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TAXATION LAW

DUMAGUETE CATHEDRAL CREDIT COOPERATIVE [DCCCO], Represented by Felicidad L. Ruiz, its General
Manager vs. COMMISSIONER OF INTERNAL REVENUE

G.R. No. 182722, January 22, 2010

DOCTRINE: Cooperatives, including their members, deserve a preferential tax treatment because of the
vital role they play in the attainment of economic development and social justice. Thus, although taxes
are the lifeblood of the government, the States power to tax must give way to foster the creation and
growth of cooperatives. To borrow the words of Justice Isagani A. Cruz: The power of taxation, while
indispensable, is not absolute and may be subordinated to the demands of social justice..

FACTS:
Petitioner Dumaguete Cathedral Credit Cooperative is a credit cooperative duly registered with
and regulated by the Cooperative Development Authority.

On November 27, 2001, the Bureau of Internal Revenue Operations Group Deputy
Commissioner, Lilian B. Hefti, issued Letters of Authority, authorizing BIR Officers of Revenue Region No.
12, Bacolod City, to examine petitioner’s books of accounts and other accounting records for all internal
revenue taxes for the taxable years 1999 and 2000.

On June 26, 2002, petitioner received two Pre-Assessment Notices for deficiency withholding
taxes for taxable years 1999 and 2000 which were protested by petitioner.

On November 29, 2002, petitioner availed of the VAAP and paid the amounts of P105,574.62
and P143,867.24 corresponding to the withholding taxes on the payments for the compensation,
honorarium of the Board of Directors, security and janitorial services, and legal and professional services,
for the years 1999 and 2000, respectively.

On April 24, 2003, petitioner received from the BIR Regional Director, Sonia L. Flores, Letters of
Demand, with attached Transcripts of Assessment and Audit Results/Assessment Notices, ordering
petitioner to pay the deficiency withholding taxes, inclusive of penalties, for the years 1999 and 2000 in
the amounts of P1,489,065.30 and P1,462,644.90, respectively.

ISSUE:

Whether or not petitioner is liable to pay the deficiency withholding taxes on interest from savings and
time deposits of its members for taxable years 1999 and 2000, and the consequent delinquency interest of 20%
per annum

HELD:

No. The BIR had earlier ruled without any qualification that since interest from any Philippine currency
bank deposit and yield or any other monetary benefit from deposit substitutes are paid by banks, cooperatives are
not required to withhold the corresponding tax on the interest from savings and time deposits of their members.
The fact that “similar arrangements” is preceded by banking terms means that that those subject to withholding
must have deposit peculiarities. This is consistent with the preferential treatment accorded to members of
cooperatives who are exempt in the same way as the cooperatives themselves.
On November 16, 1988, the BIR declared in BIR Ruling No. 551-888 that cooperatives are not required to
withhold taxes on interest from savings and time deposits of their members. Petitioners invocation of BIR Ruling
No. 551-888, is proper.

There is nothing in the ruling to suggest that it applies only when deposits are maintained in a bank.
Rather, the ruling clearly states, without any qualification, that since interest from any Philippine currency bank
deposit and yield or any other monetary benefit from deposit substitutes are paid by banks, cooperatives are not
required to withhold the corresponding tax on the interest from savings and time deposits of their members. This
interpretation was reiterated in BIR Ruling [DA-591-2006], which was issued by Assistant Commissioner James H.
Roldan upon the request of the cooperatives for a confirmatory ruling on several issues, among which is the
alleged exemption of interest income on members deposit from the 20% final withholding tax.

It bears stressing that interpretations of administrative agencies in charge of enforcing a law are entitled to
great weight and consideration by the courts, unless such interpretations are in a sharp conflict with the governing
statute or the Constitution and other laws. In this case, BIR Ruling No. 551-888 and BIR Ruling [DA-591-2006] are in
perfect harmony with the Constitution and the laws they seek to implement. Accordingly, the interpretation in BIR
Ruling No. 551-888 that cooperatives are not required to withhold the corresponding tax on the interest from
savings and time deposits of their members, which was reiterated in BIR Ruling [DA-591-2006], applies to the
instant case.

The National Internal Revenue Code states that a final tax at the rate of twenty percent (20%) is hereby
imposed upon the amount of interest on currency bank deposit and yield or any other monetary benefit from the
deposit substitutes and from trust funds and similar arrangement x xx for individuals under Section 24(B)(1) and for
domestic corporations under Section 27(D)(1). Considering the members deposits with the cooperatives are not
currency bank deposits nor deposit substitutes, Section 24(B)(1) and Section 27(D)(1), therefore, do not apply to
members of cooperatives and to deposits of primaries with federations, respectively.
ALLIED BANKINGCORPORATION vs. COMMISSIONER OFINTERNAL REVENUE

G.R. No. 175097, February 5, 2010

DOCTRINE: We have time and again reminded the CIR to indicate, in a clear and unequivocal language,
whether his action on a disputed assessment constitutes his final determination thereon in order for the
taxpayer concerned to determine when his or her right to appeal to the tax court accrues. Viewed in the
light of the foregoing, respondent is now estopped from claiming that he did not intend the Formal
Letter of Demand with Assessment Notices to be a final decision.

FACTS:

In April 2004, the Bureau of Internal Revenue (BIR) issued a preliminary assessment notice (PAN)
to Allied Banking Corporation (ABC) demanding payment of P50 million in taxes. ABC then filed a protest
in May 2004. In July 2004, the BIR issued a formal assessment notice (FAN). The FAN included a formal
demand as well as this phrase:

xxx

This is our final decision based on investigation. If you disagree, you may appeal this final
decision within thirty (30) days from receipt hereof, otherwise said deficiency tax assessment shall
become final, executory and demandable.

ABC then appealed the FAN with the Court of Tax Appeals (CTA). The Commissioner of Internal
Revenue (CIR) then filed a motion to dismiss on the ground that ABC did not exhaust all administrative
remedies for failing to file a protest against the FAN.

ISSUE:

Whether or not the Commissioner of Internal Revenue is correct

HELD:

No. It is true that a FAN is not appealable with the CTA. However, this case holds an exception.
The wordings of the FAN issued by the CIR made it appear that the FAN is actually the CIR’s final
decision. It even advised ABC to file an appeal instead of filing a protest. ABC cannot therefore be faulted
for filing an appeal with the CTA instead of filing a protest with the CIR.

We have time and again reminded the CIR to indicate, in a clear and unequivocal language,
whether his action on a disputed assessment constitutes his final determination thereon in order for the
taxpayer concerned to determine when his or her right to appeal to the tax court accrues. Viewed in the
light of the foregoing, respondent is now estopped from claiming that he did not intend the Formal Letter
of Demand with Assessment Notices to be a final decision.

COMMISSIONER OF INTERNAL REVENUE vs. SM PRIME HOLDINGS, INC. and FIRST


ASIA REALTY DEVELOPMENT CORPORATION

G.R. No. 183505, February 26, 2010

DOCTRINE:A cursory reading of Section 108 of the National Internal Revenue Code of 1997
clearly shows that the enumeration of the “sale or exchange of services” subject to Value-Added
Tax (VAT) is not exhaustive—the words, “including,” “similar services,” and “shall likewise
include,” indicate that the enumeration is by way of example only. Several amendments were
made to expand the coverage of Value Added Tax but none pertain to cinema/theater operators
or proprietors—at present, only lessors or distributors of cinematographic films are subject to
Value-Added Tax (VAT).

FACTS:

In a number of CTA cases, the BIR sent SM Prime and First Asia a Preliminary
Assessment Notice for VAT deficiency on cinema ticket sales for the taxable year 2000 (SM),
1999 (First Asia), 2000 (First Asia), 2002 (First Asia) and, 2003 (First Asia).

