Republic of the Philippines

Supreme Court
Manila

FIRST DIVISION

G.R. No. 216130, August 03, 2016

COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. GOODYEAR PHILIPPINES, INC.,

Respondent.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari are the Decision dated August 14, 2014 and the
Resolution dated January 5, 2015 of the Court of Tax Appeals (CTA) En Banc in C.T.A. EB No. 1041,
which affirmed the Decision dated March 25, 2013 and the Resolution5 dated June 26, 2013 of the CTA
Second Division (CTA Division) in C.T.A. Case No. 8188, ordering petitioner Commissioner of Internal
Revenue (petitioner) to refund or issue a tax credit certificate (TCC) in the sum of P14,659,847.10 to
respondent Goodyear Philippines, Inc. (respondent), representing erroneously withheld and remitted final
withholding tax (FWT).

The Facts

Respondent is a domestic corporation duly organized and existing under the laws of the Philippines, and
registered with the Bureau of Internal Revenue (BIR) as a large taxpayer with Taxpayer Identification
Number 000-409-561-000. On August 19, 2003, the authorized capital stock of respondent was increased
from P400,000,000.00 divided into 4,000,000 shares with a par value of P100.00 each, to
P1,731,863,000.00 divided into 4,000,000 common shares and 13,318,630 preferred shares with a par value
of P100.00 each. Consequently, all the preferred shares were solely and exclusively subscribed by
Goodyear Tire and Rubber Company (GTRC), which was a foreign company organized and existing under
the laws of the State of Ohio, United States of America (US) and is unregistered in the Philippines.

On May 30, 2008, the Board of Directors of respondent authorized the redemption of GTRC's 3,729,216
preferred shares on October 15, 2008 at the redemption price of P470,653,914.00, broken down as follows:
P372,921,600.00 representing the aggregate par value and P97,732,314.00, representing accrued and
unpaid dividends.

On October 15, 2008, respondent filed an application for relief from double taxation before the
International Tax Affairs Division of the BIR to confirm that the redemption was not subject to Philippine
income tax, pursuant to the Republic of the Philippines (RP) - US Tax Treaty. This notwithstanding,
respondent still took the conservative approach, and thus, withheld and remitted the sum of P14,659,847.10
to the BIR on November 3, 2008, representing fifteen percent (15%) FWT, computed based on the
difference of the redemption price and aggregate par value of the shares.

On October 21, 2010, respondent filed an administrative claim for refund or issuance of TCC, representing
15% FWT in the sum of P14,659,847.10 before the BIR. Thereafter, or on November 3, 2010, it filed a
judicial claim, by way of petition for review, before the CTA, docketed as C.T.A. Case No. 8188.

For her part, petitioner maintained that respondent's claim must be denied, considering that: (a) it failed to
exhaust administrative remedies by prematurely filing its petition before the CTA; and (b) it failed to
submit complete supporting documents before the BIR.

The CTA Division Ruling

In a Decision dated March 25, 2013, the CTA Division granted the petition and thereby ordered petitioner
to refund or issue a TCC in the sum of P14,659,847.10 to respondent for being erroneously withheld and
remitted as FWT. Concerning the procedural issue, the CTA Division ruled that it was appropriate for
respondent to dispense with the administrative remedy before the BIR, considering that court action should
be instituted within two (2) years after the payment of the tax regardless of the pendency of the
administrative claim; otherwise, the taxpayer would be barred from recovering the same.

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On the merits, the CTA Division found that the redemption of the 3,729,216 shares issued to GTRC –
which were then converted to treasury shares – was not subject to Philippine income tax. The CTA
Division elucidated that while the general rule is that the net capital gain obtained by a non-resident foreign
corporation, such as GTRC, in the redemption of shares would be subjected to tax rates of five percent
(5%) and ten percent (10%) under Section 28 (B) (5) (c) of the National Internal Revenue Code, as
amended (Tax Code), the provisions, however, of the RP-US Tax Treaty would also apply in determining
the tax implications of the redemption of GTRC's preferred shares because it is a resident of the US. It
pointed out that under Article 14 of the RP-US Tax Treaty, any gain derived by a US resident (i.e., GTRC)
from the alienation of its properties (i.e., the preferred shares), other than those described in paragraph 1
thereof, shall only be taxable in the US. Nonetheless, the CTA Division remained mindful of the
Reservation Clause in the same treaty which provided that the gains derived by a US resident from the
disposition of shares in a domestic corporation may be taxed in the Philippines, provided that the latter's
assets principally consist of real property. After evaluating the Audited Financial Statements (AFS) of
respondent for the years 2007 and 2008, and noting that the value of its real properties – i.e., property,
plant, and equipment – comprise less than 50% of its total assets, the CTA Division held that respondent's
assets did not principally consist of real property and, hence, exempt from capital gains tax under Section
28 (B) (5) (c) of the Tax Code.

The CTA Division then determined whether the net capital gain derived by GTRC would be subjected to
15% FWT imposed on intercorporate dividends under Section 28 (B) (5) (b) of the Tax Code. Citing the
RP-US Tax Treaty, the CTA Division noted that dividend income shall be determined by the law of the
state in which the distributing corporation is a resident, which in the Philippines' case, would be Section 73
(A) of the Tax Code, defining dividends for income tax purposes as distributions to shareholders arising out
of its earnings or profits. Accordingly, the CTA Division held that the net capital gain of GTRC could not
be regarded as "dividends," considering that it did not come from respondent's unrestricted earnings or
profits, as the records would show that it did not have any unrestricted earnings from the years 2003-2009
to cover any dividend pay-outs. Finally, the CTA Division explained that there is only one instance in the
Tax Code which treated the gains derived from redemptions or buy back of shares as dividends, and this is
found in Section 73 (B), which contemplated the issuance of stock dividends. The CTA Division, however,
dispelled the application of this provision, considering that the shares which respondent redeemed were
neither stock dividends nor were they redeemed using unrestricted retained earnings. In sum, the CTA
Division ruled that absent any law which specifically treats the gain derived by GTRC as dividends, the
same could not be subjected to 15% FWT under Section 28 (B) (5) (b).

Dissatisfied, petitioner moved for reconsideration, which was, however, denied in a Resolution dated June
26, 2013. Thereafter, she appealed to the CTA En Banc.

The CTA En Banc Ruling

In a Decision dated August 14, 2014, the CTA En Banc affirmed the findings of the CTA Division.
Echoing the ruling of the CTA Division, the CTA En Banc found that respondent was compelled to seek
judicial recourse after thirteen (13) days from filing its administrative claim so as not to forfeit its right to
appeal to the CTA. Anent the tax treatment of the redemption price paid by respondent to GTRC, the
CTA En Banc fully agreed with the disposition of the CTA Division, ruling that the net capital gain
received by GTRC was not subject to Philippine income tax. Undaunted, petitioner filed a motion for
reconsideration, which was, however, denied in a Resolution dated January 5, 2015; hence, this petition.

The Issues Before the Court

The issues raised by petitioner in this case are: (a) whether or not the judicial claim of respondent should be
dismissed for non-exhaustion of administrative remedies; and (b) whether or not the CTA En
Banc correctly ruled that the gain derived by GTRC was not subject to 15% FWT on dividends.

The Court's Ruling

The petition is devoid of merit.

I.

At the onset, petitioner contends that by filing the administrative and judicial claims only 13 days apart,
respondent, in effect, pursued an empty remedy before the BIR, and thereby deprived the latter of the
opportunity to ascertain the validity of the claim. In this regard, petitioner maintained that the mere filing of
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the administrative claim before the BIR did not outrightly satisfy the requirement of exhaustion of
administrative remedy.

The contentions are untenable.

Section 229 of the Tax Code states that judicial claims for refund must be filed within two (2) years from
the date of payment of the tax or penalty, providing further that the same may not be maintained until a
claim for refund or credit has been duly filed with the Commissioner of Internal Revenue (CIR), viz.:
SEC. 229. Recovery of Tax Erroneously or Illegally Collected. – No suit or proceeding shall be
maintained in any court for the recovery of any national internal revenue tax hereafter alleged to
have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected
without authority, or of any sum alleged to have been excessively or in any manner wrongfully
collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or
proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or
duress.

In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the
date of payment of the tax or penalty regardless of any supervening cause that may arise after
payment x x x. (Emphases and underscoring supplied)

Verily, the primary purpose of filing an administrative claim was to serve as a notice of warning to the CIR
that court action would follow unless the tax or penalty alleged to have been collected erroneously or
illegally is refunded. To clarify, Section 229 of the Tax Code – [then Section 306 of the old Tax Code] –
however does not mean that the taxpayer must await the final resolution of its administrative claim for
refund, since doing so would be tantamount to the taxpayer's forfeiture of its right to seek judicial recourse
should the two (2)-year prescriptive period expire without the appropriate judicial claim being filed.

In CBK Power Company, Ltd. v. CIR, the Court enunciated:

In the foregoing instances, attention must be drawn to the Court's ruling in P.J. Kiener Co., Ltd. v. David
(Kiener), wherein it was held that in no wise does the law, i.e.,Section 306 of the old Tax Code (now,
Section 229 of the NIRC), imply that the Collector of Internal Revenue first act upon the taxpayer's
claim, and that the taxpayer shall not go to court before he is notified of the Collector's action.
In Kiener, the Court went on to say that the claim with the Collector of Internal Revenue was 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 x x x. (Emphases and underscoring
supplied)

In the case at bar, records show that both the administrative and judicial claims for refund of respondent for
its erroneous withholding and remittance of FWT were indubitably filed within the two-year prescriptive
period. Notably, Section 229 of the Tax Code, as worded, only required that an administrative claim should
first be filed. It bears stressing that respondent could not be faulted for resorting to court action, considering
that the prescriptive period stated therein was about to expire. Had respondent awaited the action of
petitioner knowing fully well that the prescriptive period was about to lapse, it would have resultantly
forfeited its right to seek a judicial review of its claim, thereby suffering irreparable damage.

Thus, in view of the aforesaid circumstances, respondent correctly and timely sought judicial redress,
notwithstanding that its administrative and judicial claims were filed only 13 days apart.

II.

For another, petitioner asserts that the net capital gain derived by GTRC from the redemption of its
3,729,216 preferred shares should be subject to 15% FWT on dividends; She claims that while the payment
of the original subscription price could not be taxed as it represented a return of capital, the additional
amount, however, or the component of the redemption price representing the amount of P97,732,314.00
should not be treated as a mere premium and part of the subscription price, but as accumulated dividend in
arrears, and, hence, subject to 15% FWT.

Again, the assertions are wrong.

The imposition of 15% FWT on intercorporate dividends received by a non-resident foreign corporation is
found in Section 28 (B) (5) (b) of the Tax Code which reads:
SEC. 28. Rates of Income Tax on Foreign Corporations. –

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xxxx

(B) Tax on Nonresident Foreign Corporation. –

xxxx

(5) Tax on Certain Incomes Received by a Nonresident Foreign Corporation. –

(b) Intercorporate Dividends. – A final withholding tax at the rate of fifteen percent (15%) is hereby
imposed on the amount of cash and/or property dividends received from a domestic corporation,
which shall be collected and paid as provided in Section 57 (A) of this Code, subject to the condition
that the country in which the nonresident foreign corporation is domiciled, shall allow a credit against the
tax due from the nonresident foreign corporation taxes deemed to have been paid in the Philippines
equivalent to twenty percent (20%), which represents the difference between the regular income tax of
thirty-five percent (35%) and the fifteen percent (15%) tax on dividends as provided in this
subparagraph: Provided, That effective January 1, 2009, the credit against the tax due shall be equivalent to
fifteen percent (15%), which represents the difference between the regular income tax of thirty percent
(30%) and the fifteen percent (15%) tax on dividends;
xxxx (Emphasis and underscoring supplied)

It must be noted, however, that GTRC is a non-resident foreign corporation, specifically a resident of the
US. Thus, pursuant to the cardinal principle that treaties have the force and effect of law in this
jurisdiction, the RP-US Tax Treaty complementarily governs the tax implications of respondent's
transactions with GTRC.

Under Article 11 (5) of the RP-US Tax Treaty, the term "dividends" should be understood according to the
taxation law of the State in which the corporation making the distribution is a resident, which, in this case,
pertains to respondent, a resident of the Philippines. Accordingly, attention should be drawn to the statutory
definition of what constitutes "dividends," pursuant to Section 73 (A) of the Tax Code which provides
that "[t]he term 'dividends' x x x means any distribution made by a corporation to its shareholders
out of its earnings or profits and payable to its shareholders, whether in money or in other property."

In light of the foregoing, the Court therefore holds that the redemption price representing the amount of
P97,732,314.00 received by GTRC could not be treated as accumulated dividends in arrears that could be
subjected to 15% FWT. Verily, respondent's AFS covering the years 2003 to 2009 show that it did not have
unrestricted retained earnings, and in fact, operated from a position of deficit. Thus, absent the
availability of unrestricted retained earnings, the board of directors of respondent had no power to
issue dividends. Consistent with Section 73 (A) of the Tax Code, this rule on dividend declaration –
i.e., that it is dependent upon the availability of unrestricted retained earnings – was further edified in
Section 43 of The Corporation Code of the Philippines which reads:

Section 43. Power to Declare Dividends. – The board of directors of a stock corporation may declare
dividends out of the unrestricted retained earnings which shall be payable in cash, in property, or in
stock to all stockholders on the basis of outstanding stock held by them: Provided, That any cash
dividends due on delinquent stock shall first be applied to the unpaid balance on the subscription plus costs
and expenses, while stock dividends shall be withheld from the delinquent stockholder until his unpaid
subscription is fully paid: Provided, further, That no stock dividend shall be issued without the approval of
stockholders representing not less than two-thirds (2/3) of the outstanding capital stock at a regular or
special meeting duly called for the purpose.

x x x x (Emphasis and underscoring supplied)

It is also worth mentioning that one of the primary features of an ordinary dividend is that the distribution
should be in the nature of a recurring return on stock which, however, does not obtain in this case. As aptly
pointed out by the CTA En Banc, the amount of P97,732,314.00 received by GTRC did not represent a
periodic distribution of dividend, but rather a payment by respondent for the redemption of GTRC's
3,729,216 preferred shares. In Wise & Co., Inc. v. Meer:
The amounts thus distributed among the plaintiffs were not in the nature of a recurring return on
stock — in fact, they surrendered and relinquished their stock in return for said distributions, thus
ceasing to be stockholders of the Hongkong Company, which in turn ceased to exist in its own right as a
going concern during its more or less brief administration of the business as trustee for the Manila
Company, and finally disappeared even as such trustee.
"The distinction between a distribution in liquidation and an ordinary dividend is factual; the result in each
case depending on the particular circumstances of the case and the intent of the parties. If the distribution

Page | 4
is in the nature of a recurring return on stock it is an ordinary dividend. However, if the corporation
is really winding up its business or recapitalizing and narrowing its activities, the distribution may
properly be treated as in complete or partial liquidation and as payment by the corporation to the
stockholder for his stock. The corporation is, in the latter instances, wiping out all parts of the
stockholders' interest in the company * * * ." (Montgomery, Federal Income Tax Handbook [1938-1939],
258 x x x) (Emphases and underscoring supplied)
All told, the amount of P97,732,314.00 received by GTRC from respondent for the redemption of its
3,729,216 preferred shares were not accumulated dividends in arrears. Contrary to petitioner's claims, it is
therefore not subject to 15% FWT on dividends in accordance with Section 28 (B) (5) (b) of the Tax Code.

WHEREFORE, the petition is DENIED. The Decision dated August 14, 2014 and the Resolution dated
January 5, 2015 of the Court of Tax Appeals En Banc in C.T.A. EB No. 1041 are hereby AFFIRMED.

SO ORDERED.

Republic of the Philippines

Supreme Court
Manila
SECOND DIVISION

G.R. No. 169507, January 11, 2016

AIR CANADA, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
LEONEN, J.:

An offline international air carrier selling passage tickets in the Philippines, through a general sales agent,
is a resident foreign corporation doing business in the Philippines. As such, it is taxable under Section
28(A)(1), and not Section 28(A)(3) of the 1997 National Internal Revenue Code, subject to any applicable
tax treaty to which the Philippines is a signatory. Pursuant to Article 8 of the Republic of the Philippines-
Canada Tax Treaty, Air Canada may only be imposed a maximum tax of 1 1/2% of its gross revenues
earned from the sale of its tickets in the Philippines.

This is a Petition for Review appealing the August 26, 2005 Decision of the Court of Tax Appeals En Banc,
which in turn affirmed the December 22, 2004 Decision and April 8, 2005 Resolution of the Court of Tax
Appeals First Division denying Air Canada's claim for refund.

Air Canada is a "foreign corporation organized and existing under the laws of Canada[.]" On April 24,
2000, it was granted an authority to operate as an offline carrier by the Civil Aeronautics Board, subject to
certain conditions, which authority would expire on April 24, 2005. "As an off-line carrier, [Air Canada]
does not have flights originating from or coming to the Philippines [and does not] operate any airplane [in]
the Philippines[.]"

On July 1, 1999, Air Canada engaged the services of Aerotel Ltd., Corp. (Aerotel) as its general sales agent
in the Philippines. Aerotel "sells [Air Canada's] passage documents in the Philippines."

For the period ranging from the third quarter of 2000 to the second quarter of 2002, Air Canada, through
Aerotel, filed quarterly and annual income tax returns and paid the income tax on Gross Philippine Billings
in the total amount of P5,185,676.77, detailed as follows:

On November 28, 2002, Air Canada filed a written claim for refund of alleged erroneously paid income
taxes amounting to P5,185,676.77 before the Bureau of Internal Revenue, Revenue District Office No. 47-
East Makati. It found basis from the revised definition of Gross Philippine Billings under Section
28(A)(3)(a) of the 1997 National Internal Revenue Code:

SEC. 28. Rates of Income Tax on Foreign Corporations. –(A) Tax on Resident Foreign Corporations. -
. . . .
(3) International Carrier. - An international carrier doing business in the Philippines shall pay a tax of two
and one-half percent (2 1/2%) on its 'Gross Philippine Billings' as defined hereunder:

(a) International Air Carrier. - 'Gross Philippine Billings' refers to the amount of gross revenue derived
from carriage of persons, excess baggage, cargo and mail originating from the Philippines in a
continuous and uninterrupted flight, irrespective of the place of sale or issue and the place of payment
of the ticket or passage document: Provided, That tickets revalidated, exchanged and/or indorsed to

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another international airline form part of the Gross Philippine Billings if the passenger boards a plane in a
port or point in the Philippines: Provided, further, That for a flight which originates from the Philippines,
but transshipment of passenger takes place at any port outside the Philippines on another airline, only-the
aliquot portion of the cost of the ticket corresponding to the leg flown from the Philippines to the point of
transshipment shall form part of Gross Philippine Billings. (Emphasis supplied)

To prevent the running of the prescriptive period, Air Canada filed a Petition for Review before the Court
of Tax Appeals on November 29, 2002. The case was docketed as C.T.A. Case No. 6572.

On December 22, 2004, the Court of Tax Appeals First Division rendered its Decision denying the Petition
for Review and, hence, the claim for refund. It found that Air Canada was engaged in business in the
Philippines through a local agent that sells airline tickets on its behalf. As such, it should be taxed as a
resident foreign corporation at the regular rate of 32%. Further, according to the Court of Tax Appeals First
Division, Air Canada was deemed to have established a "permanent establishment" in the Philippines under
Article V(2)(i) of the Republic of the Philippines-Canada Tax Treaty by the appointment of the local sales
agent, "in which [the] petitioner uses its premises as an outlet where sales of [airline] tickets are made[.]"

Air Canada seasonably filed a Motion for Reconsideration, but the Motion was denied in the Court of Tax
Appeals First Division's Resolution dated April 8, 2005 for lack of merit. The First Division held that while
Air Canada was not liable for tax on its Gross Philippine Billings under Section 28(A)(3), it was
nevertheless liable to pay the 32% corporate income tax on income derived from the sale of airline tickets
within the Philippines pursuant to Section 28(A)(1).

On May 9, 2005, Air Canada appealed to the Court of Tax Appeals En Banc. The appeal was docketed as
CTAEB No. 86.

In the Decision dated August 26, 2005, the Court of Tax Appeals En Banc affirmed the findings of the First
Division. The En Banc ruled that Air Canada is subject to tax as a resident foreign corporation doing
business in the Philippines since it sold airline tickets in the Philippines. The Court of Tax Appeals En
Banc disposed thus:

WHEREFORE, premises considered, the instant petition is hereby DENIED DUE COURSE, and
accordingly, DISMISSED for lack of merit.

Hence, this Petition for Review was filed. The issues for our consideration are:

First, whether petitioner Air Canada, as an offline international carrier selling passage documents through a
general sales agent in the Philippines, is a resident foreign corporation within the meaning of Section
28(A)(1) of the 1997 National Internal Revenue Code;

Second, whether petitioner Air Canada is subject to the 21/2% tax on Gross Philippine Billings pursuant to
Section 28(A)(3). If not, whether an offline international carrier selling passage documents through a
general sales agent can be subject to the regular corporate income tax of 32% on taxable income pursuant
to Section 28(A)(1);

Third, whether the Republic of the Philippines-Canada Tax Treaty applies, specifically:

a. Whether the Republic of the Philippines-Canada Tax Treaty is enforceable;

b. Whether the appointment of a local general sales agent in the Philippines falls under the definition
of "permanent establishment" under Article V(2)(i) of the Republic of the Philippines-Canada Tax
Treaty;

And lastly, whether petitioner Air Canada is entitled to the refund of P5,185,676.77 pertaining allegedly to
erroneously paid tax on Gross Philippine Billings from the third quarter of 2000 to the second quarter of
2002.

Petitioner claims that the general provision imposing the regular corporate income tax on resident foreign
corporations provided under Section 28(A)(1) of the 1997 National Internal Revenue Code does not apply
to "international carriers," which are especially classified and taxed under Section 28(A)(3). It adds that the
fact that it is no longer subject to Gross Philippine Billings tax as ruled in the assailed Court of Tax
Appeals Decision "does not render it ipso facto subject to 32% income tax on taxable income as a resident

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foreign corporation." Petitioner argues that to impose the 32% regular corporate income tax on its income
would violate the Philippine government's covenant under Article VIII of the Republic of the Philippines-
Canada Tax Treaty not to impose a tax higher than 1% of the carrier's gross revenue derived from sources
within the Philippines. It would also allegedly result in "inequitable tax treatment of on-line and off-line
international air carriers[.]"

Also, petitioner states that the income it derived from the sale of airline tickets in the Philippines was
income from services and not income from sales of personal property. Petitioner cites the deliberations of
the Bicameral Conference Committee on House Bill No. 9077 (which eventually became the 1997 National
Internal Revenue Code), particularly Senator Juan Ponce Enrile's statement, to reveal the "legislative intent
to treat the revenue derived from air carriage as income from services, and that the carriage of passenger or
cargo as the activity that generates the income." Accordingly, applying the principle on the situs of taxation
in taxation of services, petitioner claims that its income derived "from services rendered outside the
Philippines [was] not subject to Philippine income taxation."

Petitioner further contends that by the appointment of Aerotel as its general sales agent, petitioner cannot
be considered to have a "permanent establishment" in the Philippines pursuant to Article V(6) of the
Republic of the Philippines-Canada Tax Treaty. It points out that Aerotel is an "independent general sales
agent that acts as such for ... other international airline companies in the ordinary course of its
business." Aerotel sells passage tickets on behalf of petitioner and receives a commission for its
services. Petitioner states that even the Bureau of Internal Revenue— through VAT Ruling No. 003-04
dated February 14, 2004—has conceded that an offline international air carrier, having no flight operations
to and from the Philippines, is not deemed engaged in business in the Philippines by merely appointing a
general sales agent. Finally, petitioner maintains that its "claim for refund of erroneously paid Gross
Philippine Billings cannot be denied on the ground that [it] is subject to income tax under Section 28 (A)
(I)" since it has not been assessed at all by the Bureau of Internal Revenue for any income tax liability.

On the other hand, respondent maintains that petitioner is subject to the 32% corporate income tax as a
resident foreign corporation doing business in the Philippines. Petitioner's total payment of P5,185,676.77
allegedly shows that petitioner was earning a sizable income from the sale of its plane tickets within the
Philippines during the relevant period. Respondent further points out that this court in Commissioner of
Internal Revenue v. American Airlines, Inc., which in turn cited the cases involving the British Overseas
Airways Corporation and Air India, had already settled that "foreign airline companies which sold tickets in
the Philippines through their local agents . . . [are] considered resident foreign corporations engaged in
trade or business in the country." It also cites Revenue Regulations No. 6-78 dated April 25, 1978, which
defined the phrase "doing business in the Philippines" as including "regular sale of tickets in the Philippines
by offline international airlines either by themselves or through their agents."

Respondent further contends that petitioner is not entitled to its claim for refund because the amount of
P5,185,676.77 it paid as tax from the third quarter of 2000 to the second quarter of 2001 was still short of
the 32% income tax due for the period. Petitioner cannot allegedly claim good faith in its failure to pay the
right amount of tax since the National Internal Revenue Code became operative on January 1, 1998 and by
2000, petitioner should have already been aware of the implications of Section 28(A)(3) and the decided
cases of this court's ruling on the taxability of offline international carriers selling passage tickets in the
Philippines.

At the outset, we affirm the Court of Tax Appeals' ruling that petitioner, as an offline international carrier
with no landing rights in the Philippines, is not liable to tax on Gross Philippine Billings under Section
28(A)(3) of the 1997 National Internal Revenue Code:

SEC. 28. Rates of Income Tax on Foreign Corporations. -(A) Tax on Resident Foreign Corporations. -
. . . .
(3) International Carrier. - An international carrier doing business in the Philippines shall pay a tax of two
and one-half percent (2 1/2%) on its 'Gross Philippine Billings' as defined hereunder:

(a) International Air Carrier. - 'Gross Philippine Billings' refers to the amount of gross revenue derived
from carriage of persons, excess baggage, cargo and mail originating from the Philippines in a continuous
and uninterrupted flight, irrespective of the place of sale or issue and the place of payment of the ticket or
passage document: Provided, That tickets revalidated, exchanged and/or indorsed to another international
airline form part of the Gross Philippine Billings if the passenger boards a plane in a port or point in the

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Philippines: Provided, further, That for a flight which originates from the Philippines, but transshipment of
passenger takes place at any port outside the Philippines on another airline, only the aliquot portion of the
cost of the ticket corresponding to the leg flown from the Philippines to the point of transshipment shall
form part of Gross Philippine Billings. (Emphasis supplied)

Under the foregoing provision, the tax attaches only when the carriage of persons, excess baggage, cargo,
and mail originated from the Philippines in a continuous and uninterrupted flight, regardless of where the
passage documents were sold.

Not having flights to and from the Philippines, petitioner is clearly not liable for the Gross Philippine
Billings tax.

