G.R. No.
L-66653 June 19, 1986 COMMISSIONER OF INTERNAL REVENUE, petitioner, On June 27, 1983, respondent court rendered its Decision, the dispositive portion of which
vs.
BURROUGHS LIMITED AND THE COURT OF TAX APPEALS, respondents. Sycip, Salazar,
Feliciano & Hernandez Law Office for private respondent. PARAS, J.:
Petition for certiorari to review and set aside the Decision dated June 27, 1983 of respondent
Court of Tax Appeals in its C.T.A. Case No. 3204, entitled "Burroughs Limited vs.
Commissioner of Internal Revenue" which ordered petitioner Commissioner of Internal
Revenue to grant in favor of private respondent Burroughs Limited, tax credit in the sum of
P172,058.90, representing erroneously overpaid branch profit remittance tax.
Burroughs Limited is a foreign corporation authorized to engage in trade or business in the
Philippines through a branch office located at De la Rosa corner Esteban Streets, Legaspi
Village, Makati, Metro Manila.
Sometime in March 1979, said branch office applied with the Central Bank for authority to
remit to its parent company abroad, branch profit amounting to P7,647,058.00. Thus, on
March 14, 1979, it paid the 15% branch profit remittance tax, pursuant to Sec. 24 (b) (2) (ii)
and remitted to its head office the amount of P6,499,999.30 computed as follows:
Amount applied for remittance................................ P7,647,058.00
Deduct: 15% branch profit
remittance tax ..............................................1,147,058.70
Net amount actually remitted.................................. P6,499,999.30
Claiming that the 15% profit remittance tax should have been computed on the basis of the
amount actually remitted (P6,499,999.30) and not on the amount before profit remittance
tax (P7,647,058.00), private respondent filed on December 24, 1980, a written claim for the
refund or tax credit of the amount of P172,058.90 representing alleged overpaid branch
profit remittance tax, computed as follows:
Profits actually remitted .........................................P6,499,999.30
Remittance tax rate .......................................................15%
Branch profit remittance tax- due thereon ......................................................P 974,999.89
Branch profit remittance tax paid .............................................................Pl,147,058.70
Less: Branch profit remittance tax as above computed.................................................
974,999.89
Total amount refundable........................................... P172,058.81
On February 24, 1981, private respondent filed with respondent court, a petition for review,
docketed as C.T.A. Case No. 3204 for the recovery of the above-mentioned amount of
P172,058.81.
reads—
ACCORDINGLY, respondent Commission of Internal Revenue is hereby ordered to grant a tax
credit in favor of petitioner Burroughs Limited the amount of P 172,058.90. Without
pronouncement as to costs. SO ORDERED.
Unable to obtain a reconsideration from the aforesaid decision, petitioner filed the instant
petition before this Court with the prayers as herein earlier stated upon the sole issue of
whether the tax base upon which the 15% branch profit remittance tax shall be imposed
under the provisions of section 24(b) of the Tax Code, as amended, is the amount applied for
remittance on the profit actually remitted after deducting the 15% profit remittance tax.
Stated differently is private respondent Burroughs Limited legally entitled to a refund of the
aforementioned amount of P172,058.90.
We rule in the affirmative. The pertinent provision of the National Revenue Code is Sec. 24
(b) (2) (ii) which states:
Sec. 24. Rates of tax on corporations....
(b) Tax on foreign corporations. ...
(2) (ii) Tax on branch profits remittances. Any profit remitted abroad by a branch to its head
office shall be subject to a tax of fifteen per cent (15 %) ...
In a Bureau of Internal Revenue ruling dated January 21, 1980 by then Acting Commissioner
of Internal Revenue Hon. Efren I. Plana the aforequoted provision had been interpreted to
mean that "the tax base upon which the 15% branch profit remittance tax ... shall be
imposed...(is) the profit actually remitted abroad and not on the total branch profits out of
which the remittance is to be made. " The said ruling is hereinbelow quoted as follows:
In reply to your letter of November 3, 1978, relative to your query as to the tax base upon
which the 15% branch profits remittance tax provided for under Section 24 (b) (2) of the
1977 Tax Code shall be imposed, please be advised that the 15% branch profit tax shall be
imposed on the branch profits actually remitted abroad and not on the total branch profits
out of which the remittance is to be made.
Please be guided accordingly.
Applying, therefore, the aforequoted ruling, the claim of private respondent that it made an
overpayment in the amount of P172,058.90 which is the difference between the remittance
tax actually paid of Pl,147,058.70 and the remittance tax that should have been paid of
P974,999,89, computed as follows
Profits actually remitted......................................... P6,499,999.30
Remittance tax rate.............................................................. 15%
Remittance tax due................................................... P974,999.89
is well-taken. As correctly held by respondent Court in its assailed decision-
Respondent concedes at least that in his ruling dated January 21, 1980 he held that under
Section 24 (b) (2) of the Tax Code the 15% branch profit remittance tax shall be imposed on
the profit actually remitted abroad and not on the total branch profit out of which the
remittance is to be made. Based on such ruling petitioner should have paid only the amount
of P974,999.89 in remittance tax computed by taking the 15% of the profits of P6,499,999.89
in remittance tax actually remitted to its head office in the United States, instead of
Pl,147,058.70, on its net profits of P7,647,058.00. Undoubtedly, petitioner has overpaid its
branch profit remittance tax in the amount of P172,058.90.
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. FORTUNE TOBACCO CORPORATION,
Respondent. D E C I S I O N TINGA, J.:
Simple and uncomplicated is the central issue involved, yet whopping is the amount at stake
in this case.
After much wrangling in the Court of Tax Appeals (CTA) and the Court of Appeals, Fortune
Tobacco Corporation (Fortune Tobacco) was granted a tax refund or tax credit representing
specific taxes erroneously collected from its tobacco products. The tax refund is being re-
claimed by the Commissioner of Internal Revenue (Commissioner) in this petition.

Petitioner contends that respondent is no longer entitled to a refund because Memorandum
Circular No. 8-82 dated March 17, 1982 had revoked and/or repealed the BIR ruling of
January 21, 1980. The said memorandum circular states—
Considering that the 15% branch profit remittance tax is imposed and collected at source,
necessarily the tax base should be the amount actually applied for by the branch with the
Central Bank of the Philippines as profit to be remitted abroad.
Petitioner's aforesaid contention is without merit. What is applicable in the case at bar is still
the Revenue Ruling of January 21, 1980 because private respondent Burroughs Limited paid
the branch profit remittance tax in question on March 14, 1979. Memorandum Circular No.
8-82 dated March 17, 1982 cannot be given retroactive effect in the light of Section 327 of
the National Internal Revenue Code which provides-
The following undisputed facts, summarized by the Court of Appeals, are quoted in the
assailed Decision1 dated 28 September 2004:
CAG.R. SP No. 80675
xxx
Petitioner2 is a domestic corporation duly organized and existing under and by virtue of the
laws of the Republic of the Philippines, with principal address at Fortune Avenue, Parang,
Marikina City.
Petitioner is the manufacturer/producer of, among others, the following cigarette brands,
with tax rate classification based on net retail price prescribed by Annex "D" to R.A. No. 4280,
to wit:

Sec. 327. Non-retroactivity of rulings. Any revocation, modification, or reversal of any of the
Brand Tax Rate
rules and regulations promulgated in accordance with the preceding section or any of the
rulings or circulars promulgated by the Commissioner shag not be given retroactive
application if the revocation, modification, or reversal will be prejudicial to the taxpayer Champion M 100 P1.00
except in the following cases (a) where the taxpayer deliberately misstates or omits material
facts from his return or in any document required of him by the Bureau of Internal Revenue; Salem M 100 P1.00
(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. (ABS-CBN Broadcasting Corp. v. CTA, 108 SCRA 151-152) Salem M King P1.00

The prejudice that would result to private respondent Burroughs Limited by a retroactive
Camel F King P1.00
application of Memorandum Circular No. 8-82 is beyond question for it would be deprived of
the substantial amount of P172,058.90. And, insofar as the enumerated exceptions are
concerned, admittedly, Burroughs Limited does not fall under any of them. Camel Lights Box 20's P1.00

WHEREFORE, the assailed decision of respondent Court of Tax Appeals is hereby AFFIRMED.
No pronouncement as to costs. Camel Filters Box 20's P1.00

SO ORDERED.
Winston F Kings P5.00
[G.R. NOS. 167274-75 : July 21, 2008]
Winston Lights P5.00
Immediately prior to January 1, 1997, the above-mentioned cigarette brands were subject to
ad valorem tax pursuant to then Section 142 of the Tax Code of 1977, as amended. However,
on January 1, 1997, R.A. No. 8240 took effect whereby a shift from the ad valorem tax (AVT)
system to the specific tax system was made and subjecting the aforesaid cigarette brands to
specific tax under [S]ection 142 thereof, now renumbered as Sec. 145 of the Tax Code of
1997, pertinent provisions of which are quoted thus:
Section 145. Cigars and Cigarettes -
(A) Cigars. - There shall be levied, assessed and collected on cigars a tax of One peso (P1.00)
per cigar.
"(B) Cigarettes packed by hand. - There shall be levied, assessesed and collected on
cigarettes packed by hand a tax of Forty centavos (P0.40) per pack.
(C) Cigarettes packed by machine. - There shall be levied, assessed and collected on
cigarettes packed by machine a tax at the rates prescribed below:
(1) If the net retail price (excluding the excise tax and the value-added tax) is above Ten
pesos (P10.00) per pack, the tax shall be Twelve (P12.00) per pack;
(2) If the net retail price (excluding the excise tax and the value added tax) exceeds Six pesos
and Fifty centavos (P6.50) but does not exceed Ten pesos (P10.00) per pack, the tax shall be
Eight Pesos (P8.00) per pack.
(3) If the net retail price (excluding the excise tax and the value-added tax) is Five pesos
(P5.00) but does not exceed Six Pesos and fifty centavos (P6.50) per pack, the tax shall be
Five pesos (P5.00) per pack;
(4) If the net retail price (excluding the excise tax and the value-added tax) is below Five
pesos (P5.00) per pack, the tax shall be One peso (P1.00) per pack;
The rates of excise tax on cigars and cigarettes under paragraphs (1), (2) (3) and (4) hereof,
shall be increased by twelve percent (12%) on January 1, 2000. (Emphasis
supplied)cralawlibrary
New brands shall be classified according to their current net retail price.
For the above purpose, 'net retail price' shall mean the price at which the cigarette is sold on
retail in twenty (20) major supermarkets in Metro Manila (for brands of cigarettes marketed
nationally), excluding the amount intended to cover the applicable excise tax and value-
added tax. For brands which are marketed only outside Metro [M]anila, the 'net retail price'
shall mean the price at which the cigarette is sold in five (5) major supermarkets in the region
excluding the amount intended to cover the applicable excise tax and the value-added tax.
The classification of each brand of cigarettes based on its average retail price as of October 1,
1996, as set forth in Annex "D," shall remain in force until revised by Congress.
Variant of a brand shall refer to a brand on which a modifier is prefixed and/or suffixed to
the root name of the brand and/or a different brand which carries the same logo or design of
the existing brand.
To implement the provisions for a twelve percent (12%) increase of excise tax on, among
others, cigars and cigarettes packed by machines by January 1, 2000, the Secretary of
Finance, upon recommendation of the respondent Commissioner of Internal Revenue, issued
Revenue Regulations No. 17-99, dated December 16, 1999, which provides the increase on
the applicable tax rates on cigar and cigarettes as follows:
PRESENT SPECIFIC TAX NEW SPECIFIC TAX
SECTION ARTICLES RATE PRIOR TO JAN. 1, RATE EFFECTIVE JAN.
2000 1, 2000

"Variants of existing brands of cigarettes which are introduced in the domestic market after 145 (A) P1.00/cigar P1.12/cigar
the effectivity of R.A. No. 8240 shall be taxed under the highest classification of any variant of
that brand. (B)Cigarettes packed by
machine
The excise tax from any brand of cigarettes within the next three (3) years from the
effectivity of R.A. No. 8240 shall not be lower than the tax, which is due from each brand on
October 1, 1996. Provided, however, that in cases were (sic) the excise tax rate imposed in (1) Net retail price (excluding P12.00/pack P13.44/ pack
paragraphs (1), (2), (3) and (4) hereinabove will result in an increase in excise tax of more VAT and excise) exceeds
than seventy percent (70%), for a brand of cigarette, the increase shall take effect in two P10.00 per pack
tranches: fifty percent (50%) of the increase shall be effective in 1997 and one hundred
percent (100%) of the increase shall be effective in 1998.
(2) Exceeds P10.00 per pack P8.00/pack P8.96/pack
Duly registered or existing brands of cigarettes or new brands thereof packed by machine
shall only be packed in twenties.

(3) Net retail price (excluding
VAT and excise) is P5.00 to
P6.50 per pack
9. The last paragraph of Section 1 of Revenue Regulation[s] [No.]17-99 is a valid
P5.00/pack P5.60/pack
implementing regulation which has the force and effect of law."
CA G.R. SP No. 83165

(4) Net Retail Price (excluding P1.00/pack P1.12/pack
VAT and excise) is below
P5.00 per pack
Revenue Regulations No. 17-99 likewise provides in the last paragraph of Section 1 thereof,
"(t)hat the new specific tax rate for any existing brand of cigars, cigarettes packed by
machine, distilled spirits, wines and fermented liquor shall not be lower than the excise tax
that is actually being paid prior to January 1, 2000."
For the period covering January 1-31, 2000, petitioner allegedly paid specific taxes on all
brands manufactured and removed in the total amounts of P585,705,250.00.
On February 7, 2000, petitioner filed with respondent's Appellate Division a claim for refund
or tax credit of its purportedly overpaid excise tax for the month of January 2000 in the
amount of P35,651,410.00
The petition contains essentially similar facts, except that the said case questions the CTA's
December 4, 2003 decision in CTA Case No. 6612 granting respondent's3 claim for refund of
the amount of P355,385,920.00 representing erroneously or illegally collected specific taxes
covering the period January 1, 2002 to December 31, 2002, as well as its March 17, 2004
Resolution denying a reconsideration thereof.
xxx
In both CTA Case Nos. 6365 & 6383 and CTA No. 6612, the Court of Tax Appeals reduced the
issues to be resolved into two as stipulated by the parties, to wit: (1) Whether or not the last
paragraph of Section 1 of Revenue Regulation[s] [No.] 17-99 is in accordance with the
pertinent provisions of Republic Act [No.] 8240, now incorporated in Section 145 of the Tax
Code of 1997; and (2) Whether or not petitioner is entitled to a refund of P35,651,410.00 as
alleged overpaid excise tax for the month of January 2000.
xxx

On June 21, 2001, petitioner filed with respondent's Legal Service a letter dated June 20,
2001 reiterating all the claims for refund/tax credit of its overpaid excise taxes filed on
various dates, including the present claim for the month of January 2000 in the amount of
P35,651,410.00.
As there was no action on the part of the respondent, petitioner filed the instant Petition for
Review with this Court on December 11, 2001, in order to comply with the two-year period
for filing a claim for refund.
In his answer filed on January 16, 2002, respondent raised the following Special and
Affirmative Defenses;
4. Petitioner's alleged claim for refund is subject to administrative routinary
investigation/examination by the Bureau;
Hence, the respondent CTA in its assailed October 21, 2002 [twin] Decisions[s] disposed in
CTA Case Nos. 6365 & 6383:
WHEREFORE, in view of the foregoing, the court finds the instant petition meritorious and in
accordance with law. Accordingly, respondent is hereby ORDERED to REFUND to petitioner
the amount of P35,651.410.00 representing erroneously paid excise taxes for the period
January 1 to January 31, 2000.
SO ORDERED.
Herein petitioner sought reconsideration of the above-quoted decision. In [twin]
resolution[s] [both] dated July 15, 2003, the Tax Court, in an apparent change of heart,
granted the petitioner's consolidated motions for reconsideration, thereby denying the
respondent's claim for refund.

5. The amount of P35,651,410 being claimed by petitioner as alleged overpaid excise tax for
the month of January 2000 was not properly documented.
6. In an action for tax refund, the burden of proof is on the taxpayer to establish its right to
refund, and failure to sustain the burden is fatal to its claim for refund/credit.
7. Petitioner must show that it has complied with the provisions of Section 204(C) in relation
[to] Section 229 of the Tax Code on the prescriptive period for claiming tax refund/credit;
8. Claims for refund are construed strictly against the claimant for the same partake of tax
exemption from taxation; andcralawlibrary
However, on consolidated motions for reconsideration filed by the respondent in CTA Case
Nos. 6363 and 6383, the July 15, 2002 resolution was set aside, and the Tax Court ruled, this
time with a semblance of finality, that the respondent is entitled to the refund claimed.
Hence, in a resolution dated November 4, 2003, the tax court reinstated its December 21,
2002 Decision and disposed as follows:
WHEREFORE, our Decisions in CTA Case Nos. 6365 and 6383 are hereby REINSTATED.
Accordingly, respondent is hereby ORDERED to REFUND petitioner the total amount of
P680,387,025.00 representing erroneously paid excise taxes for the period January 1, 2000 to
January 31, 2000 and February 1, 2000 to December 31, 2001.

SO ORDERED.
Meanwhile, on December 4, 2003, the Court of Tax Appeals rendered decision in CTA Case
No. 6612 granting the prayer for the refund of the amount of P355,385,920.00 representing
overpaid excise tax for the period covering January 1, 2002 to December 31, 2002. The tax
court disposed of the case as follows:
IN VIEW OF THE FOREGOING, the Petition for Review is GRANTED. Accordingly, respondent is
hereby ORDERED to REFUND to petitioner the amount of P355,385,920.00 representing
overpaid excise tax for the period covering January 1, 2002 to December 31, 2002.
SO ORDERED.
Petitioner sought reconsideration of the decision, but the same was denied in a Resolution
dated March 17, 2004.4 (Emphasis supplied) (Citations omitted) chanroblesvirtuallawlibrary
The Commissioner appealed the aforesaid decisions of the CTA. The petition questioning the
grant of refund in the amount of P680,387,025.00 was docketed as CA-G.R. SP No. 80675,
whereas that assailing the grant of refund in the amount of P355,385,920.00 was docketed as
CA-G.R. SP No. 83165. The petitions were consolidated and eventually denied by the Court of
Appeals. The appellate court also denied reconsideration in its Resolution5 dated 1 March
2005.
In its Memorandum6 22 dated November 2006, filed on behalf of the Commissioner, the
Office of the Solicitor General (OSG) seeks to convince the Court that the literal
interpretation given by the CTA and the Court of Appeals of Section 145 of the Tax Code of
1997 (Tax Code) would lead to a lower tax imposable on 1 January 2000 than that imposable
during the transition period. Instead of an increase of 12% in the tax rate effective on 1
January 2000 as allegedly mandated by the Tax Code, the appellate court's ruling would
result in a significant decrease in the tax rate by as much as 66%.
The OSG argues that Section 145 of the Tax Code admits of several interpretations, such as:
1. That by January 1, 2000, the excise tax on cigarettes should be the higher tax imposed
under the specific tax system and the tax imposed under the ad valorem tax system plus the
12% increase imposed by par. 5, Sec. 145 of the Tax Code;
2. The increase of 12% starting on January 1, 2000 does not apply to the brands of cigarettes
listed under Annex "D" referred to in par. 8, Sec. 145 of the Tax Code;
3. The 12% increment shall be computed based on the net retail price as indicated in par. C,
sub-par. (1) - (4), Sec. 145 of the Tax Code even if the resulting figure will be lower than the
amount already being paid at the end of the transition period. This is the interpretation
followed by both the CTA and the Court of Appeals.7
This being so, the interpretation which will give life to the legislative intent to raise revenue
should govern, the OSG stresses.
Finally, the OSG asserts that a tax refund is in the nature of a tax exemption and must,
therefore, be construed strictly against the taxpayer, such as Fortune Tobacco.
In its Memorandum8 dated 10 November 2006, Fortune Tobacco argues that the CTA and the
Court of Appeals merely followed the letter of the law when they ruled that the basis for the
12% increase in the tax rate should be the net retail price of the cigarettes in the market as
outlined in paragraph C, sub paragraphs (1) - (4), Section 145 of the Tax Code. The
Commissioner allegedly has gone beyond his delegated rule-making power when he
promulgated, enforced and implemented Revenue Regulation No. 17-99, which effectively
created a separate classification for cigarettes based on the excise tax "actually being paid
prior to January 1, 2000."9
It should be mentioned at the outset that there is no dispute between the fact of payment of
the taxes sought to be refunded and the receipt thereof by the Bureau of Internal Revenue
(BIR). There is also no question about the mathematical accuracy of Fortune Tobacco's claim
since the documentary evidence in support of the refund has not been controverted by the
revenue agency. Likewise, the claims have been made and the actions have been filed within
the two (2)-year prescriptive period provided under Section 229 of the Tax Code.
The power to tax is inherent in the State, such power being inherently legislative, based on
the principle that taxes are a grant of the people who are taxed, and the grant must be made
by the immediate representatives of the people; and where the people have laid the power,
there it must remain and be exercised.10
This entire controversy revolves around the interplay between Section 145 of the Tax Code
and Revenue Regulation 17-99. The main issue is an inquiry into whether the revenue
regulation has exceeded the allowable limits of legislative delegation.
For ease of reference, Section 145 of the Tax Code is again reproduced in full as follows:
Section 145. Cigars and Cigarettes -
(A) Cigars. There shall be levied, assessed and collected on cigars a tax of One peso (P1.00)
per cigar.
(B). Cigarettes packed by hand. There shall be levied, assessed and collected on cigarettes
packed by hand a tax of Forty centavos (P0.40) per pack.
(C) Cigarettes packed by machine. There shall be levied, assessed and collected on cigarettes
packed by machine a tax at the rates prescribed below:
(1) If the net retail price (excluding the excise tax and the value-added tax) is above Ten
pesos (P10.00) per pack, the tax shall be Twelve pesos (P12.00) per pack;
(2) If the net retail price (excluding the excise tax and the value added tax) exceeds Six pesos
and Fifty centavos (P6.50) but does not exceed Ten pesos (P10.00) per pack, the tax shall be
Eight Pesos (P8.00) per pack.
(3) If the net retail price (excluding the excise tax and the value-added tax) is Five pesos
(P5.00) but does not exceed Six Pesos and fifty centavos (P6.50) per pack, the tax shall be
Five pesos (P5.00) per pack;
(4) If the net retail price (excluding the excise tax and the value-added tax) is below Five
145 (A) P1.00/cigar P1.12/cigar
pesos (P5.00) per pack, the tax shall be One peso (P1.00) per pack;

Variants of existing brands of cigarettes which are introduced in the domestic market after (B)Cigarettes packed by
the effectivity of R.A. No. 8240 shall be taxed under the highest classification of any variant of Machine
that brand.

The excise tax from any brand of cigarettes within the next three (3) years from the (1) Net Retail Price (excluding P12.00/pack P13.44/pack
effectivity of R.A. No. 8240 shall not be lower than the tax, which is due from each brand on VAT and Excise) exceeds
October 1, 1996. Provided, however, That in cases where the excise tax rates imposed in P10.00 per pack
paragraphs (1), (2), (3) and (4) hereinabove will result in an increase in excise tax of more
than seventy percent (70%), for a brand of cigarette, the increase shall take effect in two
(2) Net Retail Price (excluding P8.00/pack P8.96/pack
tranches: fifty percent (50%) of the increase shall be effective in 1997 and one hundred
VAT and Excise) is P6.51 up to
percent (100%) of the increase shall be effective in 1998.
P10.00 per pack
Duly registered or existing brands of cigarettes or new brands thereof packed by machine
shall only be packed in twenties. (3) Net Retail Price (excluding P5.00/pack P5.60/pack
VAT and excise) is P5.00 to
The rates of excise tax on cigars and cigarettes under paragraphs (1), (2) (3) and (4) hereof,
P6.50 per pack
shall be increased by twelve percent (12%) on January 1, 2000.

