Case Digest Midterms Tax 2

DANIEL AND DOMINIC ONG TAX-II CASES 2018 (OUTLINE OF ATTY.
ARANAS)
Estate Tax
1. CIR v. Pineda, G.R. No. L-22734, September 15, 1967.
1. TAXATION; INCOME TAX; LIABILITY OF HEIR FOR TAX DUE THE ESTATE. — AN HEIR IS LIABLE FOR
THE ASSESSMENT AGAINST THE ESTATE as an heir and as a holder-transferee of property belonging to the
estate/taxpayer. AS AN HEIR, he is individually answerable for the part of the tax proportionate to the share he received
from the inheritance (Government of the Philippine Islands vs. Santos, 56 Phil., 827). His liability, however, cannot exceed
the amount of his share (Art. 1311, Civil Code). AS A HOLDER OF THE PROPERTY BELONGING TO THE ESTATE, he is
liable for the tax up to the amount of the property in his possession.
2. ID.; ID.; WAYS OF COLLECTION. — The Government has TWO WAYS OF COLLECTING THE TAXES IN
QUESTION. One, by going after all the heirs and collecting from each one of them the amount of the tax proportionate to
the inheritance received. Another remedy, pursuant to the lien created by Section 315 of the Tax Code upon all property
and rights to property belonging to the taxpayer for unpaid income tax, is by subjecting said property of the estate which is
in the hands of an heir or transferee to the payment of the tax due the estate.
By virtue of such lien, the Government has the right to subject the property in Pineda's possession, i.e., the P2,500.00, to
satisfy the income tax assessment in the sum of P760.28. After such payment, Pineda will have a right of contribution
from his co-heirs, to achieve an adjustment of the proper share of each heir in the distributable estate.
||| (Commissioner of Internal Revenue v. Pineda, G.R. No. L-22734, [September 15, 1967], 128 PHIL 146-151)
Facts:
On 1945, Atanasio Pineda died, leaving his wife and 15 children his estate. One of the children, Manuel B. Pineda, had
a share that amounted to about P2,500.00. After the estate proceedings were closed, the BIR investigated the income
tax liability of the estate for the years 1945, 1946, 1947 and 1948 to which amounted to a total of P760.28 (the whole
tax on the estate).
Manuel B. Pineda opposes on the ground that as an heir he is liable for unpaid income tax due the estate only up to
the extent of and in proportion to any share he received. He relies on Government of the Philippine Islands vs.
Pamintuan, where We held that "after the partition of an estate, heirs and distributees are liable individually for the
payment of all lawful outstanding claims against the estate in proportion to the amount or value of the property they
have respectively received from the estate.
Issue:
WON Manuel Pineda was correct
Ruling:
The Government can require Manuel B. Pineda to pay the full amount of the taxes assessed.
Liability of Heir for Tax Due the Estate
Pineda is liable for the assessment as an heir and as a holder- transferee of property belonging to the estate/taxpayer.
As an heir he is individually answerable for the part of the tax proportionate to the share he received from the
inheritance. His liability however cannot exceed the amount of his share. 4 As a holder of property belonging to the
estate, Pineda is liable for the tax up to the amount of the property in his possession. The reason is that the
Government has a lien on the P2,500.00 received by him from the estate as his share in the inheritance, for unpaid
income taxes for which said estate is liable, pursuant to the last paragraph of Section 315 of the Tax Code, which we
quote hereunder:
"If any person, corporation, partnership, joint-account (cuenta en participacion), association, or insurance
company liable to pay the income tax, neglects or refuses to pay the same after demand, the amount shall be a
lien in favor of the Government of the Philippines from the time when the assessment was made by the
Commissioner of Internal Revenue until paid with interest, penalties, and costs that may accrue in addition thereto
upon all property and rights to property belonging to the taxpayer: . . ."
By virtue of such lien, the Government has the right to subject the property in Pineda's possession, i.e., the P2,500.00,
to satisfy the income tax assessment in the sum of P760.28. After such payment, Pineda will have a right of
contribution from his co-heirs, to achieve an adjustment of the proper share of each heir in the distributable estate.
Dom: murag pasabot sa court kay pwede i pabayad ang P768.28, ang tax for ALL estate, kay less than man sa
Pineda’s own inheritance of P2,500, so pwede ra i subject sa court. Iyang remedy kay mu ask og refund against his
DANIEL AND DOMINIC ONG TAX-II CASES 2018 (OUTLINE OF ATTY. ARANAS)
co-heirs.
Ways for the Gov’t to collect Taxes

The Government has two ways of collecting the taxes in question. One, by going after all the heirs and collecting from
each one of them the amount of the tax proportionate to the inheritance received. Another, pursuant to the lien
created by Section 315 of the Tax Code upon all property and rights to property belonging to the taxpayer for unpaid
income tax, is by subjecting said property of the estate which is in the hands of an heir or transferee to the payment
of the tax due the estate.
This second remedy is the very avenue the Government took in this case to collect the tax. The Bureau of Internal
Revenue should be given, in instances like the case at bar, the necessary discretion to avail itself of the most
expeditious way to collect the tax as may be envisioned in the particular provision of the Tax Code above quoted,
because taxes are the lifeblood of Government and their prompt and certain availability is an imperious need.
2. CIR v. Prieto, G.R. No. L-11976, August 29, 1961.

1. TAXATION; INHERITANCE TAX; PARTIES; EXECUTRIX AND HEIRS NOT AFFECTED NEED NOT BE IMPLEADED. —
Where the petitioning heirs merely ask for the refund of inheritance taxes, it is not necessary for them to implead, nor for the Court of
Tax Appeals to order the impleading of the executrix and the other heirs not affected, for, while said parties could have been impleaded to
enable the Court to accord a more complete relief as between those who were already parties, they were not indispensable parties.
2. ID.; ID.; AMOUNT BASED ON VALUE OF PROPERTIES INHERITED BY AN HEIR. — Inheritance tax is paid on the basis
of the value of the properties inherited by an heir. It appearing that the taxes paid by the respondent heirs were based on an amount
which included what they had paid to their coheirs to compensate the latter for the difference in value existing between the properties
allotted to them (respondents), on the one hand, and those allotted to the other heirs, on the other, said respondents are entitled to the
refund of the excess payment, with legal interest.
3. ID.; ID.; TAX IMPROPERLY COLLECTED; COLLECTOR OF INTERNAL REVENUE LIABLE TO PAY LEGAL INTEREST. —
Under our Internal Revenue Code, the Collector of Internal Revenue may be made to pay interests, at the legal rate, on taxes ordered
refunded, if the assessment was arbitrary or clearly unjustified. Carcar Electric & Ice Plant Co., Inc. vs. The Collector of Internal Revenue
(100 Phil., 50; 53 Off. Gaz., [4] 1068).
4. ID.; ID.; TAXES PAID IN INSTALLMENTS; PRESCRIPTIVE PERIOD COUNTED FROM DATE OF FINAL PAYMENT. —
When a tax is paid in installments, the prescriptive period of two years provided in Section 306 of the National Internal Revenue Code
should be counted from the date of the final payment.
5. TAXATION; INTEREST OF IMPROPERLY COLLECTED TAXES; WHEN COLLECTOR OF INTERNAL REVENUE MAY BE
LIABLE. — Where the collection of the improperly collected tax is attended with arbitrariness, or where the same is clearly unjustified.
the Collector of Internal Revenue may be made to answer for interest at the legal rate on the amount of tax improperly collected.
||| (Collector of Internal Revenue v. Prieto, G.R. No. L-11976, [August 29, 1961], 112 PHIL 907-922)
Facts:
Doña Teresa Tuason y de la Paz died leaving a last will and testament. It provided that, with the exception of five
specific legacies amounting to P80,800.00, all her property be distributed in equal shares among 14 heirs,
respondents Antonio, Benito and Mauro, all surnamed Prieto, being amongst them. The probate court approved the
project of partition submitted by the Executrix, according to which the value of the inventoried estate amounted to
P3,513,073.63. Deducting therefrom the five specific legacies amounting to a total of P80,800.00, the resulting net
estate to be divided equally among the 14 heirs was P3,432,273.63, this entitling each heir to a share with a value of
P245,162.40.
However, because of the impossibility of dividing the real properties of the testatrix equally among the 14 heirs, to
respondents Antonio, Benito and Mauro Prieto were allotted properties with a total value greater than that of the
properties allotted to the other 11 heirs. It was, therefore, agreed that, to equalize the shares of the heirs, the three
respondents should reimburse in cash to their co-heirs the resulting difference in value.
Dom: diri ang issue kay even though ni tapal na sila Antonion, Benito and Prieto, para ma equal ang inheritance sa
uban heirs, gi apil na og tax sa CIR against sa ila. Mao reklamo sila nga nasayop og tax. Sakto sila ana ang SC.
Gipausab ang assessment sa CIR nia gipabayad og legal interest kay nasayop og tax ang CIR.
Estate Tax Inheritance. Tax
First Ass. P447,491.04 P494,224.40

Second Ass. 798,840.04 1,095,394.19
Third Ass. 681,692.02 897,154.59
Fourth Ass. 659,924.74 355,402.31
Last Ass" 613,674.04 . 777,129.62
When petitioner made his final assessment notice on, the estate tax assessed under the third assessment notice —
P681,692.02 — had already been paid in full. Consequently, when the aforesaid last assessment reduced the estate
tax to P613,674.04, there was a resulting overpayment of the estate tax in the sum of P68,018.02 which petitioner
credited to the unpaid inheritance taxes due from the heirs.
Dom: ang assessment pod sa CIR nag usab2x mao nasayop og bayad ang mga taxpayers. Nibayad sila sa Third
Assessment pero gi usab mana sa CIR, mas nigamay. So entitled silage refund.
Petitioner contends that the individual share of each heir in the net estate is what appears in the project of partition,
and that the cash payments made by respondents are immaterial in the determination of their respective inheritance
tax because the money paid did not form part of the estate of the decedent.
Issues:
1) WON there has been an overpayment of tax
2) WON petitioner was correct when he said “the individual share of each heir in the net estate is what appears in the
project of partition, and that the cash payments made by respondents are immaterial in the determination of their
respective inheritance tax because the money paid did not form part of the estate of the decedent.”
3) WON the claim for refund has already prescribed.
Ruling:
1) There was an overpayment of said estate tax in the sum of P68,018.02. For this reason, upon making the last
assessment notice aforesaid, petitioner gave the heirs a tax credit of P68,018.02 and credited it against the
inheritance taxes still unpaid.
2) We find no merits in these contentions. It can not be disputed that the inheritance tax should be paid on the basis
of the value of the properties inherited by an heir. On the other hand, it is clear in this case that what each of the
respondents really and actually received as his share in the inheritance is the value of the properties allotted to them
minus what they had to pay to their co-heirs to compensate the latter for the difference in value existing between the
properties allotted to respondents, on the one hand, and those allotted to the other heirs, on the other. To claim
otherwise would be closing one's eyes to the realities of the case. The resulting amount, therefore, is the just and fair
basis for the determination of the tax liability of respondents.
Consequently, where the collection of the improperly collected tax is attended with arbitrariness, or where the same
is clearly unjustified, the Collector of Internal Revenue may be made to answer for interest at the legal rate on the
amount of tax improperly collected.
3) When a tax is paid in installments, the prescriptive period of two years provided in Section 306 of the National
Internal Revenue Code should be counted from the date of the final payment.
The last payment of the inheritance tax pertaining to Antonio Prieto was made on March 11, 1953 and as regards
Benito Prieto and Mauro Prieto on December 9, 1954 (par. 20, Stipulation of Facts). On January 12, 1955 petitioners
filed their claim for refund of the taxes allegedly overpaid and on January 14, 1955 respondent rendered his decision
thereon from which petitioners interposed the present appeal. Therefore, it was timely filed.
3. CIR vs. Court of Appeals, et al., G.R. No. 123206, March 22, 2000.
RULING NOT APPLICABLE ANYMORE – AS THE RULE WAS REVISED UNDER TRAIN LAW
SYNOPSIS
Petitioner assailed the decision of the Court of Appeals which affirmed the Resolution of the Court of Tax Appeals granting Josefina
Pajonar, administratrix of the estate of Pedro Pajonar, a tax refund representing erroneously paid estate taxes for the year 1988; and deduction of the
notarial fee for the Extrajudicial Settlement and the attorney's fees in the guardianship proceedings. Here in issue is the allowance of said
deductions. cISDHE
Administration expenses, as an allowable deduction from the gross estate of the decedent for purposes of arriving at the value of the net
estate, have been construed to include all expenses essential to the proper settlement of the estate. The notarial fee paid for the extrajudicial
settlement is clearly deductible expense since such settlement effected the distribution of Pedro Pajonar's estate to his lawful heirs. Similarly, the
attorney's fees paid to PNB for acting as the guardian of Pedro Pajonar's property during his lifetime should also be considered as a deductible
administration expense.
SYLLABUS
1. TAXATION; NATIONAL INTERNAL REVENUE CODE; ALLOWABLE DEDUCTIONS FROM THE GROSS ESTATE OF A DECEDENT;
DISCUSSED. — The deductions from the gross estate permitted under Section 79 of the Tax Code basically reproduced the deductions allowed
under Commonwealth Act No. 466 (CA 466), otherwise known as the National Internal Revenue Code of 1939, and which was the first codification of
Philippine tax laws. Section 89 (a) (1) (B) of CA 466 also provided for the deduction of the "judicial expenses of the testamentary or intestate
proceedings" for purposes of determining the value of the net estate. Philippine tax laws were, in turn, based on the federal tax laws of the United
States. In accord with established rules of statutory construction, the decisions of American courts construing the federal tax code are entitled to
great weight in the interpretation of our own tax laws. Judicial expenses are expenses of administration. Administration expenses, as an allowable
deduction from the gross estate of the decedent for purposes of arriving at the value of the net estate, have been construed by the federal and state
courts of the United States to include all expenses "essential to the collection of the assets, payment of debts or the distribution of the property to the
persons entitled to it." In other words, the expenses must be essential to the proper settlement of the estate. Expenditures incurred for the individual
benefit of the heirs, devisees or legatees are not deductible.
2. ID.; ID.; ID.; NOTARIAL FEE FOR THE EXTRAJUDICIAL SETTLEMENT AND ATTORNEY'S FEES IN GUARDIANSHIP
PROCEEDINGS IN CASE AT BAR; UPHELD. — The notarial fee paid for the extrajudicial settlement is clearly a deductible expense since such
settlement effected a distribution of Pedro Pajonar's estate to his lawful heirs. Similarly, the attorney's fees paid to PNB for acting as the guardian of
Pedro Pajonar's property during his lifetime should also be considered as a deductible administration expense. PNB provided a detailed accounting
of decedent's property and gave advice as to the proper settlement of the latter's estate, acts which contributed towards the collection of decedent's
assets and the subsequent settlement of the estate. HDTSIE
4. >Pablo Lorenzo vs. Juan Posadas, Jr., G.R. No. 43082, June 18, 1937.
1. INHERITANCE TAX; ACCRUAL OF, DISTINCT FROM THE OBLIGATION TO PAY IT. — The accrual of
the inheritance tax is distinct from the obligation to pay the same. Section 1536 as amended, of the Administrative
Code, imposes the tax upon "every transmission by virtue of inheritance, devise, bequest, gift mortis causa, or
advance in anticipation of inheritance, devise, or bequest." The tax therefore is upon transmission or the transfer or
devolution of property of a decedent, made effective by his death. (61 C. J., p. 1592.)
2. ID.; MEASURE OF, BY VALUE OF ESTATE. — If death is the generating source from which the power of
the state to impose inheritance taxes takes its being and if, upon the death of the decedent, succession takes place
and the right of the state to tax vests instantly, the tax should be measured by the value of the estate as it stood at the
time of the decedent's death, regardless of any subsequent contingency affecting value of any subsequent increase
or decrease in value. (61 C. J., pp. 1692, 1693; 26 R. C. L., 232; Blakemore and Bancroft , Inheritance Taxes, p.
137. See also Knowlton vs. Moore, 178 U. S. 41; 20 Sup. Ct. Rep., 747; 44 Law. ed., 968.)
3. ID.; ID. — "The right of the state to a inheritance tax accrues at the moment of death, and hence is
ordinarily measured as to any beneficiary by the value at that time of such property as passes to him. Subsequent
appreciation or depreciation is immaterial." (Ross, Inheritance Taxation, p. 72.)
4. ID.; ID. — Whatever may be the rule in other jurisdiction, we hold that a transmission by inheritance is
taxable at the time of the predecessor's death, notwithstanding the postponement of the actual possession or
enjoyment of the estate by the beneficiary, and the tax measured by the value of the property transmitted at that time
regardless of its appreciation or depreciation.
Therefore, where the will of the testor contains a specification that the property be inherited by an voluntary heir after
fixed period after death, the payment must be made before the property is given to the trustee (the one who will hold it
before transferring to the intended heir) and the payment must be computed based on the value at the time of death.
FACTS:
It appears that on May 27, 1922, one Thomas Hanley died in Zamboanga, Zamboanga, leaving a
will (Exhibit 5) and considerable amount of real and personal properties. On June 14, 1922, proceedings
for the probate of his will and the settlement and distribution of his estate were begun in the Court of First
Instance of Zamboanga. The will was admitted to probate. Said will provides among other things, as
follows:
"4. I direct that any money left by me be given to my nephew Matthew Hanley.
"5. I direct that all real estate owned by me at the time of my death be not sold or otherwise
disposed of for a period of ten (10) years after my death, and that the same be handled and
managed by my executors, and proceeds thereof to be given to my nephew, Matthew Hanley, at
Castlemore, Ballaghaderine, County of Rosecommon, Ireland, and that he be directed that the same
be used only for the education of my brother's children and their descendants.
"6. I direct that ten (10) years after my death my property be given to the above-mentioned
Matthew Hanley to be disposed of in the way he thinks most advantageous.
xxx xxx xxx
"8. I state that at this time I have one brother living named Malachi Hanley, and that my
nephew, Matthew Hanley, is a son of my brother, Malachi Hanley."
The Court of First Instance of Zamboanga considered it proper for the best interests of the estate
to appoint a trustee to administer the real properties which, under the will, were to pass to Matthew
Hanley ten years after the testator's death. Accordingly, P. J. M. Moore, one of the two executors named
in the will, was, on March 8, 1924, appointed trustee. Moore took his oath of office and gave bond on
March 10, 1924. He acted as trustee until February 29, 1932, when he resigned and the plaintiff herein
was appointed in his stead.
During the incumbency of the plaintiff as trustee, the defendant Collector of Internal Revenue,
alleging that the estate left by the deceased at the time of his death consisted of realty valued at P27,920
and personality valued at P1,465, and allowing a deduction of P480.81, assessed against the estate an
inheritance tax in the amount of P1,434.24 which, together with the penalties for delinquency in payment
consisting of a 1 per cent monthly interest from July 1, 1931 to the date of payment and a surcharge of
25 per cent on the tax, amounted to P2,052.74. On march 15, 1932, the defendant filed a motion in the
testamentary proceedings pending before the Court of First Instance of Zamboanga (Special
proceedings No. 302) praying that the trustee, plaintiff herein, be ordered to pay to the Government the
said sum of P2,052.74. The motion was granted. On September 15, 1932, the plaintiff paid this amount
under protest, notifying the defendant at the same time that unless the amount was promptly refunded
suit would be brought for its recovery. The defendant overruled the plaintiff's protest and refused to
refund the said amount or any part thereof. His administrative remedies exhausted, plaintiff went to court
with the result herein above indicated.
ISSUE & RULING:

(a) When does the inheritance tax accrue and when must it be satisfied?
The accrual of the inheritance tax is distinct from the obligation to pay the same. Thomas Hanley
|||
having died on May 27, 1922, the inheritance tax accrued as of that date. From the fact, however, that
|||
Thomas Hanley died on May 27, 1922, it dies not follow that the obligation to pay the tax arose as of that
date - the tax should have been paid before the delivery of the properties in question to P. J. M. Moore as
trustee on March 10, 1924. |||
According to article 657 of the Civil Code, "the rights to the succession of a person are transmitted
from the moment of his death." "In other words", said Arellano, C. J., ". . . the heirs succeed immediately to
all of the property of the deceased ancestor. The property belongs to the heirs at the moment of the death
of the ancestor as completely as if the ancestor had executed and delivered to them a deed for the same
before his death." Plaintiff, however, asserts that while article 657 of the Civil Code is applicable to testate
|||
as well as intestate succession, it operates only in so far as forced heirs are concerned. But the language
of Article 657 of the Civil Code is broad and makes no distinction between different classes of heirs. That
article does not speak of forced heirs; it does not even use the word "heir". It speaks of the rights of
succession and of the transmission thereof from the moment of death. The provision of section 625 of the
Code of Civil Procedure regarding the authentication and probate of a will as a necessary condition to
effect transmission of property does not effect the general rule laid down in article 647 of the Civil Code.
The authentication of a will implies its due execution but once probated and allowed the transmission is
effective as of the death of the testator in accordance with article 657 of the Civil Code. Whatever may be
the time when actual transmission of the inheritance takes place, succession takes place in any event at
the moment of the decedent's death. The time when the heirs legally succeed to the inheritance may differ
from the time when the heirs actually received such inheritance. |||
From the fact, however, that Thomas Hanley died on May 27, 1922, it dies not follow that the
obligation to pay the tax arose as of that date. The time for the payment of inheritance tax is clearly fixed
by section 1544 of the Revised Administrative code as amended by Act No. 3031, in relation to section
1543 of the same code. The two sections follow:
"SEC. 1543. Exemption of certain acquisitions and transmission. — The following shall not
be taxed:
"(a) The merger of the usufruct in the owner of the naked title.
"(b) The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee
to the trustees.
"(c) The transmission from the first heir, legatee, or donee in favor of another beneficiary, in
accordance with the desire of the predecessor.
"In the last two cases, if the scale of taxation appropriate to the new beneficiary is greater
than that paid by the first, the former must pay the difference.
"SEC. 1544. When tax to be paid. — The Tax fixed in this article shall be paid:
"(a) In the second and third cases of the next preceding section, before entrance into
possession of the property.
"(b) In other cases, within the six months subsequent to the death of the predecessor; but if
judicial testamentary or intestate proceedings shall be instituted prior to the expiration of said period,
the payment shall be made by the executor or administrator before delivering to each beneficiary his
share.
"If the tax is not paid within the time hereinbefore prescribed, interest at the rate of twelve per
centum per annum shall be added as part of the tax; and to the tax and interest due and unpaid
within ten days after the date of notice and demand thereof by the Collector, there shall be further
added a surcharge of twenty-five per centum.
"A certified copy of all letters testamentary or of administration shall be furnished the
Collector of Internal Revenue by the Clerk of Court within thirty days after their issuance."
It should be observed in passing that the word "trustee", appearing in subsection (b) of section
1543, should read "fideicommissary" or "cestui que trust". There was an obvious mistake in translation
from the Spanish to the English version.
The instant case does not fall under subsection (a), but under subsection (b), of section 1544
above-quoted, as there is here no fiduciary heir, first heir, legatee or donee. Under that subsection, the
tax should have been paid before the delivery of the properties in question to P. J. M. Moore as trustee
on March 10, 1924.
(b) Should the inheritance tax be computed on the basis of the value of the estate at the time of the testator's
death, or on its value ten years later?
AT THE TIME OF THE TESTATOR’S DEATH. If death is the generating source from which the
power of the state to impose inheritance taxes its being and if, upon the death of the decedent, succession
takes place and the right of the state to tax vests instantly, the tax should be measured by the value of the
estate as it stood at the time of the decedent's death, regardless of any subsequent contingency affecting
value or any subsequent increase or decrease in value. "The right of the state to an inheritance tax
accrues at the moment of death, and hence is ordinarily measured as to any beneficiary by the
value at that time of such property as passes to him. Subsequent appreciation or depreciation is
immaterial." |||
We hold that a transmission by inheritance is taxable at the time of the predecessor's death,
notwithstanding the postponement of the actual possession or enjoyment of the estate by the beneficiary,
and the tax measured by the value of the property transmitted at that time regardless of its appreciation or
depreciation. |||
(c) In determining the net value of the estate subject to tax, is it proper to deduct the compensation due to
trustees? [BUT NOTE: NOT APPLICABLE NOW – TRAIN LAW]
A trustee, no doubt, is entitled to receive a fair compensation for his services. But from this it does
not follow that the compensation due him may lawfully be deducted in arriving at the net value of the estate
subject to tax. There is no statute in the Philippines which requires trustees' commissions to be deducted in
determining the net value of the estate subject to inheritance tax
5. Carlos Moran Sison vs. Narcisa F. Teodoro, G.R. No. L-9271, March 29, 1957.
Ruling, not applicable in train
1. EXECUTOR AND ADMINISTRATOR; SERVING WITHOUT COMPENSATION; PREMIUM PAID IN BOND NOT EXPENSE OF
ADMINISTRATION. — Expenses or premiums paid or incurred by an executor or administrator serving without compensation to procure a
bond is not a proper charge against the estate. Section 7 Rule 86 of the Rules of Court does not authorize the executor or administrator to
charge against the estate the money paid for premium. (Doctrine laid down in Sulit vs. Santos, 56 Phil., 626, reiterated.)||| (In re Sison v. Teodoro,
G.R. No. L-9271, [March 29, 1957], 100 PHIL 1055-1059)
DECISION
BAUTISTA ANGELO, J p:
On December 20, 1948, the Court of First Instance of Manila, which has jurisdiction over the estate of the late Margarita
David, issued an order appointing Carlos Moran Sison as j udicial administrator, without compensation, after filing a bond in the
amount of P5,000. The next day, Carlos Moran Sison took his oath of office and put up the requisite bond which was duly approved by
the court. On the same day, letters of administration were issued to him.
On January 19, 1955, the judicial administrator filed an accounting of his administration which contains, among others, the
following disbursement items:
"13. Paid to Visayan Surety & Insurance Corporation
on August 6, 1954, as renewal premiums on the
Administrator's bond of Judicial Administrator Carlos
Moran Sison covering the period from December
20, 1949 to December 20, 1954, inclusive P380.70
"15. Paid to Visayan Surety & Insurance Corporation

on December 21, 1954, for premiums due on the
Administrator's bond of Judicial Administrator
Carlos Moran Sison for the period from
December 21, 1954 to December 21, I955 76.14"
(p. 3, Brief of Appellant)
Narcisa F. Teodoro, one of the heirs, objected to the approval of the above-quoted items on the ground that they are not
necessary expenses of administration and should not be charged against the estate. On February 25, 1955, the court approved the report
of the administrator but disallowed the items objected to on the ground that they cannot be considered as expenses of administration.
The administrator filed a motion for reconsideration and when the same was denied, he took the present appeal.
The only issue to be determined is "whether a judicial administrator, serving without compensation, is entitled to charge as an
expense of administration the premiums aid on his bond."
The lower court did not consider the premiums paid on the bond filed by the administrator as an expense of administration
taking into account undoubtedly the ruling laid down in the case of Sulit vs. Santos, 56 Phil., 626. That is a case which also involves the
payment of certain premium on the bond put up by the judicial administrator and when he asked the court that the same be considered
as an expense of administration, it was disapproved for the same reasons advanced by the trial court. In sustaining this finding, this
Court ruled that the "expense incurred by an executor or administrator to produce a bond is not a proper charge against the estate.
Section 680 of the Code of Civil Procedure (similar to section 7, Rule 86) does not authorize the executor or administrator to charge
against the estate the money spent for the presentation, ruling, and substitution of a bond." And elaborating on this matter, the Court
made the following comment:
"The aforementioned cases, in reality, seem superfluous in ascertaining the true principle. The position of an executor or
administrator is one of trust. In fact, the Philippine Code of Civil Procedure so mentions it. It is proper for the law to safeguard the
estates of deceased persons by requiring the executor or administrator to give a suitable bond. The ability to give this bond is in the
nature of a qualification for the office. The execution and approval of the bond constitute a condition precedent to acceptance of the
responsibilities of the trust. If an individual does not desire to assume the position of executor or administrator, he may refuse to do
so. On the other hand, when the individual prefers an adequate bond and has it approved by the probate court, he thereby admits the
adequacy of the compensation which is permitted him pursuant to law. It would be a very far-fetched construction to deduce that the
giving of a bond in order to qualify for the office of executor or administrator is a necessary expense in the care, management, and
settlement of the estate within the meaning of section 680 of the Code of Civil Procedure, for these are expenses incurred after the
executor or administrator has met the requirements of the law and has entered upon the performance of his duties. (See In re Eby's
Estate [1894], 30 Atl., 124.)
We feel that the orders of Judge Mapa in this case rested on a fine sense of official duty, sometimes lacking in cases of this
character, to protect the residue of the estate of a deceased person from unjustifiable inroads by an executor, and that as these orders
conform to the facts and the law, they are entitled to be fortified by an explicit pronouncement from this court. We rule that the
expense incurred by an execution or administrator to procure a bond is not a proper charge against the estate, and that section 680 of
the Code of Civil Procedure does not authorize the executor or administrator to charge against the estate the money spent for the
presentation, filing, and substitution of a bond."
It is true that the Sulit case may be differentiated from the present in the sense that, in the former the administrator accepted
the trust with the emolument that the law allows, whereas in the latter the administrator accepted the same without compensation, but
this difference is of no moment, for there is nothing in the decision that may justify the conclusion that the allowance or disallowance
of premiums paid on the bond of the administrator is made dependent on the receipt of compensation. On the contrary, a different
conclusion may be inferred considering the ratio decidendi on which the ruling is predicated. Thus, it was there stated that the position
of an executor or administrator is one of trust; that it is proper for the law to safeguard the estates of deceased persons by requiring the
administrator to give a suitable bond, and that the ability to give this bond is in the nature of a qualification for the office. It is also
intimated therein that "If an individual does not desire to assume the position of executor or administrator, he may refuse to do so," and
it is far-fetched to conclude that the giving of a bond by an administrator is a necessary expense in the care, management and
settlement of the estate within the meaning of the law, because these expenses are incurred "after the executor or administrator has met
the requirements of the law and has entered upon the performance of his duties."
Of course, a person may accept the position of executor or administrator with all the incidents appertaining thereto having in
mind the compensation which the law allows for the purpose, but he may waive this compensation in the same manner as he may
refuse to serve without it. Appellant having waived compensation, he cannot now be heard to complain of the expenses incident to his
qualification.
The orders appealed from are hereby affirmed, without costs.
Paras, C.J., Bengzon, Reyes, A., Labrador, Concepcion, Reyes, J.B.L., Endencia and Felix, JJ., concur.
||| (In re Sison v. Teodoro, G.R. No. L-9271, [March 29, 1957], 100 PHIL 1055-1059)
6. CIR vs. Court of Appeals, et al., G.R. No. 123206, March 22, 2000.
Not applicable in train law
SYNOPSIS
Petitioner assailed the decision of the Court of Appeals which affirmed the Resolution of the Court of Tax Appeals
granting Josefina Pajonar, administratrix of the estate of Pedro Pajonar, a tax refund representing erroneously paid estate taxes
for the year 1988; and deduction of the notarial fee for the Extrajudicial Settlement and the attorney's fees in the guardianship
proceedings. Here in issue is the allowance of said deductions. cISDHE
Administration expenses, as an allowable deduction from the gross estate of the decedent for purposes of arriving at the
value of the net estate, have been construed to include all expenses essential to the proper settlement of the estate. The notarial
fee paid for the extrajudicial settlement is clearly deductible expense since such settlement effected the distribution of Pedro
Pajonar's estate to his lawful heirs. Similarly, the attorney's fees paid to PNB for acting as the guardian of Pedro Pajonar's
property during his lifetime should also be considered as a deductible administration expense.
SYLLABUS
1. TAXATION; NATIONAL INTERNAL REVENUE CODE; ALLOWABLE DEDUCTIONS FROM THE GROSS ESTATE
OF A DECEDENT; DISCUSSED. — The deductions from the gross estate permitted under Section 79 of the Tax Code basically
reproduced the deductions allowed under Commonwealth Act No. 466 (CA 466), otherwise known as the National Internal
Revenue Code of 1939, and which was the first codification of Philippine tax laws. Section 89 (a) (1) (B) of CA 466 also provided
for the deduction of the "judicial expenses of the testamentary or intestate proceedings" for purposes of determining the value of
the net estate. Philippine tax laws were, in turn, based on the federal tax laws of the United States. In accord with established
rules of statutory construction, the decisions of American courts construing the federal tax code are entitled to great weight in
the interpretation of our own tax laws. Judicial expenses are expenses of administration. Administration expenses, as an
allowable deduction from the gross estate of the decedent for purposes of arriving at the value of the net estate, have been
construed by the federal and state courts of the United States to include all expenses "essential to the collection of the assets,
payment of debts or the distribution of the property to the persons entitled to it." In other words, the expenses must be essential
to the proper settlement of the estate. Expenditures incurred for the individual benefit of the heirs, devisees or legatees are not
deductible.
2. ID.; ID.; ID.; NOTARIAL FEE FOR THE EXTRAJUDICIAL SETTLEMENT AND ATTORNEY'S FEES IN
GUARDIANSHIP PROCEEDINGS IN CASE AT BAR; UPHELD. — The notarial fee paid for the extrajudicial settlement is
clearly a deductible expense since such settlement effected a distribution of Pedro Pajonar's estate to his lawful heirs. Similarly,
the attorney's fees paid to PNB for acting as the guardian of Pedro Pajonar's property during his lifetime should also be
considered as a deductible administration expense. PNB provided a detailed accounting of decedent's property and gave advice as
to the proper settlement of the latter's estate, acts which contributed towards the collection of decedent's assets and the
subsequent settlement of the estate.HDTSIE
(Commissioner of Internal Revenue v. Court of Appeals, G.R. No. 123206 (Resolution), [March 22, 2000], 385 PHIL 397-409)
|||
FACTS:
ISSUE:
RULING:
7. Ferdinand R. Marcos II vs. Court of Appeals, et al., G.R. No. 120880, June 5, 1997
1. TAXATION; NATIONAL INTERNAL REVENUE CODE; ENFORCEMENT OF TAX LAWS AND COLLECTION
OF TAXES, OF PARAMOUNT IMPORTANCE; CONFLICTING INTEREST OF AUTHORITIES AND TAXPAYERS MUST
BE RECONCILED TO ACHIEVE REAL PURPOSE OF TAXATION. — The enforcement of tax laws and the collection
of taxes, is of paramount importance for the sustenance of government. Taxes are the lifeblood of the government and
should be collected without unnecessary hindrance. However, such collection should be made in accordance with
law as any arbitrariness will negate the very reason for government itself. It is, therefore, necessary to reconcile the
apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the
promotion of the common good, may be achieved. IEAacT
2. REMEDIAL LAW; PROBATE COURT; JURISDICTION. — The authority of the Regional Trial Court, sitting,
albeit with limited jurisdiction, as a probate court over estate of deceased individual, is not a trifling thing. The court's
jurisdiction, once invoked, and made effective, cannot be treated with indifference nor should it be ignored with impunity
by the very parties invoking its authority. It is within the jurisdiction of the probate court to approve the sale of properties of
a deceased person by his prospective heirs before final adjudication; to determine who are the heirs of the decedent; the
recognition of a natural child; the status of a woman claiming to be the legal wife of the decedent; the legality of
disinheritance of an heir by the testator; and to pass upon the validity of a waiver of hereditary rights.
3. TAXATION; NATIONAL INTERNAL REVENUE CODE; ESTATE TAX; NATURE OF PROCESS OF

COLLECTION. — The nature of the process of estate tax collection has been described as follows: "Strictly speaking,
the assessment of a inheritance tax does not directly involve the administration of a decedent's estate, although it may be
viewed as an incident to the complete settlement of an estate, and, under some statutes, it is made the duty of the
probate court to make the amount of the inheritance tax a part of the final decree of distribution of the estate. It (Estate
Tax) is not against the property of decedent, nor is it a claim against the estate as such, but it is against the
interest or property right which the heir, legatee, devisee, etc., has in the property formerly held by decedent.
Further, under some statutes, it has been held that it is not a suit or controversy between the parties, nor it is an adversary
proceeding between the state and the person who owes the tax on the inheritance. However, under other statutes it has
been held that the hearing and determination of the cash value of the assets and the determination of the tax are
adversary proceedings. The proceeding has been held to be necessary a proceeding in rem. In the Philippine
experience, the enforcement and collection of estate tax, is executive in character, as the legislature has seen it
fit to ascribe this task to the Bureau of Internal Revenue. (Section 3 of the National Internal Revenue Code) ASICDH
4. ID.; ID.; ID.; LIBERAL TREATMENT OF CLAIMS. — Thus, it was in Vera vs. Fernandez that the court
recognized the liberal treatment of claims for taxes charged against the estate of the decedent. Such taxes, we said, were
exempted from the application of the state of non-claims, and this is justified by the necessity of government funding,
immortalized in the maxim that taxes are the lifeblood of the government. Vectigalia nervi sunt rei publicae — taxes are
the sinews of the state. Such liberal treatment of internal revenue taxes in the probate proceedings extends so far, even to
allowing the enforcement of tax obligations against the heirs of the decedent, even after distribution of the estate's
properties.
5. ID.; ID.; ID.; COLLECTION THEREOF DOES NOT REQUIRE APPROVAL OF PROBATE COURT. — The
approval of the court, sitting in probate, or as a settlement tribunal over the deceased is not a mandatory requirement in
the collection of estate taxes. It cannot therefore be argued that the Tax Bureau erred in proceeding with the levying and
sale of the properties allegedly owned by the late President, on the ground that it was required to seek first the probate
court's sanction. There is nothing in the Tax Code,and in the pertinent remedial laws that implies the necessity of the
probate or estate settlement court's approval of the state's claim for estate taxes, before the same can be enforced and
collected. On the contrary, under Section 87 of the NIRC,it is the probate or settlement court which is bidden not to
authorize the executor or judicial administrator of the decedent's estate to deliver any distributive share to any party
interested in the estate, unless it is shown a Certification by the Commissioner of Internal Revenue that the estate taxes
have been paid. This provision disproves the petitioner's contention that it is the probate court which approves the
assessment and collection of the estate tax. CSTcEI
6. ID.; ID.; DISTRAINT OR LEVY; REQUIRES FINAL, EXECUTORY AND DEMANDABLE DEFICIENCY TAX
ASSESSMENT; CASE AT BAR. — Apart from failing to file the required estate tax return within the time required for the
filing of the same, petitioner, and the other heirs never questioned the assessments served upon them, allowing the same
to lapse into finality, and prompting the BIR to collect the said taxes by levying upon the properties left by President
Marcos. The Notices of Levy upon real property were issued within the prescriptive period and in accordance with the
provisions of the present Tax Code.The deficiency tax assessment, having already become final executory and
demandable, the same can now be collected through the summary remedy for distraint or levy pursuant to Section 205 of
the NIRC.
7. ID.; ID.; ESTATE TAX; 10-YEAR PRESCRIPTIVE PERIOD FOR ASSESSMENT AND COLLECTION OF TAX
DEFICIENCY; CASE AT BAR. — The applicable provision in regard to the prescriptive period for the assessment and
collection of tax deficiency in this instance is Section 223 of the NIRC,which pertinently provides that the case of a false or
fraudulent return with intent to evade tax or of a failure to file a return, the tax may be assessed, or a proceeding in court
for the collection of such tax may be begun without assessment, at any time within ten (10) years after the discovery of
the falsity, fraud, or omission. The omission to file an estate tax return, and the subsequent failure to contest or appeal the
assessment made by the BIR is fatal to the petitioner's cause, as under the above-cited provision, in case of failure to file
a return, the tax may be ASSESSED AT ANY TIME within ten years after the omission, and any tax so assessed may be
COLLECTED BY LEVY UPON REAL PROPERTY within three years (AMENDED) following the assessment of the tax.
Since the estate tax assessment had become final and unappealable by the petitioner's default as regards protesting the
validity of the said assessment, there is now no reason why the BIR cannot continue with the collection of the said tax.
Any objection against the assessment should have been pursued following the avenue paved in Section 229 of
the NIRC on protests on assessments of internal revenue taxes.
8. REMEDIAL LAW; EVIDENCE; PRESUMPTION THAT OFFICIAL DUTIES ARE REGULARLY PERFORMED;
APPLIED IN CASE AT BAR. — It is not the Department of Justice which is the government agency tasked to determine
the amount of taxes due upon the subject estate, but the Bureau of Internal Revenue, whose determinations and
assessments are presumed correct and made in good faith. The taxpayer has the duty of proving otherwise. In the
absence of proof of any irregularities in the performance of official duties, an assessment will not be disturbed. Even an
assessment based on estimates is prima facie valid and lawful where it does not appear to have been arrived at arbitrarily
or capriciously. The burden of proof is upon the complaining party to show clearly that the assessment is erroneous.
Failure to present proof of error in the assessment will justify the judicial affirmance of said assessment. In this instance,
petitioner has not pointed out one single provision in the Memorandum of the Special Audit Team which gave rise to the
questioned assessment, which bears a trace of falsity. Indeed the petitioner's attack on the assessment bears mainly on
the alleged improbable and unconscionable amount of the taxes charged. But mere rhetoric cannot supply the basis for
the charge of impropriety of the assessment made. cDACST
9. ID.; SPECIAL CIVIL ACTION; CERTIORARI; NOT A SUBSTITUTE FOR LOST APPEAL OF TAX
ASSESSMENT. — These objections to the assessments should have been raised, considering the ample remedies
afforded the taxpayer by the Tax Code,with the Bureau of Internal Revenue and the Court of Tax Appeals, as described
earlier, and cannot be raised now via Petition for Certiorari, under the pretext of grave abuse of discretion. The course of
action taken by the petitioner reflects his disregard or even repugnance of the established institutions for governance in
the scheme of a well-ordered society. The subject tax assessments having become final executory and enforceable, the
same can no longer be contested by means of a disguised protest. In the main, Certiorari may not be used as a substitute
for a lost appeal or remedy. This judicial policy becomes more pronounced in view of the absence of sufficient attack
against the actuations of government.
10. TAXATION; NATIONAL INTERNAL REVENUE CODE; DISTRAINT OR LEVY; ESTATE OF THE DECEDENT,
NOT THE HEIRS, IS THE DELINQUENT TAXPAYER; NOTICES TO HEIRS, NOT REQUIRED BY LAW. — In the case of
notices of levy issued to satisfy the delinquent estate tax the delinquent taxpayer is the Estate of the decedent, and not
necessarily, and exclusively, the petitioner as heir of the deceased. In the same vein, in the matter of income tax
delinquency of the late president and his spouse, petitioner is not the taxpayer liable. Thus, it follows that service of
notices of levy in satisfaction of these tax delinquencies upon the petitioner is not required by law, as under Section 213 of
the NIRC.
11. CONSTITUTIONAL LAW; BILL OF RIGHTS; DUE PROCESS; NOT DENIED WHERE PARTY WAS DULY
NOTIFIED BUT DISREGARDED OPPORTUNITY TO RAISE OBJECTIONS ON TAX ASSESSMENT. — The record
shows that notices of warrants of distraint and levy of sale were furnished the counsel of petitioner on April 7, 1993, and
June 10 1993, and the petitioner himself on April 12, 1993 at his office at the Batasang Pambansa. We cannot, therefore,
countenance petitioner's insistence that he was denied due process. Where there was an opportunity to raise objections
to government action, and such opportunity was disregarded, for no justifiable reason, the party claiming oppression then
becomes the oppressor of the orderly functions of government. He who comes to court must come with clean hands.
Otherwise, he not only taints his name, but ridicules the very structure of established authority.
||| (Marcos II v. Court of Appeals, G.R. No. 120880, [June 5, 1997], 339 PHIL 253-275)
FACTS:
On September 29, 1989, former President Ferdinand Marcos died in Honolulu, Hawaii, USA.
On June 27, 1990, a Special Tax Audit Team was created to conduct investigations and examinations of the tax
liabilities and obligations of the late president, as well as that of his family, associates and ‘cronies’. Said audit team
concluded its investigation, and disclosed that the Marcoses failed to file a written notice of the death of the
decedent, an estate tax returns, as well as several income tax returns covering the years 1982-1986, all in violation of
the NIRC.
Subsequently, criminal charges were filed against Imelda Marcos before the RTC of Quezon City for violations of
Sections 82, 83, and 84 of the NIRC. The Commissioner of Internal Revenue thereby caused the preparation and filing
of the Estate Tax Return for the estate of the late president, the income tax returns of the Spouses Marcos for the
years 1985-1986, and the Income Tax Returns of petitioner Boangboang Marcos for the years 1982-1985.
The BIR then issued deficiency tax assessments for the estate of the late president, for the income of the spouses
Marcos, and for the income of petitioner Bobong Marcos. The Commissioner of Internal Revenue avers that copies of
the deficiency tax assessments were all personally and constructively served on August 26, 1991, and September 12,
1991 upon Imelda Marcos at her last known address. Likewise, copies of the assessments were also served upon
Bongbong Marcos at his last known address. The deficiency tax assessments were not protested administratively, by
Imelda and the other heirs of the late president, within 30 days from service.
On Feb. 22, 1993, the BIR commissioner issued 22 notices of levy on real property against certain parcels of land
owner by the Marcoses to satisfy the alleged estate tax and income tax deficiency of the Marcoses.
On May 20, 1993, 4 more notices of levy on real property were issued for the purpose of satisfying the deficiency
income taxes. On May 26, additional 4 notices of levy on real property were then against issued. The foregoing tax
remedies were resorted to pursuant to Sections 205 and 213 of the NIRC.
In response to a letter dated March 12, 1993 sent by Atty. Loreto Ata calling the attention of BIR and requesting that
they be duly notified of any action taken by the BIR affecting the interest of their client Bongbong Marcos, as well as
the interest of the late president – copies of the aforesaid notices were served on April 7, 1993 and on June 10, 1993
upon Imelda, the petitioner, and their counsel on record.
Notices of sale at public auction were posted on May 26, 1993, at the lobby of the City Hall of Tacloban City. The
public auction for the sale of the 11 parcels of land took place on July 5, 1993. There being no bidder, the lots were
declared forfeited in favor of the government.
ISSUE:
WON the Bureau of Internal Revenue has authority to collect by the summary remedy of levying upon, and sale of real
properties of the decedent, estate tax deficiencies, without the cognition and authority of the court sitting in probate
over the supposed will of the decedent
RULING:
In the Philippine experience, the enforcement and collection of estate tax, is executive in character, as the legislature
has seen it fit to ascribe this task to the BIR, as evidenced by Section 3 of the NIRC.
The approval of the court, sitting in probate, or as a settlement tribunal over the deceased is not a mandatory
requirement in the collection of estate taxes. It cannot therefore be argued that the Tax Bureau erred in proceeding
with levying and sale of the properties allegedly owner by the late President, on the ground that it was required to
seek first the probate court’s sanction. There is nothing in the Tax Code, and in the pertinent remedial laws that
implies the necessity of the probate or estate settlement court’s approval of the state’s claim for estate taxes, before
the same can be enforced and collected.
On the contrary, under Section 87 of the NIRC, it is the probate or settlement court which is bidden not to authorize
the executor or judicial administrator of the decedent’s estate to deliver any distributive share to any party interested
in the estate, unless it is shown a certification by the commission of internal revenue that the estate taxes have been
paid. This provision disproves the petitioner’s contention that it is the probate court which approves the assessment
and collection of the estate tax.
If there is any issue as to the validity of the BIR’s decision to assess the estate taxes, this should have been pursued
through the proper administrative and judicial avenues provided for by law under Section 229 of the NIRC.
Apart from failing to file the required estate tax return within the time required, petitioner and the other heirs never
questioned the assessments served upon them, allowing the same to lapse into finality, and prompting the BIR to
collect the said taxes by levying upon the properties left by President Marcos.
Petitioner argued that while the assessment of taxes may have been validly undertaken, the collection thereof was
done in violation of the law. This Court holds otherwise. The Notices of Levy upon real property were issued within
the prescriptive period and in accordance with the provisions of the Present Tax Code. The deficiency tax assessment,
having already become final and executory and demandable, the same can now be collected through the summary
remedy of distraint or levy pursuant to Section 205 of the NIRC. The omission to file an estate tax return, and the
subsequent failure to contest or appeal the assessment made by the BIR is fatal to the petitioner’s cause, as under the
Section 223 of the NIRC, in case of failure to file a return, the tax may be assessed at any time within 10 years after
the omission, and any tax so assessed may be collected by levy upon real property within 3 years following the
assessment of the tax. Since the estate tax assessment had become final and unappealable by the petitioner’s default
as regards protesting the validity of said assessment, there is now no reason why the BIR cannot continue with the
collection of said tax.
Petitioner also argued that all questioned Notices of Levy, however, must be nullified for having been issued without
validly serving copies thereof to the petitioner. As a mandatory heir of the decedent, petitioner avers that he has an
interest in the subject estate, and notices of levy upon its properties should have been served upon him.
This Court does not agree. In the case of notices of levy issued to satisfy the delinquent estate tax, the delinquent
taxpayer is the Estate of the decedent, and not necessarily, and exclusively, the petitioner as heir of the deceased. In
the same vein, in the matter of income tax delinquency of the late president and his spouse, petitioner is not the
taxpayer liable. Thus, it follows that service of notices of levy in satisfaction of these tax delinquencies upon the
petitioner is not required by law.
8. >>Dizon v. CIR, G.R. No. 140944, 30 June 2008.