II

Petitioner, an offline carrier, is a resident foreign corporation for income tax purposes. Petitioner falls
within the definition of resident foreign corporation under Section 28(A)(1) of the 1997 National Internal
Revenue Code, thus, it may be subject to 32% tax on its taxable income:

SEC. 28. Rates of Income Tax on Foreign Corporations. -(A) Tax on Resident Foreign Corporations. -

(1) In General. - Except as otherwise provided in this Code, a corporation organized, authorized, or
existing under the laws of any foreign country, engaged in trade or business within the Philippines, shall
be subject to an income tax equivalent to thirty-five percent (35%) of the taxable income derived in the
preceding taxable year from all sources within the Philippines: Provided, That effective January 1, 1998,
the rate of income tax shall be thirty-four percent (34%); effective January 1, 1999, the rate shall be thirty-
three percent (33%); and effective January 1, 2000 and thereafter, the rate shall be thirty-two percent
(32%). (Emphasis supplied)

The definition of "resident foreign corporation" has not substantially changed throughout the amendments
of the National Internal Revenue Code. All versions refer to "a foreign corporation engaged in trade or
business within the Philippines."

Commonwealth Act No. 466, known as the National Internal Revenue Code and approved on June 15,
1939, defined "resident foreign corporation" as applying to "a foreign corporation engaged in trade or
business within the Philippines or having an office or place of business therein."

Section 24(b)(2) of the National Internal Revenue Code, as amended by Republic Act No. 6110, approved
on August 4, 1969, reads:

Sec. 24. Rates of tax on corporations. — . . .(b) Tax on foreign corporations. — . . .

(2) Resident corporations. — A corporation organized, authorized, or existing under the laws of any foreign
country, except a foreign life insurance company, engaged in trade or business within the Philippines, shall
be taxable as provided in subsection (a) of this section upon the total net income received in the preceding
taxable year from all sources within the Philippines. (Emphasis supplied)

Presidential Decree No. 1158-A took effect on June 3, 1977 amending certain sections of the 1939 National
Internal Revenue Code. Section 24(b)(2) on foreign resident corporations was amended, but it still provides
that "[a] corporation organized, authorized, or existing under the laws of any foreign country, engaged in
trade or business within the Philippines, shall be taxable as provided in subsection (a) of this section upon
the total net income received in the preceding taxable year from all sources within the Philippines[.]"

As early as 1987, this court in Commissioner of Internal Revenue v. British Overseas Airways
Corporation declared British Overseas Airways Corporation, an international air carrier with no landing
rights in the Philippines, as a resident foreign corporation engaged in business in the Philippines through its
local sales agent that sold and issued tickets for the airline company. This court discussed that:

There is no specific criterion as to what constitutes "doing" or "engaging in" or "transacting" business. Each
case must be judged in the light of its peculiar environmental circumstances. The term implies a continuity
of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or
works or the exercise of some of the functions normally incident to, and in progressive prosecution of
commercial gain or for the purpose and object of the business organization. "In order that a foreign
corporation may be regarded as doing business within a State, there must be continuity of conduct and
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intention to establish a continuous business, such as the appointment of a local agent, and not one of a
temporary character. ["]

BOAC, during the periods covered by the subject-assessments, maintained a general sales agent in the
Philippines. That general sales agent, from 1959 to 1971, "was engaged in (1) selling and issuing tickets;
(2) breaking down the whole trip into series of trips — each trip in the series corresponding to a different
airline company; (3) receiving the fare from the whole trip; and (4) consequently allocating to the various
airline companies on the basis of their participation in the services rendered through the mode of interline
settlement as prescribed by Article VI of the Resolution No. 850 of the IATA Agreement." Those activities
were in exercise of the functions which are normally incident to, and are in progressive pursuit of, the
purpose and object of its organization as an international air carrier. In fact, the regular sale of tickets, its
main activity, is the very lifeblood of the airline business, the generation of sales being the paramount
objective. There should be no doubt then that BOAC was "engaged in" business in the Philippines through
a local agent during the period covered by the assessments. Accordingly, it is a resident foreign corporation
subject to tax upon its total net income received in the preceding taxable year from all sources within the
Philippines. (Emphasis supplied, citations omitted)

Republic Act No. 7042 or the Foreign Investments Act of 1991 also provides guidance with its definition of
"doing business" with regard to foreign corporations. Section 3(d) of the law enumerates the activities that
constitute doing business:

d. the phrase "doing business" shall include soliciting orders, service contracts, opening offices, whether
called "liaison" offices or branches; appointing representatives or distributors domiciled in the Philippines
or who in any calendar year stay in the country for a period or periods totalling one hundred eighty (180)
days or more; participating in the management, supervision or control of any domestic business, firm,
entity or corporation in the Philippines; and any other act or acts that imply a continuity of commercial
dealings or arrangements, and contemplate to that extent the performance of acts or works, or the
exercise of some of the functions normally incident to, and in progressive prosecution of, commercial
gain or of the purpose and object of the business organization: Provided, however, That' the phrase
"doing business" shall not be deemed to include mere investment as a shareholder by a foreign entity in
domestic corporations duly registered to do business, and/or the exercise of rights as such investor; nor
having a nominee director or officer to represent its interests in such corporation; nor appointing a
representative or distributor domiciled in the Philippines which transacts business in its own name and for
its own account[.] (Emphasis supplied)

While Section 3(d) above states that "appointing a representative or distributor domiciled in the Philippines
which transacts business in its own name and for its own account" is not considered as "doing business,"
the Implementing Rules and Regulations of Republic Act No. 7042 clarifies that "doing business"
includes "appointing representatives or distributors, operating under full control of the foreign
corporation, domiciled in the Philippines or who in any calendar year stay in the country for a period or
periods totaling one hundred eighty (180) days or more[.]"

An offline carrier is "any foreign air carrier not certificated by the [Civil Aeronautics] Board, but who
maintains office or who has designated or appointed agents or employees in the Philippines, who sells or
offers for sale any air transportation in behalf of said foreign air carrier and/or others, or negotiate for, or
holds itself out by solicitation, advertisement, or otherwise sells, provides, furnishes, contracts, or arranges
for such transportation."

"Anyone desiring to engage in the activities of an off-line carrier [must] apply to the [Civil Aeronautics]
Board for such authority." Each offline carrier must file with the Civil Aeronautics Board a monthly report
containing information on the tickets sold, such as the origin and destination of the passengers, carriers
involved, and commissions received.

Petitioner is undoubtedly "doing business" or "engaged in trade or business" in the Philippines.

Aerotel performs acts or works or exercises functions that are incidental and beneficial to the purpose of
petitioner's business. The activities of Aerotel bring direct receipts or profits to petitioner. There is nothing
on record to show that Aerotel solicited orders alone and for its own account and without interference from,
let alone direction of, petitioner. On the contrary, Aerotel cannot "enter into any contract on behalf of
[petitioner Air Canada] without the express written consent of [the latter,]" and it must perform its
functions according to the standards required by petitioner. Through Aerotel, petitioner is able to engage in
an economic activity in the Philippines.

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Further, petitioner was issued by the Civil Aeronautics Board an authority to operate as an offline carrier in
the Philippines for a period of five years, or from April 24, 2000 until April 24, 2005.

Petitioner is, therefore, a resident foreign corporation that is taxable on its income derived from sources
within the Philippines. Petitioner's income from sale of airline tickets, through Aerotel, is income realized
from the pursuit of its business activities in the Philippines.

Ill

However, the application of the regular 32% tax rate under Section 28(A)(1) of the 1997 National Internal
Revenue Code must consider the existence of an effective tax treaty between the Philippines and the home
country of the foreign air carrier.

In the earlier case of South African Airways v. Commissioner of Internal Revenue, this court held that
Section 28(A)(3)(a) does not categorically exempt all international air carriers from the coverage of Section
28(A)(1). Thus, if Section 28(A)(3)(a) is applicable to a taxpayer, then the general rule under Section
28(A)(1) does not apply. If, however, Section 28(A)(3)(a) does not apply, an international air carrier would
be liable for the tax under Section 28(A)(1).

This court in South African Airways declared that the correct interpretation of these provisions is that:
"international air carrier[s] maintaining] flights to and from the Philippines . . . shall be taxed at the rate of
21/2% of its Gross Philippine Billings; while international air carriers that do not have flights to and from
the Philippines but nonetheless earn income from other activities in the country [like sale of airline tickets]
will be taxed at the rate of 32% of such [taxable] income."

In this case, there is a tax treaty that must be taken into consideration to determine the proper tax rate.

A tax treaty is an agreement entered into between sovereign states "for purposes of eliminating double
taxation on income and capital, preventing fiscal evasion, promoting mutual trade and investment, and
according fair and equitable tax treatment to foreign residents or nationals." Commissioner of Internal
Revenue v. S.C. Johnson and Son, Inc. explained the purpose of a tax treaty:

The purpose of these international agreements is to reconcile the national fiscal legislations of the
contracting parties in order to help the taxpayer avoid simultaneous taxation in two different jurisdictions.
More precisely, the tax conventions are drafted with a view towards the elimination of international
juridical double taxation, which is defined as the imposition of comparable taxes in two or more states on
the same taxpayer in respect of the same subject matter and for identical periods.

The apparent rationale for doing away with double taxation is to encourage the free flow of goods and
services and the movement of capital, technology and persons between countries, conditions deemed vital
in creating robust and dynamic economies. Foreign investments will only thrive in a fairly predictable and
reasonable international investment climate and the protection against double taxation is crucial in creating
such a climate. (Emphasis in the original, citations omitted)

Observance of any treaty obligation binding upon the government of the Philippines is anchored on the
constitutional provision that the Philippines "adopts the generally accepted principles of international law
as part of the law of the land[.]" Pacta sunt servanda is a fundamental international law principle that
requires agreeing parties to comply with their treaty obligations in good faith.

Hence, the application of the provisions of the National Internal Revenue Code must be subject to the
provisions of tax treaties entered into by the Philippines with foreign countries.

In Deutsche Bank AG Manila Branch v. Commissioner of Internal Revenue, this court stressed the binding
effects of tax treaties. It dealt with the issue of "whether the failure to strictly comply with [Revenue
Memorandum Order] RMO No. 1-2000 will deprive persons or corporations of the benefit of a tax
treaty." Upholding the tax treaty over the administrative issuance, this court reasoned thus:

Our 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. Every treaty in force
is binding upon the parties, and obligations under the treaty must be performed by them in good faith.
More importantly, treaties have the force and effect of law in this jurisdiction.

Page | 10
Tax treaties are entered into "to reconcile the national fiscal legislations of the contracting parties and, in
turn, help the taxpayer avoid simultaneous taxations in two different jurisdictions." CIR v. S.C. Johnson
and Son, Inc. further clarifies that "tax conventions are drafted with a view towards the elimination of
international juridical double taxation, which is defined as the imposition of comparable taxes in two or
more states on the same taxpayer in respect of the same subject matter and for identical periods. The
apparent rationale for doing away with double taxation is to encourage the free flow of goods and services
and the movement of capital, technology and persons between countries, conditions deemed vital in
creating robust and dynamic economies. Foreign investments will only thrive in a fairly predictable and
reasonable international investment climate and the protection against double taxation is crucial in creating
such a climate." Simply put, tax treaties are entered into to minimize, if not eliminate the harshness of
international juridical double taxation, which is why they are also known as double tax treaty or double tax
agreements.

"A state that has contracted valid international obligations is bound to make in its legislations those
modifications that may be necessary to ensure the fulfillment of the obligations undertaken. " Thus, laws
and issuances must ensure that the reliefs granted under tax treaties are accorded to the parties entitled
thereto. The BIR must not impose additional requirements that would negate the availment of the reliefs
provided for under international agreements. More so, when the RP-Germany Tax Treaty does not provide
for any pre-requisite for the availment of the benefits under said agreement.
. . . .
Bearing in mind the rationale of tax treaties, the period of application for the availment of tax treaty relief
as required by RMO No. 1 -2000 should not operate to divest entitlement to the relief as it would constitute
a violation of the duty required by good faith in complying with a tax treaty. The denial of the availment of
tax relief for the failure of a taxpayer to apply within the prescribed period under the administrative
issuance would impair the value of the tax treaty. At most, the application for a tax treaty relief from the
BIR should merely operate to confirm the entitlement of the taxpayer to the relief.

The obligation to comply with a tax treaty must take precedence over the objective of RMO No. 1-2000.
Logically, noncompliance with tax treaties has negative implications on international relations, and unduly
discourages foreign investors. While the consequences sought to be prevented by RMO No. 1-2000 involve
an administrative procedure, these may be remedied through other system management processes, e.g., the
imposition of a fine or penalty. But we cannot totally deprive those who are entitled to the benefit of a
treaty for failure to strictly comply with an administrative issuance requiring prior application for tax treaty
relief. (Emphasis supplied, citations omitted)

On March 11, 1976, the representatives for the government of the Republic of the Philippines and for the
government of Canada signed the Convention between the Philippines and Canada for the Avoidance of
Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (Republic of the
Philippines-Canada Tax Treaty). This treaty entered into force on December 21, 1977.

Article V of the Republic of the Philippines-Canada Tax Treaty defines "permanent establishment" as a
"fixed place of business in which the business of the enterprise is wholly or partly carried on."

Even though there is no fixed place of business, an enterprise of a Contracting State is deemed to have a
permanent establishment in the other Contracting State if under certain conditions there is a person acting
for it.

Specifically, Article V(4) of the Republic of the Philippines-Canada Tax Treaty states that "[a] person
acting in a Contracting State on behalf of an enterprise of the other Contracting State (other than an agent
of independent status to whom paragraph 6 applies) shall be deemed to be a permanent establishment in the
first-mentioned State if . . . he has and habitually exercises in that State an authority to conclude contracts
on behalf of the enterprise, unless his activities are limited to the purchase of goods or merchandise for that
enterprise[.]" The provision seems to refer to one who would be considered an agent under Article 186883
of the Civil Code of the Philippines.

On the other hand, Article V(6) provides that "[a]n enterprise of a Contracting State shall not be deemed to
have a permanent establishment in the other Contracting State merely because it carries on business in that
other State through a broker, general commission agent or any other agent of an independent status,
where such persons are acting in the ordinary course of their business."

Considering Article XV of the same Treaty, which covers dependent personal services, the term

Page | 11
"dependent" would imply a relationship between the principal and the agent that is akin to an employer-
employee relationship.

Thus, an agent may be considered to be dependent on the principal where the latter exercises
comprehensive control and detailed instructions over the means and results of the activities of the agent.

Section 3 of Republic Act No. 776, as amended, also known as The Civil Aeronautics Act of the
Philippines, defines a general sales agent as "a person, not a bonafide employee of an air carrier, who
pursuant to an authority from an airline, by itself or through an agent, sells or offers for sale any air
transportation, or negotiates for, or holds himself out by solicitation, advertisement or otherwise as one who
sells, provides, furnishes, contracts or arranges for, such air transportation." General sales agents and their
property, property rights, equipment, facilities, and franchise are subject to the regulation and control of the
Civil Aeronautics Board. A permit or authorization issued by the Civil Aeronautics Board is required
before a general sales agent may engage in such an activity.

Through the appointment of Aerotel as its local sales agent, petitioner is deemed to have created a
"permanent"establishment" in the Philippines as defined under the Republic of the Philippines-Canada Tax
Treaty.

Petitioner appointed Aerotel as its passenger general sales agent to perform the sale of transportation on
petitioner and handle reservations, appointment, and supervision of International Air Transport
Association-approved and petitioner-approved sales agents, including the following services: xxx

Aerotel is a dependent agent of petitioner pursuant to the terms of the Passenger General Sales Agency
Agreement executed between the parties. It has the authority or power to conclude contracts or bind
petitioner to contracts entered into in the Philippines. A third-party liability on contracts of Aerotei is to
petitioner as the principal, and not to Aerotei, and liability to such third party is enforceable against
petitioner. While Aerotei maintains a certain independence and its activities may not be devoted wholly to
petitioner, nonetheless, when representing petitioner pursuant to the Agreement, it must carry out its
functions solely for the benefit of petitioner and according to the latter's Manual and written instructions.
Aerotei is required to submit its annual sales plan for petitioner's approval.

In essence, Aerotei extends to the Philippines the transportation business of petitioner. It is a conduit or
outlet through which petitioner's airline tickets are sold.

Under Article VII (Business Profits) of the Republic of the Philippines-Canada Tax Treaty, the "business
profits" of an enterprise of a Contracting State is "taxable only in that State, unless the enterprise carries on
business in the other Contracting State through a permanent establishment)." Thus, income attributable to
Aerotel or from business activities effected by petitioner through Aerotel may be taxed in the Philippines.
However, pursuant to the last paragraph of Article VII in relation to Article VIII (Shipping and Air
Transport) of the same Treaty, the tax imposed on income derived from the operation of ships or aircraft in
international traffic should not exceed 1 1/2% of gross revenues derived from Philippine sources.

IV

While petitioner is taxable as a resident foreign corporation under Section 28(A)(1) of the 1997 National
Internal Revenue Code on its taxable income from sale of airline tickets in the Philippines, it could only be
taxed at a maximum of 1 1/2% of gross revenues, pursuant to Article VIII of the Republic of the
Philippines-Canada Tax Treaty that applies to petitioner as a "foreign corporation organized and existing
under the laws of Canada[.]"

Tax treaties form part of the law of the land, and jurisprudence has applied the statutory construction
principle that specific laws prevail over general ones.

The Republic of the Philippines-Canada Tax Treaty was ratified on December 21, 1977 and became valid
and effective on that date. On the other hand, the applicable provisions relating to the taxability of resident
foreign corporations and the rate of such tax found in the National Internal Revenue Code became effective
on January 1, 1998. Ordinarily, the later provision governs over the earlier one. In this case, however, the
provisions of the Republic of the Philippines-Canada Tax Treaty are more specific than the provisions
found in the National Internal Revenue Code.

Page | 12
These rules of interpretation apply even though one of the sources is a treaty and not simply a statute.

Article VII, Section 21 of the Constitution provides:

SECTION 21. No treaty or international agreement shall be valid and effective unless concurred in by at
least two-thirds of all the Members of the Senate.

This provision states the second of two ways through which international obligations become binding.
Article II, Section 2 of the Constitution deals with international obligations that are incorporated, while
Article VII, Section 21 deals with international obligations that become binding through ratification.

"Valid and effective" means that treaty provisions that define rights and duties as well as definite
prestations have effects equivalent to a statute. Thus, these specific treaty provisions may amend statutory
provisions. Statutory provisions may also amend these types of treaty obligations.

We only deal here with bilateral treaty state obligations that are not international obligations erga
omnes. We are also not required to rule in this case on the effect of international customary norms
especially those with jus cogens character.

The second paragraph of Article VIII states that "profits from sources within a Contracting State derived by
an enterprise of the other Contracting State from the operation of ships or aircraft in international traffic
may be taxed in the first-mentioned State but the tax so charged shall not exceed the lesser of a) one and
one-half per cent of the gross revenues derived from sources in that State; and b) the lowest rate of
Philippine tax imposed on such profits derived by an enterprise of a third State."

The Agreement between the government of the Republic of the Philippines and the government of Canada
on Air Transport, entered into on January 14, 1997, reiterates the effectivity of Article VIII of the Republic
of the Philippines-Canada Tax Treaty:

ARTICLE XVI (Taxation)

The Contracting Parties shall act in accordance with the provisions of Article VIII of the Convention
between the Philippines and Canada for the Avoidance of Double Taxation and the Prevention of Fiscal
Evasion with Respect to Taxes on Income, signed at Manila on March 31, 1976 and entered into force on
December 21, 1977, and any amendments thereto, in respect of the operation of aircraft in international
traffic.

Petitioner's income from sale of ticket for international carriage of passenger is income derived from
international operation of aircraft. The sale of tickets is closely related to the international operation of
aircraft that it is considered incidental thereto.

"By reason of our bilateral negotiations with Canada, we have agreed to have our right to tax limited to a
certain extent." Thus, we are bound to extend to a Canadian air carrier doing business in the Philippines
through a local sales agent the benefit of a lower tax equivalent to 1 1/2% on business profits derived from
sale of international air transportation.

Finally, we reject petitioner's contention that the Court of Tax Appeals erred in denying its claim for refund
of erroneously paid Gross Philippine Billings tax on the ground that it is subject to income tax under
Section 28(A)(1) of the National Internal Revenue Code because (a) it has not been assessed at all by the
Bureau of Internal Revenue for any income tax liability; and (b) internal revenue taxes cannot be the
subject of set-off or compensation, citing Republic v. Mambulao Lumber Co., et al. and Francia v.
Intermediate Appellate Court.

In SMI-ED Philippines Technology, Inc. v. Commissioner of Internal Revenue, we have ruled that "in an
action for the refund of taxes allegedly erroneously paid, the Court of Tax Appeals may determine whether
there are taxes that should have been paid in lieu of the taxes paid." The determination of the proper
category of tax that should have been paid is incidental and necessary to resolve the issue of whether a
refund should be granted. Thus:

Petitioner argued that the Court of Tax Appeals had no jurisdiction to subject it to 6% capital gains tax or
other taxes at the first instance. The Court of Tax Appeals has no power to make an assessment.

Page | 13
As earlier established, the Court of Tax Appeals has no assessment powers. In stating that petitioner's
transactions are subject to capital gains tax, however, the Court of Tax Appeals was not making an
assessment. It was merely determining the proper category of tax that petitioner should have paid, in view
of its claim that it erroneously imposed upon itself and paid the 5% final tax imposed upon PEZA-
registered enterprises.

The determination of the proper category of tax that petitioner should have paid is an incidental matter
necessary for the resolution of the principal issue, which is whether petitioner was entitled to a refund.

The issue of petitioner's claim for tax refund is intertwined with the issue of the proper taxes that are due
from petitioner. A claim for tax refund carries the assumption that the tax returns filed were correct. If the
tax return filed was not proper, the correctness of the amount paid and, therefore, the claim for refund
become questionable. In that case, the court must determine if a taxpayer claiming refund of erroneously
paid taxes is more properly liable for taxes other than that paid.

In South African Airways v. Commissioner of Internal Revenue, South African Airways claimed for refund
of its erroneously paid 2 1/2% taxes on its gross Philippine billings. This court did not immediately grant
South African's claim for refund. This is because although this court found that South African Airways was
not subject to the 2 1/2% tax on its gross Philippine billings, this court also found that it was subject to 32%
tax on its taxable income.

In this case, petitioner's claim that it erroneously paid the 5% final tax is an admission that the quarterly tax
return it filed in 2000 was improper. Hence, to determine if petitioner was entitled to the refund being
claimed, the Court of Tax Appeals has the duty to determine if petitioner was indeed not liable for the 5%
final tax and, instead, liable for taxes other than the 5% final tax. As in South African Airways, petitioner's
request for refund can neither be granted nor denied outright without such determination.

If the taxpayer is found liable for taxes other than the erroneously paid 5% final tax, the amount of the
taxpayer's liability should be computed and deducted from the refundable amount.

Any liability in excess of the refundable amount, however, may not be collected in a case involving solely
the issue of the taxpayer's entitlement to refund. The question of tax deficiency is distinct and unrelated to
the question of petitioner's entitlement to refund. Tax deficiencies should be subject to assessment
procedures and the rules of prescription. The court cannot be expected to perform the BIR's duties
whenever it fails to do so either through neglect or oversight. Neither can court processes be used as a tool
to circumvent laws protecting the rights of taxpayers.

Hence, the Court of Tax Appeals properly denied petitioner's claim for refund of allegedly erroneously paid
tax on its Gross Philippine Billings, on the ground that it was liable instead for the regular 32% tax on its
taxable income received from sources within the Philippines. Its determination of petitioner's liability for
the 32% regular income tax was made merely for the purpose of ascertaining petitioner's entitlement to a
tax refund and not for imposing any deficiency tax.

In this regard, the matter of set-off raised by petitioner is not an issue. Besides, the cases cited are based on
different circumstances. In both cited cases, the taxpayer claimed that his (its) tax liability was off-set by
his (its) claim against the government.

Specifically, in Republic v. Mambulao Lumber Co., et al, Mambulao Lumber contended that the amounts it
paid to the government as reforestation charges from 1947 to 1956, not having been used in the
reforestation of the area covered by its license, may be set off or applied to the payment of forest charges
still due and owing from it. Rejecting Mambulao's claim of legal compensation, this court ruled:

Appellant and appellee are not mutually creditors and debtors of each other. Consequently, the law on
compensation is inapplicable. On this point, the trial court correctly observed:

Under Article 1278, NCC, compensation should take place when two persons in their own right are
creditors and debtors of each other. With respect to the forest charges which the defendant Mambulao
Lumber Company has paid to the government, they are in the coffers of the government as taxes collected,
and the government does not owe anything to defendant Mambulao Lumber Company. So, it is crystal clear
that the Republic of the Philippines and the Mambulao Lumber Company are not creditors and debtors of
each other, because compensation refers to mutual debts. * * *

Page | 14
And the weight of authority is to the effect that internal revenue taxes, such as the forest charges in
question, cannot be the subject of set-off or compensation.

A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off under the
statutes of set-off, which are construed uniformly, in the light of public policy, to exclude the remedy in an
action or any indebtedness of the state or municipality to one who is liable to the state or municipality for
taxes. Neither are they a proper subject of recoupment since they do not arise out of the contract or
transaction sued on. * * *. (80 C.J.S. 73-74.)

The general rule, based on grounds of public policy is well-settled that no set-off is admissible against
demands for taxes levied for general or local governmental purposes. The reason on which the general rule
is based, is that taxes are not in the nature of contracts between the party and party but grow out of a duty
to, and are the positive acts of the government, to the making and enforcing of which, the personal consent
of individual taxpayers is not required. * * * If the taxpayer can properly refuse to pay his tax when called
upon by the Collector, because he has a claim against the governmental body which is not included in the
tax levy, it is plain that some legitimate and necessary expenditure must be curtailed. If the taxpayer's claim
is disputed, the collection of the tax must await and abide the result of a lawsuit, and meanwhile the
financial affairs of the government will be thrown into great confusion. (47 Am. Jur. 766-767.) (Emphasis
supplied)

In Francia, this court did not allow legal compensation since not all requisites of legal compensation
provided under Article 1279 were present. In that case, a portion of Francia's property in Pasay was
expropriated by the national government, which did not immediately pay Francia. In the meantime, he
failed to pay the real property tax due on his remaining property to the local government of Pasay, which
later on would auction the property on account of such delinquency. He then moved to set aside the auction
sale and argued, among others, that his real property tax delinquency was extinguished by legal
compensation on account of his unpaid claim against the national government. This court ruled against
Francia:

There is no legal basis for the contention. By legal compensation, obligations of persons, who in their own
right are reciprocally debtors and creditors of each other, are extinguished (Art. 1278, Civil Code). The
circumstances of the case do not satisfy the requirements provided by Article 1279, to wit:

(1) that each one of the obligors be bound principally and that he be at the same time a principal creditor of
the other;

(3) that the two debts be due.

This principal contention of the petitioner has no merit. We have consistently ruled that there can be no off-
setting of taxes against the claims that the taxpayer may have against the government. A person cannot
refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax
being collected. The collection of a tax cannot await the results of a lawsuit against the government.

