1. CHURCHILL v.

CONCEPCION

DOCTRINE: The power to tax is an attribute of sovereignty.

RECIT-READY

FACTS
Section 100 of Act No. 2339 was passed which imposed an annual tax of P4 per
square meter upon "electric signs, billboards, and spaces used for posting or
displaying temporary signs, and all signs displayed on premises not occupied by
buildings." This section was subsequently amended by Act No. 2432, which reduced
the tax on such signs, billboards, etc., to P2 per squar meter or fraction thereof. The
taxes imposed by Act No. 2432, as amended, were ratified by the Congress of the
United States.

Francis A. Churchill and Stewart Tait, copartners doing business under the firm name
and style of the Mercantile Advertising Agency, owners of a sign or billboard
constructed on private property in Manila and exposed to public view, were taxed
P104. The tax was paid under protest and the petitioners having exhausted all their
administrative remedies instituted the present action under section 140 of Act No.
2339 against the Collector of Internal Revenue (CIR) to recover back the amount thus
paid.

According to petitioners, the trial court erred (1) in not holding that the tax
constitutes deprivation of property without compensation or due process of law,
because it is confiscatory and unjustly discriminatory; and (2) in not holding that the
said tax is void for lack of uniformity, because it is not graded according to value;
because the classification on which it is based is mere arbitrary selection and not
based on any reasonable ground; and furthermore, because it constitutes double
taxation."

ISSUE/s
1. W/N the tax is confiscatory as to the business of petitioners
2. W/N the tax in question is unconstitutional because the law was enacted for the
sole purpose of destroying billboards and advertising business depending on the use
of signs or billboards
3. W/N the tax is void for lack of uniformity or because it is mot graded according to
value or constitutes double taxation

HELD
1. NO. The SC held that unless the tax equals or exceeds the gross income,
the court would hardly be justified in declaring the tax confiscatory. Here,
Churchills testified that for a 5-year period, the gross income from the billboard
would be P1,340 and that the expenditures for original construction and taxes would
be P820, leaving a balance of P520. However, the petitioners argue that the court
failed to take into consideration the fact that the annual depreciation of the billboard
is 20%; that at the end of 5 years the capital of P300 would be completely lost. To
answer this, the SC held that the contention that the rates charged for advertising
cannot be raised is purely hypothetical, based entirely upon the opinion of the
plaintiffs, unsupported by actual test, and that the plaintiffs themselves admit that a
number of other persons have voluntarily and without protest paid the tax herein
complained of.
2. NO. If it be conceded that the Legislature has the power to impose a tax upon
signs, signboards, and billboards, then "the judicial cannot prescribe to the legislative
department of the Government limitation upon the exercise of its acknowledged
powers." That the Philippine Legislature has the power to impose such taxes, we
think there can be no serious doubt, because "the power to impose taxes is one so
unlimited in force and so searching in extent, that the venture to declare that it is
subject to any restrictions whatever, except such as rest in the discretion of the
authority which exercises it. It reaches to every trade or occupation; to every object
of industry, use, or enjoyment; to every species of possession; and it imposes a
burden which, in case of failure to discharge it, may be followed by seizure and sale
or confiscation of property. No attribute of sovereignty is more pervading, and
at no point does the power of the government affect more constantly and
intimately all the relations of life than through the exactions made under
it."

3. NO. Sec. 5 of the Philippine Bill provides, that the rule of taxation in said Islands
shall be uniform. Uniformity in taxation means that all taxable articles or kinds of
property, of the same class, shall be taxed at the same rate. It does not mean that
lands, chattels, securities, incomes, occupations, franchises, privileges, necessities,
and luxuries, shall all be assessed at the same rate. Different articles may be taxed
at different amounts, provided the rate is uniform on the same class everywhere,
with all people, and at all times. A tax is uniform when it operates with the same
force and effect in every place where the subject of it is found. "Uniformity,"
as applied to the constitutional provision that all taxes shall be uniform, means that
all property belonging to the same class shall be taxed alike.

In this case, the statute imposes a tax of P2 per square meter or fraction thereof
upon every electric sign, bill-board, etc., wherever found in the Philippine Islands. Or
in other words, "the rule of taxation" upon such signs is uniform throughout the
Islands.