SM and First Asia filed for protest but the BIR just denied them and sent them a Letter of
Demand subsequently. All the Preliminary Assessment Notices were subjected to a Petition for
Review filed by SM and First Asia to the CTA.

The CTA First Division ruled that there should only be one business tax applicable to
theater and movie houses, the 30% amusement tax. Hence, the CIR is wrong in collecting VAT
from the ticket sales.

Hence, this petition.

ISSUE:

Whether or not the cinema ticket sales are subject to VAT and thus included in the
meaning of “Sale or Exchange of Services”?

HELD:
No, the cinema ticket sales are not subject to VAT.

Section 108 of the NIRC of the 1997 reads: x x x 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. 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 motionpictures or films. As
pointed out by the CTA En Banc:“Exhibition” in Black’s Law Dictionary is defined as “To show or
display. x x x To produce anything in public so that it may betaken into possession” (6th ed., p.
573). While the word “lease” isdefined as “a contract by which one owning such property
grantsto another the right to possess, use and enjoy it on specified period of time in exchange
for periodic payment of a stipulatedprice, referred to as rent (Black’s Law Dictionary, 6th ed., p.
889).x x x Since the activity of showing motion pictures, films or movies by cinema/theater
operators or proprietors is not included in theenumeration, it is incumbent upon the court to the
determinewhether such activity falls under the phrase “similar services.”

The intent of the legislature must therefore be ascertained.

In 1994, RA7716 restructured the VAT system by widening its tax baseand enhancing its
administration. Three years later, RA7716 was amended by RA 8241. Shortly thereafter,
theNIRC of 1997 was signed into law. Several amendments were made to expand the coverage
of VAT. However, nonepertain to cinema/theater operators or proprietors. Atpresent, only lessors
or distributors of cinematographicfilms are subject to VAT. While persons subject to amusement
tax under the NIRC of 1997 are exempt fromthe coverage of VAT.

Commissioner of Internal Revenue v Far East Bank and Trust Company (Now
Bank of the Philippine Islands)

G.R. No. 173854, March 15, 2010

DOCTRINE: Entitlement to a tax refund is for the taxpayer to prove and not for the
government to disprove.

FACTS: On 10 April 1995, Far East Bank filed with the Bureau of Internal Revenue two
Corporate Annual Income Tax Returns, on for its Corporate Banking Unit (CBU) and
another for its Foreign Currency Deposit Unit (FCDU) for taxable year ending 31
December 1994. The return for the CBU consolidated reflected a refundable income tax
of P12,682,864. Pursuant to the NIRC, the said refundable amount was carried over
and applied against Far East Bank’s income tax liability for the taxable year ending 31
December 1995. On 15 April 1996, respondent bank filed its 1995 Annual Income Tax
Return, which showed a total overpaid income tax in the amount of P17,443,133.00.
Out of this amount, only P13,645,109 was sought to be refunded by respondent while
the remaining P3,798,024 was opted to be carried over to the next taxable year. On 17
May 1996, respondent bank filed a claim for the refund of P13,645,109 with the BIR.
The BIR did not act upon the complaint, thus respondent brought the matter to the Court
of Tax Appeals via a Petition for Review.

The CTA denied the bank’s claim for refund on the ground that it failed to show that the
income derived from rentals and sale of real property from which the taxes were
withheld were reflected in it 1994 Annual Income Tax Return. A Motion for New Trial was
filed based on excusable negligence which was denied by the CTA. On appeal with the
Court of Appeals, the CTA decision was reversed.

ISSUE:Whether or not respondent has proven its entitlement to the refund.

HELD: No. Respondent miserably failed to prove its entitlement to the refund. A
taxpayer claiming for a tax credit or refund of creditable withholding tax must comply
with the following requisites:

1) The claim must be filed with the CIR within the two-year period from the date
of payment of the tax;
2) It must be shown on the return that the income received was declared as part
of the gross income; and
3) The fact of withholding must be established by a copy of a statement duly
issued by the payor to the payee showing the amount paid and the amount of
the tax withheld.

As to the first requirement, respondent was able to file the claim within the 2-year
period. However, as to the second requirement, respondent was unable to comply due
to its failure to present all the Certificates of Creditable Tax Withheld at Source.
#72 TFS, Incorporated v Commissioner of Internal Revenue

G.R. No. 166829, April 19, 2010

DOCTRINE: It is only in highly meritorious cases may the rules for perfecting an appeal
be brushed aside in the interest of substantial justice.

FACTS: TFS Incorporated is a domestic corporation engaged in the pawnshop


business. On 15 January 2002, TFS received a Preliminary Assessment Notice (PAN for
deficiency value added tax, expanded withholding tax, and compromise penalty for the
taxable year 1998. TFS requested BIR through a letter to withdraw and set aside the
assessments stating the same have no basis. On 7 February 2002, CIR informed TFS
that a Final Assessment Notice (FAN) was already issued and that petitioner had until
22 February 2002 to file a protest letter. A protest letter was filed by petitioner on 20
February 2002.

Due to the inaction of the CIR, a Petition for Review was filed by TFS with the CTA.
During trial, petitioner offered to compromise and to settle the assessment for deficiency
EWT with the BIR thereby leaving only the issue of VAT on pawnshops to be threshed
out. Thereafter, the CTA rendered a decision upholding the assessment issued against
petitioner. The CTA rules that pawnshops are subject to VAT under Section 108(A) of
the NIRC as they are engaged in the sale of services for a fee, remuneration or
consideration. Aggrieved, petitioner filed a Motion for Reconsideration, which was
denied. Petitioner filed with a Petition for Review with the CA but thereafter corrected
itself and filed instead with the Court of Tax Appeals En Banc pursuant to the enactment
of Republic Act No. 9282 removing the Court of Appeals of its jurisdiction to hear
appeals from the decisions of Court of Tax Appeals division. The petition was dismissed
for having been filed out of time. A Motion for Reconsideration was filed but was denied.

ISSUE: a) Whether or not petitioner is subject to the 10% VAT.

b) Whether or not Court of Tax Appeals En Banc should have given due
course to the petition for review and not strictly applied the technical Rules of Procedure
to the detriment of justice.

HELD: a) Petitioner is not subject to the 10% VAT. As ruled in First Planters
Pawnshop, Inc. v Commissioner of Internal Revenue, 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. Since the assessment was made
prior to the implementation of R.A. No. 9238, TFS cannot be subjected to the 10% VAT.

b) Yes. Although strict compliance with the rules for perfecting an appeal is
indispensable for the prevention of needless delays and for the orderly and expeditious
dispatch of judicial business, strong compelling reasons such as serving the ends of
justice and preventing a grave miscarriage may nevertheless warrant the suspension of
the rules. In the case at bar, this Court is constrained to disregard procedural rules
because we cannot in conscience allow the government to collect deficiency VAT from
petitioner considering that the government has no right at ll to collect or to receive the
same.
\

COMMISSIONER OF INTERNAL REVENUE vs. SMART COMMUNICATION, INC.

G.R. Nos. 179045-46 August 25, 2010


DOCTRINE:The right of a withholding agent to claim a refund of erroneously or illegally
withheld taxes comes with the responsibility to return the same to the principal taxpayer.

FACTS:

Respondent Smart Communications, Inc., entered into three Agreements for Programming and
Consultancy Services with Prism Transactive (M) Sdn. Bhd. (Prism). Under the agreements,
Prism was to provide programming and consultancy services for the installation of the Service
Download Manager (SDM) and the Channel Manager (CM), and for the installation and
implementation of Smart Money and Mobile Banking Service SIM Applications (SIM
Applications) and Private Text Platform (SIM Application).