New brands shall be classified according to their current net retail price. (4) Net Retail Price (excluding P1.00/pack P1.12/pack
VAT and excise) is below
For the above purpose, 'net retail price' shall mean the price at which the cigarette is sold on
P5.00 per pack)
retail in twenty (20) major supermarkets in Metro Manila (for brands of cigarettes marketed
nationally), excluding the amount intended to cover the applicable excise tax and value-
added tax. For brands which are marketed only outside Metro Manila, the 'net retail price' This table reflects Section 145 of the Tax Code insofar as it mandates a 12% increase effective
shall mean the price at which the cigarette is sold in five (5) major intended to cover the on 1 January 2000 based on the taxes indicated under paragraph C, sub-paragraph (1) - (4).
applicable excise tax and the value-added tax. However, Revenue Regulation No. 17-99 went further and added that "[T]he new specific tax
rate for any existing brand of cigars, cigarettes packed by machine, distilled spirits, wines and
The classification of each brand of cigarettes based on its average retail price as of October 1, fermented liquor shall not be lower than the excise tax that is actually being paid prior to
1996, as set forth in Annex "D," shall remain in force until revised by Congress. January 1, 2000."13

Variant of a brand' shall refer to a brand on which a modifier is prefixed and/or suffixed to Parenthetically, Section 145 states that during the transition period, i.e., within the next
the root name of the brand and/or a different brand which carries the same logo or design of three (3) years from the effectivity of the Tax Code, the excise tax from any brand of
the existing brand.11 (Emphasis supplied)cralawlibrary cigarettes shall not be lower than the tax due from each brand on 1 October 1996. This
qualification, however, is conspicuously absent as regards the 12% increase which is to be
Revenue Regulation 17-99, which was issued pursuant to the unquestioned authority of the applied on cigars and cigarettes packed by machine, among others, effective on 1 January
Secretary of Finance to promulgate rules and regulations for the effective implementation of 2000. Clearly and unmistakably, Section 145 mandates a new rate of excise tax for cigarettes
the Tax Code,12 interprets the above-quoted provision and reflects the 12% increase in excise packed by machine due to the 12% increase effective on 1 January 2000 without regard to
taxes in the following manner: whether the revenue collection starting from this period may turn out to be lower than that
collected prior to this date.
PRESENT SPECIFIC TAX NEW SPECIFIC TAX
SECTION DESCRIPTION OF ARTICLES RATES PRIOR TO JAN. RATE Effective Jan.. By adding the qualification that the tax due after the 12% increase becomes effective shall
1, 2000 1, 2000 not be lower than the tax actually paid prior to 1 January 2000, Revenue Regulation No. 17-
99 effectively imposes a tax which is the higher amount between the ad valorem tax being
paid at the end of the three (3)-year transition period and the specific tax under paragraph C,
sub-paragraph (1) - (4), as increased by 12% a situation not supported by the plain wording of
Section 145 of the Tax Code.
This is not the first time that national revenue officials had ventured in the area of
unauthorized administrative legislation.
In Commissioner of Internal Revenue v. Reyes,14 respondent was not informed in writing of
the law and the facts on which the assessment of estate taxes was made pursuant to Section
228 of the 1997 Tax Code, as amended by Republic Act (R.A.) No. 8424. She was merely
notified of the findings by the Commissioner, who had simply relied upon the old provisions
of the law and Revenue Regulation No. 12-85 which was based on the old provision of the
law. The Court held that in case of discrepancy between the law as amended and the
implementing regulation based on the old law, the former necessarily prevails. The law must
still be followed, even though the existing tax regulation at that time provided for a different
procedure.15
In Commissioner of Internal Revenue v. Central Luzon Drug Corporation,16 the tax authorities
gave the term "tax credit" in Sections 2(i) and 4 of Revenue Regulation 2-94 a meaning
utterly disparate from what R.A. No. 7432 provides. Their interpretation muddled up the
intent of Congress to grant a mere discount privilege and not a sales discount. The Court,
striking down the revenue regulation, held that an administrative agency issuing regulations
may not enlarge, alter or restrict the provisions of the law it administers, and it cannot
engraft additional requirements not contemplated by the legislature. The Court emphasized
that tax administrators are not allowed to expand or contract the legislative mandate and
that the "plain meaning rule" or verba legis in statutory construction should be applied such
that where the words of a statute are clear, plain and free from ambiguity, it must be given
its literal meaning and applied without attempted interpretation.
As we have previously declared, rule-making power must be confined to details for regulating
the mode or proceedings in order to carry into effect the law as it has been enacted, and it
cannot be extended to amend or expand the statutory requirements or to embrace matters
not covered by the statute. Administrative regulations must always be in harmony with the
provisions of the law because any resulting discrepancy between the two will always be
resolved in favor of the basic law.17
In Commissioner of Internal Revenue v. Michel J. Lhuillier Pawnshop, Inc.,18 Commissioner
Jose Ong issued Revenue Memorandum Order (RMO) No. 15-91, as well as the clarificatory
Revenue Memorandum Circular (RMC) 43-91, imposing a 5% lending investor's tax under the
1977 Tax Code, as amended by Executive Order (E.O.) No. 273, on pawnshops. The
Commissioner anchored the imposition on the definition of lending investors provided in the
1977 Tax Code which, according to him, was broad enough to include pawnshop operators.
However, the Court noted that pawnshops and lending investors were subjected to different
tax treatments under the Tax Code prior to its amendment by the executive order; that
Congress never intended to treat pawnshops in the same way as lending investors; and that
the particularly involved section of the Tax Code explicitly subjected lending investors and
dealers in securities only to percentage tax. And so the Court affirmed the invalidity of the
challenged circulars, stressing that "administrative issuances must not override, supplant or
modify the law, but must remain consistent with the law they intend to carry out."19
In Philippine Bank of Communications v. Commissioner of Internal Revenue,20 the then acting
Commissioner issued RMC 7-85, changing the prescriptive period of two years to ten years
for claims of excess quarterly income tax payments, thereby creating a clear inconsistency
with the provision of Section 230 of the 1977 Tax Code. The Court nullified the circular, ruling
that the BIR did not simply interpret the law; rather it legislated guidelines contrary to the
statute passed by Congress. The Court held:
It bears repeating that Revenue memorandum-circulars are considered administrative rulings
(in the sense of more specific and less general interpretations of tax laws) which are issued
from time to time by the Commissioner of Internal Revenue. It is widely accepted that the
interpretation placed upon a statute by the executive officers, whose duty is to enforce it, is
entitled to great respect by the courts. Nevertheless, such interpretation is not conclusive
and will be ignored if judicially found to be erroneous. Thus, courts will not countenance
administrative issuances that override, instead of remaining consistent and in harmony with,
the law they seek to apply and implement.21
In Commissioner of Internal Revenue v. CA, et al.,22 the central issue was the validity of RMO
4-87 which had construed the amnesty coverage under E.O. No. 41 (1986) to include only
assessments issued by the BIR after the promulgation of the executive order on 22 August
1986 and not assessments made to that date. Resolving the issue in the negative, the Court
held:
x x x all such issuances must not override, but must remain consistent and in harmony with,
the law they seek to apply and implement. Administrative rules and regulations are intended
to carry out, neither to supplant nor to modify, the law.23
xxx
If, as the Commissioner argues, Executive Order No. 41 had not been intended to include
1981-1985 tax liabilities already assessed (administratively) prior to 22 August 1986, the law
could have simply so provided in its exclusionary clauses. It did not. The conclusion is
unavoidable, and it is that the executive order has been designed to be in the nature of a
general grant of tax amnesty subject only to the cases specifically excepted by it.24
In the case at bar, the OSG's argument that by 1 January 2000, the excise tax on cigarettes
should be the higher tax imposed under the specific tax system and the tax imposed under
the ad valorem tax system plus the 12% increase imposed by paragraph 5, Section 145 of the
Tax Code, is an unsuccessful attempt to justify what is clearly an impermissible incursion into
the limits of administrative legislation. Such an interpretation is not supported by the clear
language of the law and is obviously only meant to validate the OSG's thesis that Section 145
of the Tax Code is ambiguous and admits of several interpretations.
The contention that the increase of 12% starting on 1 January 2000 does not apply to the
brands of cigarettes listed under Annex "D" is likewise unmeritorious, absurd even.
Paragraph 8, Section 145 of the Tax Code simply states that, "[T]he classification of each
brand of cigarettes based on its average net retail price as of October 1, 1996, as set forth in
Annex 'D', shall remain in force until revised by Congress." This declaration certainly does not
lend itself to the interpretation given to it by the OSG. As plainly worded, the average net
retail prices of the listed brands under Annex "D," which classify cigarettes according to their
net retail price into low, medium or high, obviously remain the bases for the application of
the increase in excise tax rates effective on 1 January 2000.
The foregoing leads us to conclude that Revenue Regulation No. 17-99 is indeed indefensibly
flawed. The Commissioner cannot seek refuge in his claim that the purpose behind the
passage of the Tax Code is to generate additional revenues for the government. Revenue
generation has undoubtedly been a major consideration in the passage of the Tax Code.
However, as borne by the legislative record,25 the shift from the ad valorem system to the
specific tax system is likewise meant to promote fair competition among the players in the
industries concerned, to ensure an equitable distribution of the tax burden and to simplify
tax administration by classifying cigarettes, among others, into high, medium and low-priced
based on their net retail price and accordingly graduating tax rates.
At any rate, this advertence to the legislative record is merely gratuitous because, as we have
held, the meaning of the law is clear on its face and free from the ambiguities that the
Commissioner imputes. We simply cannot disregard the letter of the law on the pretext of
pursuing its spirit.26
Finally, the Commissioner's contention that a tax refund partakes the nature of a tax
exemption does not apply to the tax refund to which Fortune Tobacco is entitled. There is
parity between tax refund and tax exemption only when the former is based either on a tax
exemption statute or a tax refund statute. Obviously, that is not the situation here. Quite the
contrary, Fortune Tobaccos claim for refund is premised on its erroneous payment of the tax,
or better still the government's exaction in the absence of a law.
Tax exemption is a result of legislative grace. And he who claims an exemption from the
burden of taxation must justify his claim by showing that the legislature intended to exempt
him by words too plain to be mistaken.27 The rule is that tax exemptions must be strictly
construed such that the exemption will not be held to be conferred unless the terms under
which it is granted clearly and distinctly show that such was the intention.28
A claim for tax refund may be based on statutes granting tax exemption or tax refund. In such
case, the rule of strict interpretation against the taxpayer is applicable as the claim for refund
partakes of the nature of an exemption, a legislative grace, which cannot be allowed unless
granted in the most explicit and categorical language. The taxpayer must show that the
legislature intended to exempt him from the tax by words too plain to be mistaken.29
Tax refunds (or tax credits), on the other hand, are not founded principally on legislative
grace but on the legal principle which underlies all quasi-contracts abhorring a person's
unjust enrichment at the expense of another.30 The dynamic of erroneous payment of tax fits
to a tee the prototypic quasi-contract, solutio indebiti, which covers not only mistake in fact
but also mistake in law.31
The Government is not exempt from the application of solutio indebiti.32 Indeed, the
taxpayer expects fair dealing from the Government, and the latter has the duty to refund
without any unreasonable delay what it has erroneously collected.33 If the State expects its
taxpayers to observe fairness and honesty in paying their taxes, it must hold itself against the
same standard in refunding excess (or erroneous) payments of such taxes. It should not
unjustly enrich itself at the expense of taxpayers.34 And so, given its essence, a claim for tax
refund necessitates only preponderance of evidence for its approbation like in any other
ordinary civil case.
Under the Tax Code itself, apparently in recognition of the pervasive quasi-contract principle,
a claim for tax refund may be based on the following: (a) erroneously or illegally assessed or
collected internal revenue taxes; (b) penalties imposed without authority; and (c) any sum
alleged to have been excessive or in any manner wrongfully collected.35
What is controlling in this case is the well-settled doctrine of strict interpretation in the
imposition of taxes, not the similar doctrine as applied to tax exemptions. The rule in the
interpretation of tax laws is that a statute will not be construed as imposing a tax unless it
does so clearly, expressly, and unambiguously. A tax cannot be imposed without clear and
express words for that purpose. Accordingly, the general rule of requiring adherence to the
letter in construing statutes applies with peculiar strictness to tax laws and the provisions of
a taxing act are not to be extended by implication. In answering the question of who is
subject to tax statutes, it is basic that in case of doubt, such statutes are to be construed
most strongly against the government and in favor of the subjects or citizens because
burdens are not to be imposed nor presumed to be imposed beyond what statutes expressly
and clearly import.36 As burdens, taxes should not be unduly exacted nor assumed beyond
the plain meaning of the tax laws.37
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA G.R. SP No.
80675, dated 28 September 2004, and its Resolution, dated 1 March 2005, are AFFIRMED. No
pronouncement as to costs. SO ORDERED.
G.R. No. 112024 January 28, 1999 PHILIPPINE BANK OF COMMUNICATIONS, petitioner,
vs.COMMISSIONER OF INTERNAL REVENUE, COURT OF TAX APPEALS and COURT OF
APPEALS, respondent. QUISUMBING, J.:
This petition for review assails the Resolution 1 of the Court of Appeals dated September 22,
1993 affirming the Decision2 and a Resolution 3 of the Court Of Tax Appeals which denied the
claims of the petitioner for tax refund and tax credits, and disposing as follows:
IN VIEW OF ALL, THE FOREGOING, the instant petition for review, is DENIED due course. The
Decision of the Court of Tax Appeals dated May 20, 1993 and its resolution dated July 20,
1993, are hereby AFFIRMED in toto. SO ORDERED.4
The Court of Tax Appeals earlier ruled as follows:
WHEREFORE, Petitioner's claim for refund/tax credits of overpaid income tax for 1985 in the
amount of P5,299,749.95 is hereby denied for having been filed beyond the reglementary
period. The 1986 claim for refund amounting to P234,077.69 is likewise denied since
petitioner has opted and in all likelihood automatically credited the same to the succeeding
year. The petition for review is dismissed for lack of merit. SO ORDERED.5
The facts on record show the antecedent circumstances pertinent to this case.
Petitioner, Philippine Bank of Communications (PBCom), a commercial banking corporation
duly organized under Philippine laws, filed its quarterly income tax returns for the first and
second quarters of 1985, reported profits, and paid the total income tax of P5,016,954.00.
The taxes due were settled by applying PBCom's tax credit memos and accordingly, the
Bureau of Internal Revenue (BIR) issued Tax Debit Memo Nos. 0746-85 and 0747-85 for
P3,401,701.00 and P1,615,253.00, respectively.
Subsequently, however, PBCom suffered losses so that when it filed its Annual Income Tax
Returns for the year-ended December 31, 1986, the petitioner likewise reported a net loss of
P14,129,602.00, and thus declared no tax payable for the year.
But during these two years, PBCom earned rental income from leased properties. The lessees
withheld and remitted to the BIR withholding creditable taxes of P282,795.50 in 1985 and
P234,077.69 in 1986.
On August 7, 1987, petitioner requested the Commissioner of Internal Revenue, among
others, for a tax credit of P5,016,954.00 representing the overpayment of taxes in the first
and second quarters of 1985.
Thereafter, on July 25, 1988, petitioner filed a claim for refund of creditable taxes withheld
by their lessees from property rentals in 1985 for P282,795.50 and in 1986 for P234,077.69.
Pending the investigation of the respondent Commissioner of Internal Revenue, petitioner
instituted a Petition for Review on November 18, 1988 before the Court of Tax Appeals (CTA).
The petition was docketed as CTA Case No. 4309 entitled: "Philippine Bank of
Communications vs. Commissioner of Internal Revenue."
The losses petitioner incurred as per the summary of petitioner's claims for refund and tax
credit for 1985 and 1986, filed before the Court of Tax Appeals, are as follows:
1985 1986
——— ———
Net Income (Loss) (P25,317,288.00) (P14,129,602.00)
Tax Due NIL NIL
Quarterly tax.
Payments Made 5,016,954.00 —
Tax Withheld at Source 282,795.50 234,077.69
———————— ———————
Excess Tax Payments P5,299,749.50* P234,077.69
=============== =============
* CTA's decision reflects PBCom's 1985 tax claim as P5,299,749.95. A forty five centavo
difference was noted.
On May 20, 1993, the CTA rendered a decision which, as stated on the outset, denied the
request of petitioner for a tax refund or credit in the sum amount of P5,299,749.95, on the
ground that it was filed beyond the two-year reglementary period provided for by law. The
petitioner's claim for refund in 1986 amounting to P234,077.69 was likewise denied on the
assumption that it was automatically credited by PBCom against its tax payment in the
succeeding year.
On June 22, 1993, petitioner filed a Motion for Reconsideration of the CTA's decision but the
same was denied due course for lack of merit. 6
Thereafter, PBCom filed a petition for review of said decision and resolution of the CTA with
the Court of Appeals. However on September 22, 1993, the Court of Appeals affirmed in toto
the CTA's resolution dated July 20, 1993. Hence this petition now before us.
The issues raised by the petitioner are:
I. Whether taxpayer PBCom — which relied in good faith on the formal assurances of BIR in
RMC No. 7-85 and did not immediately file with the CTA a petition for review asking for the
refund/tax credit of its 1985-86 excess quarterly income tax payments — can be prejudiced
by the subsequent BIR rejection, applied retroactivity, of its assurances in RMC No. 7-85 that
the prescriptive period for the refund/tax credit of excess quarterly income tax payments is
not two years but ten (10).7
II. Whether the Court of Appeals seriously erred in affirming the CTA decision which denied
PBCom's claim for the refund of P234,077.69 income tax overpaid in 1986 on the mere
speculation, without proof, that there were taxes due in 1987 and that PBCom availed of tax-
crediting that year.8
Simply stated, the main question is: Whether or not the Court of Appeals erred in denying
the plea for tax refund or tax credits on the ground of prescription, despite petitioner's
reliance on RMC No. 7-85, changing the prescriptive period of two years to ten years?
Petitioner argues that its claims for refund and tax credits are not yet barred by prescription
relying on the applicability of Revenue Memorandum Circular No. 7-85 issued on April 1,
1985. The circular states that overpaid income taxes are not covered by the two-year
prescriptive period under the tax Code and that taxpayers may claim refund or tax credits for
the excess quarterly income tax with the BIR within ten (10) years under Article 1144 of the
Civil Code. The pertinent portions of the circular reads:
REVENUE MEMORANDUM CIRCULAR NO. 7-85
SUBJECT: PROCESSING OF REFUND OR TAX CREDIT OF EXCESS CORPORATE INCOME TAX
RESULTING FROM THE FILING OF THE FINAL ADJUSTMENT RETURN.
TO: All Internal Revenue Officers and Others Concerned.
Sec. 85 And 86 Of the National Internal Revenue Code provide:
The foregoing provisions are implemented by Section 7 of Revenue Regulations Nos. 10-77
which provide;
It has been observed, however, that because of the excess tax payments, corporations file
claims for recovery of overpaid income tax with the Court of Tax Appeals within the two-year
period from the date of payment, in accordance with sections 292 and 295 of the National
Internal Revenue Code. It is obvious that the filing of the case in court is to preserve the
judicial right of the corporation to claim the refund or tax credit.
It should he noted, however, that this is not a case of erroneously or illegally paid tax under
the provisions of Sections 292 and 295 of the Tax Code.
In the above provision of the Regulations the corporation may request for the refund of the
overpaid income tax or claim for automatic tax credit. To insure prompt action on corporate
annual income tax returns showing refundable amounts arising from overpaid quarterly
income taxes, this Office has promulgated Revenue Memorandum Order No. 32-76 dated
June 11, 1976, containing the procedure in processing said returns. Under these procedures,
the returns are merely pre-audited which consist mainly of checking mathematical accuracy
of the figures of the return. After which, the refund or tax credit is granted, and, this
procedure was adopted to facilitate immediate action on cases like this.
In this regard, therefore, there is no need to file petitions for review in the Court of Tax
Appeals in order to preserve the right to claim refund or tax credit the two year period. As
already stated, actions hereon by the Bureau are immediate after only a cursory pre-audit of
the income tax returns. Moreover, a taxpayer may recover from the Bureau of Internal
Revenue excess income tax paid under the provisions of Section 86 of the Tax Code within 10
years from the date of payment considering that it is an obligation created by law (Article
1144 of the Civil Code).9 (Emphasis supplied.)
Petitioner argues that the government is barred from asserting a position contrary to its
declared circular if it would result to injustice to taxpayers. Citing ABS CBN Broadcasting
Corporation vs. Court of Tax Appeals 10 petitioner claims that rulings or circulars promulgated
by the Commissioner of Internal Revenue have no retroactive effect if it would be prejudicial
to taxpayers, In ABS-CBN case, the Court held that the government is precluded from
adopting a position inconsistent with one previously taken where injustice would result
therefrom or where there has been a misrepresentation to the taxpayer.
Petitioner contends that Sec. 246 of the National Internal Revenue Code explicitly provides
for this rules as follows:
Sec. 246 Non-retroactivity of rulings— Any revocation, modification or reversal of any of the
rules and regulations promulgated in accordance with the preceding section 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 in 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;
c). where the taxpayer acted in bad faith.
Respondent Commissioner of Internal Revenue, through Solicitor General, argues that the
two-year prescriptive period for filing tax cases in court concerning income tax payments of
Corporations is reckoned from the date of filing the Final Adjusted Income Tax Return, which
is generally done on April 15 following the close of the calendar year. As precedents,
respondent Commissioner cited cases which adhered to this principle, to wit ACCRA
Investments Corp. vs. Court of Appeals, et al., 11 and Commissioner of Internal Revenue vs.
TMX Sales, Inc., et al.. 12 Respondent Commissioner also states that since the Final Adjusted
Income Tax Return of the petitioner for the taxable year 1985 was supposed to be filed on
April 15, 1986, the latter had only until April 15, 1988 to seek relief from the court. Further,
respondent Commissioner stresses that when the petitioner filed the case before the CTA on
November 18, 1988, the same was filed beyond the time fixed by law, and such failure is fatal
to petitioner's cause of action.
After a careful study of the records and applicable jurisprudence on the matter, we find that,
contrary to the petitioner's contention, the relaxation of revenue regulations by RMC 7-85 is
not warranted as it disregards the two-year prescriptive period set by law.
Basic is the principle that "taxes are the lifeblood of the nation." The primary purpose is to
generate funds for the State to finance the needs of the citizenry and to advance the
common weal. 13 Due process of law under the Constitution does not require judicial
proceedings in tax cases. This must necessarily be so because it is upon taxation that the
government chiefly relies to obtain the means to carry on its operations and it is of utmost
importance that the modes adopted to enforce the collection of taxes levied should be
summary and interfered with as little as possible. 14
From the same perspective, claims for refund or tax credit should be exercised within the
time fixed by law because the BIR being an administrative body enforced to collect taxes, its
functions should not be unduly delayed or hampered by incidental matters.
Sec. 230 of the National Internal Revenue Code (NIRC) of 1977 (now Sec. 229, NIRC of 1997)
provides for the prescriptive period for filing a court proceeding for the recovery of tax
erroneously or illegally collected, viz.:
Sec. 230. 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 excessive 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 proceedings shall begun after the expiration of two years from the
date of payment of the tax or penalty regardless of any supervening cause that may arise
after payment; Provided however, That the Commissioner may, even without a written claim
therefor, refund or credit any tax, where on the face of the return upon which payment was
made, such payment appears clearly to have been erroneously paid. (Emphasis supplied)
The rule states that the taxpayer may file a claim for refund or credit with the Commissioner
of Internal Revenue, within two (2) years after payment of tax, before any suit in CTA is
commenced. The two-year prescriptive period provided, should be computed from the time
of filing the Adjustment Return and final payment of the tax for the year.
In Commissioner of Internal Revenue vs. Philippine American Life Insurance Co., 15 this Court
explained the application of Sec. 230 of 1977 NIRC, as follows:
Clearly, the prescriptive period of two years should commence to run only from the time that
the refund is ascertained, which can only be determined after a final adjustment return is
accomplished. In the present case, this date is April 16, 1984, and two years from this date
would be April 16, 1986. . . . As we have earlier said in the TMX Sales case, Sections 68. 16 69,
17 and 70 18 on Quarterly Corporate Income Tax Payment and Section 321 should be
considered in conjunction with it 19
When the Acting Commissioner of Internal Revenue issued RMC 7-85, changing the
prescriptive period of two years to ten years on claims of excess quarterly income tax
payments, such circular created a clear inconsistency with the provision of Sec. 230 of 1977
NIRC. In so doing, the BIR did not simply interpret the law; rather it legislated guidelines
contrary to the statute passed by Congress.
It bears repeating that Revenue memorandum-circulars are considered administrative rulings
(in the sense of more specific and less general interpretations of tax laws) which are issued
from time to time by the Commissioner of Internal Revenue. It is widely accepted that the
interpretation placed upon a statute by the executive officers, whose duty is to enforce it, is
entitled to great respect by the courts. Nevertheless, such interpretation is not conclusive
and will be ignored if judicially found to be erroneous. 20 Thus, courts will not countenance
administrative issuances that override, instead of remaining consistent and in harmony with
the law they seek to apply and implement. 21
In the case of People vs. Lim, 22 it was held that rules and regulations issued by administrative
officials to implement a law cannot go beyond the terms and provisions of the latter.
Appellant contends that Section 2 of FAO No. 37-1 is void because it is not only inconsistent
with but is contrary to the provisions and spirit of Act. No 4003 as amended, because
whereas the prohibition prescribed in said Fisheries Act was for any single period of time not
exceeding five years duration, FAO No 37-1 fixed no period, that is to say, it establishes an
absolute ban for all time. This discrepancy between Act No. 4003 and FAO No. 37-1 was
probably due to an oversight on the part of Secretary of Agriculture and Natural Resources.
Of course, in case of discrepancy, the basic Act prevails, for the reason that the regulation or
rule issued to implement a law cannot go beyond the terms and provisions of the
latter. . . . In this connection, the attention of the technical men in the offices of Department
Heads who draft rules and regulation is called to the importance and necessity of closely
following the terms and provisions of the law which they intended to implement, this to
avoid any possible misunderstanding or confusion as in the present case.23
Further, fundamental is the rule that the State cannot be put in estoppel by the mistakes or
errors of its officials or agents. 24 As pointed out by the respondent courts, the nullification of
RMC No. 7-85 issued by the Acting Commissioner of Internal Revenue is an administrative
interpretation which is not in harmony with Sec. 230 of 1977 NIRC. for being contrary to the
express provision of a statute. Hence, his interpretation could not be given weight for to do
so would, in effect, amend the statute.
It is likewise argued that the Commissioner of Internal Revenue, after promulgating RMC No.
7-85, is estopped by the principle of non-retroactively of BIR rulings. Again We do not agree.
The Memorandum Circular, stating that a taxpayer may recover the excess income tax paid
within 10 years from date of payment because this is an obligation created by law, was
issued by the Acting Commissioner of Internal Revenue. On the other hand, the decision,
stating that the taxpayer should still file a claim for a refund or tax credit and corresponding
petition fro review within the
two-year prescription period, and that the lengthening of the period of limitation on refund
from two to ten years would be adverse to public policy and run counter to the positive
mandate of Sec. 230, NIRC, - was the ruling and judicial interpretation of the Court of Tax
Appeals. Estoppel has no application in the case at bar because it was not the Commissioner
of Internal Revenue who denied petitioner's claim of refund or tax credit. Rather, it was the
Court of Tax Appeals who denied (albeit correctly) the claim and in effect, ruled that the RMC
No. 7-85 issued by the Commissioner of Internal Revenue is an administrative interpretation
which is out of harmony with or contrary to the express provision of a statute (specifically
Sec. 230, NIRC), hence, cannot be given weight for to do so would in effect amend the
statute.25
Art. 8 of the Civil Code 26 recognizes judicial decisions, applying or interpreting statutes as
part of the legal system of the country. But administrative decisions do not enjoy that level of
recognition. A memorandum-circular of a bureau head could not operate to vest a taxpayer
with shield against judicial action. For there are no vested rights to speak of respecting a
wrong construction of the law by the administrative officials and such wrong interpretation
could not place the Government in estoppel to correct or overrule the same. 27 Moreover,
the non-retroactivity of rulings by the Commissioner of Internal Revenue is not applicable in
this case because the nullity of RMC No. 7-85 was declared by respondent courts and not by
the Commissioner of Internal Revenue. Lastly, it must be noted that, as repeatedly held by
this Court, a claim for refund is in the nature of a claim for exemption and should be
construed in strictissimi juris against the taxpayer.28
On the second issue, the petitioner alleges that the Court of Appeals seriously erred in
affirming CTA's decision denying its claim for refund of P234,077.69 (tax overpaid in 1986),
based on mere speculation, without proof, that PBCom availed of the automatic tax credit in
1987.
Sec. 69 of the 1977 NIRC 29 (now Sec. 76 of the 1997 NIRC) provides that any excess of the
total quarterly payments over the actual income tax computed in the adjustment or final
corporate income tax return, shall either (a) be refunded to the corporation, or (b) may be
credited against the estimated quarterly income tax liabilities for the quarters of the
succeeding taxable year.
The corporation must signify in its annual corporate adjustment return (by marking the
option box provided in the BIR form) its intention, whether to request for a refund or claim
for an automatic tax credit for the succeeding taxable year. To ease the administration of tax
collection, these remedies are in the alternative, and the choice of one precludes the other.
As stated by respondent Court of Appeals:
Finally, as to the claimed refund of income tax over-paid in 1986 — the Court of Tax Appeals,
after examining the adjusted final corporate annual income tax return for taxable year 1986,
found out that petitioner opted to apply for automatic tax credit. This was the basis used (vis-
avis the fact that the 1987 annual corporate tax return was not offered by the petitioner as
evidence) by the CTA in concluding that petitioner had indeed availed of and applied the
automatic tax credit to the succeeding year, hence it can no longer ask for refund, as to [sic]
the two remedies of refund and tax credit are alternative. 30
That the petitioner opted for an automatic tax credit in accordance with Sec. 69 of the 1977
NIRC, as specified in its 1986 Final Adjusted Income Tax Return, is a finding of fact which we
must respect. Moreover, the 1987 annual corporate tax return of the petitioner was not
offered as evidence to contovert said fact. Thus, we are bound by the findings of fact by
respondent courts, there being no showing of gross error or abuse on their part to disturb
our reliance thereon. 31
WHEREFORE, the, petition is hereby DENIED, The decision of the Court of Appeals appealed
from is AFFIRMED, with COSTS against the petitioner. SO ORDERED.
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 certiorari1 under Rule 45 of the Rules of Court
assailing the October 11, 2012 Decision2 and the May 8, 2013 Resolution3 of the Court of Tax
Appeals (CTA) En Banc, in CTA EB Case No. 776, which affirmed the January 13, 2011
Decision4 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.
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,5 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.6
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 exhauist 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.7
Total Gas sought for reconsideration8 from the CTA Division, but its motion was denied for
lack of merit in a Resolution, dated April 19, 2011.9 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.]"10 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.11 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.12 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.
SO ORDERED.13ChanRoblesVirtualawlibrary
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.14
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.15
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 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.16
Total Gas filed a motion for reconsideration,17 but it was denied in the assailed resolution of
the CTA En Banc.18
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 adminstrative level (BIR)
renders the judicial claim premature and dismissible for lack of
jurisdiction.19ChanRoblesVirtualawlibrary
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 Asia20 (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. 674,21 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.22 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, 2008.23 Total Gas argues that, since its claim was filed within the period of exception
provided in CIR v. San Roque Power Corporation24 (San Roque), it did not have to strictly
comply with 120+30 day period before it could seek judicial relief.25cralawred
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.26
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.27
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 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.28
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 "[s]ound 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."29
In her Comment,30 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,31 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:chanRoblesvirtualLawlibrary
SEC. 112. Refunds or Tax Credits of Input Tax. -
xxxx
(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
[Emphasis and Underscoring Supplied]
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 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. 273,32 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.
[Emphasis supplied]
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. 771633 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.
[Emphasis supplied]
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:chanRoblesvirtualLawlibrary
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 NIRC34 was enacted on January 1, 1998, the rule was once more 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 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.
[Emphasis supplied]
This time, the period granted to the CIR to act upon an admmistrative 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.
[Emphases Supplied]
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. 933735 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 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,36 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 adminstrative 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 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:chanRoblesvirtualLawlibrary
(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.
[Emphasis and Italics Supplied]
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.
To quote RMO No. 53-98:
REVENUE MEMORANDUM ORDER NO. 53-98
SUBJECT: Checklist of Documents to be Submitted by a Taxpayer upon Audit of his Tax
Liabilities as well as of the Mandatory Reporting Requirements to be Prepared by a Revenue
Officer, all of which Comprise a Complete Tax Docket.
TO: All Internal Revenue Officers, Employees and Others Concerned
I. BACKGROUND
It has been observed that for the same kind of tax audit case, Revenue Officers differ in their
request for requirements from taxpayers as well as in the attachments to the dockets
resulting to tremendous complaints from taxpayers and confusion among tax auditors and
reviewers.
For equity and uniformity, this Bureau comes up with a prescribed list of requirements from
taxpayers, per kind of tax, as well as of the internally prepared reporting requirements, all of
which comprise a complete tax docket.
II. OBJECTIVE
This order is issued to:chanRoblesvirtualLawlibrary
a. Identify the documents to be required from a taxpayer during audit, according to particular
kind of tax; and
b. Identify the different audit reporting requirements to be prepared, submitted and
attached to a tax audit docket.
III. LIST OF REQUIREMENTS PER TAX TYPE
Income Tax/ Withholding Tax
- Annex A (3 pages)
Value Added Tax
- Annex B (2 pages)
- Annex B-1 (5 pages)
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):37
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.
[Emphasis included. Underlining Ours.]
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 contiuous 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 truthfullness 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 determing the 120-day 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 process38 - 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 therof 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 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
[Underscoring Supplied]
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
G.R. No. 187485 : February 12, 2013
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. SAN ROQUE POWER CORPORATION,
Respondents.
G.R. No. 196113
TAGANITO MINING CORPORATION, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE,
Respondents.
G.R. No. 197156
PHILEX MINING CORPORATION, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE,
Respondent.
DECISION
CARPIO, J.:
The Cases
G.R. No. 187485 is a petitiOn for review1 assailing the Decision2 promulgated on 25 March
2009 as well as the Resolution3 promulgated on 24 April 2009 by the Court of Tax Appeals En
Banc (CTA EB) in CTA EB No. 408. The CTA EB affirmed the 29 November 2007 Amended
Decision4 as well as the 11 July 2008 Resolution5 of the Second Division of the Court of Tax
Appeals (CTA Second Division) in CTA Case No. 6647. The CTA Second Division ordered the
Commissioner of Internal Revenue (Commissioner) to refund or issue a tax credit for
P483,797,599.65 to San Roque Power Corporation (San Roque) for unutilized input value-
added tax (VAT) on purchases of capital goods and services for the taxable year 2001.
G.R. No. 196113 is a petition for review6 assailing the Decision7 promulgated on 8 December
2010 as well as the Resolution8 promulgated on 14 March 2011 by the CTA EB in CTA EB No.
624. In its Decision, the CTA EB reversed the 8 January 2010 Decision9 as well as the 7 April
2010 Resolution10of the CTA Second Division and granted the CIRs petition for review in CTA
Case No. 7574. The CTA EB dismissed, for having been prematurely filed, Taganito Mining
Corporations (Taganito) judicial claim for P8,365,664.38 tax refund or credit.
G.R. No. 197156 is a petition for review11 assailing the Decision12promulgated on 3 December
2010 as well as the Resolution13 promulgated on 17 May 2011 by the CTA EB in CTA EB No.
569. The CTA EB affirmed the 20 July 2009 Decision as well as the 10 November 2009
Resolution of the CTA Second Division in CTA Case No. 7687. The CTA Second Division denied,
due to prescription, Philex Mining Corporations (Philex) judicial claim for P23,956,732.44 tax
refund or credit.
On 3 August 2011, the Second Division of this Court resolved14 to consolidate G.R. No.
197156 with G.R. No. 196113, which were pending in the same Division, and with G.R. No.
187485, which was assigned to the Court En Banc. The Second Division also resolved to refer
G.R. Nos. 197156 and 196113 to the Court En Banc, where G.R. No. 187485, the lower-
numbered case, was assigned.
G.R. No. 187485
CIR v. San Roque Power Corporation
The Facts
The CTA EBs narration of the pertinent facts is as follows:cralawlibrary
[CIR] is the duly appointed Commissioner of Internal Revenue, empowered, among others, to
act upon and approve claims for refund or tax credit, with office at the Bureau of Internal
Revenue ("BIR") National Office Building, Diliman, Quezon City.
[San Roque] is a domestic corporation duly organized and existing under and by virtue of the
laws of the Philippines with principal office at Barangay San Roque, San Manuel, Pangasinan.
It was incorporated in October 1997 to design, construct, erect, assemble, own, commission
and operate power-generating plants and related facilities pursuant to and under contract
with the Government of the Republic of the Philippines, or any subdivision, instrumentality
or agency thereof, or any governmentowned or controlled corporation, or other entity
engaged in the development, supply, or distribution of energy.
As a seller of services, [San Roque] is duly registered with the BIR with TIN/VAT No. 005-017-
501. It is likewise registered with the Board of Investments ("BOI") on a preferred pioneer
status, to engage in the design, construction, erection, assembly, as well as to own,
commission, and operate electric power-generating plants and related activities, for which it
was issued Certificate of Registration No. 97-356 on February 11, 1998.
On October 11, 1997, [San Roque] entered into a Power Purchase Agreement ("PPA") with
the National Power Corporation ("NPC") to develop hydro-potential of the Lower Agno River
and generate additional power and energy for the Luzon Power Grid, by building the San
Roque Multi-Purpose Project located in San Manuel, Pangasinan. The PPA provides, among
others, that [San Roque] shall be responsible for the design, construction, installation,
completion, testing and commissioning of the Power Station and shall operate and maintain
the same, subject to NPC instructions. During the cooperation period of twenty-five (25)
years commencing from the completion date of the Power Station, NPC will take and pay for
all electricity available from the Power Station.
On the construction and development of the San Roque Multi- Purpose Project which
comprises of the dam, spillway and power plant, [San Roque] allegedly incurred, excess input
VAT in the amount of ?559,709,337.54 for taxable year 2001 which it declared in its Quarterly
VAT Returns filed for the same year. [San Roque] duly filed with the BIR separate claims for
refund, in the total amount of ?559,709,337.54, representing unutilized input taxes as
declared in its VAT returns for taxable year 2001.
However, on March 28, 2003, [San Roque] filed amended Quarterly VAT Returns for the year
2001 since it increased its unutilized input VAT to the amount of ?560,200,283.14.
Consequently, [San Roque] filed with the BIR on even date, separate amended claims for
refund in the aggregate amount of ?560,200,283.14.
[CIRs] inaction on the subject claims led to the filing by [San Roque] of the Petition for Review
with the Court [of Tax Appeals] in Division on April 10, 2003.
Trial of the case ensued and on July 20, 2005, the case was submitted for decision.15?r?l1
The Court of Tax Appeals Ruling: Division
The CTA Second Division initially denied San Roques claim. In its Decision16 dated 8 March
2006, it cited the following as bases for the denial of San Roques claim: lack of recorded zero-
rated or effectively zero-rated sales; failure to submit documents specifically identifying the
purchased goods/services related to the claimed input VAT which were included in its
Property, Plant and Equipment account; and failure to prove that the related construction
costs were capitalized in its books of account and subjected to depreciation.
The CTA Second Division required San Roque to show that it complied with the following
requirements of Section 112(B) of Republic Act No. 8424 (RA 8424)17 to be entitled to a tax
refund or credit of input VAT attributable to capital goods imported or locally purchased: (1)
it is a VAT-registered entity; (2) its input taxes claimed were paid on capital goods duly
supported by VAT invoices and/or official receipts; (3) it did not offset or apply the claimed
input VAT payments on capital goods against any output VAT liability; and (4) its claim for
refund was filed within the two-year prescriptive period both in the administrative and
judicial levels.
The CTA Second Division found that San Roque complied with the first, third, and fourth
requirements, thus:cralawlibrary
The fact that [San Roque] is a VAT registered entity is admitted (par. 4, Facts Admitted, Joint
Stipulation of Facts, Records, p. 157). It was also established that the instant claim of
?560,200,823.14 is already net of the ?11,509.09 output tax declared by [San Roque] in its
amended VAT return for the first quarter of 2001. Moreover, the entire amount of
?560,200,823.14 was deducted by [San Roque] from the total available input tax reflected in
its amended VAT returns for the last two quarters of 2001 and first two quarters of 2002
(Exhibits M-6, O-6, OO-1 & QQ-1). This means that the claimed input taxes of
?560,200,823.14 did not form part of the excess input taxes of ?83,692,257.83, as of the
second quarter of 2002 that was to be carried-over to the succeeding quarters. Further, [San
Roques] claim for refund/tax credit certificate of excess input VAT was filed within the two-
year prescriptive period reckoned from the dates of filing of the corresponding quarterly VAT
returns.
For the first, second, third, and fourth quarters of 2001, [San Roque] filed its VAT returns on
April 25, 2001, July 25, 2001, October 23, 2001 and January 24, 2002, respectively (Exhibits
"H, J, L, and N"). These returns were all subsequently amended on March 28, 2003 (Exhibits
"I, K, M, and O"). On the other hand, [San Roque] originally filed its separate claims for refund
on July 10, 2001, October 10, 2001, February 21, 2002, and May 9, 2002 for the first, second,
third, and fourth quarters of 2001, respectively, (Exhibits "EE, FF, GG, and HH") and
subsequently filed amended claims for all quarters on March 28, 2003 (Exhibits "II, JJ, KK, and
LL"). Moreover, the Petition for Review was filed on April 10, 2003. Counting from the
respective dates when [San Roque] originally filed its VAT returns for the first, second, third
and fourth quarters of 2001, the administrative claims for refund (original and amended) and
the Petition for Review fall within the two-year prescriptive period.18?r?l1
San Roque filed a Motion for New Trial and/or Reconsideration on 7 April 2006. In its 29
November 2007 Amended Decision,19 the CTA Second Division found legal basis to partially
grant San Roques claim. The CTA Second Division ordered the Commissioner to refund or
issue a tax credit in favor of San Roque in the amount of ?483,797,599.65, which represents
San Roques unutilized input VAT on its purchases of capital goods and services for the taxable
year 2001. The CTA based the adjustment in the amount on the findings of the independent
certified public accountant. The following reasons were cited for the disallowed claims:
erroneous computation; failure to ascertain whether the related purchases are in the nature
of capital goods; and the purchases pertain to capital goods. Moreover, the reduction of
claims was based on the following: the difference between San Roques claim and that
appearing on its books; the official receipts covering the claimed input VAT on purchases of
local services are not within the period of the claim; and the amount of VAT cannot be
determined from the submitted official receipts and invoices. The CTA Second Division
denied San Roques claim for refund or tax credit of its unutilized input VAT attributable to its
zero-rated or effectively zero-rated sales because San Roque had no record of such sales for
the four quarters of 2001.
The dispositive portion of the CTA Second Divisions 29 November 2007 Amended Decision
reads:cralawlibrary
WHEREFORE, [San Roques] "Motion for New Trial and/or Reconsideration" is hereby
PARTIALLY GRANTED and this Courts Decision promulgated on March 8, 2006 in the instant
case is hereby MODIFIED.
Accordingly, [the CIR] is hereby ORDERED to REFUND or in the alternative, to ISSUE A TAX
CREDIT CERTIFICATE in favor of [San Roque] in the reduced amount of Four Hundred Eighty
Three Million Seven Hundred Ninety Seven Thousand Five Hundred Ninety Nine Pesos and
Sixty Five Centavos (?483,797,599.65) representing unutilized input VAT on purchases of
capital goods and services for the taxable year 2001.
SO ORDERED.20?r?l1 ???ñr?bl?š ??r†??l l?? l?br?rÿ
The Commissioner filed a Motion for Partial Reconsideration on 20 December 2007. The CTA
Second Division issued a Resolution dated 11 July 2008 which denied the CIRs motion for lack
of merit.
The Court of Tax Appeals Ruling: En Banc
The Commissioner filed a Petition for Review before the CTA EB praying for the denial of San
Roques claim for refund or tax credit in its entirety as well as for the setting aside of the 29
November 2007 Amended Decision and the 11 July 2008 Resolution in CTA Case No. 6647.
The CTA EB dismissed the CIRs petition for review and affirmed the challenged decision and
resolution.
The CTA EB cited Commissioner of Internal Revenue v. Toledo Power, Inc.21 and Revenue
Memorandum Circular No. 49-03,22 as its bases for ruling that San Roques judicial claim was
not prematurely filed. The pertinent portions of the Decision state:cralawlibrary
More importantly, the Court En Banc has squarely and exhaustively ruled on this issue in this
wise:cralawlibrary
It is true that Section 112(D) of the abovementioned provision applies to the present case.
However, what the petitioner failed to consider is Section 112(A) of the same provision.
The respondent is also covered by the two (2) year prescriptive period. We have repeatedly
held that the claim for refund with the BIR and the subsequent appeal to the Court of Tax
Appeals must be filed within the two-year period.
Accordingly, the Supreme Court held in the case of Atlas Consolidated Mining and
Development Corporation v. Commissioner of Internal Revenue that the two-year prescriptive
period for filing a claim for input tax is reckoned from the date of the filing of the quarterly
VAT return and payment of the tax due. If the said period is about to expire but the BIR has
not yet acted on the application for refund, the taxpayer may interpose a petition for
review with this Court within the two year period.
In the case of Gibbs v. Collector, the Supreme Court held that if, however, the Collector (now
Commissioner) takes time in deciding the claim, and the period of two years is about to end,
the suit or proceeding must be started in the Court of Tax Appeals before the end of the two-
year period without awaiting the decision of the Collector.
Furthermore, in the case of Commissioner of Customs and Commissioner of Internal Revenue
v. The Honorable Court of Tax Appeals and Planters Products, Inc., the Supreme Court held
that the taxpayer need not wait indefinitely for a decision or ruling which may or may not
be forthcoming and which he has no legal right to expect. It is disheartening enough to a
taxpayer to keep him waiting for an indefinite period of time for a ruling or decision of the
Collector (now Commissioner) of Internal Revenue on his claim for refund. It would make
matters more exasperating for the taxpayer if we were to close the doors of the courts of
justice for such a relief until after the Collector (now Commissioner) of Internal Revenue,
would have, at his personal convenience, given his go signal.
This Court ruled in several cases that once the petition is filed, the Court has already acquired
jurisdiction over the claims and the Court is not bound to wait indefinitely for no reason for
whatever action respondent (herein petitioner) may take. At stake are claims for refund and
unlike disputed assessments, no decision of respondent (herein petitioner) is required
before one can go to this Court. (Emphasis supplied and citations omitted)
???ñr?bl?š ??r†??l l?? l?br?rÿ
Lastly, it is apparent from the following provisions of Revenue Memorandum Circular No. 49-
03 dated August 18, 2003, that [the CIR] knows that claims for VAT refund or tax credit filed
with the Court [of Tax Appeals] can proceed simultaneously with the ones filed with the BIR
and that taxpayers need not wait for the lapse of the subject 120-day period, to
wit:cralawlibrary
In response to [the] request of selected taxpayers for adoption of procedures in handling
refund cases that are aligned to the statutory requirements that refund cases should be
elevated to the Court of Tax Appeals before the lapse of the period prescribed by law, certain
provisions of RMC No. 42-2003 are hereby amended and new provisions are added thereto.
???ñr?bl?š ??r†??l l?? l?br?rÿ
In consonance therewith, the following amendments are being introduced to RMC No. 42-
2003, to wit:cralawlibrary
I.) A-17 of Revenue Memorandum Circular No. 42-2003 is hereby revised to read as
follows:cralawlibrary
In cases where the taxpayer has filed a "Petition for Review" with the Court of Tax Appeals
involving a claim for refund/TCC that is pending at the administrative agency (Bureau of
Internal Revenue or OSS-DOF), the administrative agency and the tax court may act on the
case separately. While the case is pending in the tax court and at the same time is still under
process by the administrative agency, the litigation lawyer of the BIR, upon receipt of the
summons from the tax court, shall request from the head of the investigating/processing
office for the docket containing certified true copies of all the documents pertinent to the
claim. The docket shall be presented to the court as evidence for the BIR in its defense on the
tax credit/refund case filed by the taxpayer. In the meantime, the investigating/processing
office of the administrative agency shall continue processing the refund/TCC case until such
time that a final decision has been reached by either the CTA or the administrative agency.
vehicles, private telegraph and telephone lines, and other communication media, as may be
needed by the corporation for its own purpose, and to purchase, import, construct, machine,
fabricate, or otherwise acquire, and maintain and operate bridges, piers, wharves, wells,
reservoirs, plumes, watercourses, waterworks, aqueducts, shafts, tunnels, furnaces, cook
ovens, crushing works, gasworks, electric lights and power plants and compressed air plants,
chemical works of all kinds, concentrators, smelters, smelting plants, and refineries, matting
plants, warehouses, workshops, factories, dwelling houses, stores, hotels or other buildings,
engines, machinery, spare parts, tools, implements and other works, conveniences and
properties of any description in connection with or which may be directly or indirectly
conducive to any of the objects of the corporation, and to contribute to, subsidize or
otherwise aid or take part in any operations;

