a question of
law in a given case when doubt or difference arises
as to what the law is on a certain state of facts; there
is a question of fact when doubt or difference arises
as to the truth or falsehood of alleged facts.

At any rate, even if the Court should find fault in the

ruling of the CTA Division in denying the admission of
petitioners evidence, the result would be the same
because petitioner failed to offer any proof or tender
of excluded evidence.

Verily, the sufficiency of a claimants evidence and the

determination of the amount of refund, as called for in
this case, are questions of fact, which are for the
judicious determination by the CTA of the evidence on
record.

Section 40, Rule 132 of the Rules of Court provides if

documents or things offered in evidence are excluded
by the court, the offeror may have the same attached
to or made part of the record. If the evidence
excluded is oral, the offeror may state for the record
the name and other personal circumstances of the
witness and the substance of the proposed testimony.

Failure to Submit Original Documents

Granting that the Court could take a second look and
review petitioners evidence, the result would be the
same. Fortune only submitted mere photocopies of
their documentary evidence. Section 3 of A.M. No.
05-11-07 CTA, the Revised Rules of the Court of Tax
Appeals, provides that the Rules of Court shall apply
suppletorily in the proceeding before the tax tribunal.
In this connection, Section 3 of Rule 130 of the Rules
of Court lays down the Best Evidence Rule with
respect to the presentation of documentary evidence,
which is that original document must be produced
subject to a few exceptions.
In this case, Fortune did not even attempt to provide a
plausible reason as to why the original copies of the
documents presented could not be produced before
the CTA or any reason that the application of any of
the foregoing exceptions could be justified. Although
petitioner presented one (1) witness to prove its claim,
it appears that this witness was not even a signatory
to any of the disputed documentary evidence.
As correctly pointed out by the CTA Division, Fortune
knew all along that it had committed the foregoing
procedural lapses when it filed its Formal Offer of
Evidence. Although Fortune orally manifested that it
was going to seek reconsideration of the CTA Division
order excluding its evidence, in the end, Fortune did
not even bother to file any such motion for
reconsideration at all.
Failure to Offer Any Proof or Tender of Excluded
Evidence

Fortune posits that if their exhibits are admitted

together with the testimony of their witness, the same
would sufficiently prove their claim. A closer scrutiny
of the records shows that it did not file any offer of
proof or tender of excluded evidence.

It has been repeatedly ruled that where documentary

evidence was rejected by the lower court and the
offeror did not move that the same be attached to the
record, the same cannot be considered by the
appellate court, as documents forming no part of
proofs before the appellate court cannot be
considered in disposing the case. For the appellate
court to consider as evidence, which was not offered
by one party at all during the proceedings below,
would infringe the constitutional right of the adverse
party in this case, the CIR, to due process of law.
Although it may be suggested that the CTA should
have been more liberal in the application of technical
rules of evidence, it should be stressed that a liberal
application, or suspension of the application of
procedural rules, must remain as the exception to the
well-settled principle that rules must be complied with
for the orderly administration of justice.
To be sure, the relaxation of procedural rules cannot
be made without any valid reasons proffered for or
underpinning it. To merit liberality, petitioner must
show reasonable cause justifying its noncompliance
with the rules and must convince the Court that the
outright dismissal of the petition would defeat the
administration of substantive justice.
But even if the Court would consider Fortunes
otherwise excluded evidence, the same would still fail
to sufficiently prove their entitlement to the claim for
refund.
As correctly held by the CTA En Banc the documents
are a mere summary of excise taxes paid by Fortune

for ALL of its cigarette brands. The CTA cannot verify

the amounts of excise taxes paid for the brands in
issue which are Champion M-100s, Camel Filter
Kings, Winston Filter Kings, and Winston Lights. The
SC cannot likewise rely solely on Fortune's Excise
Tax Refund Computation Summary. The figures
therein must be verified through other documentary
evidence which the Court must look into and which
Fortune failed to properly provide.