Prism billed respondent in the amount of US$547,822.45. Thinking that these payments
constitute royalties, respondent withheld the amount of US$136,955.61 or
₱7,008,840.43, representing the 25% royalty tax under the RP-Malaysia Tax Treaty.

On September 25, 2001, respondent filed its Monthly Remittance Return of Final Income Taxes
Withheld (BIR Form No. 1601-F)for the month of August 2001. And on September 24, 2003, or
within the two-year period to claim a refund, respondent filed with the BIR, through the
International Tax Affairs Division, an administrative claim for refund of the amount of
₱7,008,840.43.

The CTA 2nd Division upheld respondent’s right, as a withholding agent, to file the claim for
refund. However, it found respondent entitled only to a partial refund. Although it agreed with
respondent that the payments for the CM and SIM Application Agreements are "business
profits,"and therefore, not subject to taxunder the RP-Malaysia Tax Treaty, the CTA2 nd Division
found the payment for the SDM Agreement a royalty subject to withholding tax.

The CTA En Banc affirmed the rulling of the CTA 2nd Division

ISSUES:

(1) whether respondent has the right to file the claim for refund

(2) if respondent has the right, whether the payments made to Prism constitute "business
profits" or royalties.

HELD:

(1)Yes. Withholding agent may file a claim for refund

Sections 204(c) and 229 of the National Internal Revenue Code (NIRC) provide:

Sec. 204. Authority of the Commissioner to Compromise, Abate, and Refund or Credit Taxes. –
The Commissioner may –

xxxx

(C) Credit or refund taxes erroneously or illegally received or penalties imposed without
authority, refund the value of internal revenue stamps when they are returned in good condition
by the purchaser, and, in his discretion, redeem or change unused stamps that have been
rendered unfit for use and refund their value upon proof of destruction. No credit or refund of
taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a
claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided,
however, that a return filed showing an overpayment shall be considered as a written claim for
credit or refund.

xxxx

Sec. 229. Recovery of Tax Erroneously or Illegally Collected. – No suit or proceeding shall be
maintained in any court for the recovery of any national internal revenue tax hereafter alleged to
have been erroneously or illegally assessed or collected, or of any penalty claimed to have been
collected without authority, or of any sum alleged to have been excessively or in any manner
wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner;
but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has
been paid under protest or duress.

In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from
the date of payment of the tax or penalty regardless of any supervening cause that may arise
after payment: Provided, however, That the Commissioner may, even without a written claim
therefor, refund or credit any tax, where on the face of the return upon which payment was
made, such payment appears clearly to have been erroneously paid. (Emphasis supplied)

Pursuant to the foregoing, the person entitled to claim a tax refund is the taxpayer. However, in
case the taxpayer does not file a claim for refund, the withholding agent may file the claim.

(2)Yes. The payments for the CM and the SIM Application Agreements constitute

"business profits"

Under the RP-Malaysia Tax Treaty, the term royalties is defined as payments of any kind
received as consideration for: "(i) the use of, or the right to use, any patent, trade mark, design
or model, plan, secret formula or process, any copyright of literary, artistic or scientific work, or
for the use of, or the right to use, industrial, commercial, or scientific equipment, or for
information concerning industrial, commercial or scientific experience; (ii) the use of, or the right
to use, cinematograph films, or tapes for radio or television broadcasting." These are taxed at
the rate of 25% of the gross amount.

Under the same Treaty, the "business profits" of an enterprise of a Contracting State is taxable
only in that State, unless the enterprise carries on business in the other Contracting State
through a permanent establishment.The term "permanent establishment" is defined as a fixed
place of business where the enterprise is wholly or partly carried on.However, even if there is no
fixed place of business, an enterprise of a Contracting State is deemed to have a permanent
establishment in the other Contracting State if it carries on supervisory activities in that other
State for more than six months in connection with a construction, installation or assembly
project which is being undertaken in that other State.

In the instant case, it was established during the trial that Prism does not have a permanent
establishment in the Philippines. Hence, "business profits" derived from Prism’s dealings with
respondent are not taxable. The question is whether the payments made to Prism under the
SDM, CM, and SIM Application agreements are "business profits" and not royalties.

Prism has intellectual property right over the SDM program, but not over the CM and SIM
Application programs as the proprietary rights of these programs belong to respondent. In other
words, out of the payments made to Prism, only the payment for the SDM program is a royalty
subject to a 25% withholding tax. A refund of the erroneously withheld royalty taxes for the
payments pertaining to the CM and SIM Application Agreements is therefore in order.

Indeed, the government has no right to retain what does not belong to it. "No one, not even the
State, should enrich oneself at the expense of another."

COMMISSIONER OF INTERNAL REVENUE vs. AICHI FORGING COMPANY OF ASIA


INC.
G.R. No. 184823, (October 6, 2010)

DOCTRINE: Section 112 (A) of the NIRC clearly provides in no uncertain terms
that unutilized input VAT payments not otherwise used for any internal revenue tax due
the taxpayer must be claimed within two years reckoned from the close of the taxable
quarter when the relevant sales were made pertaining to the input VAT regardless of
whether said tax was paid or not.

FACTS: On September 30, 2004, respondent filed a claim for refund/credit of input VAT for the
period July 1, 2002 to September 30, 2002 in the total amount of P3,891,123.82 with the
petitioner CIR, through the Department of Finance One-Stop Shop Inter-Agency Tax Credit
and Duty Drawback Center. On even date, respondent filed a Petition for Review with the CTA
for the refund/credit of the same input VAT. Trial ensued, after which, on January 4, 2008, the
Second Division of the CTA rendered a Decision partially granting respondents claim for
refund/credit. Petitioner filed a Motion for Partial Reconsideration, insisting that the
administrative and the judicial claims were filed beyond the two-year period to claim a tax
refund/credit provided for under Sections 112(A) and 229 of the NIRC. On July 30, 2008, the
CTA En Banc affirmed the Second Divisions Decision allowing the partial tax refund/credit in
favor of respondent.

ISSUE: WON respondents judicial and administrative claims for tax refund/credit were filed
within the two-year prescriptive period provided in Sections 112(A) and 229 of the NIRC.

HELD: YES. The administrative claims for tax refund were filed within the two-
year-period but the judicial claim was premature. The pivotal question of when to
reckon the running of the two-year prescriptive period, however, has already been resolved
in Commissioner of Internal Revenue v. Mirant Pagbilao Corporation, where we ruled that
Section 112(A) of the NIRC is the applicable provision in determining the start of the two-year
period for claiming a refund/credit of unutilized input VAT, and that Sections 204(C) and 229 of
the NIRC are inapplicable as both provisions apply only to instances of erroneous payment or
illegal collection of internal revenue taxes. We explained that: The above proviso [Section 112
(A) of the NIRC] clearly provides in no uncertain terms that unutilized input VAT payments
not otherwise used for any internal revenue tax due the taxpayer must be claimed
within two years reckoned from the close of the taxable quarter when the relevant sales
were made pertaining to the input VAT regardless of whether said tax was paid or
not. As the CA aptly puts it, albeit it erroneously applied the aforequoted Sec. 112 (A),
[P]rescriptive period commences from the close of the taxable quarter when the sales were
made and not from the time the input VAT was paid nor from the time the official receipt was
issued. Thus, when a zero-rated VAT taxpayer pays its input VAT a year after the pertinent
transaction, said taxpayer only has a year to file a claim for refund or tax credit of the unutilized
creditable input VAT. The reckoning frame would always be the end of the quarter when the
pertinent sales or transaction was made, regardless when the input VAT was paid. In view of
the foregoing, we find that the CTA En Banc erroneously applied Sections 114(A) and 229 of
the NIRC in computing the two-year prescriptive period for claiming refund/credit of unutilized
input VAT. To be clear, Section 112 of the NIRC is the pertinent provision for the refund/credit of
input VAT. Thus, the two-year period should be reckoned from the close of the taxable quarter
when the sales were made.
However, notwithstanding the timely filing of the administrative claim, we are
constrained to deny respondents claim for tax refund/credit for having been filed in violation of
Section 112(D) of the NIRC, which provides that: SEC. 112. Refunds or Tax Credits of Input
Tax.
(D) 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) days
from the date of submission of complete documents in support of the
application filed in accordance with Subsections (A) and (B) hereof.