If the CTA is able to release its decision ahead of the evaluation of the administrative and is a VAT-registered entity, with Certificate of Registration (BIR Form No. 2303) No. OCN
agency, the latter shall cease from processing the claim. On the other hand, if the 8RC0000017494. Likewise, [Taganito] is registered with the Board of Investments (BOI) as an
administrative agency is able to process the claim of the taxpayer ahead of the CTA and the exporter of beneficiated nickel silicate and chromite ores, with BOI Certificate of Registration
taxpayer is amenable to the findings thereof, the concerned taxpayer must file a motion to No. EP-88-306.
withdraw the claim with the CTA.23 (Emphasis supplied)
Respondent, on the other hand, is the duly appointed Commissioner of Internal Revenue
G.R. No. 196113 vested with authority to exercise the functions of the said office, including inter alia, the
Taganito Mining Corporation v. CIR power to decide refunds of internal revenue taxes, fees and other charges, penalties imposed
in relation thereto, or other matters arising under the National Internal Revenue Code (NIRC)
The Facts or other laws administered by Bureau of Internal Revenue (BIR) under Section 4 of the NIRC.
He holds office at the BIR National Office Building, Diliman, Quezon City.
The CTA Second Divisions narration of the pertinent facts is as follows:cralawlibrary
[Taganito] filed all its Monthly VAT Declarations and Quarterly Vat Returns for the period
January 1, 2005 to December 31, 2005. For easy reference, a summary of the filing dates of
Petitioner, Taganito Mining Corporation, is a corporation duly organized and existing under
the original and amended Quarterly VAT Returns for taxable year 2005 of [Taganito] is as
and by virtue of the laws of the Philippines, with principal office at 4th Floor, Solid Mills
follows:cralawlibrary
Building, De La Rosa St., Lega[s]pi Village, Makati City. It is duly registered with the Securities
and Exchange Commission with Certificate of Registration No. 138682 issued on March 4,
1987 with the following primary purpose:cralawlibrary Exhibit(s) Quarter Nature of Mode of filing Filing Date
the Return
To carry on the business, for itself and for others, of mining lode and/or placer mining,
developing, exploiting, extracting, milling, concentrating, converting, smelting, treating, L to L-4 1st Original Electronic April 15, 2005
refining, preparing for market, manufacturing, buying, selling, exchanging, shipping,
transporting, and otherwise producing and dealing in nickel, chromite, cobalt, gold, silver,
copper, lead, zinc, brass, iron, steel, limestone, and all kinds of ores, metals and their by- M to M-3 Amended Electronic July 20, 2005
products and which by-products thereof of every kind and description and by whatsoever
process the same can be or may hereafter be produced, and generally and without limit asNto to N-4 Amended Electronic October 18, 2006
amount, to buy, sell, locate, exchange, lease, acquire and deal in lands, mines, and mineral
rights and claims and to conduct all business appertaining thereto, to purchase, locate, lease
or otherwise acquire, mining claims and rights, timber rights, water rights, concessions andQ to Q-3 2nd Original Electronic July 20, 2005
mines, buildings, dwellings, plants machinery, spare parts, tools and other properties
whatsoever which this corporation may from time to time find to be to its advantage to mine R to R-4 Amended Electronic October 18, 2006
lands, and to explore, work, exercise, develop or turn to account the same, and to acquire,
develop and utilize water rights in such manner as may be authorized or permitted by law; to
purchase, hire, make, construct or otherwise, acquire, provide, maintain, equip, alter, erect, U to U-4 3rd Original Electronic October 19, 2005
improve, repair, manage, work and operate private roads, barges, vessels, aircraft and
o V-4 Amended Electronic October 18, 2006 On November 29, 2006, [Taganito] sent again another letter dated November 29, 2004 to
[the CIR], to correct the period of the above claim for tax credit/refund in the said amount of
?8,365,664.38 as actually referring to the period covering January 1, 2005 to December 31,
o Y-4 4th Original Electronic January 20, 2006 2005.