Moreover, the fact that the land upon which the billboards are located is taxed at so
much per unit and the billboards at so much per square meter does not constitute
"double taxation." Double taxation, within the true meaning of that expression, does
not necessarily affect its validity. And again, it is not for the judiciary to say that the
classification upon which the tax is based "is mere arbitrary selection and not based
upon any reasonable grounds." The Legislature selected signs and billboards as a
subject for taxation and it must be presumed that it, in so doing, acted with a full
knowledge of the situation.

2. CIR v. Easter Telecommunications Philippines, Inc.

DOCTRINE: The power of the State to tax is an inherent power of the state.

RECIT-READY:

FACTS
Eastern is a domestic corporation granted by Congress with a telecommunications
franchise. Under its franchise, Eastern is allowed to install, operate, and maintain
telecommunications system throughout the Philippines. Eastern purchased various
imported equipment, machineries, and spare parts necessary in carrying out its
business activities. The importations were subjected to a 10% value- added tax (VAT)
by the Bureau of Customs, which was duly paid by Eastern.
Later on, Eastern filed with the CIR a written application for refund or credit of
unapplied input taxes it paid on the imported equipment amounting to around P22M.
In claiming for the tax refund, Eastern principally relied on Sec. 10 of RA No. 7617,
which allows Eastern to pay 3% of its gross receipts in lieu of all taxes on this
franchise or earnings thereof. In the alternative, Eastern cited Section 106(B) of the
National Internal Revenue Code of 1977 (Tax Code) which authorizes a VAT-registered
taxpayer to claim for the issuance of a tax credit certificate or a tax refund of input
taxes paid on capital goods imported or purchased locally to the extent that such
input taxes have not been applied against its output taxes.

Ruling in favor of Eastern, the CTA found that Eastern has a valid claim for the
refund/credit of the unapplied input taxes, not on the basis of the in lieu of all taxes
provision of its legislative franchise, but rather, on Section 106(B) of the Tax Code,
which states:

SECTION 106. Refunds or tax credits of input tax.

x xx x
(b) Capital goods.A VAT-registered person may apply for
the issuance of a tax credit certificate or refund of input taxes paid on capital goods
imported or locally purchased, to the extent that such input taxes have not been
applied against output taxes. The application may be made only within two (2) years
after the close of the taxable quarter when the importation or purchase was made.

The CTA ruled that Eastern had satisfactorily shown that it was entitled to the
claimed refund/credit as all the elements of the above provision were present: (1)
Eastern was a VAT-registered entity which paid 10% input taxes on its importations of
capital equipment; (2) this input VAT remained unapplied as of the first quarter of
1997; and (3) Eastern seasonably filed its application for refund/credit within the two-
year period stated in the law.

Thus, petitioner Commissioner of Internal Revenue (CIR) seeks to set aside the CA
decision affirming the ruling of the CTA. According to the CIR, applying Section 104(A)
of the Tax Code1 on apportionment of tax credits, Eastern is entitled to a tax refund of
only P8,814,790.15, instead of the P16,229,100.00 adjudged by the CTA and the CA.
To be entitled to a tax refund of the full amount of P16,229,100.00, the CIR asserts
that Eastern must prove that (a) it was engaged in purely VAT taxable transactions
and (b) the unapplied input taxes it claims as refund were directly attributable to
transactions subject to VAT. The VAT returns of Eastern for the 1st, 2nd, 3rd,
and 4th quarters of 1996, however, showed that it earned income from both
transactions subject to VAT and transactions exempt from VAT; the returns
reported income earned from taxable sales, zero- rated sales, and exempt
sales

ISSUE/s
1. W/N Sec. 104(A) of the Tax Code on the apportionment of tax credits can be
applied in appreciation Easterns claim for tax refund, considering that the matter as
raised by the CIR only when he sought reconsideration of the CTA ruling

1 SEC. 104. Tax Credits (a) Creditable Input tax. xxx x

A VAT-registered person who is also engaged in transactions not subject to the value-added
tax shall be allowed input tax credit as follows:
(A) Total input tax which can be directly attributed to transactions subject to value-added tax; and
(B) A ratable portion of any input tax which cannot be directly attributed to either activity.
2. W/N the transactions were subject to VAT, in order for them to be
refundable/creditable

HELD
1. YES. Section 15, Rule 44 of the Rules of Court embodies the rule against raising
new issues on appeal. The general rule is that appeals can only raise questions of law
or fact that (a) were raised in the court below, and (b) are within the issues framed by
the parties therein. Here, the issue was neither averred in the pleadings nor raised
during trial in the court below and thus cannot be raised for the first time on appeal.