The ruling in Francia was applied to the subsequent cases of Caltex Philippines, Inc. v. Commission on
Audit and Philex Mining Corporation v. Commissioner of Internal Revenue. In Caltex, this court reiterated:

A taxpayer may not offset taxes due from the claims that he may have against the government. Taxes
cannot be the subject of compensation because the government and taxpayer are not mutually creditors and
debtors of each other and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to
beset-off.

Philex Mining ruled that "there is a material distinction between a tax and debt. Debts are due to the
Government in its corporate capacity, while taxes are due to the Government in its sovereign
capacity." Rejecting Philex Mining's assertion that the imposition of surcharge and interest was unjustified
because it had no obligation to pay the excise tax liabilities within the prescribed period since, after all, it
still had pending claims for VAT input credit/refund with the Bureau of Internal Revenue, this court
explained:

To be sure, we cannot allow Philex to refuse the payment of its tax liabilities on the ground that it has a
pending tax claim for refund or credit against the government which has not yet been granted. It must be

Page | 15
noted that a distinguishing feature of a tax is that it is compulsory rather than a matter of bargain. Hence, a
tax does not depend upon the consent of the taxpayer. If any tax payer can defer the payment of taxes by
raising the defense that it still has a pending claim for refund or credit, this would adversely affect the
government revenue system. A taxpayer cannot refuse to pay his taxes when they fall due simply because
he has a claim against the government or that the collection of the tax is contingent on the result of the
lawsuit it filed against the government. Moreover, Philex's theory that would automatically apply its VAT
input credit/refund against its tax liabilities can easily give rise to confusion and abuse, depriving the
government of authority over the manner by which taxpayers credit and offset their tax
liabilities. (Citations omitted)

In sum, the rulings in those cases were to the effect that the taxpayer cannot simply refuse to pay tax on the
ground that the tax liabilities were off-set against any alleged claim the taxpayer may have against the
government. Such would merely be in keeping with the basic policy on prompt collection of taxes as the
lifeblood of the government.

Here, what is involved is a denial of a taxpayer's refund claim on account of the Court of Tax Appeals'
finding of its liability for another tax in lieu of the Gross Philippine Billings tax that was allegedly
erroneously paid.

Squarely applicable is South African Airways where this court rejected similar arguments on the denial of
claim for tax refund:

Commissioner of Internal Revenue v. Court of Tax Appeals, however, granted the offsetting of a tax refund
with a tax deficiency in this wise:

Further, it is also worth noting that the Court of Tax Appeals erred in denying petitioner's supplemental
motion for reconsideration alleging bringing to said court's attention the existence of the deficiency income
and business tax assessment against Citytrust. The fact of such deficiency assessment is intimately related
to and inextricably intertwined with the right of respondent bank to claim for a tax refund for the same
year. To award such refund despite the existence of that deficiency assessment is an absurdity and a
polarity in conceptual effects. Herein private respondent cannot be entitled to refund and at the same time
be liable for a tax deficiency assessment for the same year.

The grant of a refund is founded on the assumption that the tax return is valid, that is, the facts stated
therein are true and correct. The deficiency assessment, although not yet final, created a doubt as to and
constitutes a challenge against the truth and accuracy of the facts stated in said return which, by itself and
without unquestionable evidence, cannot be the basis for the grant of the refund.

Section 82, Chapter IX of the National Internal Revenue Code of 1977, which was the applicable law when
the claim of Citytrust was filed, provides that "(w)hen an assessment is made in case of any list, statement,
or return, which in the opinion of the Commissioner of Internal Revenue was false or fraudulent or
contained any understatement or undervaluation, no tax collected under such assessment shall be recovered
by any suits unless it is proved that the said list, statement, or return was not false nor fraudulent and did
not contain any understatement or undervaluation; but this provision shall not apply to statements or returns
made or to be made in good faith regarding annual depreciation of oil or gas wells and mines."

Moreover, to grant the refund without determination of the proper assessment and the tax due would
inevitably result in multiplicity of proceedings or suits. If the deficiency assessment should subsequently be
upheld, the Government will be forced to institute anew a proceeding for the recovery of erroneously
refunded taxes which recourse must be filed within the prescriptive period of ten years after discovery of
the falsity, fraud or omission in the false or fraudulent return involved. This would necessarily require and
entail additional efforts and expenses on the part of the Government, impose a burden on and a drain of
government funds, and impede or delay the collection of much-needed revenue for governmental
operations.

Thus, to avoid multiplicity of suits and unnecessary difficulties or expenses, it is both logically necessary
and legally appropriate that the issue of the deficiency tax assessment against Citytrust be resolved jointly
with its claim for tax refund, to determine once and for all in a single proceeding the true and correct
amount of tax due or refundable.

In fact, as the Court of Tax Appeals itself has heretofore conceded, it would be only just and fair that the
taxpayer and the Government alike be given equal opportunities to avail of remedies under the law to

Page | 16
defeat each other's claim and to determine all matters of dispute between them in one single case. It is
important to note that in determining whether or not petitioner is entitled to the refund of the amount paid,
it would be necessary to determine how much the Government is entitled to collect as taxes. This would
necessarily include the determination of the correct liability of the taxpayer and, certainly, a determination
of this case would constitute res judicata on both parties as to all the matters subject thereof or necessarily
involved therein.

Sec. 82, Chapter IX of the 1977 Tax Code is now Sec. 72, Chapter XI of the 1997 NIRC. The above
pronouncements are, therefore, still applicable today.

Here, petitioner's similar tax refund claim assumes that the tax return that it filed was correct. Given,
however, the finding of the CTA that petitioner, although not liable under Sec. 28(A)(3)(a) of the 1997
NIRC, is liable under Sec. 28(A)(1), the correctness of the return filed by petitioner is now put in doubt. As
such, we cannot grant the prayer for a refund. (Emphasis supplied, citation omitted)

In the subsequent case of United Airlines, Inc. v. Commissioner of Internal Revenue, this court upheld the
denial of the claim for refund based on the Court of Tax Appeals' finding that the taxpayer had, through
erroneous deductions on its gross income, underpaid its Gross Philippine Billing tax on cargo revenues for
1999, and the amount of underpayment was even greater than the refund sought for erroneously paid Gross
Philippine Billings tax on passenger revenues for the same taxable period.

In this case, the P5,185,676.77 Gross Philippine Billings tax paid by petitioner was computed at the rate of
1 1/2% of its gross revenues amounting to P345,711,806.08 from the third quarter of 2000 to the second
quarter of 2002. It is quite apparent that the tax imposable under Section 28(A)(1) of the 1997 National
Internal Revenue Code [32% of taxable income, that is, gross income less deductions] will exceed the
maximum ceiling of 1 1/2% of gross revenues as decreed in Article VIII of the Republic of the Philippines-
Canada Tax Treaty. Hence, no refund is forthcoming.

WHEREFORE, the Petition is DENIED. The Decision dated August 26, 2005 and Resolution dated April
8, 2005 of the Court of Tax Appeals En Banc are AFFIRMED. SO ORDERED.

Republic of the Philippines

Supreme Court
Manila
EN BANC
G.R. No. 207112, December 08, 2015
PILIPINAS TOTAL GAS, INC., Petitioner, v. COMMISSIONER OF INTERNAL
REVENUE,Respondent.
DECISION
MENDOZA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the
October 11, 2012 Decision and the May 8, 2013 Resolution of the Court of Tax Appeals (CTA) En Banc, in
CTA EB Case No. 776, which affirmed the January 13, 2011 Decision of the CTA Third Division (CTA
Division) in CTA Case No. 7863.

The Facts

Petitioner Pilipinas Total Gas, Inc. (Total Gas) is engaged in the business of selling, transporting and
distributing industrial gas. It is also engaged in the sale of gas equipment and other related businesses. For
this purpose, Total Gas registered itself with the Bureau of Internal Revenue (BIR) as a Value Added Tax
(VAT) taxpayer.

On April 20, 2007 and July 20, 2007, Total Gas filed its Original Quarterly VAT Returns for the First and
Second quarters of 2007, respectively with the BIR.

On May 20, 2008, it filed its Amended Quarterly VAT Returns for the first two quarters of 2007 reflecting
its sales subject to VAT, zero-rated sales, and domestic purchases of non-capital goods and services.

For the First and Second quarters of 2007, Total Gas claimed it incurred unutilized input VAT credits from
its domestic purchases of noncapital goods and services in the total amount of P8,124,400.35. Of this total
accumulated input VAT, Total Gas claimed that it had P7,898,433.98 excess unutilized input VAT.

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On May 15, 2008, Total Gas filed an administrative claim for refund of unutilized input VAT for the first
two quarters of taxable year 2007, inclusive of supporting documents.

On August 28, 2008, Total Gas submitted additional supporting documents to the BIR.

On January 23, 2009, Total Gas elevated the matter to the CTA in view of the inaction of the
Commissioner of Internal Revenue (CIR).

During the hearing, Total Gas presented, as witnesses, Rosalia T. Yu and Richard Go, who identified
documentary evidence marked as Exhibits "A" to "ZZ-1," all of which were admitted. Respondent CIR, on
the other hand, did not adduce any evidence and had the case submitted for decision.

Ruling of the CTA Division

In its January 13, 2011 Decision, the CTA Division dismissed the petition for being prematurely filed. It
explained that Total Gas failed to complete the necessary documents to substantiate a claim for refund of
unutilized input VAT on purchases of goods and services enumerated under Revenue Memorandum Order
(RMO) No. 53-98. Of note were the lack of Summary List of Local Purchases and the certifications from
the Office of the Board of Investment (BOD), the Bureau of Customs (BOC), and the Philippine Economic
Zone Authority (PEZA) that the taxpayer had not filed any similar claim for refund covering the same
period.

Believing that Total Gas failed to complete the necessary documents to substantiate its claim for refund, the
CTA Division was of the view that the 120-day period allowed to the CIR to decide its claim under Section
112 (C) of the National Internal Revenue Code of 1997 (NIRC), had not even started to run. With this, the
CTA Division opined that the petition for review was prematurely filed because Total Gas failed to exhaust
the appropriate administrative remedies. The CTA Division stressed that tax refunds partake of the nature
of an exemption, putting into operation the rule of strict interpretation, with the taxpayer being charged
with the burden of proving that he had satisfied all the statutory and administrative requirements.

Total Gas sought for reconsideration from the CTA Division, but its motion was denied for lack of merit in
a Resolution, dated April 19, 2011. In the same resolution, it reiterated that "that the complete supporting
documents should be submitted to the BIR before the 120-day period for the Commissioner to decide the
claim for refund shall commence to run. It is only upon the lapse of the 120-day period that the taxpayer
can appeal the inaction [to the CTA.]" It noted that RMO No. 53-98, which provides a checklist of
documents for the BIR to consider in granting claims for refund, also serves as a guideline for the courts to
determine if the taxpayer had submitted complete supporting documents. It also stated that Total Gas could
not invoke Revenue Memorandum Circular (RMC) No. 29-09 because it was issued after the administrative
claim was filed and could not be applied retroactively. Thus, the CTA Division disposed:
WHEREFORE, premises considered, the present Petition for Review is hereby DENIED DUE COURSE,
and, accordingly DISMISSED for having been prematurely filed.

Ruling of the CTA En Banc

In its assailed decision, the CTA En Banc likewise denied the petition for review of Total Gas for lack of
merit. It condensed its arguments into two core issues, to wit: (1) whether Total Gas seasonably filed its
judicial claim for refund; and (2) whether it was unable to substantiate its administrative claim for refund
by failing to submit the required documents that would allow respondent to act on it.

As to the first issue, the CTA En Banc ruled that the CTA Division had no jurisdiction over the case
because Total Gas failed to seasonably file its petition. Counting from the date it filed its administrative
claim on May 15, 2008, the CTA En Banc explained that the CIR had 120 days to act on the claim (until
September 12, 2008), and Total Gas had 30 days from then, or until October 12, 2008, to question the
inaction before the CTA. Considering that Total Gas only filed its petition on January 23, 2009, the
CTA En Banc concluded that the petition for review was belatedly filed. For the tax court, the 120-day
period could not commence on the day Total Gas filed its last supporting document on August 28, 2008,
because to allow such would give the taxpayer unlimited discretion to indefinitely extend the 120-day
period by simply filing the required documents piecemeal.

As to the second issue, the CTA En Banc affirmed the CTA Division that Total Gas failed to submit the
complete supporting documents to warrant the grant of its application for refund. Quoting the pertinent

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portion of the decision of its division, the CTA En Banc likewise concurred in its finding that the judicial
claim of Total Gas was prematurely filed because the 120-day period for the CIR to decide the claim had
yet to commence to run due to the lack of essential documents.

Total Gas filed a motion for reconsideration, but it was denied in the assailed resolution of the CTA En
Banc. Hence, the present petition.

ISSUES

(a) whether the judicial claim for refund was belatedly filed on 23 January 2009, or way beyond the
30-day period to appeal as provided in Section 112(c) of the Tax Code, as amended; and

(b) whether the submission of incomplete documents at the administrative level (BIR) renders the
judicial claim premature and dismissible for lack of jurisdiction.

In its petition, Total Gas argues that its judicial claim was filed within the prescriptive period for claiming
excess unutilized input VAT refund as provided under Section 112 of the NIRC and expounded in the
Court's ruling in CIR v. Aichi Forging Company of Asia (Aichi) and in compliance with Section 112 of the
NIRC. In addition to citing Section 112 (C) of the Tax Code, Total Gas points out that in one of its previous
claims for refund of excess unutilized input VAT, the CTA En Banc in CTA En Banc Case No.
674, faulted the BIR in not considering that the reckoning period for the 120-period should be counted from
the date of submission of complete documents. It then adds that the previous ruling of the CTA En
Banc was in accordance with law because Section 112 (C) of the Tax Code is clear in providing that the
120-day period should be counted from the date of its submission of the complete documents or from
August 28, 2008 and not from the date it filed its administrative claim on May 15, 2008. Total Gas argues
that, since its claim was filed within the period of exception provided in CIR v. San Roque Power
Corporation (San Roque), it did not have to strictly comply with 120+30 day period before it could seek
judicial relief.

Moreover, Total Gas questions the logic of the CTA En Banc which stated that the petition was filed both
belatedly and prematurely. Total Gas points out that on the one hand, the CTA En Banc ruled that it filed
the judicial claim belatedly as it was way beyond the 120+30 day period. Yet, it also affirmed the findings
of its division that its petition for review was prematurely filed since the 120-day period did not even
commence to run for lack of complete supporting documents.

For Total Gas, the CTA En Banc violated the doctrine of stare decisis because the tax tribunal had, on
numerous occassions, held that the submission of incomplete supporting documents should not make the
judicial appeal premature and dismissible for lack of jurisdiction. In these decisions, the CTA En Banc had
previously held that non-compliance with RMO No. 53-98 should not be fatal since the requirements listed
therein refer to requirements for refund or tax credit in the administrative level for purposes of establishing
the authenticity of a taxpayer's claim; and that in the judicial level, it is the Rules of Court that govern and,
thus, whether or not the evidence submitted by the party to the court is sufficient lies within the sound
discretion of the court. Total Gas emphasizes that RMO No. 53-98 does not state that non-submission of
supporting documents will nullify the judicial claim. It posits that once a judicial claim is filed, what should
be examined are the evidence formally offered in the judicial proceedings.

Even assuming that the supporting documents submitted to the BIR were incomplete, Total Gas argues that
there was no legal basis to hold that the CIR could not decide or act on the claim for refund without the
complete supporting documents. It argues that under RMC No. 29-09, the BIR is tasked with the duty to
notify the taxpayer of the incompleteness of its supporting documents and, if the taxpayer fails to complete
the supporting documents despite such notice, the same shall be denied. The same regulation provides that
for purposes of computing the 120-day period, it should be considered tolled when the taxpayer is notified.
Total Gas, however, insists that it was never notified and, therefore, was justified in seeking judicial relief.

Although Total Gas admits that RMC No. 29-09 was not yet issued at the time it filed its administrative
claim, the BIR still erred for not notifying them of their lack of supporting documents. According to Total
Gas, the power to notify a taxpayer of lacking documents and to deny its claim if the latter would not
comply is inherent in the CIR's power to decide refund cases pursuant to Section 4 of the NIRC. It adds
"sound policy also dictates that it should be the taxpayer who should determine whether he has already
submitted all documents pertinent to his claim. To rule otherwise would result into a never-ending
conflict/issue as to the completeness of documents which, in turn, would delay the taxpayer's claim, and
would put to naught the protection afforded by Section 112 (C) of the Tax Code."

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In her Comment, the CIR echoed the ruling of the CTA En Banc, that Total Gas filed its petition out of
time. She countered that the 120-day period could not be counted from the time Total Gas submitted its
additional documents on August 28, 2008 because such an interpretation of Section 112(D) would
indefinitely extend the prescriptive period as provided in favor of the taxpayer.

In its Reply, Total Gas insisted that Section 112(C) stated that the 120-day period should be reckoned from
the date of submission of complete documents, and not from the date of the filing of the administrative
claim.

Ruling of the Court

The petition has merit.

Judicial claim timely filed

Section 112 (C) of the NIRC provides:

SEC. 112. Refunds or Tax Credits of Input Tax. - x x x x

(C) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In proper cases, the
Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one
hundred twenty (120) days from the date of submission of complete documents in support of the
application filed in accordance with Subsections (A) and (B) hereof.

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer affected may,
within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one
hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals.

xxxx

From the above, it is apparent that the CIR has 120 days from the date of submission of complete
documents to decide a claim for tax credit or refund of creditable input taxes. The taxpayer may, within 30
days from receipt of the denial of the claim or after the expiration of the 120-day period, which is
considered a "denial due to inaction," appeal the decision or unacted claim to the CTA.

To be clear, Section 112(C) categorically provides that the 120-day period is counted "from the date of
submission of complete documents in support of the application." Contrary to this mandate, the CTA En
Banc counted the running of the period from the date the application for refund was filed or May 15, 2008,
and, thus, ruled that the judicial claim was belatedly filed.

This should be corrected.

Indeed, the 120-day period granted to the CIR to decide the administrative claim under the Section 112 is
primarily intended to benefit the taxpayer, to ensure that his claim is decided judiciously and expeditiously.
After all, the sooner the taxpayer successfully processes his refund, the sooner can such resources be
further reinvested to the business translating to greater efficiencies and productivities that would ultimately
uplift the general welfare. To allow the CIR to determine the completeness of the documents submitted
and, thus, dictate the running of the 120-day period, would undermine these objectives, as it would provide
the CIR the unbridled power to indefinitely delay the administrative claim, which would ultimately prevent
the filing of a judicial claim with the CTA.

A hypothetical situation illustrates the hazards of granting the CIR the authority to decide when complete
documents have been submitted - A taxpayer files its administrative claim for VAT refund/credit with
supporting documents. After 121 days, the CIR informs the taxpayer that it must submit additional
documents. Considering that the CIR had determined that complete documents have not yet been
submitted, the 120-day period to decide the administrative claim has not yet begun to run. In the meantime,
more than 120 days have already passed since the application with the supporting documents was filed to
the detriment of the taxpayer, who has no opportunity to file a judicial claim until the lapse of the 120+30
day period in Section 112(C). With no limitation to the period for the CIR to determine when complete

Page | 20
documents have been submitted, the taxpayer may be left in a limbo and at the mercy of the CIR, with no
adequate remedy available to hasten the processing of its administrative claim.

Thus, the question must be asked: In an administrative claim for tax credit or refund of creditable input
VAT, from what point does the law allow the CIR to determine when it should decide an application for
refund? Or stated differently: Under present law, when should the submission of documents be deemed
"completed" for purposes of determining the running of the 120-day period?

Ideally, upon filing his administrative claim, a taxpayer should complete the necessary documents to
support his claim for tax credit or refund or for excess utilized VAT. After all, should the taxpayer decide
to submit additional documents and effectively extend the 120-period, it grants the CIR more time to decide
the claim. Moreover, it would be prejudicial to the interest of a taxpayer to prolong the period of processing
of his application before he may reap the benefits of his claim. Therefore, ideally, the CIR has a period of
120 days from the date an administrative claim is filed within which to decide if a claim for tax credit or
refund of excess unutilized VAT has merit.

Thus, when the VAT was first introduced through Executive Order No. 273, the pertinent rule was that:
(e) Period within which refund of input taxes may be made by the Commissioner. The Commissioner shall
refund input taxes within 60 days from the date the application for refund was filed with him or his duly
authorized representative. No refund or input taxes shall be allowed unless the VAT-registered person files
an application for refund within the period prescribed in paragraphs (a), (b) and (c), as the case maybe.

Here, the CIR was not only given 60 days within which to decide an administrative claim for refund of
input taxes, but the beginning of the period was reckoned "from the date the application for refund was
filed."

When Republic Act (R.A.) No. 7716 was, however, enacted on May 5, 1994, the law was amended to read:
(d) Period within which refund or tax credit of input taxes shall be made. - In proper cases, The
Commissioner shall grant a refund or issue the tax credit for creditable input taxes within sixty (60)
days from the date of submission of complete documents in support of the application filed in
accordance with sub-paragraphs (a) and (b) hereof. In case of full or partial denial of the claim for tax
refund or tax credit, or the failure on the part of the Commissioner to act on the application within the
period prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of the decision
denying the claim or after the expiration of the sixty-day period, appeal the decision or the unacted claim
with the Court of Tax Appeals.

Again, while the CIR was given only 60 days within which to act upon an administrative claim for refund
or tax credit, the period came to be reckoned "from the date of submission of complete documents in
support of the application." With this amendment, the date when a taxpayer made its submission of
complete documents became relevant. In order to ensure that such date was at least determinable, RMO No.
4-94 provides:
REVENUE MEMORANDUM ORDER NO. 40-94

SUBJECT : Prescribing the Modified Procedures on the Processing of Claims for Value-Added Tax
Credit/Refund

III. Procedures
REGIONAL OFFICE
A. Revenue District Office In General:
1. Ascertain the completeness of the supporting documents prior to the receipt of the application for VAT
credit/refund from the taxpayer.
2. Receive application for VAT Credit/Refund (BIR Form No. 2552) in three (3) copies in the following
manner:
a. stamp the word "RECEIVED" on the appropriate space provided in all copies of application;
b. indicate the claim number;
c. indicate the date of receipt; and
d. initial by receiving officer.

The application shall be received only if the required attachments prescribed in RAMO 1-91 have been
fully complied with x x x.
Then, when the NIRC was enacted on January 1, 1998, the rule was once more amended to read:

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(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In proper cases, the
Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one
hundred twenty (120) days from the date of submission of compete documents in support of the
application filed in accordance with Subsections (A) and (B) hereof.

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer affected may,
within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one
hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals.

This time, the period granted to the CIR to act upon an administrative claim for refund was extended to 120
days. The reckoning point however, remained "from the date of submission of complete documents."

Aware that not all taxpayers were able to file the complete documents to allow the CIR to properly evaluate
an administrative claim for tax credit or refund of creditable input taxes, the CIR issued RMC No. 49-2003,
which provided:
Q-18: For pending claims with incomplete documents, what is the period within which to submit the
supporting documents required by the investigating/processing office? When should the
investigating/processing office officially receive claims for tax credit/refund and what is the period
required to process such claims?

A-18: For pending claims which have not been acted upon by the investigating/processing office due to
incomplete documentation, the taxpayer-claimants are given thirty (30) days within which to submit
the documentary requirements unless given further extension by the head of the processing unit, but
such extension should not exceed thirty (30) days.

For claims to be filed by claimants with the respective investigating/processing office of the administrative
agency, the same shall be officially received only upon submission of complete documents.

For current and future claims for tax credit/refund, the same shall be processed within one hundred twenty
(120) days from receipt of the complete documents. If, in the course of the investigation and processing of
the claim, additional documents are required for the proper determination of the legitimate amount of
claim, the taxpayer-claimants shall submit such documents within thirty (30) days from request of the
investigating/processing office, which shall be construed as within the one hundred twenty (120) day
period.

Consequently, upon filing of his application for tax credit or refund for excess creditable input taxes, the
taxpayer-claimant is given thirty (30) days within which to complete the required documents, unless given
further extension by the head of the processing unit. If, in the course of the investigation and processing of
the claim, additional documents are required for the proper determination of the legitimate amount of
claim, the taxpayer-claimants shall submit such documents within thirty (30) days from request of the
investigating/processing office. Notice, by way of a request from the tax collection authority to produce the
complete documents in these cases, became essential. It is only upon the submission of these documents
that the 120-day period would begin to run.

Then, when R.A. No. 9337 was passed on July 1, 2005, the same provision under the NIRC was retained.
With the amendment to Section 112, particularly the deletion of what was once Section 112(B) of the
NIRC, Section 112 (D) was amended and renamed 112(C). Thus:
(C) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In proper cases, the
Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one
hundred twenty (120) days from the date of submission of complete documents in support of the
application filed in accordance with Subsection (A) hereof.

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the 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.

With the amendments only with respect to its place under Section 112, the Court finds that RMC No. 49-
2003 should still be observed. Thus, taking the foregoing changes to the law altogether, it becomes
apparent that, for purposes of determining when the supporting documents have been completed — it is the

Page | 22
taxpayer who ultimately determines when complete documents have been submitted for the purpose of
commencing and continuing the running of the 120-day period. After all, he may have already completed
the necessary documents the moment he filed his administrative claim, in which case, the 120-day period is
reckoned from the date of filing.

The taxpayer may have also filed the complete documents on the 30th day from filing of his application,
pursuant to RMC No. 49-2003. He may very well have filed his supporting documents on the first day he
was notified by the BIR of the lack of the necessary documents. In such cases, the 120-day period is
computed from the date the taxpayer is able to submit the complete documents in support of his
application.

Then, except in those instances where the BIR would require additional documents in order to fully
appreciate a claim for tax credit or refund, in terms what additional document must be presented in support
of a claim for tax credit or refund - it is the taxpayer who has that right and the burden of providing any and
all documents that would support his claim for tax credit or refund. After all, in a claim for tax credit or
refund, it is the taxpayer who has the burden to prove his cause of action. As such, he enjoys relative
freedom to submit such evidence to prove his claim.

The foregoing conclusion is but a logical consequence of the due process guarantee under the Constitution.
Corollary to the guarantee that one be afforded the opportunity to be heard, it goes without saying that the
applicant should be allowed reasonable freedom as to when and how to present his claim within the
allowable period.

Thereafter, whether these documents are actually complete as required by law - is for the CIR and
the courts to determine. Besides, as between a taxpayer-applicant, who seeks the refund of his creditable
input tax and the CIR, it cannot be denied that the former has greater interest in ensuring that the complete
set of documentary evidence is provided for proper evaluation of the State.

Lest it be misunderstood, the benefit given to the taxpayer to determine when it should complete its
submission of documents is not unbridled. Under RMC No. 49-2003, if in the course of the investigation
and processing of the claim, additional documents are required for the proper determination of the
legitimacy of the claim, the taxpayer-claimants shall submit such documents within thirty (30) days from
request of the investigating/processing office. Again, notice, by way of a request from the tax collection
authority to produce the complete documents in these cases, is essential.