Z-4 Amended Electronic October 18, 2006 As the statutory period within which to file a claim for refund for said input VAT is about to
lapse without action on the part of the [CIR], [Taganito] filed the instant Petition for Review
on February 17, 2007.
As can be gleaned from its amended Quarterly VAT Returns, [Taganito] reported zero-rated
sales amounting to P1,446,854,034.68; input VAT on its domestic purchases and importations In his Answer filed on March 28, 2007, [the CIR] interposes the following
of goods (other than capital goods) and services amounting to P2,314,730.43; and input VAT defenses:cralawlibrary
on its domestic purchases and importations of capital goods amounting to P6,050,933.95, the
details of which are summarized as follows:cralawlibrary 4. [Taganitos] alleged claim for refund is subject to administrative investigation/examination
by the Bureau of Internal Revenue (BIR);
iod Zero-Rated Sales Input VAT on Input VAT on Total Input VAT
ered Domestic Domestic 5. The amount of ?8,365,664.38 being claimed by [Taganito] as alleged unutilized input VAT
on domestic purchases of goods and services and on importation of capital goods for the
Purchases and Purchases and
period January 1, 2005 to December 31, 2005 is not properly documented;
Importations Importations
of Goods and of Capital
Services Goods 6. [Taganito] must prove that it has complied with the provisions of Sections 112 (A) and (D)
and 229 of the National Internal Revenue Code of 1997 (1997 Tax Code) on the prescriptive
period for claiming tax refund/credit;
01/05 - P551,179,871.58 P1,491,880.56 P239,803.22 P1,731,683.78
31/05 7. Proof of compliance with the prescribed checklist of requirements to be submitted
involving claim for VAT refund pursuant to Revenue Memorandum Order No. 53-98,
01/05 - 64,677,530.78 204,364.17 5,811,130.73 6,015,494.90 otherwise there would be no sufficient compliance with the filing of administrative claim
30/05 for refund, the administrative claim thereof being mere proforma, which is a condition sine
qua non prior to the filing of judicial claim in accordance with the provision of Section 229 of
the 1997 Tax Code. Further, Section 112 (D) of the Tax Code, as amended, requires the
01/05 - 480,784,287.30 144,887.67 - 144,887.67 submission of complete documents in support of the application filed with the BIR before
30/05 the 120-day audit period shall apply, and before the taxpayer could avail of judicial
remedies as provided for in the law. Hence, [Taganitos] failure to submit proof of
01/05 - 350,212,345.02 473,598.03 - 473,598.03 compliance with the above-stated requirements warrants immediate dismissal of the petition
31/05 for review.

8. [Taganito] must prove that it has complied with the invoicing requirements mentioned in
TAL P1,446,854,034.68 P2,314,730.43 P6,050,933.95 P8,365,664.38 Sections 110 and 113 of the 1997 Tax Code, as amended, in relation to provisions of Revenue
Regulations No. 7-95.

On November 14, 2006, [Taganito] filed with [the CIR], through BIRs Large Taxpayers Audit
and Investigation Division II (LTAID II), a letter dated November 13, 2006 claiming a tax
credit/refund of its supposed input VAT amounting to ?8,365,664.38 for the period covering
January 1, 2004 to December 31, 2004. On the same date, [Taganito] likewise filed an
Application for Tax Credits/Refunds for the period covering January 1, 2005 to December 31,
2005 for the same amount.
9. In an action for refund/credit, the burden of proof is on the taxpayer to establish its right
to refund, and failure to sustain the burden is fatal to the claim for refund/credit (Asiatic
Petroleum Co. v. Llanes, 49 Phil. 466 cited in Collector of Internal Revenue v. Manila Jockey
Club, Inc., 98 Phil. 670);
10. Claims for refund are construed strictly against the claimant for the same partake the
nature of exemption from taxation (Commissioner of Internal Revenue v. Ledesma, 31 SCRA
95) and as such, they are looked upon with disfavor (Western Minolco Corp. v.
Commissioner of Internal Revenue, 124 SCRA 1211).
SPECIAL AND AFFIRMATIVE DEFENSES
11. The Court of Tax Appeals has no jurisdiction to entertain the instant petition for review
for failure on the part of [Taganito] to comply with the provision of Section 112 (D) of the
1997 Tax Code which provides, thus:cralawlibrary
Section 112. Refunds or Tax Credits of Input Tax.
xxx xxx xxx
(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 (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 cases of full or partial denial 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 dayperiod, appeal the decision or the
unacted claim with the Court of Tax Appeals. (Emphasis supplied.)
12. As stated, [Taganito] filed the administrative claim for refund with the Bureau of Internal
Revenue on November 14, 2006. Subsequently on February 14, 2007, the instant petition
was filed. Obviously the 120 days given to the Commissioner to decide on the claim has not
yet lapsed when the petition was filed. The petition was prematurely filed, hence it must be
dismissed for lack of jurisdiction.
During trial, [Taganito] presented testimonial and documentary evidence primarily aimed at
proving its supposed entitlement to the refund in the amount of ?8,365,664.38, representing
input taxes for the period covering January 1, 2005 to December 31, 2005. [The CIR], on the
other hand, opted not to present evidence. Thus, in the Resolution promulgated on January
22, 2009, this case was submitted for decision as of such date, considering [Taganitos]
"Memorandum" filed on January 19, 2009 and [the CIRs] "Memorandum" filed on December
19, 2008.24?r?l1
The Court of Tax Appeals Ruling: Division
The CTA Second Division partially granted Taganitos claim. In its Decision25 dated 8 January
2010, the CTA Second Division found that Taganito complied with the requirements of
Section 112(A) of RA 8424, as amended, to be entitled to a tax refund or credit of input VAT
attributable to zero-rated or effectively zero-rated sales.26?r?l1
The pertinent portions of the CTA Second Divisions Decision read:cralawlibrary
Finally, records show that [Taganitos] administrative claim filed on November 14, 2006,
which was amended on November 29, 2006, and the Petition for Review filed with this Court
on February 14, 2007 are well within the two-year prescriptive period, reckoned from March
31, 2005, June 30, 2005, September 30, 2005, and December 31, 2005, respectively, the close
of each taxable quarter covering the period January 1, 2005 to December 31, 2005.
In fine, [Taganito] sufficiently proved that it is entitled to a tax credit certificate in the
amount of ?8,249,883.33 representing unutilized input VAT for the four taxable quarters of
2005.
WHEREFORE, premises considered, the instant Petition for Review is hereby PARTIALLY
GRANTED. Accordingly, [the CIR] is hereby ORDERED to REFUND to [Taganito] the amount of
EIGHT MILLION TWO HUNDRED FORTY NINE THOUSAND EIGHT HUNDRED EIGHTY THREE
PESOS AND THIRTY THREE CENTAVOS (P8,249,883.33) representing its unutilized input taxes
attributable to zero-rated sales from January 1, 2005 to December 31, 2005.
SO ORDERED.27?r?l1 ???ñr?bl?š ??r†??l l?? l?br?rÿ
The Commissioner filed a Motion for Partial Reconsideration on 29 January 2010. Taganito, in
turn, filed a Comment/Opposition on the Motion for Partial Reconsideration on 15 February
2010.
In a Resolution28 dated 7 April 2010, the CTA Second Division denied the CIRs motion. The
CTA Second Division ruled that the legislature did not intend that Section 112 (Refunds or Tax
Credits of Input Tax) should be read in isolation from Section 229 (Recovery of Tax
Erroneously or Illegally Collected) or vice versa. The CTA Second Division applied the
mandatory statute of limitations in seeking judicial recourse prescribed under Section 229 to
claims for refund or tax credit under Section 112.
The Court of Tax Appeals Ruling: En Banc
On 29 April 2010, the Commissioner filed a Petition for Review before the CTA EB assailing
the 8 January 2010 Decision and the 7 April 2010 Resolution in CTA Case No. 7574 and
praying that Taganitos entire claim for refund be denied.
In its 8 December 2010 Decision,29 the CTA EB granted the CIRs petition for review and
reversed and set aside the challenged decision and resolution.
The CTA EB declared that Section 112(A) and (B) of the 1997 Tax Code both set forth the
reckoning of the two-year prescriptive period for filing a claim for tax refund or credit over
input VAT to be the close of the taxable quarter when the sales were made. The CTA EB also
relied on this Courts rulings in the cases of Commissioner of Internal Revenue v. Aichi Forging
Company of Asia, Inc. (Aichi)30 and Commisioner of Internal Revenue v. Mirant Pagbilao
Corporation (Mirant).31 Both Aichi and Mirant ruled that the two-year prescriptive period to
file a refund for input VAT arising from zero-rated sales should be reckoned from the close of
the taxable quarter when the sales were made. Aichi further emphasized that the failure to
await the decision of the Commissioner or the lapse of 120-day period prescribed in Section
112(D) amounts to a premature filing.
The CTA EB found that Taganito filed its administrative claim on 14 November 2006, which
was well within the period prescribed under Section 112(A) and (B) of the 1997 Tax Code.
However, the CTA EB found that Taganitos judicial claim was prematurely filed. Taganito filed
its Petition for Review before the CTA Second Division on 14 February 2007. The judicial claim
was filed after the lapse of only 92 days from the filing of its administrative claim before the
CIR, in violation of the 120-day period prescribed in Section 112(D) of the 1997 Tax Code.
The dispositive portion of the Decision states:cralawlibrary
WHEREFORE, the instant Petition for Review is hereby GRANTED. The assailed Decision dated
January 8, 2010 and Resolution dated April 7, 2010 of the Special Second Division of this
Court are hereby REVERSED and SET ASIDE. Another one is hereby entered DISMISSING the
Petition for Review filed in CTA Case No. 7574 for having been prematurely filed.
SO ORDERED.32?r?l1 ???ñr?bl?š ??r†??l l?? l?br?rÿ
In his dissent,33 Associate Justice Lovell R. Bautista insisted that Taganito timely filed its claim
before the CTA. Justice Bautista read Section 112(C) of the 1997 Tax Code (Period within
which Refund or Tax Credit of Input Taxes shall be Made) in conjunction with Section 229
(Recovery of Tax Erroneously or Illegally Collected). Justice Bautista also relied on this Courts
ruling in Atlas Consolidated Mining and Development Corporation v. Commissioner of Internal
Revenue (Atlas),34 which stated that refundable or creditable input VAT and illegally or
erroneously collected national internal revenue tax are the same, insofar as both are
monetary amounts which are currently in the hands of the government but must rightfully be
returned to the taxpayer. Justice Bautista concluded:cralawlibrary
Being merely permissive, a taxpayer claimant has the option of seeking judicial redress for
refund or tax credit of excess or unutilized input tax with this Court, either within 30 days
from receipt of the denial of its claim, or after the lapse of the 120-day period in the event of
inaction by the Commissioner, provided that both administrative and judicial remedies must
be undertaken within the 2-year period.35?r?l1 ???ñr?bl?š ??r†??l l?? l?br?rÿ
Taganito filed its Motion for Reconsideration on 29 December 2010. The Commissioner filed
an Opposition on 26 January 2011. The CTA EB denied for lack of merit Taganitos motion in a
Resolution36 dated 14 March 2011. The CTA EB did not see any justifiable reason to depart
from this Courts rulings in Aichi and Mirant.
G.R. No. 197156
Philex Mining Corporation v. CIR
The Facts
The CTA EBs narration of the pertinent facts is as follows:cralawlibrary
[Philex] is a corporation duly organized and existing under the laws of the Republic of the
Philippines, which is principally engaged in the mining business, which includes the
exploration and operation of mine properties and commercial production and marketing of
mine products, with office address at 27 Philex Building, Fairlaine St., Kapitolyo, Pasig City.
[The CIR], on the other hand, is the head of the Bureau of Internal Revenue ("BIR"), the
government entity tasked with the duties/functions of assessing and collecting all national
internal revenue taxes, fees, and charges, and enforcement of all forfeitures, penalties and
fines connected therewith, including the execution of judgments in all cases decided in its
favor by [the Court of Tax Appeals] and the ordinary courts, where she can be served with
court processes at the BIR Head Office, BIR Road, Quezon City. ???ñr?bl?š ??r†??l l?? l?br?rÿ
On October 21, 2005, [Philex] filed its Original VAT Return for the third quarter of taxable
year 2005 and Amended VAT Return for the same quarter on December 1, 2005.
On March 20, 2006, [Philex] filed its claim for refund/tax credit of the amount of
?23,956,732.44 with the One Stop Shop Center of the Department of Finance. However, due
to [the CIRs] failure to act on such claim, on October 17, 2007, pursuant to Sections 112 and
229 of the NIRC of 1997, as amended, [Philex] filed a Petition for Review, docketed as C.T.A.
Case No. 7687.
In [her] Answer, respondent CIR alleged the following special and affirmative
defenses:cralawlibrary
4. Claims for refund are strictly construed against the taxpayer as the same partake the
nature of an exemption;
5. The taxpayer has the burden to show that the taxes were erroneously or illegally paid.
Failure on the part of [Philex] to prove the same is fatal to its cause of action;
6. [Philex] should prove its legal basis for claiming for the amount being refunded.37?r?l1
The Court of Tax Appeals Ruling: Division
The CTA Second Division, in its Decision dated 20 July 2009, denied Philexs claim due to
prescription. The CTA Second Division ruled that the two-year prescriptive period specified in
Section 112(A) of RA 8424, as amended, applies not only to the filing of the administrative
claim with the BIR, but also to the filing of the judicial claim with the CTA. Since Philexs claim
covered the 3rd quarter of 2005, its administrative claim filed on 20 March 2006 was timely
filed, while its judicial claim filed on 17 October 2007 was filed late and therefore barred by
prescription.
On 10 November 2009, the CTA Second Division denied Philexs Motion for Reconsideration.
The Court of Tax Appeals Ruling: En Banc
Philex filed a Petition for Review before the CTA EB praying for a reversal of the 20 July 2009
Decision and the 10 November 2009 Resolution of the CTA Second Division in CTA Case No.
7687.
The CTA EB, in its Decision38 dated 3 December 2010, denied Philexs petition and affirmed
the CTA Second Divisions Decision and Resolution.
The pertinent portions of the Decision read:cralawlibrary
In this case, while there is no dispute that [Philexs] administrative claim for refund was filed
within the two-year prescriptive period; however, as to its judicial claim for refund/credit,
records show that on March 20, 2006, [Philex] applied the administrative claim for refund of
unutilized input VAT in the amount of ?23,956,732.44 with the One Stop Shop Center of the
Department of Finance, per Application No. 52490. From March 20, 2006, which is also
presumably the date [Philex] submitted supporting documents, together with the aforesaid
application for refund, the CIR has 120 days, or until July 18, 2006, within which to decide the
claim. Within 30 days from the lapse of the 120-day period, or from July 19, 2006 until August
17, 2006, [Philex] should have elevated its claim for refund to the CTA. However, [Philex] filed
its Petition for Review only on October 17, 2007, which is 426 days way beyond the 30- day
period prescribed by law.
Evidently, the Petition for Review in CTA Case No. 7687 was filed 426 days late. Thus, the
Petition for Review in CTA Case No. 7687 should have been dismissed on the ground that the
Petition for Review was filed way beyond the 30-day prescribed period; thus, no jurisdiction
was acquired by the CTA in Division; and not due to prescription.
WHEREFORE, premises considered, the instant Petition for Review is hereby DENIED DUE
COURSE, and accordingly, DISMISSED. The assailed Decision dated July 20, 2009, dismissing
the Petition for Review in CTA Case No. 7687 due to prescription, and Resolution dated
November 10, 2009 denying [Philexs] Motion for Reconsideration are hereby AFFIRMED, with
modification that the dismissal is based on the ground that the Petition for Review in CTA
Case No. 7687 was filed way beyond the 30-day prescribed period to appeal.
SO ORDERED.39?r?l1 ???ñr?bl?š ??r†??l l?? l?br?rÿ
G.R. No. 187485
CIR v. San Roque Power Corporation
The Commissioner raised the following grounds in the Petition for Review:cralawlibrary
I. The Court of Tax Appeals En Banc erred in holding that [San Roques] claim for refund was
not prematurely filed.
II. The Court of Tax Appeals En Banc erred in affirming the amended decision of the Court of
Tax Appeals (Second Division) granting [San Roques] claim for refund of alleged unutilized
input VAT on its purchases of capital goods and services for the taxable year 2001 in the
amount of P483,797,599.65. 40?r?l1 ???ñr?bl?š ??r†??l l?? l?br?rÿ
G.R. No. 196113
Taganito Mining Corporation v. CIR
Taganito raised the following grounds in its Petition for Review:cralawlibrary
I. The Court of Tax Appeals En Banc committed serious error and acted with grave abuse of
discretion tantamount to lack or excess of jurisdiction in erroneously applying the Aichi
doctrine in violation of [Taganitos] right to due process.
II. The Court of Tax Appeals committed serious error and acted with grave abuse of discretion
amounting to lack or excess of jurisdiction in erroneously interpreting the provisions of
Section 112 (D).41?r?l1 ???ñr?bl?š ??r†??l l?? l?br?rÿ
G.R. No. 197156
Philex Mining Corporation v. CIR
Philex raised the following grounds in its Petition for Review:cralawlibrary
I. The CTA En Banc erred in denying the petition due to alleged prescription. The fact is that
the petition was filed with the CTA within the period set by prevailing court rulings at the
time it was filed.
II. The CTA En Banc erred in retroactively applying the Aichi ruling in denying the petition in
this instant case.42?r?l1
The Courts Ruling
For ready reference, the following are the provisions of the Tax Code applicable to the
present cases:cralawlibrary
Section 105:cralawlibrary
Persons Liable. Any person who, in the course of trade or business, sells, barters,
exchanges, leases goods or properties, renders services, and any person who imports goods
shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of this Code.
The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to
the buyer, transferee or lessee of the goods, properties or services. This rule shall likewise
apply to existing contracts of sale or lease of goods, properties or services at the time of the
effectivity of Republic Act No. 7716.?r?l??
xxx
Section 110(B):cralawlibrary
Sec. 110. Tax Credits.
(B) Excess Output or Input Tax. If at the end of any taxable quarter the output tax exceeds the
input tax, the excess shall be paid by the VAT-registered person. If the input tax exceeds the
output tax, the excess shall be carried over to the succeeding quarter or quarters:
[Provided, That the input tax inclusive of input VAT carried over from the previous quarter
that may be credited in every quarter shall not exceed seventy percent (70%) of the output
VAT:]43 Provided, however, That any input tax attributable to zero-rated sales by a VAT-
registered person may at his option be refunded or credited against other internal revenue
taxes, subject to the provisions of Section 112.
Section 112:44?r?l1
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 Subsection (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.
Section 229:
Recovery of Tax Erroneously or Illegally Collected. No suit or proceeding shall be maintained
in any court for the recovery of any national internal revenue tax hereafter alleged to have
been erroneously or illegally assessed or collected, or of any penalty claimed to have been
collected without authority, or of any sum alleged to have been excessively or in any manner
wrongfully collected, until a claim for refund or credit has been duly filed with the
Commissioner; but such suit or proceeding may be maintained, whether or not such tax,
penalty, or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2) years
from the date of payment of the tax or penalty regardless of any supervening cause that
may arise after payment: Provided, however, That the Commissioner may, even without a
written claim therefor, refund or credit any tax, where on the face of the return upon which
payment was made, such payment appears clearly to have been erroneously paid.
(All emphases supplied)
I. Application of the 120+30 Day Periods
a. G.R. No. 187485 - CIR v. San Roque Power Corporation
On 10 April 2003, a mere 13 days after it filed its amended administrative claim with the
Commissioner on 28 March 2003, San Roque filed a Petition for Review with the CTA
docketed as CTA Case No. 6647. From this we gather two crucial facts: first, San Roque did
not wait for the 120-day period to lapse before filing its judicial claim; second, San Roque
filed its judicial claim more than four (4) years before the Atlas45 doctrine, which was
promulgated by the Court on 8 June 2007.
Clearly, San Roque failed to comply with the 120-day waiting period, the time expressly given
by law to the Commissioner to decide whether to grant or deny San Roques application for
tax refund or credit. It is indisputable that compliance with the 120-day waiting period is
mandatory and jurisdictional. The waiting period, originally fixed at 60 days only, was part of
the provisions of the first VAT law, Executive Order No. 273, which took effect on 1 January
1988. The waiting period was extended to 120 days effective 1 January 1998 under RA 8424
or the Tax Reform Act of 1997. Thus, the waiting period has been in our statute books for
more than fifteen (15) years before San Roque filed its judicial claim.
Failure to comply with the 120-day waiting period violates a mandatory provision of law. It
violates the doctrine of exhaustion of administrative remedies and renders the petition
premature and thus without a cause of action, with the effect that the CTA does not acquire
jurisdiction over the taxpayers petition. Philippine jurisprudence is replete with cases
upholding and reiterating these doctrinal principles.46?r?l1 ???ñr?bl?š ??r†??l l?? l?br?rÿ
The charter of the CTA expressly provides that its jurisdiction is to review on appeal
"decisions of the Commissioner of Internal Revenue in cases involving x x x refunds of
internal revenue taxes."47 When a taxpayer prematurely files a judicial claim for tax refund or
credit with the CTA without waiting for the decision of the Commissioner, there is no
"decision" of the Commissioner to review and thus the CTA as a court of special jurisdiction
has no jurisdiction over the appeal. The charter of the CTA also expressly provides that if the
Commissioner fails to decide within "a specific period" required by law, such "inaction shall
be deemed a denial"48 of the application for tax refund or credit. It is the Commissioners
decision, or inaction "deemed a denial," that the taxpayer can take to the CTA for review.
Without a decision or an "inaction x x x deemed a denial" of the Commissioner, the CTA has
no jurisdiction over a petition for review.49?r?l1
San Roques failure to comply with the 120-day mandatory period renders its petition for
review with the CTA void. Article 5 of the Civil Code provides, "Acts executed against
provisions of mandatory or prohibitory laws shall be void, except when the law itself
authorizes their validity." San Roques void petition for review cannot be legitimized by the
CTA or this Court because Article 5 of the Civil Code states that such void petition cannot be
legitimized "except when the law itself authorizes [its] validity." There is no law authorizing
the petitions validity.
It is hornbook doctrine that a person committing a void act contrary to a mandatory
provision of law cannot claim or acquire any right from his void act. A right cannot spring in
favor of a person from his own void or illegal act. This doctrine is repeated in Article 2254 of
the Civil Code, which states, "No vested or acquired right can arise from acts or omissions
which are against the law or which infringe upon the rights of others."50 For violating a
mandatory provision of law in filing its petition with the CTA, San Roque cannot claim any
right arising from such void petition. Thus, San Roques petition with the CTA is a mere scrap
of paper.
This Court cannot brush aside the grave issue of the mandatory and jurisdictional nature of
the 120-day period just because the Commissioner merely asserts that the case was
prematurely filed with the CTA and does not question the entitlement of San Roque to the
refund. The mere fact that a taxpayer has undisputed excess input VAT, or that the tax was
admittedly illegally, erroneously or excessively collected from him, does not entitle him as a
matter of right to a tax refund or credit. Strict compliance with the mandatory and
jurisdictional conditions prescribed by law to claim such tax refund or credit is essential and
necessary for such claim to prosper. Well-settled is the rule that tax refunds or credits, just
like tax exemptions, are strictly construed against the taxpayer.51 The burden is on the
taxpayer to show that he has strictly complied with the conditions for the grant of the tax
refund or credit.
This Court cannot disregard mandatory and jurisdictional conditions mandated by law simply
because the Commissioner chose not to contest the numerical correctness of the claim for
tax refund or credit of the taxpayer. Non-compliance with mandatory periods, non-
observance of prescriptive periods, and non-adherence to exhaustion of administrative
remedies bar a taxpayers claim for tax refund or credit, whether or not the Commissioner
questions the numerical correctness of the claim of the taxpayer. This Court should not
establish the precedent that non-compliance with mandatory and jurisdictional conditions
can be excused if the claim is otherwise meritorious, particularly in claims for tax refunds or
credit. Such precedent will render meaningless compliance with mandatory and jurisdictional
requirements, for then every tax refund case will have to be decided on the numerical
correctness of the amounts claimed, regardless of non-compliance with mandatory and
jurisdictional conditions.
San Roque cannot also claim being misled, misguided or confused by the Atlas doctrine
because San Roque filed its petition for review with the CTA more than four years before
Atlas was promulgated. The Atlas doctrine did not exist at the time San Roque failed to
comply with the 120- day period. Thus, San Roque cannot invoke the Atlas doctrine as an
excuse for its failure to wait for the 120-day period to lapse. In any event, the Atlas doctrine
merely stated that the two-year prescriptive period should be counted from the date of
payment of the output VAT, not from the close of the taxable quarter when the sales
involving the input VAT were made. The Atlas doctrine does not interpret, expressly or
impliedly, the 120+3052 day periods.
In fact, Section 106(b) and (e) of the Tax Code of 1977 as amended, which was the law cited
by the Court in Atlas as the applicable provision of the law did not yet provide for the 30-day
period for the taxpayer to appeal to the CTA from the decision or inaction of the
Commissioner.53 Thus, the Atlas doctrine cannot be invoked by anyone to disregard
compliance with the 30-day mandatory and jurisdictional period. Also, the difference
between the Atlas doctrine on one hand, and the Mirant54 doctrine on the other hand, is a
mere 20 days. The Atlas doctrine counts the two-year prescriptive period from the date of
payment of the output VAT, which means within 20 days after the close of the taxable
quarter. The output VAT at that time must be paid at the time of filing of the quarterly tax
returns, which were to be filed "within 20 days following the end of each
quarter."???ñr?bl?š ??r†??l l?? l?br?rÿ
Thus, in Atlas, the three tax refund claims listed below were deemed timely filed because the
administrative claims filed with the Commissioner, and the petitions for review filed with the
CTA, were all filed within two years from the date of payment of the output VAT, following
Section 229:cralawlibrary
 Date of Filing Return Date of Filing Date of Filing Commissioner. Indisputably, San Roque knowingly violated the mandatory 120-day period,
iod Covered and it cannot blame anyone but itself.
& Payment of Tax Administrative Claim Petition With CTA

Section 112(C) also expressly grants the taxpayer a 30-day period to appeal to the CTA the
Quarter, 1990 20 July 1990 21 August 1990 20 July 1992 decision or inaction of the Commissioner, thus:cralawlibrary
se of Quarter
June 1990
x x x 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
Quarter, 1990 18 October 1990 21 November 1990 9 October 1992 decision or the unacted claim with the Court of Tax Appeals. (Emphasis supplied)
se of Quarter
September 1990 This law is clear, plain, and unequivocal. Following the well-settled verba legis doctrine, this
law should be applied exactly as worded since it is clear, plain, and unequivocal. As this law
Quarter, 1990 20 January 1991 19 February 1991 14 January 1993 states, the taxpayer may, if he wishes, appeal the decision of the Commissioner to the CTA
within 30 days from receipt of the Commissioners decision, or if the Commissioner does not
se of Quarter
act on the taxpayers claim within the 120-day period, the taxpayer may appeal to the CTA
December 1990
within 30 days from the expiration of the 120-day period.

b. G.R. No. 196113 - Taganito Mining Corporation v. CIR

Atlas paid the output VAT at the time it filed the quarterly tax returns on the 20th, 18th, and
20th day after the close of the taxable quarter. Had the twoyear prescriptive period been
Like San Roque, Taganito also filed its petition for review with the CTA without waiting for
counted from the "close of the taxable quarter" as expressly stated in the law, the tax refund
the 120-day period to lapse. Also, like San Roque, Taganito filed its judicial claim before the
claims of Atlas would have already prescribed. In contrast, the Mirant doctrine counts the
promulgation of the Atlas doctrine. Taganito filed a Petition for Review on 14 February 2007
two-year prescriptive period from the "close of the taxable quarter when the sales were
with the CTA. This is almost four months before the adoption of the Atlas doctrine on 8 June
made" as expressly stated in the law, which means the last day of the taxable quarter. The
2007. Taganito is similarly situated as San Roque - both cannot claim being misled,
20-day difference55 between the Atlas doctrine and the later Mirant doctrine is not
misguided, or confused by the Atlas doctrine.
material to San Roques claim for tax refund.