WHETHER THE ACTUAL CLAIMS OF THE AFOREMENTIONED CREDITORS MAY BE FULLY ALLOWED AS
DEDUCTIONS FROM THE GROSS ESTATE OF JOSE DESPITE THE FACT THAT THE SAID CLAIMS WERE
REDUCED OR CONDONED THROUGH COMPROMISE AGREEMENTS ENTERED INTO BY THE ESTATE WITH ITS
CREDITORS.
FULL RECEIVABLES, DON’T REDUCE; DATE-OF-DATE VALUATION RULE
We express our agreement with the DATE-OF-DEATH VALUATION RULE, made pursuant to the ruling of the
U.S. Supreme Court in Ithaca Trust Co. v. United States. 68 First. There is no law, nor do we discern any legislative intent in our tax
laws, which disregards the date-of-death valuation principle and particularly provides that post-death developments must be
considered in determining the net value of the estate. It bears emphasis that tax burdens are not to be imposed, nor presumed to
be imposed, beyond what the statute expressly and clearly imports, tax statutes being construed strictissimi juris against the
government. 69 Any doubt on whether a person, article or activity is taxable is generally resolved against taxation. 70Second. Such
construction finds relevance and consistency in our Rules on Special Proceedings wherein the term "claims" required to be
presented against a decedent's estate is generally construed to mean debts or demands of a pecuniary nature which could have
been enforced against the deceased in his lifetime, or liability contracted by the deceased before his death. 71 Therefore, the claims
existing at the time of death are significant to, and should be made the basis of, the determination of allowable deductions.EHACcT
FACTS:
On November 7, 1987, Jose P. Fernandez died. Thereafter, a petition for the probate of his will was filed with RTC of
Manila. The probate court then appointed retired Supreme Court Justice Dizon and petitioner, Atty. Rafael Arsenio P.
Dizon (petitioner) as Special and Assistant Special Administrator, respectively, of the Estate.
Eventually, on April 17, 1990, Atty. Gonzales wrote a letter addressed to the BIR Regional Director for San Pablo City
and filed the estate tax return with the same BIR Regional Office, showing therein a NIL (zero) estate tax liability since
the Gross Conjugal Estate is only P14, 315, 611 yet the deductions amounted to P187,822,576.
However, on November 26, 1991, the Assistant Commissioner for Collection of the BIR, Themistocles Montalban,
issued Estate Tax Assessment Notice No. FAS-E-87-91-003269, demanding the payment of P66,973,985.40 as
deficiency estate tax with 25% surcharges for late payment and late filling.
Atty. Gonzales moved for the reconsideration of the said estate tax assessment. BIR Commissioner denied the request
and reiterated that the estate is liable for the payment of P66,973,985.40 as deficiency estate tax. Petitioner filed a
petition for review before respondent CTA. Trial on the merits ensued.
Issues:
First. Whether or not the CTA and the CA gravely erred in allowing the admission of the pieces of evidence which
were not formally offered by the BIR; and
Second. Whether the actual claims of the creditors may be fully allowed as deductions from the gross estate despite
the fact that the said claims were reduced or condoned through compromise agreements
Ruling:
YES, it may be fully allowed as dedcutions following the Date-of-death Valuation Rule.
(Procedural) Under Section 8 of RA 1125, the CTA is categorically described as a court of record. As cases filed before
it are litigated de novo, party-litigants shall prove every minute aspect of their cases. Indubitably, no evidentiary value
can be given the pieces of evidence submitted by the BIR, as the rules on documentary evidence require that these
documents must be formally offered before the CTA.
(Main Topic) It is admitted that the claims of the Estate's aforementioned creditors have been condoned.
Philippine tax laws were, in turn, based on the federal tax laws of the United States. Thus, pursuant to established
rules of statutory construction, the decisions of American courts construing the federal tax code are entitled to great
weight in the interpretation of our own tax laws.
The U.S. court ruled that the appropriate deduction is the "value" that the claim had at the date of the decedent's
death. Also, as held in Propstra v. U.S., where a lien claimed against the estate was certain and enforceable on the
date of the decedent's death, the fact that the claimant subsequently settled for lesser amount did not preclude the
estate from deducting the entire amount of the claim for estate tax purposes. These pronouncements essentially
confirm the general principle that post-death developments are not material in determining the amount of the
deduction.
We express our agreement with the date-of-death valuation rule, made pursuant to the ruling of the U.S. Supreme
Court in Ithaca Trust Co. v. United States. First. There is no law, nor do we discern any legislative intent in our tax
laws, which disregards the date-of-death valuation principle and particularly provides that post-death developments
must be considered in determining the net value of the estate. It bears emphasis that tax burdens are not to be
imposed, nor presumed to be imposed, beyond what the statute expressly and clearly imports, tax statutes being
construed strictissimi juris against the government. Any doubt on whether a person, article or activity is taxable is
generally resolved against taxation.
Second. Such construction finds relevance and consistency in our Rules on Special Proceedings wherein the term
"claims" required to be presented against a decedent's estate is generally construed to mean debts or demands of a
pecuniary nature which could have been enforced against the deceased in his lifetime, or liability contracted by the
deceased before his death. Therefore, the claims existing at the time of death are significant to, and should be made
the basis of, the determination of allowable deductions.
BIR's deficiency estate tax assessment is NULLIFIED.
It is admitted that the claims of the Estate's aforementioned creditors have been condoned. As a mode of
extinguishing an obligation, 55 condonation or remission of debt 56 is defined as: AHSEaD
an act of liberality, by virtue of which, without receiving any equivalent, the creditor renounces the
enforcement of the obligation, which is extinguished in its entirety or in that part or aspect of the same to
which the remission refers. It is an essential characteristic of remission that it be gratuitous, that there is no
equivalent received for the benefit given; once such equivalent exists, the nature of the act changes. It may
become dation in payment when the creditor receives a thing different from that stipulated; or novation, when
the object or principal conditions of the obligation should be changed; or compromise, when the matter
renounced is in litigation or dispute and in exchange of some concession which the creditor receives. 57
Verily, the second issue in this case involves the construction of Section 79 58 of the National Internal
Revenue Code 59 (Tax Code) which provides for the allowable deductions from the gross estate of the decedent.
The specific question is WHETHER THE ACTUAL CLAIMS OF THE AFOREMENTIONED CREDITORS
MAY BE FULLY ALLOWED AS DEDUCTIONS FROM THE GROSS ESTATE OF JOSE DESPITE THE
FACT THAT THE SAID CLAIMS WERE REDUCED OR CONDONED THROUGH COMPROMISE
AGREEMENTS ENTERED INTO BY THE ESTATE WITH ITS CREDITORS. AESTAI
"Claims against the estate", as allowable deductions from the gross estate under Section 79 of the Tax
Code, are basically a reproduction of the deductions allowed under Section 89 (a) (1) (C) and (E)
of Commonwealth Act No. 466 (CA 466), otherwise known as the National Internal Revenue Code of 1939, and
which was the first codification of Philippine tax laws. Philippine tax laws were, in turn, based on the federal tax
laws of the United States. Thus, pursuant to established rules of statutory construction, the decisions of American
courts construing the federal tax code are entitled to great weight in the interpretation of our own tax laws. 60
It is noteworthy that even in the United States, there is some dispute as to whether the deductible amount
for a claim against the estate is fixed as of the decedent's death which is the general rule, or the same should be
adjusted to reflect post-death developments, such as where a settlement between the parties results in the
reduction of the amount actually paid.61 On one hand, the U.S. court ruled that the appropriate deduction is the
"value" that the claim had at the date of the decedent's death. 62 Also, as held in Propstra v. U.S., 63 where a lien
claimed against the estate was certain and enforceable on the date of the decedent's death, the fact that the
claimant subsequently settled for lesser amount did not preclude the estate from deducting the entire amount of the
claim for estate tax purposes. These pronouncements essentially CONFIRM THE GENERAL PRINCIPLE THAT
POST-DEATH DEVELOPMENTS ARE NOT MATERIAL IN DETERMINING THE AMOUNT OF THE
DEDUCTION. (REJECTED BY THE SC: It applied the Date-of-death valuation principle) ISTCHE
On the other hand, the Internal Revenue Service (Service) opines that post-death settlement should be
taken into consideration and the claim should be allowed as a deduction only to the extent of the amount actually
paid. 64 Recognizing the dispute, the Service released Proposed Regulations in 2007 mandating that the deduction
would be limited to the actual amount paid. 65
In announcing its agreement with Propstra, 66 the U.S. 5th Circuit Court of Appeals held:
We are persuaded that the Ninth Circuit's decision . . . in Propstra correctly apply the Ithaca
Trust date-of-death valuation principle to enforceable claims against the estate. As we interpret Ithaca
Trust, when the Supreme Court announced the date-of-death valuation principle, it was making a judgment
about the nature of the federal estate tax specifically, that it is a tax imposed on the act of transferring property
by will or intestacy and, because the act on which the tax is levied occurs at a discrete time, i.e., the instance
of death, the net value of the property transferred should be ascertained, as nearly as possible, as of that
time. This analysis supports broad application of the date-of-death valuation rule. 67 TCIHSa
We express our agreement with the DATE-OF-DEATH VALUATION RULE, made pursuant to
the ruling of the U.S. Supreme Court in Ithaca Trust Co. v. United States. 68 First. There is no law, nor do we
discern any legislative intent in our tax laws, which disregards the date-of-death valuation principle and particularly
provides that post-death developments must be considered in determining the net value of the estate. It bears
emphasis that tax burdens are not to be imposed, nor presumed to be imposed, beyond what the statute expressly
and clearly imports, tax statutes being construed strictissimi juris against the government. 69 Any doubt on whether
a person, article or activity is taxable is generally resolved against taxation. 70Second. Such construction finds
relevance and consistency in our Rules on Special Proceedings wherein the term "claims" required to be presented
against a decedent's estate is generally construed to mean debts or demands of a pecuniary nature which could
have been enforced against the deceased in his lifetime, or liability contracted by the deceased before his
death. 71 Therefore, the claims existing at the time of death are significant to, and should be made the basis of, the
determination of allowable deductions. EHACcT
||| (Dizon v. Court of Tax Appeals, G.R. No. 140944, [April 30, 2008], 576 PHIL 110-138)
Donor’s Tax
9. >Republic of the Philippines v. AFP Retirement and Separation Benefits System, G.R. No. 180463,
January 16, 2013. (In re to #14)
Respondent-intervenor in this case argued in the case of reversion of title that they have acquired vested interest over
the subject lot as their predecessor-in-interest have acquired such title even before it was reserved for public domain.
SC: untanable. In a separate case, they (respondent-intervenors) were even seeking the invalidation of the donation
alleged by a donee that the subject property was given by the predecessor-in-interest of the respondents to him. In such
case, the SC had held that there was no donation as even if supposing there was intent to donate, there was no
transmissible proprietary right.
Be that as it may, the donation is void. There are THREE ESSENTIAL ELEMENTS OF
DONATIONS: [1] the reduction of the patrimony of the donor, [2] the increase in the patrimony
of the donee, and [3] the intent to do an act of liberality (animus donandi). Granting that there is
an animus donandi,we find that the alleged donation lacks the first two elements which
presuppose the donor's ownership rights over the subject of the donation which he transmits to
the donee thereby enlarging the donee's estate.This is in consonance with the rule that a donor
cannot lawfully convey what is not his property. In other words, a donation of a parcel of land the
dominical rights of which do not belong to the donor at the time of the donation, is void. This holds true
even if the subject of the donation is not the land itself but the possessory and proprietary rights over
said land.
In this case, although they allegedly declared Magsaysay Park as their own for taxation
purposes, the heirs of Cabalo Kusop did not have any transmissible proprietary rights over the
donated property at the time of the donation. In fact, with respect to Lot Y-2, they still had to file
a free patents application to obtain an original certificate of title thereon. This is
because Proclamation No. 2273 declaring as 'open to disposition under the provisions of the
Public Land Act' some portions of the Magsaysay Park, is not an operative law which
automatically vests rights of ownership on the heirs of Cabalo Kusop over their claimed parcels
of land.
The import of said quoted proviso in a presidential proclamation is discussed in the
aforecited Republic v. Court of Appeals case which dealt with the validity of a donation by a sales
awardee of a parcel of land which was later reserved by presidential proclamation for medical center
site purposes. We held therein that where the land is withdrawn from the public domain and declared as
disposable by the Director of Lands under the Public Land Act, the Sales Award covering the same
confers on a sales awardee only a possessory and not proprietary right over the land applied, for. The
disposition of the land by the Director is merely provisional as the applicant still has to comply with the
requirements of the law before any patent is issued. It is only after the compliance with such
requirements that the patent is issued and the land applied for considered 'permanently disposed of by
the Government.' caSDCA
The interpretation of said proviso should even be more stringent in this case considering that
with respect to Lot Y-1, the heirs of Cabalo Kusop do not appear to have taken even the initial steps
mandated by the Public Land Act for claimants of the land excluded from the public domain. The
alleged donation was therefore no more than an exercise in futility. 35 (Emphasis and underscoring
supplied.)
(Republic v. AFP Retirement and Separation Benefits System, G.R. No. 180463, [January 16, 2013], 701
|||
PHIL 574-592)
FACTS:
Lots X, Y-1 and Y-2 — lands of the public domain in General Santos — were reserved for recreation and health
purposes by virtue of Proclamation No. 168, which was issued in 1963. In 1983, Proclamation No. 2273 was issued
amending Proc. 168, and removing and segregating Lots Y-1 and Y-2 from the reservation and declaring them open for
disposition to qualified applicants. As a result, only Lot X remained part of the reservation now known as Magsaysay
Park.
In 1997, respondents-intervenors filed applications for the issuance of individual miscellaneous sales patents over the
whole of Lot X with DENR which approved them. Consequently, 16 OCTs covering Lot X were issued in the names of
respondents-intervenors and several others. In September 1997, these 16 titles were simultaneously conveyed to
herein respondent AFP-RSBS, resulting in the issuance of 16 new titles.
Republic of the Philippines instituted a Complaint for reversion, cancellation and annulment of the AFP-RSBS titles, on
the thesis that they were issued over a public park which is classified as inalienable and non-disposable public land.
Respondents-intervenors intervened and together with the defendant AFP-RSBS, argued that their predecessor-in-
interest Kusop had acquired vested interests over Lot X even before Proc. 168 was issued, having occupied the same
for more than 30 years. They added that under Proc. 168, private rights are precisely recognized.
RTC in favor of Republic, nullifying the AFP titiles. CA reversed saying that respondent-intervenors have acquired title.
The CA went on to justify that the reason why Proc. 2273 did not take Lot X out of the public domain is not because
the Executive wanted it to remain a recreational park reserve — but because the respondents-intervenors were in the
process of donating said Lot X to General Santos City, and the President deemed it unnecessary to still place it within
the coverage of Proc. 2273.
Issues:
Whether respondents are entitled to Lot X.
Ruling:
NO.
Respondents-intervenors then lobbied for the exclusion of certain portions of the reservation which they claimed to
be theirs. They were successful, for in 1983, then President Marcos issued Proc. 2273, which excluded and segregated
Lots Y-1 and Y-2 from the coverage of Proc. 168. In addition, Proc. 2273 declared Lots Y-1 and Y-2 open for
distribution to qualified beneficiaries — which included the herein respondents-intervenors. However, Lot X was
retained as part of the reservation.
Evidently, the sales patents over Lot X are null and void, for at the time the sales patents were applied for and
granted, the land had lost its alienable and disposable character. It was set aside and was being utilized for a public
purpose, that is, as a recreational park.
Under the law, respondents-intervenors are charged with knowledge of the law; they cannot feign ignorance. In
fact, they could not claim to be unaware of Proc. 168, for precisely they hid under its protective mantle to seek the
invalidation of a donation claimed to have been made by them to one Jose Tayoto. Thus, in Tayoto v. Heirs of Kusop,
an alleged donee (Tayoto) of property located within Lots X, Y-1, and Y-2 filed a case for quieting of title against the
donors — herein respondents-intervenors — to protect the property which they allegedly donated to him, which was
then in danger of being lost for the reason that respondents-intervenors supposedly reneged on the donation.
Respondents-intervenors filed an urgent motion to dismiss the Complaint claiming, among others, the "invalidity of
the donation as the subject thereof had not yet been excluded from the Magsaysay Park." In disposing of the case,
the Court made the following pronouncement:
Granting that there is an animus donandi,we find that the alleged donation lacks the first two elements
which presuppose the donor's ownership rights over the subject of the donation which he transmits to the
donee thereby enlarging the donee's estate.This is in consonance with the rule that a donor cannot lawfully
convey what is not his property.
In this case, although they allegedly declared Magsaysay Park as their own for taxation purposes, the heirs
of Cabalo Kusop did not have any transmissible proprietary rights over the donated property at the time of
the donation. In fact, with respect to Lot Y-2, they still had to file a free patents application to obtain an
original certificate of title thereon.
The CA justifies that Proc. 2273 was issued on the assumption that respondents-intervenors were about to donate Lot
X to the city (General Santos City);thus, the President has seen fit not to include it in the proclamation. This is
specious. If the President indeed knew of the intended donation, then it was all the more necessary for him to have
included Lot X in Proc. 2273 and withdrawn it from the coverage of Magsaysay Park; or else the donation to the city
would be null and void, for want of right to donate. Yet he did not. Lot X was retained as part of the park reserve
precisely because the respondents-intervenors had no vested right to it. And, far from confirming ownership over Lot
X, the Republic is correct in the opinion that the miscellaneous sales patents amount to an acknowledgment that
respondents-intervenors' rights are inferior, and cannot defeat ownership over Lot X by the State.
Finally, as regards AFP-RSBS' rights, the Court sustains the petitioner's view that "any title issued covering non-
disposable lots even in the hands of an alleged innocent purchaser for value shall be cancelled." Having acquired no
title to the property in question, there is no other recourse but for AFP-RSBS to surrender to the rightful ownership of
the State.
10. >>Republic of the Philippines v. David Rey Guzman, G.R. No. 132964, February 18, 2000.
A natural born American (David) inherited together with his mother (Helen) several parcels of lands located in Bulacan
by inheritance of his father who was formerly an filipino who subsequently acquired American citizenship.
The mother then executed a Quitclaim Deed assigning, transferring and conveying to her son David her undivided 1/2
interest on all the parcels of land inherited.
WON the quitclaim deed is a donation intervivos – Nope. No intent to donate as the mother knew of the prohibition
that americans cannot own the land; No valid acceptance of donation by David; No valid repudiation of the
inheritance by Helen.
There are three (3) essential elements of a donation: (a) the reduction of the patrimony of the donor; (b) the increase in
the patrimony of the donee; and, (c) the intent to do an act of liberality or animus donandi.
The language of the deed of quitclaim is clear that Helen merely contemplated a waiver of her rights, title and interest
over the lands in favor of David, and not a donation. That a donation was far from Helen's mind is further supported by
her deposition which indicated that she was aware that a donation of the parcels of land was not possible since
Philippine law does not allow such an arrangement. The element of animus donandi therefore was missing.
LIKEWISE, THE 2 DEEDS OF QUITCLAIM EXECUTED BY HELEN MAY HAVE BEEN IN THE NATURE OF A PUBLIC
DOCUMENT BUT THEY LACK THE ESSENTIAL ELEMENT OF ACCEPTANCE IN THE PROPER FORM REQUIRED BY LAW TO
MAKE THE DONATION VALID. The SPA merely acknowledges that David owns the property referred to. The 2 quitclaim
deeds set out the conveyance of the parcels of land by Helen in favor of David but its acceptance by David does not
appear in the deeds, nor in the SPA. Further, the records reveal no other instrument that evidences such acceptance and
notice thereof to the donor in an authentic manner. Therefore, the provisions of the law not having been complied with,
there was no effective conveyance of the parcels of land by way of donation inter vivos.
However, the inexistence of a donation does not render the repudiation made by Helen in favor of David valid. There
is no valid repudiation of inheritance as Helen had already accepted her share of the inheritance when she, together
with David, executed a Deed of Extrajudicial Settlement. Thus, pursuant to Art. 1056, which states that the acceptance
or repudiation of an inheritance, once made is irrevocable and cannot be impugne, Helen cannot belatedly execute an
instrument which has the effect of revoking or impugning her previous acceptance of her 1/2 share of the subject
property from Simeon's estate. Hence, the 2 quitclaim deeds which she executed 11 years after she had accepted the
inheritance have no legal force and effect.
Nevertheless, the nullity of the repudiation does not ipso facto operate to convert the parcels of land into res nullius to
be escheated in favor of the Government. The repudiation being of no effect whatsoever the parcels of land should
revert to their private owner, Helen, who, although being an American citizen, is qualified by hereditary succession to
own the property subject of the litigation.
1. CIVIL LAW; MODES OF ACQUIRING OWNERSHIP; DONATION; ESSENTIAL ELEMENTS
THEREOF. — There are three (3) essential elements of a donation: (a) the reduction of the patrimony of the
donor; (b) the increase in the patrimony of the donee; and, (c) the intent to do an act of liberality or animus
donandi. When applied to a donation of an immovable property, the law further requires that the donation be
made in a public document and that there should be an acceptance thereof made in the same deed of
donation or in a separate public document. In cases where the acceptance is made in a separate instrument, it
is mandated that the donor should be notified thereof in an authentic form, to be noted in both instruments
(deed of donation and deed of acceptance).
2. ID.; ID.; ID.; ACCEPTANCE; WHEN MADE IN SEPARATE PUBLIC WRITING; NOTICE THEREOF
MUST BE MADE IN SEPARATE PUBLIC WRITING; NOTICE OF ACCEPTANCE MUST BE NOTED NOT
ONLY IN DOCUMENT CONTAINING ACCEPTANCE BUT ALSO IN DEED OF DONATION; RATIONALE. —
It is mandated that if an acceptance is made in a separate public writing the notice of the acceptance must be
noted not only in the document containing the acceptance but also in the deed of donation. Commenting on Art.
633 of the Civil Code from whence Art. 749 came Manresa said: "If the acceptance does not appear in the
same document, it must be made in another. Solemn words are not necessary; it is sufficient if it shows the
intention to accept . . . it is necessary that formal notice thereof be given to the donor, and the fact that due
notice has been given must be noted in both instruments. Then and only then is the donation perfected." Thus,
in Santos vs. Robledo this Court emphasized that when the deed of donation is recorded in the registry of
property the document that evidences the acceptance — if this has not been made in the deed of gift — should
also be recorded. And in one or both documents, as the case may be, the notification of the acceptance as
formally made to the donor or donors should be duly set forth. Where the deed of donation fails to show the
acceptance, or where the formal notice of the acceptance made in a separate instrument is either not given to
the donor or else noted in the deed of donation, and in the separate acceptance, the donation is null and
void. HScAEC
||| (Republic v. Guzman, G.R. No. 132964, [February 18, 2000], 382 PHIL 852-862)
FACTS:
David Rey Guzman, a natural-born American citizen, is the son of the spouses Simeon Guzman, a naturalized
American citizen, and Helen Meyers Guzman, an American citizen. In 1968 Simeon died leaving to his sole heirs Helen
and David an estate consisting of several parcels of land located in Bulacan.
Later, Helen and David executed a Deed of Extrajudicial Settlement of the Estate dividing and adjudicating to
themselves all the property belonging to the estate of Simeon.
In 1981, Helen executed a Quitclaim Deed assigning, transferring and conveying to her son David her undivided 1/2
interest on all the parcels of land subject matter of the Deed of Extrajudicial Settlement. She then executed another
Deed of Quitclaim confirming the earlier deed of quitclaim as well as modifying the document to encompass all her
other property in the Philippines.
David thereafter executed an SPA where he acknowledged that he became the owner of the parcels of land subject of
the Deed of Quitclaim.
In 1994, a certain Atty Batongbacal wrote the OSG and furnished it with documents showing that David's ownership
of the 1/2 of the estate of Simeon Guzman was defective. On the basis thereof, the Government filed before the RTC
a Petition for Escheat praying that 1/2 of David's interest in each of the subject parcels of land be forfeited in its favor.
RTC dismissed the petition. This was affirmed by the CA hence the case at bar.
ISSUE:
WON the government is entitled to ½ of David's interest in each of the subject parcels of land - NO.
RULING:
As a rule, only a Filipino citizen can acquire private lands in the Philippines. The only instances when a foreigner can
acquire private lands in the Philippines are by hereditary succession and if he was formerly a natural-born Filipino
citizen who lost his Philippine citizenship.
Petitioner therefore contends that the acquisition of the parcels of land by David does not fall under any of these
exceptions. It asserts that David being an American citizen could not validly acquire 1/2 interest in each of the
subject parcels of land by way of the 2 deeds of quitclaim as they are in reality donations inter vivos.
There are three (3) essential elements of a donation: (a) the reduction of the patrimony of the donor; (b) the increase
in the patrimony of the donee; and, (c) the intent to do an act of liberality or animus donandi.
Not all the elements of a donation of an immovable property are present in the instant case. The transfer of the
property by virtue of the Deed of Quitclaim executed by Helen resulted in the reduction of her patrimony as donor
and the consequent increase in the patrimony of David as donee. However, Helen's intention to perform an act of
liberality in favor of David was not sufficiently established.
The language of the deed of quitclaim is clear that Helen merely contemplated a waiver of her rights, title and interest
over the lands in favor of David, and not a donation. That a donation was far from Helen's mind is further supported
by her deposition which indicated that she was aware that a donation of the parcels of land was not possible since
Philippine law does not allow such an arrangement. The element of animus donandi therefore was missing.
LIKEWISE, THE 2 DEEDS OF QUITCLAIM EXECUTED BY HELEN MAY HAVE BEEN IN THE NATURE OF A PUBLIC
DOCUMENT BUT THEY LACK THE ESSENTIAL ELEMENT OF ACCEPTANCE IN THE PROPER FORM REQUIRED BY LAW TO
MAKE THE DONATION VALID. The SPA merely acknowledges that David owns the property referred to. The 2
quitclaim deeds set out the conveyance of the parcels of land by Helen in favor of David but its acceptance by David
does not appear in the deeds, nor in the SPA. Further, the records reveal no other instrument that evidences such
acceptance and notice thereof to the donor in an authentic manner. Therefore, the provisions of the law not having
been complied with, there was no effective conveyance of the parcels of land by way of donation inter vivos.
However, the inexistence of a donation does not render the repudiation made by Helen in favor of David valid.
There is no valid repudiation of inheritance as Helen had already accepted her share of the inheritance when she,
together with David, executed a Deed of Extrajudicial Settlement. Thus, pursuant to Art. 1056, which states that the
acceptance or repudiation of an inheritance, once made is irrevocable and cannot be impugne, Helen cannot belatedly
execute an instrument which has the effect of revoking or impugning her previous acceptance of her 1/2 share of the
subject property from Simeon's estate. Hence, the 2 quitclaim deeds which she executed 11 years after she had
accepted the inheritance have no legal force and effect.
Nevertheless, the nullity of the repudiation does not ipso facto operate to convert the parcels of land into res nullius
to be escheated in favor of the Government. The repudiation being of no effect whatsoever the parcels of land should
revert to their private owner, Helen, who, although being an American citizen, is qualified by hereditary succession to
own the property subject of the litigation.
11. >Manuel G. Abello, et al. v. CIR, G.R. No. 120721. February 23, 2005. \
WON THE CONTRIBUTION FOR ELECTION CAMPAIGN IS SUBJECT TO DONOR’S TAX? YES
Petitioners: Since the purpose of an electoral contribution is to influence the results of the election, petitioners
again claim that donative intent is not present. Petitioners attempt to place the barrier of mutual exclusivity
between donative intent and the purpose of political contributions.|||
SC: that donative intent is not negated by the presence of other intentions, motives or purposes which do not
contradict donative intent.|||
Petitioner: Petitioners would distinguish a gift from a political donation by saying that the consideration for a
gift is the liberality of the donor, while the consideration for a political contribution is the desire of the giver to
influence the result of an election by supporting candidates who, in the perception of the giver, would influence
the shaping of government policies that would promote the general welfare and economic well-being of the
electorate, including the giver himself.|||
SC: Petitioners' attempt is strained. The fact that petitioners will somehow in the future benefit from the
election of the candidate to whom they contribute, in no way amounts to a valuable material consideration so
as to remove political contributions from the purview of a donation. Senator Angara was under no obligation to
benefit the petitioners. The proper performance of his duties as a legislator is his obligation as an elected
public servant of the Filipino people and not a consideration for the political contributions he received. In fact,
as a public servant, he may even be called to enact laws that are contrary to the interests of his benefactors,
for the benefit of the greater good.
In fine, the purpose for which the sums of money were given, which was to fund the campaign of
Senator Angara in his bid for a senatorial seat, cannot be considered as a material consideration so as to
negate a donation. Prcd
FACTS:
During the 1987 national elections, petitioners, who are partners in the ACCRA law firm, contributed P882K each to
the campaign funds of Senator Edgardo Angara, then running for the Senate.
The BIR assessed each of the petitioners P263k for their contributions. Later, petitioners questioned the assessment
through a letter to the BIR. They claimed that political or electoral contributions are not considered gifts under the
NIRC, and that, therefore, they are not liable for donors tax. The claim for exemption was denied by the
Commissioner.
Petitioners then filed a petition for review with the Court of Tax Appeals (CTA). The CTA thereafter ordered the
Commissioner to desist from collecting donors taxes from the petitioners. The CA then reversed the CTA’s decision
hence the case at bar.
ISSUE:
WON the contributions of petitioners are subject to donor’s tax – YES. The contributions are subject to donor’s tax
RULING:
Donation has the following elements: (a) the reduction of the patrimony of the donor; (b) the increase in the
patrimony of the donee; and, (c) the intent to do an act of liberality or animus donandi.
The present case falls squarely within the definition of a donation. Petitioners, the late Manuel G. Abello, Jose C.
Concepcion, Teodoro D. Regala and Avelino V. Cruz, each gave P882K to the campaign funds of Senator Edgardo
Angara, without any material consideration. All three elements of a donation are present.
The patrimony of the four petitioners were reduced by P882K each. Senator Edgardo Angaras patrimony
correspondingly increased by P3,530M. There was intent to do an act of liberality or animus donandi was present
since each of the petitioners gave their contributions without any consideration.
Donative intent is presumed present when one gives a part of ones patrimony to another without consideration. This
Court is not convinced that since the purpose of the contribution was to help elect a candidate, there was no donative
intent. Petitioners contribution of money without any material consideration evinces animus donandi. The fact that
their purpose for donating was to aid in the election of the donee does not negate the presence of donative intent.
Since the purpose of an electoral contribution is to influence the results of the election, petitioners claim that
donative intent is not present. Petitioners attempt to place the barrier of mutual exclusivity between donative intent
and the purpose of political contributions. This Court reiterates that donative intent is not negated by the presence of
other intentions, motives or purposes which do not contradict donative intent.
IN SHORT, IT DOES NOT MATTER IF THE CONTRIBUTIONS WERE GIVEN FOR ELECTION PURPOSES. FOR AS LONG AS
THE ELEMENTS ARE PRESENT, IT IS CONSIDERED AS DONATION.
12. Lydia Sumipat, et al. vs. Brigido Banga, et al., G.R. No. 155810, August 13, 2004.
Title to immovable property does not pass from the donor to the donee by virtue of a deed of donation until and unless it
has been accepted in a public instrument and the donor duly notified thereof.
An individual who makes any transfer by gift shall make a return and file the same within 30 days after the date the gift
is made with the Revenue District Officer, Collection Agent or duly authorized Treasurer of the municipality in which the
donor was domiciled at the time of the transfer.
FACTS:
The spouses Placida Tabo-tabo and Lauro Sumipat acquired three parcels of land. The couple was childless.
Lauro Sumipat, however, sired five illegitimate children. They are the petitioners. Lauro executed a document
denominated “Deed of Absolute Transfer and/or Quit-Claim over Real Properties” in favor of the petitioners. On the
document, it appears that the signature of his wife, Placida which indicates that she gave her marital consent.
Moreover, it was alleged that Lauro executed it when he was already very sick and bedridden that upon
petitioner Lydia’s request, their neighbor Benjamin Rivera lifted the body of Lauro whereupon Lydia guided his hand
in affixing his signature on the document. Lydia left but later returned on the same day and requested Lauro’s
unlettered wife, Placida to sign on the said document. After Lauro’s death, his legal wife, Placida and petitioners (the
illegitimate children) jointly administered the properties, 50% of the produce went to his wife. As wife’s share in the
produce of the properties dwindled, she filed a complaint for declaration of nullity of titles, contracts, partition,
recovery of ownership now the subject of the present appeal (the titles to the property where transferred to the
heirs, without her knowing.)
RTC ruled in favor of the petitioners. CA ruled in favor of Placida. Placida was unlettered. Petitioners failed to
prove that the terms were fully explained to her. CA annulled the deed insofar as Placida’s conjugal share.
ISSUE:
Whether the questioned deed by its terms or under the surrounding circumstances has validly transferred title to the
disputed properties to the petitioners?
RULING:
NO.
A perusal of the deed reveals that it is actually a gratuitous disposition of property — a donation — although
Lauro Sumipat imposed upon the petitioners the condition that he and his wife, Placida, shall be entitled to one-half
(1/2) of all the fruits or produce of the parcels of land for their subsistence and support. The preliminary clauses of the
deed read:
That conscious of my advanced age and failing health, I feel that I am not capable anymore of
attending to and maintaining and keeping in continuous cultivation my above described properties;
That my children are all desirous of taking over the task of maintaining my properties and have
demonstrated since childhood the needed industry and hard work as they have in fact established possession
over my real properties and introduced more improvements over my lands, the fruit of which through their
concerted efforts and labors, I myself and my family have enjoyed;
That it would be to the best interest of my above mentioned children that the ownership over my above
described properties be transferred in their names, thereby encouraging them more in developing the lands to
its fullest productivity. 18
The deed covers three (3) parcels of land. 19 Being a donation of immovable property, the requirements for
validity set forth in Article 749 of the Civil Code should have been followed,viz:
Art. 749. In order that the donation of the immovable may be valid, it must be made in a public
document, specifying therein the property donated and the value of the charges which the donee must satisfy.
The acceptance may be made in the same deed of donation or in a separate public document, but it
shall not take effect unless it is done during the lifetime of the donor.
If the acceptance is made in a separate instrument, the donor shall be notified thereof in an authentic
form, and this step shall be noted in both instruments.
Title to immovable property does not pass from the donor to the donee by virtue of a deed of donation until and
unless it has been accepted in a public instrument and the donor duly notified thereof. The acceptance may be made in
the very same instrument of donation. If the acceptance does not appear in the same document, it must be made in
another. Where the deed of donation fails to show the acceptance, or where the formal notice of the acceptance, made
in a separate instrument, is either not given to the donor or else not noted in the deed of donation and in the separate
acceptance, the donation is null and void. 20
In this case, the donees’ acceptance of the donation is not manifested either in the deed itself or in a separate
document. Hence, the deed as an instrument of donation is patently void.
We also note the absence of any proof of filing of the necessary return, payment of donor’s taxes on the
transfer, or exemption from payment thereof. Under the National Internal Revenue Code of 1977, the tax code in force
at the time of the execution of the deed, an individual who makes any transfer by gift shall make a return and file the
same within 30 days after the date the gift is made with the Revenue District Officer, Collection Agent or duly
authorized Treasurer of the municipality in which the donor was domiciled at the time of the transfer. 21The filing of the
return and payment of donor’s taxes are mandatory. In fact, the registrar of deeds is mandated not to register in the
registry of property any document transferring real property by way of gifts inter vivos unless a certification that the
taxes fixed and actually due on the transfer had been paid or that the transaction is tax exempt from the Commissioner
of Internal Revenue, in either case, is presented. 22
Neither can we give effect to the deed as a sale, barter or any other onerous conveyance, in the absence of
valid cause or consideration and consent competently and validly given.
||| (Sumipat v. Banga, G.R. No. 155810, [August 13, 2004], 480 PHIL 187-203)
13. Sps. Gestopa v. CA, G.R. No. 111904, 5 October 2000.

Acceptance is a mark that the donation is inter vivos. Donations mortis causa, being in the form of a will, are not required
to be accepted by the donee during the donor’s lifetime.
SYNOPSIS
Sometime in 1965 and 1966, three (3) deeds of donation mortis causa over several parcels of unregistered land were
executed in favor of Mercedes Danlag y Pilapil by spouses Diego and Catalina Danlag.
In January 1973, Diego, with the consent of Catalina, executed a deed of donation inter vivos over said parcels of land
again in favor of respondent Mercedes. This contained the condition that the spouses Danlag shall continue to enjoy the fruits of the
land during their lifetime. Likewise, it imposed a limitation on Mercedes' right to sell the land during the lifetime of the spouses without
their consent and approval. However, years later, spouses Danlag sold several parcels of the land so donated to spouses Gestopa
(buyer of the previously donated properties). Thus, Mercedes filed with the Regional Trial Court a petition for quieting of title, THE
MAIN ISSUE BEING THE NATURE OF THE DONATION EXECUTED IN FAVOR OF MERCEDES. The trial court ruled in favor of the
defendants. The Court of Appeals reversed this judgment. Hence, this petition for review.
The granting clause in the Deed of Donation showed that Diego donated the properties out of love and affection for
the spouse. This is a mark of a donation inter vivos. The reservation of lifetime usufruct indicates that the donor intended to transfer
the naked ownership over the properties. The donor reserved sufficient properties for his maintenance indicating that the donor
intended to part with the parcels of land donated. Lastly, the donee accepted the donation. Acceptance is a requirement for
donations inter vivos.
SYLLABUS
1. CIVIL LAW; MODES OF ACQUIRING OWNERSHIP; DONATIONS; TO DETERMINE WHETHER DONATION IS INTER
VIVOS OR MORTIS CAUSA, INTENT OF DONOR MUST BE ASCERTAINED. — Crucial in resolving whether the donation was inter
vivos or mortis causa is the determination of whether the donor intended to transfer the ownership over the properties upon the
execution of the deed. In ascertaining the intention of the donor, all of the deed's provisions must be read together.
2. ID.; ID.; ID.; ID.; CASE AT BAR. — The granting clause shows that Diego donated the properties out of love and affection
for the donee. This is a mark of a donation inter vivos. Second, the reservation of lifetime usufruct indicates that the donor intended to
transfer the naked ownership over the properties. As correctly posed by the Court of Appeals, what was the need for such reservation if
the donor and his spouse remained the owners of the properties? Third, the donor reserved sufficient properties for his maintenance in
accordance with his standing in society, indicating that the donor intended to part with the six parcels of land. Lastly, the donee
accepted the donation.
3. ID.; ID.; ID.; ID.; A DEED OF REVOCATION, THE VALIDITY OF WHICH IS BEING ASSAILED, CANNOT BE USED TO
SHOW DONOR'S INTENT. — As correctly observed by the Court of Appeals, the Danlag spouses were aware of the difference
between the two donations. If they did not intend to donate inter vivos, they would not again donate the four lots already donatedmortis
causa. Petitioner's counter argument that this proposition was erroneous because six years after, the spouses changed their intention
with the deed of revocation, is not only disingenuous but also fallacious. Petitioners cannot use the deed of revocation to show the
spouses' intent because its validity is one of the issues in this case.
4. ID.; ID.; ID.; ACCEPTANCE CLAUSE IS A MARK OF A DONATION INTER VIVOS. — In the case
of Alejandro vs. Geraldez, 78 SCRA 245 (1977), we said that an acceptance clause is a mark that the donation is inter vivos.
Acceptance is a requirement for donations inter vivos. Donations mortis causa, being in the form of a will, are not required to be
accepted by the donees during the donors' lifetime.
5. ID.; ID.; ID.; LIMITATION ON THE RIGHT TO SELL, AN IMPLICATION THAT OWNERSHIP HAD PASSED TO THE
DONEE. — A limitation on the right to sell during the donors' lifetime implied that ownership had passed to the donees and donation
was already effective during the donors' lifetime.
6. ID.; ID.; ID.; REVOCATION; GENERALLY, A VALID DONATION, ONCE ACCEPTED IS

IRREVOCABLE; EXCEPTIONS. — A valid donation, once accepted, becomes irrevocable, except on account of
officiousness, failure by the donee to comply with the charges imposed in the donation, or ingratitude.
The donor-spouses did not invoke any of these reasons in the deed of revocation.
7. REMEDIAL LAW; EVIDENCE, PRESUMPTIONS; REGULARITY IN THE PERFORMANCE OF OFFICIAL DUTIES,
PRESUMED UNLESS PROVEN OTHERWISE. — Petitioners aver that Mercedes' tax declarations in her name can not be a basis in
determining the donor's intent. They claim that it is easy to get tax declarations from the government offices such that tax declarations
are not considered proofs of ownership. However, unless proven otherwise, there is a presumption of regularity in the performance of
official duties. ACaEcH
8. ID.; ID.; FINDINGS OF FACT BY APPELLATE COURT GENERALLY UPHELD IN A PETITION FOR REVIEW. — As a rule,
a finding of fact by the appellate court, especially when it is supported by evidence on record, is binding on us.
||| (Spouses Gestopa v. Court of Appeals, G.R. No. 111904, [October 5, 2000], 396 PHIL 262-273)
FACTS:
Spouses Diego and Catalina Danlag were the owners of six parcels of unregistered lands. They executed three
(3) deeds of donation mortis causa in favour of private respondent Merecedes Danlag-Pilapil (Diegos’ illegitimate
child). All deeds contained the reservation of the rights of the donors to amend, cancel or revoke the donation during
their lifetime, and to sell, mortgage, or encumber the properties donated during the donor’s lifetime, if deemed
necessary.
Years later, Diego Danlag, with the consent of his wife, catalina Danlag, executed another deed of donation
inter vivos covering the aforementioned parcels of land and two others in favour of Mercedes containing the two
conditions, that the Danlag spouses shall continue to enjoy the fruits of the land during their lifetime, and that the
done cannot sell or dispose of the land during the lifetime of the said spouses, without their prior consent and
approval.
Thereafter, Mercedes caused the transfer of the parcels’ tax declarations to her name and paid the taxes on them.
Subsequently, the spouses Danlag sold 2 parcels to herein petitioners Spouses Gestopa, and executed a deed
of revocation on the donation inter vivos covering the six parcels of land given to private respondent Mercedes.
Mercedes filed with the RTC a petition against Danlags and Gestopas for quieting of title stating the she had
already obtained ownership over the six parcels of land. The Trial OCurt ruled in favour of Dan;ags and Gestopas, but
CA reversed. Hence, this appeal.
ISSUE:
Whether the (second) donation was inter vivos or mortis causa? INTER VIVOS
RULING:
SC affirmed the decision of CA. As may be aptly analysed form the provisions of the deed, (1) the granting
clause shows that Diego donated the properties out of love and affection for the donee which is a mark of DONATION
INTER VIVOS; (2) the reservation of lifetime usufruct indicates that the donor intended to transfer the naked
ownership over the properties; (3) donor reserved sufficient propertoies for his maintenance in accordance with his
standing in society, indicating that the donor initended to part with the 6 parcels; (4) done accepted the donation in
which in the case of Alejandro v. Geraldez, it is said that acceptance clause is a mark that a donation is a donation
inter vivos because a donation mortis causa being in the form of a will does not require an acceptance from the done
during the donor’s lifetime. CA was right that the right to dispose of the properties belonged to the done and the
donor’s right to give consent was merely intended to protect his usufructuary rights.
The attending circumstances in the execution of the donation in this case demonstrated the real intent of the
donor to transfer ownership over the parcels of land upon execution of the deed. It is to be noted that prior to the
execution of donation inter vivos, Danlag sps already executed 3 donation mortis causa which means that they were
aware of the difference of the 2 types of donations. If they did not intend to donate inter vivos, they would not again
donate the lots already donated mortis causa.
14. Rev/Atty. Tayoto v. Heirs of Cabalo Kusop et. al., G.R. No. 74203, April 17, 1990. (In re to #9)
A donation of a parcel of land the dominical rights of which do not belong to the donor at the time of the donation, is
void.
SUMMARY of the FACTS:

A donation was made by respondents in favor of Lyceum. Take note that at the time of donation, the parcel of land
was still a land of the public domain. In the deed of donation, Lyceum was represented by Tayoto [the respondents’
lawyer and also the president of Lyceum] who, thereafter, helped obtain a presidential proclamation declaring a
portion of the donated parcel of land as disposable under the provisions of the Public Land Act. So kay ang donation
nahitabo man before na-obtain ang declaration na disposable na ang land, valid ba daw ang donation? (Kung wala
ka’y time, ok na na na facts haha)
FACTS:
On October 2, 1963, then President Macapagal issued PD 186 withdrawing from sale or settlement a 52,678-square
meter parcel of land of the public domain in the then Municipality of General Santos, known as Magsaysay Park.
On February 5, 1973, the herein private respondents, claiming ownership over the entire 52,678-square meter
Magsaysay Park, donated one-half of the western side thereof to the John F. Kennedy Memorial Lyceum (Far East),
Inc. (hereinafter referred to as the Lyceum), a non-stock private corporation, represented by Atty. Jose T. Tayoto (ila
sad lawyer si Tayoto at the same time). The deed of donation stated, among others, that the donation was made in
consideration of the love and affection of the Donor and “of the faithful service as legal counsel which the
President/Director and Founder of the Donee, has rendered and is rendering to the Donor, and subject to the
outcome of the case involving said parcel of land, with the herein Donors as plaintiffs/complainants/petitioners and
the City of General Santos as defendant/respondents to be handled and ventilated with the above said Atty. Jose T.
Tayoto, as legal counsel”.
A decade later, or on February 25, 1983, the then President of the Philippines issued Proclamation No. 2273 excluding
from the operation of Proclamation No. 168 "certain portions of the lands embraced therein and declaring the same
open to disposition under the provisions of the Public Land Act." (So mao to, labot ilang land sa gi-open to disposition,
but after na na donate sa Lyceum. Lot Y-1 and Y-2 ang involved ani na case.)
Subsequently, the board of trustees of the Lyceum authorized Jose T. Tayoto as its president and chairman of the
board and Mrs. Juliet E. Tayoto as its treasurer/trustee, "to cede, transfer, convey and assign *some of the lots na
covered sa donations* in partial settlement of years of accumulated salaries. A deed of assignment was then
executed in favor of Jose T. Tayoto.
Thereafter, Tayoto introduced improvements on the lot. For a while, Tayoto nurtured the belief that the lot would
eventually be his. However, subsequent acts of herein private respondents led him to file a case in court against them.
According to Tayoto, as soon as private respondents took hold of a copy of Proclamation No. 2273, they disowned the
deed of donation in his favor, caused the survey of the lot without consulting him and, when he confronted them,
they promised to give him *only* 2,000 square meters of the said lot.
Claiming that private respondents had disregarded ten years of his "incessant legal battles and follow-ups" to
obtain Proclamation No. 2273 (and etc basta daghan pa sya’g yawyaw, not important), Tayoto filed on May 15, 1983
a complaint for quieting of title/specific performance.
In their answer, the heirs of Cabalo Kusop averred that there was in fact no donation as their signatures were
obtained thru the fraudulent manipulation and misrepresentation of Tayoto who, being their lawyer, exerted undue
influence and moral ascendancy over them who are illiterates and unlearned. Tayoto allegedly made them believe
that by affixing their signatures to the deed of donation, the approval of their petition to segregate the area involved
from the operation of Proclamation No. 168 would be facilitated.
The heirs of Cabalo Kusop also subsequently filed an urgent motion to dismiss the complaint on the following
grounds: [a] invalidity of the donation as the subject thereof had not yet been excluded from the Magsaysay Park; [b]
nullity of the donation as it contravened Article 1491, paragraph 5 of the Civil Code; [c] the donor did not in fact
execute the deed of donation; and [d] the complaint did not state a cause of action.
RTC: dismissed the complaint, held that at the time of the donation, Proclamation No. 168 was still in force and
hence, the donated property was still part of Magsaysay Park. Necessarily, the donors could not dispose of the
property which was not theirs. The lower court found that although the ostensible donee was the Lyceum, "the
donation was actually for attorney's fees" as proven by the fact that later, the Lyceum assigned the donated property
to Tayoto.
CA: affirmed RTC
ISSUE:
WoN the donation is valid. -NO
HELD:
Donation was actually made in favour of Lyceum, not Tayoto
Admittedly, there appears to be a confusion as to the personalities of the Lyceum and Tayoto as shown by the facts
that one of the reasons stated for the donation is Tayoto's "faithful service as a legal counsel" and that the deed
states that the donation is "subject to the outcome of the cases" involving the donated property which cases would
be handled by Tayoto. However, the undisputable fact is that Tayoto affixed his signature on the deed of donation
and accepted the donation in his capacity as "President/Director & Founder" of the Lyceum and not in his personal
capacity. The deed itself acknowledges the fact that the Lyceum is "a duly organized non-stock private corporation."
Hence, legally, it is a separate corporate entity with a personality distinct from that of its representative in the
donation, petitioner herein.
Donation is void
Be that as it may, the donation is void. There are three essential elements of donations: [1] the reduction of the
patrimony of the donor, [2] the increase in the patrimony of the donee, and [3] the intent to do an act of liberality
(animus donandi). Granting that there is an animus donandi, we find that the alleged donation lacks the first two
elements which presuppose the donor's ownership rights over the subject of the donation which he transmits to the
donee thereby enlarging the donee's estate. This is in consonance with the rule that a donor cannot lawfully convey
what is not his property. In other words, a donation of a parcel of land the dominical rights of which do not belong to
the donor at the time of the donation, is void. This holds true even if the subject of the donation is not the land itself
but the possessory and proprietary rights over said land.
In this case, although they allegedly declared Magsaysay Park as their own for taxation purposes, the heirs of Cabalo
Kusop did not have any transmissible proprietary rights over the donated property at the time of the donation. In fact,
with respect to one of the lots (lot Y-2), they still had to file a free patents application to obtain an original certificate
of title thereon. This is because Proclamation No. 2273 declaring as "open to disposition under the provisions of the
Public Land Act" some portions of the Magsaysay Park, is not an operative law which automatically vests rights of
ownership on the heirs of Cabalo Kusop over their claimed parcels of land.
The import of said quoted proviso in a presidential proclamation is discussed in the aforecited Republic v. Court of
Appeals case which dealt with the validity of a donation by a sales awardee of a parcel of land which was later
reserved by presidential proclamation for medical center site purposes. We held therein that where the land is
withdrawn from the public domain and declared as disposable by the Director of Lands under the Public Land Act, the
Sales Award covering the same confers on a sales awardee only a possessory and not proprietary right over the land
applied for. The disposition of the land by the Director is merely provisional as the applicant still has to comply with
the requirements of the law before any patent is issued. It is only after the compliance with such requirements that
the patent is issued and the land applied for considered "permanently disposed of by the Government."
The interpretation of said proviso should even be more stringent in this case considering that with respect to Lot Y-1
(one of the lots), the heirs of Cabalo Kusop do not appear to have taken even the initial steps mandated by the Public
Land Act for claimants of the land excluded from the public domain. The alleged donation was therefore no more
than an exercise in futility.
The donation being void, petitioner is not entitled to any rights otherwise emanating therefrom.
However, it appearing that petitioner's legal services to private respondents have not been paid as the donation
which was supposedly in payment thereof has been declared null and void in the present case, we deem it just, fair
and equitable to fix a reasonable amount of attorney's fees in favor of petitioner at Ten Thousand Pesos.
Value Added Tax

15. Power Sector Asset and Liabilities Management Corporation v. CIR, G.R. No. 198146, August 8, 2017
If the sale is not conducted in pursuit of any commercial or profitable activity, including transactions incidental thereto,
the same will be considered an isolated transaction, which will therefore not be subject to VAT.
In this case, the sale/transaction, not in pursuit of a commercial or economic activity, but done in the exercise of a
governmental function mandated by law and in accordance with the guidelines imposed by the said law, is an isolated
transaction that is not subject to VAT.
The sale of the powerplant of NPC which was used in the business is not subject to vat in this case, as it was a result of a
new law which privitize the Power Plant, therefore isolated transaction – not in the ordinary course of business.
Since the disposition or sale of the assets is a consequence of PSALM's mandate to ensure
the orderly sale or disposition of the property and thereafter to liquidate the outstanding loans and
obligations of NPC, utilizing the proceeds from sales and other property contributed to it, including
the proceeds from the Universal Charge, and not conducted in pursuit of any commercial or
profitable activity, including transactions incidental thereto, the same will be considered an isolated
transaction, which will therefore not be subject to VAT. (BIR Ruling No. 113-98 dated July 23, 1998)
The sale of the power plants is not in pursuit of a commercial or economic activity but a governmental function
mandated by law to privatize NPC generation assets.
FACTS:
Power Sector Assets and Liabilities Management Corporation (PSALM) is a government-owned and controlled
corporation created under Republic Act No. 9136, also known as the Electric Power Industry Reform Act of 2001
(EPIRA). Section 50 of RA 9136 states that the principal purpose of PSALM is to manage the orderly sale,
disposition, and privatization of the National Power Corporation (NPC) generation assets, real estate and other
disposable assets, and Independent Power Producer (IPP) contracts with the objective of liquidating all NPC
financial obligations and stranded contract costs in an optimal manner.
PSALM conducted public biddings for the privatization of the Pantabangan-Masiway Hydroelectric Power Plant
(Pantabangan-Masiway Plant) and Magat Hydroelectric Power Plant (Magat Plant). First Gen Hydropower
Corporation with its $129 Million bid and SN Aboitiz Power Corporation with its $530 Million bid were the winning
bidders for the Pantabangan-Masiway Plant and Magat Plant, respectively.
Subsequently, NPC received a letter from the Bureau of Internal Revenue (BIR) demanding immediate payment of
P3,813,080,472 deficiency value-added tax (VAT) for the sale of the Pantabangan-Masiway Plant and Magat Plant.
The NPC indorsed BIR's demand letter to PSALM.
BIR, NPC, and PSALM then executed a Memorandum of Agreement. In compliance with the MOA, PSALM remitted
under protest to the BIR the amount representing the total basic VAT due.
PSALM filed with the Department of Justice a petition for the adjudication of the dispute with the BIR to resolve the
issue of whether the sale of the power plants should be subject to VAT. The DOJ ruled in favor of PSALM.
ISSUES:
WoN the imposition of VAT on the sale of the power plants was proper. –NO
HELD:
The sale is an isolated transaction
To resolve the issue of whether the sale of the Pantabangan-Masiway and Magat Power Plants by petitioner PSALM
to private entities is subject to VAT, the Court must determine whether the sale is "in the course of trade or
business" as contemplated under Section 105 of the NIRC, which reads:
SEC. 105. Persons Liable. — Any person who, in the course of trade or business, sells,
barters, exchanges, leases goods or properties, renders services, and any person who imports
goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of this Code.
xxx
The phrase 'in the course of trade or business' means the regular conduct or pursuit of a
commercial or an economic activity, including transactions incidental thereto, by any person
regardless of whether or not the person engaged therein is a nonstock, nonprofit private
organization (irrespective of the disposition of its net income and whether or not it sells
exclusively to members or their guests), or government entity.
xxx
Under Section 50 of the EPIRA law, PSALM's principal purpose is to manage the orderly sale, disposition,
and privatization of the NPC generation assets, real estate and other disposable assets, and IPP contracts with the
objective of liquidating all NPC financial obligations and stranded contract costs in an optimal manner.
PSALM asserts that the privatization of NPC assets, such as the sale of the Pantabangan-Masiway and
Magat Power Plants, is pursuant to PSALM's mandate under the EPIRA law and is not conducted in the course of
trade or business. PSALM cited BIR Ruling No. 020-02, that PSALM's sale of assets is not conducted in pursuit of
any commercial or profitable activity as to fall within the ambit of a VAT-able transaction under Sections 105 and
106 of the NIRC. The pertinent portion of the ruling adverted to states:
2. Privatization of assets by PSALM is not subject to VAT.
xxx
Since the disposition or sale of the assets is a consequence of PSALM's mandate to ensure
the orderly sale or disposition of the property and thereafter to liquidate the outstanding loans
and obligations of NPC, utilizing the proceeds from sales and other property contributed to it,
including the proceeds from the Universal Charge, and not conducted in pursuit of any
commercial or profitable activity, including transactions incidental thereto, the same will be
considered an isolated transaction, which will therefore not be subject to VAT. (BIR Ruling No.
113-98 dated July 23, 1998)
PSALM is not a successor of NPC
CIR posits that the VAT exemption accorded to PSALM under BIR Ruling No. 020-02 is also deemed revoked since
PSALM is a successor-in-interest of NPC. Furthermore, the CIR avers that prior to the sale, NPC still owned the
power plants and not PSALM, which is just considered as the trustee of the NPC properties. Thus, the sale made
by NPC or its successors-in-interest of its power plants should be subject to the VAT.
The Court does not agree. PSALM is not a successor-in-interest of NPC. NPC is now primarily mandated to
perform missionary electrification function through the Small Power Utilities Group and is responsible for
providing power generation and associated power delivery systems in areas that are not connected to the
transmission system. On the other hand, PSALM, a government-owned and controlled corporation, was created
under the EPIRA law to manage the orderly sale and privatization of NPC assets with the objective of liquidating
all of NPC's financial obligations in an optimal manner. Clearly, NPC and PSALM have different functions. Since
PSALM is not a successor-in-interest of NPC, the repeal by RA 9337 of NPC's VAT exemption does not affect
PSALM.
In any event, even if PSALM is deemed a successor-in-interest of NPC, still the sale of the power plants is
not "in the course of trade or business" as contemplated under Section 105 of the NIRC, and thus, not subject to
VAT. The sale of the power plants is not in pursuit of a commercial or economic activity but a governmental
function mandated by law to privatize NPC generation assets. PSALM was created primarily to liquidate all NPC
financial obligations and stranded contract costs in an optimal manner.
PSALM is limited to selling only NPC assets and IPP contracts of NPC. The sale of NPC assets by PSALM is
not "in the course of trade or business" but purely for the specific purpose of privatizing NPC assets in order to
liquidate all NPC financial obligations
Thus, it is very clear that the sale of the power plants was an exercise of a governmental function
mandated by law for the primary purpose of privatizing NPC assets in accordance with the guidelines imposed by
the EPIRA law.
The power plants, which were previously owned by NPC were transferred to PSALM for the specific
purpose of privatizing such assets. The sale of the power plants cannot be considered as an incidental transaction
made in the course of NPC's or PSALM's business. Therefore, the sale of the power plants should not be subject to
VAT.
16. >Medicard Philippines, Inc. v. CIR, G.R. No. 222743, April 5, 2017
In the proceedings below, the nature of MEDICARD's business and the extent of the services it rendered are not seriously
disputed. As an HMO, MEDICARD primarily acts as an intermediary between the purchaser of healthcare services (its
members) and the healthcare providers (the doctors, hospitals and clinics) for a fee. By enrolling membership with
MEDICARD, its members will be able to avail of the pre-arranged medical services from its accredited healthcare providers without
the necessary protocol of posting cash bonds or deposits prior to being attended to or admitted to hospitals or clinics, especially
during emergencies, at any given time. Apart from this, MEDICARD may also directly provide medical, hospital and laboratory
services, which depends upon its member's choice.
Thus, in the course of its business as such, MEDICARD members can either avail of medical services from
MEDICARD's accredited healthcare providers (SC: Only 20% comprises the service fee of Medicard) or directly from MEDICARD
(Exempt from Vat under Sec 109(G)). In the former, MEDICARD members obviously knew that beyond the agreement to pre-
arrange the healthcare needs of its members, MEDICARD would not actually be providing the actual healthcare service. Thus,
based on industry practice, MEDICARD informs its would-be member beforehand that 80% of the amount would be earmarked for
medical utilization and only the remaining 20% comprises its service fee. In the latter case, MEDICARD's sale of its services is
exempt from VAT under Section 109 (G).
MEDICARD argues that the CTA en banc seriously erred in affirming the ruling of the CTA Division that THE GROSS
RECEIPTS OF AN HMO FOR VAT PURPOSES SHALL BE THE TOTAL AMOUNT OF MONEY OR ITS EQUIVALENT
ACTUALLY RECEIVED FROM MEMBERS UNDIMINISHED BY ANY AMOUNT PAID OR PAYABLE TO THE
OWNERS/OPERATORS OF HOSPITALS, CLINICS AND MEDICAL AND DENTAL PRACTITIONERS.
The CTA en banc overlooked that the definition of gross receipts under RR No. 16-2005 merely presumed that the
amount received by an HMO as membership fee is the HMO's compensation for their services. As a mere presumption, an HMO
is, thus, allowed to establish that a portion of the amount it received as membership fee does NOT actually compensate it
but some other person, which in this case are the medical service providers themselves. It is a well-settled principle of legal
hermeneutics that words of a statute will be interpreted in their natural, plain and ordinary acceptation and signification, unless it is
evident that the legislature intended a technical or special legal meaning to those words. The Court cannot read the word
"presumed" in any other way.
>>>The Court likewise rules that for purposes of determining the VAT liability of an HMO, THE AMOUNTS EARMARKED AND
ACTUALLY SPENT FOR MEDICAL UTILIZATION OF ITS MEMBERS SHOULD NOT BE INCLUDED IN THE COMPUTATION OF
ITS GROSS RECEIPTS. (VATABLE – only the portion of the membership that will pertain to the service fee of the Medicard;
and not those which pertains to the amount to be paid to the physicians)
FACTS:
MEDICARD is a health maintenance organization (HMO) that provides prepaid health and medical insurance coverage
to its clients. Individuals enrolled in its health care programs pay an annual membership fee and are entitled to
various preventive, diagnostic and curative medical services provided by duly licensed physicians, specialists, and
other professional technical staff participating in the group practice health delivery system at a hospital or clinic
owned, operated or accredited by it.
MEDICARD filed it first, second, and third quarterly VAT Returns through Electronic Filing and Payment System (EFPS)
on April 20, July 25, and October 25, 2006, respectively, and its fourth quarterly VAT Return on January 25, 2007.
Upon finding some discrepancies between MEDICARD’s Income Tax Returns (ITR) and VAT Returns, the CIR issued a
Letter Notice (LN) dated September 20, 2007. Subsequently, the CIR also issued a Preliminary Assessment Notice
(PAN) against MEDICARD for deficiency VAT. MEDICARD received CIR’s FAN dated December 10, 2007 for allegedly
deficiency VAT for taxable year 2006 including penalties.
MEDICARD filed a protest arguing, among others, that that the services it render is not limited merely to arranging for
the provision of medical and/or hospitalization services but include actual and direct rendition of medical and
laboratory services. On June 19, 2009, MEDICARD received CIR’s Final Decision denying its protest. The petitioner
MEDICARD proceeded to file a petition for review before the CTA.
CTA Division held that the determination of deficiency VAT is not limited to the issuance of Letter of Authority (LOA)
alone and that in lieu of an LOA, an LN was issued to MEDICARD informing it if the discrepancies between its ITRs and
VAT Returns and this procedure is authorized under Revenue Memorandum Order (RMO) No. 30-2003 and 42-2003.
Also, the amounts that MEDICARD earmarked and eventually paid to doctors, hospitals and clinics cannot be excluded
from the computation of its gross receipts because the act of earmarking or allocation is by itself an act of ownership
and management over the funds by MEDICARD which is beyond the contemplation of RR No. 4-2007. Furthermore,
MEDICARD’s earnings from its clinics and laboratory facilities cannot be excluded from its gross receipts because the
operation of these clinics and laboratory is merely an incident to MEDICARD’s line of business as an HMO.
MEDICARD filed a Motion for Reconsideration but it was denied. Petitioner elevated the matter to the CTA en banc.
CTA en banc partially granted the petition only insofar as 10% VAT rate for January 2006 is concerned but sustained
the findings of the CTA Division.
ISSUES:
1. Is the absence of the Letter of Authority fatal?
2. Should the amounts that MEDICARD earmarked and eventually paid to the medical service providers still form
part of its gross receipts for VAT purposes?
RULING:
1. Yes. The absence of the LOA violated MEDICARD’s right to due process. An LOA is the authority given to the
appropriate revenue officer assigned to perform assessment functions. Under the NLRC, unless authorized by
the CIR himself or by his duly authorized representative, through an LOA, an examination of the taxpayer
cannot ordinarily be undertaken. An LOA is premised on the fact that the examination of a taxpayer who has
already filed his tax returns is a power that statutorily belongs only to the CIR himself or his duly authorized
representatives. In this case, there is no dispute that no LOA was issued prior to the issuance of a PAN and
FAN against MEDICARD. Therefore, no LOA was also served on MEDICARD.
2. No. The VAT is a tax on the value added by the performance of the service by the taxpayer. It is, thus, this
service and the value charged thereof by the taxpayer that is taxable under the NLRC.
The definition of gross receipts under Revenue Regulations Nos. 16-2005 and 4-2007, in relation to Section
108 (A) of the National Internal Revenue Code, as amended by Republic Act No. 9337, for purposes of
determining its Value-Added Tax liability, is hereby declared to EXCLUDE the eighty percent (80%) of the
amount of the contract price earmarked as fiduciary funds for the medical utilization of its members.
Further, the Value-Added Tax deficiency assessment issued against Medicard Philippines, Inc. is hereby
declared unauthorized for having been issued without a Letter of Authority by the Commissioner of Internal
Revenue or his duly authorized representatives.
Since an HMO like MEDICARD is primarily engaged in arranging for coverage or designated managed care
services that are needed by plan holders/members for fixed prepaid membership fees and for a specified
period of time, then MEDICARD is principally engaged in the sale of services. Its VAT base and corresponding
liability is, thus, determined under Section 108 (A) 32 of the Tax Code, as amended by Republic Act No. 9337.
Under RR No. 16-2005. Under this RR, an HMO's gross receipts and gross receipts in general were defined,
thus:
Section 4.108-3. x x x
HMO's “gross receipts” shall be the total amount of money or its equivalent representing
the SERVICE FEE actually or constructively received during the taxable period for the services
performed or to be performed for another person, excluding the value-added tax.
[PRESUMPTION OF WHAT COMPOSES THE SERVICE FEE]The compensation for their

services representing their service fee, is PRESUMED to be the total amount received as
enrollment fee from their members plus other charges received.
The CTA en banc overlooked that the definition of gross receipts under RR No. 16-2005 merely presumed
that the amount received by an HMO as membership fee is the HMO's compensation for their services. As a
mere presumption, an HMO is, thus, allowed to establish that a portion of the amount it received as
membership fee does NOT actually compensate it but some other person, which in this case are the medical
service providers themselves.
The CTA's ruling and CIR's Comment have not pointed to any portion of Section 108 of the NIRC that would
extend the definition of gross receipts even to amounts that do not only pertain to the services to be
performed by another person, other than the taxpayer, but even to amounts that were indisputably utilized
not by MEDICARD itself but by the medical service providers.
Thus, in the course of its business as such, MEDICARD members can either avail of medical services
from MEDICARD's accredited healthcare providers or directly from MEDICARD. In the
former, MEDICARD members obviously knew that beyond the agreement to pre-arrange the healthcare
needs of its members, MEDICARD would not actually be providing the actual healthcare service. Thus,
based on industry practice, MEDICARD informs its would-be member beforehand that 80% of the amount
would be earmarked for medical utilization and only the remaining 20% comprises its service fee. In the
LATTER case, MEDICARD's sale of its services is exempt from VAT under Section 109 (G).
The amounts earmarked and

eventually paid by MEDICARD to
the medical service providers do not
form part of gross receipts for VAT
purposes
MEDICARD argues that the CTA en banc seriously erred in affirming the ruling of the CTA Division that THE GROSS
RECEIPTS OF AN HMO FOR VAT PURPOSES SHALL BE THE TOTAL AMOUNT OF MONEY OR ITS EQUIVALENT
ACTUALLY RECEIVED FROM MEMBERS UNDIMINISHED BY ANY AMOUNT PAID OR PAYABLE TO THE
OWNERS/OPERATORS OF HOSPITALS, CLINICS AND MEDICAL AND DENTAL PRACTITIONERS.
MEDICARD explains that its business as an HMO involves two different although interrelated contracts. One is
between a corporate client and MEDICARD, with the corporate client's employees being considered as MEDICARD members;
and the other is between the healthcare institutions/healthcare professionals and MEDICARD. ETHIDa
Under the first, MEDICARD undertakes to make arrangements with healthcare institutions/healthcare professionals for
the coverage of MEDICARD members under specific health related services for a specified period of time in exchange for
payment of a more or less fixed membership fee. Under its contract with its corporate clients, MEDICARD expressly provides
that 20% of the membership fees per individual, regardless of the amount involved, already includes the VAT of 10%/20%
excluding the remaining 80% because MEDICARD would earmark this latter portion for medical utilization of its members.
Lastly, MEDICARD also assails CIR's inclusion in its gross receipts of its earnings from medical services which it actually and
directly rendered to its members.
Since an HMO like MEDICARD is primarily engaged in arranging for coverage or designated managed care services
that are needed by plan holders/members for fixed prepaid membership fees and for a specified period of time, then
MEDICARD is principally engaged in the sale of services. Its VAT base and corresponding liability is, thus, determined under
Section 108 (A) 32 of the Tax Code, as amended by Republic Act No. 9337.
Prior to RR No. 16-2005, an HMO, like a pre-need company, is treated for VAT purposes as a dealer in securities
whose gross receipts is the amount actually received as contract price without allowing any deduction from the gross
receipts. 33 This restrictive tenor changed under RR No. 16-2005. Under this RR, an HMO's gross receipts and gross receipts in
general were defined, thus:
Section 4.108-3. x x x
xxx xxx xxx
HMO's gross receipts shall be the total amount of money or its equivalent representing the service fee actually or
constructively received during the taxable period for the services performed or to be performed for another person,
excluding the value-added tax. The compensation for their services representing their service fee, is presumed to be
the total amount received as enrollment fee from their members plus other charges received.
Section 4.108-4. x x x. "Gross receipts" refers to the total amount of money or its equivalent representing the contract
price, compensation, service fee, rental or royalty, including the amount charged for materials supplied with the services
and deposits applied as payments for services rendered, and advance payments actually or constructively received
during the taxable period for the services performed or to be performed for another person, excluding the VAT. 34
In 2007, the BIR issued RR No. 4-2007 amending portions of RR No. 16-2005, including the definition of gross receipts
in general. 35
According to the CTA en banc, the entire amount of membership fees should form part of MEDICARD's gross receipts
because the exclusions to the gross receipts under RR No. 4-2007 does not apply to MEDICARD. What applies to MEDICARD
is the definition of gross receipts of an HMO under RR No. 16-2005 and not the modified definition of gross receipts in general
under the RR No. 4-2007.
The CTA en banc overlooked that the definition of gross receipts under RR No. 16-2005 merely presumed that the
amount received by an HMO as membership fee is the HMO's compensation for their services. As a mere presumption, an
HMO is, thus, allowed to establish that a portion of the amount it received as membership fee does NOT actually
compensate it but some other person, which in this case are the medical service providers themselves. It is a well-
settled principle of legal hermeneutics that words of a statute will be interpreted in their natural, plain and ordinary acceptation
and signification, unless it is evident that the legislature intended a technical or special legal meaning to those words. The Court
cannot read the word "presumed" in any other way.
It is notable in this regard that the term gross receipts as elsewhere mentioned as the tax base under the NIRC does
not contain any specific definition. 36 Therefore, absent a statutory definition, this Court has construed the term gross receipts in
its plain and ordinary meaning, that is, gross receipts is understood as comprising the entire receipts without any
deduction. 37 Congress, under Section 108, could have simply left the term gross receipts similarly undefined and its
interpretation subjected to ordinary acceptation. Instead of doing so, Congress limited the scope of the term gross receipts for
VAT purposes only to the amount that the taxpayer received for the services it performed or to the amount it received as
advance payment for the services it will render in the future for another person.
In the proceedings below, the nature of MEDICARD's business and the extent of the services it rendered are not
seriously disputed. As an HMO, MEDICARD primarily acts as an intermediary between the purchaser of healthcare
services (its members) and the healthcare providers (the doctors, hospitals and clinics) for a fee. By enrolling
membership with MEDICARD, its members will be able to avail of the pre-arranged medical services from its accredited
healthcare providers without the necessary protocol of posting cash bonds or deposits prior to being attended to or admitted to
hospitals or clinics, especially during emergencies, at any given time. Apart from this, MEDICARD may also directly provide
medical, hospital and laboratory services, which depends upon its member's choice.
Thus, in the course of its business as such, MEDICARD members can either avail of medical services from
MEDICARD's accredited healthcare providers (SC: Only 20% comprises the service fee of Medicard) or directly from
MEDICARD (Exempt from Vat under Sec 109(G)). In the former, MEDICARD members obviously knew that beyond the
agreement to pre-arrange the healthcare needs of its members, MEDICARD would not actually be providing the actual
healthcare service. Thus, based on industry practice, MEDICARD informs its would-be member beforehand that 80% of the
amount would be earmarked for medical utilization and only the remaining 20% comprises its service fee. In the latter case,
MEDICARD's sale of its services is exempt from VAT under Section 109 (G).
The CTA's ruling and CIR's Comment have not pointed to any portion of Section 108 of the NIRC that would extend the
definition of gross receipts even to amounts that do not only pertain to the services to be performed by another person, other
than the taxpayer, but even to amounts that were indisputably utilized not by MEDICARD itself but by the medical service
providers.
It is a cardinal rule in statutory construction that no word, clause, sentence, provision or part of a statute shall be
considered surplusage or superfluous, meaningless, void and insignificant. To this end, a construction which renders every word
operative is preferred over that which makes some words idle and nugatory. This principle is expressed in the maximUt magis
valeat quam pereat, that is, we choose the interpretation which gives effect to the whole of the statute — its every word.
In Philippine Health Care Providers, Inc. v. Commissioner of Internal Revenue, 38 the Court adopted the principal object
and purpose object in determining whether the MEDICARD therein is engaged in the business of insurance and therefore liable
for documentary stamp tax. The Court held therein that an HMO engaged in preventive, diagnostic and curative medical
services is not engaged in the business of an insurance, thus:
To summarize, the distinctive features of the cooperative are the rendering of service, its extension, the bringing of
physician and patient together, the preventive features, the regularization of service as well as payment, the
substantial reduction in cost by quantity purchasing in short, getting the medical job done and paid for; not, except
incidentally to these features, the indemnification for cost after the services is rendered. Except the last, these are
not distinctive or generally characteristic of the insurance arrangement. There is, therefore, a substantial difference
between contracting in this way for the rendering of service, even on the contingency that it be needed, and contracting
merely to stand its cost when or after it is rendered. 39 (Emphasis ours)
In sum, the Court said that the main difference between an HMO and an insurance company is that HMOs undertake
to provide or arrange for the provision of medical services through participating physicians while insurance companies simply
undertake to indemnify the insured for medical expenses incurred up to a pre-agreed limit. In the present case, the VAT is a tax
on the value added by the performance of the service by the taxpayer. It is, thus, this service and the value charged thereof by
the taxpayer that is taxable under the NIRC.
To be sure, there are pros and cons in subjecting the entire amount of membership fees to VAT. 40 But the Court's task
however is not to weigh these policy considerations but to determine if these considerations in favor of taxation can even be
implied from the statute where the CIR purports to derive her authority. This Court rules that they cannot because the language
of the NIRC is pretty straightforward and clear. As this Court previously ruled: cSEDTC
What is controlling in this case is the well-settled doctrine of strict interpretation in the imposition of taxes, not the
similar doctrine as applied to tax exemptions. The rule in the interpretation of tax laws is that a statute will not be construed
as imposing a tax unless it does so clearly, expressly, and unambiguously. A tax cannot be imposed without clear and
express words for that purpose. Accordingly, the general rule of requiring adherence to the letter in construing
statutes applies with peculiar strictness to tax laws and the provisions of a taxing act are not to be extended by
implication. In answering the question of who is subject to tax statutes, it is basic that in case of doubt, such statutes are to
be construed most strongly against the government and in favor of the subjects or citizens because burdens are not to be
imposed nor presumed to be imposed beyond what statutes expressly and clearly import. As burdens, taxes should not be
unduly exacted nor assumed beyond the plain meaning of the tax laws. 41 (Citation omitted and emphasis and underlining
ours)
For this Court to subject the entire amount of MEDICARD's gross receipts without exclusion, the authority should have
been reasonably founded from the language of the statute. That language is wanting in this case. In the scheme of judicial tax
administration, the need for certainty and predictability in the implementation of tax laws is crucial. Our tax authorities fill in the
details that Congress may not have the opportunity or competence to provide. The regulations these authorities issue are relied
upon by taxpayers, who are certain that these will be followed by the courts. Courts, however, will not uphold these authorities'
interpretations when clearly absurd, erroneous or improper. 42 The CIR's interpretation of gross receipts in the present case is
patently erroneous for lack of both textual and non-textual support.
As to the CIR's argument that the act of earmarking or allocation is by itself an act of ownership and management over
the funds, the Court does not agree. On the contrary, it is MEDICARD's act of earmarking or allocating 80% of the amount it
received as membership fee at the time of payment that weakens the ownership imputed to it. By earmarking or allocating 80%
of the amount, MEDICARD unequivocally recognizes that its possession of the funds is not in the concept of owner but as a
mere administrator of the same. For this reason, at most, MEDICARD's right in relation to these amounts is a mere inchoate
owner which would ripen into actual ownership if, and only if, there is underutilization of the membership fees at the end of the
fiscal year. Prior to that, MEDICARD is bound to pay from the amounts it had allocated as an administrator once its members
avail of the medical services of MEDICARD's healthcare providers.
Before the Court, the parties were one in submitting the legal issue of whether the amounts MEDICARD earmarked,
corresponding to 80% of its enrollment fees, and paid to the medical service providers should form part of its gross receipt for
VAT purposes, after having paid the VAT on the amount comprising the 20%. It is significant to note in this regard that
MEDICARD established that upon receipt of payment of membership fee it actually issued two official receipts, one pertaining to
the VATable portion, representing compensation for its services, and the other represents the non-vatable portion pertaining to
the amount earmarked for medical utilization. Therefore, the absence of an actual and physical segregation of the amounts
pertaining to two different kinds of fees cannot arbitrarily disqualify MEDICARD from rebutting the presumption under the law
and from proving that indeed services were rendered by its healthcare providers for which it paid the amount it sought to be
excluded from its gross receipts.
With the foregoing discussions on the nullity of the assessment on due process grounds and violation of the NIRC, on
one hand, and the utter lack of legal basis of the CIR's position on the computation of MEDICARD's gross receipts, the Court
finds it unnecessary, nay useless, to discuss the rest of the parties' arguments and counter-arguments.
In fine, the foregoing discussion suffices for the reversal of the assailed decision and resolution of the CTA en
banc grounded as it is on due process violation. The Court likewise rules that for purposes of determining the VAT liability of an
HMO, the amounts earmarked and actually spent for medical utilization of its members should not be included in the
computation of its gross receipts.
||| (Medicard Philippines, Inc. v. Commissioner of Internal Revenue, G.R. No. 222743, [April 5, 2017])
17. Aichi Forging Asia v. CTA, G.R. No. 193625. August 30, 2017
RE: Proper remedy to claim refund
FACTS:
AICHI is a domestic corporation principally engaged in the manufacture, production, and processing of all kinds of
steel and steel byproducts, such as closed impression die steel forgings and all automotive steel parts. It is duly
registered with BIR as a VAT taxpayer and with the Board of Investments (BOI) as an expanding producer of closed
impression die steel forgings.
On 26 September 2002, AICHI filed with the BIR District Office in San Pedro, Laguna, a written claim for refund and/or
tax credit of its unutilized input VAT credits for the third and fourth quarters of 2000 and the four taxable quarters of
2001. AICHI sought the tax refund/credit of input VAT for the said taxable quarters in the total sum of
P18,030,547.77 representing VAT payments on importation of capital goods and domestic purchases of goods and
services.
As CIR failed to act on the refund claim, and in order to toll the running of the prescriptive period, AICHI filed a
Petition for Review before the CTA Division.
Proceedings before the CTA Division
After finding that both the administrative and judicial claims were filed within the statutory two-year prescriptive
period, the CTA Division partially granted the refund claim of AICHI.
CTA Division denied AICHI's refund claim with respect to its purchase of capital goods for the period 1 July 2000 to 31
December 2001 because of the latter's failure to show that the goods purchased formed part of its Property, Plant
and Equipment Account and that they were subjected to depreciation allowance. As to the claim for refund of input
VAT attributable to zero-rated sales, CTA only partially granted the claim due to lack of evidence to substantiate the
zero-rating of AICID's sales. In particular, CTA denied VAT zero-rating on the sales to BOI-registered enterprises on
account of non-submission of the required BOI Certification.
Proceedings before the CTA En Banc
CIR questioned the partial grant of the refund claim in favor of AICHI. It claimed that the court did not acquire
jurisdiction over the refund claim in view of AICHI's failure to observe the 30-day period to claim refund/tax credit as
specified in Sec. 112 of the Tax Code, i.e., appeal to the CTA may be filed within 30 days from receipt of the decision
denying the claim or after expiration of 120 days (denial by inaction). With the filing of the administrative claim on 26
September 2002, the CIR had until 20 January 2003 to act on the matter; and if it failed to do so, AICHI had the right
to elevate the case before the CTA within 30 days from 20 January 2003, or on or before 20 February 2003. However,
AICHI filed its Petition for Review on 30 September 2002, or before the 30-day period of appeal had commenced.
According to the CIR, this period is jurisdictional, thus, AICHI's failure to observe it resulted in the CTA not acquiring
jurisdiction over its appeal.
CTA En Banc ruled that the law does not prohibit the simultaneous filing of the administrative and judicial claims for
refund. It further declared that what is controlling is that both claims for refund are filed within the two-year
prescriptive period.
The Present Petition for Certiorari
Citing Section 1, Rule 15 of A.M. No. 05-11-07-CTA or the Revised Rules of the Court of Tax Appeals (Revised CTA
Rules), AICHI claims that it has fifteen (15) days from receipt of the questioned decision of the CTA En Banc within
which to file a motion for reconsideration. Considering that it received the 18 February 2010 Decision of the CTA En
Banc on 25 February 2010, and that it filed the Motion for Reconsideration on 12 March 2010, AICHI asserts that the
filing of the said motion was made within the prescriptive period provided in the law.
Finally, AICHI argues that it is entitled to the refund of unutilized input VAT because its sales to Asian Transmission
Corporation and Honda Philippines are qualified for zero-rating, the latter being a HOI-registered enterprise, as
evidenced by a Certification issued by the BOI. Said certification was attached by AICHI in its motion for
reconsideration from the CTA En Banc decision.
The Arguments of the CIR
CIR maintains that under RA 9282 and the Revised CTA Rules, an aggrieved party may appeal a decision or ruling of
the CTA En Banc by filing a verified petition for review under Rule 45 of the Rules of Court. The petitioner should have
filed a petition for review on certiorari under Rule 45 instead of a special civil action for certiorari under Rule 65.
As to the timeliness of the motion for reconsideration, CIR contends that the petitioner had mistakenly reckoned the
counting of the 15-day period to file the motion for reconsideration from the receipt of the decision of the CTA En
Banc. CIR maintains that the reckoning point should be the petitioner's receipt of the decision of the CTA Division.
Considering that no such motion for reconsideration within the 15-day period was filed by the petitioner before the
CTA Division, the CIR concludes that the petitioner's right to question the decision of the CTA Division had already
lapsed and, accordingly, the petitioner may no longer move for a reconsideration of a decision which it never
questioned.
Anent petitioner AICHI's entitlement to the claim for refund, the CIR contends that the BOI Certification, which was
attached to the petitioner's Motion for Reconsideration, dated 12 March 2010, should not be considered at all as it
was presented only during appeal (before CTA En Banc). In any event, the certification does not prove AICHI's claim
for refund. In said certification, it is required by the terms and conditions that AICHI must comply with the production
schedule of 3,900 metric tons or the peso equivalent of P257,400,000.00. However, this data is not verifiable from the
petitioner's Quarterly VAT Returns or from the testimonies of its witness. CIR, thus, submits that the noncompliance
with the BOI terms and conditions further warrants the denial of AICHI's claim for refund.
The Issues
Based on the opposing contentions of the parties, the issues for resolution are the following: (1) whether AICHI
availed of the correct remedy; (2) whether AICHI can still question the CTA Division ruling; and (3) whether AICHI
sufficiently proved its entitlement to the refund or tax credit.
RULING:
Petition Denied.
CTA had no jurisdiction over the judicial claim for it was filed prematurely and, thus, without cause of action.
When the CTA acts without jurisdiction, its decision is void. Consequently, the answer to the second issue, i.e.,
whether AICHI can still question the CTA ruling, becomes irrelevant.
The present case stemmed from a claim for refund or tax credit of alleged unutilized input VAT attributable to zero-
rated sales and unutilized input VAT on the purchase of capital goods for the third and fourth quarters of 2000 and
the four taxable quarters of 2001. The refund or tax credit of input taxes corresponding to the six taxable quarters
were combined into one administrative claim filed before the BIR on 26 September 2002. On the other hand,
the judicial claim was filed before the CTA, through a petition for review, on 30 September 2002, or a mere four
days after the administrative claim was filed. It is not disputed that the administrative claim was not acted upon by
the BIR.
Convinced that the judicial claim of AICHI was properly made, the CTA Division took cognizance of the case and
proceeded with trial on the merits. Among the issues presented by the parties was the timeliness of both the
administrative and judicial claims of AICHI. In its decision, the CTA Division categorically found that both the dates of
filing the administrative claim and judicial claim were within the two-year prescriptive period reckoned from the close
of each of the taxable quarters from the third quarter of 2000 up to the last quarter of 2001.
The relevant provision of the 1997 Tax Code at the time AICHI filed its claim for refund or credit of unutilized input tax
is Sec. 112. Refunds or Tax Credits of Input Tax.
The law contemplates two kinds of refundable amounts: (1) unutilized input tax paid on capital goods purchased, and
(2) unutilized input tax attributable to zero-rated sales. The claim for tax refund or credit is initially filed before the CIR
who is vested with the power and primary with jurisdiction to decide on refunds of taxes, fees or other charges, and
penalties imposed in relation thereto. In every case, the filing of the administrative claim should be done within two
years. However, the reckoning point of counting such two-year period varies according to the kind of input tax subject
matter of the claim. For the input tax paid on capital goods, the counting of the two-year period starts from the close
of the taxable quarter when the purchase was made; whereas, for input tax attributable to zero-rated sale, from the
close of the taxable quarter when such zero-rated sale was made (not when the purchase was made).
From the submission of the complete documents to support the claim, CIR has a period of one hundred twenty (120)
days to decide on the claim. If the CIR decides within the 120-day period, the taxpayer may initiate a judicial claim by
filing within 30 days an appeal before the CTA. If there is no decision within the 120-day period, the CIR's inaction
shall be deemed a denial of the application. In the latter case, the taxpayer may institute the judicial claim, also by an
appeal, within 30 days before the CTA.
Generally, the 120-day waiting period is both mandatory and jurisdictional.
A premature invocation of the court's jurisdiction is fatally defective and is susceptible to dismissal for want of
jurisdiction. Such is the very essence of the doctrine of exhaustion of administrative remedies under which the court
cannot take cognizance of a case unless all available remedies in the administrative level are first utilized.
The first test case regarding the mandatory and jurisdictional nature of the 120+30-day waiting periods provided in
Section 112 (D) of the 1997 Tax Code is CIR v. Aichi Forging Company of Asia, Inc. (Aichi), G.R. No. 184823, 6 October
2010. In that landmark case, the Court rejected as without legal basis the assertion of the respondent taxpayer that
the non-observance of the 120-day period is not fatal to the filing of a judicial claim as long as both the administrative
and the judicial claims are filed within the two-year prescriptive period. The Court explained that Section 112 (D)
contemplated two scenarios: (1) a decision is made before the expiration of the 120-day period; and (2) no
decision after such 120-day period. In either instance, the appeal with the CTA can only be made within 30 days after
the decision or inaction. Emphatically, Aichi announced that the 120-day period is crucial in filing an appeal with the
CTA.
The exception: Judicial claims filed from 10 December 2003 up to 6 October 2010
Nonetheless, in the subsequent landmark decision of CIR v. San Roque Power Corporation, Taganito Mining
Corporation v. CIR, and Philex Mining Corporation v. CIR (San Roque), the Court recognized an instance when a
prematurely filed appeal may be validly taken cognizance of by the CTA. San Roque relaxed the strict compliance with
the 120-day mandatory and jurisdictional period, in view of BIR Ruling No. DA-489-03, dated 10 December 2003,
which expressly declared that the "taxpayer-claimant need not wait for the lapse of the 120-day period before it could
seek judicial relief with the CTA by way of petition for review." Pertinently, the prematurely filed appeal of San Roque
Power Corporation before the CTA was dismissed because it came before the issuance of BIR Ruling No. DA-489-03.
On the other hand, Taganito Mining Corporation's appeal was allowed because it was taken after the issuance of said
BIR Ruling.
Subsequently, in Taganito Mining Corporation v. CIR, the Court reconciled the doctrines in San Roque and the 2010
Aichi case by enunciating that during the window period from 10 December 2003 (issuance of BIR Ruling No. DA-489-
03) to 6 October 2010 (date of promulgation of Aichi), taxpayer-claimants need not observe the stringent 120-day
period.
Reconciling the pronouncements in the Aichi and San Roque cases, the rule must therefore be that during the period
December 10, 2003 (when BIR Ruling No. DA-489-03 was issued) to October 6, 2010 (when the Aichi case was
promulgated), taxpayers-claimants need not observe the 120-day period before it could file a judicial claim for refund
of excess input VAT before the CTA. Before and after the aforementioned period (i.e., December 10, 2003 to October
6, 2010), the observance of the 120- day period is mandatory and jurisdictional to the filing of such claim.
Here, it is not disputed that AICHI had timely filed its administrative claim for refund or tax credit before the BIR. The
records show that the claim for refund/tax credit of input taxes covering the six separate taxable periods from the 3rd
Quarter of 2000 up to the 4th Quarter of 2001 was made on 26 September 2002. Both the CTA Division and CTA En
Banc correctly ruled that it fell within the two-year statute of limitations. However, its judicial claim was filed a mere
four days later on 30 September 2002, or before the window period when the taxpayers need not observe the 120-
day mandatory and jurisdictional period. Consequently, the general rule applies.
The judicial claim need not fall within the 2-year period.
Aichi already settled the matter concerning the proper interpretation of the phrase "within two (2) years x x x apply
for the issuance of a tax credit certificate or refund" found in Section 112 (D) of the 1997 Tax Code. Aichi clarified that
the phrase refers to applications for refund/credit filed with the CIR and not to appeals made to the CTA. All that is
required under the law is that the appeal to the CTA is brought within 30 days from either decision or inaction.
Under the foregoing interpretation, there may be two possible scenarios when an appeal to the CTA is considered
fatally defective even when initiated within the two-year prescriptive period: first, when there is no decision and the
appeal is taken prior to the lapse of the 120-day mandatory period, except only the appeal within the window period
from 10 December 2003 to 6 October 2010; second, the appeal is taken beyond 30 days from either decision or
inaction "deemed a denial." In contrast, an appeal outside the 2-year period is not legally infirm for as long as it is
taken within 30 days from the decision or inaction on the administrative claim that must have been initiated within
the 2-year prescriptive period. In other words, the appeal to the CTA is always initiated within 30 days from decision
or inaction regardless whether the date of its filing is within or outside the 2-year period of limitation.
Except only to the extent allowed by the window period, there is no legal basis for the insistence that
the simultaneous filing of both administrative and judicial claims (pursuant to Section 112 of the Tax Code) is
permissible for as long as both fall within the 2-year prescriptive period.
Existing jurisprudence involving petitioner Aichi
There are two other cases involving AICHI where it resolved the same issue on the timeliness of the judicial claims
before the CTA - the first is the landmark case of Aichi (hereinafter 2010 Aichi); and the second is Commissioner v.
Aichi Forging Company of Asia, Inc. (2014 Aichi), promulgated in 2014.
In 2010 Aichi, the Court passed upon the timeliness of the judicial claim with the CTA without considering BIR Ruling
No. DA-489-03. The reason is simple: none of the parties, especially Aichi, had raised the matter on the effect of the
said BIR Ruling. It is reasonable to think that Aichi saw no need to present the issue since the CTA already gave due
course to its petition and the Commissioner questioned, on motion for reconsideration, the simultaneous filing of
both the administrative and judicial claims only after the CTA First Division partially ruled in favor of Aichi. CTA First
Division denied the motion holding that the law does not prohibit the simultaneous filing of the administrative and
judicial claims for refund. CTA En Banc subsequently sustained the CTA First Division, although we dismissed such
reasoning in view of the clear wordings of Section 112.
It was only in the 2013 case of San Roque that BIR Ruling No. DA-489-03 was raised for the first time and, thus, the
Court was presented a clear opportunity to discuss its legal effect. The doctrine on the exception to the strict
application of the 120-day period laid down in San Roque became the controlling law that was followed in numerous
subsequent cases, one of which is 2014 Aichi. Thus, even though the appeal with the CTA in 2010 Aichi fell within the
window period, the exception could not be applied as this was first recognized only in 2013 when San Roque was
promulgated. On the other hand, it is different in 2014 Aichi as it must yield to San Roque.
The present case, just like 2014 Aichi, is very much similar to 2010 Aichi, with the only notable distinction being the
date of filing of the appeal with the CTA. As stated previously, the appeal in this case came before the window period.
However, such distinction is not significant as our conclusions here and in 2010 Aichi are the same, that is, the CTA did
not acquire jurisdiction in view of the mandatory and jurisdictional nature of the 120-day waiting period.
Considering the holding that CTA did not acquire jurisdiction over the appeal of AICHI, the decision partially granting
the refund claim must therefore be set aside as a void judgment.
Since the judgment of the CTA Division is void, it becomes futile for any of the parties to question it. It, therefore,
does not matter whether AICHI had timely filed a motion for reconsideration to question either the decision of the
CTA En Banc or the CTA Division.
The petitioner adopted the wrong remedy in assailing the decision of the CTA En Banc.
The filing of the present Petition for Certiorari under Rule 65 of the 1997 Rules of Court is procedurally flawed. What
the petitioner should have done to question the decision of the CTA En Banc was to file before this Court a petition for
review under Rule 45 of the same Rules of Court.
In this case, there is a plain, speedy and adequate remedy that is available appeal by certiorari under Rule 45. Appeal
is available because the 20 July 2010 Resolution of the CTA En Banc was a final disposition as it denied AICHI's full
claim for refund or tax credit of creditable input taxes. The proper remedy to obtain a reversal of judgment on the
merits, final order or resolution is appeal. AICHI's resort to certiorari proceedings under Rule 65 is, therefore,
erroneous and it deserves nothing less than an outright dismissal.
The petition was filed on the 60th day following the receipt of the assailed resolution of the CTA En Banc, or outside
of the 15-day period of appeal by certiorari under Rule 45 but within the 60-day period for filing a petition for
certiorari under Rule 65. Unfortunately, petitioner AICHI had not demonstrated any justifiable reason for us to relax
the rules and disregard the procedural infirmity of its adopted remedy. What the petitioner merely did was invoke
substantial justice by ascribing gross negligence on the part of its previous counsel.
The outright dismissal of the petition for being the wrong remedy does not mean that the CTA decision and resolution
stand. As discussed, the decision of the CTA Division is null and void; therefore, no right can be obtained from it or
that all claims flowing out of it is void.
CTA has no jurisdiction over AICHI's judicial claim considering that its Petition for Review was filed prematurely, or
without cause of action for failure to exhaust the administrative remedies provided under Section 112 (D) of the Tax
Code, as amended. In addition, AICHI availed of the wrong remedy. Likewise, we find no need to pass upon the issue
on whether petitioner AICHI had substantiated its claim for refund or tax credit. Indisputably, we must deny AICHI's
claim for refund.
18. >CIR v. PAGCOR, G.R. No. 177387. November 9, 2016.