In case of full or partial denial of the claim for tax refund or tax credit, or the
failure on the part of 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 of the
one hundred twenty day-period, appeal the decision or the unacted claim
with the Court of Tax Appeals.

Section 112(D) of the NIRC clearly provides that the CIR has 120 days, from the date of
the submission of the complete documents in support of the application [for tax
refund/credit], within which to grant or deny the claim. In case of full or partial denial by
the CIR, the taxpayers recourse is to file an appeal before the CTA within 30 days from
receipt of the decision of the CIR. However, if after the 120-day period the CIR fails to
act on the application for tax refund/credit, the remedy of the taxpayer is to appeal the
inaction of the CIR to CTA within 30 days. In this case, the administrative and the
judicial claims were simultaneously filed on September 30, 2004. Obviously,
respondent did not wait for the decision of the CIR or the lapse of the 120-day
period. For this reason, we find the filing of the judicial claim with the CTA premature.

TAXATION LAW

BELLE CORPORATION, PETITIONER, vs. COMMISSIONER OF INTERNAL


REVENUE, RESPONDENT.
G.R. No. 181298, January 10, 2011
DOCTRINE: Section 69 of the old National Internal Revenue Code (NIRC) allows
unutilized tax credits to be refunded as long as the claim is filed within the prescriptive
period. This, however, no longer holds true under Section 76 of the 1997 NIRC as the
option to carry-over excess income tax payments to the succeeding taxable year is now
irrevocable.

FACTS:
Petitioner filed with the BIR its Income Tax Return (ITR) for the first quarter of
1997, showing a gross income of P741,607,495.00, a deduction of P65,381,054.00, a
net taxable income of P676,226,441.00 and an income tax due of P236,679,254.00.
petitioner filed with the BIR its second quarter ITR, declaring an overpayment of income
taxes in the amount of P66,634,290.00. In view of the overpayment, no taxes were paid
for the second and third quarters of 1997.

Instead of claiming the amount as a tax refund, petitioner decided to apply it as a


tax credit to the succeeding taxable year by marking the tax credit option box in its 1997
ITR. For the taxable year 1998, petitioner's amended ITR showed an overpayment.
Petitioner filed with the BIR an administrative claim for refund of its unutilized excess
income tax payments for the taxable year 1997 in the amount of P106,447,318.00.
Notwithstanding the filing of the administrative claim for refund, petitioner carried over
the amount of P106,447,318.00 to the taxable year 1999 and applied a portion thereof
to its 1999 Minimum Corporate Income Tax (MCIT) liability.

CTA rendered a Decision denying petitioner's claim for refund.


It bears stressing that the applicable provision in the case at bar is Section 69 of the old
Tax Code and not Section 76 of the 1997 Tax Code. Settled is the rule that under
Section 69 of the old Tax Code, the carrying forward of any excess/overpaid income tax
for a given taxable year is limited only up to the succeeding taxable year. However,
Petitioner even went further to the taxable year 1999 and applied the Prior Year's (1998)
Excess Credit of P106,447,318.00 to its income tax liability.
True enough, upon verification of Petitioner's 1999 Corporate Annual Income Tax Return
(Exh. I), this Court found that the whole amount of P106,447,318.00 representing its
prior year's excess credit (subject of this claim) was carried forward to its 1999 income
tax liability. It is an elementary rule in taxation that an automatic carry over of an excess
income tax payment should only be made for the succeeding year. On appeal, CA
denied the petition and affirmed the decision of the CTA.

ISSUE:
Whether or not petitioner is entitled to a refund of its excess income tax
payments for the taxable year 1997

HELD:
No. Both the CTA and the CA erred in applying Section 69 [52] of the old NIRC.
The law applicable is Section 76 of the NIRC. Under Section 69 of the old NIRC, in case
of overpayment of income taxes, a corporation may either file a claim for refund or
carry-over the excess payments to the succeeding taxable year. Availment of one
remedy, however, precludes the other.

Thus, under Section 69 of the old NIRC, unutilized tax credits may be refunded as long
as the claim is filed within the two-year prescriptive period. The option to carry over
excess income tax payments is irrevocable under Section 76 of the 1997 NIRC.

This rule, however, no longer applies as Section 76 of the 1997 NIRC now reads:

Section 76. Final Adjustment Return. - Every corporation liable to tax under Section 24
shall file a final adjustment return covering the total net income for the preceding
calendar or fiscal year. If the sum of the quarterly tax payments made during the said
taxable year is not equal to the total tax due on the entire taxable net income of that
year the corporation shall either:
(a) Pay the excess tax still due; or

(b) Be refunded the excess amount paid, as the case may be.

In case the corporation is entitled to a refund of the excess estimated quarterly


income taxes paid, the refundable amount shown on its final adjustment return may be
credited against the estimated quarterly income tax liabilities for the taxable quarters
of the succeeding taxable years. Once the option to carry over and apply the
excess quarterly income tax against income tax due for the taxable quarters of
the succeeding taxable years has been made, such option shall be considered
irrevocable for that taxable period and no application for tax refund or issuance
of a tax credit certificate shall be allowed therefor.

Under the new law, in case of overpayment of income taxes, the remedies are
still the same; and the availment of one remedy still precludes the other. But unlike
Section 69 of the old NIRC, the carry-over of excess income tax payments is no longer
limited to the succeeding taxable year. Unutilized excess income tax payments may
now be carried over to the succeeding taxable years until fully utilized. In addition, the
option to carry-over excess income tax payments is now irrevocable. Hence, unutilized
excess income tax payments may no longer be refunded.

In the instant case, both the CTA and the CA applied Section 69 of the old NIRC in
denying the claim for refund. We find, however, that the applicable provision should be
Section 76 of the 1997 NIRC because at the time petitioner filed its 1997 final ITR, the
old NIRC was no longer in force.

Accordingly, since petitioner already carried over its 1997 excess income tax
payments to the succeeding taxable year 1998, it may no longer file a claim for refund
of unutilized tax credits for taxable year 1997. To repeat, under the new law, once the
option to carry-over excess income tax payments to the succeeding years has been
made, it becomes irrevocable. Thus, applications for refund of the unutilized excess
income tax payments may no longer be allowed.

TAXATION LAW

SILICON PHILIPPINES, INC., (Formerly INTEL PHILIPPINES MANUFACTURING,


INC.), vs. COMMISSIONER OF INTERNAL REVENUE
G.R. No. 172378, January 17, 2011

DOCTRINE: The burden of proving entitlement to a refund lies with the claimant.
FACTS:
Petitioner filed with the respondent CIR, through the One-Stop Shop Inter-
Agency Tax Credit and Duty Drawback Center of the Department of Finance (DOF), an
application for credit/refund of unutilized input VAT for the period October 1, 1998 to
December 31, 1998 in the amount of ₱31,902,507.50. Due to the inaction of the
respondent, petitioner filed a Petition for Review with the CTA Division. CTA Division
rendered a Decision partially granting petitioner’s claim for refund of unutilized input VAT
on capital goods. 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. On its part, respondent filed a Motion for Partial
Reconsideration 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.

CTA En Banc on its decision discussed Capital thegoods 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 then be claimed as
such.