However, Taganito can invoke BIR Ruling No. DA-489-0357 dated 10 December 2003, which
Whether the Atlas doctrine or the Mirant doctrine is applied to San Roque is immaterial
expressly ruled that the "taxpayer-claimant need not wait for the lapse of the 120-day
because what is at issue in the present case is San Roques non-compliance with the 120-day
period before it could seek judicial relief with the CTA by way of Petition for Review."
mandatory and jurisdictional period, which is counted from the date it filed its administrative
Taganito filed its judicial claim after the issuance of BIR Ruling No. DA-489-03 but before the
claim with the Commissioner. The 120-day period may extend beyond the two-year
adoption of the Aichi doctrine. Thus, as will be explained later, Taganito is deemed to have
prescriptive period, as long as the administrative claim is filed within the two-year
filed its judicial claim with the CTA on time.
prescriptive period. However, San Roques fatal mistake is that it did not wait for the
Commissioner to decide within the 120-day period, a mandatory period whether the Atlas or
the Mirant doctrine is applied. c. G.R. No. 197156 Philex Mining Corporation v. CIR

At the time San Roque filed its petition for review with the CTA, the 120+30 day mandatory
periods were already in the law. Section 112(C)56 expressly grants the Commissioner 120 days
within which to decide the taxpayers claim. The law is clear, plain, and unequivocal: "x x x the
Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes
within one hundred twenty (120) days from the date of submission of complete
documents." Following the verba legis doctrine, this law must be applied exactly as worded
since it is clear, plain, and unequivocal. The taxpayer cannot simply file a petition with the
CTA without waiting for the Commissioners decision within the 120-day mandatory and
jurisdictional period. The CTA will have no jurisdiction because there will be no "decision" or
"deemed a denial" decision of the Commissioner for the CTA to review. In San Roques case, it
filed its petition with the CTA a mere 13 days after it filed its administrative claim with the
Philex (1) filed on 21 October 2005 its original VAT Return for the third quarter of taxable
year 2005; (2) filed on 20 March 2006 its administrative claim for refund or credit; (3) filed on
17 October 2007 its Petition for Review with the CTA. The close of the third taxable quarter in
2005 is 30 September 2005, which is the reckoning date in computing the two-year
prescriptive period under Section 112(A).
Philex timely filed its administrative claim on 20 March 2006, within the two-year prescriptive
period. Even if the two-year prescriptive period is computed from the date of payment of the
output VAT under Section 229, Philex still filed its administrative claim on time. Thus, the
Atlas doctrine is immaterial in this case. The Commissioner had until 17 July 2006, the last
day of the 120-day period, to decide Philexs claim. Since the Commissioner did not act on
Philexs claim on or before 17 July 2006, Philex had until 17 August 2006, the last day of the
30-day period, to file its judicial claim. The CTA EB held that 17 August 2006 was indeed the
last day for Philex to file its judicial claim. However, Philex filed its Petition for Review with
the CTA only on 17 October 2007, or four hundred twenty-six (426) days after the last day of
filing. In short, Philex was late by one year and 61 days in filing its judicial claim. As the CTA
EB correctly found:cralawlibrary
Evidently, the Petition for Review in C.T.A. Case No. 7687 was filed 426 days late. Thus, the
Petition for Review in C.T.A. Case No. 7687 should have been dismissed on the ground that
the Petition for Review was filed way beyond the 30-day prescribed period; thus, no
jurisdiction was acquired by the CTA Division; x x x58 (Emphasis supplied)
Unlike San Roque and Taganito, Philexs case is not one of premature filing but of late filing.
Philex did not file any petition with the CTA within the 120-day period. Philex did not also file
any petition with the CTA within 30 days after the expiration of the 120-day period. Philex
filed its judicial claim long after the expiration of the 120-day period, in fact 426 days after
the lapse of the 120-day period. In any event, whether governed by jurisprudence before,
during, or after the Atlas case, Philexs judicial claim will have to be rejected because of late
filing. Whether the two-year prescriptive period is counted from the date of payment of the
output VAT following the Atlas doctrine, or from the close of the taxable quarter when the
sales attributable to the input VAT were made following the Mirant and Aichi doctrines,
Philexs judicial claim was indisputably filed late.
The Atlas doctrine cannot save Philex from the late filing of its judicial claim. The inaction of
the Commissioner on Philexs claim during the 120-day period is, by express provision of law,
"deemed a denial" of Philexs claim. Philex had 30 days from the expiration of the 120-day
period to file its judicial claim with the CTA. Philexs failure to do so rendered the "deemed a
denial" decision of the Commissioner final and inappealable. The right to appeal to the CTA
from a decision or "deemed a denial" decision of the Commissioner is merely a statutory
privilege, not a constitutional right. The exercise of such statutory privilege requires strict
compliance with the conditions attached by the statute for its exercise.59 Philex failed to
comply with the statutory conditions and must thus bear the consequences.
II. Prescriptive Periods under Section 112(A) and (C)
There are three compelling reasons why the 30-day period need not necessarily fall within
the two-year prescriptive period, as long as the administrative claim is filed within the two-
year prescriptive period.
First, Section 112(A) clearly, plainly, and unequivocally provides that the taxpayer "may,
within two (2) years after the close of the taxable quarter when the sales were made, apply
for the issuance of a tax credit certificate or refund of the creditable input tax due or paid to
such sales." In short, the law states that the taxpayer may apply with the Commissioner for a
refund or credit "within two (2) years," which means at anytime within two years. Thus, the
application for refund or credit may be filed by the taxpayer with the Commissioner on the
last day of the two-year prescriptive period and it will still strictly comply with the law. The
twoyear prescriptive period is a grace period in favor of the taxpayer and he can avail of the
full period before his right to apply for a tax refund or credit is barred by prescription.
Second, Section 112(C) provides that the Commissioner shall decide the application for
refund or credit "within one hundred twenty (120) days from the date of submission of
complete documents in support of the application filed in accordance with Subsection (A)."
The reference in Section 112(C) of the submission of documents "in support of the
application filed in accordance with Subsection A" means that the application in Section
112(A) is the administrative claim that the Commissioner must decide within the 120-day
period. In short, the two-year prescriptive period in Section 112(A) refers to the period within
which the taxpayer can file an administrative claim for tax refund or credit. Stated otherwise,
the two-year prescriptive period does not refer to the filing of the judicial claim with the
CTA but to the filing of the administrative claim with the Commissioner. As held in Aichi, the
"phrase within two years x x x apply for the issuance of a tax credit or refund refers to
applications for refund/credit with the CIR and not to appeals made to the
CTA."???ñr?bl?š ??r†??l l?? l?br?rÿ
Third, if the 30-day period, or any part of it, is required to fall within the two-year prescriptive
period (equivalent to 730 days60), then the taxpayer must file his administrative claim for
refund or credit within the first 610 days of the two-year prescriptive period. Otherwise, the
filing of the administrative claim beyond the first 610 days will result in the appeal to the
CTA being filed beyond the two-year prescriptive period. Thus, if the taxpayer files his
administrative claim on the 611th day, the Commissioner, with his 120-day period, will have
until the 731st day to decide the claim. If the Commissioner decides only on the 731st day, or
does not decide at all, the taxpayer can no longer file his judicial claim with the CTA because
the two-year prescriptive period (equivalent to 730 days) has lapsed. The 30-day period
granted by law to the taxpayer to file an appeal before the CTA becomes utterly useless, even
if the taxpayer complied with the law by filing his administrative claim within the two-year
prescriptive period. ???ñr?bl?š ??r†??l l?? l?br?rÿ
The theory that the 30-day period must fall within the two-year prescriptive period adds a
condition that is not found in the law. It results in truncating 120 days from the 730 days that
the law grants the taxpayer for filing his administrative claim with the Commissioner. This
Court cannot interpret a law to defeat, wholly or even partly, a remedy that the law expressly
grants in clear, plain, and unequivocal language.
Section 112(A) and (C) must be interpreted according to its clear, plain, and unequivocal
language. The taxpayer can file his administrative claim for refund or credit at anytime within
the two-year prescriptive period. If he files his claim on the last day of the two-year
prescriptive period, his claim is still filed on time. The Commissioner will have 120 days from
such filing to decide the claim. If the Commissioner decides the claim on the 120th day, or
does not decide it on that day, the taxpayer still has 30 days to file his judicial claim with the
CTA. This is not only the plain meaning but also the only logical interpretation of Section
112(A) and (C).
III. "Excess" Input VAT and "Excessively" Collected Tax
The input VAT is not "excessively" collected as understood under Section 229 because at the
time the input VAT is collected the amount paid is correct and proper. The input VAT is a tax
liability of, and legally paid by, a VAT-registered seller61 of goods, properties or services used
as input by another VAT-registered person in the sale of his own goods, properties, or
services. This tax liability is true even if the seller passes on the input VAT to the buyer as part
of the purchase price. The second VAT-registered person, who is not legally liable for the
input VAT, is the one who applies the input VAT as credit for his own output VAT.62 If the
input VAT is in fact "excessively" collected as understood under Section 229, then it is the
first VAT-registered person - the taxpayer who is legally liable and who is deemed to have
legally paid for the input VAT - who can ask for a tax refund or credit under Section 229 as an
ordinary refund or credit outside of the VAT System. In such event, the second VAT-
registered taxpayer will have no input VAT to offset against his own output VAT.
In a claim for refund or credit of "excess" input VAT under Section 110(B) and Section 112(A),
the input VAT is not "excessively" collected as understood under Section 229. At the time of
payment of the input VAT the amount paid is the correct and proper amount. Under the VAT
System, there is no claim or issue that the input VAT is "excessively" collected, that is, that
the input VAT paid is more than what is legally due. The person legally liable for the input
VAT cannot claim that he overpaid the input VAT by the mere existence of an "excess" input
VAT. The term "excess" input VAT simply means that the input VAT available as credit
exceeds the output VAT, not that the input VAT is excessively collected because it is more
than what is legally due. Thus, the taxpayer who legally paid the input VAT cannot claim for
refund or credit of the input VAT as "excessively" collected under Section 229.
Under Section 229, the prescriptive period for filing a judicial claim for refund is two years
from the date of payment of the tax "erroneously, x x x illegally, x x x excessively or in any
manner wrongfully collected." The prescriptive period is reckoned from the date the person
liable for the tax pays the tax. Thus, if the input VAT is in fact "excessively" collected, that is,
the person liable for the tax actually pays more than what is legally due, the taxpayer must
file a judicial claim for refund within two years from his date of payment. Only the person
legally liable to pay the tax can file the judicial claim for refund. The person to whom the
tax is passed on as part of the purchase price has no personality to file the judicial claim
under Section 229.63?r?l1
Under Section 110(B) and Section 112(A), the prescriptive period for filing a judicial claim for
"excess" input VAT is two years from the close of the taxable quarter when the sale was
made by the person legally liable to pay the output VAT. This prescriptive period has no
relation to the date of payment of the "excess" input VAT. The "excess" input VAT may have
been paid for more than two years but this does not bar the filing of a judicial claim for
"excess" VAT under Section 112(A), which has a different reckoning period from Section 229.
Moreover, the person claiming the refund or credit of the input VAT is not the person who
legally paid the input VAT. Such person seeking the VAT refund or credit does not claim that
the input VAT was "excessively" collected from him, or that he paid an input VAT that is more
than what is legally due. He is not the taxpayer who legally paid the input VAT.
As its name implies, the Value-Added Tax system is a tax on the value added by the taxpayer
in the chain of transactions. For simplicity and efficiency in tax collection, the VAT is imposed
not just on the value added by the taxpayer, but on the entire selling price of his goods,
properties or services. However, the taxpayer is allowed a refund or credit on the VAT
previously paid by those who sold him the inputs for his goods, properties, or services. The
net effect is that the taxpayer pays the VAT only on the value that he adds to the goods,
properties, or services that he actually sells.
Under Section 110(B), a taxpayer can apply his input VAT only against his output VAT. The
only exception is when the taxpayer is expressly "zero-rated or effectively zero-rated" under
the law, like companies generating power through renewable sources of energy. 64 Thus, a
non zero-rated VAT-registered taxpayer who has no output VAT because he has no sales
cannot claim a tax refund or credit of his unused input VAT under the VAT System. Even if the
taxpayer has sales but his input VAT exceeds his output VAT, he cannot seek a tax refund or
credit of his "excess" input VAT under the VAT System. He can only carry-over and apply his
"excess" input VAT against his future output VAT. If such "excess" input VAT is an
"excessively" collected tax, the taxpayer should be able to seek a refund or credit for such
"excess" input VAT whether or not he has output VAT. The VAT System does not allow such
refund or credit. Such "excess" input VAT is not an "excessively" collected tax under Section
229. The "excess" input VAT is a correctly and properly collected tax. However, such "excess"
input VAT can be applied against the output VAT because the VAT is a tax imposed only on
the value added by the taxpayer. If the input VAT is in fact "excessively" collected under
Section 229, then it is the person legally liable to pay the input VAT, not the person to whom
the tax was passed on as part of the purchase price and claiming credit for the input VAT
under the VAT System, who can file the judicial claim under Section 229.
Any suggestion that the "excess" input VAT under the VAT System is an "excessively"
collected tax under Section 229 may lead taxpayers to file a claim for refund or credit for
such "excess" input VAT under Section 229 as an ordinary tax refund or credit outside of the
VAT System. Under Section 229, mere payment of a tax beyond what is legally due can be
claimed as a refund or credit. There is no requirement under Section 229 for an output VAT
or subsequent sale of goods, properties, or services using materials subject to input VAT.
From the plain text of Section 229, it is clear that what can be refunded or credited is a tax
that is "erroneously, x x x illegally, x x x excessively or in any manner wrongfully collected."
In short, there must be a wrongful payment because what is paid, or part of it, is not legally
due. As the Court held in Mirant, Section 229 should "apply only to instances of erroneous
payment or illegal collection of internal revenue taxes." Erroneous or wrongful payment
includes excessive payment because they all refer to payment of taxes not legally due.
Under the VAT System, there is no claim or issue that the "excess" input VAT is "excessively
or in any manner wrongfully collected." In fact, if the "excess" input VAT is an "excessively"
collected tax under Section 229, then the taxpayer claiming to apply such "excessively"
collected input VAT to offset his output VAT may have no legal basis to make such offsetting.
The person legally liable to pay the input VAT can claim a refund or credit for such
"excessively" collected tax, and thus there will no longer be any "excess" input VAT. This will
upend the present VAT System as we know it.
IV. Effectivity and Scope of the Atlas , Mirant and Aichi Doctrines
The Atlas doctrine, which held that claims for refund or credit of input VAT must comply with
the two-year prescriptive period under Section 229, should be effective only from its
promulgation on 8 June 2007 until its abandonment on 12 September 2008 in Mirant. The
Atlas doctrine was limited to the reckoning of the two-year prescriptive period from the date
of payment of the output VAT. Prior to the Atlas doctrine, the two-year prescriptive period
for claiming refund or credit of input VAT should be governed by Section 112(A) following the
verba legis rule. The Mirant ruling, which abandoned the Atlas doctrine, adopted the verba
legis rule, thus applying Section 112(A) in computing the two-year prescriptive period in
claiming refund or credit of input VAT.
The Atlas doctrine has no relevance to the 120+30 day periods under Section 112(C) because
the application of the 120+30 day periods was not in issue in Atlas. The application of the
120+30 day periods was first raised in Aichi, which adopted the verba legis rule in holding
that the 120+30 day periods are mandatory and jurisdictional. The language of Section 112(C)
is plain, clear, and unambiguous. When Section 112(C) states that "the Commissioner shall
grant a refund or issue the tax credit within one hundred twenty (120) days from the date of
submission of complete documents," the law clearly gives the Commissioner 120 days within
which to decide the taxpayers claim. Resort to the courts prior to the expiration of the 120-
day period is a patent violation of the doctrine of exhaustion of administrative remedies, a
ground for dismissing the judicial suit due to prematurity. Philippine jurisprudence is awash
with cases affirming and reiterating the doctrine of exhaustion of administrative remedies.65
Such doctrine is basic and elementary.
When Section 112(C) states that "the taxpayer affected may, within thirty (30) days from
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," the law
does not make the 120+30 day periods optional just because the law uses the word "may."
The word "may" simply means that the taxpayer may or may not appeal the decision of the
Commissioner within 30 days from receipt of the decision, or within 30 days from the
expiration of the 120-day period. Certainly, by no stretch of the imagination can the word
"may" be construed as making the 120+30 day periods optional, allowing the taxpayer to file
a judicial claim one day after filing the administrative claim with the Commissioner.
The old rule66 that the taxpayer may file the judicial claim, without waiting for the
Commissioners decision if the two-year prescriptive period is about to expire, cannot apply
because that rule was adopted before the enactment of the 30-day period. The 30-day
period was adopted precisely to do away with the old rule, so that under the VAT System
the taxpayer will always have 30 days to file the judicial claim even if the Commissioner
acts only on the 120th day, or does not act at all during the 120-day period. With the 30-day
period always available to the taxpayer, the taxpayer can no longer file a judicial claim for
refund or credit of input VAT without waiting for the Commissioner to decide until the
expiration of the 120-day period.
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.
V. Revenue Memorandum Circular No. 49-03 (RMC 49-03) dated 15 April 2003
There is nothing in RMC 49-03 that states, expressly or impliedly, that the taxpayer need not
wait for the 120-day period to expire before filing a judicial claim with the CTA. RMC 49-03
merely authorizes the BIR to continue processing the administrative claim even after the
taxpayer has filed its judicial claim, without saying that the taxpayer can file its judicial claim
before the expiration of the 120-day period. RMC 49-03 states: "In cases where the taxpayer
has filed a Petition for Review with the Court of Tax Appeals involving a claim for refund/TCC
that is pending at the administrative agency (either the Bureau of Internal Revenue or the
One- Stop Shop Inter-Agency Tax Credit and Duty Drawback Center of the Department of
Finance), the administrative agency and the court may act on the case separately." Thus, if
the taxpayer files its judicial claim before the expiration of the 120-day period, the BIR will
nevertheless continue to act on the administrative claim because such premature filing
cannot divest the Commissioner of his statutory power and jurisdiction to decide the
administrative claim within the 120-day period.
On the other hand, if the taxpayer files its judicial claim after the 120- day period, the
Commissioner can still continue to evaluate the administrative claim. There is nothing new in
this because even after the expiration of the 120-day period, the Commissioner should still
evaluate internally the administrative claim for purposes of opposing the taxpayers judicial
claim, or even for purposes of determining if the BIR should actually concede to the
taxpayers judicial claim. The internal administrative evaluation of the taxpayers claim must
necessarily continue to enable the BIR to oppose intelligently the judicial claim or, if the facts
and the law warrant otherwise, for the BIR to concede to the judicial claim, resulting in the
termination of the judicial proceedings.
What is important, as far as the present cases are concerned, is that the mere filing by a
taxpayer of a judicial claim with the CTA before the expiration of the 120-day period
cannot operate to divest the Commissioner of his jurisdiction to decide an administrative
claim within the 120-day mandatory period, unless the Commissioner has clearly given
cause for equitable estoppel to apply as expressly recognized in Section 246 of the Tax
Code.67?r?l1
VI. BIR Ruling No. DA-489-03 dated 10 December 2003
BIR Ruling No. DA-489-03 does provide a valid claim for equitable estoppel under Section 246
of the Tax Code. BIR Ruling No. DA-489-03 expressly states that the "taxpayer-claimant need
not wait for the lapse of the 120-day period before it could seek judicial relief with the CTA
by way of Petition for Review." Prior to this ruling, the BIR held, as shown by its position in
the Court of Appeals,68 that the expiration of the 120-day period is mandatory and
jurisdictional before a judicial claim can be filed.
There is no dispute that the 120-day period is mandatory and jurisdictional, and that the CTA
does not acquire jurisdiction over a judicial claim that is filed before the expiration of the
120-day period. There are, however, two exceptions to this rule. The first exception is if the
Commissioner, through a specific ruling, misleads a particular taxpayer to prematurely file a
judicial claim with the CTA. Such specific ruling is applicable only to such particular taxpayer.
The second exception is where the Commissioner, through a general interpretative rule
issued under Section 4 of the Tax Code, misleads all taxpayers into filing prematurely judicial
claims with the CTA. In these cases, the Commissioner cannot be allowed to later on question
the CTAs assumption of jurisdiction over such claim since equitable estoppel has set in as
expressly authorized under Section 246 of the Tax Code.
Section 4 of the Tax Code, a new provision introduced by RA 8424, expressly grants to the
Commissioner the power to interpret tax laws, thus:cralawlibrary
Sec. 4. Power of the Commissioner To Interpret Tax Laws and To Decide Tax Cases. The power
to interpret the provisions of this Code and other tax laws shall be under the exclusive and
original jurisdiction of the Commissioner, subject to review by the Secretary of Finance.
The power to decide disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties imposed in relation thereto, or other matters arising under this Code or
other laws or portions thereof administered by the Bureau of Internal Revenue is vested in
the Commissioner, subject to the exclusive appellate jurisdiction of the Court of Tax Appeals.
Since the Commissioner has exclusive and original jurisdiction to interpret tax laws,
taxpayers acting in good faith should not be made to suffer for adhering to general
interpretative rules of the Commissioner interpreting tax laws, should such interpretation
later turn out to be erroneous and be reversed by the Commissioner or this Court. Indeed,
Section 246 of the Tax Code expressly provides that a reversal of a BIR regulation or ruling
cannot adversely prejudice a taxpayer who in good faith relied on the BIR regulation or ruling
prior to its reversal. Section 246 provides as follows:cralawlibrary
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:cralawlibrary
(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. (Emphasis supplied) ???ñr?bl?š ??r†??l l?? l?br?rÿ
Thus, a general interpretative rule issued by the Commissioner may be relied upon by
taxpayers from the time the rule is issued up to its reversal by the Commissioner or this
Court. Section 246 is not limited to a reversal only by the Commissioner because this Section
expressly states, "Any revocation, modification or reversal" without specifying who made the
revocation, modification or reversal. Hence, a reversal by this Court is covered under Section
246.
Taxpayers should not be prejudiced by an erroneous interpretation by the Commissioner,
particularly on a difficult question of law. The abandonment of the Atlas doctrine by Mirant
and Aichi69 is proof that the reckoning of the prescriptive periods for input VAT tax refund or
credit is a difficult question of law. The abandonment of the Atlas doctrine did not result in
Atlas, or other taxpayers similarly situated, being made to return the tax refund or credit
they received or could have received under Atlas prior to its abandonment. This Court is
applying Mirant and Aichi prospectively. Absent fraud, bad faith or misrepresentation, the
reversal by this Court of a general interpretative rule issued by the Commissioner, like the
reversal of a specific BIR ruling under Section 246, should also apply prospectively. As held by
this Court in CIR v. Philippine Health Care Providers, Inc.:70?r?l1
In ABS-CBN Broadcasting Corp. v. Court of Tax Appeals, this Court held that under Section
246 of the 1997 Tax Code, the Commissioner of Internal Revenue is precluded from
adopting a position contrary to one previously taken where injustice would result to the
taxpayer. Hence, where an assessment for deficiency withholding income taxes was made,
three years after a new BIR Circular reversed a previous one upon which the taxpayer had
relied upon, such an assessment was prejudicial to the taxpayer. To rule otherwise, opined
the Court, would be contrary to the tenets of good faith, equity, and fair play.
This Court has consistently reaffirmed its ruling in ABS-CBN Broadcasting Corp. in the later
cases of Commissioner of Internal Revenue v. Borroughs, Ltd., Commissioner of Internal
Revenue v. Mega Gen. Mdsg. Corp., Commissioner of Internal Revenue v. Telefunken
Semiconductor (Phils.) Inc., and Commissioner of Internal Revenue v. Court of Appeals. The
rule is that the BIR rulings have no retroactive effect where a grossly unfair deal would
result to the prejudice of the taxpayer, as in this case.
More recently, in Commissioner of Internal Revenue v. Benguet Corporation, wherein the
taxpayer was entitled to tax refunds or credits based on the BIRs own issuances but later was
suddenly saddled with deficiency taxes due to its subsequent ruling changing the category of
the taxpayers transactions for the purpose of paying its VAT, this Court ruled that applying
such ruling retroactively would be prejudicial to the taxpayer. (Emphasis supplied)
Thus, the only issue is whether BIR Ruling No. DA-489-03 is a general interpretative rule
applicable to all taxpayers or a specific ruling applicable only to a particular taxpayer.
BIR Ruling No. DA-489-03 is a general interpretative rule because it was a response to a query
made, not by a particular taxpayer, but by a government agency tasked with processing tax
refunds and credits, that is, the One Stop Shop Inter-Agency Tax Credit and Drawback
Center of the Department of Finance. This government agency is also the addressee, or the
entity responded to, in BIR Ruling No. DA-489-03. Thus, while this government agency
mentions in its query to the Commissioner the administrative claim of Lazi Bay Resources
Development, Inc., the agency was in fact asking the Commissioner what to do in cases like
the tax claim of Lazi Bay Resources Development, Inc., where the taxpayer did not wait for
the lapse of the 120-day period.
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
However, BIR Ruling No. DA-489-03 cannot be given retroactive effect for four reasons: first,
it is admittedly an erroneous interpretation of the law; second, prior to its issuance, the BIR
held that the 120-day period was mandatory and jurisdictional, which is the correct
interpretation of the law; third, prior to its issuance, no taxpayer can claim that it was misled
by the BIR into filing a judicial claim prematurely; and fourth, a claim for tax refund or credit,
like a claim for tax exemption, is strictly construed against the taxpayer.
San Roque, therefore, cannot benefit from BIR Ruling No. DA-489-03 because it filed its
judicial claim prematurely on 10 April 2003, before the issuance of BIR Ruling No. DA-489-03
on 10 December 2003. To repeat, San Roque cannot claim that it was misled by the BIR into
filing its judicial claim prematurely because BIR Ruling No. DA-489-03 was issued only after
San Roque filed its judicial claim. At the time San Roque filed its judicial claim, the law as
applied and administered by the BIR was that the Commissioner had 120 days to act on
administrative claims. This was in fact the position of the BIR prior to the issuance of BIR
Ruling No. DA-489-03. Indeed, San Roque never claimed the benefit of BIR Ruling No. DA-
489-03 or RMC 49-03, whether in this Court, the CTA, or before the Commissioner.
Taganito, however, filed its judicial claim with the CTA on 14 February 2007, after the
issuance of BIR Ruling No. DA-489-03 on 10 December 2003. Truly, Taganito can claim that in
filing its judicial claim prematurely without waiting for the 120-day period to expire, it was
misled by BIR Ruling No. DA-489-03. Thus, Taganito can claim the benefit of BIR Ruling No.
DA-489-03, which shields the filing of its judicial claim from the vice of prematurity.
Philexs situation is not a case of premature filing of its judicial claim but of late filing, indeed
very late filing. BIR Ruling No. DA-489-03 allowed premature filing of a judicial claim, which
means non-exhaustion of the 120-day period for the Commissioner to act on an
administrative claim. Philex cannot claim the benefit of BIR Ruling No. DA-489-03 because
Philex did not file its judicial claim prematurely but filed it long after the lapse of the 30-day
period following the expiration of the 120-day period. In fact, Philex filed its judicial claim
426 days after the lapse of the 30-day period.
VII. Existing Jurisprudence
There is no basis whatsoever to the claim that in five cases this Court had already made a
ruling that the filing dates of the administrative and judicial claims are inconsequential, as
long as they are within the two-year prescriptive period. The effect of the claim of the
dissenting opinions is that San Roques failure to wait for the 120-day mandatory period to
lapse is inconsequential, thus allowing San Roque to claim the tax refund or credit. However,
the five cases cited by the dissenting opinions do not support even remotely the claim that
this Court had already made such a ruling. None of these five cases mention, cite, discuss,
rule or even hint that compliance with the 120-day mandatory period is inconsequential as
long as the administrative and judicial claims are filed within the two-year prescriptive
period.
In CIR v. Toshiba Information Equipment (Phils.), Inc.,71 the issue was whether any output VAT
was actually passed on to Toshiba that it could claim as input VAT subject to tax credit or
refund. The Commissioner argued that "although Toshiba may be a VAT-registered taxpayer,
it is not engaged in a VAT-taxable business." The Commissioner cited Section 4.106-1 of
Revenue Regulations No. 75 that "refund of input taxes on capital goods shall be allowed
only to the extent that such capital goods are used in VAT-taxable business." In the words of
the Court, "Ultimately, however, the issue still to be resolved herein shall be whether
respondent Toshiba is entitled to the tax credit/refund of its input VAT on its purchases of
capital goods and services, to which this Court answers in the affirmative." Nowhere in this
case did the Court discuss, state, or rule that the filing dates of the administrative and judicial
claims are inconsequential, as long as they are within the two-year prescriptive period.
In Intel Technology Philippines, Inc. v. CIR,72 the Court stated: "The issues to be resolved in
the instant case are (1) whether the absence of the BIR authority to print or the absence of
the TIN-V in petitioners export sales invoices operates to forfeit its entitlement to a tax
refund/credit of its unutilized input VAT attributable to its zero-rated sales; and (2) whether
petitioners failure to indicate "TIN-V" in its sales invoices automatically invalidates its claim
for a tax credit certification." Again, nowhere in this case did the Court discuss, state, or rule
that the filing dates of the administrative and judicial claims are inconsequential, as long as
they are within the two-year prescriptive period.
In AT&T Communications Services Philippines, Inc. v. CIR,73 the Court stated: "x x x the CTA
First Division, conceding that petitioners transactions fall under the classification of zero-