WON that PAGCOR's gambling operations are embraced under the phrase sale or exchange of services,
including the use or lease of properties; that such operations are not among those expressly exempted from
the 10% VAT under Section 3 of R.A. No. 7716; and that the legislative purpose to withdraw PAGCOR's 5%
franchise tax was manifested by the language used in Section 20 of R.A. No. 7716 (not correct, as general
law can’t supersede special law).
Not liable as Pagcor is except from paying direct and indirect tax (includes vat) by special law.
A close scrutiny of the above provisos clearly gives PAGCOR a blanket exemption to
taxes with no distinction on whether the taxes are direct or indirect. We are one with the CA ruling
that PAGCOR is also exempt from indirect taxes, like VAT, as follows:
Under the above provision [Section 13 (2) (b) of P.D. 1869], the term "Corporation" or
operator refers to PAGCOR. Although the law does not specifically mention PAGCOR's
exemption from indirect taxes, PAGCOR is undoubtedly exempt from such taxes because
the law exempts from taxes persons or entities contracting with PAGCOR in casino
operations. Although, differently worded, the provision clearly exempts PAGCOR from indirect
taxes. In fact, it goes one step further by granting tax exempt status to persons dealing
with PAGCOR in casino operations. The unmistakable conclusion is that PAGCOR is not
liable for the P30,152,892.02 VAT and neither is Acesite as the latter is effectively subject to
zero percent rate under Sec. 108 B (3), R.A. 8424. (Emphasis supplied.) TAIaHE
Indeed, by extending the exemption to entities or individuals dealing with PAGCOR, the
legislature clearly granted exemption also from indirect taxes. It must be noted that the indirect tax of VAT,
as in the instant case, can be shifted or passed to the buyer, transferee, or lessee of the goods, properties,
or services subject to VAT. Thus, by extending the tax exemption to entities or individuals dealing
with PAGCOR in casino operations, it is exempting PAGCOR from being liable to indirect taxes.
The manner of charging VAT does not make PAGCOR liable to said tax.
VAT exemption extends to Acesite
Thus, while it was proper for PAGCOR not to pay the 10% VAT charged by Acesite, the latter is
not liable for the payment of it as it is exempt in this particular transaction by operation of law to pay the
indirect tax.
Facts:
(PAGCOR) has operated under a legislative franchise granted by Presidential Decree No. 1869 (P.D. No. 1869), its
Charter, whose Section 13 (2) provides that:
(2) Income and other Taxes — (a) Franchise Holder:
No tax of any kind or form, income or otherwise, as well as fees, charges or levies of whatever nature, whether
National or Local, shall be assessed and collected under this Franchise from the Corporation; nor shall any form of tax
or charge attach in any way to the earnings of the Corporation, except a Franchise Tax of five percent (5%) of the
gross revenue or earnings derived by the Corporation from its operation under this Franchise. XXXXX
Notwithstanding the aforesaid 5% franchise tax imposed, the Bureau of Internal Revenue (BIR) issued several
assessments against PAGCOR for alleged deficiency value-added tax (VAT), final withholding tax on fringe benefits,
and expanded withholding tax, as follows:
The CIR insists that R.A. No. 7716 has expressly repealed, amended, or withdrawn the 5% franchise tax
provision in PAGCOR's Charter; hence, PAGCOR was liable for the 10% VAT.
The CIR argues that PAGCOR's gambling operations are embraced under the phrase sale or exchange of
services, including the use or lease of properties; that such operations are not among those expressly
exempted from the 10% VAT under Section 3 of R.A. No. 7716; and that the legislative purpose to
withdraw PAGCOR's 5% franchise tax was manifested by the language used in Section 20 of R.A. No. 7716.
Issue:
Whether or not PAGCOR is liable for the payment of VAT
Ruling:
PAGCOR is exempt from payment of VAT
The CIR insists that under VAT Ruling No. 04-96 (dated May 14, 1996), VAT Ruling No. 030-99 (dated March 18,
1999), and VAT Ruling No. 067-01 (dated October 8, 2001), R.A. No. 7716 31 has expressly repealed, amended, or withdrawn
the 5% franchise tax provision in PAGCOR's Charter; hence, PAGCOR was liable for the 10% VAT. 32
The relevant provisions of R.A. No. 7716 on which the insistence has been anchored are the following:
SEC. 3. Section 102 of the National Internal Revenue Code, as amended, is hereby further amended to read as
follows:
"SEC. 102. Value-added tax on sale of services and use or lease of properties. — (a) Rate and base of
tax. — There shall be levied, assessed and collected, a value-added tax equivalent to 10% of gross
receipts derived from the sale or exchange of services, including the use or lease of properties.
"The phrase 'sale or exchange of services' means the performance of all kinds of service in the
Philippines for others for a fee, remuneration or consideration, including x x x service of franchise
grantees of telephone and telegraph, radio and television broadcasting and all other franchise grantees
except those under Section 117 of this Code; x x x"AaCTcI
SEC. 12. Section 117 of the National Internal Revenue Code, as amended, is hereby further amended further to
read as follows:
"SEC. 117. Tax on Franchises. — Any provision of general or special law to the contrary
notwithstanding, there shall be levied, assessed and collected in respect to all franchises on electric,
gas and water utilities a tax of two percent (2%) on the gross receipts derived from the business
covered by the law granting the franchise. x x x"
SEC. 20. Repealing Clauses. — The provisions of any special law relative to the rate of franchise taxes are
hereby expressly repealed. x x x
The CIR argues that PAGCOR's gambling operations are embraced under the phrase sale or exchange of services,
including the use or lease of properties; that such operations are not among those expressly exempted from the 10% VAT under
Section 3 of R.A. No. 7716; and that the legislative purpose to withdraw PAGCOR's 5% franchise tax was manifested by the
language used in Section 20 of R.A. No. 7716. acEHCD
The CIR's arguments lack merit.
Firstly, a basic rule in statutory construction is that a special law cannot be repealed or modified by a subsequently
enacted general law in the absence of any express provision in the latter law to that effect. A special law must be interpreted to
constitute an exception to the general law in the absence of special circumstances warranting a contrary conclusion. 33R.A. No.
7716, a general law, did not provide for the express repeal of PAGCOR's Charter, which is a special law; hence, the general
repealing clause under Section 20 of R.A. No. 7716 must pertain only to franchises of electric, gas, and water utilities, while the
term other franchises in Section 102 of the NIRC should refer only to transport, communications and utilities, exclusive of
PAGCOR's casino operations.
Secondly, R.A. No. 7716 indicates that Congress has not intended to repeal PAGCOR's privilege to enjoy the 5%
franchise tax in lieu of all other taxes. A contrary construction would be unwarranted and myopic nitpicking. In this regard, we
should follow the following apt reminder uttered in Fort Bonifacio Development Corporation v. Commissioner of Internal
Revenue: 34
A law must not be read in truncated parts; its provisions must be read in relation to the whole law. It is the cardinal
rule in statutory construction that a statute's clauses and phrases must not be taken as detached and isolated expressions,
but the whole and every part thereof must be considered in fixing the meaning of any of its parts in order to produce a
harmonious whole. Every part of the statute must be interpreted with reference to the context, i.e., that every part of` the
statute must be considered together with other parts of the statute and kept subservient to the general intent of the whole
enactment.
In construing a statute, courts have to take the thought conveyed by the statute as a whole; construe the
constituent parts together; ascertain the legislative intent from the whole act; consider each and every provision thereof in
the light of the general purpose of the statute; and endeavor to make every part effective, harmonious and sensible.
Although Section 3 of R.A. No. 7716 imposes 10% VAT on the sale or exchange of services, including the use or lease
of properties, the provision also considers transactions that are subject to 0% VAT. 35 On the other hand, Section 4 of R.A. No.
7716 enumerates the transactions exempt from VAT, viz.:
SEC. 4. Section 103 of the National Internal Revenue Code, as amended, is hereby further amended to read as
follows:
"SEC. 103. Exempt transactions. — The following shall be exempt from the value-added tax:
xxx xxx xxx
"(q) Transactions which are exempt under special laws, except those granted under Presidential
Decree Nos. 66, 529, 972, 1491, and 1590, and nonelectric cooperatives under republic Act No. 6938,
or international agreements to which the Philippines is a signatory;
xxx xxx xxx" (bold emphasis supplied.)
Anent the effect of R.A. No. 7716 on franchises, the Court has observed in Tolentino v. The Secretary of
Finance 36 that:
Among the provisions of the NIRC amended is §103, which originally read: SDHTEC
§103. Exempt transactions. — The following shall be exempt from the value-added tax:
xxx xxx xxx
(q) Transactions which are exempt under special laws or international agreements to which
the Philippines is a signatory.
Among the transactions exempted from the VAT were those of PAL because it was exempted under its franchise (P.D. No.
1590) from the payment of all "other taxes . . . now or in the near future," in consideration of the payment by it either of the
corporate income tax or a franchise tax of 2%.
As a result of its amendment by Republic Act No. 7716, §103 of the NIRC now provides:
§103. Exempt transactions. — The following shall be exempt from the value-added tax:
xxx xxx xxx
(q) Transactions which are exempt under special laws, except those granted under
Presidential Decree Nos. 66, 529, 972, 1491, 1590 …..
The effect of the amendment is to remove the exemption granted to PAL, as far as the VAT is concerned. HSAcaE
xxx xxx xxx
x x x Republic Act No. 7716 expressly amends PAL's franchise (P.D. No. 1590) by specifically excepting from the
grant of exemptions from the VAT PAL's exemption under P.D. No. 1590. This is within the power of Congress to do under
Art. XII, § 11 of the Constitution, which provides that the grant of a franchise for the operation of a public utility is subject to
amendment, alteration or repeal by Congress when the common good so requires. 37 AScHCD
Moreover, PAGCOR's exemption from VAT, whether under R.A. No. 7716 or its amendments, has been settled
in Philippine Amusement and Gaming Corporation (PAGCOR) v. The Bureau of Internal Revenue, 38 whereby the Court,
citing Commissioner of Internal Revenue v. Acesite (Philippines) Hotel Corporation, 39 has declared:
Petitioner is exempt from the payment of VAT, because PAGCORs charter, P.D. No. 1869, is a special law
that grants petitioner exemption from taxes.
Moreover, the exemption of PAGCOR from VAT is supported by Section 6 of R.A. No. 9337, which retained
Section 108 (B) (3) of R.A. No. 8424, thus:
[R.A. No. 9337], SEC. 6. Section 108 of the same Code (R.A. No. 8424), as amended, is
hereby further amended to read as follows:
SEC. 108. Value-Added Tax on Sale of Services and Use or Lease of Properties.
(A) Rate and Base of Tax. There shall be levied, assessed and collected, a value-added tax
equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services,
including the use or lease of properties: x x x
xxx xxx xxx
(B) Transactions Subject to Zero Percent (0%) Rate. The following services performed in
the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate:
xxx xxx xxx
(3) Services rendered to persons or entities whose exemption under special laws or
international agreements to which the Philippines is a signatory effectivelysubjects the supply of such
services to zero percent (0%) rate;
xxx xxx xxx
As pointed out by petitioner, although R.A. No. 9337 introduced amendments to Section 108
of R.A. No. 8424 by imposing VAT on other services not previously covered, it did not amend the
portion of Section 108 (B) (3) that subjects to zero percent rate services performed by VAT-registered
persons to persons or entities whose exemption under special laws or international agreements to
which the Philippines is a signatory effectively subjects the supply of such services to 0% rate.
Petitioner's exemption from VAT under Section 108 (B) (3) of R.A. No. 8424 has been thoroughly and extensively
discussed in Commissioner of Internal Revenue v. Acesite (Philippines) Hotel Corporation. x x x The Court ruled that
PAGCOR and Acesite were both exempt from paying VAT, thus:
xxx xxx xxx
PAGCOR is exempt from payment of indirect taxes
It is undisputed that P.D. 1869, the charter creating PAGCOR, grants the latter an exemption
from the payment of taxes. Section 13 of P.D. 1869 pertinently provides:
Sec. 13. Exemptions.
xxx xxx xxx
(2) Income and other taxes. — (a) Franchise Holder: No tax of any kind or form, income or
otherwise, as well as fees, charges or levies of whatever nature, whether National or Local,
shall be assessed and collected under this Franchise from the Corporation; nor shall any
form of tax or charge attach in any way to the earnings of the Corporation, except a
Franchise Tax of five (5%) percent of the gross revenue or earnings derived by the
Corporation from its operation under this Franchise. Such tax shall be due and payable
quarterly to the National Government and shall be in lieu of all kinds of taxes, levies, fees or
assessments of any kind, nature or description, levied, established or collected by any
municipal, provincial, or national government authority. AcICHD
(b) Others: The exemptions herein granted for earnings derived from the operations
conducted under the franchise specifically from the payment of any tax, income or otherwise,
as well as any form of charges, fees or levies, shall inure to the benefit of and extend to
corporation(s), association(s), agency(ies), or individual(s) with whom the Corporation or
operator has any contractual relationship in connection with the operations of the casino(s)
authorized to be conducted under this Franchise and to those receiving compensation or
other remuneration from the Corporation or operator as a result of essential facilities
furnished and/or technical services rendered to the Corporation or operator.
Petitioner contends that the above tax exemption refers only to PAGCOR's direct tax liability
and not to indirect taxes, like the VAT.
We disagree.
A close scrutiny of the above provisos clearly gives PAGCOR a blanket exemption to
taxes with no distinction on whether the taxes are direct or indirect. We are one with the CA ruling
that PAGCOR is also exempt from indirect taxes, like VAT, as follows:
Under the above provision [Section 13 (2) (b) of P.D. 1869], the term "Corporation"
or operator refers to PAGCOR. Although the law does not specifically mention PAGCOR's
exemption from indirect taxes, PAGCOR is undoubtedly exempt from such taxes
because the law exempts from taxes persons or entities contracting with PAGCOR in
casino operations. Although, differently worded, the provision clearly exempts PAGCOR
from indirect taxes. In fact, it goes one step further by granting tax exempt status to
persons dealing with PAGCOR in casino operations. The unmistakable conclusion is that
PAGCOR is not liable for the P30,152,892.02 VAT and neither is Acesite as the latter is
effectively subject to zero percent rate under Sec. 108 B (3), R.A. 8424. (Emphasis
supplied.) TAIaHE
Indeed, by extending the exemption to entities or individuals dealing with PAGCOR, the
legislature clearly granted exemption also from indirect taxes. It must be noted that the indirect tax of
VAT, as in the instant case, can be shifted or passed to the buyer, transferee, or lessee of the goods,
properties, or services subject to VAT. Thus, by extending the tax exemption to entities or
individuals dealing with PAGCOR in casino operations, it is exempting PAGCOR from being
liable to indirect taxes.
The manner of charging VAT does not make PAGCOR liable to said tax.
It is true that VAT can either be incorporated in the value of the goods, properties, or services
sold or leased, in which case it is computed as 1/11 of such value, or charged as an additional 10% to
the value. Verily, the seller or lessor has the option to follow either way in charging its clients and
customer. In the instant case, Acesite followed the latter method, that is, charging an additional 10% of
the gross sales and rentals. Be that as it may, the use of either method, and in particular, the first
method, does not denigrate the fact that PAGCOR is exempt from an indirect tax, like VAT.
VAT exemption extends to Acesite
Thus, while it was proper for PAGCOR not to pay the 10% VAT charged by Acesite, the latter
is not liable for the payment of it as it is exempt in this particular transaction by operation of law to pay
the indirect tax. Such exemption falls within the former Section 102 (b) (3) of the 1977 Tax Code, as
amended (now Sec. 108 [b] [3] of R.A. 8424),which provides:
Section 102. Value-added tax on sale of services. — (a) Rate and base of tax —
There shall be levied, assessed and collected, a value-added tax equivalent to 10% of gross
receipts derived by any person engaged in the sale of services x x x; Provided, that the
following services performed in the Philippines by VAT registered persons shall be subject to
0%.
xxx xxx xxx
(3) Services rendered to persons or entities whose exemption under special
laws or international agreements to which the Philippines is a signatory effectively subjects
the supply of such services to zero (0%) rate (emphasis supplied). cDHAES
The rationale for the exemption from indirect taxes provided for in P.D. 1869 and the
extension of such exemption to entities or individuals dealing with PAGCOR in casino operations are
best elucidated from the 1987 case of Commissioner of Internal Revenue v. John Gotamco & Sons,
Inc., where the absolute tax exemption of the World Health Organization (WHO) upon an international
agreement was upheld. We held in said case that the exemption of contractee WHO should be
implemented to mean that the entity or person exempt is the contractor itself who constructed the
building owned by contractee WHO, and such does not violate the rule that tax exemptions are
personal because the manifest intention of the agreement is to exempt the contractor so that no
contractor's tax may be shifted to the contractee WHO. Thus, the proviso in P.D. 1869, extending the
exemption to entities or individuals dealing with PAGCOR in casino operations, is clearly to
proscribe any indirect tax, like VAT, that may be shifted to PAGCOR.
Although the basis of the exemption of PAGCOR and Acesite from VAT in the case of The Commissioner of
Internal Revenue v. Acesite (Philippines) Hotel Corporation was Section 102 (b) of the 1977 Tax Code, as amended, which
section was retained as Section 108 (B) (3) in R.A. No. 8424, it is still applicable to this case, since the provision relied upon
has been retained in R.A. No. 9337. 40
Clearly, the assessments for deficiency VAT issued against PAGCOR should be cancelled for lack of legal basis.
The Court also deems it warranted to cancel the assessments for deficiency withholding VAT pertaining to the
payments made by PAGCOR to its catering service contractor.
In two separate letters dated December 12, 2003 41 and December 15, 2003, 42 the BIR conceded that the unmonetized
meal allowances of PAGCOR's employees were not subject to fringe benefits tax (FBT). However, the BIR held PAGCOR liable
for expanded withholding VAT for the payments made to its catering service contractor who provided the meals for its
employees. Accordingly, the BIR assessed PAGCOR with deficiency withholding VAT for taxable year 1999 in the amount of
P4,077,667.40, inclusive of interest and compromise penalty; and for taxable year 2000 in the amount of P12,212,199.85,
exclusive of interest and penalties.
The payments made by PAGCOR to its catering service contractor are subject to zero-rated (0%) VAT in accordance
with Section 13 (2) of P.D. No. 1869 in relation to Section 3 of R.A. No. 7716, viz.: ASEcHI
SEC. 13. Exemptions. —
(1) x x x
(2) (a) x x x
(b) Others: The exemption herein granted for earnings derived from the operations conducted under the
franchise, specifically from the payment of any tax, income or otherwise, as well as any form of
charges, fees, or levies, shall inure to the benefit and extend to corporation(s), association(s),
agency(ies), or individual(s) with whom the Corporation or operator has any contractual relationship in
connection with the operations of casino(s) authorized to be conducted under this Franchise and to
those receiving compensation or other remuneration from the Corporation or operator as a result of
essential facilities furnished and/or technical services rendered to the Corporation or operator.
xxx xxx xxx
SEC. 3. Section 102 of the National Internal Revenue Code, as amended, is hereby further amended to read as follows:
"SEC. 102. Value-added tax on sale of service and use or lease of properties. — x x x
"(b) Transaction subject to zero-rate. — The following services performed in the Philippines by VAT-
registered persons shall be subject to 0%:
"xxx xxx xxx
"(3) Services rendered to persons or entities whose exemptions under special laws or international
agreements to which the Philippines is a signatory effectively subjects the supply of such services to
zero rate.
As such, the catering service contractor, who is presumably a VAT-registered person, shall impose a zero rate
(0%) output tax on its sale or lease of goods, services or properties to PAGCOR. Consequently, no withholding tax is due
on such transaction.
||| (Commissioner of Internal Revenue v. Secretary of Justice, G.R. No. 177387, [November 9, 2016])
19. Silicon Philippines v. CIR, G.R. No. 173241, March 25, 2015
Remedial law
Facts:
SPI, formerly known as Intel Philippines Manufacturing, Inc., is a domestic corporation engaged in the business of
designing, developing, manufacturing, and exporting advance and large-scale integrated circuit components,
commonly referred to in the industry as Integrated Circuits or "ICs." It is registered with the Bureau of Internal
Revenue (BIR) as a VAT taxpayer and with the Board of Investments as a preferred pioneer enterprise enjoying a six-
year income holiday, in accordance with the provisions of the Omnibus Investments Code.
SPI filed on May 6, 1999 with the One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center of the
Department of Finance an Application for Tax Credit/Refund of Value-Added Tax Paid covering the Third Quarter of
1998. SPI sought the tax credit/refund of input VAT for the said tax period in the sum of P25,531,312.83, broken
down as follows:
Tax paid on Imported/Locally

Purchased Capital Equipment P2,425,764.00
Total VAT Paid on Purchases
per Invoices Received During
the Period for which this
Application is Filed 23,105,548.83
Amount of Tax Credit/Refund

Applied for P25,531,312.83
When CIR failed to act upon its aforesaid Application for Tax Credit/Refund, SPI filed on September 29, 2000 a Petition
for Review before the CTA Division. The CTA Division partially granted the claim by denying the claim of SPI for tax
credit/refund of input VAT in the amount of P23,105,548.83 for failure of SPI to properly substantiate the zero-rated
sales to which it attributed said taxes. The CTA Division particularly pointed out the failure of SPI to comply with
invoicing requirements under Sections 113, 237, and 238 of the National Internal Revenue Code of 1997 (1997 Tax
Code) and Section 4.108-1 of Revenue Regulations No. 7-95. The decision was subsequently affirmed by the CTA en
banc.
Issue:
WON THE CTA EN BANC ERRED IN NOT GRANTING THE WHOLE CLAIM OF [SPI] FOR REFUND OF ITS EXCESS AND
UNUTILIZED INPUT VAT FOR THE PERIOD JULY 1, 1998 TO SEPTEMBER 30, 1998 ( mao ni ang issue supposedly but gi
dismissed sa SC and petition kay later na found out na prescribed na ang action)
Ruling:
Petition DISMISSED for being filed out of time.
When the claim was filed beyond the 120 days, the court cannot have jurisdiction. Even if such defect was not raised
by the CIR, it does not grant jurisdiction to the court. Hence, there is no need to discuss the merits because there is no
jurisdiction. The Petition for Review in C.T.A. should have been dismissed on the ground that the Petition for Review
was filed way beyond the 30-day prescribed period; thus, no jurisdiction was acquired by the CTA Division
There are few cases that were cited in SC’s decision
In San Roque case

Section 112(C) expressly grants the Commissioner 120 days within which to decide the taxpayer's claim. The law
is clear, plain, and unequivocal: ". . . 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."
Following the verba legis doctrine, this law must be applied exactly as worded since it is clear, plain, and unequivocal.
The taxpayer cannot simply file a petition with the CTA without waiting for the Commissioner's decision within the
120-day mandatory and jurisdictional period. The CTA will have no jurisdiction because there will be no "decision" or
"deemed a denial" decision of the Commissioner for the CTA to review.
Section 112(C) also expressly grants the taxpayer a 30-day period to appeal to the CTA the decision or inaction of the
Commissioner, thus:
As this law states, the taxpayer may, if he wishes, appeal the decision of the Commissioner to the CTA within 30 days
from receipt of the Commissioner's decision, or if the Commissioner does not act on the taxpayer's claim within the
120-day period, the taxpayer may appeal to the CTA within 30 days from the expiration of the 120-day period.
Atlas Doctrine
-claims for refund or credit of input VAT must comply with the two-year prescriptive period under Section 229,
should be effective only from its promulgation on 8 June 2007 until its abandonment on 12 September 2008
in Mirant. The Atlas doctrine was limited to the reckoning of the two-year prescriptive period from the date of
payment of the output VAT.
BIR Ruling No. DA-489-03
- expressly states that the "taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek
judicial relief with the CTA by way of Petition for Review.||| Clearly, BIR Ruling No. DA-489-03 is a general
interpretative rule. Thus, all taxpayers can rely on BIR Ruling No. DA-489-03 from the time of its issuance on 10
December 2003 up to its reversal by this Court in Aichi on 6 October 2010, where this Court held that the 120+30 day
periods are mandatory and jurisdictional.||\
SUMMARY OF RULES ON PRESCRIPTIVE PERIODS FOR