ISSUE:
Whether or not the CTA En Banc erred in denying petitioner’s claim for credit/
refund of input VAT attributable to its zero-rated sales

HELD:
No. In a claim for credit/refund of input VAT attributable to zero-rated sales,
Section 112 (A) of the NIRC lays down four requisites, to wit:
1) the taxpayer must be VAT-registered;
2) the taxpayer must be engaged in sales which are zero-rated or effectively
zero-rated;
3) the claim must be filed within two years after the close of the taxable quarter
when such sales were made; and
4) the creditable input tax due or paid must be attributable to such sales, except
the transitional input tax, to the extent that such input tax has not been applied
against the output tax.
To prove that it is engaged in zero-rated sales, petitioner presented export sales
invoices, certifications of inward remittance, export declarations, and airway bills of
lading for the fourth quarter of 1998. The CTA Division, however, found the export sales
invoices of no probative value in establishing petitioner’s 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.

Printing the ATP on the invoices or receipts is not required. It has been settled in Intel
Technology Philippines, Inc. v. Commissioner of Internal Revenue that the ATP need not
be reflected or indicated in the invoices or receipts because there is no law or regulation
requiring it. Thus, in the absence of such law or regulation, failure to print the ATP on
the invoices or receipts should not result in the outright denial of a claim or the
invalidation of the invoices or receipts for purposes of claiming a refund.

This brings the Court 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. The Court rules in the affirmative.

Under Section 112 (A) of the NIRC, a claimant must be engaged in sales which
are zero-rated or effectively zero-rated. To prove this, duly registered invoices or
receipts evidencing zero-rated sales must be presented. However, since the ATP is not
indicated in the invoices or receipts, the only way to verify whether the invoices or
receipts are duly registered is by requiring the claimant to present its ATP from the BIR.
Without this proof, the invoices or receipts would have no probative value for the
purpose of refund. In the case of Intel, we emphasized that:

It bears reiterating that while the pertinent provisions of the Tax Code and the
rules and regulations implementing them require entities engaged in business to secure
a BIR authority to print invoices or receipts and to issue duly registered invoices or
receipts, it is not specifically required that the BIR authority to print be reflected or
indicated therein. Indeed, what is important with respect to the BIR authority to print is
that it has been secured or obtained by the taxpayer, and that invoices or receipts are
duly registered.
Failure to print the word "zero-rated" on the sales invoices is fatal to a claim for
refund of input VAT. Similarly, failure to print the word "zero-rated" on the sales invoices
or receipts is fatal to a claim for credit/refund of input VAT on zero-rated sales.

Capital goods are defined under Section 4.106-1(b) of RR No. 7-95

To claim a refund of input VAT on capital goods, Section 112 (B) of the NIRC requires
that:
1. the claimant must be a VAT registered person;
2. the input taxes claimed must have been paid on capital goods;
3. the input taxes must not have been applied against any output tax liability; and
4. the administrative claim for refund must have been filed within two (2) years
after the close of the taxable quarter when the importation or purchase was
made.

Corollarily, Section 4.106-1 (b) of RR No. 7-95 defines capital goods as follows:

"Capital goods or properties" refer to goods or properties with estimated useful


life greater that one year and which are treated as depreciable assets under Section 29
(f), used directly or indirectly in the production or sale of taxable goods or services.

Based on the foregoing definition, the Court 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 petitioner’s Summary of Importation of
Goods are not capital goods. A reduction in the refundable input VAT on capital goods
from ₱15,170,082.00 to ₱9,898,867.00 is therefore in order.

BELLE CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE


G.R. No. 181298, March 02, 2011

DOCTRINE:Once a taxpayer opted to carry-over its excess income tax payments, it


can no longer seek refund of the unutilized excess income tax payments. The taxpayer,
however, may apply the unutilized excess income tax payments as a tax credit to the
succeeding taxable years until such has been fully applied pursuant to Section 76 of the
NIRC

FACTS: For Resolution is the Motion for Clarification filed by petitioner Belle
Corporation. In the Motion, petitioner prays that the Decision dated January 10, 2011 be
modified or clarified to indicate petitioner's entitlement to a tax credit of unutilized
excess income tax payments for the taxable year 1997.

In the Decision, the Court held that Section 76 of the 1997 National Internal Revenue
Code (NIRC) and not Section 69 of the old NIRC applies. Section 76 provides that a
taxpayer has the option to file a claim for refund or to carry-over its excess income tax
payments. The option to carry-over, however, is irrevocable. Thus, once a taxpayer
opted to carry-over its excess income tax payments, it can no longer seek refund of the
unutilized excess income tax payments. The taxpayer, however, may apply the
unutilized excess income tax payments as a tax credit to the succeeding taxable years
until such has been fully applied pursuant to Section 76 of the NIRC.

Petitioner's claim for refund was denied because it has earlier opted to carry over its
1997 excess income tax payments by marking the tax credit option box in its 1997
income tax return.

ISSUE: Whether petitioner is entitled to a tax credit of unutilized excess income tax
payments for the taxable year 1997.

HELD: We must clarify, however, that while petitioner may no longer file a claim for
refund, it properly carried over its 1997 excess income tax payments by applying
portions thereof to its 1998 and 1999 Minimum Corporate Income Tax in the amounts of
P25,596,210.00 and P14,185,874.00, respectively.

Pursuant to our ruling, petitioner may apply the unutilized excess income tax payments
as a tax credit to the succeeding taxable years until fully utilized. Thus, as of the taxable
year 1999, petitioner still has an unutilized excess income tax payments of
P92,261,444.00 which may be carried over to the succeeding taxable years until fully
utilized.

PRUDENTIAL BANK vs.


COMMISSIONER OF INTERNAL REVENUE
G.R. NO. 180390, July 27, 2011

DOCTRINE: A document to be considered a certificate of deposit need not be in a


specific form.

FACTS:
Petitioner received from the CIR a final Assessment Notice and a Demand Letter
for deficiency Documentary Stamp Tax for taxable year 1995 on its repurchase
agreement with the Bangko Sentral ng Pilipinas, Purchase of Treasury Bills from the
BSP, and on its Savings Account Plus product, in the amount of P18, 982, 734.38

Petitioner protested the assessment on the ground that the documents subject
matters of the assessment are not subject to DST. Petitioner contends that its SAP is
not subject to DST because it is not included in the list of documents under the old
NIRC. Petitioner insists that unlike a time deposit, its SAP is evidenced by a passbook
and not by a deposit certificate. CIR denied the protest.

Petitioner filed with the CTA a Petition for Review. CTA first division affirmed the
assessment for deficiency DST insofar as the SAP is concerned, but cancelled and set
aside the assessment on petitioner’s repurchase agreement and purchase of treasury
bills.

CTA En Banc affirmed the ruling of its first division that petitioner’s SAP is a
certificate of deposit bearing interest subject to DST.

ISSUE: WON CIR is correct in assessing the SAP as interest bearing deposit subject to
DST.

HELD:
Yes. Petitioner’s Savings Account Plus is subject to Documentary stamp Tax.

DST is imposed on certificates of deposit bearing interest pursuant to Section


180 of the old NIRC. The fact that the SAP is evidenced by a passbook cannot remove
its coverage from section 180 of the old NIRC. A document to be considered a
certificate of deposit need not be in a specific form. A certificate of deposit is defined as
“a written acknowledgment by a bank or banker of the receipt of a sum of money on
deposit which the bank or banker promises to pay to the depositor, to the order of the
depositor, or to some other person or his order, whereby the relation of debtor and
creditor between the bank and the depositor is created.
Reyes
Tecson
FORT BONIFACIO DEVELOPMENT CORP VS. COMMISSONER OF INTERNAL REVENUE

G.R. No. 173425, September 4, 2012

Doctrine:

Section 105 of the old NIRC reads:

SEC. 105. Transitional input tax credits. – A person who becomes liable to value-added tax or
any person who elects to be a VAT-registered person shall, subject to the filing of an inventory as
prescribed by regulations, be allowed input tax on his beginning inventory of goods, materials
and supplies equivalent to 8% of the value of such inventory or the actual value added tax paid
on such goods, materials and supplies, whichever is higher, which shall be creditable against the
output tax. (Emphasis supplied.)