Moreover, under Section 112(A) of the NIRC, as amended by RA 9337, a taxpayer has two (2) years, after
the close of the taxable quarter when the sales were made, to apply for the issuance of a tax credit
certificate or refund of creditable input tax due or paid attributable to such sales. Thus, before the
administrative claim is barred by prescription, the taxpayer must be able to submit his complete documents
in support of the application filed. This is because, it is upon the complete submission of his documents in
support of his application that it can be said that the application was, "officially received" as provided under
RMC No. 49-2003.

To summarize, for the just disposition of the subject controversy, the rule is that from the date an
administrative claim for excess unutilized VAT is filed, a taxpayer has thirty (30) days within which to
submit the documentary requirements sufficient to support his claim, unless given further extension by the
CIR. Then, upon filing by the taxpayer of his complete documents to support his application, or expiration
of the period given, the CIR has 120 days within which to decide the claim for tax credit or refund. Should
the taxpayer, on the date of his filing, manifest that he no longer wishes to submit any other addition
documents to complete his administrative claim, the 120 day period allowed to the CIR begins to run from
the date of filing.

In all cases, whatever documents a taxpayer intends to file to support his claim must be completed within
the two-year period under Section 112(A) of the NIRC. The 30-day period from denial of the claim or from
the expiration of the 120-day period within which to appeal the denial or inaction of the CIR to the CTA
must also be respected.

It bears mentioning at this point that the foregoing summation of the rules should only be made applicable
to those claims for tax credit or refund filed prior to June 11, 2014, such as the claim at bench. As it now
stands, RMC 54-2014 dated June 11, 2014 mandates that:
The application for VAT refund/tax credit must be accompanied by complete supporting documents as
enumerated in Annex "A" hereof. In addition, the taxpayer shall attach a statement under oath attesting to

Page | 23
the completeness of the submitted documents (Annex B). The affidavit shall further state that the said
documents are the only documents which the taxpayer will present to support the claim. If the taxpayer is a
juridical person, there should be a sworn statement that the officer signing the affidavit (i.e., at the very
least, the Chief Financial Officer) has been authorized by the Board of Directors of the company.

Upon submission of the administrative claim and its supporting documents, the claim shall be processed
and no other documents shall be accepted/required from the taxpayer in the course of its evaluation. A
decision shall be rendered by the Commissioner based only on the documents submitted by the taxpayer.
The application for tax refund/tax credit shall be denied where the taxpayer/claimant failed to submit the
complete supporting documents. For this purpose, the concerned processing/investigating office shall
prepare and issue the corresponding Denial Letter to the taxpayer/claimant.

Thus, under the current rule, the reckoning of the 120-day period has been withdrawn from the taxpayer by
RMC 54-2014, since it requires him at the time he files his claim to complete his supporting documents and
attest that he will no longer submit any other document to prove his claim. Further, the taxpayer is barred
from submitting additional documents after he has filed his administrative claim.

On this score, the Court finds that the foregoing issuance cannot be applied rectroactively to the case at
bar since it imposes new obligations upon taxpayers in order to perfect their administrative claim, that is,
[1] compliance with the mandate to submit the "supporting documents" enumerated under RMC 54-2014
under its "Annex A"; and [2] the filing of "a statement under oath attesting to the completeness of the
submitted documents," referred to in RMC 54-2014 as "Annex B." This should not prejudice taxpayers who
have every right to pursue their claims in the manner provided by existing regulations at the time it was
filed.

As provided under Section 246 of the Tax Code:

SEC. 246. Non-Retroactivity of Rulings. - Any revocation, modification or reversal of any of the rules and
regulations promulgated in accordance with the preceding Sections or any of the rulings or circulars
promulgated by the Commissioner shall not be given retroactive application if the revocation,
modification or reversal will be prejudicial to the taxpayers, except in the following cases:

(a) Where the taxpayer deliberately misstates or omits material facts from his return or any document
required of him by the Bureau of Internal Revenue;
(b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from
the facts on which the ruling is based; or
(c) Where the taxpayer acted in bad faith.

Applying the foregoing precepts to the case at bench, it is observed that the CIR made no effort to question
the inadequacy of the documents submitted by Total Gas. It neither gave notice to Total Gas that its
documents were inadequate, nor ruled to deny its claim for failure to adequately substantiate its claim.
Thus, for purposes of counting the 120-day period, it should be reckoned from August 28, 2008, the date
when Total Gas made its "submission of complete documents to support its application" for refund of
excess unutilized input VAT. Consequently, counting from this later date, the BIR had 120 days to decide
the claim or until December 26, 2008. With absolutely no action or notice on the part of the BIR for 120
days, Total Gas had 30 days or until January 25, 2009 to file its judicial claim.

Total Gas, thus, timely filed its judicial claim on January 23, 2009.

Anent RMO No. 53-98, the CTA Division found that the said order provided a checklist of documents for
the BIR to consider in granting claims for refund, and served as a guide for the courts in determining
whether the taxpayer had submitted complete supporting documents.

This should also be corrected.

xxxx
As can be gleaned from the above, RMO No. 53-98 is addressed to internal revenue officers and
employees, for purposes of equity and uniformity, to guide them as to what documents they may require
taxpayers to present upon audit of their tax liabilities. Nothing stated in the issuance would show that it
was intended to be a benchmark in determining whether the documents submitted by a taxpayer
are actually complete to support a claim for tax credit or refund of excess unutilized excess VAT. As
expounded in Commissioner of Internal Revenue v. Team Sual Corporation (formerely Mir ant Sual
Corporation):

Page | 24
The CIR's reliance on RMO 53-98 is misplaced. There is nothing in Section 112 of the NIRC. RR 3-88 or
RMO K3-Q8 itself that requires submission of the complete documents enumerated in RMO 53-98 for a
grant of a refund or credit of input VAT. The subject of RMO 53-98 states that it is a "Checklist of
Documents to be Submitted by a Taxpayer upon Audit of his Tax Liabilities x x x." In this case, TSC was
applying for a grant of refund or credit of its input tax. There was no allegation of an audit being conducted
by the CIR. Even assuming that RMO 53-98 applies, it specifically states that some documents are required
to be submitted by the taxpayer "if applicable."

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

As explained earlier and underlined in Team Sual above, taxpayers cannot simply be faulted for failing to
submit the complete documents enumerated in RMO No. 53-98, absent notice from a revenue officer or
employee that other documents are required. Granting that the BIR found that the documents submitted by
Total Gas were inadequate, it should have notified the latter of the inadequacy by sending it a request to
produce the necessary documents in order to make a just and expeditious resolution of the claim.

Indeed, a taxpayer's failure with the requirements listed under RMO No. 53-98 is not fatal to its claim for
tax credit or refund of excess unutilized excess VAT. This holds especially true when the application for
tax credit or refund of excess unutilized excess VAT has arrived at the judicial level. After all, in the
judicial level or when the case is elevated to the Court, the Rules of Court governs. Simply put, the
question of whether the evidence submitted by a party is sufficient to warrant the granting of its prayer lies
within the sound discretion and judgment of the Court.

At this point, it is worth emphasizing that the reckoning of the 120-day period from August 28, 2008
cannot be doubted. First, a review of the records of the case undubitably show that Total Gas filed its
supporting documents on August 28, 2008, together with a transmittal letter bearing the same date. These
documents were then stamped and signed as received by the appropriate officer of the BIR. Second,
contrary to RMO No. 40-94, which mandates officials of the BIR to indicate the date of receipt of
documents received by their office in every claim for refund or credit of VAT, the receiving officer failed
to indicate the precise date and time when he received these documents. Clearly, the error is attributable to
the BIR officials and should not prejudice Total Gas.

Third, it is observed that whether before the CTA or this Court, the BIR had never questioned the date it
received the supporting documents filed by Total Gas, or the propriety of the filing thereof. In contrast to
the continuous efforts of Total Gas to complete the necessary documents needed to support its application,
all that was insisted by the CIR was that the reckoning period should be counted from the date Total Gas
filed its application for refund of excess unutilized input VAT. There being no question as to whether these
documents were actually received on August 28, 2008, this Court shall not, by way of conjecture, cast
doubt on the truthfulness on such submission. Finally, in consonance with the presumption that a person
acts in accordance with the ordinary course of business, it is presumed that such documents were received
on the date stated therein.

Verily, should there be any doubt on whether Total Gas filed its supporting documents on August 28, 2008,
it is incumbent upon the CIR to allege and prove such assertion. As the saying goes, contra preferentum.

If only to settle any doubt, this Court is by no means setting a precedent by leaving it to the mercy of the
taxpayer to determine when the 120- day reckoning period should begin to run by providing absolute
discretion as to when he must comply with the mandate submitting complete documents in support of his
claim. In addition to the limitations thoroughly discussed above, the peculiar circumstance applicable
herein, as to relieve Total Gas from the application of the rule, is the obvious failure of the BIR to
comply with the specific directive, under RMO 40-94, to stamp the date it received the supporting
documents which Total Gas had submitted to the BIR for its consideration in the processing of its claim.
The utter failure of the tax administrative agency to comply with this simple mandate to stamp the date it
receive the documents submitted by Total Gas - should not in any manner prejudice the taxpayer by casting
doubt as to when it was able to submit its complete documents for purposes of determining the 120-day

Page | 25
period.

While it is still true a taxpayer must prove not only his entitlement to a refund but also his compliance with
the procedural due process - it also true that when the law or rule mandates that a party or authority must
comply with a specific obligation to perform an act for the benefit of another, the non-compliance thereof
by the former should not operate to prejudice the latter, lest it render the nugatory the objective of the rule.
Such is the situation in case at bar.

Judicial claim not prematurely filed

The CTA En Banc curiously ruled in the assailed decision that the judicial claim of Total Gas was not only
belatedly filed, but prematurely filed as well, for failure of Total Gas to prove that it had submitted the
complete supporting documents to warrant the grant of the tax refund and to reckon the commencement of
the 120-day period. It asserted that Total Gas had failed to submit all the required documents to the CIR
and, thus, the 120-day period for the CIR to decide the claim had not yet begun to run, resulting in the
premature filing of the judicial claim. It wrote that the taxpayer must first submit the complete supporting
documents before the 120-day period could commence, and that the CIR could not decide the claim for
refund without the complete supporting documents.

The Court disagrees.

The alleged failure of Total Gas to submit the complete documents at the administrative level did not
render its petition for review with the CTA dismissible for lack of jurisdiction. First, the 120-day period
had commenced to run and the 120+30 day period was, in fact, complied with. As already discussed, it is
the taxpayer who determines when complete documents have been submitted for the purpose of the running
of the 120-day period. It must again be pointed out that this in no way precludes the CIR from requiring
additional documents necessary to decide the claim, or even denying the claim if the taxpayer fails to
submit the additional documents requested.

Second, the CIR sent no written notice informing Total Gas that the documents were incomplete or required
it to submit additional documents. As stated above, such notice by way of a written request is required by
the CIR to be sent to Total Gas. Neither was there any decision made denying the administrative claim of
Total Gas on the ground that it had failed to submit all the required documents. It was precisely the inaction
of the BIR which prompted Total Gas to file the judicial claim. Thus, by failing to inform Total Gas of the
need to submit any additional document, the BIR cannot now argue that the judicial claim should be
dismissed because it failed to submit complete documents.

Finally, it should be mentioned that the appeal made by Total Gas to the CTA cannot be said to be
premature on the ground that it did not observe the otherwise mandatory and juridictional 120+30 day
period. When Total Gas filed its appeal with the CTA on January 23, 2009, it simply relied on BIR Ruling
No. DA-489-03, which, at that time, was not yet struck down by the Court's ruling in Aichi. As
explained in San Roque, this Court recognized a period in time wherein the 120-day period need not be
strictly observed. Thus:
To repeat, a claim for tax refund or credit, like a claim for tax exemption, is construed strictly against the
taxpayer. One of the conditions for a judicial claim of refund or credit under the VAT System is
compliance with the 120+30 day mandatory and jurisdictional periods. Thus, strict compliance with the
120+30 day periods is necessary for such a claim to prosper, whether before, during, or after the effectivity
of the Atlas doctrine, except for the period from the issuance of BIR Ruling No. DA-489-03 on 10
December 2003 to 6 October 2010 when the Aichi doctrine was adopted, which again reinstated the
120+30 day periods as mandatory and jurisdictional.

xxxx

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.
At this stage, a review of the nature of a judicial claim before the CTA is in order. In Atlas Consolidated
Mining and Development Corporation v. CIR, it was ruled -
x x x First, a judicial claim for refund or tax credit in the CTA is by no means an original action but rather
an appeal by way of petition for review of a previous, unsuccessful administrative claim. Therefore, as in
every appeal or petition for review, a petitioner has to convince the appellate court that the quasi-judicial

Page | 26
agency a quo did not have any reason to deny its claims. In this case, it was necessary for petitioner to
show the CTA not only that it was entitled under substantive law to the grant of its claims but also that it
satisfied all the documentary and evidentiary requirements for an administrative claim for refund or tax
credit. Second, cases filed in the CTA are litigated de novo. Thus, a petitioner should prove every minute
aspect of its case by presenting, formally offering and submitting its evidence to the CTA. Since it is
crucial for a petitioner in a judicial claim for refund or tax credit to show that its administrative claim
should have been granted in the first place, part of the evidence to be submitted to the CTA must
necessarily include whatever is required for the successful prosecution of an administrative claim.39

A distinction must, thus, be made between administrative cases appealed due to inaction and those
dismissed at the administrative level due to the failure of the taxpayer to submit supporting documents. If
an administrative claim was dismissed by the CIR due to the taxpayer's failure to submit complete
documents despite notice/request, then the judicial claim before the CTA would be dismissible, not for lack
of jurisdiction, but for the taxpayer's failure to substantiate the claim at the administrative level. When a
judicial claim for refund or tax credit in the CTA is an appeal of an unsuccessful administrative claim, the
taxpayer has to convince the CTA that the CIR had no reason to deny its claim. It, thus, becomes
imperative for the taxpayer to show the CTA that not only is he entitled under substantive law to his claim
for refund or tax credit, but also that he satisfied all the documentary and evidentiary requirements for an
administrative claim. It is, thus, crucial for a taxpayer in a judicial claim for refund or tax credit to show
that its administrative claim should have been granted in the first place. Consequently, a taxpayer cannot
cure its failure to submit a document requested by the BIR at the administrative level by filing the said
document before the CTA.

In the present case, however, Total Gas filed its judicial claim due to the inaction of the BIR. Considering
that the administrative claim was never acted upon; there was no decision for the CTA to review on
appeal per se. Consequently, the CTA may give credence to all evidence presented by Total Gas, including
those that may not have been submitted to the CIR as the case is being essentially decided in the first
instance. The Total Gas must prove every minute aspect of its case by presenting and formally offering its
evidence to the CTA, which must necessarily include whatever is required for the successful prosecution of
an administrative claim.40

The Court cannot, however, make a ruling on the issue of whether Total Gas is entitled to a refund or tax
credit certificate in the amount of P7,898,433.98. Considering that the judicial claim was denied due course
and dismissed by the CTA Division on the ground of premature and/or belated filing, no ruling on the issue
of Total Gas entitlement to the refund was made. The Court is not a trier of facts, especially when such
facts have not been ruled upon by the lower courts. The case shall, thus, be remanded to the CTA Division
for trial de novo.

WHEREFORE, the petition is PARTIALLY GRANTED. The October 11, 2012 Decision and the May
8, 2013 Resolution of the Court of Tax Appeals En Banc, in CTA EB No. 776 are REVERSED and SET
ASIDE.

The case is REMANDED to the CTA Third Division for trial de novo.
SO ORDERED.

Republic of the Philippines

Supreme Court
Manila
SECOND DIVISION

ALLIED BANKING G.R. No. 175097

CORPORATION,
Petitioner,
Present:

CARPIO, J., Chairperson,

- versus - BRION,
DEL CASTILLO,
ABAD, and
PEREZ, JJ.
COMMISSIONER OF

Page | 27
INTERNAL REVENUE, Promulgated:
Respondent. February 5, 2010
x--------------------------------------------------------x
DEL CASTILLO, J.:

The key to effective communication is clarity.

The Commissioner of Internal Revenue (CIR) as well as his duly authorized representative must indicate
clearly and unequivocally to the taxpayer whether an action constitutes a final determination on a disputed
assessment. Words must be carefully chosen in order to avoid any confusion that could adversely affect the rights
and interest of the taxpayer.
Assailed in this Petition for Review on Certiorari under Section 12 of Republic Act (RA) No. 9282, in
relation to Rule 45 of the Rules of Court, are the August 23, 2006 Decision of the Court of Tax Appeals (CTA) and
its October 17, 2006 Resolution denying petitioners Motion for Reconsideration.

Factual Antecedents

On April 30, 2004, the Bureau of Internal Revenue (BIR) issued a Preliminary Assessment Notice (PAN) to
petitioner Allied Banking Corporation for deficiency Documentary Stamp Tax (DST) in the amount
of P12,050,595.60 and Gross Receipts Tax (GRT) in the amount of P38,995,296.76 on industry issue for the taxable
year 2001. Petitioner received the PAN on May 18, 2004 and filed a protest against it on May 27, 2004.

On July 16, 2004, the BIR wrote a Formal Letter of Demand with Assessment Notices to petitioner, which
partly reads as follows:

It is requested that the above deficiency tax be paid immediately upon receipt hereof, inclusive of
penalties incident to delinquency. This is our final decision based on investigation. If you disagree,
you may appeal the final decision within thirty (30) days from receipt hereof, otherwise said
deficiency tax assessment shall become final, executory and demandable.

Petitioner received the Formal Letter of Demand with Assessment Notices on August 30, 2004.

Proceedings before the CTA First Division

On September 29, 2004, petitioner filed a Petition for Review with the CTA which was raffled to its First
Division and docketed as CTA Case No. 7062.

On December 7, 2004, respondent CIR filed his Answer. On July 28, 2005, he filed a Motion to Dismiss on
the ground that petitioner failed to file an administrative protest on the Formal Letter of Demand with Assessment
Notices. Petitioner opposed the Motion to Dismiss on August 18, 2005.

On October 12, 2005, the First Division of the CTA rendered a Resolution granting respondents Motion to
Dismiss. It ruled:

Clearly, it is neither the assessment nor the formal demand letter itself that is appealable to
this Court. It is the decision of the Commissioner of Internal Revenue on the disputed assessment
that can be appealed to this Court (Commissioner of Internal Revenue vs. Villa, 22 SCRA 3). As
correctly pointed out by respondent, a disputed assessment is one wherein the taxpayer or his duly
authorized representative filed an administrative protest against the formal letter of demand and
assessment notice within thirty (30) days from date [of] receipt thereof. In this case, petitioner failed
to file an administrative protest on the formal letter of demand with the corresponding assessment
notices. Hence, the assessments did not become disputed assessments as subject to the Courts review
under Republic Act No. 9282. (See also Republic v. Liam Tian Teng Sons & Co., Inc., 16 SCRA
584.)

WHEREFORE, the Motion to Dismiss is GRANTED. The Petition for Review is

hereby DISMISSED for lack of jurisdiction.

SO ORDERED.

Aggrieved, petitioner moved for reconsideration but the motion was denied by the First Division in its
Resolution dated February 1, 2006.

Page | 28
Proceedings before the CTA En Banc

On February 22, 2006, petitioner appealed the dismissal to the CTA En Banc. The case was docketed as
CTA EB No. 167.

Finding no reversible error in the Resolutions dated October 12, 2005 and February 1, 2006 of the CTA First
Division, the CTA En Banc denied the Petition for Review as well as petitioners Motion for Reconsideration.

The CTA En Banc declared that it is absolutely necessary for the taxpayer to file an administrative protest in
order for the CTA to acquire jurisdiction. It emphasized that an administrative protest is an integral part of the
remedies given to a taxpayer in challenging the legality or validity of an assessment. According to the CTA En
Banc, although there are exceptions to the doctrine of exhaustion of administrative remedies, the instant case does not
fall in any of the exceptions.

Issue

Hence, the present recourse, where petitioner raises the lone issue of whether the Formal Letter of Demand
dated July 16, 2004 can be construed as a final decision of the CIR appealable to the CTA under RA 9282.

Our Ruling

The petition is meritorious.

Section 7 of RA 9282 expressly provides that the CTA

exercises exclusive appellate jurisdiction to review by
appeal decisions of the CIR in cases involving disputed
assessments

The CTA, being a court of special jurisdiction, can take cognizance only of matters that are clearly within its
jurisdiction. Section 7 of RA 9282 provides:

Sec. 7. Jurisdiction. The CTA shall exercise:

(a) Exclusive appellate jurisdiction to review by appeal, as herein provided:

(1) Decisions of the Commissioner of Internal Revenue in cases

involving disputed assessments, refunds of internal revenue taxes,
fees or other charges, penalties in relation thereto, or other matters
arising under the National Internal Revenue Code or other laws
administered by the Bureau of Internal Revenue;

(2) Inaction by the Commissioner of Internal Revenue in cases involving

disputed assessments, refunds of internal revenue taxes, fees or
other charges, penalties in relation thereto, or other matters arising
under the National Internal Revenue Code or other laws
administered by the Bureau of Internal Revenue, where the National
Internal Revenue Code provides a specific period of action, in
which case the inaction shall be deemed a denial; (Emphasis
supplied)

xxxx

The word decisions in the above quoted provision of RA 9282 has been interpreted to mean the decisions of
the CIR on the protest of the taxpayer against the assessments. Corollary thereto, Section 228 of the National Internal
Revenue Code (NIRC) provides for the procedure for protesting an assessment. It states:

SECTION 228. Protesting of Assessment. When the Commissioner or his duly authorized
representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his
findings: Provided, however, That a pre-assessment notice shall not be required in the following
cases:
(a) When the finding for any deficiency tax is the result of mathematical error in the
computation of the tax as appearing on the face of the return; or

Page | 29
 (b) When a discrepancy has been determined between the tax withheld and the amount
actually remitted by the withholding agent; or

(c) When a taxpayer who opted to claim a refund or tax credit of excess creditable
withholding tax for a taxable period was determined to have carried over and automatically applied
the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the
succeeding taxable year; or

(d) When the excise tax due on excisable articles has not been paid; or

(e) When an article locally purchased or imported by an exempt person, such as, but not
limited to, vehicles, capital equipment, machineries and spare parts, has been sold, traded or
transferred to non-exempt persons.

The taxpayers shall be informed in writing of the law and the facts on which the assessment
is made; otherwise, the assessment shall be void.

Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be
required to respond to said notice. If the taxpayer fails to respond, the Commissioner or his duly
authorized representative shall issue an assessment based on his findings.

Such assessment may be protested administratively by filing a request for reconsideration or

reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as
may be prescribed by implementing rules and regulations. Within sixty (60) days from filing of the
protest, all relevant supporting documents shall have been submitted; otherwise, the assessment shall
become final.

If the protest is denied in whole or in part, or is not acted upon within one hundred eighty
(180) days from submission of documents, the taxpayer adversely affected by the decision or
inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said
decision, or from the lapse of the one hundred eighty (180)-day period; otherwise, the decision shall
become final, executory and demandable.

In the instant case, petitioner timely filed a protest after receiving the PAN. In response thereto, the BIR
issued a Formal Letter of Demand with Assessment Notices.Pursuant to Section 228 of the NIRC, the proper
recourse of petitioner was to dispute the assessments by filing an administrative protest within 30 days from receipt
thereof.Petitioner, however, did not protest the final assessment notices. Instead, it filed a Petition for Review with
the CTA. Thus, if we strictly apply the rules, the dismissal of the Petition for Review by the CTA was proper.

The case is an exception to the

rule on exhaustion of administrative remedies

However, a careful reading of the Formal Letter of Demand with Assessment Notices leads us to agree with
petitioner that the instant case is an exception to the rule on exhaustion of administrative remedies, i.e., estoppel on
the part of the administrative agency concerned.

In the case of Vda. De Tan v. Veterans Backpay Commission,[23] the respondent contended that before filing
a petition with the court, petitioner should have first exhausted all administrative remedies by appealing to the Office
of the President. However, we ruled that respondent was estopped from invoking the rule on exhaustion of
administrative remedies considering that in its Resolution, it said, The opinions promulgated by the Secretary of
Justice are advisory in nature, which may either be accepted or ignored by the office seeking the opinion, and any
aggrieved party has the court for recourse. The statement of the respondent in said case led the petitioner to conclude
that only a final judicial ruling in her favor would be accepted by the Commission.

Similarly, in this case, we find the CIR estopped from claiming that the filing of the Petition for Review was
premature because petitioner failed to exhaust all administrative remedies.

The Formal Letter of Demand with Assessment Notices reads:

Based on your letter-protest dated May 26, 2004, you alleged the following:

Page | 30
 1. That the said assessment has already prescribed in accordance with the provisions
of Section 203 of the Tax Code.

2. That since the exemption of FCDUs from all taxes found in the Old Tax Code has
been deleted, the wording of Section 28(A)(7)(b) discloses that there are no other taxes
imposable upon FCDUs aside from the 10% Final Income Tax.
Contrary to your allegation, the assessments covering GRT and DST for taxable year 2001 has not
prescribed for [sic] simply because no returns were filed, thus, the three year prescriptive period has
not lapsed.

With the implementation of the CTRP, the phrase exempt from all taxes was deleted. Please refer to
Section 27(D)(3) and 28(A)(7) of the new Tax Code. Accordingly, you were assessed for deficiency
gross receipts tax on onshore income from foreign currency transactions in accordance with the rates
provided under Section 121 of the said Tax Code. Likewise, deficiency documentary stamp taxes
was [sic] also assessed on Loan Agreements, Bills Purchased, Certificate of Deposits and related
transactions pursuant to Sections 180 and 181 of NIRC, as amended.

The 25% surcharge and 20% interest have been imposed pursuant to the provision of Section 248(A)
and 249(b), respectively, of the National Internal Revenue Code, as amended.

It is requested that the above deficiency tax be paid immediately upon receipt hereof, inclusive of
penalties incident to delinquency. This is our final decision based on investigation. If you
disagree, you may appeal this final decision within thirty (30) days from receipt hereof,
otherwise said deficiency tax assessment shall become final, executory and
demandable.[24] (Emphasis supplied)
It appears from the foregoing demand letter that the CIR has already made a final decision on the matter and
that the remedy of petitioner is to appeal the final decision within 30 days.

In Oceanic Wireless Network, Inc. v. Commissioner of Internal Revenue,[25] we considered the language used
and the tenor of the letter sent to the taxpayer as the final decision of the CIR.