CLAIMING REFUND OR CREDIT OF INPUT VAT
The lessons of this case may be summed up as follows:
A. Two-Year Prescriptive Period
1. It is only the administrative claim that must be filed within the two-year prescriptive period. (Aichi)
2. The proper reckoning date for the two-year prescriptive period is the close of the taxable quarter when the
relevant sales were made. (San Roque) aCTHDA
3. The only other rule is the Atlas ruling, which applied only from 8 June 2007 to 12 September 2008. Atlas states that
the two-year prescriptive period for filing a claim for tax refund or credit of unutilized input VAT payments should be
counted from the date of filing of the VAT return and payment of the tax. (San Roque)
B. 120+30 Day Period
1. The taxpayer can file an appeal in one of two ways: (1) file the judicial claim within thirty days after the
Commissioner denies the claim within the 120-day period, or (2) file the judicial claim within thirty days from the
expiration of the 120-day period if the Commissioner does not act within the 120-day period.
2. The 30-day period always applies, whether there is a denial or inaction on the part of the CIR.
3. As a general rule, the 30-day period to appeal is both mandatory and jurisdictional. (Aichi and San Roque)
4. As an exception to the general rule, premature filing is allowed only if filed between 10 December 2003 and 5
October 2010, when BIR Ruling No. DA-489-03 was still in force. (San Roque)
5. Late filing is absolutely prohibited, even during the time when BIR Ruling No. DA-489-03 was in force. (San Roque)
In this case, SPI filed on May 6, 1999 its administrative claim for tax credit/refund of the input VAT attributable to its
zero-rated sales and on its purchases of capital goods for the Third Quarter of 1998. The two-year prescriptive period
for filing an administrative claim, reckoned from the close of the taxable quarter, prescribed on September 30, 2000.
Therefore, the herein administrative claim of SPI was timely filed. For the 120/30-day prescriptive periods, the
relevant dates are presented in table form below:
Evidently, SPI belatedly filed its judicial claim. It filed its Petition for Review with the CTA 391 days after the lapse of
the 120-day period without the CIR acting on its application for tax credit/refund, way beyond the 30-day period
under Section 112 of the 1997 Tax Code.
Because the 30-day period for filing its judicial claim had already prescribed by the time SPI filed its Petition for
Review with the CTA Division, the CTA Division never acquired jurisdiction over the said Petition. The CTA Division had
absolutely no jurisdiction to act upon, take cognizance of, and render judgment upon the Petition for Review of SPI in
CTA Case No. 6170, regardless of the merit of the claim of SPI. The Court stresses that the 120/30-day prescriptive
periods are mandatory and jurisdictional, and are not mere technical requirements. The Court should not establish
the precedent that noncompliance with mandatory and jurisdictional conditions can be excused if the claim is
otherwise meritorious, particularly in claims for tax refunds or credit. Such precedent will render meaningless
compliance with mandatory and jurisdictional requirements.
As this Court has repeatedly emphasized, a tax credit or refund, like tax exemption, is strictly construed against the
taxpayer. The taxpayer claiming the tax credit or refund has the burden of proving that he is entitled to the refund by
showing that he has strictly complied with the conditions for the grant of the tax refund or credit. Strict compliance
with the mandatory and jurisdictional conditions prescribed by law to claim such tax refund or credit is essential and
necessary for such claim to prosper. For failure of Silicon to comply with the provisions of Section 112(C) of
the NIRC,its judicial claims for tax refund or credit should have been dismissed by the CTA for lack of jurisdiction.
20. Cargill Philippines, Inc. v. CIR, G.R. No. 203774, March 11, 2015
Re; prematurity in claiming refund for excess of input vat
FACTS:
Cargill is a domestic corporation whose primary purpose is the production or manufacturing and refining of coconut
oil, coconut meal, vegetable oil, lard, margarine, edible oil, and other articles of similar nature and their byproducts.
It is a VAT-registered entity. As such, it filed its quarterly VAT returns for the second quarter of 2001 up to the third
quarter of 2003 which showed an overpayment of 44,920,350.92 and, later, its quarterly VAT returns for the fourth
quarter of 2003 to the first quarter of 2005 which reflected an overpayment of 31,915,642.26. Cargill maintained that
said overpayments were due to its export sales of coconut oil, the proceeds of which were paid for in acceptable
foreign currency and accounted for in accordance with the rules and regulations of the BSPs and, thus, are zero-rated
for VAT purposes.
On June 27, 2003, Cargill filed an administrative claim for refund of its unutilized input VAT in the amount of
26,122,965.81 for the second quarter of 2001-third quarter of 2003 before the BIR (first refund claim). Thereafter, on
June 30, 2003, it filed a judicial claim for refund, by way of a petition for review, before the CTA. Then on September
29, 2003, it subsequently filed a supplemental application with the BIR increasing its claim for refund of unutilized
input VAT to the amount of 27,847,897.72. Later on, on May 31, 2005, it filed its second administrative claim for
refund of its unutilized input VAT in the amount of 22,194,446.67 for the fourth quarter of 2003-first quarter of 2005
before the BIR (second refund claim). On even date, it filed a petition for review before the CTA.
For its part, respondent CIR claimed that the amounts being claimed by Cargill as unutilized input VAT in its first and
second refund claims were not properly documented and, hence, should be denied.
CTA Division: Partially granted Cargill’s claim for refund and ordered CIR to issue a tax credit certificate in the reduced
amount of 3,053,469.99, representing Cargill’s unutilized input VAT attributable to its VAT zero-rated export sales. It
found that while Cargill timely filed its administrative and judicial claims within the two (2)-year prescriptive period, it,
however, failed to substantiate the remainder of its claims for refund of unutilized input VAT, resulting in the partial
denial thereof. Both parties asked for a motion for reconsideration. In an amended decision, CTA Division denied both
parties’ MR. Separately, however, it reversed its own decision. It held that the 120-day period provided under Section
112 (D) of the NIRC must be observed prior to the filing of a judicial claim for tax refund. As Cargill failed to comply
therewith, the CTA Division, without ruling on the merits, dismissed the consolidated cases for being prematurely
filed.
CTA En Banc: Affirmed the Division’s denial of the MRs. reiterating that Cargill’s premature filing of its claims divested
the CTA of jurisdiction, and perforce, warranted the dismissal of its petitions. It highlighted that Cargill’s first petition
in the CTA was filed on June 30, 2003, or after the lapse of three (3) days from the time it filed its administrative claim
with the BIR; while its second petition in the CTA was filed on the same date it filed its administrative claim with the
BIR. As such, the CTA En Banc ruled that Cargill’s judicial claims were correctly dismissed for being filed prematurely.
ISSUE:
W/N Cargill’s claims for refund of unutilized input VAT should be disallowed on the ground of prematurity.
RULING:
Partially granted.
Sec. 112 of the NIRC states that a zero-rated entity may, within two years after the close of the taxable quarter when
the zero-rated sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due
or paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied
against output tax. Furthermore, it states that the CIR should grant a refund or issue a tax credit certificate for
creditable input taxes within 120 days from the date of submission of complete documents in support of the
application. It further provides that in case of full or partial denial of the claim or the failure of the CIR to act on it, the
applicant may, within 30 days from the receipt of the decision denying the application or after the lapse of the 120-
day period, appeal the decision or unacted claim with the CTA.
In the landmark case of Aichi, it was held that the observance of the 120-day period is a mandatory and jurisdictional
requisite to the filing of a judicial claim for refund before the CTA. As such, its non-observance would warrant the
dismissal of the judicial claim for lack of jurisdiction. It was also delineated in Aichi that the 2-year prescriptive period
would only apply to administrative claims, and not to judicial claims. Accordingly, once the administrative claim is filed
within the 2-year prescriptive period, the taxpayer-claimant must wait for the lapse of the 120-day period and,
thereafter, he has a 30-day period within which to file his judicial claim before the CTA, even if said 120-day and 30-
day periods would exceed the aforementioned 2-year prescriptive period.
However, in the case of San Roque, an exception to the mandatory 120-day period was recognized where San Roque
enunciated that BIR Ruling No. DA-489-03 dated December 10, 2003, expressly declared that the "taxpayer-claimant
need not wait for the lapse of the 120-day period before it could seek judicial relief with the CTA by way of petition
for review," provided a valid claim for equitable estoppel under Section 246 of the NIRC.
Reconciling the pronouncements in the Aichi and San Roque cases, the rule must therefore be that during the period
December 10, 2003 (when BIR Ruling No. DA-489-03 was issued) to October 6, 2010 (when the Aichi case was
promulgated), taxpayers-claimants need not observe the 120-day period before it could file a judicial claim for refund
of excess input VAT before the CTA. Before and after the aforementioned period (i.e., December 10, 2003 to October
6, 2010), the observance of the 120-day period is mandatory and jurisdictional to the filing of such claim.
In this case, records disclose that anent Cargill’s first refund claim, it filed its administrative claim with the BIR on June
27, 2003, and its judicial claim before the CTA on June 30, 2003, or before the period when BIR Ruling No. DA-489-03
was in effect, i.e., from December 10, 2003 to October 6, 2010. As such, it was incumbent upon Cargill to wait for the
lapse of the 120-day period before seeking relief with the CTA, and considering that its judicial claim was filed only
after 3 days later, the CTA En Banc, thus, correctly dismissed Cargill’s first petition for being prematurely filed.
In contrast, records show that with respect to Cargill’s second refund claim, its administrative and judicial claims were
both filed on May 31, 2005, or during the period of effectivity of BIR Ruling NO. DA-489-03, and, thus, fell within the
exemption window period contemplated in San Roque, i.e., when taxpayer-claimants need not wait for the expiration
of the 120-day period before seeking judicial relief. Verily, the CTA En Banc erred when it outrightly dismissed the
second petition on the ground of prematurity.
However, since Cargill’s second refund claim in the amount of 22,194,446.67 which allegedly represented unutilized
input VAT necessarily involve factual issues and, thus, are evidentiary in nature which are beyond the pale of judicial
review under a Rule 45 petition where only pure questions of law may be resolved, the case is remanded to the CTA
Division for resolution on the merits.
21. Rohm Apollo Semi-Conductor Philippines v. CIR, G.R. No. 168950, January 14, 2015
whether the CTA acquired jurisdiction over the claim for the refund or tax credit of unutilized input VAT.
FACTS:
Petitioner is a domestic corporation registered with the Sec. It is also registered with the PEZA as an Ecozone Export
Enterprise. It is in the business of manufacturing semiconductor products, particularly microchip transistors and
tantalium capacitors. It is also registered with the BIR as a value-added taxpayer.
Sometime in June 2000, prior to the commencement of its operations on 1 September 2001, Rohm Apollo engaged
the services of Shimizu Philippine Contractors, Inc. for the construction of a factory. For services rendered by Shimizu,
petitioner made initial payments of ₱198,551,884.28 on 7 July 2000 and ₱132,367,923.58 on 3 August 2000.
It should be noted at this point that Section 112(B),12 in relation to Section 112(A)13 of the 1997 Tax Code, allows a
taxpayer to file an application for the refund or tax credit of unutilized input VAT when it comes to the purchase of
capital goods. The provision sets a time frame for the filing of the application at two years from the close of the
taxable quarter when the purchase was made.
Petitioner treated the payments as capital goods purchases and thus filed with the BIR an administrative claim for the
refund or credit of accumulated unutilized creditable input taxes on 11 December 2000. As the close of the taxable
quarter when the purchases were made was 30 September 2000, the administrative claim was filed well within the
two-year prescriptive period.
The CIR had a period of 120 days from the filing of the application for a refund or credit on 11 December 2000, or until
10 April 2001, to act on the claim. The waiting period, however, lapsed without any action by the CIR on the claim.
However, instead of filing a judicial claim within 30 days from the lapse of the 120-day period on 10 April, or until 10
May 2001, Rohm Apollo filed a Petition for Review with the CTA on 11 September 2002. It was under the belief that a
judicial claim had to be filed within the two-year prescriptive period ending on 30 September 2002.
CTA Division: Denied the judicial claim for a refund or tax credit. CTA Division held that petitioner must have at least
submitted its VAT return for the third quarter of 2001, since it was in that period that it began its business operations.
The purpose was to verify if indeed petitioner did not carry over the claimed input VAT to the third quarter or the
succeeding quarters.
CTA En Banc: Denied Rohm Apollo’s Petition for Review. CTA held that the failure to present the VAT returns for the
subsequent taxable year proved to be fatal to the claim for a refund/tax credit, considering that it could not be
determined whether the claimed amount to be refunded remained unutilized.
ISSUE:
W/N petitioner’s judicial claim was filed within the prescriptive period.
RULING:
No. The judicial claim was filed out of time.
Section 112(D) of the 1997 Tax Code states the time requirements for filing a judicial claim for the refund or tax credit
of input VAT. The legal provision speaks of two periods: the period of 120 days, which serves as a waiting period to
give time for the CIR to act on the administrative claim for a refund or credit; and the period of 30 days, which refers
to the period for filing a judicial claim with the CTA. It is the 30-day period that is at issue in this case.
The landmark case of San Roque has interpreted Section 112 (D). The Court held that the taxpayer can file an appeal
in one of two ways: (1) file the judicial claim within 30 days after the Commissioner denies the claim within the 120-
day waiting period, or (2) file the judicial claim within 30 days from the expiration of the 120-day period if the
Commissioner does not act within that period.
In this case, when the CIR failed to act on the application for refund, Rohm Apollo should then have treated the CIR’s
inaction as a denial of its claim. Petitioner would then have had 30 days, or until 10 May 2001, to file a judicial claim
withthe CTA. But Rohm Apollo filed a Petition for Review with the CTA only on 11 September 2002. The judicial claim
was thus filed late.
However, in this case, Rohm Apollo erroneously thought that the 30-day period does not apply to cases of the CIR’s
inaction after the lapse of the 120-day waiting period, and that a judicial claim is seasonably filed so long as it is done
within the two year period. Thus, it filed the Petition for Review with the CTA only on 11 September 2002.
These mistaken notions have already been clarified by past jurisprudence. Aichi clarified that it is only the
administrative claim that must be filed within the two-year prescriptive period. San Roque, on the other hand, has
ruled that the 30-day period always applies, whether there is a denial or inaction on the part of the CIR.
In the case of San Roque it was held that as a general rule, the 30-day period to appeal is both mandatory and
jurisdictional. The only exception to the general rule is when BIR Ruling No. DA-489-03 was still in force, that is,
between 10 December 2003 and 5 October 2010, The BIR Ruling excused premature filing, declaring that the
taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek judicial relief with the CTA by
way of Petition for Review.
It was likewise ruled out in this case that premature filing is allowed for cases falling during the time when BIR Ruling
No. DA-489-03 was in force; BUT, late filing is absolutely prohibited even for cases falling within that period.
As mentioned above, the taxpayer filed its judicial claim with the CTA on 11 September 2002. This was before the
issuance of BIR Ruling No. DA-489-03 on 10 December 2003. Thus, Rohm Apollo could not have benefited from the
BIR Ruling. Besides, its situation was not a case of premature filing of its judicial claim but one of late filing. To repeat,
its judicial claim was filed on 11 September 2002 – long after 10 May 2001, the last day of the 30-day period for
appeal. The case thus falls under the general rule – the 30-day period is mandatory and jurisdictional.
FINAL NOTE OF THE SC: Taxpayers are reminded that when the 120-day period lapses and there is inaction on the part
of the CIR, they must no longer wait for it to come up with a decision thereafter. The CIR’s inaction is the decision
itself. It is already a denial of the refund claim. Thus, the taxpayer must file an appeal within 30 days from the lapse of
the 120-day waiting period.
22. Fort Bonifacio Development Corporation v. CIR, et. al., consolidated cases of G.R. No. 175707, G.R. NO.
18003, G.R. No. 181092, November 19, 2014.
The main issue before us now is whether or not petitioner is entitled to a refund of the amounts of: 1) P486,355,846.78
in G.R. No. 175707, 2) P77,151,020.46 for G.R. No. 180035, and 3) P269,340,469.45 in G.R. No. 181092, which it paid as value-
added tax, or to a tax credit for said amounts.
To resolve the issue stated above, it is also necessary to determine:
• Whether the transitional/presumptive input tax credit under Section 105 of the NIRC may be claimed only on the
"improvements" on real properties;
• Whether there must have been previous payment of sales tax or value-added tax by petitioner on its land before it
may claim the input tax credit granted by Section 105 of the NIRC;
• Whether Revenue Regulations No. 7-95 is a valid implementation of Section 105 of the NIRC;and
• Whether the issuance of Revenue Regulations No. 7-95 by the BIR, and declaration of validity of said Regulations
by the Court of Tax Appeals and the Court of Appeals, was in violation of the fundamental principle of
separation of powers.
|||
Facts:
FBDC is engaged in the development and sale of real propert within the Global City. It has been selling lots to interest
buyers. By the time it acquired the properties by virtue of RA 7277 from the National Government, VAT was still not
imposed. RA 7716 subsequently restructured VAT to EVAT, Sec. 100 of the NIRC was amended to include “real
properties” in the definition of the term “goods or properties”. Prior to RA 7716, real estate transaction were not
subject to VAT, hey became subject to VAT upon the effectivity of said law. Thus, the sale of the parcels of land by
FBDC became subject to a 10% VAT, and this was later increased to 12%, pursuant to Republic Act No. 9337.20 FBDC
afterwards becamea VAT-registered taxpayer. It submitted an inventory of its real property on that basis it claimed an
8% presumptive input tax credit. After the value of the real properties was reduced dueto a reconveyance by FBDC to
BCDA of a parcel of land, FBDC claims that it is entitled to input tax credit in the reduced amount. FBDC hence filed a
claim for refund which it paid in cash as VAT for the 2nd quarter of 1997. Due to the inaction of the CIR, FBDC filed a
petition for review before the CTA. This was denied by the CTA. A petition for review before the CA was also denied.
Hence this appeal. This case was consolidated with 2 more cases as the factual milieu were the same.
Arguments of FBDC:
FBDC claims that "the 10% value-added tax is based on the gross selling price or gross value in money of the ‘goods’
sold, bartered or exchanged, the term "goods" was limited to "movable, tangible objects which is appropriable or
transferable" and that said term did not originally include "real property.
Under Executive Order No. 273, the term "goods" did not include real properties, Republic Act No. 7716, in amending
Section 100, explicitly included in the term "goods" "real properties held primarily for sale to customers or held for
lease in the ordinary course of trade or business." Consequently, the sale, barter, or exchange of real properties was
made subject to a VAT equivalent to 10% (later increased to 12%, pursuant to Republic Act No. 9337) of the gross
selling price of real properties.
The E-VAT Law, Republic Act No. 7716, did not amend Section 105. Thus, Section 105, as quoted above, remained
effective even after the enactment of Republic Act No. 7716.
However, in the case of real estate dealers, the basis of the presumptive input tax shall be the improvements, such as
buildings, roads, drainage systems, and other similar structures, constructed on or after effectivity of E.O. 273.
FBDC also argues that argues that Section 4.100-1 of Revenue Regulations No. 7-95 explicitly limited the term "goods"
as regards real properties to "improvements, such as buildings, roads, drainage systems, and other similar structures,"
thereby excluding the real property itself from the coverage of the term "goods" as it is used in Section 105 of the
NIRC. This has brought about, as a consequence, the issues involved in the instant case; that the "Court of Appeals
erred in not holding that Revenue Regulations No. 6-97 has effectively repealed or repudiated Revenue Regulations
No. 7-95 insofar as the latter limited the transitional/presumptive input tax credit which may be claimed under
Section 105 of the NIRC to the ‘improvements’ on real properties.
FBDC contends that the relevant provision now states that "[t]he transitional input tax credit shall be eight percent
(8%) of the value of the beginning inventory x x x on such goods, materials and supplies." It no longer limits the
allowable transitional input tax credit to "improvements" on the real properties. The amendment recognizes that the
basis of the 8% input tax credit should not be confinedto the value of the improvements. FBDC further contends that
the Commissioner of Internal Revenue has in fact corrected the mistake in Revenue Regulations No. 7-95.
Also, FBDC insists that there was no basis and necessity for the BIR, the CTA, and the Court of Appeals to interpret and
construe Sections 100 and 105 of the NIRC because "where the law speaks in clear and categorical language, or the
terms of the statute are clear and unambiguous and free from doubt, there is no room for interpretation or
construction and no interpretation or construction is called for; there is only room for application."
Respondent’s Arguments:
FBDC’s claim for the 8% transitional/presumptive input tax is "inconsistent with the purpose and intent of the law in
granting such tax refund or tax credit based on the following:
1. The transitional input tax provided under Section 105 in relation to Section 100 of the Tax Code, as amended
by EO No. 273 effective January 1, 1988, is subject to certain conditions which petitioner failed to meet.
2. The claim for petitioner for transitional input tax is in the nature of a tax exemption which should be strictly
construed against it.75
3. Revenue Regulations No. 7-95 is valid and consistent with provisions of the NIRC.
FBDC is not legally entitled to any transitional input tax credit, whether it be the 8% presumptive input tax credit or
any actual input tax credit in respect of its inventory of land brought into the VAT regime beginning January 1, 1996.
1. VAT free acquisition of the raw land.– petitioner purchased and acquired, from the Government, the aforesaid raw
land under a VAT free sale transaction. The Government, as a vendor, was tax-exempt and accordingly did not pass on
any VAT or sales tax as part of the price paid therefor by the petitioner.
2. No transitory input tax on inventory of land is allowed. Section 105 of the Code, as amended by Republic Act No.
7716, and as implemented by Section 4.105-1 of Revenue Regulations No. 7-95, expressly provides that no
transitional input tax credit shall be allowed to real estate dealers in respect of their beginning inventory of land
brought into the VAT regime beginning January 1, 1996 (supra). Likewise, the Transitory Provisions [(a) (iii)] of
Revenue Regulations No. 7-95 categorically states that "for real estate dealers, the presumptive input tax of 8% of the
book value of improvements constructed on or after January 1, 1998 (effectivity of E.O. 273) shall be allowed."
FBDC is not legally to any transitional input tax credit whether 8% presumptive tax credit in respect of its inventory in
view of the following:
1. VAT Free Acquisition of the raw land – the properties were purchased/ acquired from the government, only
the Government is tax exempt;
2. No Transitory input tax on inventory of land is allowed under Sec. 105 of NIRC as amended.
Issue:
Whether or not FBDC is entitled to a refund of the amount which it paid as value-added tax, or to a tax credit for said
amounts?
Corollary issues:
To resolve the issue stated above, it is also necessary to determine:
1. Whether the transitional/presumptive input tax credit under Section 105 of the NIRC may be claimed only on the
"improvements" on real properties; No
2. Whether there must have been previous payment of sales tax or value added tax by petitioner on its land before it
may claim the input tax credit granted by Section 105 of the NIRC; No
3. Whether Revenue Regulations No. 7-95 is a valid implementation of Section 105 of the NIRC; Invalid
4. Whether the issuance of Revenue Regulations No. 7-95 by the BIR, and declaration of validity of said Regulations by
the Court of Tax Appeals and the Court of Appeals, was in violation of the fundamental principle of separation of
powers. Yes
Held:
Main Ruling:
Court conclusively held that petitioner is entitled to the 8% transitional input tax on its beginning inventory of land,
which is granted in Section 105 (now Section 111[A]) of the NIRC, and granted the refund of the amounts petitioner
had paid as output VAT for the different tax periods in question.
1. In GR 158885 and 170680 (previous cases with similar setting, decided by En Banc ruling before this case) its
face, there is nothing in Section 105 of the Old NIRC that prohibits the inclusion of real properties, together
with the improvements thereon, in the beginning inventory of goods, materials and supplies, based on which
inventory the transitional input tax credit is computed. From these amendments to Section 100, is there any
differentiated VAT treatment on realproperties or real estate dealers that would justify the suggested
limitations on the application of the transitional input tax on them? We see none.
Rep. Act No. 7716 clarifies that it is the real properties "held primarily for sale to customers or held for lease
in the ordinary course of trade or business" that are subject to the VAT, and not when the real estate
transactions are engaged in by persons who do not sell or lease properties in the ordinary course of trade or
business. It is clear that those regularly engaged in the real estate business are accorded the same treatment
as the merchants of other goods or properties available in the market. In the same way that a milliner
considers hats as his goods and a rancher considers cattle as his goods, a real estate dealer holds real
property, whether or not it contains improvements, as his goods. By limiting the definition of goods to
"improvements" in Section 4.105-1, the BIR not only contravened the definition of "goods" as provided in the
Old NIRC, but also the definition which the same revenue regulation itself has provided. Section 105 of the old
NIRC, on the transitional input tax credit, remained intact despite the enactment of Republic Act No. 7716.
Section 105 was amended by Republic Act No. 8424, and the provisions on the transitional input tax credit are
now embodied in Section 111(A) of the new NIRC.
An issue in GR 15885 and 170680, If the plain text of Republic Act No. 7716 fails to supply any apparent
justification for limiting the beginning inventory of real estate dealers only to the improvements on their
properties, how then were the Commissioner of Internal Revenue and the courts a quoable to justify such a
view?
The provision authorized VAT-registered persons to invoke a "presumptive input tax equivalent to 8% of the
value of the inventory as of December 31, 1987 of materials and supplies which are not for sale, the tax on
which was not taken up or claimed as deferred sales tax credit," and a similar presumptive input tax
equivalent to 8% of the value of the inventory as of December 31, 1987 of goods for sale, the tax on which
was not taken up or claimed as deferred sales tax credit.
2. The Court En Banc in its Resolution in G.R. No. 173425 (also a previous case of similar facts, already decided
by the SC) likewise discussed the question of prior payment of taxes as a prerequisite before a taxpayer could
avail of the transitional input tax credit. The Court found that petitioner is entitled to the 8% transitional input
tax credit, and clearly said that the fact that petitioner acquired the Global City property under a tax-free
transaction makes no difference as prior payment of taxes is not a prerequisite. The Court has thus
categorically ruled that prior payment of taxes is not required for a taxpayer toavail of the 8% transitional
input tax credit provided in Section 105 of the old NIRC and that petitioner is entitled to it, despite the fact
that petitioner acquired the Global City property under a tax-free transaction.
3. In G.R. Nos. 158885 and 170680, the Court struck down Section 4.105-1 of Revenue Regulations No. 7-95 for
being in conflict with the law. As regards Section 4.105-1 of RR 7-95 which limited the 8% transitional input
tax credit to the value of the improvements on the land, the same contravenes the provision of Section 105 of
the old NIRC, in relation to Section 100 of the same Code, as amended by RA 7716, which defines "goods or
properties”. Section 4.105-1 of RR 7-95, insofar as it limits the transitional input tax credit to the value of the
improvement of the real properties, is a nullity.
4. The term "goods or properties" by the unambiguous terms of Section 100 includes "real properties held
primarily for sale to c[u]st[o]mers or held for lease in the ordinary course of business." Having been defined in
Section 100 of the NIRC, the term "goods" as used in Section 105 of the same code could not have a different
meaning. As mandated by Article 7 of the Civil Code, an administrative rule or regulation cannot contravene
the law on which it is based. RR 7-95 is inconsistent with Section 105 insofar as the definition of the
term"goods" is concerned. This is a legislative act beyond the authority of the CIR and the Secretary of
Finance. The rules and regulations that administrative agencies promulgate, which are the product of a
delegated legislative power to create new and additional legal provisions that have the effect of law, should
be within the scope of the statutory authority granted bythe legislature to the objects and purposes of the
law, and should not be in contradiction to, but in conformity with, the standards prescribed by law. To
recapitulate, RR 7-95, insofar as it restricts the definition of "goods" as basis of transitional inputtax credit
under Section 105 is a nullity.
23. CIR vs. Team Sual Corporation (Formerly Mirant Sual Corporation), G.R. No. 194105. February 5, 2014
Re: premature filing
Facts:
TSC is a corporation engaged in the power generation business. he CIR granted TSC's application for zero-rating arising
from its sale of power generation services to NPC for the taxable year 2000. As a VAT-registered entity, TSC filed its
VAT returns for the first, second, third, and fourth quarters of taxable year 2000. TSC filed with the BIR an
administrative claim for refund, claiming that it is entitled to the unutilized input VAT. Without waiting the CIR's
resolution of its administrative claim for refund/tax credit, TSC filed a petition for review with the CT A seeking the
refund or the issuance of a tax credit certificate. claimed that TSC's claim for refund/tax credit should be denied,
asserting that TSC failed to comply with the conditions precedent for claiming refund/tax credit of unutilized input
VAT. The CIR pointed out that TSC failed to submit complete documents in support of its application for refund/tax
credit contrary to Section 112(C).
The CTA 1st division granted the claim for tax refund/ tax credit for input VAT. On denying the MR of CIR, the CTA
opined that the petition for review of TSC was not prematurely filed despute the 120-day period given to CIR under
Sec. 112 had not yet lapsed; claims for refund should be filed within 2 years after the close of the taxable quarter
when the sales were made, that the 120-day period is also covered by the 2-year prescriptive period within which to
claim the refund of unutilized input VAT. In ruling the Petition for Review, the CTA en banc ruled that pursuant to
Section 112(A) of the NIRC, claims for refund/tax credit of unutilized input VAT should be filed within two years after
the close of the taxable quarter when the sales were made; that the 120-day period under Section 112(C) of the NIRC
is also covered by the two-year prescriptive period within which to claim the refund/tax credit ofunutilized input VAT.
Hence this petition for review on certiorari.
Issue:
Whether the CTA en banc erred in holding that TSC’s petition for review with the CTA was not prematurely filed? Yes
Held:
In Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc., it was contended by Aichi Forging that
non-observance of the 120-day period is not fatal to the filing of judicial claim as long as both the administrative and
judicial claims are filed within the two year period. This argument was not sustained. 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. The CTA does not have the jurisdiction to take cognizance of a petition for review filed by the
taxpayer-claimant should there be no decision by the CIR on the claim for refund/tax credit or the 120-day period had
not yet lapsed.
That the two-year prescriptive period within which to file a claim for refund/tax credit ofunutilized input VAT under
Section 112(A) of the NIRC is about to lapse is inconsequential and would not justify the immediate filing of a petition
for review with the CTA sans compliance with the 120-day mandatory period. To stress, under Section 112(C) of the
NIRC, a taxpayer-claimant may only file a petition for review with the CT A within 30 days from either: (1) the receipt
of the decision of the CIR denying, in full or in part, the claim for refund/tax credit; or (2) the lapse of the 120-day
period given to the CIR to decide the claim for refund/tax credit.
The 120-day mandatory period may extend beyond the two-year prescriptive period for filing a claim for refund/tax
credit under Section 112(A) of the NIRC. Consequently, the 30-day period given to the taxpayer-claimant likewise
need not fall under the two-year prescriptive period. What matters is that the administrative claim for refund/tax
credit of unutilized input VAT is filed with the BIR within the two-year prescriptive period.
It is undisputed that TSC filed its administrative claim for refund/tax credit with the BIR on March 11, 2002, which is
still within the two-year prescriptive period under Section 112(A) of the NIRC. However, without waiting for the CIR
decision or the lapse of the 120-day period from the time it submitted its complete documents in support of its claim,
TSC filed a petition for review with the CTA on April 1, 2002 - a mere 21 days after it filed its administrative claim with
the BIR. Clearly, TSC's petition for review with the CTA was prematurely filed; the CTA had no jurisdiction to take
cognizance of TSC's petition since there was no decision as yet by the CIR denying TSC's claim, fully or partially, and
the 120-day period under Section 112(C) of the NIRC had not yet lapsed.
24. CIR v. Toledo, Power, Inc., G.R. No. 183880, January 20, 2014.
Re: claim of refund
In essence, two issues must be addressed to determine whether TPI is indeed entitled to its claim for refund or issuance
of tax credit certificate: (1) whether TPI complied with the 120+30 day rule under Section 112 (C) of the Tax Code, and (2)
whether TPI sufficiently complied with the invoicing requirements under the Tax Code.
One-Liner:
The burden of proving entitlement to a tax refund rests on the taxpayer.
Facts:
TPC a general partnership is engaged in the business of sale of electricity to the NPC, CEBECO, Atlas Consolidated
Mining and Development Corporation (ACMDC) and Atlas Fertilizer Corporation (AFC). TPC filed with BIR an
administrative claim for refund or credit of its unutilized input VAT in the amount of P14.2m, which was later on filed
as a petition with CTA due to inaction. CTA Division partially granted such in the amount of P7.5m since NPC is
exempted from the payment of all taxes including VAT, pursuant to the zero-rated sales of electricity to NPC. As to the
sales to the others, it was denied as TPC did not submit a Certificate of Compliance from the Energy Regulatory
Commission, thus, insufficiency of proof. TPC failed to prove that it is a generation company under the EPIRA. This was
sustained by CTA En Banc.
Issue:
1. WON the claim for tax refund or credit were timely and validly filed. (YES)
2. WON TPC is entitled to the full amount of P14.2 tax refund or credit. (NO)
Ruling:
1. A taxpayer has 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. When TPC applied for a claim for
refund or credit of its unutilized input VAT the CIR did not act on its application within the 120-day period, so TPC
appealed the inaction on April 22, 2004. Clearly, both the administrative and the judicial claims were filed within
the prescribed period.
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. 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.
2. Section 6 of the EPIRA provides that the sale of generated power by generation companies shall be zero-rated.
Section 4 of the same law states that a generation company "refers to any person or entity authorized by the ERC
to operate facilities used in the generation of electricity." Corollarily, to be entitled to a refund or credit of
unutilized input VAT attributable to the sale of electricity under the EPIRA, a taxpayer must establish: (1) that it is a
generation company, and (2) that it derived sales from power generation.
In this case, TPC failed to present a COC from the ERC during the trial. Obviously, the parties did not stipulate that
TPC is a generation company. They only stipulated that TPC is engaged in the business of power generation and
that it filed an application with the ERC on June 20, 2002. However, being engaged in the business of power
generation does not make TPC a generation company under the EPIRA. Neither did TPC's filing of an application for
COC with the ERC automatically entitle TPC to the rights of a generation company under the EPIRA.
A generation facility is defined under the EPIRA Rules and Regulations as "a facility for the production of
electricity." While a generation company, as previously mentioned, "refers to any person or entity authorized by
the ERC to operate facilities used in the generation of electricity." Thus, the latter is authorized by the ERC to
operate, as evidenced by a COC.
At the time the sales of electricity to CEBECO, ACMDC, and AFC were made in 2002, TPC was not yet a generation
company under EPIRA. Although it filed an application for a COC on June 20, 2002, it did not automatically become
a generation company. It was only on 2005, when the ERC issued a COC in favor of TPC, that it became a
generation company under EPIRA. Consequently, TPC's sales of electricity to CEBECO, ACMDC, and AFC cannot
qualify for VAT zero-rating under the EPIRA.
25. CBK Power Company Limited vs. CIR, G.R. No. 198729-30, January 15, 2014.
One-Liner:
The compliance of tax treaty takes precedence over a BIR Revenue Memorandum Order.
Facts:
CBK Power is primarily engaged in development and operation of power generating plants in Laguna. To finance its
project, it obtained loan from foreign banks. CBK remitted interests payments from 2001 to 2003. It was allegedly
withheld final taxes from said payments (15% and 20%). However, according to CBK, under the relevant tax
treaties between the Philippines and the foreign countries, it is only subject to preferential rate of 10%. Thus, it
filed for a refund of excess final withholding taxes in 2003. But through CIR’s inaction, it was filed in the CTA. The
CTA first granted the full amount. However, it was reduced from P15m to P14m on the ground that CBK failed to
obtain an International Tax Affairs Division (ITAD) ruling with respect to its transaction with one of the foreign
bank. It was affirmed by CTA En Banc ruling that a prior application with the ITAD is indeed required by RMO 1-
2000 which administrative issuance has the force and effect of law and is just as binding as a tax treaty.
Issue:
1. WON BIR may add a requirement of prior application for an ITAD ruling that is not found in the tax treaties.
(NO)
2. WON CBK is entitled to the full refund of P15m. (YES)
Ruling:
The Philippine Constitution provides for adherence to the general principles of international law as part of the law of
the land. The time-honored international principle of pacta sunt servanda demands the performance in good faith of
treaty obligations on the part of the states that enter into the agreement. In this jurisdiction, treaties have the force
and effect of law. The obligation to comply with a tax treaty must take precedence over the objective of RMO No. 1-
2000.
The underlying principle of prior application with the BIR becomes moot in refund cases as in the present case where
the very basis of the claim is erroneous or there is excessive payment arising from the non-availment of a tax treaty
relief at the first instance. The application for a tax treaty relief from the BIR should merely operate to confirm the
entitlement of the taxpayer to the relief. Since CBK Power had requested for confirmation from the ITAD on June 8,
2001 and October 28, 2002 before it filed on April 14, 2003 its administrative claim for refund of its excess final
withholding taxes, the same should be deemed substantial compliance with RMO No. 1-2000. While the taxpayer has
an obligation to honestly pay the right taxes, the government has a corollary duty to implement tax laws in good faith;
to discharge its duty to collect what is due to it; and to justly return what has been erroneously and excessively given
to it. Thus, CBK is entitled to the full amount of P15m.
Procedural:
The Commissioner laments that he was deprived of the opportunity to act on the administrative claim for refund of
excess final withholding taxes, that the CBK hastily elevated the case on petition for review before the CTA. However,
the SC said that in relation to Sec. 306 of Tax Code, the first sentence meant simply that the Collector of Internal
Revenue shall be given an opportunity to consider his mistake, if mistake has been committed, before he is sued, but
not, as the appellant contends that pending consideration of the claim, the period of two years provided in the last
clause shall be deemed interrupted.
Nowhere and in no wise does the law imply that the Collector of Internal Revenue must act upon the claim, or that
the taxpayer shall not go to court before he is notified of the Collector’s action. We understand the filing of the claim
with the Collector of Internal Revenue to be intended primarily as a notice of warning that unless the tax or penalty
alleged to have been collected erroneously or illegally is refunded, court action will follow. That being said, the
foregoing refund claims of CBK Power should all be granted.
26. CIR vs. Mindanao II Geothermal Partnership, G.R. No. 191498, January 15, 2014.
(1) what should be filed within the prescriptive period; and
(2) the date from which to reckon the prescriptive period.
Facts:
Mindanao II filed its Quarterly VAT Returns for the second, third and fourth quarters of taxable year 2004 on the
following dates:
It filed with BIR an application for the refund or credit of accumulated unutilized creditable input taxes, claiming that
it is registered as VAT payer and all its sales are zero-rated under EPIRA law. It further stated that for the second,
third, and fourth quarters of taxable year 2004, it paid input VAT in the aggregate amount of P7,167,005.84, which
were directly attributable to the zero-rated sales. The input taxes had not been applied against output tax.
Pursuant to Section 112(D) of the 1997 Tax Code, the CIR had 120 days, or until 3 February 2006, to act on the claim.
The administrative claim, however, remained unresolved on said date. Under the same provision, Mindanao II could
treat the inaction of the CIR as a denial of its claim, in which case, the former would have 30 days to file an appeal to
the CTA, that is, on 5 March 2006. Mindanao II, however, did not file an appeal.
Mindanao II believed that a judicial claim must be filed within the two-year prescriptive period provided under
Section 112(A) and that such time frame was to be reckoned from the filing of its Quarterly VAT Returns for the
second, third, and fourth quarters of taxable year 2004. Thus, claiming inaction on the part of the CIR and that the
two-year prescriptive period was about to expire, it filed a Petition for Review with the CTA.
While the application for refund or credit pending before the CTA Second Division, this Court promulgated Atlas
Consolidated Mining and Development Corporation v. CIR (Atlas). Atlas held that the two-year prescriptive period for
the filing of a claim for an input VAT refund or credit is to be reckoned from the date of filing of the corresponding
quarterly VAT return and payment of the tax.
CTA ordered the CIR to grant a refund or a tax credit certificate, but only the reduced unutilized input VAT incurred for
the second, third and fourth quarters of 2004. Mindanao II complied with the twin requisites for VAT zero-rating
under the EPIRA law: first, it is a generation company, and second, it derived sales from power generation. It also
ruled that Mindanao II satisfied the requirements for the grant of a refund/credit under Section 112 of the Tax Code:
(1) there must be zero-rated or effectively zero-rated sales; (2) input taxes must have been incurred or paid; (3) the
creditable input tax due or paid must be attributable to zero-rated sales or effectively zero-rated sales; (4) the input
VAT payments must not have been applied against any output liability; and (5) the claim must be filed within the two-
year prescriptive period.
CIR filed a Motion for Partial Reconsideration, pointing out that prescription had already set in, since the appeal to the
CTA was filed only on 21 July 2006, which was way beyond the last day to appeal 5 March 2006; basing on Section
112(D) of the 1997 Tax Code.
Meanwhile, this Court promulgated CIR v. Mirant Pagbilao Corporation (Mirant). Mirant fixed the reckoning date of
the two-year prescriptive period for the application for refund or credit of unutilized input VAT at the close of the
taxable quarter when the relevant sales were made, as stated in Section 112(A).
CTA denied CIR’s motion, standing by its reliance on the Atlas case. Upon petition for review to CTA En Banc, it denied
CIR’s petition ruling that the ruling remained to be the controlling doctrine. Mirant was a new doctrine and, as such,
the latter should not apply retroactively to Mindanao II who had relied on the old doctrine of Atlas and had acted on
the faith thereof.
Issue: W/N the application for refund or credit of unutilized input VAT (YES) and judicial claims (NO) were filed within
the prescribed period.
Held:
SC denied Mindanao II's claim for refund or credit of unutilized input VAT on the ground that its judicial claims were
filed out of time, even as we hold that its application for refund was filed on time.
I. MINDANAO II'S APPLICATION FOR REFUND WAS FILED ON TIME
We find no error in the conclusion of the tax courts that the application for refund or credit of unutilized input VAT
was timely filed. The problem lies with their bases for the conclusion as to: (1) what should be filed within the
prescriptive period; and (2) the date from which to reckon the prescriptive period.
A. The Judicial Claim Need Not Be Filed Within the Two-Year Prescriptive Period.
Both the CTA Second Division and CTA En Banc decisions held that the phrase "apply for the issuance of a tax credit
certificate or refund" in Section 112(A) is construed to refer to both the administrative claim filed with the CIR and the
judicial claim filed with the CTA. This view, however, has no legal basis.
In Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc. (Aichi), we dispelled the misconception
that both the administrative and judicial claims must be filed within the two-year prescriptive period:
Subsection (A) of Sec. 112 states that "any VAT-registered person, whose sales are zero-rated or effectively zero-rated
may, within two years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax
credit certificate or refund of creditable input tax due or paid attributable to such sales." The phrase "within two (2)
years x x x apply for the issuance of a tax credit certificate or refund" refers to applications for refund/credit filed with
the CIR and not to appeals made to the CTA. This is apparent in the first paragraph of subsection (D) of the same
provision, which states that the CIR has "120 days from the submission of complete documents in support of the
application filed in accordance with Subsections (A) and (B)" within which to decide on the claim.
In fact, applying the two-year period to judicial claims would render nugatory Section 112 (D) of the NIRC, which
already provides for a specific period within which a taxpayer should appeal the decision or inaction of the CIR. The
second paragraph of Section 112 (D) of the NIRC envisions two scenarios: (1) when a decision is issued by the CIR
before the lapse of the 120-day period; and (2) when no decision is made after the 120-day period. In both instances,
the taxpayer has 30 days within which to file an appeal with the CTA. As we see it then, the 120-day period is crucial in
filing an appeal with the CTA.
Aichi: It is only the administrative claim that must be filed within the two-year prescriptive period; the judicial claim
need not fall within the two-year prescriptive period.
B. Reckoning Date is the Close of the Taxable Quarter When the Relevant Sales Were Made.
Section 112(A) is the Applicable Rule. In Commissioner of Internal Revenue v. San Roque Power Corporation (San
Roque):
The Atlas doctrine, which held that claims for refund or credit of input VAT must comply with the two-year
prescriptive period under Section 229, should be effective only from its promulgation on 8 June 2007 until its
abandonment on 12 September 2008 in Mirant. The Atlas doctrine was limited to the reckoning of the two-year
prescriptive period from the date of payment of the output VAT. Prior to the Atlas doctrine, the two-year prescriptive
period for claiming refund or credit of input VAT should be governed by Section 112(A) following the verba legis rule.
The Mirant ruling, which abandoned the Atlas doctrine, adopted the verba legis rule, thus applying Section 112(A) in
computing the two-year prescriptive period in claiming refund or credit of input VAT.
San Roque also distinguished between Sec 112 and 229:
Under Section 229, the prescriptive period for filing a judicial claim for refund is two years from the date of payment
of the tax "erroneously, illegally, excessively or in any manner wrongfully collected." The prescriptive period is
reckoned from the date the person liable for the tax pays the tax. Thus, if the input VAT is in fact "excessively"
collected, that is, the person liable for the tax actually pays more than what is legally due, the taxpayer must file a
judicial claim for refund within two years from his date of payment. Only the person legally liable to pay the tax can
file the judicial claim for refund. The person to whom the tax is passed on as part of the purchase price has no
personality to file the judicial claim under Section 229.
Under Section 110(B) and Section 112(A), the prescriptive period for filing a judicial claim for "excess" input VAT is
two years from the close of the taxable quarter when the sale was made by the person legally liable to pay the output
VAT. This prescriptive period has no relation to the date of payment of the "excess" input VAT. The "excess" input VAT
may have been paid for more than two years but this does not bar the filing of a judicial claim for "excess" VAT under
Section 112(A), which has a different reckoning period from Section 229. Moreover, the person claiming the refund or
credit of the input VAT is not the person who legally paid the input VAT. Such person seeking the VAT refund or credit
does not claim that the input VAT was "excessively" collected from him, or that he paid an input VAT that is more than
what is legally due. He is not the taxpayer who legally paid the input VAT.
Under Section 110(B), a taxpayer can apply his input VAT only against his output VAT. The only exception is when the
taxpayer is expressly "zero-rated or effectively zero-rated" under the law, like companies generating power through
renewable sources of energy. Thus, a non zero-rated VAT-registered taxpayer who has no output VAT because he has
no sales cannot claim a tax refund or credit of his unused input VAT under the VAT System. Even if the taxpayer has
sales but his input VAT exceeds his output VAT, he cannot seek a tax refund or credit of his "excess" input VAT under
the VAT System. He can only carry-over and apply his "excess" input VAT against his future output VAT. If such
"excess" input VAT is an "excessively" collected tax, the taxpayer should be able to seek a refund or credit for such
"excess" input VAT whether or not he has output VAT. The VAT System does not allow such refund or credit. Such
"excess" input VAT is not an "excessively" collected tax under Section 229. The "excess" input VAT is a correctly and
properly collected tax. However, such "excess" input VAT can be applied against the output VAT because the VAT is a
tax imposed only on the value added by the taxpayer. If the input VAT is in fact "excessively" collected under Section
229, then it is the person legally liable to pay the input VAT, not the person to whom the tax was passed on as part of
the purchase price and claiming credit for the input VAT under the VAT System, who can file the judicial claim under
Section 229.
San Roque: First, when it comes to recovery of unutilized input VAT, Section 112, and not Section 229 of the 1997 Tax
Code, is the governing law. Second, prior to 8 June 2007, the applicable rule is neither Atlas nor Mirant, but Section
112(A).
In this case, Mindanao II filed its administrative claims for refund or credit for the second, third and fourth quarters of
2004 on 6 October 2005. The case thus falls within the first period as indicated in the above timeline. In other words,
it is covered by the rule prior to the advent of either Atlas or Mirant.
Accordingly, the proper reckoning date in this case, as provided by Section 112(A) of the 1997 Tax Code, is the close of
the taxable quarter when the relevant sales were made.
C. The Administrative Claims Were Timely Filed.
(1) It is only the administrative claim that must be filed within the two-year prescriptive period; and (2) the two-year
prescriptive period begins to run from the close of the taxable quarter when the relevant sales were made.
Second Quarter
Third Quarter
Fourth Quarter
II. MINDANAO II'S JUDICIAL CLAIMS WERE FILED OUT OF TIME

A. 30-Day Period Also Applies to Appeals from Inaction.
Section 112(D) speaks of two periods: the period of 120 days, which serves as a waiting period to give time for the CIR
to act on the administrative claim for refund or credit, and the period of 30 days, which refers to the period for
interposing an appeal with the CTA. It is with the 30-day period that there is an issue in this case.
The CTA En Banc's holding is that, since the word "or" is used in Section 112(D), the taxpayer is given two options: 1)
file an appeal within 30 days from the CIR's denial of the administrative claim; or 2) file an appeal with the CTA after
expiration of the 120-day period, in which case the 30-day appeal period does not apply. The judicial claim is
seasonably filed so long as it is filed after the lapse of the 120-day waiting period but before the lapse of the two-year
prescriptive period under Section 112(A). We do not agree.
The 30-day period applies not only to instances of actual denial by the CIR of the claim for refund or tax credit, but to
cases of inaction by the CIR as well. As held in San Roque:
Section 112(C) also expressly grants the taxpayer a 30-day period to appeal to the CTA the decision or inaction of the
Commissioner. x x x This law is clear, plain, and unequivocal so we follow the verba legis doctrine. As this law states,
the taxpayer may, if he wishes, either (1) appeal the decision of the Commissioner to the CTA within 30 days from
receipt of the Commissioner's decision, or (2) if the Commissioner does not act on the taxpayer's claim within the
120-day period, the taxpayer may appeal to the CTA within 30 days from the expiration of the 120-day period.
B. The Judicial Claim Was Belatedly Filed.
Mindanao II filed a Petition for Review only on 21 July 2006, 138 days after the lapse of the 30-day period on 5 March
2006. The judicial claim was therefore filed late.
C. The 30-Day Period to Appeal is Mandatory and Jurisdictional.

The CIR posits that it is mandatory. Mindanao II contends that the requirement of judicial recourse within 30 days is
only directory and permissive, as indicated by the use of the word "may" in Section 112(D).
The answer is found in San Roque. There, we declared that the 30-day period to appeal is both mandatory and
jurisdictional: (refer to the last paragraph under A)
The taxpayer can file his administrative claim for refund or credit at anytime within the two-year prescriptive period.
If he files his claim on the last day of the two-year prescriptive period, his claim is still filed on time. The Commissioner
will have 120 days from such filing to decide the claim. If the Commissioner decides the claim on the 120th day, or
does not decide it on that day, the taxpayer still has 30 days to file his judicial claim with the CTA. This is not only the
plain meaning but also the only logical interpretation of Section 112(A) and (C).
D. Exception to the mandatory and jurisdictional nature of the 120+30 day period not applicable.
Nevertheless, San Roque provides an exception to the mandatory and jurisdictional nature of the 120+30 day period -
BIR Ruling No. DA-489-03 dated 10 December 2003. The BIR ruling declares that the "taxpayer-claimant need not
wait for the lapse of the 120-day period before it could seek judicial relief with the CTA by way of Petition for Review."
Thus, in San Roque, the Court applied this exception to Taganito Mining Corporation (Taganito), one of the taxpayers
in San Roque. Taganito filed its judicial claim on 14 February 2007, after the BIR ruling took effect on 10 December
2003 and before the promulgation of Mirant. The Court stated:
“Taganito, however, filed its judicial claim with the CTA on 14 February 2007, after the issuance of BIR Ruling No. DA-
489-03 on 10 December 2003. Truly, Taganito can claim that in filing its judicial claim prematurely without waiting for
the 120-day period to expire, it was misled by BIR Ruling No. DA-489-03. Thus, Taganito can claim the benefit of BIR
Ruling No. DA-489-03, which shields the filing of its judicial claim from the vice of prematurity.”
We sum up the rules established by San Roque on the mandatory and jurisdictional nature of the 30-day period to
appeal through the following timeline:
As mentioned above, Mindanao II filed its judicial claim with the CTA on 21 July 2006. This was after the issuance of
BIR Ruling No. DA-489-03 on 10 December 2003, but before its reversal on 5 October 2010. However, while the BIR
ruling was in effect when Mindanao II filed its judicial claim, the rule cannot be properly invoked. The BIR ruling, as
discussed earlier, contemplates premature filing. The situation of Mindanao II is one of late filing. To repeat, its
judicial claim was filed on 21 July 2006 long after 5 March 2006, the last day of the 30-day period for appeal. In fact, it
filed its judicial claim 138 days after the lapse of the 30-day period. (See timeline below)
E. SUMMARY OF RULES ON PRESCRIPTIVE PERIODS FOR CLAIMING REFUND OR CREDIT OF INPUT VAT
The lessons of this case may be summed up as follows:
a. Two-Year Prescriptive Period
It is only the administrative claim that must be filed within the two-year prescriptive period. (Aichi)
The proper reckoning date for the two-year prescriptive period is the close of the taxable quarter when the relevant
sales were made. (San Roque)
The only other rule is the Atlas ruling, which applied only from 8 June 2007 to 12 September 2008. Atlas states that
the two-year prescriptive period for filing a claim for tax refund or credit of unutilized input VAT payments should be
counted from the date of filing of the VAT return and payment of the tax. (San Roque)
b. 120+30 Day Period
The taxpayer can file an appeal in one of two ways: (1) file the judicial claim within thirty days after the Commissioner
denies the claim within the 120-day period, or (2) file the judicial claim within thirty days from the expiration of the
120-day period if the Commissioner does not act within the 120-day period.
The 30-day period always applies, whether there is a denial or inaction on the part of the CIR.
As a general rule, the 30-day period to appeal is both mandatory and jurisdictional. (Aichi and San Roque)
As an exception to the general rule, premature filing is allowed only if filed between 10 December 2003 and 5 October
2010, when BIR Ruling No. DA-489-03 was still in force. (San Roque)
Late filing is absolutely prohibited, even during the time when BIR Ruling No. DA-489-03 was in force. (San Roque)
27. Team Energy Corporation (formerly Mirant Pagbilao Corp.) vs. CIR, G.R. No. 190928, January 13, 2014.
whether or not petitioner timely filed its judicial claim for refund of input VAT for the first quarter of 2002.
Facts:
On the following dates, Petitioner TEC filed with BIR its first to fourth Quarterly VAT Returns for the calendar year
2002:
Quarter Date Filed
First 25 April 2002
Second 23 July 2002
Third 25 October 2002
Fourth 27 January 2003
Subsequently, on December 22, 2003, TEC filed an administrative claim for refund of unutilized input VAT with
Revenue District Office in the total amount of ₱79.9 million for calendar year 2002. However, due to CIR’s inaction,
TEC elevated its claim before the CTA First Division on 22 April 2004. In his Answer, CIR interposed the following:
5. TEC’s alleged claim for refund is subject to administrative investigation/examination by the CIR;
6. To support its claim, it is imperative for petitioner to prove the following:
a. The registration requirements of a value-added taxpayer in compliance with Section 6 (a) and (b) of
Revenue Regulations No. 6-97 . . .
b. The invoicing and accounting requirements for VAT-registered persons, as well as the filing and
payment of VAT . . .
c. Proof of compliance with the prescribed checklist of requirements to be submitted involving claim for VAT
refund in pursuance to Revenue Memorandum Order No. 53-98, otherwise there would be no
sufficient compliance with the filing of administrative claim for refund which is a condition sine qua non
prior to the filing of judicial claim.
d. That the input taxes of ₱79.9 million allegedly paid by TEC on its purchases of goods and
services for the 4 quarters of the year 2002 were attributable to its zero-rated sales and such
have not been applied against any output tax and were not carried over in the succeeding taxable
quarter or quarters;
e. That TEC’s administrative and judicial claims for tax credit or refund of unutilized input tax (VAT)
was filed within two (2) years after the close of the taxable quarter when the sales were made in
accordance with Sections 112 (A) and (D) and 229 of the TAX Code, as amended;
f. That petitioner’s domestic purchases of goods and services were made in the course of its trade and
business, properly supported by VAT invoices and/or official receipts and other documents, such as
subsidiary purchase Journal, showing that it actually paid VAT
g. The requirements as enumerated under Section 4.104-2 of Revenue Regulations 7-95. (Re:
Persons who can avail of the Input Tax Credits);
7. Furthermore, in an action for refund the burden of proof is on the taxpayer to establish its right to refund and
failure to sustain the burden is fatal to the claim for refund/credit.
8. Claims for refund are construed strictly against the claimant for the same partake the nature of exemption from
taxation and, as such, they are looked upon with disfavor.
CTA First Division partially granted the petition for review, thus BIR was ordered to refund or issue a tax credit
certificate to TEC in the reduced amount of P69.9 million.
Issue:
W/N TEC timely filed its judicial claim for refund of input VAT for the 1Q, 2002 (YES)
Held:
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.
In its assailed decision, the CTA En Banc reduced petitioner’s claim for refund of its excess or unutilized input VAT to
₱51,134,951.40 on the ground that petitioner’s judicial claim for the first quarter of 2002 was filed beyond the two-
year period prescribed under Section 112 (A) of the Tax Code, to wit:
“As regards the fifth requisite, Section 112 (A) of the NIRC of 1997, as amended, provides that a VAT-registered
taxpayer whose sale is zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable
quarter when the sales were made, apply for refund or issuance of a TCC of its creditable input tax or paid
attributable to such sales.”
In the recent case of CIR vs. Mirant Pagbilao (Mirant), this Court definitely settled the issue on the reckoning of the
prescriptive period on claims for refund of input VAT attributable to zero-rated or effectively zero-rated sales, as
follows:
xxxx
Pursuant to the above ruling of the Supreme Court, it is clear that the two-year prescriptive period provided in Section
112 (A) of the NIRC, as amended, should be counted not from the payment of the tax, but from the close of the
taxable quarter when the sales were made. Pursuant to the above ruling of the Supreme Court, the following are the
pertinent dates relevant to petitioner’s claim for refund:
Taxable Quarter Last Day to File Claim for Refund

2002 Close of the Quarter
1Q 31 March 2002 31 March 2004
2Q 30 June 2002 30 June 2004
3Q 30 September 2002 30 September 2004
4Q 31 December 2002 31 December 2004
In sum, the Court En Banc finds that the total substantiated input tax filed within the two-year prescriptive period of
TEC amounts to ₱51,134,951.40 only.
Recently, however, in the consolidated cases of CIR v. San Roque Power Corporation (San Roque ponencia), this Court
emphasized that Section 112 (A) and (C) of the Tax Code must be interpreted according to its clear, plain and
unequivocal language.
In said case, we held that the taxpayer can file his administrative claim for refund or issuance of tax credit certificate
anytime within the two-year prescriptive period. If he files his claim on the last day of the two-year prescriptive
period, his claim is still filed on time. The Commissioner will then have 120 days from such filing to decide the claim. If
the Commissioner decides the claim on the 120th day or does not decide it on that day, the taxpayer still has 30 days
to file his judicial claim with the CTA.
This law is clear, plain and unequivocal. Following the well-settled verba legis doctrine, this law should be applied
exactly as worded since it is clear, plain and unequivocal. As this law states, the taxpayer may, if he wishes, (1) appeal
the decision of the Commissioner to the CTA within 30 days from receipt of the Commissioner’s decision, or (2) if the
Commissioner does not act on the taxpayer’s claim within the 120-day period, the taxpayer may appeal to the CTA
within 30 days from the expiration of the 120-day period.
There are three compelling reasons why the 30-day period need not necessarily fall within the two-year prescriptive
period, as long as the administrative claim is filed within the two-year prescriptive period.
First, Section 112 (A) clearly, plainly and unequivocally provides that the taxpayer "may, within two (2) years after the
close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of
the creditable input tax due or paid to such sales." In short, the law states that the taxpayer may apply with the
Commissioner for a refund or credit "within two (2) years," which means at anytime within two years. Thus, the
application for refund or credit may be filed by the taxpayer with the Commissioner on the last day of the two-year
prescriptive period and it will still strictly comply with the law. The two-year prescriptive period is a grace period in
favor of the taxpayer and he can avail of the full period before his right to apply for a tax refund or credit is barred by
prescription.
Second, Section 112 (C) provides that the Commissioner shall decide the application for refund or credit "within one
hundred twenty (120) days from the date of submission of complete documents in support of the application filed in
accordance with Subsection (A)." The reference in Section 112 (C) of the submission of documents "in support of the
application filed in accordance with Subsection (A)" means that the application in Section 112 (A) is the administrative
claim that the Commissioner must decide within the 120-day period. In short, the two-year prescriptive period in
Section 112 (A) refers to the period within which the taxpayer can file an administrative claim for tax refund or credit.
Stated otherwise, the two-year prescriptive period does not refer to the filing of the judicial claim with the CTA but to
the filing of the administrative claim with the Commissioner. As held in Aichi, the "phrase ‘within two years x x x apply
for the issuance of a tax credit or refund" refers to applications for refund/credit with the CIR and not to appeals
made to the CTA."
Third, if the 30-day period, or any part of it, is required to fall within the two-year prescriptive period (equivalent to
730 days), then the taxpayer must file his administrative claim for refund or credit within the first 610 days of the two-
year prescriptive period. Otherwise, the filing of the administrative claim beyond the first 610 days will result in the
appeal to the CTA being filed beyond the two-year prescriptive period. Thus, if the taxpayer files his administrative
claim on the 611th day, the Commissioner, with his 120-day period, will have until the 731st day to decide the claim.
If the Commissioner decides only on the 731st day, or does not decide at all, the taxpayer can no longer file his judicial
claim with the CTA because the two-year prescriptive period (equivalent to 730 days) has lapsed. The 30-day period
granted by law to the taxpayer to file an appeal before the CTA becomes utterly useless, even if the taxpayer
complied with the law by filing his administrative claim within the two-year prescriptive period.
The theory that the 30-day period must fall within the two-year prescriptive period adds a condition that is not found
in the law. It results in truncating 120 days from the 730 days that the law grants the taxpayer for filing his
administrative claim with the Commissioner. This Court cannot interpret a law to defeat, wholly or even partly, a
remedy that the law expressly grants in clear, plain and unequivocal language.
Based on the aforequoted discussions, we therefore disagree with the CTA En Banc’s finding that petitioner’s judicial
claim for the first quarter of 2002 was not timely filed.
The San Roque ponencia firmly enunciates that the taxpayer can file his administrative claim for refund or credit at
any time within the two-year prescriptive period. What is only required of him is to file his judicial claim within thirty
(30) days after denial of his claim by respondent or after the expiration of the 120-day period within which
respondent can decide on its claim.
Here, there is no question that petitioner timely filed its administrative claim with the Bureau of Internal Revenue
within the required period. However, since its administrative claim was filed within the two-year prescriptive period
and its judicial claim was filed on the first day after the expiration of the 120-day period granted to respondent, to
decide on its claim, we rule that petitioner’s claim for refund for the first quarter of 2002 should be granted.
28. Fort Bonifacio Development Corporation v. CIR, et. al., G.R. No. 173425, January 22, 2013.
RESOLUTION
DEL CASTILLO, J : p
This resolves respondents' Motion for Reconsideration. 1 Respondents raise the following arguments: "1) Prior payment of tax
is inherent in the nature and payment of the 8% transitional input tax; 2 2) Revenue Regulations No. 7-95 providing for 8% transitional
input tax based on the value of the improvements on the real properties is a valid legislative rule; 3 3) For failure to clearly prove its
entitlement to the transitional input tax credit, petitioner's claim for tax refund must fail in light of the basic doctrine that tax refund
partakes of the nature of a tax exemption which should be construed strictissimi juris against the taxpayer." 4
We deny with finality the Motion for Reconsideration filed by respondents; the basic issues presented have already been
passed upon and no substantial argument has been adduced to warrant the reconsideration sought.
In his Dissent, Justice Carpio cites four grounds as follows: "first, petitioner is not entitled to any refund of input [Value-added
tax] VAT, since the sale by the national government of the Global City land to petitioner was not subject to any input
VAT; second, the Tax Code does not allow any cash refund of input VAT, only a tax credit; third, even for zero-rated or effectively zero-
rated VAT-registered taxpayers, the Tax Code does not allow any cash refund or credit of transitional input tax; and fourth, the cash
refund, not being supported by any prior actual tax payment, is unconstitutional since public funds will be used to pay for the refund
which is for the exclusive benefit of petitioner, a private entity." 5
LibLex
At the outset, it must be pointed out that all these arguments have already been extensively discussed and argued, not only
during the deliberations but likewise in the exchange of comments/opinions.
Nevertheless, we will discuss them again for emphasis.
First argument: "[P]etitioner is not
entitled to any refund of input VAT since
the sale by the national government of
the Global City land to petitioner was not
subject to any input VAT[.]"6
Otherwise stated, it is argued that prior payment of taxes is a prerequisite before a taxpayer could avail of the transitional input
tax credit.
This argument has long been settled. To reiterate, prior payment of taxes is not necessary before a taxpayer could avail of the
8% transitional input tax credit. This position is solidly supported by law and jurisprudence, viz.:
First. Section 105 of the old National Internal Revenue Code (NIRC)clearly provides that for a taxpayer to avail of the 8%
transitional input tax credit, all that is required from the taxpayer is to file a beginning inventory with the Bureau of Internal Revenue
(BIR). It was never mentioned in Section 105 that prior payment of taxes is a requirement. For clarity and reference, Section 105 is
reproduced below:
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.)
Second. Since the law (Section 105 of the NIRC) does not provide for prior payment of taxes, to require it now would be
tantamount to judicial legislation which, to state the obvious, is not allowed.
Third. A transitional input tax credit is not a tax refund per se but a tax credit. Logically, prior payment of taxes is not required
before a taxpayer could avail of transitional input tax credit. As we have declared in our September 4, 2012 Decision, 7 "[t]ax 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." 8 ECSHAD
Fourth. The issue of whether prior payment of taxes is necessary to avail of transitional input tax credit is no longer novel. It
has long been settled by jurisprudence. In fact, in the earlier case of Fort Bonifacio Development Corporation v. Commissioner of
Internal Revenue, 9 this Court had already ruled that ”
. . . . If the intent of the law were to limit the input tax to cases where actual VAT was paid, it could have simply said that the tax
base shall be the actual value-added tax paid. Instead, the law as framed contemplates a situation where a transitional input
tax credit is claimed even if there was no actual payment of VAT in the underlying transaction. In such cases, the tax base
used shall be the value of the beginning inventory of goods, materials and supplies. 10
Fifth. Moreover, in Commissioner of Internal Revenue v. Central Luzon Drug Corp., 11 this Court had already declared that
prior payment of taxes is not required in order to avail of a tax credit. 12 Pertinent portions of the Decision read:
While a tax liability is essential to the availment or use of any tax credit, prior tax payments are not. On the contrary, for
the existence or grant solely of such credit, neither a tax liability nor a prior tax payment is needed. The Tax Code is in fact replete
with provisions granting or allowing tax credits, even though no taxes have been previously paid.
For example, in computing the estate tax due, Section 86(E) allows a tax credit ” subject to certain limitations ” for
estate taxes paid to a foreign country. Also found in Section 101(C) is a similar provision for donor's taxes ” again when paid to a
foreign country ” in computing for the donor's tax due. The tax credits in both instances allude to the prior payment of taxes, even
if not made to our government.
Under Section 110, a VAT (Value-Added Tax)-registered person engaging in transactions ” whether or not subject to
the VAT ” is also allowed a tax credit that includes a ratable portion of any input tax not directly attributable to either activity. This
input tax may either be the VAT on the purchase or importation of goods or services that is merely due from ” not necessarily paid
by ” such VAT-registered person in the course of trade or business; or the transitional input tax determined in accordance with
Section 111(A). The latter type may in fact be an amount equivalent to only eight percent of the value of a VAT-registered
person's beginning inventory of goods, materials and supplies, when such amount ” as computed ” is higher than the actual VAT
paid on the said items. Clearly from this provision, the tax credit refers to an input tax that is either due only or given a value by
mere comparison with the VAT actually paid ” then later prorated. No tax is actually paid prior to the availment of such credit. cTEICD
In Section 111(B), a one and a half percent input tax credit that is merely presumptive is allowed. For the purchase of
primary agricultural products used as inputs ” either in the processing of sardines, mackerel and milk, or in the manufacture of
refined sugar and cooking oil ” and for the contract price of public work[s] contracts entered into with the government, again, no
prior tax payments are needed for the use of the tax credit.
More important, a VAT-registered person whose sales are zero-rated or effectively zero-rated may, under Section
112(A), apply for the issuance of a tax credit certificate for the amount of creditable input taxes merely due ” again not necessarily
paid to ” the government and attributable to such sales, to the extent that the input taxes have not been applied against output
taxes. Where a taxpayer is engaged in zero-rated or effectively zero-rated sales and also in taxable or exempt sales, the amount
of creditable input taxes due that are not directly and entirely attributable to any one of these transactions shall be proportionately
allocated on the basis of the volume of sales. Indeed, in availing of such tax credit for VAT purposes, this provision ” as well as
the one earlier mentioned ” shows that the prior payment of taxes is not a requisite.
It may be argued that Section 28(B)(5)(b) of the Tax Code is another illustration of a tax credit allowed, even though no
prior tax payments are not required. Specifically, in this provision, the imposition of a final withholding tax rate on cash and/or
property dividends received by a nonresident foreign corporation from a domestic corporation is subjected to the condition that a
foreign tax credit will be given by the domiciliary country in an amount equivalent to taxes that are merely deemed paid. Although
true, this provision actually refers to the tax credit as acondition only for the imposition of a lower tax rate, not as a deduction from
the corresponding tax liability. Besides, it is not our government but the domiciliary country that credits against the income tax
payable to the latter by the foreign corporation, the tax to be foregone or spared.
In contrast, Section 34(C)(3), in relation to Section 34(C)(7)(b), categorically allows as credits, against the income tax
imposable under Title II, the amount of income taxes merely incurred ” not necessarily paid ” by a domestic corporation during a
taxable year in any foreign country. Moreover, Section 34(C)(5) provides that for such taxes incurred but not paid, a tax
credit may be allowed, subject to the condition precedent that the taxpayer shall simply give a bond with sureties satisfactory to
and approved by petitioner, in such sum as may be required; and further conditioned upon payment by the taxpayer of any tax
found due, upon petitioner's redetermination of it.
In addition to the above-cited provisions in the Tax Code,there are also tax treaties and special laws that grant or
allow tax credits, even though no prior tax payments have been made. aHTcDA
Under the treaties in which the tax credit method is used as a relief to avoid double taxation, income that is taxed in
the state of source is also taxable in the state of residence, but the tax paid in the former is merely allowed as a credit against the
tax levied in the latter. Apparently, payment is made to the state of source, not the state of residence. No tax, therefore, has
been previously paid to the latter.
Under special laws that particularly affect businesses, there can also be tax credit incentives. To illustrate, the
incentives provided for in Article 48 of Presidential Decree No. (PD) 1789, as amended by Batas Pambansa Blg. (BP) 391,
include tax credits equivalent to either five percent of the net value earned, or five or ten percent of the net local content of export.
In order to avail of such credits under the said law and still achieve its objectives, no prior tax payments are necessary.
From all the foregoing instances, it is evident that prior tax payments are not indispensable to the availment of a tax
credit. Thus, the CA correctly held that the availment under RA 7432did not require prior tax payments by private establishments
concerned. However, we do not agree with its finding that the carry-over of tax credits under the said special law to succeeding
taxable periods, and even their application against internal revenue taxes, did not necessitate the existence of a tax liability.
The examples above show that a tax liability is certainly important in the availment or use, not the existence or grant, of
a tax credit. Regarding this matter, a private establishment reporting a net loss in its financial statements is no different from
another that presents a net income. Both are entitled to the tax credit provided for under RA 7432, since the law itself accords that
unconditional benefit. However, for the losing establishment to immediately apply such credit, where no tax is due, will be an
improvident usance. 13 TEHIaA
Second and third arguments: "[T]he