FACTS:

Petitioner claims that it is entitled to recover the amount of P359,652,009.47 erroneously paid
as output VAT for the first quarter of 1997 since its transitional input tax credit of
P5,698,200,256 is more than sufficient to cover its output VAT liability for the said period.

Petitioner assails the pronouncement of the CA that prior payment of taxes is required to avail
of the 8% transitional input tax credit. Petitioner contends that there is nothing in Section 105
of the old NIRC to support such conclusion. Petitioner further argues that RR 7-95, which limited
the 8% transitional input tax credit to the value of the improvements on the land, is invalid
because it goes against the express provision of Section 105 of the old NIRC, in relation to
Section 10033 of the same Code, as amended by RA 7716.

Respondents, on the other hand, maintain that petitioner is not entitled to a transitional input
tax credit because no taxes were paid in the acquisition of the Global City property.
Respondents assert that prior payment of taxes is inherent in the nature of a transitional input
tax. Regarding RR 7-95, respondents insist that it is valid because it was issued by the Secretary
of Finance, who is mandated by law to promulgate all needful rules and regulations for the
implementation of Section 105 of the old NIRC.

ISSUE:

Whether petitioner is entitled to a refund of P359,652,009.47 erroneously paid as output VAT


for the first quarter of 1997.

RULING:
YES! In view of the foregoing, we find petitioner entitled to the 8% transitional input tax credit
provided in Section 105 of the old NIRC. The fact that it acquired the Global City property under
a tax-free transaction makes no difference as prior payment of taxes is not a pre-requisite.

Prior payment of taxes is not required for a taxpayer to avail of the 8% transitional input tax
credit.

Contrary to the view of the CTA and the CA, there is nothing in the above quoted provision to
indicate that prior payment of taxes is necessary for the availment of the 8% transitional input
tax credit. Obviously, all that is required is for the taxpayer to file a beginning inventory with the
BIR.

To require prior payment of taxes, as proposed in the Dissent is not only tantamount to judicial
legislation but would also render nugatory the provision in Section 105 of the old NIRC that the
transitional input tax credit shall be “8% of the value of [the beginning] inventory or the actual
[VAT] paid on such goods, materials and supplies, whichever is higher” because the actual VAT
(now 12%) paid on the goods, materials, and supplies would always be higher than the 8% (now
2%) of the beginning inventory which, following the view of Justice Carpio, would have to
exclude all goods, materials, and supplies where no taxes were paid. Clearly, limiting the value
of the beginning inventory only to goods, materials, and supplies, where prior taxes were paid,
was not the intention of the law. Otherwise, it would have specifically stated that the beginning
inventory excludes goods, materials, and supplies where no taxes were paid.

Moreover, prior payment of taxes is not required to avail of the transitional input tax credit
because it is not a tax refund per se but a tax credit. Tax credit is not synonymous to tax refund.
Tax refund is defined as the money that a taxpayer overpaid and is thus returned by the taxing
authority. Tax credit, on the other hand, is an amount subtracted directly from one’s total tax
liability. It is any amount given to a taxpayer as a subsidy, a refund, or an incentive to encourage
investment. Thus, unlike a tax refund, prior payment of taxes is not a prerequisite to avail of a
tax credit. In fact, in Commissioner of Internal Revenue v. Central Luzon Drug Corp., we
declared that prior payment of taxes is not required in order to avail of a tax credit.

In this case, when petitioner realized that its transitional input tax credit was not applied in
computing its output VAT for the 1st quarter of 1997, it filed a claim for refund to recover the
output VAT it erroneously or excessively paid for the 1st quarter of 1997. In filing a claim for tax
refund, petitioner is simply applying its transitional input tax credit against the output VAT it has
paid. Hence, it is merely availing of the tax credit incentive given by law to first time VAT
taxpayers. As we have said in the earlier case of Fort Bonifacio, the provision on transitional
input tax credit was enacted to benefit first time VAT taxpayers by mitigating the impact of VAT
on the taxpayer. Thus, contrary to the view of Justice Carpio, the granting of a transitional input
tax credit in favor of petitioner, which would be paid out of the general fund of the government,
would be an appropriation authorized by law, specifically Section 105 of the old NIRC.

FORT BONIFACIO DEVELOPMENT CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE and


REVENUE DISTRICT OFFICER, REVENUE DISTRICT NO. 44, TAGUIG and PATEROS, BUREAU OF INTERNAL
REVENUE.

G.R. No. 173425 January 22, 2013

DOCTRINE: The purpose of granting transitional input tax credit to be utilized as payment for output VAT
is primarily to give recognition to the sales tax component of inventories which would qualify as input tax
credit had such goods been acquired during the effectivity of the VAT Law of 1988.

FACTS:

Petitioner was a real estate developer that bought from the national government a parcel of land
that used to be the Fort Bonifacio military reservation. At the time of the said sale there was as yet no
VAT imposed so Petitioner did not pay any VAT on its purchase. Subsequently, Petitioner sold two parcels
of land to Metro Pacific Corp. In reporting the said sale for VAT purposes (because the VAT had already
been imposed in the interim), Petitioner claimed transitional input VAT corresponding to its inventory of
land. The BIR disallowed the claim of presumptive input VAT and thereby assessed Petitioner for
deficiency VAT.

ISSUE:

Whether or not petitioner entitled to claim the transitional input VAT on its sale of real
properties given its nature as a real estate dealer and if so (i) is the transitional input VAT applied only to
the improvements on the real property or is it applied on the value of the entire real property and (ii)
should there have been a previous tax payment for the transitional input VAT to be creditable.

HELD:

Yes. Petitioner is entitled to claim transitional input VAT based on the value of not only the
improvements but on the value of the entire real property and regardless of whether there was in fact
actual payment on the purchase of the real property or not.

The amendments to the VAT law do not show any intention to make those in the real estate business
subject to a different treatment from those engaged in the sale of other goods or properties or in any
other commercial trade or business. On the scope of the basis for determining the available transitional
input VAT, the CIR has no power to limit the meaning and coverage of the term "goods" in Section 105 of
the Tax Code without statutory authority or basis. The transitional input tax credit operates to benefit
newly VAT-registered persons, whether or not they previously paid taxes in the acquisition of their
beginning inventory of goods, materials and supplies.

COMMISSIONER OF INTERNAL REVENUEvs. LA TONDEÑA DISTILLERS, INC.,


(LTDI [now GINEBRA SAN MIGUEL])
G.R. No. 175188. July 15, 2015.*

DOCTRINE:Tax laws must be construed strictly against the State and liberally in favor
of the taxpayer. The transfer of real property to a surviving corporation pursuant to a
merger is not subject to Documentary Stamp Tax (DST).

FACTS:Respondent La Tondeña Distillers, Inc. entered into a Plan of Merger5 with


Sugarland Beverage Corporation (SBC), SMC Juice, Inc. (SMCJI), and Metro Bottled
Water Corporation (MBWC). As a result of the merger, the assets and liabilities of the
absorbed corporations were transferred to respondent, the surviving corporation.
Respondent later changed its corporate name to Ginebra San Miguel, Inc. (GSMI).

On September 26, 2001, Respondent requested for a confirmation of the taxfree nature
of the said merger from the Bureau of Internal Revenue (BIR).