Contrary to Easterns claim, we find that the CIR has previously questioned the
nature of Easterns transactions insofar as they affected the claim for tax refund in
his motion for reconsideration of the CTA decision, although it did not specifically
refer to Section 104(A) of the Tax Code.

2. Refund of input taxes on capital goods shall be allowed only to the extent that such
capital goods are used in VAT taxable business. If it is also used in exempt operations,
the input tax refundable shall only be the ratable portion corresponding to the
taxable operations.

As applied in the present case, even without the CIR raising the applicability of
Section 104(A), the CTA should have considered it since all four of Easterns VAT
returns corresponding to each taxable quarter of 1996 clearly stated that it earned
income from exempt sales, i.e., non-VAT taxable sales.

Moreover, according to the CIR, the proportionate application of tax refund

shall apply to Easters various VAT transactions as not all transactions
qualify for the refund or credit of input tax. The SC upheld CIRs arguments,
stating that the taxpayer cannot arbitrarily defeat the inherent power of
the State to tax.

The power of taxation is an inherent attribute of sovereignty; the government chiefly

relies on taxation to obtain the means to carry on its operations. Taxes are essential
to its very existence; hence, the dictum that taxes are the lifeblood of the
government. For this reason, the right of taxation cannot easily be surrendered;
statutes granting tax exemptions are considered as a derogation of the sovereign
authority and are strictly construed against the person or entity claiming the
exemption. Claims for tax refunds, when based on statutes granting tax exemption or
tax refund, partake of the nature of an exemption; thus, the rule of strict
interpretation against the taxpayer-claimant similarly applies.

The taxpayer is charged with the heavy burden of proving that he has complied with
and satisfied all the statutory and administrative requirements to be entitled to the
tax refund. This burden cannot be offset by the non- observance of procedural
technicalities by the governments tax agents when the non-observance of the
remedial measure addressing it does not in any manner prejudice the taxpayers due
process rights, as in the present case.

Eastern cannot validly claim to have been taken by surprise by the CIRs arguments
on the relevance of Section 104(A) of the Tax Code, considering that the arguments
were based on the reported exempt sales in the VAT returns that Eastern itself
prepared and formally offered as evidence. Even if we were to consider the CIRs act
as a lapse in the observance of procedural rules, such lapse does not work to entitle
Eastern to a tax refund when the established and uncontested facts have shown
otherwise. Lapses in the literal observance of a rule of procedure may be overlooked
when they have not prejudiced the adverse party and especially when they are more
consistent with upholding settled principles in taxation.

3. ABAKADA Guro Party List v. Exec. Sec. Ermita

DOCTRINE: The State has an inherent power of taxation, which is all encompassing.

RECIT-READY:

FACTS
In 2005, the President signed into law RA 9337 or the VAT Reform Act. Before the law
took effect, the Court issued a TRO enjoining government from implementing the law
in response to a slew of petitions for certiorari and prohibition questioning the
constitutionality of the new law.

The challenged section of R.A. No. 9337 is the common proviso in Sections 4, 5 and 6:
That the President, upon the recommendation of the Secretary of Finance, shall,
effective January 1, 2006, raise the rate of value-added tax to 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%)

Petitioners allege that the grant of stand-by authority to the President to increase the
VAT rate is an abdication by Congress of its exclusive power to tax because such
delegation is not covered by Section 28 (2), Article VI Consti. They argue that VAT is a
tax levied on the sale or exchange of goods and services which cant be included
within the purview of tariffs under the exemption delegation since this refers to
customs duties, tolls or tribute payable upon merchandise to the government and
usually imposed on imported/exported goods.

ISSUE/s
W/N RA 9337 is constitutional

HELD
YES. 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. 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. 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. 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.

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.

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.