Tax Code does not allow any cash
refund of input VAT, only a tax credit;"
and "even for zero-rated or effectively
zero-rated VAT-registered taxpayers, the
Tax Code does not allow any cash
refund or credit of transitional input
tax." 14
Citing Sections 110 and 112 of the Tax Code,it is argued that the Tax Code does not allow a cash refund, only a tax credit.
This is inaccurate.
First. Section 112 of the Tax Code speaks of zero-rated or effectively zero-rated sales. Notably, the transaction involved in
this case is not zero-rated or effectively zero-rated sales.
Second. A careful reading of Section 112 of the Tax Code would show that it allows either a cash refund or a tax credit for
input VAT on zero-rated or effectively zero-rated sales. For reference, Section 112 is herein quoted, viz.: cDSaEH
Sec. 112. Refunds or Tax Credits of Input Tax. ”
(A) Zero-rated or Effectively Zero-rated Sales. ” Any VAT-registered person, whose sales are zero-rated or effectively
zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a
tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to the
extent that such input tax has not been applied against output tax: . . . . (Emphasis supplied.)
Third. Contrary to the Dissent, Section 112 of the Tax Code does not prohibit cash refund or tax credit of transitional input tax
in the case of zero-rated or effectively zero-rated VAT registered taxpayers, who do not have any output VAT. The phrase "except
transitional input tax" in Section 112 of the Tax Code was inserted to distinguish creditable input tax from transitional input tax credit.
Transitional input tax credits are input taxes on a taxpayer's beginning inventory of goods, materials, and supplies equivalent to 8%
(then 2%) or the actual VAT paid on such goods, materials and supplies, whichever is higher. It may only be availed of once by first-
time VAT taxpayers. Creditable input taxes, on the other hand, are input taxes of VAT taxpayers in the course of their trade or business,
which should be applied within two years after the close of the taxable quarter when the sales were made.
Fourth. As regards Section 110, while the law only provides for a tax credit, a taxpayer who erroneously or excessively pays
his output tax is still entitled to recover the payments he made either as a tax credit or a tax refund. In this case, since petitioner still has
available transitional input tax credit, it filed a claim for refund to recover the output VAT it erroneously or excessively paid for the 1st
quarter of 1997. Thus, there is no reason for denying its claim for tax refund/credit.
Fifth. Significantly, the dispositive portion of our September 4, 2012 Decision 15 directed the respondent Commissioner of
Internal Revenue (CIR) to either refund the amount paid as output VAT for the 1st quarter of 1997 or to issue a tax credit certificate.
We did not outrightly direct the cash refund of the amount claimed, thus:
WHEREFORE, the petition is hereby GRANTED. The assailed Decision dated July 7, 2006 of the Court of Appeals in
CA-G.R. SP No. 61436 is REVERSED and SET ASIDE. Respondent Commissioner of Internal Revenue is ordered to refund to
petitioner Fort Bonifacio Development Corporation the amount of P359,652,009.47 paid as output VAT for the first quarter of 1997
in light of the transitional input tax credit available to petitioner for the said quarter, or in the alternative, to issue a tax credit
certificate corresponding to such amount.
SO ORDERED. 16
Sixth. Notably, in the earlier case of Fort Bonifacio, we likewise directed the respondent to either refund or issue a tax credit
certificate. It bears emphasis that this Decision already became final and executory and entry of judgment was made in due course.
The dispositive portion of our Decision in said case reads: cda
WHEREFORE, the petitions are GRANTED. The assailed decisions of the Court of Tax Appeals and the Court of
Appeals are REVERSED and SET ASIDE. Respondents are hereby (1) restrained from collecting from petitioner the amount of
P28,413,783.00 representing the transitional input tax credit due it for the fourth quarter of 1996; and (2) directed to refund to
petitioner the amount of P347,741,695.74 paid as output VAT for the third quarter of 1997 in light of the persisting transitional
input tax credit available to petitioner for the said quarter, or to issue a tax credit corresponding to such amount. No
pronouncement as to costs. 17
Clearly, the CIR has the option to return the amount claimed either in the form of tax credit or refund.
Fourth argument. "[T]he cash refund,
not being supported by any prior actual
tax payment, is unconstitutional since
public funds will be used to pay for the
refund which is for the exclusive benefit
of petitioner, a private entity." 18
Otherwise stated, it is argued that the refund or issuance of tax credit certificate violates the mandate in Section 4 (2) of the
Government Auditing Code of the Philippines that "Government funds or property shall be spent or used solely for public purposes."
Again, this is inaccurate. On the contrary, the grant of a refund or issuance of tax credit certificate in this case would not
contravene the above provision. The refund or tax credit would not be unconstitutional because it is precisely pursuant to Section 105 of
the old NIRC which allows refund/tax credit.
Final Note
As earlier mentioned, the issues in this case are not novel. These same issues had been squarely ruled upon by this Court in
the earlier Fort Bonifacio case. This earlier Fort Bonifaciocase already attained finality and entry of judgment was already made in due
course. To reverse our Decision in this case would logically affect our Decision in the earlier Fort Bonifacio case. Once again, this Court
will become an easy target for charges of "flip-flopping."
ACCORDINGLY, the Motion for Reconsideration is DENIED with FINALITY, the basic issues presented having been passed
upon and no substantial argument having been adduced to warrant the reconsideration sought. No further pleadings or motions shall be
entertained in this case. Let entry of final judgment be made in due course. SCHIac
(Fort Bonifacio Development Corp. v. Commissioner of Internal Revenue, G.R. No. 173425 (Resolution), [January 22, 2013], 702 PHIL
|||
8-29)
TOPIC: Transitional Input Tax; note: 8% ang rate ani sauna ha

FACTS:
Petitioner Fort Bonifacio Development Corporation (FBDC) is a duly registered domestic corporation engaged in the
development and sale of real property.3 The Bases Conversion Development Authority (BCDA), a wholly owned
government corporation created under Republic Act (RA) No. 7227,4 owns 45% of petitioner’s issued and outstanding
capital stock; while the Bonifacio Land Corporation, a consortium of private domestic corporations, owns the
remaining 55%.5
On February 8, 1995, by virtue of RA 7227 and Executive Order No. 40,6 dated December 8, 1992, petitioner
purchased from the national government a portion of the Fort Bonifacio reservation, now known as the Fort Bonifacio
Global City (Global City).
On January 1, 1996, RA 7716 restructured the Value-Added Tax (VAT) system by amending certain provisions of the
old National Internal Revenue Code (NIRC). RA 7716 extended the coverage of VAT to real properties held primarily
for sale to customers or held for lease in the ordinary course of trade or business.
To claim the transitional input VAT, petitioner MERELY submitted (AND DID NOT PAY THE BUSINESS TAXES) to the
Bureau of Internal Revenue (BIR) Revenue District an inventory of all its real properties, the book value of which
aggregated ₱ 71,227,503,200. Based on this value, petitioner claimed that it is entitled to a transitional input tax
credit of ₱ 5,698,200,256, (8% x 71,227,503,200) pursuant to Section 105 of the old NIRC.
In October 1996, petitioner started selling Global City lots to interested buyers. Petitioner generated sales and leases,
paid the corresponding Output VAT, and credited the input VAT.
Realizing, however, that its transitional input tax credit was not applied in computing its output VAT for the first
quarter of 1997, petitioner on November 17, 1998 filed with the BIR a claim for refund of the amount of ₱
359,652,009.47 erroneously paid as output VAT for the said period. The reasoning by the BIR for not crediting the
transitional input VAT (also the reasoning adopted by the Court of Tax Appeals) was because (1) the transitional input
tax should be based only the improvements on the real property and NOT the real property itself, and (2) that the
business taxes should be paid first.
ISSUES:
1. WON mere submission of inventory is needed to claim the transitional input VAT? In other words, should the
subsmission of inventory be coupled with payment of business taxes?
2. WON transitional input tax is imposed only on the improvements and not on the whole property?
RULING:
Prior payment of taxes is not required for a taxpayer to avail of the 8% transitional input tax credit.
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.)
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.
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.40 Tax credit, on the other hand, is an amount
subtracted directly from one’s total tax liability.41 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.
As regards Section 4.105-147 of RR 7-95 which limited the 8% transitional input tax credit to the value of the
improvements on the land, the same contravenes the provision of Section 105 of the old NIRC, in relation to Section
100 of the same Code, as amended by RA 7716, which defines "goods or properties," to wit:
SEC. 100. Value-added tax on sale of goods or properties. – (a) Rate and base of tax. – There shall be levied, assessed
and collected on every sale, barter or exchange of goods or properties, a value-added tax equivalent to 10% of the
gross selling price or gross value in money of the goods or properties sold, bartered or exchanged, such tax to be paid
by the seller or transferor.
(1) The term "goods or properties" shall mean all tangible and intangible objects which are capable of pecuniary
estimation and shall include:
(A) Real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business;
(AKA wa giingon nga “Improvements on Real Properties” ra)
In fact, in our Resolution dated October 2, 2009, in the related case of Fort Bonifacio, we ruled that Section 4.105-1 of
RR 7-95, insofar as it limits the transitional input tax credit to the value of the improvement of the real properties, is a
nullity. As we see it then, the 8% transitional input tax credit should not be limited to the value of the improvements
on the real properties but should include the value of the real properties as well.
29. CIR v. San Roque, G.R. No. 187485, February 12, 2013
FACTS:
[San Roque] is a domestic corporation duly organized and existing under and by virtue of the laws of the Philippines
with principal office at Barangay San Roque, San Manuel, Pangasinan. It was incorporated in October 1997 to design,
construct, and operate power-generating plants and related facilities pursuant to and under contract with the
Government of the Republic of the Philippines, or any subdivision, instrumentality or agency thereof, or any
government-owned or controlled corporation, or other entity engaged in the development, supply, or distribution of
energy.
As a seller of services, [San Roque] is duly registered with the BIR. It is likewise registered with the Board of
Investments ("BOI") on a preferred pioneer status, to engage in the design, construction, and operation of electric
power-generating plants and related activities, for which it was issued Certificate of Registration.
On October 11, 1997, [San Roque] entered into a Power Purchase Agreement ("PPA") with the National Power
Corporation ("NPC") to develop hydro-potential of the Lower Agno River and generate additional power and energy
for the Luzon Power Grid, by building the San Roque Multi-Purpose Project located in San Manuel, Pangasinan. The
PPA provides, among others, that [San Roque] shall be responsible for the design and construction of the Power
Station and shall operate and maintain the same, subject to NPC instructions.
On the construction and development of the San Roque Multi- Purpose Project which comprises of the dam, spillway
and power plant, [San Roque] allegedly incurred, excess input VAT in the amount of ₱559,709,337.54 for taxable year
2001 which it declared in its Quarterly VAT Returns filed for the same year. [San Roque] duly filed with the BIR
separate claims for refund, in the total amount of ₱559,709,337.54, representing unutilized input taxes as declared in
its VAT returns for taxable year 2001.
However, on March 28, 2003, [San Roque] filed amended Quarterly VAT Returns for the year 2001 since it increased
its unutilized input VAT to the amount of ₱560,200,283.14. Consequently, [San Roque] filed with the BIR on even
date, separate amended claims for refund in the aggregate amount of ₱560,200,283.14.
[CIR’S] INACTION on the subject claims LED TO THE FILING by [San Roque] of the Petition for Review with the Court [of
Tax Appeals] in Division on April 10, 2003.
Trial of the case ensued and on July 20, 2005, the case was submitted for decision.
At first, the claim of the San Roque was denied by the CTA since (1) it failed to produce the necessary documents to
show that it was a VAT registered entity and (2) it failed to show that the plants were properly depreciated in the
accounting books. However, upon showing the necessary proof, it was subsequently allowed by CTA hence the CIR
filed the petition.
ISSUE:
WON petitioner is entitled to unutilized input taxes even if it filed the claim disregarding the 120 day waiting period
required for the Commissioner to decide on the claim?
RULING:
NO, for the following reasons-
1. San Roque was in haste; it filed the claim with CTA without awaiting for the decision of the CIR or the lapse of the
120 day period –
On 10 April 2003, a mere 13 days after it filed its amended administrative claim with the Commissioner on 28 March
2003, San Roque filed a Petition for Review with the CTA docketed as CTA Case No. 6647. Clearly, San Roque failed to
comply with the 120-day waiting period, the time expressly given by law to the Commissioner to decide whether to
grant or deny San Roque’s application for tax refund or credit. It is indisputable that compliance with the 120-DAY
WAITING PERIOD is MANDATORY AND JURISDICTIONAL.
2. The charter of the CTA expressly provides that its jurisdiction is to review on appeal "decisions of the Commissioner
of Internal Revenue in cases involving x x x refunds of internal revenue taxes." When a taxpayer PREMATURELY files a
judicial claim for tax refund or credit with the CTA without waiting for the decision of the Commissioner, there is no
"decision" of the Commissioner to review and thus the CTA as a court of special jurisdiction has no jurisdiction over
the appeal. The charter of the CTA also expressly provides that if the Commissioner fails to decide within "a specific
period" required by law, such "inaction shall be deemed a denial" of the application for tax refund or credit. San
Roque’s failure to comply with the 120-day mandatory period renders its petition for review with the CTA void.
3. The mere fact that a taxpayer has undisputed excess input VAT, or that the tax was admittedly illegally, erroneously
or excessively collected from him, does not entitle him as a matter of right to a tax refund or credit. Strict compliance
with the mandatory and jurisdictional conditions prescribed by law to claim such tax refund or credit is essential and
necessary for such claim to prosper. Well-settled is the rule that tax refunds or credits, just like tax exemptions, are
strictly construed against the taxpayer. Non-compliance with mandatory periods, non-observance of prescriptive
periods, and non-adherence to exhaustion of administrative remedies bar a taxpayer’s claim for tax refund or credit,
whether or not the Commissioner questions the numerical correctness of the claim of the taxpayer.
This law is clear, plain, and unequivocal. Following the well-settled verba legis doctrine, this law should be applied
exactly as worded since it is clear, plain, and unequivocal. As this law states, the taxpayer may, if he wishes, appeal
the decision of the Commissioner to the CTA within 30 days from receipt of the Commissioner’s decision, or if the
Commissioner does not act on the taxpayer’s claim within the 120-day period, the taxpayer may appeal to the CTA
within 30 days from the expiration of the 120-day period.
30. CIR v. Dash Engineering, G.R. No. 184145, December 11, 2013
120 + 30 days is MANDATORY AND JURISDICTIONAL.
120 Days for the CIR to decide on the administrative claim
30 Days for the Entity to file the Petition for Review with the CTA in case of inaction or denial by the Commissioner.
FACTS:
Respondent DEPI is listed with the PEZA as an ecozone IT export enterprise and is also a VAT-registered entity
engaged in the export sales of computer-aided engineering and design. It filed its monthly and quarterly VAT returns
for the period from Jan 1, 2003 to June 30, 2003. On Aug. 9, 2004, it filed a claim for tax credit or refund in the
amount of P2.1M representing unutilized input VAT attributable to its zero-rated sales. DEPI filed a petition for review
with the CTA on May 5, 2005 coz CIR did not act on the claim.
2nd Div CTA partially granted the claim by reducing the amount to P1.1M. On the issue of the timeliness of the
judicial claim, it was held that it was filed within the 2-year prescriptive period counted from the date of filing of the
return and payment of the tax due. The petition for review was filed on May 5, 2005. The amended quarterly VAT
returns for the 1st and 2nd quarters of 2003 were filed on July 24, 2004. (more or less 9 mos ra ang nilabay).
CIR appealed to CTA En Banc, which upheld the 2nd Div decision. The judicial claim was filed on time because
the use of the word “may” in Sec 112(D) (now subparagraph C) of the NIRC indicates that judicial recourse within 30
days after the lapse of the 120-day period is only directory and permissive and not mandatory and jurisdictional as
long as the petition was filed within the 2 year prescriptive period. Moreover, the 2 year period applies to both
administrative and judicial claims. Hence, the petition.
ISSUES:
1) WON CTA En banc erred in holding that the judicial claim for refund was filed within the prescriptive period.
2) WON CTA En Banc erred in partially granting the refund.
RULING:
1) 120 + 30 DAYS IS MANDATORY AND JURISDICTIONAL. SEC 229 DOES NOT APPLY TO CLAIMS FOR EXCESS OF
INPUT VAT – HENCE, CLAIM WAS FILED OUTSIDE THE PRESCRIPTIVE PERIOD
ARGUMENT OF CIR:
Compliance of the 30 day period in Sec 112 is mandatory and jurisdictional, citing CIR v Aichi. DEPI allegedly
filed its administrative claim for refund on Aug. 9, 2004. The 120 period within which CIR should act then expired on
Dec. 7, 2004. So, following the 30 day period, DEPI only had until Jan 6, 2005, to file the petition for review, but which
was nevertheless filed on May 5, 2005.
ARGUMENT OF DEPI:
DEPI anchors its claim in Sec 204(c) and 229 of the NIRC. It interprets Sec 112 in relation to 229 to mean that
the 120-day period is the time given to the CIR to decide the case. The taxpayer, on the other hand, has the option of
either appealing to the CTA the denial by the CIR of the claim for refund within thirty (30) days from receipt of such
denial and within the two-year prescriptive period, or appealing an unacted claim to the CTA anytime after the
expiration of the 120-day period given to the CIR to resolve the administrative claim for as long as the judicial claim is
made within the two-year prescriptive period.
SC RULING:
 204 and 229 pertains to the refund of erroneously or illegally collected taxes. On the other hand, input VAT is not
'excessively' collected as understood under Section 229 because at the time the input VAT is collected the amount
paid is correct and proper.
 The 2-year prescriptive period referred to in Sec 112 (A) applies ONLY to the filing of administrative claims with
the CIR and NOT to the filing of judicial claims with the CTA.
 Applying CIR v San Roque Power Corp, it was held that 120+30 day period under Sec 112 is mandatory and
jurisdictional. The INACTION of CIR for 120 days on the refund claim is deemed a denial. FAILURE to file the
judicial claim within 30 days from denial, rendered the decision FINAL AND INAPPEALABLE. The exercise of the
right to appeal to the CTA of the decision of the Commissioner is A STATUTORY PRIVILEGE, WHICH MUST BE
STRICTLY COMPLIED.
2) Necessarily, grant of the refund was IMPROPER because of failure to comply with 120 + 30 days rule.
PETITION GRANTED.
31. Accenture, Inc. vs. CIR, G.R. No. 190102, July 11, 2012.
TO QUALIFY UNDER 108(B)(2) NIRC:
1) Recipient is a NON-RESIDENT Foreign Corp, and
2) Recipient must conduct business OUTSIDE the Philippines
FACTS:
Accenture, a corporation engaged in providing management consulting and distribution of software, is a duly
registered Value Added Taxpayer with the BIR. The point of issue in this case is the administrative claim filed by
Accenture with the Dept of Finance for the refund or the issuance of a Tax Credit Certificate (TCC).
Its monthly and quarterly VAT returns show that notwithstanding its application of the input VAT credits
earned from its zero-rated transactions against its output VAT liabilities, it still had excess or unutilized input VAT
credits. These VAT credits are in the amounts of P9,355,809.80 for the 1st period and P27,682,459.38 for the 2nd
period, or a total of P37,038,269.18. Out of the P37,038,269.18, only P35,178,844.21 pertained to the allocated input
VAT on Accenture's "domestic purchases of taxable goods which cannot be directly attributed to its zero-rated sale of
services." This allocated input VAT was broken down to P8,811,301.66 for the 1st period and P26,367,542.55 for the
2nd period. The excess input VAT was not applied to any output VAT that Accenture was liable for in the same
quarter when the amount was earned — or to any of the succeeding quarters. Instead, it was carried forward to
petitioner's 2nd Quarterly VAT Return for 2003.
Since the claim was not acted upon, Accenture filed a Petition for Review with the 1st Division of CTA. As a
defense, the CIR argued that: 1) the sale by Accenture of goods and services to its clients are not zero-rated
transactions; and 2) claims for refund should be strictly construed against the claimant, and that Accenture failed to
substantiate its claim. 1st Div CTA denied the Petition coz: 1) Accenture failed to prove that the sale of services
qualifies under the Zero Percent VAT; 2) failed to prove that its foreign clients did business outside the Philippines (coz
to qualify for zero-rating, recipient of service should do business outside daw, invoking CIR v Burmeister et al).
On appeal to CTA En Banc, it upheld the decision coz although what is used in the Burmeister case is Section
102 (b) (2) of 1977 Tax Code, still, Section 108 (B) (2) [xxx rendered to a person engaged in business conducted outside
the Phil xxx] of the 1997 Tax Code was a mere reenactment of the former. The MR was likewise denied, hence
the present petition.
ISSUES:
1) WON recipient of the services should be doing business outside the Philippines for the transaction to be zero-
rated under Sec 108 (B) (2) of the 1997 Tax Code
2) WON Accenture successfully proved that its clients do business outside the Phil.
Basa nlng codals kay taas if ibutang diri.
RULING:
HISTORY:
Gist of Sec. 102 (b) 1997 Tax Code in relation to sale of services:
 if the consideration for the services provided by a VAT registered person is in a foreign currency, then this
transaction shall be subjected to zero percent rate
Sec. 108 (B) (2) PRIOR to Amendment of RA 9337:

 x x x, the consideration for which is paid for in acceptable foreign currency and x x x (reproduced 102 b)
Sec. 108 (B) (2) AFTER Amended by RA 9337 (effective Nov 2005):
 (addition of) “x x x rendered in to a person engaged in business conducted outside the Phil or to a nonresident x x
x, (while retaining) the consideration for which x x x.
1) RECIPIENT OF THE SERVICE MUST BE DOING BUSINESS OUTSIDE THE PHILIPPINES TO QUALIFY FOR ZERO RATING
UNDER 108(B)
ACCENTURE’S ARGUMENT:
 At the time the claim was filed, the refund pertained to the third and fourth quarters of taxable year 2002 (PRIOR
to the amendment), the only requirements then are 1) consideration for the services be paid in foreign currency,
and 2) in accordance with the rules of BSP.
 Burmeister Case should not apply because the 1) 1977 Tax Code was applied, and 2) it was promulgated on 2007,
way beyond the claim, hence should not be applied retroactively.
o Sa Burmeister man gud, SC harmonized Sections 102(b)(1) & (b)(2) of the 1977 Tax Code. Since mere
reenactment ra ang 108, then CTA claims that same approach should be used. This means that 108 (B)(2)
of 1997 should be read in conjunction with (B)(1) – coz in the latter, there is the requirement that the
business be conducted outside. Essentially, there must be 3 requirements then to be zero rated: 1)
108(B)(1) conducted outside; 2) 108(B)(2) foreign currency; and 3) in accordance with BSP.
SC DECISION:
 108(B) of 1997 is a verbatim or exact reproduction of 102(b) of 1977 Tax Code, hence the interpretation of the
latter should be applied to the former. There is no violation of non-retroactivity of laws because interpretation of
a law does not amount to passing of a new law.
 Reliance in Amex Case is misplaced, coz in that case, the did not discuss the necessary qualification that the
recipient of the service must conduct its business abroad, it was not put in issue. Instead, the issue there is
whether the services should be consumed abroad to be zero-rated, which, is not required. (Place of Consumption
is different from Place of Business).
2. ACCENTURE FAILED TO ESTABLISH THAT THE RECIPIENTS OF ITS SERVICE DO BUSINESS OUTSIDE THE PHILIPPINES.
To come within the purview of Section 108 (B) (2), it is not enough that the recipient of the service be proven
to be a foreign corporation; rather, it must be specifically proven to be a nonresident foreign corporation
SC DECISION:
While the evidence presented by Accenture may have established that its clients are foreign, it does not
automatically mean that these clients were doing business outside the Philippines.
PETITION DENIED.
32. Western Mindanao Power Corp. vs. CIR, G.R. No. 181136, June 13, 2012
In a claim for tax refund or tax credit, the applicant must prove not only entitlement to the grant of the claim under substantive
law. It must also show satisfaction of all the documentary and evidentiary requirements for an administrative claim for a refund or tax
credit. 15 Hence, the mere fact that petitioner's application for zero-rating has been approved by the CIR does not, by itself, justify the
grant of a refund or tax credit. The taxpayer claiming the refund must further comply with the invoicing and accounting requirements
mandated by theNIRC, as well as by revenue regulations implementing them. 16
Under the NIRC, a creditable input tax should be evidenced by a VAT invoice or official receipt, 17 which may only be
considered as such when it complies with the requirements of RR 7-95, particularly Section 4.108-1. This section requires, among
others, that "(i)f the sale is subject to zero percent (0%) value-added tax, the term 'zero-rated sale' shall be written or printed
prominently on the invoice or receipt."
We are not persuaded by petitioner's argument that RR 7-95 constitutes undue expansion of the scope of the legislation it
seeks to implement on the ground that the statutory requirement for imprinting the phrase "zero-rated" on VAT official receipts appears
only in Republic Act No. 9337. This law took effect on 1 July 2005, or long after petitioner had filed its claim for a refund.
RR 7-95, which took effect on 1 January 1996, proceeds from the rule-making authority granted to the Secretary of Finance by
the NIRC for the efficient enforcement of the same Tax Code and its amendments. In Panasonic Communications Imaging Corporation
of the Philippines v. Commissioner of Internal Revenue, 18 we ruled that this provision is "reasonable and is in accord with the efficient
collection of VAT from the covered sales of goods and services." Moreover, we have held in Kepco Philippines Corporation v.
Commissioner of Internal Revenue 19that the subsequent incorporation of Section 4.108-1 of RR 7-95 in Section 113 (B) (2) (c) of R.A.
9337 actually confirmed the validity of the imprinting requirement on VAT invoices or official receipts — a case falling under the
principle of legislative approval of administrative interpretation by reenactment.
In fact, this Court has consistently held as fatal the failure to print the word "zero-rated" on the VAT invoices or
official receipts in claims for a refund or credit of input VAT on zero-rated sales, even if the claims were made prior to the
effectivity of R.A. 9337. 20 Clearly then, the present Petition must be denied.
||| (Western Mindanao Power Corp. v. Commissioner of Internal Revenue, G.R. No. 181136, [June 13, 2012], 687 PHIL 328-342)
Facts:
Petitioner WMPC is a domestic corporation engaged in the production and sale of electricity. It is registered with the
Bureau of Internal Revenue (BIR) as a VAT taxpayer. Petitioner alleges that it sells electricity solely to the National
Power Corporation (NPC), which is in turn exempt from the payment of all forms of taxes, duties, fees and imposts,
pursuant to Section 13 of Republic Act (R.A.) No. 6395 (An Act Revising the Charter of the National Power
Corporation). In view thereof and pursuant to Section 108 (B) (3) of the National Internal Revenue
Code (NIRC), petitioner's power generation services to NPC is zero-rated.
Under Section 112 (A) of the NIRC, a VAT-registered taxpayer may, within two years after the close of the taxable
quarter, apply for the issuance of a tax credit or refund of creditable input tax due or paid and attributable to zero-
rated or effectively zero-rated sales. Hence, on 20 June 2000 and 13 June 2001, WMPC filed with the Commissioner of
Internal Revenue (CIR) applications for a tax credit certificate of its input VAT covering the taxable 3rd and 4th
quarters of 1999 (amounting to P3,675,026.67) and all the taxable quarters of 2000 (amounting to P5,649,256.81).
Noting that the CIR was not acting on its application, and fearing that its claim would soon be barred by prescription,
WMPC on 28 September 2001 filed with the Court of Tax Appeals (CTA) in Division a Petition for Review docketed as
C.T.A. Case No. 6335, seeking refund/tax credit certificates for the total amount of P9,324,283.30.
The CIR filed its Comment on the CTA Petition, arguing that WMPC was not entitled to the latter's claim for a
tax refund in view of its failure to comply with the invoicing requirements under Section 113 of the NIRC in relation to
Section 4.108-1 of RR 7-95, which provides:
SECTION 4. 108-1.Invoicing Requirements. — All VAT-registered persons shall, for every sale or lease of goods
or properties or services, issue duly registered receipts or sales or commercial invoices which must show:
1. the name, TIN and address of seller;
2. date of transaction;
3. quantity, unit cost and description of merchandise or nature of service;
4. the name, TIN, business style, if any, and address of the VAT-registered purchaser, customer or client;
5. the word "zero rated" imprinted on the invoice covering zero-rated sales; and
6. the invoice value or consideration.
Issue:
WON Petitioner is entitled for a refund?
Ruling: NO. Petitioner failed to comply with the requirements set by law.
Being a derogation of the sovereign authority, a statute granting tax exemption is strictly construed against the
person or entity claiming the exemption. When based on such statute, a claim for tax refund partakes of the nature of
an exemption. Hence, the same rule of strict interpretation against the taxpayer-claimant applies to the claim.
A taxpayer engaged in zero-rated or effectively zero-rated sale may apply for the issuance of a tax credit certificate, or
refund of creditable input tax due or paid, attributable to the sale.
In a claim for tax refund or tax credit, the applicant must prove not only entitlement to the grant of the claim under
substantive law. It must also show satisfaction of all the documentary and evidentiary requirements for an
administrative claim for a refund or tax credit. Hence, the mere fact that petitioner's application for zero-rating has
been approved by the CIR does not, by itself, justify the grant of a refund or tax credit. The taxpayer claiming the
refund must further comply with the invoicing and accounting requirements mandated by the NIRC, as well as by
revenue regulations implementing them.
Under the NIRC, a creditable input tax should be evidenced by a VAT invoice or official receipt, which may only be
considered as such when it complies with the requirements of RR 7-95, particularly Section 4.108-1. This section
requires, among others, that "(i)f the sale is subject to zero percent (0%) value-added tax, the term 'zero-rated sale'
shall be written or printed prominently on the invoice or receipt."
RR 7-95, which took effect on 1 January 1996, proceeds from the rule-making authority granted to the Secretary of
Finance by the NIRC for the efficient enforcement of the same Tax Code and its amendments. In Panasonic
Communications Imaging Corporation of the Philippines v. Commissioner of Internal Revenue, we ruled that this
provision is "reasonable and is in accord with the efficient collection of VAT from the covered sales of goods and
services." Moreover, we have held in Kepco Philippines Corporation v. Commissioner of Internal Revenue that the
subsequent incorporation of Section 4.108-1 of RR 7-95 in Section 113 (B) (2) (c) of R.A. 9337 actually confirmed the
validity of the imprinting requirement on VAT invoices or official receipts — a case falling under the principle of
legislative approval of administrative interpretation by reenactment.
In fact, this Court has consistently held as fatal the failure to print the word "zero-rated" on the VAT invoices or official
receipts in claims for a refund or credit of input VAT on zero-rated sales, even if the claims were made prior to the
effectivity of R.A. 9337. Clearly then, the present Petition must be denied.
33. Silicon Phil., Inc. vs. CIR, G.R. No. 172378, January 17, 2011
Facts:
Petitioner Silicon Philippines, Inc., a corporation duly organized and existing under and by virtue of the laws of the
Republic of the Philippines, is engaged in the business of designing, developing, manufacturing and exporting advance
and large-scale integrated circuit components or "IC's." Petitioner is registered with the Bureau of Internal Revenue
(BIR) as a Value Added Tax (VAT) taxpayer and with the Board of Investments (BOI) as a preferred pioneer enterprise.
On May 21, 1999, petitioner filed with the respondent Commissioner of Internal Revenue (CIR), through the One-
Stop Shop Inter-Agency Tax Credit and Duty Drawback Center of the Department of Finance (DOF), an application
for credit/refund of unutilized input VAT.
Ruling on CTA Division
On November 18, 2003, the CTA Division rendered a Decision partially granting petitioner's claim for refund of
unutilized input VAT on capital goods. Out of the amount of P15,170,082.00, only P9,898,867.00 was allowed to be
refunded because training materials, office supplies, posters, banners, T-shirts, books, and other similar items
purchased by petitioner were not considered capital goods under Section 4.106-1(b) of Revenue Regulations (RR) No.
7-95 (Consolidated Value-Added Tax Regulations). With regard to petitioner's claim for credit/refund of input VAT
attributable to its zero-rated export sales, the CTA Division denied the same (1) because petitioner failed to present
an Authority to Print (ATP) from the BIR; neither (2) did it print on its export sales invoices the ATP and the word
"zero-rated."|||
Ruling of CTA En Banc

Affirmed.
Issue:
WON petitioner is entitled for tax credit?
Ruling:
No. Petitioner failed to comply with the requirements provided for the law and thus not entitled for tax credit/refund.
Printing the ATP on the invoices or receipts is not required
It has been settled in Intel Technology Philippines, Inc. v. Commissioner of Internal Revenue that the ATP
need not be reflected or indicated in the invoices or receipts because there is no law or regulation requiring
it. Thus, in the absence of such law or regulation, failure to print the ATP on the invoices or receipts should not
result in the outright denial of a claim or the invalidation of the invoices or receipts for purposes of claiming a
refund.
ATP must be secured from the BIR
But while there is no law requiring the ATP to be printed on the invoices or receipts, Section 238 of
the NIRC expressly requires persons engaged in business to secure an ATP from the BIR prior to printing invoices or
receipts. Failure to do so makes the person liable under Section 264 of the NIRC.
This brings us to the question of whether a claimant for unutilized input VAT on zero-rated sales is required
to present proof that it has secured an ATP from the BIR prior to the printing of its invoices or receipts.
We rule in the affirmative.
Under Section 112 (A) of the NIRC, a claimant must be engaged in sales which are zero-rated or effectively
zero-rated. To prove this, duly registered invoices or receipts evidencing zero-rated sales must be presented.
However, since the ATP is not indicated in the invoices or receipts, the only way to verify whether the invoices or
receipts are duly registered is by requiring the claimant to present its ATP from the BIR. Without this proof, the
invoices or receipts would have no probative value for the purpose of refund. In the case of Intel, we emphasized
that:
It bears reiterating that while the pertinent provisions of the Tax Code and the rules and regulations
implementing them require entities engaged in business to secure a BIR authority to print invoices or receipts and
to issue duly registered invoices or receipts, it is not specifically required that the BIR authority to print be reflected
or indicated therein. Indeed, what is important with respect to the BIR authority to print is that it has been secured
or obtained by the taxpayer, and that invoices or receipts are duly registered.
Failure to print the word "zero-rated" on the sales invoices is fatal to a claim for refund of input VAT
Similarly, failure to print the word "zero-rated" on the sales invoices or receipts is fatal to a claim for
credit/refund of input VAT on zero-rated sales.
In Panasonic Communications Imaging Corporation of the Philippines (formerly Matsushita Business
Machine Corporation of the Philippines) v. Commissioner of Internal Revenue, we upheld the denial of Panasonic's
claim for tax credit/refund due to the absence of the word "zero-rated" in its invoices. We explained that
compliance with Section 4.108-1 of RR 7-95, requiring the printing of the word "zero rated" on the invoice
covering zero-rated sales, is essential as this regulation proceeds from the rule-making authority of the Secretary
of Finance under Section 244 of the NIRC.
All told, the non-presentation of the ATP and the failure to indicate the word "zero-rated" in the invoices
or receipts are fatal to a claim for credit/refund of input VAT on zero-rated sales. The failure to indicate the ATP in
the sales invoices or receipts, on the other hand, is not. In this case, petitioner failed to present its ATP and to
print the word "zero-rated" on its export sales invoices. Thus, we find no error on the part of the CTA in denying
outright petitioner's claim for credit/refund of input VAT attributable to its zero-rated sales.
Credit/refund of input VAT on capital goods
Capital goods are defined under Section 4.106-1 (b) of RR No. 7-95
To claim a refund of input VAT on capital goods, Section 112 (B) of the NIRC requires that:
1. the claimant must be a VAT registered person;
2. the input taxes claimed must have been paid on capital goods;
3. the input taxes must not have been applied against any output tax liability; and
4. the administrative claim for refund must have been filed within two (2) years after the close of the taxable
quarter when the importation or purchase was made.
Corollarily, Section 4.106-1 (b) of RR No. 7-95 defines capital goods as follows:
"Capital goods or properties" refer to goods or properties with estimated useful life greater that one year and
which are treated as depreciable assets under Section 29 (f),used directly or indirectly in the production or
sale of taxable goods or services.
Based on the foregoing definition, we find no reason to deviate from the findings of the CTA that training materials,
office supplies, posters, banners, T-shirts, books, and the other similar items reflected in petitioner's Summary of
Importation of Goods are not capital goods.
Such were not proven to be used directly or indirectly in the production or sale of taxable goods or services. Thus, the
same cannot be used for claiming tax refund.
34. Renato V. Diaz, et al. vs. Secretary of Finance, et al., G.R. No. 193007, July 19, 2011
Facts:
Petitioners filed a case for declaratory relief challenging the validity of the VAT.
They mainly contend that it was not the intention of the congress to include toll fees within the meaning of “sale of
services” subject to VAT and that the imposition of the VAT on toll would result in a tax on a tax rather than a tax on
services.
Issue:
WON the aforementioned contentions are correct.
Held:
No, toll fees are included within the meaning of “sale of services” due to the fact that the list of services enurmerated
under law is not exclusive it being qualified by the words “all kinds”, and that a “toll” is not a tax, hence VAT is not a
tax on a tax.
The relevant law in this case is Section 108 of the NIRC, as amended. VAT is levied, assessed, and collected,
according to Section 108, on the gross receipts derived from the sale or exchange of services as well as from the use
or lease of properties. The third paragraph of Section 108 defines sale or exchange of services as follows:
The phrase sale or exchange of services means the performance of all kinds of services in the
Philippines for others for a fee, remuneration or consideration, including those performed or rendered by
construction and service contractors; stock, real estate, commercial, customs and immigration brokers;
lessors of property, whether personal or real; warehousing services; lessors or distributors of cinematographic
films; persons engaged in milling, processing, manufacturing or repacking goods for others; proprietors,
operators or keepers of hotels, motels, resthouses, pension houses, inns, resorts; proprietors or operators of
restaurants, refreshment parlors, cafes and other eating places, including clubs and caterers; dealers in
securities; lending investors; transportation contractors on their transport of goods or cargoes, including
persons who transport goods or cargoes for hire and other domestic common carriers by land relative to their
transport of goods or cargoes; common carriers by air and sea relative to their transport of passengers, goods
or cargoes from one place in the Philippines to another place in the Philippines; sales of electricity by
generation companies, transmission, and distribution companies; services of franchise grantees of electric
utilities, telephone and telegraph, radio and television broadcasting and all other franchise grantees except
those under Section 119 of this Code and non-life insurance companies (except their crop insurances),
including surety, fidelity, indemnity and bonding companies; and similar services regardless of whether or not
the performance thereof calls for the exercise or use of the physical or mental faculties. (Underscoring
supplied)
It is plain from the above that the law imposes VAT on all kinds of services rendered in the Philippines for a
fee, including those specified in the list. The enumeration of affected services is not exclusive.[11] By qualifying services
with the words all kinds, Congress has given the term services an all-encompassing meaning. The listing of specific
services are intended to illustrate how pervasive and broad is the VATs reach rather than establish concrete limits to
its application. Thus, every activity that can be imagined as a form of service rendered for a fee should be deemed
included unless some provision of law especially excludes it.
And not only do tollway operators come under the broad term all kinds of services, they also come under the
specific class described in Section 108 as all other franchise grantees who are subject to VAT, except those under
Section 119 of this Code.
Tollway operators are franchise grantees and they do not belong to exceptions (the low-income radio and/or
television broadcasting companies with gross annual incomes of less than P10 million and gas and water utilities) that
Section 119[13] spares from the payment of VAT. The word franchise broadly covers government grants of a special
right to do an act or series of acts of public concern.
Tollway operators are, owing to the nature and object of their business, franchise grantees. The construction,
operation, and maintenance of toll facilities on public improvements are activities of public consequence that
necessarily require a special grant of authority from the state.
Petitioners contend that the public nature of the services rendered by tollway operators excludes such services from
the term sale of services under Section 108 of the Code.But, again, nothing in Section 108 supports this
contention. The reverse is true. In specifically including by way of example electric utilities, telephone, telegraph, and
broadcasting companies in its list of VAT-covered businesses, Section 108 opens other companies rendering public
service for a fee to the imposition of VAT. Businesses of a public nature such as public utilities and the collection of
tolls or charges for its use or service is a franchise.
Fees paid by the public to tollway operators for use of the tollways, are not taxes in any sense. A tax is
imposed under the taxing power of the government principally for the purpose of raising revenues to fund public
expenditures.[27] Toll fees, on the other hand, are collected by private tollway operators as reimbursement for the
costs and expenses incurred in the construction, maintenance and operation of the tollways, as well as to assure them
a reasonable margin of income. Although toll fees are charged for the use of public facilities, therefore, they are not
government exactions that can be properly treated as a tax. Taxes may be imposed only by the government under its
sovereign authority, toll fees may be demanded by either the government or private individuals or entities, as an
attribute of ownership.
Parenthetically, VAT on tollway operations cannot be deemed a tax on tax due to the nature of VAT as an
indirect tax. In indirect taxation, a distinction is made between the liability for the tax and burden of the tax. The
seller who is liable for the VAT may shift or pass on the amount of VAT it paid on goods, properties or services to the
buyer. In such a case, what is transferred is not the sellers liability but merely the burden of the VAT.[29]
Thus, the seller remains directly and legally liable for payment of the VAT, but the buyer bears its burden
since the amount of VAT paid by the former is added to the selling price. Once shifted, the VAT ceases to be a
tax[30] and simply becomes part of the cost that the buyer must pay in order to purchase the good, property or
service.
Consequently, VAT on tollway operations is not really a tax on the tollway user, but on the tollway operator.
35. >> KEPCO Phils. V. CIR, G.R. No. 179961, 31 January 2011
(I)
THE COURT OF TAX APPEALS EN BANC COMMITTED SERIOUS ERROR OF LAW WHEN IT RULED THAT
PETITIONER'S FAILURE TO IMPRINT THE WORDS "ZERO-RATED" ON ITS VAT OFFICIAL RECEIPTS
ISSUED TO NPC IS FATAL TO ITS CLAIM FOR REFUND OF UNUTILIZED INPUT TAX CREDITS.
(II)
PETITIONER HAS SUFFICIENTLY PROVEN THAT IT IS RIGHTFULLY ENTITLED TO A REFUND OR
ISSUANCE OF TAX CREDIT CERTIFICATE IN THE AMOUNT OF PHP10,514,023.92. 7
From the foregoing arguments, the principal issue to be resolved is whether Kepco's failure to imprint the
words "zero-rated" on its official receipts issued to NPC justifies an outright denial of its claim for refund of unutilized
input tax credits.
DEcSaI
Kepco contends that the provisions of the 1997 Tax Code, specifically Section 113 in relation to Section 237,
do not mention the mandatory requirement of imprinting the words "zero-rated" to purchases covering zero-rated
transactions. The only provision which requires the imprinting of the word "zero-rated" on VAT invoice or official
receipt is Section 4.108-1 ofR.R. No. 7-95. Kepco argues that the condition imposed by the said administrative
issuance should not be controlling over Section 113 of the 1997 Tax Code, "considering the long-settled rule that
administrative rules and regulations cannot expand the letter and spirit of the law they seek to enforce."
Kepco further argues that there is no law or regulation which imposes automatic denial of taxpayer's refund
claim for failure to comply with the invoicing requirements. No jurisprudence sanctions the same, not even
the Atlas case, 8 cited by the CTAEn Banc. According to Kepco, although it agrees with the CTA ruling that
administrative issuances, like BIR regulations, requiring an imprinting of "zero-rated" on zero-rating transactions
should be strictly complied with, it opposes the outright denial of refund claim for non-compliance thereof. It insists
that such automatic denial is too harsh a penalty and runs counter to the doctrine of solutio indebiti under Article 2154
of the New Civil Code.
The CIR, in his Comment, 9 counters that Kepco is not entitled to a tax refund because it was not able to
substantiate the amount of P10,514,023.92 representing zero-rated transactions for failure to submit VAT official
receipts and invoices imprinted with the wordings "zero-rated" in violation of Section 4.108-1 of R.R. 7-95.
The petition is bereft of merit.
The pertinent laws governing the present case is Section 108 (B) (3) of the NIRC of 1997 in relation to
Section 13 of Republic Act (R.A.) No. 6395 (The Revised NPC Charter), as amended by Presidential Decree (P.D.)
Nos. 380 and 938, which provide as follows:
Sec. 108.Value-added Tax on Sale of Services and Use or Lease of Properties. —
(A) Rate and Base of Tax. — . . .
(B) Transactions Subject to Zero Percent (0%) Rate. — The following services performed in the
Philippines by VAT-registered persons shall be subject to zero percent (0%) rate:
xxx xxx xxx
(3) Services rendered to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero
percent (0%) rate; IDSaEA
xxx xxx xxx