On November 5, 2001, the BIR issued a ruling stating that pursuant to Section 40(C)
(2)10 and (6)(b)11 of the 1997 National Internal Revenue Code (NIRC), no gain or loss
shall be recognized by the absorbed corporations as transferors of all assets and
liabilities. However, the transfer of assets, such as real properties, shall be subject to
DST imposed under Section 19613 of the NIRC.

On October 14, 2003, claiming that it is exempt from paying DST, respondent filed with
petitioner Commissioner of Internal Revenue (CIR) an administrative claim for tax
refund or tax credit. It allegedly erroneously paid on the occasion of the merger.

ISSUE: whether the CTA En Banc erred in ruling that respondent is exempt
frompayment of DST

HELD: No. In Commissioner of Internal Revenue v. Pilipinas Shell Petroleum


Corporation,the Supreme Court already ruledthat Section 196 of the NIRC does not
include the transferof real property from one corporation to another pursuantto a
merger.

Section 196 covers all transfers and conveyances of real property for a valuable
consideration. A perusal of the subject provision would clearly show it pertains only to
sale transactions where real property is conveyed to a purchaser for a consideration.
The phrase “granted, assigned, transferred or otherwise conveyed” is qualified by the
word “sold” which means that documentary stamp tax under Section 196 is imposed on
the transfer of realty by way of sale and does not apply to all conveyances of real
property. Indeed, as correctly noted by the respondent, the fact that Section 196 refers
to words “sold,” “purchaser” and “consideration” undoubtedly leads to the conclusion
that only sales of real property are contemplated therein.
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v.TOLEDO POWER COMPANY, Respondent.

G.R. No. 196415, December 02, 2015

TOLEDO POWER COMPANY, Petitioner, v.COMMISSIONER OF INTERNAL REVENUE, Respondent.

G.R. No. 196451

DOCTRINE: Pursuant to Section 112 (A)42 and (D)43 of the NIRC, a taxpayer has two (2) years from the
close of the taxable quarter when the zero-rated sales were made within which to file with the CIR an
administrative claim for refund or credit of unutilized input VAT attributable to such sales. The CIR, on the
other hand, has 120 days from receipt of the complete documents within which to act on the
administrative claim. Upon receipt of the decision, a taxpayer has 30 days within which to appeal the
decision to the CTA. However, if the 120-day period expires without any decision from the CIR, the
taxpayer may appeal the, inaction to the CTA within 30 days from the expiration of the 120-day period.

FACTS:

Toledo Power Corporation (TPC) is a general partnership principally engaged in the business of power
generation and sale of electricity to the National Power Corporation (NPC), Cebu Electric Cooperative III
(CEBECO), Atlas Consolidated Mining and Development Corporation (ACMDC), and Atlas Fertilizer
Corporation (AFC).4

On December 22, 2003, TPC filed with the Bureau of Internal Revenue (BIR) Regional District Office
(RDO) No. 83 an administrative claim for refund or credit of its unutilized input Value Added Tax (VAT) for
the taxable year 2002 in the total amount of P14,254,013.27 under Republic Act No. 9136 or the Electric
Power Industry Reform Act of 2001 (EPIRA) and the National Internal Revenue Code of 1997 (NIRC). 5

On April 22, 2004, due to the inaction of the Commissioner of Internal Revenue (OR), TPC filed with the
CTA a Petition for Review, docketed as CTA Case No. 6961 and raffled to the CTA First Division (CTA
Division).6

In response to the Petition for Review, the CIR argued that TPC failed to prove its entitlement to a tax
refund or credit.

On November 11, 2009, the CTA Division rendered a Decision 8 partially granting TPC's claim in the
reduced amount of P7,598,279.29.9 Since NPC is exempt from the payment of all taxes, including VAT, the
CTA Division allowed TPC to claim a refund or credit of its unutilized input VAT attributable to its zero-
rated sales of electricity to NPC for the taxable year 2002.

Subsequently, the CTA E Banc rendered a decision affirming the decision of the CTA Division ruling that
that both the administrative and the judicial claims were timely filed.

ISSUE:Whether or not the administrative and the judicial claims were timely and validly filed.
DECISION:Pursuant to Section 112 (A)42 and (D)43 of the NIRC, a taxpayer has two (2) years from the close
of the taxable quarter when the zero-rated sales were made within which to file with the CIR an
administrative claim for refund or credit of unutilized input VAT attributable to such sales. The CIR, on
the other hand, has 120 days from receipt of the complete documents within which to act on the
administrative claim. Upon receipt of the decision, a taxpayer has 30 days within which to appeal the
decision to the CTA. However, if the 120-day period expires without any decision from the CIR, the
taxpayer may appeal the, inaction to the CTA within 30 days from the expiration of the 120-day period.

In Commissioner of Internal Revenue v. San Roque Power Corporation,44 we said that the 120+30-day
period must be strictly observed except from the date of issuance of BIR Ruling No. DA-489-03 on
December 10, 2003, which allowed taxpayers to file a judicial claim without waiting for the end of the
120-day period, up to the date of promulgation of Commissioner of Internal Revenue v. Aichi Forging
Company of Asia, Inc.45 on October 6, 2010, where we declared that compliance with the 120+30-day
period is mandatory and jurisdictional.

In this case, TPC applied for a claim for refund or credit of its unutilized input VAT for the taxable year
2002 on December 22, 2003. Since the CIR did not act on its application within the 120-day period, TPC
appealed the inaction on April 22, 2004. Clearly, both the administrative and the judicial claims were
filed within the prescribed period provided in Section 112 of the NIRC.

Also, the administrative claim was not pro forma as TPC submitted documents to support its claim for
refund and even manifested its willingness to submit additional documents if necessary. 46 The CIR,
however, never requested TPC to submit additional documents. Thus, she cannot now raise the issue
that TPC failed to submit the complete documents.

Neither do we find the alleged failure of TPC to submit all relevant documents set out in RMO No. 53-98
fatal to its claim. In Commissioner of Internal Revenue v. Team Sual Corporation (formerly Mirant Sual
Corporation),47 we said that:

The CIR's reliance on RMO 53-98 is misplaced. There is nothing in Section 112 of the NIRC, RR 3-88 or
RMO 53-98 itself that requires submission of the complete documents enumerated in RMO 53-98 for a
grant of a refund or credit of input VAT. The subject of RMO 53-98 states that it is a "Checklist of
Documents to be Submitted by a Taxpayer upon Audit of his Tax Liabilities ...." In this case, TSC was
applying for a grant of refund or credit of its input tax. There was no allegation of an audit being
conducted by the CIR. Even assuming that RMO 53-98 applies, it specifically states that some documents
are required to be submitted by the taxpayer "if applicable."

Moreover, if TSC indeed failed to submit the complete documents in support of its application, the CIR
could have informed TSC of its failure, consistent with Revenue Memorandum Circular No. (RMC) 42-03.
However, the CIR did not inform TSC of the document it failed to submit, even up to the present petition.
The CIR likewise raised the issue of TSC's alleged failure to submit the complete documents only in its
motion for reconsideration of the CTA Special First Division's 4 March 2010 Decision. Accordingly, we
affirm the CTA EB's finding that TSC filed its administrative claim on 21 December 2005, and submitted
the complete documents in support of its application for refund or credit of its input tax at the same
time.

BUREAU OF INTERNAL REVENUE AS REPRESENTED BY THE COMMISSIONER OF


INTERNAL REVENUE v. MANILA HOME TEXTILE, INC, THELMA LEE AND SAMUEL LEE
G.R. No. 203057, June 06, 2016

DOCTRINE: There is grave abuse of discretion when the determination of probable cause is
exercised in an arbitrary or despotic manner due to passion or personal hostility, so patent and
so gross as to amount to an evasion of a positive duty or a virtual refusal to perform a duty
enjoined by law.