In this case, records show that petitioner disputed the PAN but not the Formal Letter of Demand with
Assessment Notices. Nevertheless, we cannot blame petitioner for not filing a protest against the Formal Letter of
Demand with Assessment Notices since the language used and the tenor of the demand letter indicate that it is the
final decision of the respondent on the matter. We have time and again reminded the CIR to indicate, in a clear and
unequivocal language, whether his action on a disputed assessment constitutes his final determination thereon in
order for the taxpayer concerned to determine when his or her right to appeal to the tax court accrues.[26] Viewed in
the light of the foregoing, respondent is now estopped from claiming that he did not intend the Formal Letter of
Demand with Assessment Notices to be a final decision.

Moreover, we cannot ignore the fact that in the Formal Letter of Demand with Assessment Notices,
respondent used the word appeal instead of protest, reinvestigation, or reconsideration. Although there was no direct
reference for petitioner to bring the matter directly to the CTA, it cannot be denied that the word appeal under
prevailing tax laws refers to the filing of a Petition for Review with the CTA. As aptly pointed out by petitioner,
under Section 228 of the NIRC, the terms protest, reinvestigation and reconsideration refer to the administrative
remedies a taxpayer may take before the CIR, while the term appeal refers to the remedy available to the taxpayer
before the CTA. Section 9 of RA 9282, amending Section 11 of RA 1125,[27] likewise uses the term appeal when
referring to the action a taxpayer must take when adversely affected by a decision, ruling, or inaction of the CIR. As
we see it then, petitioner in appealing the Formal Letter of Demand with Assessment Notices to the CTA merely
took the cue from respondent. Besides, any doubt in the interpretation or use of the word appeal in the Formal Letter
of Demand with Assessment Notices should be resolved in favor of petitioner, and not the respondent who caused
the confusion.

To be clear, we are not disregarding the rules of procedure under Section 228 of the NIRC, as implemented
by Section 3 of BIR Revenue Regulations No. 12-99.[28] It is the Formal Letter of Demand and Assessment Notice
that must be administratively protested or disputed within 30 days, and not the PAN. Neither are we deviating from
our pronouncement in St. Stephens Chinese Girls School v. Collector of Internal Revenue,[29] that the counting of the
30 days within which to institute an appeal in the CTA commences from the date of receipt of the decision of the
CIR on the disputed assessment, not from the date the assessment was issued.

Page | 31
 What we are saying in this particular case is that, the Formal Letter of Demand with Assessment Notices
which was not administratively protested by the petitioner can be considered a final decision of the CIR appealable to
the CTA because the words used, specifically the words final decision and appeal, taken together led petitioner to
believe that the Formal Letter of Demand with Assessment Notices was in fact the final decision of the CIR on the
letter-protest it filed and that the available remedy was to appeal the same to the CTA.

We note, however, that during the pendency of the instant case, petitioner availed of the provisions of
Revenue Regulations No. 30-2002 and its implementing Revenue Memorandum Order by submitting an offer of
compromise for the settlement of the GRT, DST and VAT for the period 1998-2003, as evidenced by a Certificate of
Availment dated November 21, 2007.[30] Accordingly, there is no reason to reinstate the Petition for Review in CTA
Case No. 7062.

WHEREFORE, the petition is hereby GRANTED. The assailed August 23, 2006 Decision and the
October 17, 2006 Resolution of the Court of Tax Appeals areREVERSED and SET ASIDE. The Petition for
Review in CTA Case No. 7062 is hereby DISMISSED based solely on the Bureau of Internal Revenues acceptance
of petitioners offer of compromise for the settlement of the gross receipts tax, documentary stamp tax and value
added tax, for the years 1998-2003.

SO ORDERED.

Republic of the Philippines

Supreme Court
Manila

FIRST DIVISION

G.R. No. 203774, March 11, 2015

CARGILL PHILIPPINES, INC., Petitioner, v. COMMISSIONER OF INTERNAL

REVENUE,Respondent.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari1 are the Decision2 dated June 18, 2012 and the
Resolution3 dated September 27, 2012 of the Court of Tax Appeals (CTA) En Banc in CTA EB Case No.
779, which affirmed the Amended Decision4 dated April 20, 2011 of the CTA Special First Division (CTA
Division) in CTA Case Nos. 6714 and 7262, dismissing petitioner Cargill Philippines, Inc.’s (Cargill)
claims for refund of unutilized input value-added tax (VAT) for being prematurely
filed.chanroblesvirtuallawlibrary

The Facts

Cargill is a domestic corporation duly organized and existing under Philippine laws whose primary purpose
is to own, operate, run, and manage plants and facilities for the production, crushing, extracting, or
otherwise manufacturing and refining of coconut oil, coconut meal, vegetable oil, lard, margarine, edible
oil, and other articles of similar nature and their by-products. It is a VAT-registered entity with Tax
Identification No./VAT Registration No.000-110-659-000.5As such, it filed its quarterly VAT returns for
the second quarter of calendar year 2001 up to the third quarter of fiscal year 2003, covering the period
April 1, 2001 to February 28, 2003, which showed an overpayment of P44,920,350.92 and, later, its
quarterly VAT returns for the fourth quarter of fiscal year 2003 to the first quarter of fiscal year 2005,
covering the period March 1, 2003 to August 31, 2004 which reflected an overpayment of
P31,915,642.26.6 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 Bangko Sentralng Pilipinas and, thus, are zero-rated for VAT
purposes.7cralawred

Page | 32
On June 27, 2003, Cargill filed an administrative claim for refund of its unutilized input VAT in the
amount of P26,122,965.81 for the period of April 1, 2001 to February 28, 2003 (first refund claim) before
the Bureau of Internal Revenue (BIR). Thereafter, or on June 30, 2003, it filed a judicial claim for refund,
by way of a petition for review, before the CTA, docketed as CTA Case No. 6714. 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 P27,847,897.72.8cralawred

On May 31, 2005, Cargill filed a second administrative claim for refund of its unutilized input VAT in the
amount of P22,194,446.67 for the period of March 1, 2003 to August 31, 2004 (second refund claim)
before the BIR. On even date, it filed a petition for review before the CTA, docketed as CTA Case No.
7262.9cralawred

For its part, respondent Commissioner of Internal Revenue (CIR) claimed, inter alia, 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.10cralawred

On Cargill’s motion for consolidation,11 the CTA Division, in a Resolution12 dated July 10, 2007, ordered
the consolidation of CTA Case No. 6714 with CTA Case No. 7262 for having common questions of law
and facts.13cralawred

The CTA Division Ruling

In a Decision14 dated August 24, 2010 (August 24, 2010 Decision), the CTA Division partially granted
Cargill’s claims for refund of unutilized input VAT and thereby ordered the CIR to issue a tax credit
certificate in the reduced amount of P3,053,469.99, representing Cargill’s unutilized input VAT attributable
to its VAT zero-rated export sales for the period covering April 1, 2001 to August 31, 2004.15 It found that
while Cargill timely filed its administrative and judicial claims within the two (2)-year prescriptive
period,16 as held in the case of CIR v. Mirant Pagbilao Corp.,17 it, however, failed to substantiate the
remainder of its claims for refund of unutilized input VAT, resulting in the partial denial
thereof.18cralawred

Dissatisfied, CIR respectively moved for reconsideration,19 and for the dismissal of Cargill’s
petitions,claiming that they were prematurely filed due to its failure to exhaust administrative
remedies.20 Cargill likewise sought for reconsideration,21 maintaining that the CTA Division erred in
disallowing the rest of its refund claims.

In an Amended Decision22dated April 20, 2011, the CTA Division preliminarily denied the individual
motions of both parties, to wit: (a) CIR’s motion for reconsideration for lack of notice of hearing; (b) CIR’s
motion to dismiss on the ground of estoppel; and (c) Cargill’s motion for reconsideration for lack of
merit.23cralawred

Separately, however, the CTA Division superseded and consequently reversed its August 24, 2010
Decision. Citing the case of CIR v. Aichi Forging Company of Asia, Inc. (Aichi),24it held that the 120-day
period provided under Section 112(D) of the National Internal Revenue Code (NIRC) must be observed
prior to the filing of a judicial claim for tax refund.25As Cargill failed to comply therewith, the CTA
Division, without ruling on the merits, dismissed the consolidated cases for being prematurely
filed.26cralawred

Aggrieved, Cargill elevated its case to the CTA En Banc.

The CTA En Banc Ruling

In a Decision27 dated June 18, 2012, the CTA En Banc affirmed the CTA Division’s April 20, 2011
Amended Decision, reiterating that Cargill’s premature filing of its claims divested the CTA of jurisdiction,
and perforce, warranted the dismissal of its petitions. To be specific, it highlighted that Cargill’s petition in
CTA Case No. 6714 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 petition in CTA Case No. 7672 was filed on the same date it
filed its administrative claim with the BIR, i.e., on May 31, 2005. As such, the CTA En Banc ruled that
Cargill’s judicial claims were correctly dismissed for being filed prematurely.28cralawred

Cargill moved for reconsideration29 which was, however, denied by the CTA En Banc in a
Resolution30 dated September 27, 2012, hence, this petition.chanroblesvirtuallawlibrary

Page | 33
The Issue Before the Court

The core issue in this case is whether or not the CTA En Banc correctly affirmed the CTA Division’s
outright dismissal of Cargill’s claims for refund of unutilized input VAT on the ground of
prematurity.chanroblesvirtuallawlibrary

The Court’s Ruling

The petition is partly meritorious.

Allowing the refund or credit of unutilized input VAT finds its genesis in Executive Order No. 273, 31series
of 1987, which is recognized as the “Original VAT Law.” Thereafter, it was amended through the passage
of Republic Act No. (RA) 7716,32 RA 8424,33 and, finally by RA 9337,34 which took effect on November
1, 2005. Considering that Cargill’s claims for refund covered periods before the effectivity of RA 9337,
Section 112 of the NIRC, as amended by RA 8424, should, therefore, be the governing law, 35the pertinent
portions of which read:chanRoblesvirtualLawlibrary

Section 112. Refunds or Tax Credits of Input Tax. –

(A) Zero-rated or Effectively Zero-rated Sales. – any VAT-registered person, whose sales are zero-rated or
effectively 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: x x x.chanrobleslaw

x x x x

(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. – In proper cases, the
Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one
hundred twenty (120) days from the date of submission of complete documents in support of the
application filed in accordance with Subsections (A) and (B) hereof.

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer affected
may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration
of the one hundred twenty day-period, appeal the decision or the unacted claim with the Court of
Tax Appeals. (Emphases and underscoring supplied)

x x x x
cralawlawlibrary

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, withal,
delineated in Aichi that the two (2)-year prescriptive period would only apply to administrative claims, and
not to judicial claims.36 Accordingly, once the administrative claim is filed within the two (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 two (2)-year prescriptive period.37cralawred

Nevertheless, the Court, in the case of CIR v. San Roque Power Corporation38 (San Roque), recognized an
exception to the mandatory and jurisdictional nature of the 120-day period. San Roqueenunciated that BIR
Ruling No. DA-489-03 dated December 10, 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,” provided a valid claim for equitable estoppel under Section 24639 of the
NIRC.40cralawred

In the more recent case of Taganito Mining Corporation v. CIR,41 the Court reconciled the pronouncements

Page | 34
in Aichi and San Roque, holding that from December 10, 2003 to October 6, 2010 which refers to the
interregnum when BIR Ruling No. DA-489-03 was issued until the date of promulgation of Aichi,
taxpayer-claimants need not observe the stringent 120-day period; but before and aftersaid window period,
the mandatory and jurisdictional nature of the 120-day period remained in
force, viz.:chanRoblesvirtualLawlibrary

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.42 (Emphases and underscoring
supplied)cralawlawlibrary

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 three (3) days later, the CTA En Banc, thus,
correctly dismissed Cargill’s petition in CTA Case No. 6714for 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 CTA Case No. 7262on the ground of prematurity.

This notwithstanding, the Court finds that Cargill’s second refund claim in the amount of P22,194,446.67
which allegedly represented unutilized input VAT covering the period March 1, 2003 to August 31, 2004
should not be instantly granted. This is because the determination of Cargill’s entitlement to such claim, if
any, would 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, not of fact, may be
resolved.43 Accordingly, the prudent course of action is to remand CTA Case No. 7262 to the CTA
Division for resolution on the merits, consistent with the Court’s ruling in Panay Power Corporation v.
CIR.44cralawred

WHEREFORE, the petition is PARTLY GRANTED. Accordingly, the Decision dated June 18, 2012 and
the Resolution dated September 27, 2012 of the Court of Tax Appeals (CTA) En Banc in CTA EB Case
No. 779 are hereby AFFIRMED only insofar as it dismissed CTA Case No. 6714. On the other hand, CTA
Case No. 7262 is REINSTATED and REMANDED to the CTA Special First Division for its resolution
on the merits.

SO ORDERED.

Republic of the Philippines

Supreme Court
Manila

THIRD DIVISION

G.R. No. 206019, March 18, 2015

PHILIPPINE NATIONAL BANK, Petitioner, v. COMMISSIONER OF INTERNAL

REVENUE,Respondent.

DECISION

VELASCO JR., J.:

Page | 35
Nature of the Case

This is an appeal via a Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking to
reverse and set aside the Court of Tax Appeals (CTA) En Banc September 12, 2012 Decision, as reiterated
in a Resolution of February 12, 2013 in CTA EB Case No. 762, affirming the earlier decision of its First
Division denying petitioner’s claim for there fund of excess creditable withholding tax which it allegedly
erroneously paid the Bureau of Internal Revenue (BIR) in the amount of Twelve Million Four Hundred
Thousand and Four Pesos and Seventy-One Centavos (P12,400,004.71).

The Facts

GotescoTyan Ming Development, Inc. (Gotesco), a Filipino corporation engaged in the real estate
business,1 entered on April 7, 1995 into a syndicated loan agreement with petitioner Philippine National
Bank (PNB) and three (3) other banks. To secure the loan, Gotesco mortgaged a six-hectare expanse known
as the Ever Ortigas Commercial Complex, under a mortgage trust indenture agreement in favor of PNB,
through its Trust Banking Group, as trustee.2chanroblesvirtuallawlibrary

Gotesco subsequently defaulted on its loan obligations. Thus, PNB foreclosed the mortgaged property
through a notarial foreclosure sale on July 30, 1999. On August 4, 1999, a certificate of sale was issued in
favor of PNB, subject to Gotesco’s right, as debtor and mortgagor, to redeem the property within one (1)
year from the date of inscription of the certificate of sale with the Register of Deeds of Pasig City on
November 9, 1999.3chanroblesvirtuallawlibrary

On October 20, 2000, Gotesco filed a civil case against PNB before the Regional Trial Court of Pasig,
Branch 168 (RTC) for the annulment of the foreclosure proceedings, specific performance and damages
with prayer for temporary restraining order (TRO) and/or preliminary
4
injunction. chanroblesvirtuallawlibrary

On November 9, 2000, the RTC issued a TRO enjoining PNB from consolidating ownership over the
mortgaged property, then on December 21, 2000, a writ of preliminary injunction. PNB’s motion for
reconsideration was subsequently denied.5chanroblesvirtuallawlibrary

PNB went to the Court of Appeals (CA) via a Petition for Certiorari. The CA ruled in favor of PNB and
issued an Order reversing and setting aside the writ of preliminary injunction issued by the RTC. Gotesco’s
Motion for Reconsideration was denied on December 22, 2003.6 As Gotesco did not challenge the CA
ruling, the setting aside of the writ of preliminary injunction became final and executory.

As it prepared for the consolidation of its ownership over the foreclosed property, PNB paid the BIR
Eighteen Million Six Hundred Fifteen Thousand Pesos (P18,615,000) as documentary stamp tax (DST) on
October 31, 2003. PNB also withheld and remitted to the BIR withholding taxes equivalent to six percent
(6%) of the bid price of One Billion Two Hundred Forty Million Four Hundred Sixty-Nine Pesos and
Eighty-Two Centavos (P1,240,000,469.82) or Seventy-Four Million Four Hundred Thousand and Twenty-
Eight Pesos and Forty-Nine Centavos(P74,400,028.49) on October 31, 2003 and November 11,
2003.7chanroblesvirtuallawlibrary

Pending the issuance of the Certificate Authorizing Registration (CAR), the BIR informed PNB that it is
imposing interests, penalties and surcharges of Sixty-One Million Six Hundred Seventy-Eight Thousand
Four Hundred Ninety Pesos and Twenty-Eight Centavos(Php61,678,490.28) on captialgains tax and Fifteen
Million Four Hundred Ninety-Four Thousand and Sixty-Five Pesos (Php15,494,065) on DST. To facilitate
the release of the CAR, petitioner paid all the surcharges, interests and penalties assessed against it in the
total amount of Seventy-Seven Million One Hundred Seventy-Two Thousand Five Hundred Fifty-Five
Pesos and Twenty-Eight Centavos (Php77,172,555.28) on April 5, 2005.8chanroblesvirtuallawlibrary

On the claim that what it paid the BIR was not entirely due, PNB lost no time in instituting the necessary
actions. Thus, on October 27, 2005, it filed an administrative claim for the refund of excess withholding
taxes with the BIR. A day after, or on October 28, 2005, it filed its petition for review before the tax
court,docketed thereat as CTA Case No. 7355.9chanroblesvirtuallawlibrary

In its claim for refund, PNB explained that it inadvertently applied the six percent (6%) creditable
withholding tax rate on the sale of real property classified as ordinary asset, when it should have applied the
five percent (5%) creditable withholding tax rate on the sale of ordinary asset, as provided in Section 2.57.2
(J)(B) of Revenue Regulation (RR) No. 2-98 as amended by RR No. 6-01, considering that Gotesco is

Page | 36
primarily engaged in the real estate business.The applicable creditable withholding tax rate of five percent
(5%) of the bid price is equivalent to the amount of Sixty-Two Million Twenty-Three Pesos and Forty-Nine
Centavos (Php62,000,023.49). Therefore, PNB claimed that it erroneously withheld and remitted to the
BIR excess taxes of Twelve Million Four Hundred Thousand and Four Pesos and Seventy-One Centavos
(Php12,400,004.71).10chanroblesvirtuallawlibrary

On March 22, 2007, PNB filed another claim for refund claiming erroneous assessment and payment of the
surcharges, penalties and interests. Petitioner filed its corresponding Petition for Review on March 30,
2007, docketed as CTA Case No. 7588.11chanroblesvirtuallawlibrary

Upon motion of petitioner, CTA Case Nos. 7355 and 7588 were consolidated. The consolidated cases were
set for pre-trial conference which CIR failed to attend despite several resetting. On September 21, 2007,
CIR was declared to be in default.12chanroblesvirtuallawlibrary

CTA Decision

In its July 12, 2010 consolidated Decision,13 the CTA Special First Division (First Division), in CTA Case
No. 7588, ordered the CIR to refund to PNB P77,172,555.28 representing its claim for refund of interests,
surcharges and penalties on capital gains taxes and documentary stamp taxes for the year
2003.14chanroblesvirtuallawlibrary

In CTA Case No. 7355, however, the First Division denied PNB’s claim for the refund of excess creditable
withholding taxes for insufficiency of evidence. The tax court agreed with PNB that the applicable
withholding rate was indeed five percent (5%) and not six percent (6%).15 Nevertheless, it held that PNB,
while able to establish the fact of tax withholding and the remittance thereof to the BIR, failed to present
evidence to prove that Gotesco did not utilize the withheld taxes to settle its tax liabilities. The First
Division further stated that PNB should have offered as evidence the 2003 Income Tax Return (2003 ITR)
of Gotesco to show that the excess withholding tax payments were not used by Gotesco to settle its tax
liabilities for 2003. The First Division elucidated:chanRoblesvirtualLawlibrary
With the above proof of payments, this Court finds that the fact of withholding and payment of the
withholding tax due were properly established by petitioner. xxx

However, it must be noted that although petitioner duly paid the withholding taxes, there was no evidence
presented to this Court showing that GOTESCO utilized the taxes withheld to settle its own tax liability for
the year 2003. Being creditable in nature, petitioner should have likewise offered as evidence the 2003
Income Tax Return of GOTESCO to convince the court that indeed the excess withholding tax payments
were not used by GOTESCO. The absence of such relevant evidence is fatal to petitioner’s action
preventing this Court from granting its claim. To allow petitioner its claim may cause jeopardy to the
Government if it be required to refund the claim already utilized.16
On July 30, 2010, PNB filed a Motion for Reconsideration (MR), attaching therewith, among others,
Gotesco’s 2003 ITR and the latter’s Schedule of Prepaid Tax, which the First Division admitted as part of
the records.

On April 5, 2011, the First Division issued a Resolution17 denying PNB’s MR mainly because there were
no documents or schedules to support the figures reported in Gotesco’s 2003 ITR to show that no part of
the creditable withholding tax sought to be refunded was used, in part, for the settlement of Gotesco’s tax
liabilities for the same year. It stated that PNB should have likewise presented the Certificate of Creditable
Tax Withheld at Source (BIR Form No. 2307) issued to Gotesco in relation to the creditable taxes withheld
reported in its 2003 ITR. BIR Form No. 2307, so declared in the Resolution, will confirm whether or not
that the amount being claimed by PNB was indeed not utilized by Gotesco to offset its taxes. In denying the
MR, the First Division explained:chanRoblesvirtualLawlibrary
Petitioner attached to its Motion, income tax returns of GOTESCO for the taxable year 2003, to prove that
the latter did not utilize the taxes withheld by petitioner. The returns were submitted without any
attachment regarding its creditable taxes withheld. Except for GOTESCO’s Unadjusted Schedule of
Prepaid Tax for the taxable year 2003, there were no other documents or schedules presented before this
Court to support the figures reported in the tax returns of GOTESCO for the same year under Lines 27 (C),
(D) and (G) of the Creditable Taxes Withheld.

We note that the amounts reported by GOTESCO as creditable taxes withheld for the year 2003 were just
P6,014,433.00 in total, which is less than P74,400,028.49, the creditable taxes withheld from it by the
petitioner. In fact, it is less than the P12,400,004.70 creditable taxes withheld being claimed by petitioner in
its present motion. However, this Court deemed that such observation alone, without any supporting

Page | 37
document or schedule, is not enough to convince us that no part of the creditable withholding tax sought to
be refunded is included in the total tax credits reported by GOTESCO in its tax returns for the taxable year
2003 which was used, in part, for the settlement of its tax liabilities for the same year.

To sufficiently prove that GOTESCO did not utilize the creditable taxes withheld, petitioner should have
likewise presented BIR Forms No. 2307 issued to GOTESCO in relation to the creditable taxes withheld
reported in its 2003 tax returns. Doing so will dispel any doubt as to the composition of GOTESCO’s
creditable taxes withheld for 2003. This will settle once and for all that the amount being claimed by
petitioner was not utilized by GOTESCO, and thus the claim should be granted. Until then, this Court will
stand by its decision and deny the claim.18
In due time, PNB filed an appeal before the CTA En Banc by way of a Petition for Review, docketed as
CTA EB Case No. 762.19 PNB argued that its evidence confirms that Gotesco’s Six Million Fourteen
Thousand and Four Hundred Thirty-Three Pesos (P6,014,433) worth of tax credits, as reported and claimed
in its 2003 ITR, did not form part of the P74,400,028.49 equivalent to six percent (6%) creditable tax
withheld. To support the foregoing position, PNB highlighted the following:chanRoblesvirtualLawlibrary

1. Gotesco continues to recognize the foreclosed property as its own asset in its 2003 audited financial
statements. It did not recognize the foreclosure sale and has not claimed the corresponding
creditable withholding taxes withheld by petitioner on the foreclosure sale.

2. Gotesco testified that the P6,014,4333.00 tax credits claimed in the year 2003 does not include the
P74,400,028.49 withholding taxes withheld and paid by petitioner in the year 2003.

3. PNB presented BIR Form No. 1606, the withholding tax remittance return filed by PNB as
withholding agent, which clearly shows that the amount of P P74,400,028.49 was withheld and paid
upon PNB’s foreclosure of Gotesco’s asset.20

Finally, in its July 12, 2010 Decision, the First Division expressly provided that Gotesco’s2003 ITR was
the only evidence it needed to show that the excess withholding taxes paid and remitted to the BIR were not
utilized by Gotesco.

On September 12, 2012, the CTA En Banc, in the first assailed Decision,21 denied PNB’s Petition for
Review and held:chanRoblesvirtualLawlibrary
In this case, petitioner is counting on the Income Tax Returns of GOTESCO for the taxable year 2003 and
on a certain Unadjusted Schedule of Prepaid Tax for the same year to support its argument that GOTESCO
did not utilize the taxes withheld by petitioner; however, We are not persuaded.

To reiterate, since the claim for refund involves creditable taxes withheld from GOTESCO, it is necessary
to prove that these creditable taxes were not utilized by GOTESCO to pay for its liabilities. The income tax
returns alone are not enough to fully support petitioner’s contention that no part of the creditable
withholding tax sought to be refunded by petitioner was utilized by GOTESCO; first, there were no other
relevant supporting documents or schedules presented to delineate the figures constituting the creditable
taxes withheld that was reported in GOTESCO’s 2003 tax returns; and second, this Court cannot give
credence to the Unadjusted Schedule of Prepaid Tax for the taxable year 2003 being referred to by
petitioner as the same pertains merely to a list of GOTESCO’s creditable tax withheld for taxable year 2003
and was not accompanied by any attachment to support its contents; also it is manifest from the records that
petitioner failed to have this Schedule of Prepaid Tax offered in evidence, and thus, was not admitted as
part of the records of this case.22
After the denial of PNB’s Motion for Reconsideration on February 12, 2013,23the bank filed this instant
petition.

Issue

Whether or not PNB is entitled to the refund of creditable withholding taxes erroneously paid to the BIR.
Subsumed in this main issue is the evidentiary value under the premises of BIR Form No. 2307.

The Court’s Ruling

The petition is impressed with merit. As PNB insists at every turn, it has presented sufficient evidence
showing its entitlement to the refund of the excess creditable taxes it erroneously withheld and paid to the
BIR.

Page | 38
As earlier stated, the CTA predicated its denial action on the postulate that even if PNB’s withholding and
remittance of taxes were undisputed, it was not able to prove that Gotesco did not utilize the taxes
thuswithheld to pay for its tax liabilities for the year 2003.

In its Decision, the First Division categorically stated, “[P]etitioner should have likewise offered as
evidence the 2003 Income Tax Return of GOTESCO to convince this Court that indeed the excess
withholding tax payments were not used by GOTESCO. The absence of such relevant evidence is fatal to
petitioner’s action preventing this Court from granting its claim.”24chanroblesvirtuallawlibrary

Thus, apprised on what to do, and following the First Division’s advice, PNB presented Gotesco’s 2003
ITRs as an attachment to its MR, which was subsequently denied however. In ruling on the MR, the First
Division again virtually required PNB to present additional evidence, specifically, Gotesco’s Certificates of
Creditable Taxes Withheld (BIR Form No. 2307) covering P6,014,433 tax credits claimed for year 2003,
purportedly to show non-utilization by Gotesco of the P74,400,028.49 withholding tax payments.

Although PNB was not able to submit Gotesco’s BIR Form No. 2307, the Court is persuaded and so
declares that PNB submitted evidence sufficiently showing Gotesco’s non-utilization of the taxes withheld
subject of the refund.