Sec. 13.Non-profit Character of the Corporation; Exemption from All Taxes, Duties, Fees, Imposts
and Other Charges by the Government and Government Instrumentalities. — The Corporation shall be non-
profit and shall devote all its return from its capital investment as well as excess revenues from its operation, for
expansion. To enable the Corporation to pay its indebtedness and obligations and in furtherance and effective
implementation of the policy enunciated in Section One of this Act, the Corporation, including its subsidiaries, is
hereby declared exempt from the payment of all forms of taxes, duties, fees, imposts as well as costs and service
fees including filing fees, appeal bonds, supersedeas bonds, in any court or administrative proceedings.
Based on the afore-quoted provisions, there is no doubt that NPC is an entity with a special charter and
exempt from payment of all forms of taxes, including VAT. As such, services rendered by any VAT-registered
person/entity, like Kepco, to NPC are effectively subject to zero percent (0%) rate.
For the effective zero rating of such services, however, the VAT-registered taxpayer must comply with
invoicing requirements under Sections 113 and 237 of the 1997 NIRC as implemented by Section 4.108-1 of R.R. No.
7-95, thus:
Sec. 113. Invoicing and Accounting Requirements for VAT-Registered Persons. —
(A) Invoicing Requirements. — A VAT-registered person shall, for every sale, issue an invoice or
receipt. In addition to the information required under Section 237, the following information shall be indicated in the
invoice or receipt:
(1) A statement that the seller is a VAT-registered person, followed by his taxpayer's
identification number; and
(2) The total amount which the purchaser pays or is obligated to pay to the seller with the
indication that such amount includes the value-added tax.
(B) Accounting Requirements. — Notwithstanding the provisions of Section 233, all persons subject to the
value-added tax under Sections 106 and 108 shall, in addition to the regular accounting records required, maintain
a subsidiary sales journal and subsidiary purchase journal on which the daily sales and purchases are recorded.
The subsidiary journals shall contain such information as may be required by the Secretary of
Finance. 10 (Emphasis supplied) cEDaTS
Sec. 237. Issuance of Receipts or Sales or Commercial Invoices. — All persons subject to an internal
revenue tax shall, for each sale or transfer of merchandise or for services rendered valued at Twenty-five pesos
(P25.00) or more, issue duly registered receipts or sales or commercial invoices, prepared at least in duplicate,
showing the date of transaction, quantity, unit cost and description of merchandise or nature of service: Provided,
however, That in the case of sales, receipts or transfers in the amount of One Hundred Pesos (P100.00) or more,
or regardless of amount, where the sale or transfer is made by a person liable to value-added tax to another person
also liable to value-added tax; or where the receipt is issued to cover payment made as rentals, commissions,
compensations or fees, receipts or invoices shall be issued which shall show the name, business style, if any, and
address of the purchaser, customer or client; Provided, further, That where the purchaser is a VAT-registered
person, in addition to the information herein required, the invoice or receipt shall further show the Taxpayer
Identification Number (TIN) of the purchaser.
The original of each receipt or invoice shall be issued to the purchaser, customer or client at the time the
transaction is effected, who, if engaged in business or in the exercise of profession, shall keep and preserve the
same in his place of business for a period of three (3) years from the close of the taxable year in which such
invoice or receipt was issued, while the duplicate shall be kept and preserved by the issuer, also in his place of
business, for a like period.
The Commissioner may, in meritorious cases, exempt any person subject to an internal revenue tax from
compliance with the provisions of this Section. 11
Section 4.108-1. Invoicing Requirements. — All VAT-registered persons shall, for every sale or lease of
goods or properties or services, issue duly registered receipts or sales or commercial invoices which must show:
1. The name, TIN and address of seller;
2. Date of transaction;
3. Quantity, unit cost and description of merchandise or nature of service;
4. The name, TIN, business style, if any, and address of the VAT-registered purchaser, customer
or client;
5. The word "zero-rated" imprinted on the invoice covering zero-rated sales;
6. The invoice value or consideration.
In the case of sale of real property subject to VAT and where the zonal or market value is higher than the
actual consideration, the VAT shall be separately indicated in the invoice or receipt.
aIAcCH
Only VAT-registered persons are required to print their TIN followed by the word "VAT" in their
invoices or receipts and this shall be considered as "VAT Invoice." All purchases covered by invoices other
than "VAT Invoice" shall not give rise to any input tax.
If the taxable person is also engaged in exempt operations, he should issue separate invoices or receipts
for the taxable and exempt operations. A "VAT Invoice" shall be issued only for sales of goods, properties or
services subject to VAT imposed in Sections 100 and 102 of the code.
The invoice or receipt shall be prepared at least in duplicate, the original to be given to the buyer and the
duplicate to be retained by the seller as part of his accounting records. (Emphases supplied)
Also, as correctly noted by the CTA En Banc, in Kepco's approved Application/Certificate for Zero Rate
issued by the CIR on January 19, 1999, the imprinting requirement was likewise specified, viz.:
Valid only for sale of services from Jan. 19, 1999 up to December 31, 1999 unless sooner revoked.
Note: Zero-Rated Sales must be indicated in the invoice/receipt. 12
Indeed, it is the duty of Kepco to comply with the requirements, including the imprinting of the words "zero-
rated" in its VAT official receipts and invoices in order for its sales of electricity to NPC to qualify for zero-rating.
It must be emphasized that the requirement of imprinting the word "zero-rated" on the invoices or receipts
under Section 4.108-1 of R.R. No. 7-95 is mandatory as ruled by the CTAEn Banc, citing Tropitek International, Inc. v.
Commissioner of Internal Revenue. 13 In Kepco Philippines Corporation v. Commissioner of Internal Revenue, 14 the
CTA En Banc explained the rationale behind such requirement in this wise:
The imprinting of "zero-rated" is necessary to distinguish sales subject to 10% VAT, those that are subject
to 0% VAT (zero-rated) and exempt sales, to enable the Bureau of Internal Revenue to properly implement and
enforce the other provisions of the 1997 NIRC on VAT, namely:
1. Zero-rated sales [Sec. 106(A)(2) and Sec. 108(B)];
2. Exempt transactions [Sec. 109] in relation to Sec. 112(A);
3. Tax Credits [Sec. 110]; and
4. Refunds or tax credits of input tax [Sec. 112]
xxx xxx xxx
Records disclose, as correctly found by the CTA that Kepco failed to substantiate the claimed zero-rated
sales of P10,514,023.92. The wordings "zero-rated sales" were not imprinted on the VAT official receipts presented
by Kepco (marked as Exhibits S to S-11) for taxable year 1999, in clear violation of Section 4.108-1 of R.R. No. 7-
95 and the condition imposed under its approved Application/Certificate for Zero-rate as well. STaCcA
Kepco's claim that Section 4.108-1 of R.R. 7-95 expanded the letter and spirit of Section 113 of 1997 Tax
Code, is unavailing. Indubitably, said revenue regulation is merely a precautionary measure to ensure the effective
implementation of the Tax Code. It was not used by the CTA to expound the meaning of Sections 113 and 237 of
the NIRC. As a matter of fact, the provision of Section 4.108-1 of R.R. 7-95 was incorporated in Section 113 (B)(2)(c)
of R.A. No. 9337, 15 which states that "if the sale is subject to zero percent (0%) value-added tax, the term 'zero-rated
sale' shall be written or printed prominently on the invoice or receipt." This, in effect, and as correctly concluded by the
CIR, confirms the validity of the imprinting requirement on VAT invoices or official receipts even prior to the enactment
of R.A. No. 9337 under the principle of legislative approval of administrative interpretation by reenactment.
Quite significant is the ruling handed down in the case of Panasonic Communications Imaging Corporation of
the Philippines v. Commissioner of Internal Revenue, 16 to wit:
Section 4.108-1 of RR 7-95 proceeds from the rule-making authority granted to the Secretary of Finance
under Section 245 of the 1977 NIRC (Presidential Decree 1158) for the efficient enforcement of the tax code and of
course its amendments. The requirement is reasonable and is in accord with the efficient collection of VAT from the
covered sales of goods and services. As aptly explained by the CTA's First Division, the appearance of the word
"zero-rated" on the face of invoices covering zero-rated sales prevents buyers from falsely claiming input VAT from
their purchases when no VAT was actually paid. If, absent such word, a successful claim for input VAT is made,
the government would be refunding money it did not collect.
Further, the printing of the word "zero-rated" on the invoice helps segregate sales that are subject to 10%
(now 12%) VAT from those sales that are zero-rated. Unable to submit the proper invoices, petitioner Panasonic
has been unable to substantiate its claim for refund.
To bolster its claim for tax refund or credit, Kepco cites the case of Intel Technology Philippines, Inc. v.
Commissioner of Internal Revenue. 17 Kepco's reliance on the said case is misplaced because the factual milieu there
is quite different from that of the case at bench. In the Intel case, the claim for tax refund or issuance of a tax credit
certificate was denied due to the taxpayer's failure to reflect or indicate in the sales invoices the BIR authority to print.
The Court held that the BIR authority to print was not one of the items required by law or BIR regulation to be
indicated or reflected in the invoices or receipts, hence, the BIR erred in denying the claim for refund. In the present
case, however, the principal ground for the denial was the absence of the word "zero-rated" on the invoices, in clear
violation of the invoicing requirements under Section 108 (B) (3) of the 1997 NIRC, in conjunction with Section 4.108-
1 ofR.R. No. 7-95. SEIacA
Regarding Kepco's contention, that non-compliance with the requirement of invoicing would only subject the
non-complying taxpayer to penalties of fine and imprisonment under Section 264 of the Tax Code, and not to the
outright denial of the claim for tax refund or credit, must likewise fail. Section 264 categorically provides for penalties
in case of "Failure or Refusal to Issue Receipts or Sales or Commercial Invoices, Violations related to the Printing of
such Receipts or Invoices and Other Violations," but not to penalties for failure to comply with the requirement of
invoicing. As recently held in Kepco Philippines Corporation v. Commissioner of Internal Revenue, 18 "Section 264 of
the 1997 NIRC was not intended to excuse the compliance of the substantive invoicing requirement needed to justify
a claim for refund on input VAT payments."
Thus, for Kepco's failure to substantiate its effectively zero-rated sales for the taxable year 1999, the claimed
P10,527,202.54 input VAT cannot be refunded.
Indeed, in a string of recent decisions on this matter, to wit: Panasonic Communications Imaging Corporation
of the Philippines v. Commissioner of Internal Revenue, 19 J.R.A. Philippines, Inc. v. Commissioner of Internal
Revenue, 20 Hitachi Global Storage Technologies Philippines Corp. (formerly Hitachi Computer Products (Asia)
Corporations) v. Commissioner of Internal Revenue, 21 and Kepco Philippines Corporation v. Commissioner of Internal
Revenue, 22 this Court has consistently held that failure to print the word "zero-rated" on the invoices or receipts is
fatal to a claim for refund or credit of input VAT on zero-rated sales.
Contrary to Kepco's view, the denial of its claim for refund of input tax is not a harsh penalty. The invoicing
requirement is reasonable and must be strictly complied with, as it is the only way to determine the veracity of its
claim.
Well-settled in this jurisdiction is the fact that actions for tax refund, as in this case, are in the nature of a claim
for exemption and the law is construed in strictissimi juris against the taxpayer. The pieces of evidence presented
entitling a taxpayer to an exemption are also strictissimi scrutinized and must be duly proven. 23
||| (Kepco Philippines Corp. v. Commissioner of Internal Revenue, G.R. No. 179961, [January 31, 2011], 656 PHIL 68-86)
Facts:
Petitioner is a VAT-registered, power producing domestic corporation who is engaged in the production and sale of
electricity to the National Power Corporation (NPC).
Petitioner sought to claim a refund or a tax credit on its input VAT in 1999 that was incurred through the purchase of
goods and services for the production of its electricity. They ground their claim on the fact that they are subject to 0%
VAT since they sell their electricity to NPC which is a corporation having a special charter with exemption from all
taxes provided for in its charter.
In other words, since NPC (purchaser) is exempt from taxes by virtue of its special charter, petitioner KEPCO (seller)
cannot pass on to them a tax, hence, sales to NPC by KEPCO is subject to 0% VAT. But since KEPCO is VAT registered, it
can claim Input VAT.
The claim for refund of its input VAT was however denied solely on the ground KEPCO’s failure to properly
substantiate its zero-rated sales. It did not imprint the words “zero-rated” on its official receipts.
KEPCO however contends that there is no provision in the law that mandates the printing of the words “zero-rated” in
invoices or receipts and such requirement was only contained in an administrative issuance. On this aspect, petitioner
argues that an administrative regulation cannot expand the law. Further, petitioner argues that there is no law or
regulation which imposes automatic denial of taxpayers refund claim for failure to comply with the invoicing
requirements
Issue: WON KEPCO’s failure to imprint the words zero-rated on its official receipts issued to NPC justifies an outright
denial of its claim for refund of unutilized input tax credits.
Held: Yes, failure to comply with invoicing requirements justifies a denial of a claim of VAT refund.
For the effective zero rating of such services, however, the VAT-registered taxpayer must comply with
invoicing requirements under Sections 113 and 237 of the 1997 NIRC as implemented by Section 4.108-1 of R.R. No. 7-
95,
Section 4.108-1. Invoicing Requirements. All VAT-registered persons shall, for every sale or
lease of goods or properties or services, issue duly registered receipts or sales or commercial invoices
which must show:
1. The name, TIN and address of seller;
4. The name, TIN, business style, if any, and address of the VAT-registered purchaser,
customer or client;
5. The word "zero-rated" imprinted on the invoice covering zero-rated sales;
It must be emphasized that the requirement of imprinting the word zero-rated on the invoices or receipts
under Section 4.108-1 of R.R. No. 7-95 is mandatory as ruled by the CTA En Banc, citing Tropitek International, Inc. v.
Commissioner of Internal Revenue.
The imprinting of zero-rated is necessary to distinguish sales subject to 10% VAT, those that are subject to 0%
VAT (zero-rated) and exempt sales, to enable the Bureau of Internal Revenue to properly implement and enforce the
other provisions of the 1997 NIRC on VAT.
Records disclose, as correctly found by the CTA that Kepco failed to substantiate the claimed zero-rated sales
of P10,514,023.92. The wordings zero-rated sales were not imprinted on the VAT official receipts presented by Kepco
(marked as Exhibits S to S-11) for taxable year 1999, in clear violation of Section 4.108-1 of R.R. No. 7-95 and the
condition imposed under its approved Application/Certificate for Zero-rate as well.
Kepcos claim that Section 4.108-1 of R.R. 7-95 expanded the letter and spirit of Section 113 of 1997 Tax Code,
is unavailing. Indubitably, said revenue regulation is merely a precautionary measure to ensure the effective
implementation of the Tax Code. It was not used by the CTA to expound the meaning of Sections 113 and 237 of the
NIRC. As a matter of fact, the provision of Section 4.108-1 of R.R. 7-95 was incorporated in Section 113 (B)(2)(c) of R.A.
No. 9337,[15] which states that if the sale is subject to zero percent (0%) value-added tax, the term zero-rated sale shall
be written or printed prominently on the invoice or receipt. This, in effect, and as correctly concluded by the CIR,
confirms the validity of the imprinting requirement on VAT invoices or official receipts even prior to the enactment of
R.A. No. 9337 under the principle of legislative approval of administrative interpretation by reenactment.
Regarding Kepcos contention, that non-compliance with the requirement of invoicing would only subject the
non-complying taxpayer to penalties of fine and imprisonment under Section 264 of the Tax Code, and not to the
outright denial of the claim for tax refund or credit, must likewise fail. Section 264 categorically provides for penalties
in case of Failure or Refusal to Issue Receipts or Sales or Commercial Invoices, Violations related to the Printing of
such Receipts or Invoices and Other Violations, but not to penalties for failure to comply with the requirement of
invoicing. As recently held in Kepco Philippines Corporation v. Commissioner of Internal Revenue,[18] Section 264 of the
1997 NIRC was not intended to excuse the compliance of the substantive invoicing requirement needed to justify a
claim for refund on input VAT payments.
This Court, in a string of cases, has consistently held that failure to print the word zero-rated on the invoices
or receipts is fatal to a claim for refund or credit of input VAT on zero-rated sales.
Contrary to Kepcos view, the denial of its claim for refund of input tax is not a harsh penalty. The invoicing
requirement is reasonable and must be strictly complied with, as it is the only way to determine the veracity of its
claim.
Well-settled in this jurisdiction is the fact that actions for tax refund, as in this case, are in the nature of a
claim for exemption and the law is construed in strictissimi jurisagainst the taxpayer. The pieces of evidence
presented entitling a taxpayer to an exemption are also strictissimi scrutinized and must be duly proven.
36. >> CIR vs. Sony Phil., Inc., G.R. No. 178697, November 17, 2010
The deficiency VAT assessment should have been disallowed. Be that as it may, the CIR's argument, that
Sony's advertising expense could not be considered as an input VAT credit because the same was eventually
reimbursed by Sony International Singapore (SIS), is also erroneous.
The CIR contends that since Sony's advertising expense was reimbursed by SIS, the former never incurred
any advertising expense. As a result, Sony is not entitled to a tax credit. At most, the CIR continues, the said
advertising expense should be for the account of SIS, and not Sony. 17
The Court is not persuaded. As aptly found by the CTA-First Division and later affirmed by the CTA-EB,
Sony's deficiency VAT assessment stemmed from the CIR's disallowance of the input VAT credits that should have
been realized from the advertising expense of the latter. 18 It is evident under Section 110 19 of the 1997 Tax Code that
an advertising expense duly covered by a VAT invoice is a legitimate business expense. This is confirmed by no less
than CIR's own witness, Revenue Officer Antonio Aluquin. 20 There is also no denying that Sony incurred advertising
expense. Aluquin testified that advertising companies issued invoices in the name of Sony and the latter paid for the
same. 21 Indubitably, Sony incurred and paid for advertising expense/services. Where the money came from is
another matter all together but will definitely not change said fact.
The CIR further argues that Sony itself admitted that the reimbursement from SIS was income and, thus,
taxable. In support of this, the CIR cited a portion of Sony's protest filed before it:
The fact that due to adverse economic conditions, Sony-Singapore has granted to our client a subsidy
equivalent to the latter's advertising expenses will not affect the validity of the input taxes from such expenses.
Thus, at the most, this is an additional income of our client subject to income tax. We submit further that our client
is not subject to VAT on the subsidy income as this was not derived from the sale of goods or services. 22 cIACaT
Insofar as the above-mentioned subsidy may be considered as income and, therefore, subject to income tax,
the Court agrees. However, the Court does not agree that the same subsidy should be subject to the 10% VAT. To
begin with, the said subsidy termed by the CIR as reimbursement was not even exclusively earmarked for Sony's
advertising expense for it was but an assistance or aid in view of Sony's dire or adverse economic conditions, and
was only "equivalent to the latter's (Sony's) advertising expenses."
Section 106 of the Tax Code explains when VAT may be imposed or exacted. Thus:
SEC. 106. Value-added Tax on Sale of Goods or Properties. —
(A) Rate and Base of Tax. — There shall be levied, assessed and collected on every sale, barter or
exchange of goods or properties, value-added tax equivalent to ten percent (10%) of the gross selling price or
gross value in money of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or
transferor.
Thus, there must be a sale, barter or exchange of goods or properties before any VAT may be levied.
Certainly, there was no such sale, barter or exchange in the subsidy given by SIS to Sony. It was but a dole out by
SIS and not in payment for goods or properties sold, bartered or exchanged by Sony.
In the case of CIR v. Court of Appeals (CA), 23 the Court had the occasion to rule that services rendered for a
fee even on reimbursement-on-cost basis only and without realizing profit are also subject to VAT. The case, however,
is not applicable to the present case. In that case, COMASERCO rendered service to its affiliates and, in turn, the
affiliates paid the former reimbursement-on-cost which means that it was paid the cost or expense that it incurred
although without profit. This is not true in the present case. Sony did not render any service to SIS at all. The services
rendered by the advertising companies, paid for by Sony using SIS dole-out, were for Sony and not SIS. SIS just gave
assistance to Sony in the amount equivalent to the latter's advertising expense but never received any goods,
properties or service from Sony.
||| (Commissioner of Internal Revenue v. Sony Philippines, Inc., G.R. No. 178697, [November 17, 2010], 649 PHIL 519-537)
Facts:
On November 24, 1998, the CIR issued Letter of Authority No. 000019734 (LOA 19734) authorizing certain revenue
officers to examine Sonys books of accounts and other accounting records regarding revenue taxes for the period
1997 and unverified prior years. On December 6, 1999, a preliminary assessment for 1997 deficiency taxes and
penalties was issued by the CIR which Sony protested. CIR detailed the discrepancies amounting to a DEFICIENCY
VALUE -ADDED TAX (VAT) 11,141,014.41.
Sony sought re-evaluation of the aforementioned assessment by filing a protest on February 2, 2000. On October 24,
2000, within 30 days after the lapse of 180 days from submission of the said supporting documents to the CIR, Sony
filed a petition for review before the CTA. After trial, the CTA-First Division disallowed the deficiency VAT assessment
because the subsidized advertising expense paid by Sony which was duly covered by a VAT invoice resulted in an input
VAT credit. Thus, the CTA-First Division partly granted Sonys petition by cancelling the deficiency VAT assessment but
upheld a modified deficiency EWT assessment as well as the penalties.
CIR then appealed the decision to the CTA – EB and eventually to the SC and hence this petition.
Issue: WON Sony is liable for VAT
Held:
The CIR contends that since Sonys advertising expense was reimbursed by SIS, the former never incurred any
advertising expense. As a result, Sony is not entitled to a tax credit. At most, the CIR continues, the said advertising
expense should be for the account of SIS, and not Sony.
The Court is not persuaded. As aptly found by the CTA-First Division and later affirmed by the CTA-EB, Sonys
deficiency VAT assessment stemmed from the CIRs disallowance of the input VAT credits that should have been
realized from the advertising expense of the latter. It is evident under Section 110 of the 1997 Tax Code that an
advertising expense duly covered by a VAT invoice is a legitimate business expense. There is also no denying that Sony
incurred advertising expense. Aluquin testified that advertising companies issued invoices in the name of Sony and
the latter paid for the same. Indubitably, Sony incurred and paid for advertising expense/ services. Where the money
came from is another matter all together but will definitely not change said fact.
The CIR further argues that Sony itself admitted that the reimbursement from SIS was income and, thus, taxable.
However, the Court does not agree that the same subsidy should be subject to the 10% VAT. To begin with, the said
subsidy termed by the CIR as reimbursement was not even exclusively earmarked for Sonys advertising expense for it
was but an assistance or aid in view of Sonys dire or adverse economic conditions, and was only equivalent to the
latters (Sonys) advertising expenses.
SEC. 106. Value-added Tax on Sale of Goods or Properties.
(A) Rate and Base of Tax. There shall be levied, assessed and collected on every sale, barter or exchange of
goods or properties, value-added tax equivalent to ten percent (10%) of the gross selling price or gross value in money
of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor.
Thus, there must be a sale, barter or exchange of goods or properties before any VAT may be levied. Certainly, there
was no such sale, barter or exchange in the subsidy given by SIS to Sony.It was but a dole out by SIS and not in
payment for goods or properties sold, bartered or exchanged by Sony. Sony did not render any service to SIS at all.
The services rendered by the advertising companies, paid for by Sony using SIS dole-out, were for Sony and not SIS.
SIS just gave assistance to Sony in the amount equivalent to the latters advertising expense but never received any
goods, properties or service from Sony.
37. >> Panasonic Communications Imaging Corp. of the Phil. vs. CIR, G.R. No. 178090, February 8, 2010
THE SOLE ISSUE PRESENTED IN THIS CASE IS WHETHER OR NOT THE CTA EN BANC CORRECTLY
DENIED PETITIONER PANASONIC'S CLAIM FOR REFUND OF THE VAT IT PAID AS A ZERO-RATED
TAXPAYER ON THE GROUND THAT ITS SALES INVOICES DID NOT STATE ON THEIR FACES THAT ITS
SALES WERE "ZERO-RATED."
The VAT is a tax on consumption, an indirect tax that the provider of goods or services may pass on to his
customers. Under the VAT method of taxation, which is invoice-based, an entity can subtract from the VAT charged
on its sales or outputs the VAT it paid on its purchases, inputs and imports. 6 For example, when a seller charges VAT
on its sale, it issues an invoice to the buyer, indicating the amount of VAT he charged. For his part, if the buyer is also
a seller subjected to the payment of VAT on his sales, he can use the invoice issued to him by his supplier to get a
reduction of his own VAT liability. The difference in tax shown on invoices passed and invoices received is the tax
paid to the government. In case the tax on invoices received exceeds that on invoices passed, a tax refund may be
claimed.
Under the 1997 NIRC, if at the end of a taxable quarter the seller charges output taxes 7 equal to the input
taxes 8 that his suppliers passed on to him, no payment is required of him. It is when his output taxes exceed his input
taxes that he has to pay the excess to the BIR. If the input taxes exceed the output taxes, however, the excess
payment shall be carried over to the succeeding quarter or quarters. Should the input taxes result from zero-rated or
effectively zero-rated transactions or from the acquisition of capital goods, any excess over the output taxes shall
instead be refunded to the taxpayer. 9
Zero-rated transactions generally refer to the export sale of goods and services. The tax rate in this case is
set at zero. When applied to the tax base or the selling price of the goods or services sold, such zero rate results in no
tax chargeable against the foreign buyer or customer. But, although the seller in such transactions charges no output
tax, he can claim a refund of the VAT that his suppliers charged him. The seller thus enjoys automatic zero rating,
which allows him to recover the input taxes he paid relating to the export sales, making him internationally
competitive. 10
For the effective zero rating of such transactions, however, the taxpayer has to be VAT-registered and must
comply with invoicing requirements. 11 Interpreting these requirements, respondent CIR ruled that under Revenue
Memorandum Circular (RMC) 42-2003, the taxpayer's failure to comply with invoicing requirements will result in the
disallowance of his claim for refund. RMC 42-2003 provides:
A-13. Failure by the supplier to comply with the invoicing requirements on the documents
supporting the sale of goods and services will result to the disallowance of the claim for input tax by the
purchaser-claimant. DSEIcT
If the claim for refund/TCC is based on the existence of zero-rated sales by the taxpayer but it fails
to comply with the invoicing requirements in the issuance of sales invoices (e.g., failure to indicate the
TIN), its claim for tax credit/refund of VAT on its purchases shall be denied considering that the invoice it
is issuing to its customers does not depict its being a VAT-registered taxpayer whose sales are classified
as zero-rated sales. Nonetheless, this treatment is without prejudice to the right of the taxpayer to charge
the input taxes to the appropriate expense account or asset account subject to depreciation, whichever is
applicable. Moreover, the case shall be referred by the processing office to the concerned BIR office for
verification of other tax liabilities of the taxpayer.
Petitioner Panasonic points out, however, that in requiring the printing on its sales invoices of the word "zero-
rated," the Secretary of Finance unduly expanded, amended, and modified by a mere regulation (Section 4.108-1
of RR 7-95) the letter and spirit of Sections 113 and 237 of the 1997 NIRC, prior to their amendment by R.A.
9337. 12 Panasonic argues that the 1997 NIRC, which applied to its payments — specifically Sections 113 and 237 —
required the VAT-registered taxpayer's receipts or invoices to indicate only the following information:
(1) A statement that the seller is a VAT-registered person, followed by his taxpayer's identification
number (TIN);
(2) The total amount which the purchaser pays or is obligated to pay to the seller with the
indication that such amount includes the value-added tax;
(3) The date of transaction, quantity, unit cost and description of the goods or properties or nature
of the service; and
(4) The name, business style, if any, address and taxpayer's identification number (TIN) of the
purchaser, customer or client.
Petitioner Panasonic points out that Sections 113 and 237 did not require the inclusion of the word "zero-
rated" for zero-rated sales covered by its receipts or invoices. The BIR incorporated this requirement only after the
enactment of R.A. 9337 on November 1, 2005, a law that did not yet exist at the time it issued its invoices.
But when petitioner Panasonic made the export sales subject of this case, i.e., from April 1998 to March 1999,
the rule that applied was Section 4.108-1 of RR 7-95, otherwise known as the Consolidated Value-Added Tax
Regulations, which the Secretary of Finance issued on December 9, 1995 and took effect on January 1, 1996. It
already required the printing of the word "zero-rated" on the invoices covering zero-rated sales. When R.A.
9337 amended the 1997 NIRC on November 1, 2005, it made this particular revenue regulation a part of the tax code.
This conversion from regulation to law did not diminish the binding force of such regulation with respect to acts
committed prior to the enactment of that law. DaTEIc
Section 4.108-1 of RR 7-95 proceeds from the rule-making authority granted to the Secretary of Finance
under Section 245 of the 1977 NIRC (Presidential Decree 1158) for the efficient enforcement of the tax code and of
course its amendments. 13 The requirement is reasonable and is in accord with the efficient collection of VAT from the
covered sales of goods and services. As aptly explained by the CTA's First Division, the appearance of the word
"zero-rated" on the face of invoices covering zero-rated sales prevents buyers from falsely claiming input VAT from
their purchases when no VAT was actually paid. If, absent such word, a successful claim for input VAT is made, the
government would be refunding money it did not collect. 14
Further, the printing of the word "zero-rated" on the invoice helps segregate sales that are subject to 10%
(now 12%) VAT from those sales that are zero-rated. 15 Unable to submit the proper invoices, petitioner Panasonic
has been unable to substantiate its claim for refund.
Petitioner Panasonic's citation of Intel Technology Philippines, Inc. v. Commissioner of Internal Revenue 16 is
misplaced. Quite the contrary, it strengthens the position taken by respondent CIR. In that case, the CIR denied the
claim for tax refund on the ground of the taxpayer's failure to indicate on its invoices the "BIR authority to print." But
Sec. 4.108-1 required only the following to be reflected on the invoice:
1. The name, taxpayer's identification number (TIN) and address of seller;
4. The name, TIN, business style, if any, and address of the VAT-registered purchaser, customer or client;
5. The word "zero-rated" imprinted on the invoice covering zero-rated sales; and
This Court held that, since the "BIR authority to print" is not one of the items required to be indicated on the
invoices or receipts, the BIR erred in denying the claim for refund. Here, however, the ground for denial of petitioner
Panasonic's claim for tax refund — the absence of the word "zero-rated" on its invoices — is one which is specifically
and precisely included in the above enumeration. Consequently, the BIR correctly denied Panasonic's claim for tax
refund.CDAEHS
This Court will not set aside lightly the conclusions reached by the CTA which, by the very nature of its
functions, is dedicated exclusively to the resolution of tax problems and has accordingly developed an expertise on
the subject, unless there has been an abuse or improvident exercise of authority. 17 Besides, statutes that grant tax
exemptions are construedstrictissimi juris against the taxpayer and liberally in favor of the taxing authority. Tax
refunds in relation to the VAT are in the nature of such exemptions. The general rule is that claimants of tax refunds
bear the burden of proving the factual basis of their claims. Taxes are the lifeblood of the nation. Therefore, statutes
that allow exemptions are construed strictly against the grantee and liberally in favor of the government. 18
(Panasonic Communications Imaging Corp. v. Commissioner of Internal Revenue, G.R. No. 178090, [February 8, 2010],
|||
625 PHIL 631-644)
Facts:
Petitioner Panasonic Communications Imaging Corporation of the Philippines (Panasonic) produces and exports plain
paper copiers and their sub-assemblies, parts, and components. It is registered with the Board of Investments as a
preferred pioneer enterprise under the Omnibus Investments Code of 1987. It is also a registered value-added tax
(VAT) enterprise.
From April 1 to September 30, 1998 and from October 1, 1998 to March 31, 1999, petitioner Panasonic generated
export sales amounting to US$12,819,475.15 and US$11,859,489.78, respectively, for a total of US$24,678,964.93.
Believing that these export sales were zero-rated for VAT, Panasonic paid input VAT of P4,980,254.26 and
P4,388,228.14 for the two periods or a total of P9,368,482.40 attributable to its zero-rated sales.
Claiming that the input VAT it paid remained unutilized or unapplied, on March 12, 1999 and July 20, 1999 petitioner
Panasonic filed with the Bureau of Internal Revenue (BIR) two separate applications for refund or tax credit of what it
paid. When the BIR did not act on the same, Panasonic filed on December 16, 1999 a petition for review with the CTA,
averring the inaction of the respondent Commissioner of Internal Revenue (CIR) on its applications.
After trial, CTAs First Division rendered judgment, denying the petition for lack of merit. The First Division said that,
while petitioner Panasonics export sales were subject to 0% VAT under Section 106(A)(2)(a)(1) of the 1997 NIRC, the
same did not qualify for zero-rating because the word zero-rated was not printed on Panasonics export invoices.
Issue: WON Panasonics can claim for refund of the VAT it paid as a zero-rated taxpayer
Held:
The VAT is a tax on consumption, an indirect tax that the provider of goods or services may pass on to his customers.
Under the VAT method of taxation, which is invoice-based, an entity can subtract from the VAT charged on its sales or
outputs the VAT it paid on its purchases, inputs and imports. For his part, if the buyer is also a seller subjected to the
payment of VAT on his sales, he can use the invoice issued to him by his supplier to get a reduction of his own VAT
liability. The difference in tax shown on invoices passed and invoices received is the tax paid to the government. In
case the tax on invoices received exceeds that on invoices passed, a tax refund may be claimed.
Under the 1997 NIRC, if at the end of a taxable quarter the seller charges output taxes equal to the input taxes that
his suppliers passed on to him, no payment is required of him. It is when his output taxes exceed his input taxes that
he has to pay the excess to the BIR. If the input taxes exceed the output taxes, however, the excess payment shall be
carried over to the succeeding quarter or quarters. Should the input taxes result from zero-rated or effectively zero-
rated transactions or from the acquisition of capital goods, any excess over the output taxes shall instead be refunded
to the taxpayer.
Zero-rated transactions generally refer to the export sale of goods and services. The tax rate in this case is set at zero.
When applied to the tax base or the selling price of the goods or services sold, such zero rate results in no tax
chargeable against the foreign buyer or customer. But, although the seller in such transactions charges no output tax,
he can claim a refund of the VAT that his suppliers charged him. The seller thus enjoys automatic zero rating, which
allows him to recover the input taxes he paid relating to the export sales, making him internationally competitive.
For the effective zero rating of such transactions, however, the taxpayer has to be VAT-registered and must comply
with invoicing requirements. Interpreting these requirements, respondent CIR ruled that under Revenue
Memorandum Circular (RMC) 42-2003, the taxpayers failure to comply with invoicing requirements will result in the
disallowance of his claim for refund
Petitioner Panasonic points out that Sections 113 and 237 did not require the inclusion of the word zero-rated for
zero-rated sales covered by its receipts or invoices. The BIR incorporated this requirement only after the enactment of
R.A. 9337 on November 1, 2005, a law that did not yet exist at the time it issued its invoices.
But when petitioner Panasonic made the export sales subject of this case, i.e., from April 1998 to March 1999, the
rule that applied was Section 4.108-1 of RR 7-95, otherwise known as the Consolidated Value-Added Tax Regulations,
which the Secretary of Finance issued on December 9, 1995 and took effect on January 1, 1996. It already required
the printing of the word zero-rated on the invoices covering zero-rated sales. When R.A. 9337 amended the 1997
NIRC on November 1, 2005, it made this particular revenue regulation a part of the tax code. This conversion from
regulation to law did not diminish the binding force of such regulation with respect to acts committed prior to the
enactment of that law.
Section 4.108-1 of RR 7-95 proceeds from the rule-making authority granted to the Secretary of Finance under Section
245 of the 1977 NIRC (Presidential Decree 1158) for the efficient enforcement of the tax code and of course its
amendments. The requirement is reasonable and is in accord with the efficient collection of VAT from the covered
sales of goods and services. Further, the printing of the word zero-rated on the invoice helps segregate sales that are
subject to 10% (now 12%) VAT from those sales that are zero-rated. Unable to submit the proper invoices, petitioner
Panasonic has been unable to substantiate its claim for refund.
Tax refunds in relation to the VAT are in the nature of such exemptions. The general rule is that claimants of tax
refunds bear the burden of proving the factual basis of their claims. Taxes are the lifeblood of the nation. Therefore,
statutes that allow exemptions are construed strictly against the grantee and liberally in favor of the government.
WHEREFORE, the petition is DENIED for lack of merit.
38. >>>CIR v. SM Prime Holdings, Inc., G.R. No. 183505, 26 February 2010
Simply put, the issue in this case is whether the gross receipts derived by operators or proprietors of
cinema/theater houses from admission tickets are subject to VAT. AEIHaS
Petitioner's Arguments
Petitioner argues that the enumeration of services subject to VAT in Section 108 of the NIRC is not
exhaustive because it covers all sales of services unless exempted by law. He claims that the CTA erred in applying
the rules on statutory construction and in using extrinsic aids in interpreting Section 108 because the provision is clear
and unambiguous. Thus, he maintains that the exhibition of movies by cinema operators or proprietors to the paying
public, being a sale of service, is subject to VAT.
Respondents' Arguments
Respondents, on the other hand, argue that a plain reading of Section 108 of the NIRC of 1997 shows that
the gross receipts of proprietors or operators of cinemas/theaters derived from public admission are not among the
services subject to VAT. Respondents insist that gross receipts from cinema/theater admission tickets were never
intended to be subject to any tax imposed by the national government. According to them, the absence of gross
receipts from cinema/theater admission tickets from the list of services which are subject to the national amusement
tax under Section 125 of the NIRC of 1997 reinforces this legislative intent. Respondents also highlight the fact
that RMC No. 28-2001 on which the deficiency assessments were based is an unpublished administrative ruling.
Our Ruling
The petition is bereft of merit.
The enumeration of services subject to VAT under Section 108 of the NIRC is not exhaustive
Section 108 of the NIRC of the 1997 reads:
SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. —
(A) Rate and Base of Tax. — There shall be levied, assessed and collected, a value-added tax equivalent
to ten percent (10%) of gross receipts derived from the sale or exchange of services, including the use or lease of
properties.
The phrase "sale or exchange of services" means the performance of all kinds of services in the
Philippines for others for a fee, remuneration or consideration, including those performed or rendered by
construction and service contractors; stock, real estate, commercial, customs and immigration brokers; lessors of
property, whether personal or real; warehousing services; lessors or distributors of cinematographic films;
persons engaged in milling, processing, manufacturing or repacking goods for others; proprietors, operators or
keepers of hotels, motels, rest houses, pension houses, inns, resorts; proprietors or operators of restaurants,
refreshment parlors, cafes and other eating places, including clubs and caterers; dealers in securities; lending
investors; transportation contractors on their transport of goods or cargoes, including persons who transport goods
or cargoes for hire and other domestic common carriers by land, air and water relative to their transport of goods or
cargoes; services of franchise grantees of telephone and telegraph, radio and television broadcasting and all other
franchise grantees except those under Section 119 of this Code; services of banks, non-bank financial
intermediaries and finance companies; and non-life insurance companies (except their crop insurances), including
surety, fidelity, indemnity and bonding companies; and similar services regardless of whether or not the
performance thereof calls for the exercise or use of the physical or mental faculties. The phrase "sale or exchange
of services" shall likewise include: ECAaTS
(1) The lease or the use of or the right or privilege to use any copyright, patent, design or model, plan,
secret formula or process, goodwill, trademark, trade brand or other like property or right;
xxx xxx xxx
(7) The lease of motion picture films, films, tapes and discs; and
(8) The lease or the use of or the right to use radio, television, satellite transmission and cable television
time.
xxx xxx xxx (Emphasis supplied)
A cursory reading of the foregoing provision clearly shows that the enumeration of the "sale or exchange of
services" subject to VAT is not exhaustive. The words, "including," "similar services," and "shall likewise include,"
indicate that the enumeration is by way of example only. 39
Among those included in the enumeration is the "lease of motion picture films, films, tapes and discs." This,
however, is not the same as the showing or exhibition of motion pictures or films. As pointed out by the CTA En Banc:
"Exhibition" in Black's Law Dictionary is defined as "To show or display. . . . To produce anything in public
so that it may be taken into possession" (6th ed., p. 573). While the word "lease" is defined as "a contract by which
one owning such property grants to another the right to possess, use and enjoy it on specified period of time in
exchange for periodic payment of a stipulated price, referred to as rent (Black's Law Dictionary, 6th ed., p.
889). . . . 40
Since the activity of showing motion pictures, films or movies by cinema/theater operators or proprietors is not
included in the enumeration, it is incumbent upon the court to the determine whether such activity falls under the
phrase "similar services." The intent of the legislature must therefore be ascertained.
The legislature never intended operators
or proprietors of cinema/theater houses to be covered by VAT
Under the NIRC of 1939 41 the national government imposed amusement tax on proprietors, lessees, or
operators of theaters, cinematographs, concert halls, circuses, boxing exhibitions, and other places of amusement,
including cockpits, race tracks, and cabaret. 42 In the case of theaters or cinematographs, the taxes were first
deducted, withheld, and paid by the proprietors, lessees, or operators of such theaters or cinematographs before the
gross receipts were divided between the proprietors, lessees, or operators of the theaters or cinematographs and the
distributors of the cinematographic films. Section 11 43 of the Local Tax Code, 44 however, amended this provision by
transferring the power to impose amusement tax 45 on admission from theaters, cinematographs, concert halls,
circuses and other places of amusements exclusively to the local government. Thus, when the NIRC of 197746 was
enacted, the national government imposed amusement tax only on proprietors, lessees or operators of cabarets, day
and night clubs, Jai-Alai and race tracks. 47 ADTCaI
On January 1, 1988, the VAT Law 48 was promulgated. It amended certain provisions of the NIRC of 1977 by
imposing a multi-stage VAT to replace the tax on original and subsequent sales tax and percentage tax on certain
services. It imposed VAT on sales of services under Section 102 thereof, which provides:
SECTION 102. Value-added tax on sale of services. — (a) Rate and base of tax. — There shall be levied,
assessed and collected, a value-added tax equivalent to 10% percent of gross receipts derived by any person
engaged in the sale of services. The phrase "sale of services" means the performance of all kinds of services for
others for a fee, remuneration or consideration, including those performed or rendered by construction and service
contractors; stock, real estate, commercial, customs and immigration brokers; lessors of personal property;lessors
or distributors of cinematographic films; persons engaged in milling, processing, manufacturing or repacking
goods for others; and similar services regardless of whether or not the performance thereof calls for the exercise or
use of the physical or mental faculties: Provided That the following services performed in the Philippines by VAT-
(1) Processing manufacturing or repacking goods for other persons doing business outside the Philippines
which goods are subsequently exported, . . .
xxx xxx xxx
"Gross receipts" means the total amount of money or its equivalent representing the contract price,
compensation or service fee, including the amount charged for materials supplied with the services and deposits or
advance payments actually or constructively received during the taxable quarter for the service performed or to be
performed for another person, excluding value-added tax.
(b) Determination of the tax. — (1) Tax billed as a separate item in the invoice. — If the tax is billed as a
separate item in the invoice, the tax shall be based on the gross receipts, excluding the tax.
(2) Tax not billed separately or is billed erroneously in the invoice. — If the tax is not billed separately or is
billed erroneously in the invoice, the tax shall be determined by multiplying the gross receipts (including the amount
intended to cover the tax or the tax billed erroneously) by 1/11. (Emphasis supplied)
Persons subject to amusement tax under the NIRC of 1977, as amended, however, were exempted from the
coverage of VAT. 49
On February 19, 1988, then Commissioner Bienvenido A. Tan, Jr. issued RMC 8-88, which clarified that the
power to impose amusement tax on gross receipts derived from admission tickets was exclusive with the local
government units and that only the gross receipts of amusement places derived from sources other than from
admission tickets were subject to amusement tax under the NIRC of 1977, as amended. Pertinent portions of RMC 8-
88 read:DAEaTS
Under the Local Tax Code (P.D. 231, as amended), the jurisdiction to levy amusement tax on gross
receipts arising from admission to places of amusement has been transferred to the local governments to the
exclusion of the national government.
xxx xxx xxx
Since the promulgation of the Local Tax Code which took effect on June 28, 1973 none of the amendatory
laws which amended the National Internal Revenue Code, including the value added tax law under Executive
Order No. 273, has amended the provisions of Section 11 of the Local Tax Code. Accordingly, the sole jurisdiction
for collection of amusement tax on admission receipts in places of amusement rests exclusively on the local
government, to the exclusion of the national government. Since the Bureau of Internal Revenue is an agency of the
national government, then it follows that it has no legal mandate to levy amusement tax on admission receipts in
the said places of amusement.
Considering the foregoing legal background, the provisions under Section 123 of the National Internal
Revenue Code as renumbered by Executive Order No. 273 (Sec. 228, old NIRC) pertaining to amusement taxes
on places of amusement shall be implemented in accordance with BIR RULING, dated December 4, 1973 and BIR
RULING NO. 231-86 dated November 5, 1986 to wit:
". . . Accordingly, only the gross receipts of the amusement places derived from sources other than
from admission tickets shall be subject to . . . amusement tax prescribed under Section 228 of the Tax
Code, as amended (now Section 123, NIRC, as amended by E.O. 273). The tax on gross receipts derived from
admission tickets shall be levied and collected by the city government pursuant to Section 23 of
Presidential Decree No. 231, as amended x x x" or by the provincial government, pursuant to Section 11 of
P.D. 231, otherwise known as the Local Tax Code. (Emphasis supplied)
On October 10, 1991, the LGC of 1991 was passed into law. The local government retained the power to
impose amusement tax on proprietors, lessees, or operators of theaters, cinemas, concert halls, circuses, boxing
stadia, and other places of amusement at a rate of not more than thirty percent (30%) of the gross receipts from
admission fees under Section 140 thereof. 50 In the case of theaters or cinemas, the tax shall first be deducted and
withheld by their proprietors, lessees, or operators and paid to the local government before the gross receipts are
divided between said proprietors, lessees, or operators and the distributors of the cinematographic films. However,
the provision in the Local Tax Code expressly excluding the national government from collecting tax from the
proprietors, lessees, or operators of theaters, cinematographs, concert halls, circuses and other places of
amusements was no longer included. DEaCSA
In 1994, RA 7716 restructured the VAT system by widening its tax base and enhancing its administration.
Three years later, RA 7716 was amended by RA 8241. Shortly thereafter, theNIRC of 1997 51 was signed into law.
Several amendments 52 were made to expand the coverage of VAT. However, none pertain to cinema/theater
operators or proprietors. At present, only lessors or distributors of cinematographic films are subject to VAT. While
persons subject to amusement tax 53 under the NIRC of 1997 are exempt from the coverage of VAT. 54 Based on the
foregoing, the following facts can be established:
(1) Historically, the activity of showing motion pictures, films or movies by cinema/theater operators or
proprietors has always been considered as a form of entertainment subject to amusement tax.
(2) Prior to the Local Tax Code, all forms of amusement tax were imposed by the national government.
(3) When the Local Tax Code was enacted, amusement tax on admission tickets from theaters,
cinematographs, concert halls, circuses and other places of amusements were transferred to
the local government.
(4) Under the NIRC of 1977, the national government imposed amusement tax only on proprietors,
lessees or operators of cabarets, day and night clubs, Jai-Alai and race tracks.
(5) The VAT law was enacted to replace the tax on original and subsequent sales tax and percentage
tax on certain services.
(6) When the VAT law was implemented, it exempted persons subject to amusement tax under
the NIRC from the coverage of VAT.
(7) When the Local Tax Code was repealed by the LGC of 1991, the local government continued to
impose amusement tax on admission tickets from theaters, cinematographs, concert halls,
circuses and other places of amusements.
(8) Amendments to the VAT law have been consistent in exempting persons subject to amusement tax
under the NIRC from the coverage of VAT.
(9) Only lessors or distributors of cinematographic films are included in the coverage of VAT.
These reveal the legislative intent not to impose VAT on persons already covered by the amusement tax. This
holds true even in the case of cinema/theater operators taxed under the LGC of 1991 precisely because the VAT
law was intended to replace the percentage tax on certain services. The mere fact that they are taxed by the local
government unit and not by the national government is immaterial. The Local Tax Code, in transferring the power to
tax gross receipts derived by cinema/theater operators or proprietor from admission tickets to the local government,
did not intend to treat cinema/theater houses as a separate class. No distinction must, therefore, be made between
the places of amusement taxed by the national government and those taxed by the local government. EIAScH
To hold otherwise would impose an unreasonable burden on cinema/theater houses operators or proprietors,
who would be paying an additional 10% 55 VAT on top of the 30% amusement tax imposed by Section 140 of the LGC
of 1991, or a total of 40% tax. Such imposition would result in injustice, as persons taxed under the NIRC of
1997 would be in a better position than those taxed under the LGC of 1991. We need not belabor that a literal
application of a law must be rejected if it will operate unjustly or lead to absurd results. 56 Thus, we are convinced that
the legislature never intended to include cinema/theater operators or proprietors in the coverage of VAT.
On this point, it is apropos to quote the case of Roxas v. Court of Tax Appeals, 57 to wit:
The power of taxation is sometimes called also the power to destroy. Therefore, it should be exercised
with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and
uniformly, lest the tax collector kill the "hen that lays the golden egg." And, in order to maintain the general public's
trust and confidence in the Government this power must be used justly and not treacherously.
The repeal of the Local Tax Code by the LGC of 1991 is not a legal basis for the imposition of VAT
Petitioner, in issuing the assessment notices for deficiency VAT against respondents, ratiocinated that:
Basically, it was acknowledged that a cinema/theater operator was then subject to amusement tax under
Section 260 of Commonwealth Act No. 466, otherwise known as the National Internal Revenue Code of 1939,
computed on the amount paid for admission. With the enactment of the Local Tax Code under Presidential Decree
(PD) No. 231, dated June 28, 1973, the power of imposing taxes on gross receipts from admission of persons to
cinema/theater and other places of amusement had, thereafter, been transferred to the provincial government, to
the exclusion of the national or municipal government (Sections 11 & 13, Local Tax Code). However, the said
provision containing the exclusive power of the provincial government to impose amusement tax, had also been
repealed and/or deleted by Republic Act (RA) No. 7160, otherwise known as the Local Government Code of 1991,
enacted into law on October 10, 1991. Accordingly, the enactment of RA No. 7160, thus, eliminating the
statutory prohibition on the national government to impose business tax on gross receipts from admission
of persons to places of amusement, led the way to the valid imposition of the VAT pursuant to Section 102
(now Section 108) of the old Tax Code, as amended by the Expanded VAT Law (RA No. 7716) and which
was implemented beginning January 1, 1996. 58 (Emphasis supplied)
We disagree.
The repeal of the Local Tax Code by the LGC of 1991 is not a legal basis for the imposition of VAT on the
gross receipts of cinema/theater operators or proprietors derived from admission tickets. The removal of the
prohibition under the Local Tax Code did not grant nor restore to the national government the power to impose
amusement tax on cinema/theater operators or proprietors. Neither did it expand the coverage of VAT. Since the
imposition of a tax is a burden on the taxpayer, it cannot be presumed nor can it be extended by implication. A law will
not be construed as imposing a tax unless it does so clearly, expressly, and unambiguously. 59 As it is, the power to
impose amusement tax on cinema/theater operators or proprietors remains with the local government. IDSaTE
Revenue Memorandum Circular No. 28-2001 is invalid