Chevron Philippines Inc vs. Commissioner Of

Internal Revenue
G.R. No. 210836 September 1, 2105
Facts: Chevron sold and delivered petroleum
products to the Clark Development Corporation
(CDC) in the period from August 2007 to December
2007. Chevron did not pass on to CDC the excise
taxes paid on the importation of the petroleum
products sold to CDC in taxable year 2007; hence, on
June 26, 2009, it filed an administrative claim for tax
refund or issuance of tax credit certificate in the
amount of P6,542,400.00. Considering that
Commissioner of Internal Revenue (CIR) did not act
on the administrative claim for tax refund or tax credit,
thus Chevron elevated its claim to the CTA by petition
for review on June 29, 2009. The case, docketed as
CTA Case No. 7939, was raffled to the CTAs First
Division.
The CTA First Division denied Chevrons judicial claim
for tax refund or tax credit through its decision dated
July 31, 2012, and later on also denied Chevrons
Motion for Reconsideration on November 20, 2012.
Chevron appealed to the CTA En Banc whichaffirmed
the ruling of the CTA First Division, stating that there
was nothing in Section 135(c) of the NIRC that
explicitly exempted Chevron as the seller of the
imported petroleum products from the payment of the
excise taxes; and holding that because it did not fall
under any of the categories exempted from paying
excise tax, Chevron was not entitled to the tax refund
or tax credit.
Accordingly, Chevron is not entitled to any refund or
issuance of tax credit certificate on excise taxes paid
on its importation of petroleum products sold to CDC
pursuant to the doctrine laid down by the Supreme
Court in the Shell case.

Chevron sought reconsideration, but the CTA En

Banc denied its motion for that purpose in the
resolution dated January 7, 2014.
Chevron appealed to the Supreme Court, but the
Court denied the petition for review on certiorari.
Hence, Chevron has filed the Motion for
Reconsideration, submitting that it was entitled to the
tax refund or tax credit because ruling promulgated on
April 25, 2012 in Pilipinas Shell, on which the CTA En
Banc had based its denial of the claim of Chevron,
was meanwhile reconsidered by the Courts First
Division on February 19, 2014
Issue: Whether Chevron is entitled to the tax refund
or the tax credit for the excise taxes paid on the
importation of petroleum products that it had sold to
CDC in 2007?
Held: Yes
The case of Shell concerns the manufacturers
entitlement to refund or credit of the excise taxes paid
on the petroleum products sold to international
carriers exempt from excise taxes under Section
135(a) of the NIRC.
However, the issue raised here is whether the
Chevron was entitled to the refund or credit of the
excise taxes it paid on petroleum products sold to
CDC, a tax-exempt entity under Section 135(c) of the
NIRC. Notwithstanding that the claims for refund or
credit of excise taxes were premised on different
subsections of Section 135 of the NIRC, the basic tax
principle applicable was the same in both cases that
excise tax is a tax on property; hence, the exemption
from the excise tax expressly granted under Section
135 of the NIRC must be construed in favor of the
petroleum products on which the excise tax was
initially imposed.
Accordingly, the excise taxes that Chevron paid on its
importation of petroleum products subsequently sold
to CDC were illegal and erroneous, and should be
credited or refunded to Chevron in accordance with
Section 204 of the NIRC.
Under Section 129 of the NIRC, as amended, excise
taxes are imposed on two kinds of goods, namely: (a)
goods manufactured or produced in the Philippines
for domestic sales or consumption or for any other
disposition; and (b) things imported. Undoubtedly, the
excise tax imposed under Section 129 of the NIRC is
a tax on property.