FACTS:

The BIR, represented herein by the CIR filed is a criminal complaint for tax evasion and
perjury against respondents Manila Home Textile, Inc. (MHI), its President Thelma Lee
(Thelma), and its Vice-President Samuel Lee (Samuel), and certain unidentified John Does
and/or Jane Does, with having violated Sections 254, 255, 257 and 267 of the National Internal
Revenue Code (NIRC).

MHI, a domestic corporation dealing in home textiles, was issued a license by the
Garments and Textiles Export Board (GTEB) to operate a Customs Bonded Manufacturing
Warehouse (CBMW) which operates by having imported raw materials stored at the warehouse.
These raw materials are duty-free provided that these are consumed for the manufacture of its
final product, which are intended for export, as the same would have a different treatment in
terms of "tax incentives" than the regular importations. The investigation of the MHI's
importations documents revealed that for the taxable years 2001 and 2002, MHI made several
importations of PVC (or polyvinyl chloride) materials and other raw materials used in the
manufacture of its end-products. On January 14, 2005, BIR issued a Letter of Authority (LOA) to
the MHI advising it that BIR agents had been authorized to examine its books of accounts and
other accounting records for all internal revenue taxes for taxable years 1997 to 2002 and
unverified prior years all these efforts proved futile because MHI could not be located at the
address given in its Annual Income Tax Returns and other BIR records. GTEB issued a
certification to the effect that MH had been inactive since 1997; and, that the SEC issued a
certification that the MHI failed to file its General Information Sheet for the years 1998-2005 and
financial statements for the period 1997-2002. It is alleged that the MHIwillfully under-declared
the amount of its purchases and/or importations for taxable, years 2001 and 2002 by as much
as P428,408,634,00 and P554,802,368.00, respectively. This under-declaration resulted in
estimated Deficiency Income Taxes in the amount of P43,716,161,84 for taxable year 2001, and
P34,561,975,40 for taxable year 2002, both inclusive of interests and increments.
Respondentsasserted that the "MHI as an independent contractor and supplier of work,
labor and other materials for the manufacture of garments and similar products like handbags. It
merely "received various consignments of raw materials, imported tax-free and that it did not
declare as purchases the foregoing importations of raw materials because it did not buy them;
that it "processed them into finished products for its foreign customers; the rest it returned as
excess raw materials.

The investigating prosecutor ruled that the complaint be dismissed andthat criminal
intent is irrelevant in a special law, however the intent to commit the prohibited act must be
established. Obviously, respondents have not been shown to have intended to deliberately
understate the importation and/or purchases in their income tax returns for the years 2001 and
2002 considering that the raw materials were imported duty-free and as clearly explained,
respondents did not pay for the imported raw materials which were merely consigned to them to
be used in the manufacture of finished products for re-export under CMT invoices.Petitioner
filed a motion for reconsideration but this motion was denied and appealed to the Secretary of
Justice who dismissed it also. The CA rendered judgment dismissing the Petition for Certiorari.
The CA ruled that the private respondents were able to substantiate their claim that the amount
they failed to include are not purchases/importations subject to tax but consignments exclusively
used for the manufacture of its finished products for export, and hence duty-free. While it is true
that no direct evidence was presented by [p]private [respondent to prove such fact, the records
are however replete with strong circumstantial evidence inexorably leading to the same
conclusion.

ISSUE:
Whether or not all the Resolutions issued by the investigating prosecutor, the DOJ
Undersecretary, as well as the Decision and the Resolution of the CA were all tainted with grave
abuse of discretion.

HELD
Yes.Viewed in this context, it is easy to see that petitioner has clearly made out a prima
facie case or shown probable cause to indict respondents for tax evasion under the pertinent
sections of the NTRC, Indeed, we believe that by themselves the annexes appended to the
records of this case, Annexes "A" to "M", submitted in amplification of petitioner's affidavit-
complaint do already provide viable support to petitioner's plea for the indictment of the said
respondents for tax evasion. By contrast, respondents' argument in this case is the nebulous,
murky and unsubstantiated claim of "consignment" with an alleged tax-free guaranty, not a
shred or scintilla of which has been adduced in this case. To repeat, respondents have not
produced even a slip of paper purporting to prove that the raw materials valued at hundreds of
millions of pesos were delivered to them on "consignment."

It must be borne in mind that tax exemption, which respondents obviously want or desire
to avail of in this case, are strictissimi juris. Indeed, taxation is the rule and tax exemption the
exception. Tax exemptions should be granted only by clear and unequivocal provision of law on
the basis of language too plain to be misunderstood. We hold that in this case respondents
have utterly failed to make out even a prima facie for tax exemption in their favor.

Nevertheless, we must hasten to add at this juncture that we are here only to determine
probable cause, As to whether respondents are guilty of tax evasion and/or perjury under the
pertinent provisions of the NIRC and other penal statutes is an issue that must be resolved
during the trial of the criminal case/s where the quantum of proof required is proof beyond
reasonable doubt.

On top of these, we must stress that our ailing in this ease should not be construed as
an unbridled license for our tax officials to engage in fishing expeditions and witch-hunting. They
should not abuse their investigative powers and should exercise the same within the parameters
and ambit of the law. By no means is this Court signaling mat it is opening the floodgates to
inundate the courts of justice with frivolous and malicious tax suits.

ASIA TRUST DEVELOPMENT BANK INC. vs.


COMMISSIONER OF INTERNAL REVENUE

G.R. No. 201530 19 APRIL 2017

DOCTRINE:

An application for tax abatement is considered approved only upon the issuance of a
termination letter.

FACTS:

On separate dates in February 2000, Asiatrustreceived from the Commissioner of


Internal Revenue, three Formal Letters of Demand with Assessment Notices for
deficiency internal revenue taxes. Asiatrust timely protested the assessment
notices.Due to the inaction of the CIR on the protest, Asiatrust filed before the CTA a
Petition for Review. On April 19, 2005, the CIR approved Asiatrust’s Offer of
Compromise of DST – regular assessments for the fiscal years ending June 30, 1996,
1997, and 1998.

The CTA Division declared void the tax assessments for fiscal year ending June 30,
1996 for having been issued beyond the three-year prescriptive period.

On November 16, 2011, the CTA En Banc denied both appeals. It denied the CIR’s
appeal for failure to file a prior motion for reconsideration of the Amended Decision
while it denied Asiatrust’s appeal for lack of merit.

ISSUES:
Whether or not CTA en banc committed error in affirming said tax assessment

HELD:

No. An application for tax abatement is considered approved only upon the issuance of
a termination letter.In this case, Asiatrust failed to present a termination letter from the
BIR. Instead, it presented a Certification issued by the BIR to prove that it availed of the
Tax Abatement Program and paid the basic tax. It also attached copies of its BIR

Tax Payment Deposit Slips and a letter issued by RDO Nacar, these documents,
however, do not prove that Asiatrust’s application for tax abatement has been approved.
If at all, these documents only prove Asiatrust’s payment of basic taxes, which is not a
ground to consider its deficiency tax assessment closed and terminated.

Since no termination letter has been issued by the BIR, there is no reason for the Court
to consider as closed and terminated the tax assessment on Asiatrust’s final withholding
tax for fiscal year ending June 30, 1998. Asiatrust’s application for tax abatement will be
deemed approved only upon the issuance of a termination letter, and only then will the
deficiency tax assessment be considered closed and terminated. However, in case
Asiatrust’s application for tax abatement is denied, any payment made by it would be
applied to its out ding tax liability. For this reason, Asiatrust’s allegation of double
taxation must also fail.