rated sales, nevertheless denied petitioners claim for lack of substantiation, x x x." The Court
quoted the ruling of the First Division that "valid VAT official receipts, and not mere sale
invoices, should have been submitted" by petitioner to substantiate its claim. The Court
further stated: "x x x the CTA En Banc, x x x affirmed x x x the CTA First Division," and
"petitioners motion for reconsideration having been denied x x x, the present petition for
review was filed." Clearly, the sole issue in this case is whether petitioner complied with the
substantiation requirements in claiming for tax refund or credit. Again, nowhere in this case
did the Court discuss, state, or rule that the filing dates of the administrative and judicial
claims are inconsequential, as long as they are within the two-year prescriptive period.
In CIR v. Ironcon Builders and Development Corporation,74 the Court put the issue in this
manner: "Simply put, the sole issue the petition raises is whether or not the CTA erred in
granting respondent Ironcons application for refund of its excess creditable VAT withheld."
The Commissioner argued that "since the NIRC does not specifically grant taxpayers the
option to refund excess creditable VAT withheld, it follows that such refund cannot be
allowed." Thus, this case is solely about whether the taxpayer has the right under the NIRC to
ask for a cash refund of excess creditable VAT withheld. Again, nowhere in this case did the
Court discuss, state, or rule that the filing dates of the administrative and judicial claims are
inconsequential, as long as they are within the two-year prescriptive period.
In CIR v. Cebu Toyo Corporation,75 the issue was whether Cebu Toyo was exempt or subject to
VAT. Compliance with the 120-day period was never an issue in Cebu Toyo. As the Court
explained:cralawlibrary
Both the Commissioner of Internal Revenue and the Office of the Solicitor General argue that
respondent Cebu Toyo Corporation, as a PEZA-registered enterprise, is exempt from national
and local taxes, including VAT, under Section 24 of Rep. Act No. 7916 and Section 109 of the
NIRC. Thus, they contend that respondent Cebu Toyo Corporation is not entitled to any
refund or credit on input taxes it previously paid as provided under Section 4.103-1 of
Revenue Regulations No. 7-95, notwithstanding its registration as a VAT taxpayer. For
petitioner claims that said registration was erroneous and did not confer upon the
respondent any right to claim recognition of the input tax credit.
The respondent counters that it availed of the income tax holiday under E.O. No. 226 for four
years from August 7, 1995 making it exempt from income tax but not from other taxes such
as VAT. Hence, according to respondent, its export sales are not exempt from VAT, contrary
to petitioners claim, but its export sales is subject to 0% VAT. Moreover, it argues that it
was able to establish through a report certified by an independent Certified Public
Accountant that the input taxes it incurred from April 1, 1996 to December 31, 1997 were
directly attributable to its export sales. Since it did not have any output tax against which said
input taxes may be offset, it had the option to file a claim for refund/tax credit of its
unutilized input taxes.
Considering the submission of the parties and the evidence on record, we find the petition
bereft of merit.
Petitioners contention that respondent is not entitled to refund for being exempt from VAT
is untenable. This argument turns a blind eye to the fiscal incentives granted to PEZA-
registered enterprises under Section 23 of Rep. Act No. 7916. Note that under said statute,
the respondent had two options with respect to its tax burden. It could avail of an income tax
holiday pursuant to provisions of E.O. No. 226, thus exempt it from income taxes for a
number of years but not from other internal revenue taxes such as VAT; or it could avail of
the tax exemptions on all taxes, including VAT under P.D. No. 66 and pay only the
preferential tax rate of 5% under Rep. Act No. 7916. Both the Court of Appeals and the Court
of Tax Appeals found that respondent availed of the income tax holiday for four (4) years
starting from August 7, 1995, as clearly reflected in its 1996 and 1997 Annual Corporate
Income Tax Returns, where respondent specified that it was availing of the tax relief under
E.O. No. 226. Hence, respondent is not exempt from VAT and it correctly registered itself as
a VAT taxpayer. In fine, it is engaged in taxable rather than exempt transactions. (Emphasis
supplied)
Clearly, the issue in Cebu Toyo was whether the taxpayer was exempt from VAT or subject
to VAT at 0% tax rate. If subject to 0% VAT rate, the taxpayer could claim a refund or credit
of its input VAT. Again, nowhere in this case did the Court discuss, state, or rule that the filing
dates of the administrative and judicial claims are inconsequential, as long as they are within
the two-year prescriptive period.
While this Court stated in the narration of facts in Cebu Toyo that the taxpayer "did not
bother to wait for the Resolution of its (administrative) claim by the CIR" before filing its
judicial claim with the CTA, this issue was not raised before the Court. Certainly, this
statement of the Court is not a binding precedent that the taxpayer need not wait for the
120-day period to lapse.
Any issue, whether raised or not by the parties, but not passed upon by the Court, does not
have any value as precedent. As this Court has explained as early as 1926:cralawlibrary
It is contended, however, that the question before us was answered and resolved against the
contention of the appellant in the case of Bautista v. Fajardo (38 Phil. 624). In that case no
question was raised nor was it even suggested that said section 216 did not apply to a public
officer. That question was not discussed nor referred to by any of the parties interested in
that case. It has been frequently decided that the fact that a statute has been accepted as
valid, and invoked and applied for many years in cases where its validity was not raised or
passed on, does not prevent a court from later passing on its validity, where that question is
squarely and properly raised and presented. Where a question passes the Court sub silentio,
the case in which the question was so passed is not binding on the Court (McGirr v.
Hamilton and Abreu, 30 Phil. 563), nor should it be considered as a precedent. (U.S. v.
Noriega and Tobias, 31 Phil. 310; Chicote v. Acasio, 31 Phil. 401; U.S. v. More, 3 Cranch [U.S.]
159, 172; U.S. v. Sanges, 144 U.S. 310, 319; Cross v. Burke, 146 U.S. 82.) For the reasons given
in the case of McGirr v. Hamilton and Abreu, supra, the decision in the case of Bautista v.
Fajardo, supra, can have no binding force in the interpretation of the question presented
here.76 (Emphasis supplied)
In Cebu Toyo, the nature of the 120-day period, whether it is mandatory or optional, was not
even raised as an issue by any of the parties. The Court never passed upon this issue. Thus,
Cebu Toyo does not constitute binding precedent on the nature of the 120-day period.
There is also the claim that there are numerous CTA decisions allegedly supporting the
argument that the filing dates of the administrative and judicial claims are inconsequential,
as long as they are within the two-year prescriptive period. Suffice it to state that CTA
decisions do not constitute precedents, and do not bind this Court or the public. That is why
CTA decisions are appealable to this Court, which may affirm, reverse or modify the CTA
decisions as the facts and the law may warrant. Only decisions of this Court constitute
binding precedents, forming part of the Philippine legal system.77 As held by this Court in The
Philippine Veterans Affairs Office v. Segundo:78?r?l1
x x x Let it be admonished that decisions of the Supreme Court "applying or interpreting the
laws or the Constitution . . . form part of the legal system of the Philippines," and, as it were,
"laws" by their own right because they interpret what the laws say or mean. Unlike rulings of
the lower courts, which bind the parties to specific cases alone, our judgments are
universal in their scope and application, and equally mandatory in character. Let it be
warned that to defy our decisions is to court contempt. (Emphasis supplied)
The same basic doctrine was reiterated by this Court in De Mesa v. Pepsi Cola Products Phils.,
Inc.:79?r?l1
The principle of stare decisis et non quieta movere is entrenched in Article 8 of the Civil Code,
to wit:cralawlibrary
ART. 8. Judicial decisions applying or interpreting the laws or the Constitution shall form a
part of the legal system of the Philippines.
It enjoins adherence to judicial precedents. It requires our courts to follow a rule already
established in a final decision of the Supreme Court. That decision becomes a judicial
precedent to be followed in subsequent cases by all courts in the land. The doctrine of stare
decisis is based on the principle that once a question of law has been examined and decided,
it should be deemed settled and closed to further argument. (Emphasis supplied)
VIII. Revenue Regulations No. 7-95 Effective 1 January 1996
Section 4.106-2(c) of Revenue Regulations No. 7-95, by its own express terms, applies only if
the taxpayer files the judicial claim "after" the lapse of the 60-day period, a period with
which San Roque failed to comply. Under Section 4.106-2(c), the 60-day period is still
mandatory and jurisdictional.
Moreover, it is a hornbook principle that a prior administrative regulation can never prevail
over a later contrary law, more so in this case where the later law was enacted precisely to
amend the prior administrative regulation and the law it implements.
The laws and regulation involved are as follows:cralawlibrary
1977 Tax Code, as amended by Republic Act No. 7716 (1994)
Sec. 106. Refunds or tax credits of creditable input tax.
(a) x x x x
(d) Period within which refund or tax credit of input tax 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 subparagraphs (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 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. ???ñr?bl?š ??r†??l l?? l?br?rÿ
Revenue Regulations No. 7-95 (1996)
Section 4.106-2. Procedures for claiming refunds or tax credits of input tax (a) x x x
xxx
(c) Period within which refund or tax credit of input taxes shall be made. In proper cases, the
Commissioner shall grant a tax credit/refund 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 subparagraphs (a) and (b) above.
In case of full or partial denial of the claim for tax credit/refund as decided by the
Commissioner of Internal Revenue, the taxpayer may appeal to the Court of Tax Appeals
within thirty (30) days from the receipt of said denial, otherwise the decision will become
final. However, if no action on the claim for tax credit/refund has been taken by the
Commissioner of Internal Revenue after the sixty (60) day period from the date of
submission of the application but before the lapse of the two (2) year period from the date
of filing of the VAT return for the taxable quarter, the taxpayer may appeal to the Court of
Tax Appeals.
xxx
1997 Tax Code
Section 112. Refunds or Tax Credits of Input Tax
(A) x x x
xxx
(D) Period within which Refund or Tax Credit of Input Taxes shall be made. In proper cases,
the Commissioner shall grant the 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 hundred twenty day-period, appeal the decision or the
unacted claim with the Court of Tax Appeals.
There can be no dispute that under Section 106(d) of the 1977 Tax Code, as amended by RA
7716, the Commissioner has a 60-day period to act on the administrative claim. This 60-day
period is mandatory and jurisdictional.
Did Section 4.106-2(c) of Revenue Regulations No. 7-95 change this, so that the 60-day
period is no longer mandatory and jurisdictional? The obvious answer is no.
Section 4.106-2(c) itself expressly states that if, "after the sixty (60) day period," the
Commissioner fails to act on the administrative claim, the taxpayer may file the judicial claim
even "before the lapse of the two (2) year period." Thus, under Section 4.106-2(c) the 60-day
period is still mandatory and jurisdictional.
Section 4.106-2(c) did not change Section 106(d) as amended by RA 7716, but merely
implemented it, for two reasons. First, Section 4.106-2(c) still expressly requires compliance
with the 60-day period. This cannot be disputed.
Second, under the novel amendment introduced by RA 7716, mere inaction by the
Commissioner during the 60-day period is deemed a denial of the claim. Thus, Section 4.106-
2(c) states that "if no action on the claim for tax refund/credit has been taken by the
Commissioner after the sixty (60) day period," the taxpayer "may" already file the judicial
claim even long before the lapse of the two-year prescriptive period. Prior to the amendment
by RA 7716, the taxpayer had to wait until the two-year prescriptive period was about to
expire if the Commissioner did not act on the claim.80 With the amendment by RA 7716, the
taxpayer need not wait until the two-year prescriptive period is about to expire before filing
the judicial claim because mere inaction by the Commissioner during the 60-day period is
deemed a denial of the claim. This is the meaning of the phrase "but before the lapse of the
two (2) year period" in Section 4.106-2(c). As Section 4.106- 2(c) reiterates that the judicial
claim can be filed only "after the sixty (60) day period," this period remains mandatory and
jurisdictional. Clearly, Section 4.106-2(c) did not amend Section 106(d) but merely faithfully
implemented it.
Even assuming, for the sake of argument, that Section 4.106-2(c) of Revenue Regulations No.
7-95, an administrative issuance, amended Section 106(d) of the Tax Code to make the
period given to the Commissioner non-mandatory, still the 1997 Tax Code, a much later law,
reinstated the original intent and provision of Section 106(d) by extending the 60-day period
to 120 days and re-adopting the original wordings of Section 106(d). Thus, Section 4.106-
2(c), a mere administrative issuance, becomes inconsistent with Section 112(D), a later law.
Obviously, the later law prevails over a prior inconsistent administrative issuance.
Section 112(D) of the 1997 Tax Code is clear, unequivocal, and categorical that the
Commissioner has 120 days to act on an administrative claim. The taxpayer can file the
judicial claim (1) only within thirty days after the Commissioner partially or fully denies the
claim within the 120- day period, or (2) only within thirty days from the expiration of the
120- day period if the Commissioner does not act within the 120-day period.
There can be no dispute that upon effectivity of the 1997 Tax Code on 1 January 1998, or
more than five years before San Roque filed its administrative claim on 28 March 2003, the
law has been clear: the 120- day period is mandatory and jurisdictional. San Roques claim,
having been filed administratively on 28 March 2003, is governed by the 1997 Tax Code, not
the 1977 Tax Code. Since San Roque filed its judicial claim before the expiration of the 120-
day mandatory and jurisdictional period, San Roques claim cannot prosper.
San Roque cannot also invoke Section 4.106-2(c), which expressly provides that the taxpayer
can only file the judicial claim "after" the lapse of the 60-day period from the filing of the
administrative claim. San Roque filed its judicial claim just 13 days after filing its
administrative claim. To recall, San Roque filed its judicial claim on 10 April 2003, a mere 13
days after it filed its administrative claim.
Even if, contrary to all principles of statutory construction as well as plain common sense, we
gratuitously apply now Section 4.106-2(c) of Revenue Regulations No. 7-95, still San Roque
cannot recover any refund or credit because San Roque did not wait for the 60-day period
to lapse, contrary to the express requirement in Section 4.106-2(c). In short, San Roque
does not even comply with Section 4.106-2(c). A claim for tax refund or credit is strictly
construed against the taxpayer, who must prove that his claim clearly complies with all the
conditions for granting the tax refund or credit. San Roque did not comply with the express
condition for such statutory grant.
A final word. Taxes are the lifeblood of the nation. The Philippines has been struggling to
improve its tax efficiency collection for the longest time with minimal success. Consequently,
the Philippines has suffered the economic adversities arising from poor tax collections,
forcing the government to continue borrowing to fund the budget deficits. This Court cannot
turn a blind eye to this economic malaise by being unduly liberal to taxpayers who do not
comply with statutory requirements for tax refunds or credits. The tax refund claims in the
present cases are not a pittance. Many other companies stand to gain if this Court were to
rule otherwise. The dissenting opinions will turn on its head the well-settled doctrine that tax
refunds are strictly construed against the taxpayer.
WHEREFORE, the Court hereby (1) GRANTS the petition of the Commissioner of Internal
Revenue in G.R. No. 187485 to DENY the P483,797,599.65 tax refund or credit claim of San
Roque Power Corporation; (2) GRANTS the petition of Taganito Mining Corporation in G.R.
No. 196113 for a tax refund or credit of P8,365,664.38; and (3) DENIES the petition of Philex
Mining Corporation in G.R. No. 197156 for a tax refund or credit of P23,956,732.44.
SO ORDERED.
G.R. No. 113459 November 18, 2002 COMMISSIONER OF INTERNAL REVENUE
petitioner,vs.JOSEFINA LEAL, respondent.
DECISION
SANDOVAL-GUTIERREZ, J.:
Pursuant to Section 116 of Presidential Decree No. 1158,1 (The National Internal Revenue
Code of 1977, as amended [Tax Code for brevity]), which provides:
"SEC. 116. Percentage tax on dealers in securities; lending investors. – Dealers in securities
shall pay a tax equivalent to six (6%) per centum of their gross income. Lending investors
shall pay a tax equivalent to five (5%) per cent of their gross income." (emphasis added)
the Commissioner of Internal Revenue, petitioner, issued Revenue Memorandum Order
(RMO) No. 15-91 dated March 11, 1991,2 imposing 5% lending investor’s tax on pawnshops
based on their gross income and requiring all investigating units of the Bureau of Internal
Revenue (BIR) to investigate and assess the lending investor’s tax due from them. The
issuance of RMO No. 15-91 was an offshoot of petitioner’s evaluation that the nature of
pawnshop business is akin to that of "lending investors," which term is defined in Section 157
(u) of the Tax Code in this wise:
"(u) Lending investors include all persons who make a practice of lending money for
themselves or others at interests."
Subsequently, petitioner issued Revenue Memorandum Circular (RMC) No. 43-91 dated May
27, 1992,3 subjecting the pawn ticket to the documentary stamp tax as prescribed in Title VII
of the Tax Code.
Adversely affected by those revenue orders, herein respondent Josefina Leal, owner and
operator of Josefina’s Pawnshop in San Mateo, Rizal, asked for a reconsideration of both
RMO No. 15-91 and RMC No. 43-91 but the same was denied with finality by petitioner in its
BIR Ruling No. 221-91 dated October 30, 1991.4
Consequently, on March 18, 1992, respondent filed with the Regional Trial Court (RTC),
Branch 75, San Mateo, Rizal, a petition for prohibition, docketed as Civil Case No. 849-92,5
seeking to prohibit petitioner from implementing the revenue orders.
Petitioner, through the Office of the Solicitor General, filed a motion to dismiss6 the petition
on the ground that the RTC has no jurisdiction to review the questioned revenue orders and
to enjoin their implementation. Petitioner contends that the subject revenue orders were
issued pursuant to his power "to make rulings or opinions in connection with the
implementation of the provisions of internal revenue laws."7 Thus, the case falls within the
exclusive appellate jurisdiction of the Court of Tax Appeals, citing Section 7 (1) of Republic
Act No. 1125.8
The RTC, through then Presiding Judge Andres B. Reyes, Jr.,9 issued an order on April 27,
199210 denying the motion to dismiss, holding that the revenue orders are not assessments
to implement a Tax Code provision, but are "in effect new taxes (against pawnshops) which
are not provided for under the Code," and which only Congress is empowered to impose.
Petitioner then filed with the Court of Appeals a petition for certiorari and prohibition under
Rule 65 of the Revised Rules of Court (now 1997 Rules of Civil Procedure, as amended),
docketed as CA-G.R. SP No. 28824. Petitioner alleged that in denying the motion to dismiss,
the RTC Judge acted without or in excess of his jurisdiction, or with grave abuse of discretion.
In its Decision dated December 23, 1993, the Court of Appeals dismissed the petition "for
lack of legal basis"11 and ruled that "the (RTC) order denying the motion to dismiss is subject
to immediate challenge before the Supreme Court (not the Court of Appeals), which is the
sole authority to determine and resolve an issue purely of law pursuant to Section 5, Article
VIII of the 1987 Constitution."12 Nonetheless, the Court of Appeals resolved the case on the
merits, sustaining the RTC ruling that the questioned revenue orders are "new additional
measures which only Congress is empowered to impose."13
Hence, the instant petition for review on certiorari under Rule 45 of the Rules of Court raising
the following issues:
1. WHETHER THE COURT OF APPEALS HAS JURISDICTION OVER A PETITION FOR CERTIORARI
UNDER RULE 65 OF THE RULES OF COURT WHERE THE AUTHORITY OF THE REGIONAL TRIAL
COURT TO REVIEW THE SUBJECT REVENUE ORDERS IS BEING QUESTIONED;
2. WHETHER IT IS THE RTC OR THE COURT OF TAX APPEALS WHICH HAS JURISDICTION OVER
THE INSTANT CASE.
Anent the first issue, petitioner contends that the Court of Appeals has "original jurisdiction
to issue writs of mandamus, prohibition, certiorari, habeas corpus and quo warranto, and
auxiliary writs or processes, whether or not in aid of its appellate jurisdiction," pursuant to
Section 9(1) of Batas Pambansa Blg. 129. Petitioner thus claims that his petition for certiorari
filed with the Court of Appeals pursuant to Rule 65 of the Rules of Court is the proper
recourse to assail the RTC order denying his motion to dismiss.
Petitioner’s contention is meritorious. The Court of Appeals erred in holding that it has no
jurisdiction over petitioner’s special civil action for certiorari under Rule 65 of the Rules.
While this Court exercises original jurisdiction to issue the extraordinary writ of certiorari (as
well as the writs of prohibition, mandamus, quo warranto, and habeas corpus),14 such power
is not exclusive to this Court but is concurrent with the Court of Appeals15 and the Regional
Trial Courts.16 We reiterate our pronouncement on this issue in Morales vs. Court of
Appeals:17
"Under Section 9 (1) of B.P. Blg. 129, the Court of Appeals has concurrent original jurisdiction
with the Supreme Court pursuant to Section 5 (1) of Article VIII of the Constitution and
Section 17 (1) of the Judiciary Act of 1948, and with the Regional Trial Court pursuant to
Section 21 (1) of B.P. Blg. 129 to issue writs of certiorari, mandamus, prohibition, habeas
corpus, and quo warranto. These are original actions, not modes of appeals.
"Since what the petitioner filed in CA-G.R. SP No. 40670 was a special civil action for
certiorari under Rule 65, the original jurisdiction of the Court of Appeals thereon is beyond
doubt.
"This error of the Court of Appeals was due to its misapplication of Section 5 (2) (c) of Article
VIII of the Constitution and of that portion of Section 17 of the Judiciary Act of 1948 vesting
upon the Supreme Court exclusive jurisdiction to review, revise, reverse, modify, or affirm on
certiorari as the law or rules of court may provide, final judgments and decrees of inferior
courts in all cases in which the jurisdiction of any inferior court is in issue. It forgot that this
constitutional and statutory provisions pertain to the appellate – not original – jurisdiction of
the Supreme Court, as correctly maintained by the petitioner. An appellate jurisdiction refers
to a process which is but a continuation of the original suit, not a commencement of a new
action, such as that of a special civil action for certiorari. The general rule is that a denial of a
motion to dismiss or to quash in criminal cases is interlocutory and cannot be the subject of
an appeal or of a special civil action for certiorari. Nevertheless, this Court has allowed a
special civil action for certiorari where a lower court has acted without or in excess of
jurisdiction or with grave abuse of discretion in denying a motion to dismiss or to quash. The
petitioner believed that the RTC below did so; hence, the special civil action for certiorari
before the Court of Appeals appeared to be the proper remedy." (emphasis added)
Such concurrence of original jurisdiction among the Regional Trial Court, the Court of Appeals
and this Court, however, does not mean that the party seeking any of the extraordinary writs
has the absolute freedom to file his petition in the court of his choice. The hierarchy of courts
in our judicial system determines the appropriate forum for these petitions. Thus, petitions
for the issuance of the said writs against the first level (inferior) courts must be filed with the
Regional Trial Court and those against the latter, with the Court of Appeals. A direct
invocation of this Court’s original jurisdiction to issue these writs should be allowed only
where there are special and important reasons therefor, specifically and sufficiently set forth
in the petition. This is the established policy to prevent inordinate demands upon the Court’s
time and attention, which are better devoted to matters within its exclusive jurisdiction, and
to prevent further over-crowding of the Court’s docket.18 Thus, it was proper for petitioner to
institute the special civil action for certiorari with the Court of Appeals assailing the RTC
order denying his motion to dismiss based on lack of jurisdiction.
While the Court of Appeals correctly took cognizance of the petition for certiorari, however,
let it be stressed that the jurisdiction to review the rulings of the Commissioner of Internal
Revenue pertains to the Court of Tax Appeals, not to the RTC.
The questioned RMO No. 15-91 and RMC No. 43-91 are actually rulings or opinions of the
Commissioner implementing the Tax Code on the taxability of pawnshops. This is clear from
petitioner’s RMO No. 15-91, pertinent portion of which reads:
"A restudy of P.D. 114 (the Pawnshop Regulation Act) shows that the principal activity of
pawnshops is lending money at interest and incidentally accepting a ‘pawn’ of personal
property delivered by the pawner to the pawnee as security for the loan (Sec. 3, ibid.).
Clearly, this makes pawnshop business akin to lending investor’s business activity which is
broad enough to encompass the business of lending money at interest by any person
whether natural or juridical. Such being the case, pawnshops shall be subject to the 5%
lending investor’s tax based on their gross income pursuant to Section 116 of the Tax Code,
as amended."19
Such revenue orders were issued pursuant to petitioner's powers under Section 245 of the
Tax Code, which states:
"SEC. 245. Authority of the Secretary of Finance to promulgate rules and regulations. – The
Secretary of Finance, upon recommendation of the Commissioner, shall promulgate all
needful rules and regulations for the effective enforcement of the provisions of this Code.
"The authority of the Secretary of Finance to determine articles similar or analogous to those
subject to a rate of sales tax under certain category enumerated in Section 163 and 165 of
this Code shall be without prejudice to the power of the Commissioner of Internal Revenue
to make rulings or opinions in connection with the implementation of the provisions of
internal revenue laws, including ruling on the classification of articles of sales and similar
purposes." (emphasis added)
Under Republic Act No. 1125 (An Act Creating the Court of Tax Appeals [CTA for brevity]), as
amended, such rulings of the Commissioner of Internal Revenue are appealable to that court,
thus:
"SEC. 7. Jurisdiction. – The Court of Tax Appeals shall exercise 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 imposed in
relation thereto, or other matters arising under the National Internal Revenue Code or other
laws or part of law administered by the Bureau of Internal Revenue;
x x x x x x x x x." (emphasis added)
"SEC. 11. Who may appeal; effect of appeal. – Any person, association or corporation
adversely affected by a decision or ruling of the Commissioner of Internal Revenue, or the
Commissioner of Customs or any provincial or city Board of Assessment Appeals may file an
appeal in the Court of Tax Appeals within thirty days after the receipt of such decision or
ruling.
x x x x x x x x x." (emphasis added)
"SEC. 18. x x x. – No judicial proceedings against the Government involving matters arising
under the National Internal Revenue Code, the Customs Law or the Assessment Law shall be
maintained, except as herein provided, until and unless an appeal has been previously filed
with the Court of Tax Appeals and disposed of in accordance with the provisions of this Act.
x x x x x x x x x." (emphasis added)
This Court, in Rodriguez, etc. vs. Blaquera, etc.,20 ruled:
"Plaintiff maintains that this is not an appeal from a ruling of the Collector of Internal
Revenue, but merely an attempt to nullify General Circular No. V-148, which does not
adjudicate or settle any controversy, and that, accordingly, this case is not within the
jurisdiction of the Court of Tax Appeals.
"We find no merit in this pretense. General Circular No. V-148 directs the officers charged
with the collection of taxes and license fees to adhere strictly to the interpretation given by
the defendant to the statutory provisions abovementioned, as set forth in the Circular. The
same incorporates, therefore, a decision of the Collector of Internal Revenue (now
Commissioner of Internal Revenue) on the manner of enforcement of the said statute, the
administration of which is entrusted by law to the Bureau of Internal Revenue. As such, it
comes within the purview of Republic Act No. 1125, Section 7 of which provides that the
Court of Tax Appeals ‘shall exercise exclusive appellate jurisdiction to review by appeal x x x
decisions of the Collector of Internal Revenue in x x x matters arising under the National
Internal Revenue Code or other law or part of the law administered by the Bureau of Internal
Revenue.’ x x x." (emphasis added)
In the same vein, we held in Meralco Securities Corporation vs. Savellano,21 thus:
"Respondent judge has no jurisdiction to take cognizance of the case because the subject
matter thereof clearly falls within the scope of cases now exclusively within the jurisdiction of
the Court of Tax Appeals. Section 7 of Republic Act No. 1125, enacted June 16, 1954, granted
to the Court of Tax Appeals exclusive appellate jurisdiction to review by appeal, among
others, decisions of the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in
relation thereto, or other matters arising under the National Internal Revenue Code or other
law or part of law administered by the Bureau of Internal Revenue. The law transferred to
the Court of Tax Appeals jurisdiction over all cases involving said assessments previously
cognizable by Courts of First Instance, and even those already pending in said courts. The
question of whether of not to impose a deficiency tax assessment on Meralco Securities
Corporation undoubtedly comes within the purview of the words "disputed assessments" or
of "other matters arising under the National Internal Revenue Code…." In the case of
Blaquera, etc. vs. Rodriguez, etc.(103 Phil. 511 [1958]), this Court ruled that ‘the
determination of the correctness or incorrectness of a tax assessment to which the taxpayer
is not agreeable, falls within the jurisdiction of the Court of Tax Appeals and not of the Court
of First Instance, for under the provisions of Section 7 of Republic Act No. 1125, the Court of
Tax Appeals has exclusive appellate jurisdiction to review, on appeal, any decision of the
Collector of Internal Revenue in cases involving disputed assessments and other matters
arising under the National Internal Revenue Code or other law or part of law administered by
the Bureau of Internal Revenue.’"
Here, as earlier mentioned, respondent Josefina Leal, being a pawnshop owner, is assailing
the revenue orders imposing 5% lending investor’s tax on pawnshops issued by petitioner.
Clearly then, she should have filed her petition with the Court of Tax Appeals, not the RTC.
Indeed, the Court of Appeals erred in holding that the RTC order should have been
challenged before this Court.
WHEREFORE, the petition is GRANTED. Accordingly: (1) the assailed Decision dated
December 23, 1993 of the Court of Appeals in CA-G.R. SP No. 28824 is SET ASIDE; (2) the
Order dated April 27, 1992 and the Writ of Preliminary Injunction dated May 21, 1992 both
issued by the RTC, Branch 75, San Mateo, Rizal in Civil Case No. 849-92, are declared NULL
and VOID for having been issued without jurisdiction; and (3) Civil Case No. 849-92 is ordered
DISMISSED.
SO ORDERED.
.R. No. 210987 November 24, 2014 THE PHILIPPINE AMERICAN LIFE AND GENERAL
INSURANCE COMPANY, Petitioner,
vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE,
Respondents.
D E C I S I O N VELASCO, JR., J.:
Nature of the Case
Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court
assailing and seeking the reversal of the Resolutions of the Court of Appeals (CA) in CA-G.R.
SP No. 127984, dated May 23, 20131 and January 21, 2014, which dismissed outright the
petitioner's appeal from the Secretary of Finance's review of BIR Ruling No. 015-122 for lack
of jurisdiction.
The Facts
Petitioner The Philippine American Life and General Insurance Company (Philamlife) used to
own 498,590 Class A shares in Philam Care Health Systems, Inc. (PhilamCare), representing
49.89% of the latter's outstanding capital stock. In 2009, petitioner, in a bid to divest itself of
its interests in the health maintenance organization industry, offered to sell its shareholdings
in PhilamCare through competitive bidding. Thus, on September 24, 2009, petitioner's Class A
shares were sold for USD 2,190,000, or PhP 104,259,330 based on the prevailing exchange
rate at the time of the sale, to STI Investments, Inc., who emerged as the highest bidder.3
After the sale was completed and the necessary documentary stamp and capital gains taxes
were paid, Philamlife filed an application for a certificate authorizing registration/tax
clearance with the Bureau of Internal Revenue (BIR) Large Taxpayers Service Division to
facilitate the transfer of the shares. Months later, petitioner was informed that it needed to
secure a BIR ruling in connection with its application due to potential donor’s tax liability. In
compliance, petitioner, on January 4, 2012, requested a ruling4 to confirm that the sale was
not subject to donor’s tax, pointing out, in its request, the following: that the transaction