With respect to imported things, Section 131 of the

NIRC declares that excise taxes on imported things
shall be paid by the owner or importer to the Customs
officers, conformably with the regulations of the
Department of Finance and before the release of such
articles from the customs house, unless the imported
things are exempt from excise taxes and the person
found to be in possession of the same is other than
those legally entitled to such tax exemption. For this
purpose, the statutory taxpayer is the importer of the
things subject to excise tax. Chevron, being the
statutory taxpayer, paid the excise taxes on its
importation of the petroleum products.
Pursuant to Section 135(c), petroleum products sold
to entities that are by law exempt from direct and
indirect taxes are exempt from excise tax. The phrase
which are by law exempt from direct and indirect
taxes describes the entities to whom the petroleum
products must be sold in order to render the
exemption operative. Section 135(c) should thus be
construed as an exemption in favor of the petroleum
products on which the excise tax was levied in the
first place. The exemption cannot be granted to the
buyers that is, the entities that are by law exempt
from direct and indirect taxes because they are not
under any legal duty to pay the excise tax.
Consequently, the payment of the excise taxes by
Chevron upon its importation of petroleum products
was deemed illegal and erroneous upon the sale of
the petroleum products to CDC. Section 204 of the
NIRC explicitly allowed Chevron as the statutory
taxpayer to claim the refund or the credit of the excise
taxes thereby paid.
It is noteworthy that excise taxes are considered as a
kind of indirect tax, the liability for the payment of
which may fall on a person other than whoever
actually bears the burden of the tax. Simply put, the
statutory taxpayer may shift the economic burden of
the excise tax payment to another usually the buyer.
In cases involving excise tax exemptions on
petroleum products under Section 135 of the NIRC,
the Court has consistently held that it is the statutory
taxpayer, not the party who only bears the economic
burden, who is entitled to claim the tax refund or tax
credit. But the Court has also made clear that this rule
does not apply where the law grants the party to
whom the economic burden of the tax is shifted by
virtue of an exemption from both direct and indirect
taxes. In which case, such party must be allowed to
claim the tax refund or tax credit even if it is not
considered as the statutory taxpayer under the law.

The general rule applies here because Chevron did

not pass on to CDC the excise taxes paid on the
importation of the petroleum products, the latter being
exempt from indirect taxes by virtue of Section 24 of
Republic Act No. 7916, in relation to Section 15 of
Republic Act No. 9400, not because Section 135(c) of
the NIRC exempted CDC from the payment of excise
tax. Accordingly Chevron was entitled to the refund or
credit of the excise taxes erroneously paid on the
importation of the petroleum products sold to CDC.

Fluor Daniel, Inc. vs. Commissioner of Internal

Revenue
CTA (3rd Division) Case No. 8444 July 11, 2016
Facts: Commissioner of Internal Revenue (CIR)
assessed Fluor Daniel, Inc. Philippines (FDIP) for,
among others, alleged deficiency final withholding tax
on software maintenance service fees paid to Fluor
Intercontinental, Inc. (FII). The CIR claims that the
payments constitute royalties within the definition of
Revenue Memorandum Circular (RMC) No. 77-2003,
as amended by RMC 44-2005.
FDIP protested such assessment. Upon receipt of the
Final Decision on Disputed Assessment denying its
protest, FDIP filed a Petition for Review with the CTA.
FDIP argued that it is not liable for deficiency FWT as
its payments to FII constitute business income. Under
their agreement, FDIP was granted free authority to
access and use a suite of software helpful and
necessary to its operations and activities.
FDIP, however, is required to pay its share in the
software maintenance (at cost, with no markup)
computed based on project hours for trouble shooting,
periodic system checking and related services to
ensure proper operation of the software.
FDIP further argued that the contract is in the nature
of compensation for services rendered abroad, hence
beyond the jurisdiction of the Philippine taxing
authority.
Assuming that the fees are Philippine sourced, FDIP
insisted that the payments are not taxable pursuant to
the Philippines-US Tax Treaty as FII has no
permanent establishment in the Philippines.
Issue: Are the software maintenance fees paid by
FDIP to FII considered royalties subject

to FWT?
Held: No
The nature of the payments by FDIP to FII is for
business support services. A plain reading of the
Licensing Contract shows that the use of the software
is free and that FDIP will only pay FII a fee to shoulder
its share in the maintenance of the software. The
contract also shows that FII does not transfer all its
substantial rights in the software. The contract deals
with the know-how for the use of the suite of
software, which FII did not receive income payment,
and services for maintenance of the software.
As to the service contract, the business profits of FII
shall be taxable only in the US unless it has a PE in

the Philippines. Since FII has no PE in the Philippines

pursuant to Article 5 of the Philippines-US Tax Treaty,
the maintenance service fee is exempt from FWT.
The CTA further held that since the services were
rendered in the US or outside the Philippines, the
maintenance service fees paid by FDIP to FII are
beyond the taxing jurisdiction of the BIR and exempt
from FWT.