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6. Chamber of Real Estate and Builders Associations, Inc. v. Romulo

DOCTRINE: The discretion to determine the nature (kind), object (purpose), extent
(rate), coverage (subjects) and situs (place) of taxation lies with the Legislature.

RECIT-READY:

FACTS
Petitioner Chamber of Real Estate and Builders Associations, Inc. is questioning the
constitutionality of Section 27 (E) of RA 8424 and the revenue regulations (RRs)
issued by the BIR to implement said provision and those involving creditable
withholding taxes. It impleaded former Executive Secretary Alberto Romulo, then
acting Secretary of Finance Juanita D. Amatong and then Commissioner of Internal
Revenue Guillermo Parayno, Jr. as respondents.

Petitioner assails the validity of the imposition of minimum corporate income tax
(MCIT) on corporations and creditable withholding tax (CWT) on sales of real
properties classified as ordinary assets.

ISSUE/s
W/N the assailed laws are unconstitutional

HELD
NO. Petitioner claims that the MCIT under Section 27(E) of RA 8424 is
unconstitutional because it is highly oppressive, arbitrary and confiscatory which
amounts to deprivation of property without due process of law. The SC disagreed with
this claim stating that taxes are the lifeblood of the government. Without taxes, the
government can neither exist nor endure. The exercise of taxing power derives its
source from the very existence of the State whose social contract with its citizens
obliges it to promote public interest and the common good.

Taxation is an inherent attribute of sovereignty. It is a power that is purely

legislative. Essentially, this means that in the legislature primarily lies the
discretion to determine the nature (kind), object (purpose), extent (rate),
coverage (subjects) and situs (place) of taxation. In other words, the
legislature wields the power to define what tax shall be imposed, why it should be
imposed, how much tax shall be imposed, against whom (or what) it shall be imposed
and where it shall be imposed. As a general rule, the power to tax is plenary
and unlimited in its range, acknowledging in its very nature no limits, so
that the principal check against its abuse is to be found only in the
responsibility of the legislature (which imposes the tax) to its constituency
who are to pay it. Nevertheless, it is circumscribed by constitutional limitations. At
the same time, like any other statute, tax legislation carries a presumption of
constitutionality. The SC held in previous cases that due process clause may properly
be invoked to invalidate, in appropriate cases, a revenue measure when it amounts
to a confiscation of property. However, the Court will not strike down a revenue
measure as unconstitutional (for being violative of the due process clause) on the
mere allegation of arbitrariness by the taxpayer. There must be a factual foundation
to such an unconstitutional taint.

10. CIR v. CA

DOCTRINE: The State is not bound by the negligence of its agents. Taxes are the
lifeblood of the nation through which the government agencies continue to operate
and with which the State effects its functions for the welfare of its constituents.

The errors of certain administrative officers should never be allowed to jeopardize the
Governments financial position, especially in the case at bar where the amount
involves millions of pesos.

RECIT-READY:

FACTS
Citytrust filed a claim for refund with the BIR in the amount of around P19M
representing the alleged aggregate of the excess of its carried-over total quarterly
payments over the actual income tax due. 2 days later, in order to interrupt the
running of the prescriptive period, Citytrust filed a petition with the CTA, claiming the
refund of its income tax overpayments.

According to respondent, the mere averment that Citytrust incurred a net loss in
1985 does not ipso facto merit a refund, and that assuming arguendo that petitioner
is entitled to refund, the right to claim the same has prescribed with respect to
income tax payments pursuant to the National Internal Revenue Code.

Later on, the case was submitted for decision based solely on the pleadings and
evidence submitted by Citytrust. Petitioner could not present any evidence by reason
of the repeated failure of the Tax Credit/Refund Division of the BIR to transmit the
records of the case, as well as the investigation report.
The CTA then ordered petitioner CIR to grant a refund to private respondent Citytrust
Banking Corporation (Citytrust) in the amount of around P13M, representing its
overpaid income taxes for 1984 and 1985, but denied its claim for the alleged
refundable amount reflected in its 1983 income tax return on the ground of
prescription. The judgment of the CTA was then affirmed by the CA. Thus, the
petitioner elevated the case to the SC.

ISSUE/s
W/N the CA is correct in ordering petitioner CIR to grant a refund to private
respondent Citytrust

HELD
NO. After a careful review of the records, we find that under the peculiar
circumstances of this case, the ends of substantial justice and public interest would
be better subserved by the remand of this case to the Court of Tax Appeals for further
proceedings.