cannot attract donor’s tax liability since there was no donative intent and,ergo, no taxable
donation, citing BIR Ruling [DA-(DT-065) 715-09] dated November 27, 2009;5 that the shares
were sold at their actual fair market value and at arm’s length; that as long as the transaction
conducted is at arm’s length––such that a bona fide business arrangement of the dealings is
done inthe ordinary course of business––a sale for less than an adequate consideration is not
subject to donor’s tax; and that donor’s tax does not apply to saleof shares sold in an open
bidding process.
On January 4, 2012, however, respondent Commissioner on Internal Revenue
(Commissioner) denied Philamlife’s request through BIR Ruling No. 015-12. As determined by
the Commissioner, the selling price of the shares thus sold was lower than their book value
based on the financial statements of PhilamCare as of the end of 2008.6 As such, the
Commisioner held, donor’s tax became imposable on the price difference pursuant to Sec.
100 of the National Internal Revenue Code (NIRC), viz:
SEC. 100. Transfer for Less Than Adequate and full Consideration.- Where property, other
than real property referred to in Section 24(D), is transferred for less than an adequate and
full consideration in money or money’s worth, then the amount by which the fair market
value of the property exceeded the value of the consideration shall, for the purpose of the
tax imposed by this Chapter, be deemed a gift, and shall be included in computing the
amount of gifts made during the calendar year.
The afore-quoted provision, the Commissioner added, is implemented by Revenue
Regulation 6-2008 (RR 6-2008), which provides:
SEC. 7. SALE, BARTER OR EXCHANGE OF SHARES OF STOCK NOT TRADED THROUGH A LOCAL
STOCK EXCHANGE PURSUANT TO SECS. 24(C), 25(A)(3), 25(B), 27(D)(2), 28(A)(7)(c),
28(B)(5)(c) OF THE TAX CODE, AS AMENDED. —
xxxx
(c) Determination of Amount and Recognition of Gain or Loss –
(c.1) In the case of cash sale, the selling price shall be the consideration per deed of sale.
xxxx
(c.1.4) In case the fair market value of the shares of stock sold, bartered, or exchanged is
greater than the amount of money and/or fair market value of the property received, the
excess of the fair market value of the shares of stock sold, bartered or exchanged overthe
amount of money and the fair market value of the property, if any, received as consideration
shall be deemed a gift subject to the donor’stax under Section 100 of the Tax Code, as
amended.
xxxx
(c.2) Definition of ‘fair market value’of Shares of Stock. – For purposes of this Section, ‘fair
market value’ of the share of stock sold shall be:
xxxx
(c.2.2) In the case of shares of stock not listed and traded in the local stock exchanges, the
book value of the shares of stock as shown in the financial statements duly certified by an
independent certified public accountant nearest to the date of sale shall be the fair market
value.
In view of the foregoing, the Commissioner ruled that the difference between the book value
and the selling price in the sales transaction is taxable donation subject to a 30% donor’s tax
under Section 99(B) of the NIRC.7 Respondent Commissioner likewise held that BIR Ruling
[DA-(DT-065) 715-09], on which petitioner anchored its claim, has already been revoked by
Revenue Memorandum Circular (RMC) No. 25-2011.8
Aggrieved, petitioner requested respondent Secretary of Finance (Secretary) to review BIR
Ruling No. 015-12, but to no avail. For on November 26, 2012, respondent Secretary affirmed
the Commissioner’s assailed ruling in its entirety.9
Ruling of the Court of Appeals
Not contented with the adverse results, petitioner elevated the case to the CA via a petition
for review under Rule 43, assigning the following errors:10
A.
The Honorable Secretary of Finance gravely erred in not finding that the application of
Section 7(c.2.2) of RR 06-08 in the Assailed Ruling and RMC 25-11 is void insofar as it
altersthe meaning and scope of Section 100 of the Tax Code.
B.
The Honorable Secretary of Finance gravely erred in finding that Section 100 of the Tax Code
is applicable tothe sale of the Sale of Shares.
1.
The Sale of Shares were sold at their fair market value and for fair and full consideration in
money or money’s worth.
2.
The sale of the Sale Shares is a bona fide business transaction without any donative intent
and is therefore beyond the ambit of Section 100 of the Tax Code.
3.
It is superfluous for the BIR to require an express provision for the exemption of the sale of
the Sale Shares from donor’s tax since Section 100 of the Tax Code does not explicitly subject
the transaction to donor’s tax.
C.
The Honorable Secretary of Finance gravely erred in failing to find that in the absence of any
of the grounds mentioned in Section 246 of the Tax Code, rules and regulations, rulings or
circulars – such as RMC 25-11 – cannot be given retroactive application to the prejudice of
Philamlife.
On May 23, 2013, the CA issued the assailed Resolution dismissing the CA Petition, thusly:
WHEREFORE, the Petition for Review dated January 9, 2013 is DISMISSED for lack of
jurisdiction.
SO ORDERED.
In disposing of the CA petition, the appellate court ratiocinated that it is the Court of Tax
Appeals (CTA), pursuant to Sec. 7(a)(1) of Republic Act No. 1125 (RA 1125),11 as amended,
which has jurisdiction over the issues raised. The outright dismissal, so the CA held, is
predicated on the postulate that BIR Ruling No. 015-12 was issued in the exercise of the
Commissioner’s power to interpret the NIRC and other tax laws. Consequently, requesting for
its review can be categorized as "other matters arising under the NIRC or other laws
administered by the BIR," which is under the jurisdiction of the CTA, not the CA.
Philamlife eventually sought reconsideration but the CA, in its equally assailed January 21,
2014 Resolution, maintained its earlier position. Hence, the instant recourse.
Issues
Stripped to the essentials, the petition raises the following issues in both procedure and
substance:
1. Whether or not the CA erred in dismissing the CA Petition for lack of jurisdiction; and
2. Whether or not the price difference in petitioner’s adverted sale of shares in PhilamCare
attracts donor’s tax.
Procedural Arguments
a. Petitioner’s contentions
Insisting on the propriety of the interposed CA petition, Philamlife, while conceding that
respondent Commissioner issued BIR Ruling No. 015-12 in accordance with her authority to
interpret tax laws, argued nonetheless that such ruling is subject to review by the Secretary
of Finance under Sec. 4 of the NIRC, to wit:
SECTION 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. – The
power to interpret the provisions of this Code and other tax laws shall be under the exclusive
and original jurisdiction of the Commissioner, subject to review by the Secretary of Finance.
The power to decide disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties imposed in relation thereto, or other matters arising under this Code
orother laws or portions thereof administered by the Bureau of Internal Revenue is vested in
the Commissioner, subject to the exclusive appellate jurisdiction of the Court of Tax Appeals.
Petitioner postulates that there is a need to differentiate the rulings promulgated by the
respondent Commissioner relating to those rendered under the first paragraph of Sec. 4 of
the NIRC, which are appealable to the Secretary of Finance, from those rendered under the
second paragraph of Sec. 4 of the NIRC, which are subject to review on appeal with the CTA.
This distinction, petitioner argues, is readily made apparent by Department Order No. 7-02,12
as circularized by RMC No. 40-A-02.
Philamlife further averred that Sec.7 of RA 1125, as amended, does not find application in the
case at bar since it only governs appeals from the Commissioner’s rulings under the second
paragraph and does not encompass rulings from the Secretary of Finance in the exercise of
his power of review under the first, as what was elevated to the CA. It added that under RA
1125, as amended, the only decisions of the Secretary appealable to the CTA are those
rendered in customs cases elevated to him automatically under Section 2315 of the Tariff and
Customs Code.13
There is, thus, a gap in the law when the NIRC, as couched, and RA 1125, as amended, failed
to supply where the rulings of the Secretary in its exercise of its power of review under Sec. 4
of the NIRC are appealable to. This gap, petitioner submits, was remedied by British
American Tobacco v. Camacho14 wherein the Court ruled that where what is assailed is the
validity or constitutionality of a law, or a rule or regulation issued by the administrative
agency, the regular courts have jurisdiction to pass upon the same.
In sum, appeals questioning the decisions of the Secretary of Finance in the exercise of its
power of review under Sec. 4 of the NIRC are not within the CTA’s limited special jurisdiction
and, according to petitioner, are appealable to the CA via a Rule 43 petition for review.
b. Respondents’ contentions
Before the CA, respondents countered petitioner’s procedural arguments by claiming that
even assuming arguendo that the CTA does not have jurisdiction over the case, Philamlife,
nevertheless,committed a fatal error when it failed to appeal the Secretary of Finance’s
ruling to the Office of the President (OP). As made apparent by the rules, the Department of
Finance is not among the agencies and quasi-judicial bodies enumerated under Sec. 1, Rule
43 of the Rules of Court whose decisions and rulings are appealable through a petition for
review.15 This is in stark contrast to the OP’s specific mention under the same provision, so
respondents pointed out.
To further reinforce their argument, respondents cite the President’s power of review
emanating from his power of control as enshrined under Sec. 17 of Article VII of the
Constitution, which reads:
Section 17.The President shall have control of all the executive departments, bureaus, and
offices. He shall ensure that the laws be faithfully executed.
The nature and extent of the President’s constitutionally granted power of control have
beendefined in a plethora of cases, most recently in Elma v. Jacobi,16 wherein it was held
that:
x x x This power of control, which even Congress cannot limit, let alone withdraw, means the
power of the Chief Executive to review, alter, modify, nullify, or set aside what a subordinate,
e.g., members of the Cabinet and heads of line agencies, had done in the performance of
their duties and to substitute the judgment of the former for that of the latter.
In their Comment on the instant petition, however, respondents asseverate that the CA did
not err in its holding respecting the CTA’s jurisdiction over the controversy.
The Court’s Ruling
The petition is unmeritorious.
Reviews by the Secretary of Finance pursuant to Sec. 4 of the NIRC are appealable to the CTA
To recapitulate, three different, if not conflicting, positions as indicated below have been
advanced by the parties and by the CA as the proper remedy open for assailing respondents’
rulings:
1. Petitioners: The ruling of the Commissioner is subject to review by the Secretary under
Sec. 4 of the NIRC, and that of the Secretary to the CA via Rule 43;
2. Respondents: The ruling of the Commissioner is subject to review by the Secretary under
Sec. 4 of the NIRC, and that of the Secretary to the Office of the President before appealing
to the CA via a Rule 43 petition; and
3. CA: The ruling of the Commissioner is subject to review by the CTA.
We now resolve.
Preliminarily, it bears stressing that there is no dispute that what is involved herein is the
respondent Commissioner’s exercise of power under the first paragraph of Sec. 4 of the
NIRC––the power to interpret tax laws. This, in fact, was recognized by the appellate court
itself, but erroneously held that her action in the exercise of such power is appealable
directly to the CTA. As correctly pointed out by petitioner, Sec. 4 of the NIRC readily provides
that the Commissioner’s power to interpret the provisions of this Code and other tax laws is
subject to review by the Secretary of Finance. The issue that now arises is this––where does
one seek immediate recourse from the adverse ruling of the Secretary of Finance in its
exercise of its power of review under Sec. 4?
Admittedly, there is no provision in law that expressly provides where exactly the ruling of
the Secretary of Finance under the adverted NIRC provision is appealable to. However, We
find that Sec. 7(a)(1) of RA 1125, as amended, addresses the seeming gap in the law asit vests
the CTA, albeit impliedly, with jurisdiction over the CA petition as "other matters" arising
under the NIRC or other laws administered by the BIR. As stated:
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 or other laws
administered by the Bureau of Internal Revenue. (emphasis supplied)
Even though the provision suggests that it only covers rulings of the Commissioner, We hold
that it is, nonetheless, sufficient enough to include appeals from the Secretary’s review under
Sec. 4 of the NIRC.
It is axiomatic that laws should be given a reasonable interpretation which does not defeat
the very purpose for which they were passed.17 Courts should not follow the letter of a
statute when to do so would depart from the true intent of the legislature or would
otherwise yield conclusions inconsistent with the purpose of the act.18 This Court has, in
many cases involving the construction of statutes, cautioned against narrowly interpreting a
statute as to defeat the purpose of the legislator, and rejected the literal interpretation of
statutes if todo so would lead to unjust or absurd results.19
Indeed, to leave undetermined the mode of appeal from the Secretary of Finance would be
an injustice to taxpayers prejudiced by his adverse rulings. To remedy this situation, Weimply
from the purpose of RA 1125 and its amendatory laws that the CTA is the proper forum with
which to institute the appeal. This is not, and should not, in any way, be taken as a
derogation of the power of the Office of President but merely as recognition that matters
calling for technical knowledge should be handled by the agency or quasi-judicial body with
specialization over the controversy. As the specialized quasi-judicial agency mandated to
adjudicate tax, customs, and assessment cases, there can be no other court of appellate
jurisdiction that can decide the issues raised inthe CA petition, which involves the tax
treatment of the shares of stocks sold. Petitioner, though, nextinvites attention to the ruling
in Ursal v. Court of Tax Appeals20 to argue against granting the CTA jurisdiction by
implication, viz:
Republic Act No. 1125 creating the Court of Tax Appeals did not grant it blanket authority to
decide any and all tax disputes. Defining such special court’s jurisdiction, the Act necessarily
limited its authority to those matters enumerated therein. Inline with this idea we recently
approved said court’s order rejecting an appeal to it by Lopez & Sons from the decision of the
Collector ofCustoms, because in our opinion its jurisdiction extended only to a review of the
decisions of the Commissioner of Customs, as provided bythe statute — and not to decisions
of the Collector of Customs. (Lopez & Sons vs. The Court of Tax Appeals, 100 Phil., 850, 53
Off. Gaz., [10] 3065).
xxxx
x x x Republic Act No. 1125 is a complete law by itself and expressly enumerates the matters
which the Court of Tax Appeals may consider; such enumeration excludes all others by
implication. Expressio unius est exclusio alterius.
Petitioner’s contention is untenable. Lest the ruling in Ursalbe taken out of context, but
worse as a precedent, it must be noted that the primary reason for the dismissal of the said
case was that the petitioner therein lacked the personality to file the suit with the CTA
because he was not adversely affected by a decision or ruling of the Collector of Internal
Revenue, as was required under Sec. 11 of RA 1125.21 As held:
We share the view that the assessor had no personality to resort to the Court of Tax Appeals.
The rulings of the Board of Assessment Appeals did not "adversely affect" him. At most it was
the City of Cebu that had been adversely affected in the sense that it could not thereafter
collect higher realty taxes from the abovementioned property owners. His opinion, it is true
had been overruled; but the overruling inflicted no material damage upon him or his office.
And the Court of Tax Appeals was not created to decide mere conflicts of opinion between
administrative officers or agencies. Imagine an income tax examiner resorting to the Court of
Tax Appeals whenever the Collector of Internal Revenue modifies, or lower his assessment
on the return of a tax payer!22
The appellate power of the CTA includes certiorari
Petitioner is quick to point out, however, that the grounds raised in its CA petition included
the nullity of Section 7(c.2.2) of RR 06-08 and RMC 25-11. In an attempt to divest the CTA
jurisdiction over the controversy, petitioner then cites British American Tobacco, wherein this
Court has expounded on the limited jurisdiction of the CTA in the following wise:
While the above statute confers on the CTA jurisdiction to resolve tax disputes in general,
this does not include cases where the constitutionality of a law or rule is challenged. Where
what is assailed is the validity or constitutionality of a law, or a rule or regulation issued by
the administrative agency in the performance of its quasi legislative function, the regular
courts have jurisdiction to pass upon the same. The determination of whether a specific rule
or set of rules issued by an administrative agency contravenes the law or the constitution is
within the jurisdiction of the regular courts. Indeed, the Constitution vests the power of
judicial review or the power to declare a law, treaty, international or executive agreement,
presidential decree, order, instruction, ordinance, or regulation inthe courts, including the
regional trial courts. This is within the scope of judicial power, which includes the authority of
the courts to determine inan appropriate action the validity of the acts of the political
departments. Judicial power includes the duty of the courts of justice to settle actual
controversies involving rights which are legally demandable and enforceable, and to
determine whether or not there has been a grave abuse of discretion amounting to lack or
excess of jurisdiction on the part of any branch or instrumentality of the Government.23
Vis-a-vis British American Tobacco, it bears to stress what appears to be a contrasting ruling
in Asia International Auctioneers, Inc. v. Parayno, Jr., to wit:
Similarly, in CIR v. Leal, pursuant to Section 116 of Presidential Decree No. 1158 (The National
Internal Revenue Code, as amended) which states that "[d]ealers in securities shall pay a tax
equivalent to six (6%) per centum of their gross income. Lending investors shall pay a tax
equivalent to five (5%) per cent, of their gross income," the CIR issued Revenue
Memorandum Order (RMO) No. 15-91 imposing 5% lending investor’s tax on pawnshops
based on their gross income and requiring all investigating units of the BIR to investigate and
assess the lending investor’s tax due from them. The issuance of RMO No. 15-91 was an
offshoot of the CIR’s finding that the pawnshop business is akin to that of "lending investors"
as defined in Section 157(u) of the Tax Code. Subsequently, the CIR issued RMC No. 43-91
subjecting pawn tickets to documentary stamp tax. Respondent therein, Josefina Leal, owner
and operator of Josefina’s Pawnshop, asked for a reconsideration of both RMO No. 15-91 and
RMC No. 43-91, but the same was denied by petitioner CIR. Leal then filed a petition for
prohibition with the RTC of San Mateo, Rizal, seeking to prohibit petitioner CIR from
implementing the revenue orders. The CIR, through the OSG, filed a motion to dismiss on the
ground of lack of jurisdiction. The RTC denied the motion. Petitioner filed a petition for
certiorari and prohibition with the CA which dismissed the petition "for lack of basis." In
reversing the CA, dissolving the Writ of Preliminary Injunction issued by the trial court and
ordering the dismissal of the case before the trial court, the Supreme Court held that "[t]he
questioned RMO No. 15-91 and RMC No. 43-91 are actually rulings or opinions of the
Commissioner implementing the Tax Code on the taxability of pawnshops." They were issued
pursuant to the CIR’s power under Section 245 of the Tax Code "to make rulings or opinions
in connection with the implementation of the provisions of internal revenue laws, including
ruling on the classification of articles of sales and similar purposes."The Court held that under
R.A. No. 1125 (An Act Creating the Court of Tax Appeals), as amended, such rulings of the CIR
are appealable to the CTA.
In the case at bar, the assailed revenue regulations and revenue memorandum circulars are
actually rulings or opinions of the CIR on the tax treatment of motor vehicles sold at public
auction within the SSEZ to implement Section 12 of R.A. No. 7227 which provides that
"exportation or removal of goods from the territory of the [SSEZ] to the other parts of the
Philippine territory shall be subject to customs duties and taxes under the Customs and Tariff
Codeand other relevant tax laws of the Philippines." They were issued pursuant to the power
of the CIR under Section 4 of the National Internal Revenue Code x x x.24 (emphasis added)
The respective teachings in British American Tobacco and Asia International Auctioneers, at
first blush, appear to bear no conflict––that when the validity or constitutionality of an
administrative rule or regulation is assailed, the regular courts have jurisdiction; and if what
is assailed are rulings or opinions of the Commissioner on tax treatments, jurisdiction over
the controversy is lodged with the CTA. The problem with the above postulates, however, is
that they failed to take into consideration one crucial point––a taxpayer can raise both issues
simultaneously.
Petitioner avers that there is now a trend wherein both the CTA and the CA disclaim
jurisdiction over tax cases: on the one hand, mere prayer for the declaration of a tax
measure’s unconstitutionality or invalidity before the CTA can result in a petition’s outright
dismissal, and on the other hand, the CA will likewise dismiss the same petition should it find
that the primary issue is not the tax measure’s validity but the assessment or taxability of the
transaction or subject involved. To illustrate this point, petitioner cites the assailed
Resolution, thusly: Admittedly, in British American Tobacco vs. Camacho, the Supreme Court
has ruled that the determination of whether a specific rule or set of rules issued by an
administrative agency contravenes the law or the constitution is within the jurisdiction of the
regular courts, not the CTA.
xxxx
Petitioner essentially questions the CIR’s ruling that Petitioner’s sale of shares is a taxable
donation under Sec. 100 of the NIRC. The validity of Sec. 100 of the NIRC, Sec. 7 (C.2.2) and
RMC 25-11 is merely questioned incidentally since it was used by the CIR as bases for its
unfavourable opinion. Clearly, the Petition involves an issue on the taxability of the
transaction rather than a direct attack on the constitutionality of Sec. 100, Sec.7 (c.2.2.) of RR
06-08 and RMC 25-11. Thus, the instant Petition properly pertains to the CTA under Sec. 7 of
RA 9282.
As a result of the seemingly conflicting pronouncements, petitioner submits that taxpayers
are now at a quandary on what mode of appeal should be taken, to which court or agency it
should be filed, and which case law should be followed.
Petitioner’s above submission is specious.
In the recent case of City of Manila v. Grecia-Cuerdo,25 the Court en banc has ruled that the
CTA now has the power of certiorari in cases within its appellate jurisdiction. To elucidate:
The prevailing doctrine is that the authority to issue writs of certiorari involves the exercise
of original jurisdiction which must be expressly conferred by the Constitution or by law and
cannot be implied from the mere existence of appellate jurisdiction. Thus, x x x this Court has
ruled against the jurisdiction of courts or tribunals over petitions for certiorari on the ground
that there is no law which expressly gives these tribunals such power. Itmust be observed,
however, that x x x these rulings pertain not to regular courts but to tribunals exercising
quasijudicial powers. With respect tothe Sandiganbayan, Republic Act No. 8249 now provides
that the special criminal court has exclusive original jurisdiction over petitions for the
issuance of the writs of mandamus, prohibition, certiorari, habeas corpus, injunctions, and
other ancillary writs and processes in aid of its appellate jurisdiction.
In the same manner, Section 5 (1), Article VIII of the 1987 Constitution grants power to the
Supreme Court, in the exercise of its original jurisdiction, to issue writs of certiorari,
prohibition and mandamus. With respect to the Court of Appeals, Section 9 (1) of Batas
Pambansa Blg. 129 (BP 129) gives the appellate court, also in the exercise of its original
jurisdiction, the power to issue, among others, a writ of certiorari, whether or not in aid of its
appellate jurisdiction. As to Regional Trial Courts, the power to issue a writ of certiorari, in
the exercise of their original jurisdiction, is provided under Section 21 of BP 129.
The foregoing notwithstanding, while there is no express grant of such power, with respect
to the CTA, Section 1, Article VIII of the 1987 Constitution provides, nonetheless, that judicial
power shall be vested in one Supreme Court and in such lower courts as may be established
by law and that judicial power includes the duty of the courts of justice to settle actual
controversies involving rights which are legally demandable and enforceable, and to
determine whether or not there has been a grave abuse of discretion amounting to lack or
excess of jurisdiction on the part of any branch or instrumentality of the Government.
On the strength of the above constitutional provisions, it can be fairly interpreted that the
power of the CTA includes that of determining whether or not there has been grave abuse of
discretion amounting to lack or excess of jurisdiction on the part of the RTC in issuing an
interlocutory order in cases falling within the exclusive appellate jurisdiction of the tax court.
It, thus, follows that the CTA, by constitutional mandate, is vested with jurisdiction to issue
writs of certiorari in these cases.
Indeed, in order for any appellate court to effectively exercise its appellate jurisdiction, it
must have the authority to issue, among others, a writ of certiorari. In transferring exclusive
jurisdiction over appealed tax cases to the CTA, it can reasonably be assumed that the law
intended to transfer also such power as is deemed necessary, if not indispensable, in aid of
such appellate jurisdiction. There is no perceivable reason why the transfer should only be
considered as partial, not total. (emphasis added)
Evidently, City of Manilacan be considered as a departure from Ursal in that in spite of there
being no express grant in law, the CTA is deemed granted with powers of certiorari by
implication. Moreover, City of Manila diametrically opposes British American Tobacco to the
effect that it is now within the power of the CTA, through its power of certiorari, to rule on
the validity of a particular administrative ruleor regulation so long as it is within its appellate
jurisdiction. Hence, it can now rule not only on the propriety of an assessment or tax
treatment of a certain transaction, but also on the validity of the revenue regulation or
revenue memorandum circular on which the said assessment is based.
Guided by the doctrinal teaching in resolving the case at bar, the fact that the CA petition not
only contested the applicability of Sec. 100 of the NIRC over the sales transaction but likewise
questioned the validity of Sec. 7 (c.2.2) of RR 06-08 and RMC 25-11 does not divest the CTA
of its jurisdiction over the controversy, contrary to petitioner's arguments.
The price difference is subject to donor's tax
Petitioner's substantive arguments are unavailing. The absence of donative intent, if that be
the case, does not exempt the sales of stock transaction from donor's tax since Sec. 100 of
the NIRC categorically states that the amount by which the fair market value of the property
exceeded the value of the consideration shall be deemed a gift.1âwphi1 Thus, even if there is
no actual donation, the difference in price is considered a donation by fiction of law.
Moreover, Sec. 7(c.2.2) of RR 06-08 does not alter Sec. 100 of the NIRC but merely sets the
parameters for determining the "fair market value" of a sale of stocks. Such issuance was
made pursuant to the Commissioner's power to interpret tax laws and to promulgate rules
and regulations for their implementation.
Lastly, petitioner is mistaken in stating that RMC 25-11, having been issued after the sale,
was being applied retroactively in contravention to Sec. 246 of the NIRC.26 Instead, it merely
called for the strict application of Sec. 100, which was already in force the moment the NIRC
was enacted.
WHEREFORE, the petition is hereby DISMISSED. The Resolutions of the Court of Appeals in
CA-G.R. SP No. 127984 dated May 23, 2013 and January 21, 2014 are hereby AFFIRMED.
SO ORDERED.
G.R. No. 213446, July 03, 2018
CONFEDERATION FOR UNITY, RECOGNITION AND ADVANCEMENT OF GOVERNMENT
EMPLOYEES (COURAGE); JUDICIARY EMPLOYEES ASSOCIATION OF THE PHILIPPINES (JUDEA-
PHILS); SANDIGANBAYAN EMPLOYEES ASSOCIATION (SEA); SANDIGAN NG MGA
EMPLEYADONG NAGKAKAISA SA ADHIKAIN NG DEMOKRATIKONG ORGANISASYON
(S.E.N.A.D.O.); ASSOCIATION OF COURT OF APPEALS EMPLOYEES (ACAE); DEPARTMENT OF
AGRARIAN REFORM EMPLOYEES ASSOCIATION (DAREA); SOCIAL WELFARE EMPLOYEES
ASSOCIATION OF THE PHILIPPINES-DEPARTMENT OF SOCIAL WELFARE AND DEVELOPMENT
(SWEAP-DSWD); DEPARTMENT OF TRADE AND INDUSTRY EMPLOYEES UNION (DTI-EU);
KAPISANAN PARA SA KAGALINGAN NG MGA KAWANI NG METRO MANILA DEVELOPMENT
AUTHORITY (KKK-MMDA); WATER SYSTEM EMPLOYEES RESPONSE (WATER);
CONSOLIDATED UNION OF EMPLOYEES OF THE NATIONAL HOUSING AUTHORITIES (CUE-
NHA); AND KAPISANAN NG MGA MANGGAGAWA AT KAWANI NG QUEZON CITY (KASAMA
KA-QC), Petitioners, v. COMMISSIONER, BUREAU OF INTERNAL REVENUE AND THE
SECRETARY, DEPARTMENT OF FINANCE, Respondents.
NATIONAL FEDERATION OF EMPLOYEES ASSOCIATIONS OF THE DEPARTMENT OF
AGRICULTURE (NAFEDA), REPRESENTED BY ITS EXECUTIVE VICE PRESIDENT ROMAN M.
SANCHEZ, DEPARTMENT OF AGRICULTURE EMPLOYEES ASSOCIATION OFFICE OF THE
SECRETARY (DAEA-OSEC), REPRESENTED BY ITS ACTING PRESIDENT ROWENA GENETE,
NATIONAL AGRICULTURAL AND FISHERIES COUNCIL EMPLOYEES ASSOCIATION (NAFCEA),
REPRESENTED BY ITS PRESIDENT SOLIDAD B. BERNARDO, COMMISSION ON ELECTIONS
EMPLOYEES UNION (COMELEC EU), REPRESENTED BY ITS PRESIDENT MARK CHRISTOPHER
D. RAMIREZ, MINES AND GEOSCIENCES BUREAU EMPLOYEES ASSOCIATION CENTRAL
OFFICE (MGBEA CO), REPRESENTED BY ITS PRESIDENT MAYBELLYN A. ZEPEDA, LIVESTOCK
DEVELOPMENT COUNCIL EMPLOYEES ASSOCIATION (LDCEA), REPRESENTED BY ITS
PRESIDENT JOVITA M. GONZALES, ASSOCIATION OF CONCERNED EMPLOYEES OF
PHILIPPINE FISHERIES DEVELOPMENT AUTHORITY (ACE OF PFDA), REPRESENTED BY ITS
PRESIDENT ROSARIO DEBLOIS, Intervenors.
G.R. No. 213658, July 3, 2018
JUDGE ARMANDO A. YANGA, IN HIS PERSONAL CAPACITY AND IN HIS CAPACITY AS
PRESIDENT OF THE RTC JUDGES ASSOCIATION OF MANILA, AND MA. CRISTINA CARMELA I.
JAPZON, IN HER PERSONAL CAPACITY AND IN HER CAPACITY AS PRESIDENT OF THE
PHILIPPINE ASSOCIATION OF COURT EMPLOYEES-MANILA CHAPTER, Petitioners, v. HON.
COMMISSIONER KIM S. JACINTO-HENARES, IN HER CAPACITY AS COMMISSIONER OF THE
BUREAU OF INTERNAL REVENUE, Respondent.
THE MEMBERS OF THE ASSOCIATION OF REGIONAL TRIAL COURT JUDGES IN ILOILO CITY,
Intervenors.
DECISION
CAGUIOA, J.:
G.R. Nos. 213446 and 213658 are petitions for Certiorari, Prohibition and/or Mandamus
under Rule 65 of the Rules of Court, with Application for Issuance of Temporary Restraining
Order and/or Writ of Preliminary Injunction, uniformly seeking to: (a) issue a Temporary
Restraining Order to enjoin the implementation of Revenue Memorandum Order (RMO) No.
23- 2014 dated June 20, 2014 issued by the Commissioner of Internal Revenue (CIR); and (b)
declare null, void and unconstitutional paragraphs A, B, C, and D of Section III, and Sections
IV, VI and VII of RMO No. 23-2014. The petition in G.R. No. 213446 also prays for the issuance
of a Writ of Mandamus to compel respondents to upgrade the P30,000.00 non-taxable
ceiling of the 13th month pay and other benefits for the concerned officials and employees of
the government.
The Antecedents
On June 20, 2014, respondent CIR issued the assailed RMO No. 23-2014, in furtherance of
Revenue Memorandum Circular (RMC) No. 23-2012 dated February 14, 2012 on the
"Reiteration of the Responsibilities of the Officials and Employees of Government Offices for
the Withholding of Applicable Taxes on Certain Income Payments and the Imposition of
Penalties for Non-Compliance Thereof," in order to clarify and consolidate the responsibilities
of the public sector to withhold taxes on its transactions as a customer (on its purchases of
goods and services) and as an employer (on compensation paid to its officials and
employees) under the National Internal Revenue Code (NIRC or Tax Code) of 1997, as
amended, and other special laws.
The Petitions
G.R. No. 213446
On August 6, 2014, petitioners Confederation for Unity, Recognition and Advancement of
Government Employees (COURAGE), et al., organizations/unions of government employees
from the Sandiganbayan, Senate of the Philippines, Court of Appeals, Department of Agrarian
Reform, Department of Social Welfare and Development, Department of Trade and Industry,
Metro Manila Development Authority, National Housing Authority and local government of
Quezon City, filed a Petition for Prohibition and Mandamus,1 imputing grave abuse of
discretion on the part of respondent CIR in issuing RMO No. 23-2014. According to
petitioners, RMO No. 23-2014 classified as taxable compensation, the following allowances,
bonuses, compensation for services granted to government employees, which they alleged to Emergency Economic Assistance
be considered by law as non-taxable fringe and de minimis benefits, to wit:
Year-End Bonus (13th Month Pay)
I. Legislative Fringe Benefits
Cash Gift
Anniversary Bonus
Loyalty Cash Award (Milestone Bonus)
Additional Food Subsidy
Christmas Allowance m. Anniversary Bonus2
13th Month Pay
Petitioners further assert that the imposition of withholding tax on these allowances,
Food Subsidy bonuses and benefits, which have been allotted by the Government to its employees free of
tax for a long time, violates the prohibition on non-diminution of benefits under Article 100
Cash Gift of the Labor Code;3 and infringes upon the fiscal autonomy of the Legislature, Judiciary,
Cost of Living Assistance Constitutional Commissions and Office of the Ombudsman granted by the Constitution.4