First,Gotesco’s Audited Financial Statements for year 2003,25 which it subsequently filed with the BIR in
2004, still included the foreclosed Ever Ortigas Commercial Complex, in the Asset account “Property and
Equipment.” This was explained on page 8, Note 5 of Gotesco’s 2003 Audited Financial
Statements:chanRoblesvirtualLawlibrary
Commercial complex and improvements pertain to the Ever Pasig Mall. As discussed in Notes 1 and 7, the
land and the mall, which were used as collaterals for the Company’s bank loans, were foreclosed by the
lender banks in 1999. However, the lender banks have not been able to consolidate the ownership and take
possession of these properties pending decision of the case by the Court of Appeals. Accordingly, the
properties are still carried in the books of the Company. As of April 21, 2004, the Company continues to
operate the said mall. Based on the December 11, 2003 report of an independent appraiser, the fair market
value of the land, improvements and machinery and equipment would amount to about P2.9 billion.

Land pertains to the Company’s properties in Pasig City where the Ever Pasig Mall is situated.26
It is clear that as of year-end 2003, Gotesco had continued to assert ownership over the Ever Ortigas
Commercial Complex as evidenced by the following: (a) it persistently challenged the validity of the
foreclosure sale which was the transaction subject to the P74,400,028.49 creditable withholding tax; and (b)
its 2003 Audited Financial Statements declared said complex as one of its properties. Thus, it is reasonable
to conclude that since Gotesco vehemently refused to recognize the validity of the foreclosure sale, it stands
to reason that it also refused to recognize the payment of the creditable withholding tax that was due on the
sale and most especially, claim the same as a tax credit.

Certainly, Gotesco’s relentless refusal to transfer registered ownership of the Ever Ortigas Commercial
Complex to PNB constitutes proof enough that Gotesco will not do any act inconsistent with its claim of
ownership over the foreclosed asset, including claiming the creditable tax imposed on the foreclosure sale
as tax credit and utilizing such amount to offset its tax liabilities. To do such would run roughshod over
Gotesco’s firm stance that PNB’s foreclosure on the mortgage was invalid and that it remained the owner
of the subject property.

Several pieces of evidence likewise point to Gotesco’s non-utilization of the claimed creditable withholding
tax.As advised by the First Division, Gotesco presented its 2003 ITR27along with its 2003 Schedule of
Prepaid Tax28 which itemized in detail the withholding taxes claimed by Gotesco for the year 2003
amounting to P6,014,433. The aforesaid schedule shows that the creditable withholding taxes Gotesco
utilized to pay for its 2003 tax liabilities came from the rental payments of its tenants in the Ever Ortigas
Commercial Complex, not from the foreclosure sale.

Further, Gotesco’s former accountant, Ma.Analene T. Roxas,stated in her Judicial Affidavit 29 that the tax
credits claimed for year 2003 did not include any portion of the amount subject to the claim for refund.
First, she explained that Gotesco could not have possibly utilized the amount claimed for refund as it was
not even aware that PNB paid the six percent (6%) creditable withholding tax since no documents came to
its attention which showed such payment by PNB. As she also explained, had Gotesco claimed the entire or
even any portion of P74,400,028.49, corresponding to the six percent (6%) tax withheld by PNB, the
amount appearing in Items 27D30 and 27C31 of Gotesco’s 2003 ITR should have reflected the additional
amount of P74,400,028.49. The pertinent portions of Roxas’ Judicial Affidavit read:ch

Page | 39
anRoblesvirtualLawlibrary

Q: In GOTESCO’s 2003 ITRs, both Tentative and amended, the total tax credits/payments amounted to
Php6,014,433.00. Are you familiar with the composition or breakdown of this Php6,014,433.00?
A: Yes.
Q: May we know, for the record, if any part of this Php6,014,433.00 of GOTESCO’s tax credits for year
2003 pertains to the 6% Creditable Tax Withheld by PNB amounting to Php74,400,028.49? To be
more specific, does any part of the Php6,014,433.00 of GOTESCO’s tax credits for year 2003 pertain
to the Php12,400,004.70 amount subject to the present claim for refund before the Honorable Court of
Tax Appeals?
A: For the record and based on the ITRs of GOTESCO, the amount of Php6,014,433.00 tax credits for
year 2003 did not encompass any portion of the Php74,400,028.49 representing 6% Creditable Tax
Withheld, or to be more specific, said Php6,014,433.00 tax credits of GOTESCO for year 2003 did
not include any portion of the Php12,400,004.70 amount subject to the present claim for refund.
Q: Why is this so, Ms.Analene? In theory, the Php74 million creditable withholding tax should have
benefited GOTESCO, right?
A: In theory, it is only proper for GOTESCO to claim and utilize the Php74 million creditable
withholding tax.
However, GOTESCO was not aware that PNB paid 6% creditable withholding tax on behalf of
GOTESCO. There were no documents that came to GOTESCO’s attention which showed such Php74
million creditable tax was paid to the BIR on behalf of GOTESCO.
Q: Considering that you mentioned earlier that you helped prepare GOTESCO’s 2003 ITR, do you have
documents to support your statement?
A: Yes. I have with me a document containing GOTESCO’s Schedule of Prepaid Tax. However, this
Schedule of Prepaid Tax is still unadjusted. The final figure is properly reflected in GOTESCO’S
2003 ITR in the column of Total Tax Credits/Payments.
Q: How can this unadjusted Schedule of Prepaid Tax support your statement that GOTESCO did not
utilize any portion of the Php74,400,028.49 representing 6% creditable tax withheld by herein
Petitioner PNB?
A: As you can see, based on this Schedule of Prepaid Tax, there is a comprehensive list of GOTESCO
tenants and breakdown of their prepaid tax or creditable tax withheld.
Although PNB was listed as a tenant of GOTESCO, the withholding tax of PNB for year 2003 (as
reflected in GOTESCO’s Schedule of Prepaid Tax) only amounted to Php65,985.44 due to the lease
contract between PNB and GOTESCO. This amount is too small if you compare it with the Php74
million creditable tax withheld by PNB based on their foreclosure of GOTESCO’s Ortigas Mall
Complex.
Q: Are you aware of any other document which would likewise confirm your conclusion that GOTESCO
did not utilize any portion of the Php74,400,004.70 subject of the present claim for refund?
A: Yes. The 2003 Tentative and Amended ITRs of GOTESCO would prove that GOTESCO did not
utilize any portion of the Php74,400,028.49 representing 6% creditable tax withheld by herein
Petitioner PNB.
Had GOTESCO claimed the entire or even any portion of Php74,400,028.49, corresponding to the 6%
tax withheld by PNB, the amount appearing in Item 27D-Creditable Tax Withheld per BIR Form
2307 for the Fourth Quarter should not only be Php1,362,965.00, but should have reflected the
additional amount of Php74,400,028.49.
The same observation can be applied in Item 27C Creditable Tax Withheld for the First Three
Quarters, such that the amount reflected should not only be Php4,651,568.00 but Php74,400,028.49
more.32
All in all, the evidence presented by petitioner sufficiently proved its entitlement to the claimed refund.
There is no need for PNB to present Gotesco’s BIR Form No. 2307,as insisted by the First Division,
because the information contained in the said form may be very well gathered from other documents
already presented by PNB. Thus, the presentation of BIR Form No. 2307 would be in the final analysis a
superfluity, of little or no value.

In claims for excess and unutilized creditable withholding tax, the submission of BIR Forms 2307 is to
prove the fact of withholding of the excess creditable withholding tax being claimed for refund. This is
clear in the provision of Section 58.3, RR 2-98, as amended, and in various rulings of the Court.33 In the
words of Section 2.58.3, RR 2-98, “That the fact of withholding is established by a copy of a statement
duly issued by the payor (withholding agent) to the payee showing the amount paid and the amount of tax

Page | 40
withheld therefrom.”

Hence, the probative value of BIR Form 2307, which is basically a statement showing the amount paid for
the subject transaction and the amount of tax withheld therefrom, is to establish only the fact of
withholding of the claimed creditable withholding tax. There is nothing in BIR Form No. 2307 which
would establish either utilization or non-utilization, as the case may be, of the creditable withholding tax.

It must be noted that PNB had already presented the Withholding Tax Remittance Returns (BIR Form No.
1606) relevant to the transaction. The said forms show that the amount of P74,400,028.49 was withheld and
paid by PNB in the year 2003. It contains, among other data, the name of the payor and the payee, the
description of the property subject of the transaction, and the determination of the taxable base, and the tax
rate applied. These are the very same key information that would be gathered from BIR Form No. 2307.

While perhaps it may be necessary to prove that the taxpayer did not use the claimed creditable withholding
tax to pay for his/its tax liabilities, there is no basis in law or jurisprudence to say that BIR Form No. 2307
is the only evidence that may be adduced to prove such non-use.

In this case, PNB was able to establish, through the evidence it presented, that Gotesco did not in fact use
the claimed creditable withholding taxes to settle its tax liabilities, to reiterate: (1) Gotesco’s 2003 Audited
Financial Statements, which still included the mortgaged property in the asset account “Properties and
Equipment,” proving that Gotesco did not recognize the foreclosure sale and therefore, the payment by
PNB of the creditable withholding taxes corresponding to the same; (2) Gotesco’s 2003 ITRs, which the
CTA Special First Division required to show that the excess creditable withholding tax claimed for refund
was not used by Gotesco, along with the 2003 Schedule of Prepaid Tax which itemized in detail the
withholding taxes claimed by Gotesco for the year 2003 amounting to P6,014,433.00; (3) the testimony of
Gotesco’s former accountant, proving that the amount subject of PNB’s claim for refund was not included
among the creditable withholding taxes stated in Gotesco’s 2003 ITR; and(4) the Withholding Tax
Remittance Returns (BIR Form 1606) proving that the amount of P74,400,028.49 was withheld and paid by
PNB in the year 2003.

Ergo, theevidence on record sufficiently proves that the claimed creditable withholding tax was withheld
and remitted to the BIR, that such withholding and remittance was erroneous, and that the claimed
creditable withholding tax was not used by Gotesco to settle its tax liabilities.

WHEREFORE, the Court resolves to GRANT the petition. The Decision of the Court of Tax Appeals En
Banc dated September 12, 2012 and its Resolution dated February 12, 2013 in CTA EB Case No. 762 are
hereby REVERSED and SET ASIDE, and a new one entered DIRECTING respondent Commissioner of
Internal Revenue to refund to petitioner Philippine National Bank, within thirty (30) days from the finality
of this Decision, the amount of Twelve Million Four Hundred Thousand and Four Pesos and Seventy-One
Centavos(Php12,400,004.71), representing excess creditable withholding taxes withheld and paid for the
year 2003.

SO ORDERED.

Page | 41
Republic of the Philippines
Supreme Court
Manila

EN BANC

G.R. No. 210588, November 29, 2016

SECRETARY OF FINANCE CESAR B. PURISIMA AND COMMISSIONER OF INTERNAL

REVENUE KIM S. JACINTO-HENARES, Petitioners, v. REPRESENTATIVE CARMELO F.
LAZATIN AND ECOZONE PLASTIC ENTERPRISES CORPORATION, Respondents.

DECISION

BRION, J.:

This is a direct recourse to this Court from the Regional Trial Court (RTC), Branch 58, Angeles City,
through a petition for review on certiorari1 under Rule 45 of the Rules of Court on a pure question of law.
The petition seeks the reversal of the November 8, 2013 decision2 of the RTC in SCA Case No. 12-410. In
the assailed decision, the RTC declared Revenue Regulation (RR) No. 2-2012 unconstitutional and without
force and effect.

The Facts

In response to reports of smuggling of petroleum and petroleum products and to ensure the correct taxes are
paid and collected, petitioner Secretary of Finance Cesar V. Purisima - pursuant to his authority to interpret
tax laws3 and upon the recommendation of petitioner Commissioner of Internal Revenue (CIR) Kim S.
Jacinto-Henares signed RR 2-2012 on February 17, 2012.

The RR requires the payment of value-added tax (VAT) and excise tax on the importation of all petroleum
and petroleum products coming directly from abroad and brought into the Philippines,including Freeport
and economic zones (FEZs).4 It then allows the credit or refund of any VAT or excise tax paid if the
taxpayer proves that the petroleum previously brought in has been sold to a duly registered FEZ locator and
used pursuant to the registered activity of such locator.5

In other words, an FEZ locator must first pay the required taxes upon entry into the FEZ of a petroleum
product, and must thereafter prove the use of the petroleum product for the locator's registered activity in
order to secure a credit for the taxes paid.

On March 7, 2012, Carmelo F. Lazatin, in his capacity as Pampanga First District Representative, filed a
petition for prohibition and injunction6 against the petitioners to annul and set aside RR 2-2012.

Page | 42
Lazatin posits that Republic Act No. (RA) 94007 treats the Clark Special Economic Zone and Clark
Freeport Zone (together hereinafter referred to as Clark FEZ) as a separate customs territory and allows tax
and duty-free importations of raw materials, capital and equipment into the zone. Thus, the imposition of
VAT and excise tax, even on the importation of petroleum products into FEZs (like Clark FEZ), directly
contravenes the law.

The respondent Ecozone Plastic Enterprises Corporation (EPEC) sought to intervene in the proceedings as
a co-petitioner and accordingly entered its appearance and moved for leave of court to file its petition-in-
intervention.8

EPEC claims that, as a Clark FEZ locator, it stands to suffer when RR 2-2012 is implemented. EPEC insists
that RR 2-2012's mechanism of requiring even locators to pay the tax first and to subsequently claim a
credit or to refund the taxes paid effectively removes the locators' tax-exempt status.

The RTC initially issued a temporary restraining order to stay the implementation of RR 2-2012. It
eventually issued a writ of preliminary injunction in its order dated April 4, 2012.

The petitioners questioned the issuance of the writ. On May 17, 2012, they filed a petition
forcertiorari9 before the Court of Appeals (CA) assailing the RTC's order. The CA granted the
petition10and denied the respondents' subsequent motion for reconsideration.11

The respondents stood their ground by filing a petition for review on certiorari before this Court (G.R. No.
208387) to reinstate the RTC's injunction against the implementation of RR 2-2012, and by moving for the
issuance of a temporary restraining order and/or writ of preliminary injunction. We denied the motion but
nevertheless required the petitioners to comment on the petition.

The proceedings before the RTC in the meanwhile continued. On April 18, 2012, petitioner Lazatin
amended his original petition, converting it to a petition for declaratory relief.12 The RTC admitted the
amended petition and allowed EPEC to intervene.

In its decision dated November 8, 2013, the RTC ruled in favor of Lazatin and EPEC.

First, on the procedural aspect, the RTC held that the original petition's amendment is allowed by the rules
and that amendments are largely preferred; it allowed the amendment in the exercise of its sound judicial
discretion to avoid multiplicity of suits and to give the parties an opportunity to thresh out the issues and
finally reach a conclusion.13

Second, the RTC held that Lazatin and EPEC had legal standing to question the validity of RR 2-2012.
Lazatin's allegation that RR 2-2012 effectively amends and modifies RA 9400 gave him standing as a
legislator: the amendment of a tax law is a power that belongs exclusively to Congress. Lazatin's allegation,
according to the RTC, sufficiently shows how his rights, privileges, and prerogatives as a member of
Congress were impaired by the issuance of RR 2-2012.

The RTC also ruled that the case warrants a relaxation on the rules on legal standing because the issues
touched upon are of transcendental importance. The trial court considered the encompassing effect that RR
2-2012 may have in the numerous freeport and economic zones in the Philippines, as well as its potential
impact on hundreds of investors operating within the zones.

The RTC then held that even if Lazatin does not have legal standing, EPEC's intervention cured this defect:
EPEC, as a locator within the Clark FEZ, would be adversely affected by the implementation of RR 2-
2012.

Finally, the RTC declared RR 2-2012 unconstitutional. RR 2-2012 violates RA 9400 because it imposes
taxes that, by law, are not due in the first place.14 Since RA 9400 clearly grants tax and duty-free incentives
to Clark FEZ locators, a revocation of these incentives by an RR directly contravenes the express intent of
the Legislature.15 In effect, the petitioners encroached upon the prerogative to enact, amend, or repeal laws,
which the Constitution exclusively granted to Congress.

The Petition

The petitioners anchor their present petition on two arguments: 1) respondents have no legal standing, and
2) RR 2-2012 is valid and constitutional.
Page | 43
The petitioners submit that the Lazatin and EPEC do not have legal standing to assail the validity of RR 2-
2012.

First, the petitioners claim that Lazatin does not have the requisite legal standing as he failed to exactly
show how the implementation of RR 2- 2012 would impair the exercise his official functions. Respondent
Lazatin merely generally alleged that his constitutional prerogatives to pass or amend laws were gravely
impaired or were about to be impaired by the issuance of RR 2-2012. He did not specify the power that he,
as a legislator, would be encroached upon.

While the Clark FEZ is within the district that respondent Lazatin represents, the petitioners emphasize that
Lazatin failed to show that he is authorized to file a case on behalf of the locators in the FEZ, the local
government unit, or his constituents in general.16 To the petitioners, if RR 2- 2012 ever caused injury to the
locators or to any of Lazatin's constituents, only these injured parties possess the personality to question the
petitioners' actions; respondent Lazatin cannot claim this right on their behalf.17

The petitioners claim, too, that the RTC should not have brushed aside the rules on standing on account of
transcendental importance. To them, this case does not involve public funds, only a speculative loss of
profits upon the implementation of RR 2-2012; nor is Lazatin a party with more direct and specific interest
to raise the issues in his petition.18 Citing Senate v. Ermita,19 the petitioners argue that the rules on standing
cannot be relaxed.

Second, petitioners also argue that EPEC does not have legal standing to intervene. That EPEC will
ultimately bear the VAT and excise tax as an end-user, is misguided.20 The burden of payment of VAT and
excise tax may be shifted to the buyer21 and this burden, from the point of view of the transferee is no
longer a tax but merely a component of the cost of goods purchased. The statutory liability for the tax
remains with the seller. Thus, EPEC cannot say that when the burden is passed on to it, RR 2-2012
effectively imposes tax on it as a Clark FEZ locator.

The petitioners point out that RR 2-2012 imposes an "advance tax" only upon importers of petroleum
products. If EPEC is indeed a locator, then it enjoys tax and duty exemptions granted by RA 9400 so long
as it does not bring the petroleum or petroleum products to the Philippine customs territory.22

The petitioners legally argue that RR 2-2012 is valid and constitutional.

First, petitioner submit that RR 2-2012's issuance and implementation are within their powers to
undertake.23 RR 2-2012 is an administrative issuance that enjoys the presumption of validity in the manner
that statutes enjoy this presumption; thus, it cannot be nullified without clear and convincing evidence to
the contrary.24

Second, petitioners contend that while RA 9400 does grant tax and customs duty incentives to Clark FEZ
locators, there are conditions before these benefits may be availed of. The locators cannot invoke outright
exemption from VAT and excise tax on its importations without first satisfying the conditions set by RA
9400, that is, the importation must not be removed from the FEZ and introduced into the Philippine
customs territory.25

These locators enjoy what petitioners call a qualified tax exemption. They must first pay the corresponding
taxes on its imported petroleum. Then, they must submit the documents required under RR 2-2012. If they
have sufficiently shown that the imported products have not been removed from the FEZ, their earlier
payment shall be subject to a refund.

The petitioners lastly argue that RR 2-2012 does not withdraw the locators' tax exemption privilege. The
regulation simply requires proof that a locator has complied with the conditions for tax exemption. If the
locator cannot show that the goods were retained and/or consumed within the FEZ, such failure creates the
presumption that the goods have been introduced into the customs territory without the appropriate
permits.26 On the other hand, if they have duly proven the disposition of the goods within the FEZ, their
"advance payment" is subject to a refund. Thus, to the petitioners, to the extent that a refund is allowable,
there is in reality a tax exemption.27

Counter-arguments

Respondents Lazatin and EPEC, maintaining that they have standing to question its validity, insist that RR
2-2012 is unconstitutional.
Page | 44
Respondents have standing as
lawmaker and FEZ locator.

The respondents argue that a member of Congress has standing to protect the prerogatives, powers, and
privileges vested by the Constitution in his office.28 As a member of Congress, his standing to question
executive issuances that infringe on the right of Congress to enact, amend, or repeal laws has already been
recognized.29 He suffers substantial injury whenever the executive oversteps and intrudes into his power as
a lawmaker.30

On the other hand, the respondents point out that RR 2-2012 explicitly covers FEZs. Thus, being a Clark
FEZ locator, EPEC is among the many businesses that would have been directly affected by its
implementation.31

RR 2-2012 illegally imposes taxes

on Clark FEZs.

The respondents underscore that RA 9400 provides FEZ locators certain incentives, such as tax- and duty-
free importations of raw materials and capital equipment. These provisions of the law must be interpreted
in a way that will give full effect to law's policy and objective, which is to maximize the benefits derived
from the FEZs in promoting economic and social development.32

They admit that the law subjects to taxes and duties the goods that were brought into the FEZ and
subsequently introduced to the Philippine customs territory. However, contrary to petitioners' position that
locators' tax and duty exemptions are qualified, their incentives apply automatically.

According to the respondents, petitioners' interpretation of the law contravenes the policy laid down by RA
9400, because it makes the incentives subject to a suspensive condition. They claim that the condition —
the removal of the goods from the FEZ and their subsequent introduction to the customs territory — is
resolutory; locators enjoy the granted incentives upon bringing the goods into the FEZ. It is only when the
goods are shown to have been brought into the customs territory will the proper taxes and duties have to be
paid.33 RR 2-2012 reverses this process by requiring the locators to pay "advance" taxes and duties first and
to subsequently prove that they are entitled to a refund, thereafter.34 RR 2-2012 indeed allows a refund, but
a refund of taxes that were not due in the first place.35

The respondents add that even the refund mechanism under RR 2-2012 is problematic. They claim that RR
2-2012 only allows a refund when the petroleum products brought into the FEZ are subsequently sold to
FEZ locators or to entities that similarly enjoy exemption from direct and indirect taxes. The issuance does
not envision a situation where the petroleum products are directly brought into the FEZ and
are consumed by the same entity/locator.36 Further, the refund process takes a considerable length of time
to secure, thus requiring cash outlay on the part of locators;37 even when the claim for refund is granted, the
refund will not be in cash, but in the form of a Tax Credit Certificate (TCC).38

As the challenged regulation directly contravenes incentives legitimately granted by a legislative act, the
respondents argue that in issuing RR 2-2012, the petitioners not only encroached upon congressional
prerogatives and arrogated powers unto themselves; they also effectively violated, brushed aside, and
rendered nugatory the rigorous process required in enacting or amending laws.39

Issues

We shall decide the following issues:

I. Whether respondents Lazatin and EPEC have legal standing to bring the action of declaratory relief;
and

II. Whether RR 2-2012 is valid and constitutional.

The Court's Ruling

We do not find the petition meritorious.

I. Respondents have legal

Page | 45
 standing to file petition for
declaratory relief.

The party seeking declaratory relief must have a legal interest in the controversy for the action to
prosper.40 This interest must be material not merely incidental. It must be an interest that which will be
affected by the challenged decree, law or regulation. It must be a present substantial interest, as opposed to
a mere expectancy or a future, contingent, subordinate, or consequential interest.41

Moreover, in case the petition for declaratory relief specifically involves a question of constitutionality, the
courts will not assume jurisdiction over the case unless the person challenging the validity of the act
possesses the requisite legal standing to pose the challenge.42

Locus standi is a personal and substantial interest in a case such that the party has sustained or will sustain
direct injury as a result of the challenged governmental act. The question is whether the challenging party
alleges such personal stake in the outcome of the controversy so as to assure the existence of concrete
adverseness that would sharpen the presentation of issues and illuminate the court in ruling on the
constitutional question posed.43

We rule that the respondents satisfy these standards.

Lazatin has legal standing as

a legislator.

Lazatin filed the petition for declaratory relief before the RTC in his capacity as a member of
Congress.44 He alleged that RR 2-2012 was issued directly contravening RA 9400, a legislative enactment.
Thus, the regulation encroached upon the Congress' exclusive power to enact, amend, or repeal
laws.45 According to Lazatin, a member of Congress has standing to challenge the validity of an executive
issuance if it tends to impair his prerogatives as a legislator.46

We agree with Lazatin.

In Biraogo v. The Philippine Truth Commission,47 we ruled that legislators have the legal standing to
ensure that the prerogatives, powers, and privileges vested by the Constitution in their office remain
inviolate. To this end, members of Congress are allowed to question the validity of any official action that
infringes on their prerogatives as legislators.48

Thus, members of Congress possess the legal standing to question acts that amount to a usurpation of the
legislative power of Congress.49 Legislative power is exclusively vested in the Legislature. When the
implementing rules and regulations issued by the Executive contradict or add to what Congress has
provided by legislation, the issuance of these rules amounts to an undue exercise of legislative power and
an encroachment of Congress' prerogatives.

To the same extent that the Legislature cannot surrender or abdicate its legislative power without violating
the Constitution,50 so also is a constitutional violation committed when rules and regulations implementing
legislative enactments are contrary to existing statutes. No law can be amended by a mere administrative
rule issued for its implementation; administrative or executive acts are invalid if they contravene the laws
or to the Constitution.51

Thus, the allegation that RR. 2-2012 — an executive issuance purporting to implement the provisions of
the Tax Code — directly contravenes RA 9400 clothes a member of Congress with legal standing to
question the issuance to prevent undue encroachment of legislative power by the executive.

EPEC has legal standing as a

Clark FEZ locator.

EPEC intervened in the proceedings before the RTC based on the allegation that, as a Clark FEZ locator, it
will be directly affected by the implementation of RR 2-2012.52

We agree with EPEC.

Page | 46
It is not disputed that RR 2-2012 relates to the imposition of VAT and excise tax and applies to all
petroleum and petroleum products that are imported directly from abroad to the Philippines,including
FEZs.53

As an enterprise located in the Clark FEZ, its importations of petroleum and petroleum products will be
directly affected by RR 2-2012. Thus, its interest in the subject matter — a personal and substantial one —
gives it legal standing to question the issuance's validity.

In sum, the respondents' respective interests in this case are sufficiently substantial to be directly affected
by the implementation of RR 2-2012. The RTC therefore did not err when it gave due course to Lazatin's
petition for declaratory relief as well as PEC's petition-in-intervention.

In light of this ruling, we see no need to rule on the claimed transcendental importance of the issues raised.

II. RR 2-2012 is invalid and

unconstitutional.

On the merits of the case, we rule that RR 2-2012 is invalid and unconstitutional because: a) it illegally
imposes taxes upon FEZ enterprises, which, by law, enjoy tax-exempt status, and b) it effectively amends
the law (i.e., RA 7227, as amended by RA 9400) and thereby encroaches upon the legislative authority
reserved exclusively by the Constitution for Congress.

FEZ enterprises enjoy tax- and

duty-free incentives on its
importations.