It is the sense of this Court that the BIR, represented herein by petitioner CIR, was
denied its day in court by reason of the mistakes and/or negligence of its officials and
employees. It can readily be gleaned from the records that when it was herein
petitioners turn to present evidence, several postponements were sought by its
counsel, the Solicitor General, due to the unavailability of the necessary records
which were not transmitted by the Refund Audit Division of the BIR to said counsel,
as well as the investigation report made by the Banks/ Financing and Insurance
Division of the said bureau, despite repeated requests. It was under such a
predicament and in deference to the tax court that ultimately, said records being still
unavailable, herein petitioners counsel was constrained to submit the case for
decision without presenting any evidence.

It is a long and firmly settled rule of law that the Government is not bound
by the errors committed by its agents. In the performance of its
governmental functions, the State cannot be estopped by the neglect of its
agent and officers. Although the Government may generally be estopped
through the affirmative acts of public officers acting within their authority,
their neglect or omission of public duties as exemplified in this case will not
and should not produce that effect. Nowhere is the aforestated rule more
true than in the field of taxation. It is axiomatic that the Government
cannot and must not be estopped particularly in matters involving taxes.
Taxes are the lifeblood of the nation through which the government
agencies continue to operate and with which the State effects its functions
for the welfare of its constituents. The errors of certain administrative officers
should never be allowed to jeopardize the Governments financial position, especially
in the case at bar where the amount involves millions of pesos the collection whereof,
if justified, stands to be prejudiced just because of bureaucratic lethargy.

11. Davao Gulf Lumber Corp. v. CIR

DOCTRINE: 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 states, any exemption from the payment of a tax must be
clearly stated in the language of the law; it cannot be merely implied therefrom.

RECIT-READY:
FACTS
Petitioner is a licensed forest concessionaire. Petitioner purchased from various oil
companies, refined and manufactured mineral oils as well as motor and diesel fuels,
which it used exclusively for the exploitation and operation of its forest concession.
Said oil companies paid the specific taxes imposed under Sec. 153 and 156 of the
NIRC, on the sale of said products. Being included in the purchase price of the oil
products, the specific taxes paid by the oil companies were eventually passed on to
the user, the petitioner in this case.

Petitioner filed before Respondent CIR a claim for refund in the amount of
P120,825.11, representing 25% of the specific taxes actually paid on the above-
mentioned fuels and oils that were used by petitioner in its operations as forest
concessionaire. The claim was based on Section 5 of RA 1435. 2

Here, it is an unquestioned fact that petitioner complied with the procedure for
refund. In regard to other purchases, the CTA granted the claim, but computed the
refund based on rates deemed paid under RA 1435, an not on the higher rates
actually paid by petitioner under the NIRC.

Petitioner insists that the basis for computing the refund should be the increased
rates. Thus, the matter was elevated to the CA, which affirmed the CTA decision.
Hence, this petition.

ISSUE/s
W/N petitioner is entitled under RA 1435 to the refund of 25% of the amount of
specific taxes it actually paid on various refined and manufactured mineral oils and
other oil products taxed under the NIRC

HELD
NO. A tax cannot be imposed unless the clear and express language of a statute
supports it; on the other hand, once the tax is unquestionably imposed, [a] claim of
exemption from tax payments must be clearly shown and based on language in the
law too plain to be mistaken. Since the partial refund authorized under Section 5, RA
1435, is in the nature of a tax exemption, it must be construed strictissimi juris
against the grantee. Hence, petitioners claim of refund on the basis of the specific
taxes it actually paid must expressly be granted in a statute stated in a language too
clear to be mistaken.

Petitioner asserts that equity and justice demand that the computation of the tax
refunds be based on actual amounts paid under Sections 153 and 156 of the NIRC.
We disagree. According to an eminent authority on taxation, there is no tax
exemption solely on the ground of equity.

2 xxx Provided, however, That whenever any oils mentioned above are used by miners or forest
concessionaires in their operations, twenty-five per centum of the specific tax paid thereon shall be
refunded by the Collector of Internal Revenue upon submission of proof of actual use of oils xxx