Considering that there is no provision of law imposing VAT on the gross receipts of cinema/theater operators
or proprietors derived from admission tickets, RMC No. 28-2001 which imposes VAT on the gross receipts from
admission to cinema houses must be struck down. We cannot overemphasize that RMCs must not override, supplant,
or modify the law, but must remain consistent and in harmony with, the law they seek to apply and implement. 60
In view of the foregoing, there is no need to discuss whether RMC No. 28-2001 complied with the procedural
due process for tax issuances as prescribed under RMC No. 20-86.
Rule on tax exemption does not apply
Moreover, contrary to the view of petitioner, respondents need not prove their entitlement to an exemption
from the coverage of VAT. The rule that tax exemptions should be construed strictly against the taxpayer
presupposes that the taxpayer is clearly subject to the tax being levied against him. 61 The reason is obvious: it is both
illogical and impractical to determine who are exempted without first determining who are covered by the
provision. 62 Thus, unless a statute imposes a tax clearly, expressly and unambiguously, what applies is the equally
well-settled rule that the imposition of a tax cannot be presumed. 63 In fact, in case of doubt, tax laws must be
construed strictly against the government and in favor of the taxpayer. 64
(Commissioner of Internal Revenue v. SM Prime Holdings, Inc., G.R. No. 183505, [February 26, 2010], 627 PHIL 581-
|||
605)
FACTS:
ISSUE:
RULING:
39. >>Tambunting Pawnshop, Inc. v. CIR, G.R. No. 179085, 21 January 2010
RE: pawshop vis-à-vis VAT
To petitioner, a pawnshop is not enumerated as one of those engaged in "sale or exchange of

services" 17 in Section 108 of the National Internal Revenue Code. 18 CitingCommissioner of Internal
Revenue v. Michel J. Lhuillier Pawnshops, Inc., 19 it contends that the nature of the business of pawnshops
does not fall under "service" as defined under the Legal Thesaurus of William C. Burton, viz.:
accommodate, administer to, advance, afford, aid, assist, attend, be of use, care for, come to
the aid of, commodere, comply, confer a benefit, contribute to, cooperate, deservire, discharge one's
duty, do a service, do one's bidding, fill an office, forward, furnish aid, furnish assistance, give help,
lend, aid, minister to, promote, render help, servire, submit, succor, supply aid, take care of, tend,
wait on, work for. 20
The petition is in part meritorious.
On the issue of whether pawnshops are liable to pay VAT, the Court, in First Planters Pawnshop,
Inc. v. Commissioner of Internal Revenue, 21 held:
In fine, prior to the [passage of the] EVAT Law [in 1994], pawnshops were treated as lending
investors subject to lending investor's tax. Subsequently, with the Court's ruling
inLhuillier, pawnshops were then treated as VAT-able enterprises under the general classification of
"sale or exchange of services" under Section 108 (A) of the Tax Code of 1997, as amended.R.A. No.
9238 [which was passed in 2004] finally classified pawnshops as Other Non-bank Financial
Intermediaries.
The Court finds that pawnshops should have been treated as non-bank financial
intermediaries from the very beginning, subject to the appropriate taxes provided by law, thus —
• Under the National Internal Revenue Code of 1977, pawnshops should have been levied
the 5% percentage tax on gross receipts imposed on bank and non-bank financial intermediaries
under Section 119 (now Section 121 of the Tax Code of 1997); CDAEHS
• With the imposition of the VAT under R.A. No. 7716 or the EVAT Law, pawnshops should
have been subjected to the 10% VAT imposed on banks and non-bank financial intermediaries and
financial institutions under Section 102 of the Tax Code of 1977 (now Section 108 of the Tax Code of
1997);
• This was restated by R.A. No. 8241, 24 which amended R.A. No. 7716, although the levy,
collection and assessment of the 10% VAT on services rendered by banks, non-bank financial
intermediaries, finance companies, and other financial intermediaries not performing quasi-banking
functions, were made effective January 1, 1998;
• R.A. No. 8424 or the Tax Reform Act of 1997 26 likewise imposed a 10% VAT under
Section 108 but the levy, collection and assessment thereof were again deferred until December 31,
1999;
• The levy, collection and assessment of the 10% VAT was further deferred by R.A. No.
8761 until December 31, 2000, and by R.A. No. 9010, until December 31, 2002;
• With no further deferments given by law, the levy, collection and assessment of the 10%
VAT on banks, non-bank financial intermediaries, finance companies, and other financial
intermediaries not performing quasi-banking functions were finally made effective beginning January
1, 2003;
• Finally, with the enactment of R.A. No. 9238 in 2004, the services of banks, non-bank
financial intermediaries, finance companies, and other financial intermediaries not performing quasi-
banking functions were specifically exempted from VAT, 28 and the 0% to 5% percentage tax on
gross receipts on other non-bank financial intermediaries was reimposed under Section 122 of
the Tax Code of 1997. cEAHSC
At the time of the disputed assessment, that is, for the year 2000, pawnshops were not
subject to 10% VAT under the general provision on "sale or exchange of services" as defined under
Section 108 (A) of the Tax Code of 1997, which states: "'sale or exchange of services' means the
performance of all kinds of services in the Philippines for others for a fee, remuneration or
consideration . . . ." Instead, due to the specific nature of its business, pawnshops were then subject
to 10% VAT under the category of non-bank financial intermediaries[.]
Coming now to the issue at hand — Since petitioner is a non-bank financial intermediary, it is
subject to l0% VAT for the tax years 1996 to 2002; however, with the levy, assessment and collection
of VAT from non-bank financial intermediaries being specifically deferred by law, then petitioner is
not liable for VAT during these tax years. But with the full implementation of the VAT system on
non-bank financial intermediaries starting January 1, 2003, petitioner is liable for 10% VAT for
said tax year. And beginning 2004 up to the present, by virtue of R.A. No. 9238, petitioner is no
longer liable for VAT but it is subject to percentage tax on gross receipts from 0% to 5%, as the
case may be. (emphasis and underscoring supplied)
In light of the foregoing ruling, since the imposition of VAT on pawnshops, which are non-bank
financial intermediaries, was deferred for the tax years 1996 to 2002, petitioner is not liable for VAT for the
tax year 1999.
In dodging liability for documentary stamp tax on its pawn tickets, petitioner argues that such tickets
are neither securities nor printed evidence of indebtedness. 22 The argument fails.
Section 195 of the National Internal Revenue Code provides:
Section 195. On every mortgage or pledge of lands, estate or property, real or personal,
heritable or movable, whatsoever, where the same shall be made as a security for the payment of
any definite and certain sum of money lent at the time or previously due and owing or forborne to be
paid, being payable, and on any conveyance of land, estate, or property whatsoever, in trust or to be
sold, or otherwise converted into money which shall be and intended only as security, either by
express stipulation or otherwise, there shall be collected a documentary stamp tax . . . . (underscoring
supplied)
Construing this provision vis a vis pawn tickets, the Court held in Michel J. Lhuillier Pawnshop, Inc. v.
Commissioner of Internal Revenue:
. . . A D[ocumentary] S[tamp] T[ax] is an excise tax on the exercise of a right or privilege to
transfer obligations, rights or properties incident thereto. . . .
HISAET
xxx xxx xxx

Pledge is among the privileges, the exercise of which is subject to DST. A pledge may be
defined as an accessory, real and unilateral contract by virtue of which the debtor or a third person
delivers to the creditor or to a third person movable property as security for the performance of the
principal obligation, upon the fulfillment of which the thing pledged, with all its accessions and
accessories, shall be returned to the debtor or to the third person. This is essentially the business of
pawnshops which are defined under Section 3 of Presidential Decree No. 114, or the Pawnshop
Regulation Act, as persons or entities engaged in lending money on personal property delivered as
security for loans.
xxx xxx xxx
Section 3 of the Pawnshop Regulation Act defines a pawn ticket as follows:
"Pawn ticket" is the pawnbrokers' receipt for a pawn. It is neither a security nor a
printed evidence of indebtedness."
True, the law does not consider said ticket as an evidence of security or indebtedness.
However, for purposes of taxation, the same pawn ticket is proof of an exercise of a taxable
privilege of concluding a contract of pledge. There is therefore no basis in petitioner's assertion
that a DST is literally a tax on a document and that no tax may be imposed on a pawn
ticket. 23 (emphasis and underscoring supplied)
With respect to petitioner's argument against liability for surcharges and interest — that it was in
good faith in not paying documentary stamp taxes, it having relied on the rulings of respondent CIR and the
CTA that pawn tickets are not subject to documentary stamp taxes 24 — the Court finds the same
meritorious.
It is settled that good faith and honest belief that one is not subject to tax on the basis of previous
interpretations of government agencies tasked to implement the tax law are sufficient justification to delete
the imposition of surcharges and interest. 25 cHATSI
(Tambunting Pawnshop, Inc. v. Commissioner of Internal Revenue, G.R. No. 179085, [January 21, 2010], 624
|||
PHIL 507-517)
FACTS:
ISSUE:
RULING:
40. CIR vs. Burmeister and Wain Scandinavian Contractor Mindanao, Inc., G.R. No. 153205, January 22,
2007
FACTS:
ISSUE:
RULING:
The Issue
The lone issue for resolution is whether respondent is entitled to the refund of P6,994,659.67 as erroneously
paid output VAT for the year 1996. 16
The Ruling of the Court
We deny the petition.
At the outset, the Court declares that the denial of the instant petition is not on the ground that respondent's
services are subject to 0% VAT. Rather, it is based on the non-retroactivity of the prejudicial revocation of BIR Ruling
No. 023-95 17 and VAT Ruling No. 003-99, 18 which held that respondent's services are subject to 0% VAT and which
respondent invoked in applying for refund of the output VAT.
Section 102 (b) of the Tax Code,19 the applicable provision in 1996 when respondent rendered the services and
paid the VAT in question, enumerates which services are zero-rated, thus:
(b) Transactions subject to zero-rate. — The following services performed in the Philippines by VAT-
(1) Processing, manufacturing or repacking goods for other persons doing business
outside the Philippines which goods are subsequently exported, where the services are paid for in
acceptable foreign currency and accounted for in accordance with the rules and regulations of
the Bangko Sentral ng Pilipinas (BSP);
(2) Services other than those mentioned in the preceding sub-paragraph, the
consideration for which is paid for in acceptable foreign currency and accounted for in accordance with
the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
(3) Services rendered to persons or entities whose exemption under special laws or
international agreements to which the Philippines is a signatory effectively subjects the supply of such
services to zero rate;
(4) Services rendered to vessels engaged exclusively in international shipping; and
(5) Services performed by subcontractors and/or contractors in processing, converting, or
manufacturing goods for an enterprise whose export sales exceed seventy percent (70%) of total
annual production. (Emphasis supplied) ITEcAD
In insisting that its services should be zero-rated, respondent claims that it complied with the requirements of
the Tax Code for zero rating under the second paragraph of Section 102 (b). Respondent asserts that (1) the payment
of its service fees was in acceptable foreign currency, (2) there was inward remittance of the foreign currency into the
Philippines, and (3) accounting of such remittance was in accordance with BSP rules. Moreover, respondent contends
that its services which "constitute the actual operation and management of two (2) power barges in Mindanao" are not
"even remotely similar to project studies, information services and engineering and architectural designs under Section
4.102-2 (b) (2) of Revenue Regulations No. 5-96." As such, respondent's services need not be "destined to be
consumed abroad in order to be VAT zero-rated."
Respondent is mistaken.
The Tax Code not only requires that the services be other than "processing, manufacturing or repacking of
goods" and that payment for such services be in acceptable foreign currency accounted for in accordance with BSP
rules. Another essential condition for qualification to zero-rating under Section 102 (b) (2) is that the recipient of such
services is doing businessoutside the Philippines. While this requirement is not expressly stated in the second
paragraph of Section 102 (b), this is clearly provided in the first paragraph of Section 102 (b) where the listed services
must be "for other persons doing business outside the Philippines." The phrase "for other persons doing business
outside the Philippines" not only refers to the services enumerated in the first paragraph of Section 102 (b), but also
pertains to the general term "services" appearing in the second paragraph of Section 102 (b). In short, services other
than processing, manufacturing, or repacking of goods must likewise be performed for persons doing business outside
the Philippines.
This can only be the logical interpretation of Section 102 (b) (2). If the provider and recipient of the "other
services" are both doing business in the Philippines, the payment of foreign currency is irrelevant. Otherwise, those
subject to the regular VAT under Section 102 (a) can avoid paying the VAT by simply stipulating payment in foreign
currency inwardly remitted by the recipient of services. To interpret Section 102 (b) (2) to apply to a payer-recipient of
services doing business in the Philippines is to make the payment of the regular VAT under Section 102 (a) dependent
on the generosity of the taxpayer. The provider of services can choose to pay the regular VAT or avoid it by stipulating
payment in foreign currency inwardly remitted by the payer-recipient. Such interpretation removes Section 102 (a) as a
tax measure in the Tax Code,an interpretation this Court cannot sanction. A tax is a mandatory exaction, not a
voluntary contribution.
When Section 102 (b) (2) stipulates payment in "acceptable foreign currency" under BSP rules, the law clearly
envisions the payer-recipient of services to be doing business outside the Philippines. Only those not doing business in
the Philippines can be required under BSP rules 20 to pay in acceptable foreign currency for their purchase of goods or
services from the Philippines. In a domestic transaction, where the provider and recipient of services are both doing
business in the Philippines, the BSP cannot require any party to make payment in foreign currency.
Services covered by Section 102 (b) (1) and (2) are in the nature of export sales since the payer-recipient of
services is doing business outside the Philippines. Under BSP rules, 21 the proceeds of export sales must be reported to
the Bangko Sentral ng Pilipinas. Thus, there is reason to require the provider of services under Section 102 (b) (1) and
(2) to account for the foreign currency proceeds to the BSP. The same rationale does not apply if the provider and
recipient of the services are both doing business in the Philippines since their transaction is not in the nature of an
export sale even if payment is denominated in foreign currency.
Further, when the provider and recipient of services are both doing business in the Philippines, their
transaction falls squarely under Section 102 (a) governing domestic sale or exchange of services. Indeed, this is a
purely local sale or exchange of services subject to the regular VAT, unless of course the transaction falls under the
other provisions of Section 102 (b).
Thus, when Section 102 (b) (2) speaks of "[s]ervices other than those mentioned in the preceding
subparagraph," the legislative intent is that only the services are different between subparagraphs 1 and 2. The
requirements for zero-rating, including the essential condition that the recipient of services is doing business outside the
Philippines, remain the same under both subparagraphs.
Significantly, the amended Section 108 (b) 22 [previously Section 102 (b)] of the present Tax Code clarifies this
legislative intent. Expressly included among the transactions subject to 0% VAT are "[s]ervices other than those
mentioned in the [first] paragraph [of Section 108 (b)] rendered to a person engaged in business conducted outside
the Philippines or to a nonresident person not engaged in business who is outside the Philippines when the
services are performed, the consideration for which is paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the BSP." ASDCaI
In this case, the payer-recipient of respondent's services is the Consortium which is a joint-venture doing
business in the Philippines. While the Consortium's principal members are non-resident foreign corporations,
the Consortium itself is doing business in the Philippines. This is shown clearly in BIR Ruling No. 023-95 which
states that the contract between the Consortium and NAPOCOR is for a 15-year term, thus:
This refers to your letter dated January 14, 1994 requesting for a clarification of the tax implications of a
contract between a consortium composed of Burmeister & Wain Scandinavian Contractor A/S ("BWSC"), Mitsui
Engineering & Shipbuilding, Ltd. (MES), and Mitsui & Co., Ltd. ("MITSUI"), all referred to hereinafter as the
"Consortium", and the National Power Corporation ("NAPOCOR") for the operation and maintenance of two
100-Megawatt power barges ("Power Barges") acquired by NAPOCOR for a 15-year term. 23 (Emphasis
supplied)
Considering this length of time, the Consortium's operation and maintenance of NAPOCOR's power barges cannot
be classified as a single or isolated transaction. The Consortium does not fall under Section 102 (b) (2) which
requires that the recipient of the services must be a person doing business outside the Philippines. Therefore,
respondent's services to the Consortium, not being supplied to a person doing business outside the Philippines,
cannot legally qualify for 0% VAT.
Respondent, as subcontractor of the Consortium, operates and maintains NAPOCOR's power barges in the
Philippines. NAPOCOR pays the Consortium, through its non-resident partners, partly in foreign currency outwardly
remitted. In turn, the Consortium pays respondent also in foreign currency inwardly remitted and accounted for in
accordance with BSP rules. This payment scheme does not entitle respondent to 0% VAT. As the Court held
in Commissioner of Internal Revenue v. American Express International, Inc. (Philippine Branch), 24 the place of
payment is immaterial, much less is the place where the output of the service is ultimately used. An essential condition
for entitlement to 0% VAT under Section 102 (b) (1) and (2) is that the recipient of the services is a person doing
business outside the Philippines. In this case, the recipient of the services is the Consortium, which is doing
business not outside, but within the Philippines because it has a 15-year contract to operate and maintain
NAPOCOR's two 100-megawatt power barges in Mindanao.
The Court recognizes the rule that the VAT system generally follows the "destination principle" (exports are
zero-rated whereas imports are taxed). However, as the Court stated inAmerican Express, there is an exception to this
rule. 25 This exception refers to the 0% VAT on services enumerated in Section 102 and performed in the Philippines.
For services covered by Section 102 (b) (1) and (2), the recipient of the services must be a person doing business
outside the Philippines. Thus, to be exempt from the destination principle under Section 102 (b) (1) and (2), the
services must be (a) performed in the Philippines; (b) for a person doing business outside the Philippines; and (c) paid
in acceptable foreign currency accounted for in accordance with BSP rules. ITESAc
Respondent's reliance on the ruling in American Express 26 is misplaced. That case involved a recipient of
services, specifically American Express International, Inc. (Hongkong Branch), doing business outside the Philippines.
There, the Court stated:
Respondent [American Express International, Inc. (Philippine Branch)] is a VAT-registered person that
facilitates the collection and payment of receivables belonging to its non-resident foreign client [American
Express International, Inc. (Hongkong Branch)], for which it gets paid in acceptable foreign currency inwardly
remitted and accounted for in accordance with BSP rules and regulations. . . . 27 (Emphasis supplied)
In contrast, this case involves a recipient of services — the Consortium — which is doing business in the
Philippines. Hence, American Express' services were subject to 0% VAT, while respondent's services should be
subject to 10% VAT.
Nevertheless, in seeking a refund of its excess output tax, respondent relied on VAT Ruling No. 003-
99, 28 which reconfirmed BIR Ruling No. 023-95 29 "insofar as it held that the services being rendered by BWSCMI is
subject to VAT at zero percent (0%)." Respondent's reliance on these BIR rulings binds petitioner.
Petitioner's filing of his Answer before the CTA challenging respondent's claim for refund effectively serves as a
revocation of VAT Ruling No. 003-99 and BIR Ruling No. 023-95. However, such revocation cannot be given retroactive
effect since it will prejudice respondent. Changing respondent's status will deprive respondent of a refund of a
substantial amount representing excess output tax. 30 Section 246 of the Tax Code provides that any revocation of a
ruling by the Commissioner of Internal Revenue shall not be given retroactive application if the revocation will prejudice
the taxpayer. Further, there is no showing of the existence of any of the exceptions enumerated in Section 246 of
the Tax Code for the retroactive application of such revocation.
However, upon the filing of petitioner's Answer dated 2 March 2000 before the CTA contesting respondent's
claim for refund, respondent's services shall be subject to the regular 10% VAT. 31 Such filing is deemed a revocation of
VAT Ruling No. 003-99 and BIR Ruling No. 023-95.
(Commissioner of Internal Revenue v. Burmeister and Wain Scandinavian Contractor Mindanao, Inc., G.R. No.
|||
153205, [January 22, 2007], 541 PHIL 119-137)
41. CIR v. American Express International, Inc., G.R. No. 152609, 29 June 2005
Re: refund
FACTS:
ISSUE:
RULING:
42. CIR v. Cebu Toyo Corporation, G.R. No. 149073, 17 February 2005
refund
FACTS:
ISSUE:
RULING:
43. > Contex Corp. vs. Commissioner of Internal Revenue, G.R. No. 151135, July 2, 2004
RE: Subic Bay Freeport vis-à-vis vat
Hence, the instant petition raising as issues for our resolution the following:
A. WHETHER OR NOT THE EXEMPTION FROM ALL LOCAL AND NATIONAL INTERNAL REVENUE TAXES
PROVIDED IN REPUBLIC ACT NO. 7227 COVERS THE VALUE ADDED TAX PAID BY PETITIONER, A
SUBIC BAY FREEPORT ENTERPRISE ON ITS PURCHASES OF SUPPLIES AND MATERIALS.
B. WHETHER OR NOT THE COURT OF TAX APPEALS CORRECTLY HELD THAT PETITIONER IS ENTITLED
TO A TAX CREDIT OR REFUND OF THE VAT PAID ON ITS PURCHASES OF SUPPLIES AND RAW
MATERIALS FOR THE YEARS 1997 AND 1998. 16
Simply stated, we shall resolve now the issues concerning: (1) the correctness of the finding of the Court of
Appeals that the VAT exemption embodied in Rep. Act No. 7227 does not apply to petitioner as a purchaser; and (2) the
entitlement of the petitioner to a tax refund on its purchases of supplies and raw materials for 1997 and 1998.
On the first issue, petitioner argues that the appellate court's restrictive interpretation of petitioner's VAT
exemption as limited to those covered by Section 107 of the Tax Code is erroneous and devoid of legal basis. It contends
that the provisions of Rep. Act No. 7227 clearly and unambiguously mandate that no local and national taxes shall be
imposed upon SBFZ-registered firms and hence, said law should govern the case. Petitioner calls our attention to
regulations issued by both the SBMA and BIR clearly and categorically providing that the tax exemption provided for
by Rep. Act No. 7227 includes exemption from the imposition of VAT on purchases of supplies and materials.
The respondent takes the diametrically opposite view that while Rep. Act No. 7227 does grant tax exemptions,
such grant is not all-encompassing but is limited only to those taxes for which a SBFZ-registered business may be directly
liable. Hence, SBFZ locators are not relieved from the indirect taxes that may be shifted to them by a VAT-registered
seller.
At this juncture, it must be stressed that the VAT is an indirect tax. As such, the amount of tax paid on the goods,
properties or services bought, transferred, or leased may be shifted or passed on by the seller, transferor, or lessor to the
buyer, transferee or lessee. 17 Unlike a direct tax, such as the income tax, which primarily taxes an individual's ability to
pay based on his income or net wealth, an indirect tax, such as the VAT, is a tax on consumption of goods, services, or
certain transactions involving the same. The VAT, thus, forms a substantial portion of consumer expenditures.
Further, in indirect taxation, there is a need to distinguish between the liability for the tax and the burden of the tax.
As earlier pointed out, the amount of tax paid may be shifted or passed on by the seller to the buyer. What is transferred
in such instances is not the liability for the tax, but the tax burden. In adding or including the VAT due to the selling price,
the seller remains the person primarily and legally liable for the payment of the tax. What is shifted only to the
intermediate buyer and ultimately to the final purchaser is the burden of the tax. 18Stated differently, a seller who is directly
and legally liable for payment of an indirect tax, such as the VAT on goods or services is not necessarily the person who
ultimately bears the burden of the same tax. It is the final purchaser or consumer of such goods or services who, although
not directly and legally liable for the payment thereof, ultimately bears the burden of the tax. 19
Exemptions from VAT are granted by express provision of the Tax Code or special laws. Under VAT, the
transaction can have preferential treatment in the following ways:
(a) VAT Exemption. — An exemption means that the sale of goods or properties and/or services and the
use or lease of properties is not subject to VAT (output tax) and the seller is not allowed any tax credit on VAT
(input tax) previously paid. 20 This is a case wherein the VAT is removed at the exempt stage (i.e., at the point of
the sale, barter or exchange of the goods or properties).
The person making the exempt sale of goods, properties or services shall not bill any output tax to his
customers because the said transaction is not subject to VAT. On the other hand, a VAT-registered purchaser of
VAT-exempt goods/properties or services which are exempt from VAT is not entitled to any input tax on such
purchase despite the issuance of a VAT invoice or receipt. 21
(b) Zero-rated Sales. — These are sales by VAT-registered persons which are subject to 0% rate,
meaning the tax burden is not passed on to the purchaser. A zero-rated sale by a VAT-registered person, which is
a taxable transaction for VAT purposes, shall not result in any output tax. However, the input tax on his purchases
of goods, properties or services related to such zero-rated sale shall be available as tax credit or refund in
accordance with these regulations. 22
Under Zero-rating, all VAT is removed from the zero-rated goods, activity or firm. In contrast, exemption only
removes the VAT at the exempt stage, and it will actually increase, rather than reduce the total taxes paid by the exempt
firm's business or non-retail customers. It is for this reason that a sharp distinction must be made between zero-rating and
exemption in designating a value-added tax. 23
Apropos, the petitioner's claim to VAT exemption in the instant case for its purchases of supplies and raw
materials is founded mainly on Section 12(b) and (c) of Rep. Act No. 7227, which basically exempts them from all national
and local internal revenue taxes, including VAT and Section 4(A)(a) of BIR Revenue Regulations No. 1-95. 24
On this point, petitioner rightly claims that it is indeed VAT-Exempt and this fact is not controverted by the
respondent. In fact, petitioner is registered as a NON-VAT taxpayer per Certificate of Registration 25 issued by the BIR. As
such, it is exempt from VAT on all its sales and importations of goods and services.
Petitioner's claim, however, for exemption from VAT for its purchases of supplies and raw materials is
incongruous with its claim that it is VAT-Exempt, for only VAT-Registered entities can claim Input VAT Credit/Refund.
The point of contention here is whether or not the petitioner may claim a refund on the Input VAT erroneously
passed on to it by its suppliers.
While it is true that the petitioner should not have been liable for the VAT inadvertently passed on to it by its
supplier since such is a zero-rated sale on the part of the supplier, the petitioner is not the proper party to claim such VAT
refund.CcADHI
Section 4.100-2 of BIR's Revenue Regulations 7-95, as amended, or the "Consolidated Value-Added Tax
Regulations" provide:
Sec. 4.100-2. Zero-rated Sales. — A zero-rated sale by a VAT-registered person, which is a taxable
transaction for VAT purposes, shall not result in any output tax. However, the input tax on his purchases of goods,
properties or services related to such zero-rated sale shall be available as tax credit or refund in accordance with
these regulations.
The following sales by VAT-registered persons shall be subject to 0%:
(a) Export Sales
"Export Sales" shall mean
xxx xxx xxx
(5) Those considered export sales under Articles 23 and 77 of Executive Order No. 226, otherwise known
as the Omnibus Investments Code of 1987, and other special laws, e.g.Republic Act No. 7227,
otherwise known as the Bases Conversion and Development Act of 1992.
xxx xxx xxx
(c) Sales to persons or entities whose exemption under special laws, e.g. R.A. No. 7227 duly registered and
accredited enterprises with Subic Bay Metropolitan Authority (SBMA) and Clark Development Authority
(CDA), R.A. No. 7916, Philippine Economic Zone Authority (PEZA), or international agreements, e.g.
Asian Development Bank (ADB), International Rice Research Institute (IRRI), etc. to which the Philippines
is a signatory effectively subject such sales to zero-rate."
Since the transaction is deemed a zero-rated sale, petitioner's supplier may claim an Input VAT credit with no
corresponding Output VAT liability. Congruently, no Output VAT may be passed on to the petitioner.
On the second issue, it may not be amiss to re-emphasize that the petitioner is registered as a NON-VAT
taxpayer and thus, is exempt from VAT. As an exempt VAT taxpayer, it is not allowed any tax credit on VAT (input tax)
previously paid. In fine, even if we are to assume that exemption from the burden of VAT on petitioner's purchases did
exist, petitioner is still not entitled to any tax credit or refund on the input tax previously paid as petitioner is an exempt
VAT taxpayer.
Rather, it is the petitioner's suppliers who are the proper parties to claim the tax credit and accordingly refund the
petitioner of the VAT erroneously passed on to the latter.
Accordingly, we find that the Court of Appeals did not commit any reversible error of law in holding that petitioner's
VAT exemption under Rep. Act No. 7227 is limited to the VAT on which it is directly liable as a seller and hence, it cannot
claim any refund or exemption for any input VAT it paid, if any, on its purchases of raw materials and supplies.
WHEREFORE, the petition is DENIED for lack of merit. The Decision dated September 3, 2001, of the Court of
Appeals in CA-G.R. SP No. 62823, as well as its Resolution of December 19, 2001 are AFFIRMED. No pronouncement
as to costs.
||| (Contex Corp. v. Commissioner of Internal Revenue, G.R. No. 151135, [July 2, 2004], 477 PHIL 442-457)
FACTS:
ISSUE:
RULING:
44. > Atlas Consolidated Mining v. CIR, G.R. No. 134467, November 17, 1999
SYNOPSIS
Petitioner Atlas Consolidated and Mining Corp. was engaged in the business of mining, production and sale of various mineral
products. It is duly registered with the Bureau of Internal Revenue (BIR) as a Value Added Tax (VAT) enterprise. The BIR also
approved petitioner's application for VAT zero-rating for the sales of gold to the Central Bank, copper concentrates to the Philippine
Smelting and Refining Corp. (PASAR) and pyrite to Philippine Phosphate, Inc. (PHILPHOS). PASAR and PHILPHOS are both Board of
Investments (BOI) and Export Processing Zone Authority (EPZA) registered as export-oriented enterprises located in an EPZA Zone.
On July 24, 1990, petitioner filed with respondent Commissioner of Internal Revenue a refund/credit of VAT input taxes on its
purchases of goods and services for the first quarter of 1990 in the total amount of P35,522,056.58, as amended. The respondent
resolved petitioner's claim for VAT refund/credit by allowing only P12,101,569.11 as refundable/creditable tax. On appeal, the Court of
Appeals upheld VAT Ruling No. 008-92 regarding the schedule of taxes to be imposed on VAT-registered entities, explaining that the
zero-percent rating of BOI registered enterprises shall be set in proportion to the amount of its actual exports. And that EPZA and BOI
registration were by themselves not enough for zero-rating to apply. SHECcD
This Court ruled that an examination of Section 4.100.2 of Revenue Regulation 7-95 in relation to Section 102 (b) of the Tax
Code shows that sales to an export-oriented enterprise whose export sales exceed 70 percent of its annual production are to be zero-
rated, provided the seller complies with other requirements, like registration with the BOI and the EPZA. The said Regulation does not
even hint, much less expressly mention, that only a percentage of the sales would be zero-rated. The internal revenue commissioner
cannot, by administrative fiat, amend the law, by making compliance therewith more burdensome.
Thus, it is the totality of petitioner's sales to Philphos and PASAR that must be taken into account, not merely the proportion of
such sales to the actual exports of the said enterprises.
SYLLABUS'
1. REMEDIAL LAW; EVIDENCE; JUDICIAL ADMISSION; BINDING ON DECLARANT; EXCEPTIONS. — As a rule, a judicial
admission, such as that made by petitioner in the Joint Stipulation of Facts, is binding on the declarant. However, such rule does not
apply when there is a showing that (1) the admission was made through a "palpable mistake," or that (2) "no such admission was
made."
2. ID.; ID.; ID.; "PALPABLE MISTAKE" WAS COMMITTED; CASE AT BAR. — In the present case, we are convinced that a
"palpable mistake" was committed. True, petitioner was VAT-registered under Registration No. 32-A-6-00224, as indicated in Item 2 of
the Stipulation: "2. Petitioner is engaged in the business of mining, production and sale of various mineral products, consisting
principally of copper concentrates and gold duly registered with the BIR as a VAT enterprise per its Registration No. 32-A-6-002224 (p.
250, BIR Records)." Moreover, the Registration Certificate, which in the said stipulation is alluded to as appearing on page 250 of the
BIR Records, bears the number 32-0-004622 and became effective August 15, 1990. But theactual VAT Registration Certificate, which
petitioner mentioned in the stipulation, is numbered 32-A-002224 and became effective on January 1, 1988, thereby showing that
petitioner had been VAT-registered even prior to the first quarter of 1990. Clearly, there exists a discrepancy, since the VAT registration
number stated in the joint stipulation is NOT the one mentioned in the actual Certificate attached to the BIR Records. The foregoing
simply indicates that petitioner made a "palpable mistake" either in referring to the wrong BIR record, which was evident, or in attaching
the wrong VAT Registration Certificate.
3. TAXATION; VALUE ADDED TAX; REVENUE MEMO CIRCULAR NO. 6-88; REQUIRES VAT-REGISTERED BUSINESSES
TO RE-REGISTER AFTER IT MOVED ITS MAIN OFFICE TO ANOTHER REVENUE DISTRICT. — We note that petitioner also had
another registration number, 32-0-004622, because sometime during the third quarter of 1990, it moved its principal place of business
to a different revenue district. Its second registration as a VAT enterprise on August 15, 1990 was made in compliance with Section 3 of
Revenue Memo Circular No. 6-88, which required it to re-register after it moved its principal place of business to another revenue
district. The said Circular reads as follows: "Section 3. Time, Place and Manner of Registration. — Persons who are required to register
under Section 2 of these regulations shall file an application for Non-VAT registration within 10 days from the commencement of the
business with the Revenue District Officer, or any other authorized officer of the Bureau of Internal Revenue indicating the name of
style of the business, place of residence, place where the business is conducted, and such other information as may be required by the
Commissioner in the form prescribed therefor. "Persons transferring their place of business to another Revenue District shall likewise
file their application for registration within 10 days from the date of transfer." The above regulation implements Section 107 (a) of
the Tax Code,which provides that registration shall be in the revenue district where the main office is located. ITSacC
4. ID.; TAXES MUST BE TRUE, FAIR AND EQUITABLE. — We believe that petitioner should be taxed only for such amount
and under such circumstances as are true, fair and equitable. After all, even the respondent commissioner, as shown in the other
provisions of the joint stipulation, has granted it VAT exemption for the period even prior to the first quarter of 1990; that is, as early as
January 1, 1988. In view of the foregoing, we stress that a litigation is neither a game of technicalities nor a battle of wits and legalisms.
Rather, it is an abiding search for truth, fairness and justice.
5. ID.; REVENUE REGULATION 7-95; DOES NOT REQUIRE THAT ONLY PERCENTAGE OF SALES OF AN EXPORT-
ORIENTED ENTERPRISE WOULD BE ZERO-RATED. — An examination of Section 4.100.2 of Revenue Regulation 7-95 in relation to
Section 102 (b) of the Tax Code shows that sales to an export-oriented enterprise whose export sales exceed 70 percent of its annual
production are to be zero-rated, provided the seller complies with other requirements, like registration with the BOI and the EPZA. The
said Regulation does not even hint, much less expressly mention, that only a percentage of the sales would be zero-rated.
6. POLITICAL LAW; CONSTITUTIONAL LAW; EXECUTIVE DEPARTMENT; INTERNAL REVENUE COMMISSIONER
COULD NOT, BY ADMINISTRATIVE FIAT, AMEND THE LAW. — The internal revenue commissioner cannot, by administrative fiat,
amend the law, by making compliance therewith more burdensome.
7. TAXATION; VALUE ADDED TAX; VAT INVOICE SHOULD BE USED ONLY FOR SALE OF GOODS AND SERVICES
THAT ARE SUBJECT TO VAT. — It is clear that a VAT invoice can be used only for the sale of goods and services that are subject to
VAT. The corresponding taxes thereon shall be allowed as input tax credits for those subject to VAT. Section 108 expressly provides
the invoicing and accounting entries required from VAT-registered persons. On the other hand, Section 111 of the Tax Code empowers
the commissioner to suspend the business operations of VAT-registered persons for the specific violations listed therein.
8. ID.; REVENUE REGULATION 5-87; SECTION 21; SPECIFIES PENALTY FOR SPECIFIC VIOLATION OF SECTION 108
OF TAX CODE.— Section 21 of Revenue Regulation 5-87 is not invalid, as it simply prescribes the penalty for failure to comply with the
accounting and invoicing requirements laid down in Section 108, a penalty similar to that found in Sections 111 and 263. In short,
Section 108 provides the guidelines and necessary requirements for VAT invoices; Sections 111 and 263 of the Tax Code provide
penalties for different types of violations of Section 108; and Section 21 of Revenue Regulation 5-87 specifies the penalty for a specific
violation of Section 108.
9. ID.; VALUE ADDED TAX; COMPUTATION OF OUTPUT VAT OF SELLER SHOULD BE BASED ON SELLING PRICE
APPEARING ON ITS OWN VAT INVOICE. — We agree with respondent's position that the computation of the output VAT of the seller
should be based on the selling price appearing on its own VAT invoice, not on the selling price appearing on that of the customer.
Indeed, it is the duty of the seller to comply with the invoicing and accounting requirements laid down in, among others, Section 108 of
the Tax Code.
10. ID.; REVENUE REGULATION 5-87; SECTION 21; VALIDITY THEREOF MUST BE TAKEN IN CONJUNCTION WITH
PRONOUNCEMENT REGARDING ZERO-RATING GIVEN TO SALES OF PETITIONER MADE TO PHILPHOS AND PASAR; CASE
AT BAR. — This Court's ruling on the validity of Section 21 of Revenue Regulation 5-87 must be taken in conjunction with its
pronouncement regarding the zero-rating given to the sales which petitioner made to Philphos and PASAR. As explained above, such
sales are subject to zero-rating, as that rating was definitely approved by the respondent commissioner. His approval indubitably
signified that petitioner had already complied with the requirements, invoicing or otherwise, necessary for the zero-rating of petitioner's
sales of raw materials to Philphos and PASAR.
(Atlas Consolidated Mining & Development Corp. v. Commissioner of Internal Revenue, G.R. No. 134467, [November 17, 1999], 376
|||
PHIL 495-515)
FACTS:
ISSUE:
RULING:

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DANIEL AND DOMINIC ONG TAX-II CASES 2018 (OUTLINE OF ATTY.

Ways for the Gov’t to collect Taxes

2. CIR v. Prieto, G.R. No. L-11976, August 29, 1961.

First Ass. P447,491.04 P494,224.40

ISSUE & RULING:

"15. Paid to Visayan Surety & Insurance Corporation

(p. 3, Brief of Appellant)

3. TAXATION; NATIONAL INTERNAL REVENUE CODE; ESTATE TAX; NATURE OF PROCESS OF

8. >>Dizon v. CIR, G.R. No. 140944, 30 June 2008.

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13. Sps. Gestopa v. CA, G.R. No. 111904, 5 October 2000.

6. ID.; ID.; ID.; REVOCATION; GENERALLY, A VALID DONATION, ONCE ACCEPTED IS

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Value Added Tax

The sale is an isolated transaction

1. Is the absence of the Letter of Authority fatal?

[PRESUMPTION OF WHAT COMPOSES THE SERVICE FEE]The compensation for their

The amounts earmarked and

Proceedings before the CTA Division

Proceedings before the CTA En Banc

The Present Petition for Certiorari

The Arguments of the CIR

Generally, the 120-day waiting period is both mandatory and jurisdictional.

Existing jurisprudence involving petitioner Aichi

18. >CIR v. PAGCOR, G.R. No. 177387. November 9, 2016.

Tax paid on Imported/Locally

Amount of Tax Credit/Refund

There are few cases that were cited in SC’s decision

In San Roque case

BIR Ruling No. DA-489-03

SUMMARY OF RULES ON PRESCRIPTIVE PERIODS FOR

B. 120+30 Day Period

(2) the date from which to reckon the prescriptive period.

II. MINDANAO II'S JUDICIAL CLAIMS WERE FILED OUT OF TIME

C. The 30-Day Period to Appeal is Mandatory and Jurisdictional.

6. To support its claim, it is imperative for petitioner to prove the following:

Taxable Quarter Last Day to File Claim for Refund

Second and third arguments: "[T]he

Sec. 112. Refunds or Tax Credits of Input Tax. ”

TOPIC: Transitional Input Tax; note: 8% ang rate ani sauna ha

120 Days for the CIR to decide on the administrative claim

2) WON CTA En Banc erred in partially granting the refund.

2) Recipient must conduct business OUTSIDE the Philippines

Basa nlng codals kay taas if ibutang diri.

Sec. 108 (B) (2) PRIOR to Amendment of RA 9337:

Ruling of CTA En Banc

xxx xxx xxx

625 PHIL 631-644)

Revenue Memorandum Circular No. 28-2001 is invalid

To petitioner, a pawnshop is not enumerated as one of those engaged in "sale or exchange of

xxx xxx xxx

153205, [January 22, 2007], 541 PHIL 119-137)

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