In 1992, Congress enacted RA 7227 otherwise known as the "Bases Conversion and Development Act of
1992" to enhance the benefits to be derived from the Subic and Clark military reservations.54 RA 7227
established the Subic Special economic zone and granted such special territory various tax and duty
incentives.

To effectively extend the same benefits enjoyed in Subic to the Clark FEZ, the legislature enacted RA 9400
to amend RA 7227.55 Subsequently, the Department of Finance issued Department Order No. 3-200856 to
implement RA 9400 (Implementing Rules).

Under RA 9400 and its Implementing Rules, Clark FEZ is considered a customs territory separate and
distinct from the Philippines customs territory. Thus, as opposed to importations into andestablishments in
the Philippines customs territory,57 which are fully subject to Philippine customs and tax
laws, importations into and establishments located within the Clark FEZ (FEZ Enterprises)58 enjoy special
incentives, including tax and duty-free importation.59 More specifically, Clark FEZ enterprises shall be
entitled to the freeport status of the zone and a 5% preferential income tax rate on its gross income, in lieu
of national and local taxes.60

RA 9400 and its Implementing Rules grant the following:

First, the law provides that importations of raw materials and capital equipment into the FEZs shall betax-
and duty-free. It is the specific transaction (i.e., importation) that is exempt from taxes and duties.

Second, the law also grants FEZ enterprises tax- and duty-free importation and a preferential rate in the
payment of income tax, in lieu of all national and local taxes. These incentives exempt
theestablishment itself from taxation.

Thus, the Legislature intended FEZs to enjoy tax incentives in general — whether with respect to
thetransactions that take place within its special jurisdiction, or the persons/establishments within the
jurisdiction. From this perspective, the tax incentives enjoyed by FEZ enterprises must be understood
to necessarily include the tax exemption of importations of selected articles into the FEZ.

We have ruled in the past that FEZ enterprises' tax exemptions must be interpreted within the context and
in a manner that promotes the legislative intent of RA 722761 and, by extension, RA 9400. Thus, we
recognized that FEZ enterprises are exempt from both direct and indirect internal revenue taxes.62 In
particular, they are considered VAT-exempt entities.63

Page | 47
In line with this comprehensive interpretation, we rule that the tax exemption enjoyed by FEZ enterprises
covers internal revenue taxes imposed on goods brought into the FEZ, including the Clark FEZ, such as
VAT and excise tax.

RR 2-2012 illegally imposes VAT and excise

tax on goods brought into the FEZs.

Section 3 of RR 2-2012 provides the following:

First, whenever petroleum and petroleum products are imported and/or brought directly to the Philippines,
the importer of these goods is required to pay the corresponding VAT and excise taxdue on the
importation.

Second, the importer, as the payor of the taxes, may subsequently seek a refund of the amount previously
paid by filing a corresponding claim with the Bureau of Customs (BOC).

Third, the claim shall only be granted upon showing that the necessary condition has been fulfilled.

At first glance, this imposition — a mere tax administration measure according to the petitioners — appears
to be consistent with the taxation of similar imported articles under the Tax Code, specifically under its
Sections 10764 and 14865 (in relation with Sections 12966 and 13167) .

However, RR 2-2012 explicitly covers even petroleum and petroleum products imported and/or brought
into the various FEZs in the Philippines. Hence, when an FEZ enterprise brings petroleum and petroleum
products into the FEZ, under RR 2-2012, it shall be considered an importer liable for the taxes due on these
products.

The crux of the controversy can be found in this feature of the challenged regulation.

The petitioners assert that RR 2-2012 simply implements the provisions of the Tax Code on collection of
internal revenue taxes, more specifically VAT and excise tax, on the importation of petroleum and
petroleum products. To them, FEZ enterprises enjoy a qualified tax exemption such that they have to pay
the tax due on the importation first, and thereafter claim a refund, which shall be allowed only upon
showing that the goods were not introduced to the Philippine customs territory.

On the other hand, the respondents contend that RR 2-2012 imposes taxes on FEZ enterprises, which in the
first place are not liable for taxes. They emphasize that the tax incentives under RA 9400
applyautomatically upon the importation of the goods. The proper taxes on the importation shall only be
due if the enterprises can later show that the goods were subsequently introduced to the Philippine customs
territory.

Since the tax exemptions enjoyed by FEZ enterprises under the law extend even to VAT and excise tax, as
we discussed above, it follows and we accordingly rule that the taxes imposed by Section 3 of RR 2-2012
directly contravene these exemptions. First, the regulation erroneously considers petroleum and petroleum
products brought into a FEZ as taxable importations. Second, it unreasonably burdens FEZ enterprises by
making them pay the corresponding taxes — an obligation from which the law specifically exempts them
— even if there is a subsequent opportunity to refund the payments made.

Petroleum and petroleum products brought

into the FEZ and which remain therein are

not taxable importations.

RR 2-2012 clearly imposes VAT and excise tax on the importation of petroleum and petroleum products
into FEZs. Strictly speaking, however, articles brought into these FEZs are not taxable importations under
the law based on the following considerations:

First, importation refers to bringing goods from abroad into the Philippine customs jurisdiction. It begins
from the time the goods enter the Philippine jurisdiction and is deemed terminated when the applicable
taxes and duties have been paid or the goods have left the jurisdiction of the BOC.68

Page | 48
Second, under the Tax Code, imported goods are subject to VAT and excise tax. These taxes shall be paid
prior to the release of the goods from customs custody.69 Also, for VAT purposes,70 an importerrefers to
any person who brings goods into the Philippines.

Third, the Philippine VAT system adheres to the cross border doctrine.71 Under this rule, no VAT shall be
imposed to form part of the cost of the goods destined for consumption outside the Philippine customs
territory.72 Thus, we have already ruled before that an FEZ enterprise cannot be directlycharged for the
VAT on its sales, nor can VAT be passed on to them indirectly as added cost to their purchases.73

Fourth, laws such as RA 7227, RA 7916, and RA 9400 have established certain special areas asseparate
customs territories.74 In this regard, we have already held that such jurisdictions, such as the Clark FEZ,
are, by legal fiction, foreign territories.75

Fifth, the Implementing Rules provides that goods initially introduced into the FEZs and subsequently
brought out therefrom and introduced into the Philippine customs territory shall be considered
asimportations and thereby subject to the VAT.76 One such instance is the sale by any FEZ enterprise to a
customer located in the customs territory, which the VAT regulations refer to as a technical importation.77

We find it clear from all these that when goods (e.g., petroleum and petroleum products) are brought into
an FEZ, the goods remain to be in foreign territory and are not therefore goods introduced into Philippine
customs territory subject to Philippine customs and tax laws.78

Stated differently, goods brought into and traded within an FEZ are generally beyond the reach of national
internal revenue taxes and customs duties enforced in the Philippine customs territory. This is consistent
with the incentive granted to FEZs exempting the importation itself from taxes and duties.

Therefore, the act of bringing the goods into an FEZ is not a taxable importation. As long as the goods
remain (e.g., sale and/or consumption of the article within the FEZ) in the FEZ or re-exported to another
foreign jurisdiction, they shall continue to be tax-free.79 However, once the goods are introduced into the
Philippine customs territory, it ceases to enjoy the tax privileges accorded to FEZs. It shall then be
considered as an importation subject to all applicable national internal revenue taxes and customs duties.

The tax exemption granted to FEZ

enterprises is an immunity from tax liability
and from the payment of the tax.

The respondents claim that when RR 2-2012 was issued, petroleum and petroleum products brought into
the FEZ by FEZ enterprises suddenly became subject to VAT and excise tax, in direct contravention of RA
9400 (with respect to Clark FEZ enterprises). Such imposition is not authorized under any law, including
the Tax Code.80

On the other hand, the petitioners argue that RR 2-2012 does not withdraw the tax exemption privileges of
FEZ enterprises. As their tax exemption is merely qualified, they cannot invoke outright exemption. Thus,
FEZ enterprises are required to pay internal revenue taxes first on their imported petroleum under RR 2-
2012. They may then refund their previous payment upon showing that the condition under RA 9400 has
been satisfied — that is, the goods have not been introduced to the Philippines customs territory.81 To the
petitioners, to the extent that a refund is allowable, there is still in reality a tax exemption.82

We disagree with this contention.

First, FEZ enterprises bringing goods into the FEZ should not be considered as importers subject to tax in
the same manner that the very act of bringing goods into these special territories does not make
them taxable importations. We emphasize that the exemption from taxes and duties under RA 9400 are
granted not only to importations into the FEZ, but also specifically to each FEZ enterprise. As discussed,
the tax exemption enjoyed by FEZ enterprises necessarily includes the tax exemption of the importations of
selected articles into the FEZ.

Second, the essence of a tax exemption is the immunity or freedom from a charge or burden to which others
are subjected.83 It is a waiver of the government's right to collect84 the amounts that would have been
collectible under our tax laws. Thus, when the law speaks of a tax exemption, it should be understood as
freedom from the imposition and payment of a particular tax.

Page | 49
Based on this premise, we rule that the refund mechanism provided by RR 2-2012 does not amount to a tax
exemption. Even if the possibility of a subsequent refund exists, the fact remains that FEZ enterprises must
still spend money and other resources to pay for something they should be immune to in the first place.
This completely contradicts the essence of their tax exemption.

In the same vein, we cannot agree with the view that FEZ enterprises have the duty to prove their
entitlement to tax exemption first before fully enjoying the same; we find it illogical to determine whether a
person is exempted from tax without first determining if he is subject to the tax being imposed. We have
reminded the tax authorities to determine first if a person is liable for a particular tax, applying the rule of
strict interpretation of tax laws, before asking him to prove his exemption therefrom.85 Indeed, as entities
exempted on taxes on importations, FEZ enterprises are clearly beyond the coverage of any law imposing
those very charges. There is no justifiable reason to require them to prove that they are exempted from it.

More importantly, we have also recognized that the exemption from local and national taxes granted under
RA 7227, as amended by RA 9400, are ipso facto accorded to FEZs. In case of doubt, conflicts with respect
to such tax exemption privilege shall be resolved in favor of these special territories.86

RR 2-2012 is unconstitutional.

According to the respondents, the power to enact, amend, or repeal laws belong exclusively to
Congress.87 In passing RR 2-2012, petitioners illegally amended the law — a power solely vested on the
Legislature.

We agree with the respondents.

The power of the petitioners to interpret tax laws is not absolute. The rule is that regulations may not
enlarge, alter, restrict, or otherwise go beyond the provisions of the law they administer; administrators and
implementors cannot engraft additional requirements not contemplated by the legislature.88

It is worthy to note that RR 2-2012 does not even refer to a specific Tax Code provision it wishes to
implement. While it purportedly establishes mere administration measures for the collection of VAT and
excise tax on the importation of petroleum and petroleum products, not once did it mention the pertinent
chapters of the Tax Code on VAT and excise tax.

While we recognize petitioners' essential rationale in issuing RR 2-2012, the procedures proposed by the
issuance cannot be implemented at the expense of entities that have been clearly granted statutory tax
immunity.

Tax exemptions are granted for specific public interests that the Legislature considers sufficient to offset
the monetary loss in the grant of exemptions.89 To limit the tax-free importation privilege of FEZ
enterprises by requiring them to pay subject to a refund clearly runs counter to the Legislature's intent to
create a free port where the "free flow of goods or capital within, into, and out of the zones" is ensured.90

Finally, the State's inherent power to tax is vested exclusively in the Legislature.91 We have since ruled that
the power to tax includes the power to grant tax exemptions.92 Thus, the imposition of taxes, as well as the
grant and withdrawal of tax exemptions, shall only be valid pursuant to a legislative enactment.

As RR 2-2012, an executive issuance, attempts to withdraw the tax incentives clearly accorded by the
legislative to FEZ enterprises, the *petitioners have arrogated upon themselves a power reserved
exclusively to Congress, in violation of the doctrine of separation of powers.

In these lights, we hereby rule and declare that RR 2-2012 is null and void.

WHEREFORE, we hereby DISMISS the petition for lack of merit, and accordingly AFFIRM decision of
the Regional Trial Court dated November 8, 2013 2001 in SCA Case No. 12-410.

SO ORDERED.

Page | 50
Republic of the Philippines
Supreme Court
Manila

FIRST DIVISION

G.R. No. 212920, September 16, 2015

COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. NIPPON EXPRESS (PHILS.)

CORPORATION, Respondent.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari1 are the Decision2 dated December 18, 2013 and the
Resolution3 dated June 10, 2014 of the Court of Tax Appeals (CTA) En Banc in CTA EB No. 924, which
affirmed the Resolution4 dated July 31, 2012 of the CTA Third Division (CTA Division) in CTA Case No.
6967, granting respondent Nippon Express (Phils.) Corporation's (Nippon) motion to withdraw petition for
review5 (motion to withdraw).

The Facts

Nippon is a domestic corporation duly organized and existing under Philippine laws which is primarily
engaged in the business of freight forwarding, namely, in the international and domestic air and sea freight
and cargo forwarding, hauling, carrying, handling, distributing, loading, and unloading general cargoes and
all classes of goods, wares, and merchandise, and the operation of container depots, warehousing, storage,
hauling, and packing facilities.6 It is a Value-Added Tax (VAT) registered entity with Tax Identification
No. VAT Registration No. 004-669-434-000.7 As such, it filed its quarterly VAT returns for the year 2002
on April 25, 2002, July 25, 2002, October 25, 2002, and January 27, 2003, respectively.8 It maintained that
during the said period it incurred input VAT attributable to its zero-rated sales in the amount of
P28,405,167.60, from which only P3,760,660.74 was applied as tax credit, thus, reflecting refundable
excess input VAT in the amount of P24,644,506.86.9

On April 22, 2004, Nippon filed an administrative claim for refund10 of its unutilized input VAT in the
amount of P24,644,506.86 for the year 2002 before the Bureau of Internal Revenue (BIR). 11 A day later, or
on April 23, 2004, it filed a judicial claim for tax refund, by way of petition for review, 12before the CTA,
docketed as CTA Case No. 6967.13

For its part, petitioner the Commissioner of Internal Revenue (CIR) asserted, inter alia, that the amounts

Page | 51
being claimed by Nippon as unutilized input VAT were not properly documented, hence, should be
denied.14

Proceedings Before the CTA Division

In a Decision15 dated August 10, 2011, the CTA Division partially granted Nippon's claim for tax refund,
and thereby ordered the CIR to issue a tax credit certificate in the reduced amount of P2,614,296.84,
representing its unutilized input VAT which was attributable to its zero-rated sales.16 It found that while
Nippon timely filed its administrative and judicial claims within the two (2)-year prescriptive period,17 it,
however, failed to show that the recipients of its services - which, in this case, were mostly Philippine
Economic Zone Authority registered enterprises - were non-residents "doing business outside the
Philippines." Accordingly, it concluded that Nippon's purported sales therefrom could not qualify as zero-
rated sales, hence, the reduction in the amount of tax credit certificate claimed.18

Before its receipt of the August 10, 2011 Decision, or on August 12, 2011, Nippon filed a motion to
withdraw,19 considering that the BIR, acting on its administrative claim, already issued a tax credit
certificate in the amount of P21,675,128.91 on July 27, 2011 (July 27, 2011 Tax Credit Certificate).

Separately, the CIR moved for reconsideration20 of the August 10, 2011 Decision and filed its
comment/opposition21 to Nippon's motion to withdraw, claiming that: (a) the CTA Division had already
resolved the factual issue pertaining to Nippon's entitlement to a tax credit certificate, which, after trial, was
proven to be only in the amount of P2,614,296.84; (b) the issuance of the July 27, 2011 Tax Credit
Certificate was bereft of factual and legal bases, and prejudicial to the interest of the government; and (c)
Nippon's motion to withdraw was "tantamount to [a] withdrawal and abandonment of its [mjotion for
[reconsideration also filed in this case."22

Thereafter, Nippon, which maintained that it only had notice of the August 10, 2011 Decision on August
16, 2011,23 likewise sought for reconsideration,24 praying that the CTA Division set aside its August 10,
2011 Decision and render judgment ordering the CIR to issue a tax credit certificate in the full amount of
P24,644,506.86, or in the alternative, grant its motion to withdraw.25cralawred

In a Resolution dated July 31, 2012,26 the CTA Division granted Nippon's motion to withdraw and, thus,
considered the case closed and terminated.27 It found that pursuant to Revenue Memorandum Circular
No. 49-03 (RMC No. 49-03) dated August 15, 2003, Nippon correctly availed of the proper remedy
notwithstanding the promulgation of the August 10, 2011 Decision. It added that in approving the
withdrawal of Nippon's petition for review, it exercised its discretionary authority under Section 3, Rule 50
of the Rules of Court after due consideration of the reasons proffered by Nippon, namely: (a) that the
parties had already arrived at a reasonable settlement of the issues; (b) further legal and related costs would
be avoided; and (c) the court's time and resources would be saved.28

Aggrieved, the CIR elevated29 its case to the CTA En Banc.

The CTA En Banc Ruling

In a Decision30 dated December 18, 2013, the CTA En Banc affirmed the July 31, 2012 Resolution of the
CTA Division granting Nippon's motion to withdraw.31 It debunked the CIR's assertions that Nippon failed
to comply with the requirements set forth in RMC No. 49-03 - i.e., that Nippon failed to notify the BIR that
it agreed with its findings and to file the necessary motion before the CTA Division prior to the
promulgation of its Decision -noting that RMC No. 49-03 did not expressly require a taxpayer to inform the
BIR of its assent nor prescribe a definite period for filing a motion to withdraw. It also observed that the
CIR did not deny the existence and issuance of the July 27, 2011 Tax Credit Certificate. In this regard, the
same may be taken judicial notice of, and the need for its formal offer dispensed with.32

The CIR moved for partial reconsideration33 which was, however, denied by the CTA En Banc in a
Resolution34 dated June 10, 2014; hence, this petition.

The Issue Before the Court

The core issue in this case is whether the CTA properly granted Nippon's motion to withdraw.

Page | 52
The Court's Ruling

The petition is meritorious.

A perusal of the Revised Rules of the Court of Tax Appeals35 (RRCTA) reveals the lack of provisions
governing the procedure for the withdrawal of pending appeals before the CTA. Hence, pursuant to Section
3, Rule 1 of the RRCTA, the Rules of Court shall suppletorily apply:
Sec. 3. Applicability of the Rules of Court. - The Rules of Court in the Philippines shall apply suppletorily
to these Rules.
Rule 50 of the Rules of Court - an adjunct rule to the appellate procedure in the CA under Rules 42, 43, 44,
and 46 of the Rules of Court which are equally adopted in the RRCTA36 - states that when the case is
deemed submitted for resolution, withdrawal of appeals made after the filing of the appellee's brief may
still be allowed in the discretion of the court:
RULE 50
DISMISSAL OF APPEAL

xxxx

Section 3. Withdrawal of appeal. — An appeal may be withdrawn as of right at any time before the filing
of the appellee's brief. Thereafter, the withdrawal may be allowed in the discretion of the
court. (Emphasis supplied)
Impelled by the BIR's supervening issuance of the July 27, 2011 Tax Credit Certificate, Nippon filed a
motion to withdraw the case, proffering that:
Having arrived at a reasonable settlement of the issues with the [CIR]/BIR, and to avoid incurring further
legal and related costs, not to mention the time and resources of [the CTA], [Nippon] most respectfully
moves for the withdrawal of its Petition for Review.37
Finding the aforementioned grounds to be justified, the CTA Division allowed the withdrawal of Nippon's
appeal thereby ordering the case closed and terminated, notwithstanding the fact that the said motion was
filed after the promulgation of its August 10, 2011 Decision.

While it is true that the CTA Division has the prerogative to grant a motion to withdraw under the authority
of the foregoing legal provisions, the attendant circumstances in this case should have incited it to act
otherwise.

First, it should be pointed out that the August 10, 2011 Decision was rendered by the CTA Division after a
full-blown hearing in which the parties had already ventilated their claims. Thus, the findings contained
therein were the results of an exhaustive study of the pleadings and a judicious evaluation of the evidence
submitted by the parties, as well as the report of the commissioned certified public accountant. In Reyes v.
Commission on Elections,38 the Court only noted, and did not grant, a motion to withdraw the petition filed
after it had already acted on said petition, ratiocinating in the following wise:
It may well be in order to remind petitioner that jurisdiction, once acquired, is not lost upon the instance of
the parties, but continues until the case is terminated. When petitioner filed her Petition
for Certiorari jurisdiction vested in the Court and, in fact, the Court exercised such jurisdiction when it
acted on the petition. Such jurisdiction cannot be lost by the unilateral withdrawal of the petition by
petitioner.39
The primary reason, however, that militates against the granting of the motion to withdraw is the fact that
the CTA Division, in its August 10, 2011 Decision, had already determined that Nippon was only entitled
to refund the reduced amount of P2,614,296.84 since it failed to prove that the recipients of its services
were non-residents "doing business outside the Philippines"; hence, Nippon's purported sales therefrom
could not qualify as zero-rated sales, necessitating the reduction in the amount of refund claimed. Markedly
different from this is the BIR's determination that Nippon should receiveP21,675,128.91 as per the July 27,
2011 Tax Credit Certificate, which is, in all, P19,060,832.07larger than the amount found due by the CTA
Division. Therefore, as aptly pointed out by Associate Justice Teresita J. Leonardo-De Castro during the
deliberations on this case, the massive discrepancy alone between the administrative and judicial
determinations of the amount to be refunded to Nippon should have already raised a red flag to the CTA
Division. Clearly, the interest of the government, and, more significantly, the public, will be greatly
prejudiced by the erroneous grant of refund - at a substantial amount at that - in favor of Nippon. Hence,
under these circumstances, the CTA Division should not have granted the motion to withdraw.

In this relation, it deserves mentioning that the CIR is not estopped from assailing the validity of the July
27, 2011 Tax Credit Certificate which was issued by her subordinates in the BIR. In matters of taxation, the
government cannot be estopped by the mistakes, errors or omissions of its agents for upon it depends the

Page | 53
ability of the government to serve the people for whose benefit taxes are collected.40

Finally, the Court has observed that based on the records, Nippon's administrative claim for the first taxable
quarter of 2002 which closed on March 31, 2002 was already time-barred41 for being filed onApril 22,
2004, or beyond the two (2)-year prescriptive period pursuant to Section 112(A)42 of the National Internal
Revenue Code of 1997. Although prescription was not raised as an issue, it is well-settled that if the
pleadings or the evidence on record show that the claim is barred by prescription, the Court may motu
proprio order its dismissal on said ground.43

All told, the CTA committed a reversible error in granting Nippon's motion to withdraw. The August 10,
2011 Decision of the CTA Division should therefore be reinstated, without prejudice, however, to the right
of either party to appeal the same in accordance with the RRCTA.

WHEREFORE, the petition is GRANTED. The Decision dated December 18, 2013 and the Resolution
dated June 10, 2014 of the Court of Tax Appeals En Banc in CTA EB Case No. 924 are hereby SET
ASIDE. The Decision dated August 10, 2011 of the Court of Tax Appeals Third Division in CTA Case No.
6967 is REINSTATED, without prejudice, however, to the right of either party to appeal the same in
accordance with the Revised Rules of the Court of Tax Appeals.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. Nos. 166309-10 March 9, 2007

REPUBLIC OF THE PHILIPPINES, represented by the COMMISSIONER OF

CUSTOMS, Petitioner,
vs.
UNIMEX MICRO-ELECTRONICS GmBH, Respondent.

DECISION

CORONA, J.:

This is an appeal by certiorari under Rule 45 of the Rules of Court seeking to nullify and set aside the
decision of the Court of Appeals (CA) dated August 30, 20041 and its amended decision of November 30,
20042 in CA-G.R. SP No. 75359 and CA-G.R. SP No. 75366.

Page | 54
The antecedent facts follow.

Sometime in April 1985, respondent Unimex Micro-Electronics GmBH (Unimex) shipped a 40-foot
container and 171 cartons of Atari game computer cartridges, duplicators, expanders, remote controllers,
parts and accessories to Handyware Phils., Inc. (Handyware). Don Tim Shipping Corporation transported
the goods with Evergreen Marine Corporation as shipping agent.

After the shipment arrived in the Port of Manila on July 9, 1985, the Bureau of Customs (BOC) agents
discovered that it did not tally with the description appearing on the cargo manifest. As a result, BOC
instituted seizure proceedings against Handyware and later issued a warrant of seizure and detention
against the shipment.

On June 5, 1987, the Collector of Customs issued a default order against Handyware for failing to appear in
the seizure proceedings. After an ex parte hearing, the Collector of Customs forfeited the goods in favor of
the government.

Subsequently, on June 15, 1987, respondent Unimex (as shipper and owner of the goods) filed a motion to
intervene in the seizure proceedings. The Collector of Customs granted the motion but later on declared the
June 5, 1987 default order against Handyware as final and executory, thus affirming the goods’ forfeiture in
favor of the government.

Respondent filed a petition for review against petitioner Commissioner of Customs (BOC Commissioner)
in the Court of Tax Appeals (CTA). This case was docketed as CTA Case No. 4317.3

In a decision4 dated June 15, 1992, the CTA reversed the forfeiture decree and ordered the release of the
subject shipment to respondent subject to the payment of customs duties. The CTA decision became final
and executory on July 20, 1992. The decision read:

WHEREFORE, the decree of forfeiture of [petitioner] Commissioner of Customs is hereby reversed and
the subject shipment is hereby ordered released to [respondent] subject to the condition that the correct
duties, taxes, fees and other charges thereon be paid to the Bureau of Customs based on the actual quality
and condition of the shipments at the time of the filing of the corresponding import entry in compliance
with this decision and further subject to the presentation of Central Bank Release Certificate.5

Unfortunately, however, respondent’s counsel failed to secure a writ of execution to enforce the CTA
decision. Instead, it filed separate claims for damages against Don Tim Shipping Corporation and
Evergreen Marine Corporation6 but both cases were dismissed.

On September 5, 2001, respondent filed in the CTA a petition for the revival of its June 15, 1992 decision.
It prayed for the immediate release by BOC of its shipment or, in the alternative, payment of the shipment’s
value plus damages. The BOC Commissioner failed to file his answer, hence, he was declared in default.

During the ex parte presentation of respondent’s evidence, BOC informed the court that the subject
shipment could no longer be found at its warehouses.

In its decision of September 19, 2002,7 the CTA declared that its June 15, 1992 decision could no longer be
executed due to the loss of respondent’s shipment so it ordered the BOC Commissioner to pay respondent
the commercial value of the goods based on the prevailing exchange rate at the time of their importation.
The dispositive portion of the decision read:

WHEREFORE, premises considered, the instant petition is PARTIALLY GRANTED. Accordingly,

[petitioner] is ORDERED to PAY [respondent] the amount of ₱8,675,200.22 representing the commercial
value of the shipment at the time of importation subject, however, to the payment of the proper taxes,
duties, fees and other charges thereon. The payment shall be taken from the sale or sales of the goods or
properties seized or forfeited by the Bureau of Customs.8

The BOC Commissioner and respondent filed their respective motions for reconsideration (MRs) of the
above decision.

In his MR, the BOC Commissioner argued that the CTA altered its June 15, 1992 decision by converting it
from an action for specific performance into a money judgment.9 On the other hand, respondent contended

Page | 55
that the exchange rate prevailing at the time of actual payment should apply. It also argued that the CTA
erred in not imposing legal interest on BOC’s obligation.

The CTA denied both MRs. The BOC Commissioner and the respondent then filed separate petitions in the
CA. The BOC Commissioner’s appeal was docketed as CA-G.R. SP No. 75359 and respondent’s as CA-
G.R. SP No. 75366. The CA consolidated the two cases.

On August 30, 2004, the CA dismissed the BOC Commissioner’s appeal and granted respondent’s.

In CA-G.R. SP No. 75359, the CA held that the BOC Commissioner was liable for the value of the subject
shipment as the same was lost while in its custody. On the other hand, in CA-G.R. SP No. 75366, it ruled
that the CTA erred in using as basis the prevailing peso-dollar exchange rate at the time of the importation
instead of the prevailing rate at the time of actual payment pursuant to RA 4100.10 It added that respondent
was also entitled to legal interest. According to the CA:

…Considering that the BOC was grossly negligent in handling the subject shipment, this Court finds
Unimex entitled to legal interests. Accordingly, the actual damages thus awarded shall be subject to 6%
interest per annum.

Be that as it may, such interest shall accrue only from the date of the CTA Decision on 19 September 2002
since it is from that the quantification of Unimex’s damages have been reasonably ascertained…

xxx xxx xxx

Finally, Unimex is likewise entitled to 12% interest per annum in lieu of 6% per annum from the time this
Decision becomes final and executory until fully paid, in as much as the interim period is equivalent to a
forbearance of credit.

xxx xxx xxx

WHEREFORE, the appealed Decision, dated 19 September 2002, is hereby AFFIRMED WITH
MODIFICATION in that the Bureau of Customs is adjudged liable to Unimex for the value of the subject
shipment in the amount of $466,885.54. The Bureau of Customs’ liability may be paid in Philippine
currency, computed at the exchange rate prevailing at the time of actual payment with legal interest thereon
at the rate of 6% per annum from 19 September 2002 up to its finality. Upon finality of this Decision, the
rate of legal interest shall be 12% per annum until the value of the subject shipment is fully paid.11

The BOC Commissioner and respondent again filed their respective MRs of the above decision. The
Commissioner insisted that the BOC was not liable to respondent. On the other hand, respondent’s MR
sought payment of the goods’ value in euros, not in US dollars.12 It also demanded that the 6% legal
interest be reckoned from the date of its judicial demand on June 15, 1987.

On November 30, 2004, the CA denied the BOC Commissioner’s MR and granted respondent’s.
Accordingly, the decretal portion of its amended decision read:

WHEREFORE, the appealed Decision, dated 19 September 2002, is hereby AFFIRMED WITH
MODIFICATION in that the Bureau of Customs is adjudged liable to Unimex for the value of the subject
shipment in the amount of Euro 669,982.565. The Bureau of Custom’s liability [may be] paid in the
Philippine currency, computed at the exchange rate prevailing at the time of actual payment with legal
interests thereon at the rate of 6% per annum from 15 June 1987 up to the finality of this Decision. In lieu
of the 6% interest, the rate of legal interest shall be 12% per annum upon finality of this Decision until the
value of the subject shipment is fully paid.13

The Republic of the Philippines, represented by the BOC Commissioner, now comes to us via this petition
assailing the CTA decision on the following grounds: (1) the June 15, 1992 CTA judgment could not be
altered after it became final and executory; (2) laches has already set in, hence, respondent’s case (reviving
the June 15, 1992 CTA judgment) should have been dismissed outright; (3) the legal interest imposed was
erroneous and (4) the government funds cannot be charged with respondent’s claim without a
corresponding appropriation.

Modification of a Final And Executory Judgment

Page | 56
In support of its first argument, petitioner contends that once a judgment becomes final and executory, it
becomes immutable and unalterable, thus the CTA erred in changing the tenor of its June 15, 1992 decision
by ordering it to instead pay the value of the goods.14

We disagree.

Indeed, the general rule is that once a decision becomes final and executory, it cannot be altered or
modified. However, this rule is not absolute. In some cases,15 we held that where facts or events transpire
after a decision has become executory, which facts constitute a supervening cause rendering the final
judgment unenforceable, said judgment may be modified. Also, a final judgment may be altered when its
execution becomes impossible or unjust.

In the case at bar, parties do not dispute the fact that after the June 15, 1992 CTA decision became final and
executory, respondent’s goods were inexplicably lost while under the BOC’s custody. Certainly, this fact
presented a supervening event warranting the modification of the CTA decision. Even if the CTA had
maintained its original decision, still petitioner would have been unable to comply with it for the obvious
reason that there was nothing more to deliver to respondent.

Laches Did Not Set in to Frustrate Respondent’s Petition to Revive The June 15, 1992 CTA Decision

Regarding petitioner’s second argument, we hold that it cannot impugn respondent’s claim on the basis of
laches. Laches is the failure or negligence to assert a right within a reasonable time, giving rise to a
presumption that a party has abandoned it or declined to assert it.16 It is not a mere question of lapse or
passage of time but is principally a question of the inequity or unfairness of permitting a right or claim to
be asserted.17

It is clear from the records that respondent was not guilty of negligence or omission. Neither did it abandon
its claim against petitioner. We agree with the CTA (as later affirmed by the CA) that:

There was never negligence or omission to assert its right within a reasonable period of time on the part of
[respondent]. In fact, from the moment it intervened in the proceedings before the Bureau of Customs up to
the present time, [respondent] is diligently trying to fight for what it believes is right. [Respondent] may
have failed to secure a writ of execution with this court when the [CTA decision] became final and
executory due to wrong legal advice, yet it does not mean that it was sleeping on its right for it filed a case
against the shipping agent and/or the sub-agent. Therefore, there [was never] an occasion wherein
petitioner had abandoned or declined to assert its right. 18

The rule is that the findings of fact by the lower court,19 if affirmed by the CA, are conclusive on
us.20 Absent any reason that compels us to deviate from the rule, as in this case, we shall not disturb such
findings.

Moreover, the doctrine of laches is based upon grounds of public policy and equity. It is invoked to
discourage stale claims but is entirely addressed to the sound discretion of the court.21 Since it is an
equitable doctrine, its application is likewise controlled by reasonable considerations. Thus, the better rule
is that courts, under the principle of equity, should not be bound by the doctrine of laches if wrong or
injustice will result.22

Given the attendant circumstances, laches cannot stall respondent’s right to recover what is due to it
especially where BOC’s negligence in the safekeeping of the goods appears indubitable. There is no
denying that BOC exhibited gross carelessness and ineptitude in the performance of its duty as it could not
even explain why or how the goods vanished while in its custody. With this, it is difficult to exonerate
petitioner from liability; otherwise, we would countenance a wrong and exacerbate respondent’s loss which
to this day has remained unrecompensed.

More importantly, laches never set in because respondent filed its petition for revival of judgment within
the period set by the Rules. In particular, Rule 39, Section 6 states:

SEC. 6. Execution by motion or by independent action. – A final and executory judgment or order may be
executed on motion within five (5) years from the date of its entry. After the lapse of such time, and before
it is barred by the statute of limitations, a judgment may be enforced by action. The revived judgment may
also be enforced by motion within five (5) years from the date of its entry and thereafter by action before it
is barred by the statute of limitations.
Page | 57
Furthermore, Article 1144 of the Civil Code, an action "upon a judgment" may be brought within ten (10)
years from the time the right of action accrues.

The CTA judgment sought to be revived became final and executory on July 20, 1992 23 and was
accordingly entered into the book of judgments on the same date. On the other hand, the petition to revive
said judgment was filed on September 5, 2001. Clearly, the filing of the petition for the revival of judgment
was well within the reglementary period provided by law.

Legal Interest May Be Imposed for Use of Money or as Compensatory Damages

Petitioner likewise argues that the CA erred in imposing the 6% p.a. legal interest. According to petitioner,
the obligation to pay legal interest only arises by virtue of a contract or on account of damages due to delay
or failure to pay the principal on which the interest is exacted. It added that since the June 15, 1992 CTA
decision did not involve a monetary award but merely the release of the goods to respondent, there was no
basis for the computation and/or imposition of the 6% p.a. legal interest.

We agree with petitioner.

Interest may be paid only either as compensation for the use of money (monetary interest) 24 or as damages
(compensatory interest).25 We quote in agreement the CTA’s disquisition in its decision dated September
19, 2002:

Interest may be paid either as compensation for the use of money (monetary interest) referred to in Article
1956 of the New Civil Code or as damages (compensatory interest) under Article 2209 above cited. As
clearly provided in [Article 2209], interest is demandable if: a) there is monetary obligation and b) debtor
incurs delay.

This case does not involve a monetary obligation to be covered by Article 2209. There is no dispute that
this case was originally filed questioning the seizure of the shipment by the Bureau of Customs. Our
decision subject of this action for revival [of judgment] did not refer to any monetary obligation by
[petitioner] towards the [respondent]. In fact, if there was any monetary obligation mentioned, it referred to
the obligation of [respondent] to pay the correct taxes, duties, fees and other charges before the release of
the goods can be had. In one case, the Supreme Court held:

"In a comprehensive sense, the term "debt" embraces not merely money due by contract, but whatever one
is bound to render to another, either for contract or the requirement of the law, such as tax where the law
imposes personal liability therefor."

Therefore, the government was never a debtor to the petitioner in order that [Article] 2209 could apply. Nor
was it in default for there was no monetary obligation to pay in the first place. There is default
when after demand is made either judicially or extrajudicially. In other words, for interest to be demandable
under Article 2209, there should be a monetary obligation and the debtor was in default…

In the instant case, [petitioner] was never under monetary obligation to [respondent], no demand can be
made either judicially or extrajudicially. Parallel thereto, there could be no default… 26

No doubt, the present case does not fall within the first situation. Neither can it be considered as one
involving interest based on damages under the second situation.

More importantly, interest is not chargeable against petitioner except when it has expressly stipulated to
pay it or when interest is allowed by the legislature or in eminent domain cases where damages sustained
by the owner take the form of interest at the legal rate.27 Consequently, the CA’s imposition of the 12% p.a.
legal interest upon the finality of the decision of this case until the value of the goods is fully paid (as
forbearance of credit) is likewise bereft of any legal anchor.

Government Liability For Actual Damages

Finally, petitioner argues that a money judgment or any charge against the government requires a
corresponding appropriation and cannot be decreed by mere judicial order.

Although it may be gainsaid that the satisfaction of respondent’s demand will ultimately fall on the
government, and that, under the political doctrine of "state immunity," it cannot be held liable for
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governmental acts (jus imperii),28we still hold that petitioner cannot escape its liability. The circumstances
of this case warrant its exclusion from the purview of the state immunity doctrine.

As previously discussed, the Court cannot turn a blind eye to BOC’s ineptitude and gross negligence in the
safekeeping of respondent’s goods. We are not likewise unaware of its lackadaisical attitude in failing to
provide a cogent explanation on the goods’ disappearance, considering that they were in its custody and
that they were in fact the subject of litigation. The situation does not allow us to reject respondent’s claim
on the mere invocation of the doctrine of state immunity. Succinctly, the doctrine must be fairly observed
and the State should not avail itself of this prerogative to take undue advantage of parties that may have
legitimate claims against it.29

In Department of Health v. C.V. Canchela & Associates,30 we enunciated that this Court, as the staunch
guardian of the people’s rights and welfare, cannot sanction an injustice so patent in its face, and allow
itself to be an instrument in the perpetration thereof. Over time, courts have recognized with almost
pedantic adherence that what is inconvenient and contrary to reason is not allowed in law.31 Justice and
equity now demand that the State’s cloak of invincibility against suit and liability be shredded.

Accordingly, we agree with the lower courts’ directive that, upon payment of the necessary customs duties
by respondent, petitioner’s "payment shall be taken from the sale or sales of goods or properties seized or
forfeited by the Bureau of Customs."32

WHEREFORE, the assailed decisions of the Court of Appeals in CA-G.R. SP Nos. 75359 and 75366 are
herebyAFFIRMED with MODIFICATION. Petitioner Republic of the Philippines, represented by the
Commissioner of the Bureau of Customs, upon payment of the necessary customs duties by respondent
Unimex Micro-Electronics GmBH, is hereby ordered to pay respondent the value of the subject shipment in
the amount of Euro 669,982.565. Petitioner’s liability may be paid in Philippine currency, computed at the
exchange rate prevailing at the time of actual payment.

SO ORDERED.

Page | 59
Republic of the Philippines
Supreme Court
Manila

FIRST DIVISION

G.R. No. 182737, March 02, 2016

SILICON PHILIPPINES, INC. (FORMERLY INTEL PHILIPPINES MANUFACTURING,

INC.),Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

SERENO, C.J.:

Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the Court of
Tax Appeals (CTA) En Banc Decision1 dated 18 January 2008 and Resolution2 dated 30 April 2008 in
CTA EB No. 298.

The CTA En Banc affirmed the CTA Second Division Decision3 dated 5 February 2007 and
Resolution4dated 29 June 2007 in CTA Case Nos. 6741, 6800 & 6841. That Decision denied the claim for
tax refund or issuance of tax credit certificates corresponding to petitioner's excess/unutilized input value-

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added tax (VAT) for the 2nd, 3rd and 4th quarters of taxable year 2001. The CTA En Banc Resolution denied
petitioner's motion for reconsideration.

FACTS

Petitioner is a corporation engaged in the business of designing, developing, manufacturing and exporting
integrated circuit components.5 It is a preferred pioneer enterprise registered with the Board of
Investments.6 It is likewise registered with the Bureau of Internal Revenue (BIR) as a VAT taxpayer by
virtue of its sale of goods and services7 with a permit to print accounting documents like sales invoices and
official receipts.8

On 24 July 2001, petitioner filed its 2nd Quarter VAT Return reporting the amount of P765,696,325.68 as
its zero-rated sales.9

Its 3rd Quarter VAT Return filed on 23 October 2001 indicated zero-rated sales in the amount of
P571,812,011.26.10 This amount was increased to P678,418,432.83 in the Amended 3rd Quarter VAT
Return filed on 29 October 2001.11

The 4th Quarter VAT Return filed on 15 January 2002 reported zero-rated sales in the amount of
P1,000,052,659.89.12 This amount remained unchanged in the Amended 4th Quarter VAT Return filed on
22 May 2002.13

Petitioner sought to recover the VAT it paid on imported capital goods for the 2nd quarter of 2001. On 16
October 2001, it filed with the One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center,
Department of Finance, an application for a tax credit/refund in the amount of P9,038,279.56.14

On 4 September 2002, petitioner also filed for a tax credit/refund of the VAT it had paid on imported
capital goods for the 3rd and 4th quarters of 2001 in the amounts of P1,420,813.0415 and
P14,582,023.62,16 respectively.

Because of the continuous inaction by respondent on the administrative claims of petitioner for a tax
credit/refund in the total amount of P25,041,116.22,17 the latter filed separate petitions for review before
the CTA.

CTA Case No. 6741 filed on 30 July 2003 sought to recover P9,038,279.56 for the 2nd quarter of
2001;18 CTA Case No. 6800 filed on 20 October 2003, the amount of P1,420,813.04 for the 3 rdquarter of
2001;19 and CTA Case No. 6841 filed on 30 December 2003, P14,582,023.62 for the 4thquarter of 2001.20

The three cases were consolidated by the CTA Second Division in a Resolution dated 20 February
2004.21 Trial on the merits ensued, and the case was submitted for decision on 23 August 2007.22

RULING OF THE CTA SECOND DIVISION

In a Decision23 dated 5 February 2007, the CTA Second Division dismissed the petitions for lack of merit.

It ruled that pursuant to Section 112 of the National Internal Revenue Code (NIRC), the refund/tax credit of
unutilized input VAT is allowed (a) when the excess input VAT is attributable to zero-rated or effectively
zero-rated sales; and (b) when the excess input VAT is attributable to capital goods purchased by a VAT-
registered person.24

In order to prove zero-rated export sales,25 a VAT-registered person must present the following: (1) the
sales invoice as proof of the sale of goods; (2) the export declaration or bill of lading/airway bill as proof of
actual shipment of the goods from the Philippines to a foreign country; and (3) bank credit advice or
certificate of remittance or any other document proving payment for the goods in acceptable foreign
currency or its equivalent in goods and services.26

The CTA Second Division found that petitioner presented nothing more than a certificate of inward
remittances for the entire year 2001, in compliance with the third requirement only.27 That being the case,
petitioner's reported export sales in the total amount of P2,444,167,418.4028 cannot qualify as VAT zero-
rated sales.29

On the other hand, a taxpayer claiming a refund/tax credit of input VAT paid on purchased capital goods

Page | 61
must prove all of the following: (1) that it is a VAT-registered entity; (2) that it paid input VAT on capital
goods purchased; (3) that its input VAT payments on capital goods were duly supported by VAT invoices
or official receipts; (4) that it did not offset or apply the claimed input VAT payments on capital goods
against any output VAT liability; and (5) that the administrative and judicial claims for a refund were filed
within the two-year prescriptive period.30

The CTA Second Division found that petitioner was able to prove the first and the fifth requisites for the
pertinent quarters of the year 2001.31

However, petitioner was not able to prove the fourth requisite with regard to the claimed input VAT
payments for the 3rd and the 4th quarters of 2001. The evidence purportedly showing that it had not offset or
applied the claimed input VAT payment against any output VAT liability was denied admission as
evidence for being a mere photocopy.32

Petitioner also failed to prove the second and the third requisite with regard to the claimed input VAT
payment for the 2nd quarter of 2001. Specifically, it failed to prove that the purchases were capital goods. 33

For purchases to fall under the definition of capital goods or properties, the following conditions must be
present: (1) the goods or properties have an estimated useful life of more than one year; (2) they are treated
as depreciable assets under Section 29(f) of Revenue Regulations No. 7-95; and (3) they are used directly
or indirectly in the production or sale of taxable goods or services. 34

The CTA Second Division perused the Summary List of Importations on Capital Goods for the 2 ndquarter
of 2001 presented by petitioner and found items therein that could not be considered as depreciable
assets.35 As to the rest of the items, petitioner failed to present the detailed general ledgers and audited
financial statements to show that those goods were capitalized in the books of accounts and subjected to
depreciation.36

Petitioner filed a Motion for Reconsideration, which was denied in the Resolution dated 29 June 2007. 37 It
then filed before the CTA En Banc a petition for review challenging the CTA Second Division Decision
and Resolution.

RULING OF THE CTA EN BANC

The CTA En Banc issued the assailed Decision38 dated 18 January 2008 dismissing the petition for lack of
merit.

It affirmed the finding of the CTA Second Division that petitioner had failed to prove its capital goods
purchases for the 2nd quarter of the year 2001.39 The CTA En Banc emphasized the evidentiary nature of a
claim that a VAT-registered person made capital goods purchases.40 It is necessary to ascertain the
treatment of the purported capital goods as depreciable assets, which can only be determined through the
examination of the detailed general ledgers and audited financial statements, including the person's income
tax return.41 In view of petitioner's lack of evidence on this point, the claim for the refund or the issuance of
tax credit certificates must be denied.

Petitioner's Motion for Reconsideration was denied in the challenged Resolution dated 30 April 2008.42

Issues

Petitioner now comes before us raising the following issues for our consideration:
chanRoblesvirtualLawlibrary
I.

[WHETHER] THE COURT OF TAX APPEALS ERRED IN DENYING [PETITIONER'S] CLAIM FOR
REFUND OF ITS EXCESS / UNUTILIZED INPUT VAT DERIVED FROM IMPORTATION OF
CAPITAL GOODS DUE TO ITS FAILURE TO PROVE THE EXISTENCE OF ZERO-RATED
EXPORT SALES.

II.

[WHETHER] THE COURT OF TAX APPEALS ERRED IN FINDING THAT [PETITIONER] FAILED

Page | 62
TO COMPLY WITH THE REQUIREMENTS OF A VALID CLAIM FOR REFUND / TAX CREDIT OF
INPUT VAT PAID ON ITS IMPORTATION OF CAPITAL GOODS.

III.

[WHETHER] THE COURT OF TAX APPEALS ERRED IN RULING THAT [PETITIONER] FAILED
TO PROVE THAT THE GOODS IMPORTED ARE CAPITAL GOODS

IV.

[WHETHER] THE INPUT VAT ON THE ALLEGED NON-CAPITAL GOODS ARE STILL
REFUNDABLE BECAUSE THEY ARE ATTRIBUTABLE TO THE ZERO RATED SALES OF
[PETITIONER, A 100% EXPORT ENTERPRISE]43ChanRoblesVirtualawlibrary
In the Resolution dated 30 July 2008,44 we required respondent to comment on the petition. The Comment
dated 21 January 200945 was filed by the Office of the Solicitor General as counsel.

OUR RULING

The applicable provision of the NIRC, as amended, is Section 112,46 which provides:
chanRoblesvirtualLawlibrary
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: Provided, however, That in the case of zero-rated sales under Section
106(A)(2)(a)(1), (2) and (B) and Section 108 (B)(1) and (2), the acceptable foreign currency exchange
proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated or
effectively zero-rated sale and also in taxable or exempt sale of goods or properties or services, and the
amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the
transactions, it shall be allocated proportionately on the basis of the volume of sales.

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

(C) Cancellation of VAT Registration. — A person whose registration has been cancelled due to retirement
from or cessation of business, or due to changes in or cessation of status under Section 106(C) of this Code
may, within two (2) years from the date of cancellation, apply for the issuance of a tax credit certificate for
any unused input tax which may be used in payment of his other internal revenue taxes.

(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. — In proper cases, the
Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within
one hundred twenty (120) days from the date of submission of complete documents in support of the
application filed in accordance with [Subsections] (A) [and (B)] hereof.

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer affected
may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration
of the one hundred twenty day-period, appeal the decision or the unacted claim with the Court of
Tax Appeals.

(E) Manner of Giving Refund. — Refunds shall be made upon warrants drawn by the Commissioner or by
his duly authorized representative without the necessity of being countersigned by the Chairman,
Commission on Audit, the provisions of the Administrative Code of 1987 to the contrary notwithstanding:
Provided, That refunds under this paragraph shall be subject to post audit by the Commission on Audit.
(Emphases supplied)
Under the foregoing provision, the administrative claim of a VAT-registered person for the issuance by
respondent of tax credit certificates or the refund of input taxes paid on zero-rated sales or capital goods

Page | 63
imported may be made within two years after the close of the taxable quarter when the sale or
importation/purchase was made.

In the case of petitioner, its administrative claim for the 2nd quarter of the year 2001 was filed on 16
October 2001, well within the two-year period provided by law. The same is true with regard to the
administrative claims for the 3rd and the 4th quarters of 2001, both of which were filed on 4 September
2002.

Upon the filing of an administrative claim, respondent is given a period of 120 days within which to (1)
grant a refund or issue the tax credit certificate for creditable input taxes; or (2) make a full or partial denial
of the claim for a tax refund or tax credit. Failure on the part of respondent to act on the application within
the 120-day period shall be deemed a denial.

Note that the 120-day period begins to run from the date of submission of complete documents supporting
the administrative claim. If there is no evidence showing that the taxpayer was required to submit 47 - or
actually submitted - additional documents after the filing of the administrative claim, it is presumed that the
complete documents accompanied the claim when it was filed.48

Considering that there is no evidence in this case showing that petitioner made later submissions of
documents in support of its administrative claims, the 120-day period within which respondent is allowed
to act on the claims shall be reckoned from 16 October 2001 and 4 September 2002.

Whether respondent rules in favor of or against the taxpayer - or does not act at all on the administrative
claim - within the period of 120 days from the submission of complete documents, the taxpayer may resort
to a judicial claim before the CTA.

Section 7 of Republic Act No. (R.A.) 1125 (An Act Creating the Court of Tax Appeals), as amended,
provides:
chanRoblesvirtualLawlibrary
SECTION 7. Jurisdiction. — The CTA shall exercise:

a. Exclusive appellate jurisdiction to review by appeal, as herein provided:

1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds
of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under
the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue;

2. Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds
of internal revenue taxes, fees or other charges, penalties in relations thereto, or other matters arising under
the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where
the National Internal Revenue Code provides a specific period of action, in which case the inaction
shall be deemed a denial; (Emphasis supplied)
The judicial claim shall be filed within a period of 30 days after the receipt of respondent's decision or
ruling or after the expiration of the 120-day period, whichever is sooner.49

Aside from a specific exception to the mandatory and jurisdictional nature of the periods provided by the
law,50 any claim filed in a period less than or beyond the 120+30 days provided by the NIRC is outside the
jurisdiction of the CTA.51

As shown by the table below, the judicial claims of petitioner were filed beyond the 120+30 day period:
chanRoblesvirtualLawlibrary
Taxable End of the
Administrative End of the 30- Judicial Number of
Quarter of 120-day
Claim Filed day Period Claim Filed Days Late
2001 Period

13 February
2nd 16 October 2001 15 March 2002 30 July 2003 502 days
2002

1 February 20 October
3rd 4 September 2002 2 January 2003 261 days
2003 2003

Page | 64
 1 February 30 December
4th 4 September 2002 2 January 2003 332 days
2003 2003
The judicial claim for the 4th quarter of 2001, while filed within the period 10 December 2003 up to 6
October 2010, cannot find solace in BIR Ruling No. DA-489-03. The general interpretative rule allowed
the premature filing of judicial claims by providing 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."52 The rule certainly did not allow the filing of a judicial claim long after the expiration of the
120+30 day period.53

As things stood, the CTA had no jurisdiction to act upon, take cognizance of, and render judgment upon the
petitions for review filed by petitioner. For having been rendered without jurisdiction, the decision of the
CTA Second Division in this case - and consequently, the decision of the CTA En Banc - is a total nullity
that creates no rights and produces no effect.54

Section 19 of R.A. 1125 provides that parties adversely affected by a decision or ruling of the CTA En
Banc may file before us a verified petition for review on certiorari pursuant to Rule 45 of the 1997 Rules of
Civil Procedure. In this case, the assailed CTA rulings are not decisions in contemplation of law 55 that can
serve as the subject of this Court's exercise of its power of review.

Given the foregoing, there is no reason for this Court to rule upon the issues raised by petitioner in the
instant petition.chanrobleslaw

WHEREFORE, this Court hereby SETS ASIDE the assailed Court of Tax Appeals En Banc Decision
dated 18 January 2008 and Resolution dated 30 April 2008 in CTA EB No. 298; and the Court of Tax
Appeals Second Division Decision dated 5 February 2007 and Resolution dated 29 June 2007 in CTA
CaseNos. 6741, 6800 & 6841.

The judicial claims filed by petitioner with the Court of Tax Appeals for the refund of the input value-
added tax paid on imported capital goods for the 2nd, 3rd and 4th quarters of 2001 are DISMISSEDfor lack
of jurisdiction.

SO ORDERED.

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