Efficiency Incentive Bonus Petitioners also claim that RMO No. 23-2014 (1) constitutes a usurpation of legislative power
and diminishes the delegated power of local government units inasmuch as it defines new
Financial Relief Assistance offenses and prescribes penalty therefor, particularly upon local government officials;5 and
(2) violates the equal protection clause of the Constitution as it discriminates against
Grocery Allowance government officials and employees by imposing fringe benefit tax upon their allowances
Hospitalization and benefits, as opposed to the allowances and benefits of employees of the private sector,
the fringe benefit tax of which is borne and paid by their employers.6
Inflationary Assistance Allowance
Further, the petition also prays for the issuance of a writ of mandamus ordering respondent
Longevity Service Pay CIR to perform its duty under Section 32(B)(7)(e)(iv) of the NIRC of 1997, as amended, to
upgrade the ceiling of the 13th month pay and other benefits for the concerned officials and
Medical Allowance employees of the government, including petitioners.7
Mid-Year Eco. Assistance G.R. No. 213658
Productivity Incentive Benefit On August 19, 2014, petitioners Armando A. Yanga, President of the Regional Trial Court
(RTC) Judges Association of Manila, and Ma. Cristina Carmela I. Japzon, President of the
Transition Allowance
Philippine Association of Court Employees – Manila Chapter, filed a Petition for Certiorari and
Uniform Allowance Prohibition8 as duly authorized representatives of said associations, seeking to nullify RMO
No. 23-2014 on the following grounds: (1) respondent CIR is bereft of any authority to issue
II. Judiciary Benefits the assailed RMO. The NIRC of 1997, as amended, expressly vests to the Secretary of Finance
the authority to promulgate all needful rules and regulations for the effective enforcement of
Additional Compensation Income
tax provisions;9 and (2) respondent CIR committed grave abuse of discretion amounting to
Extraordinary & Miscellaneous Expenses lack or excess of jurisdiction in the issuance of RMO No. 23-2014 when it subjected to
withholding tax benefits and allowances of court employees which are tax-exempt such as:
Monthly Special Allowance (a) Special Allowance for Judiciary (SAJ) under Republic Act (RA) No. 9227 and additional cost
of living allowance (AdCOLA) granted under Presidential Decree (PD) No. 1949 which are
Additional Cost of Living Allowance (from Judiciary Development Fund)
considered as non-taxable fringe benefits under Section 33(A) of the NIRC of 1997, as
Productivity Incentive Benefit amended; (b) cash gift, loyalty awards, uniform and clothing allowance and additional
compensation (ADCOM) granted to court employees which are considered de minimis under
Grocery Allowance Section 33(C)(4) of the same Code; (c) allowances and benefits granted by the Judiciary which
Clothing Allowance
are not taxable pursuant to Section 32(7)(E) of the NIRC of 1997, as amended; and (d)
expenses for the Judiciary provided under Commission on Audit (COA) Circular 2012-001.10
Petitioners further assert that RMO No. 23-2014 violates their right to due process of law
because while it is ostensibly denominated as a mere revenue issuance, it is an illegal and
unwarranted legislative action which sharply increased the tax burden of officials and
employees of the Judiciary without the benefit of being heard.11
On October 21, 2014, the Court resolved to consolidate the foregoing cases.12
Respondents, through the Office of the Solicitor General (OSG), filed their Consolidated
Comment13 on December 23, 2014. They argue that the petitions are barred by the doctrine
of hierarchy of courts and petitioners failed to present any special and important reasons or
exceptional and compelling circumstance to justify direct recourse to this Court.14
Maintaining that RMO No. 23-2014 was validly issued in accordance with the power of the
CIR to make rulings and opinion in connection with the implementation of internal revenue
laws, respondents aver that unlike Revenue Regulations (RRs), RMOs do not require the
approval or signature of the Secretary of Finance, as these merely provide directives or
instructions in the implementation of stated policies, goals, objectives, plans and programs of
the Bureau.15 According to them, RMO No. 23-2014 is in fact a mere reiteration of the Tax
Code and previous RMOs, and can be traced back to RR No. 01-87 dated April 2, 1987
implementing Executive Order No. 651 which was promulgated by then Secretary of Finance
Jaime V. Ongpin upon recommendation of then CIR Bienvenido A. Tan, Jr. Thus, the CIR never
usurped the power and authority of the legislature in the issuance of the assailed RMO.16
Also, contrary to petitioners' assertion, the due process requirements of hearing and
publication are not applicable to RMO No. 23-2014.17
Respondents further argue that petitioners' claim that RMO No. 23-2014 is unconstitutional
has no leg to stand on. They explain that the constitutional guarantee of fiscal autonomy to
Judiciary and Constitutional Commissions does not include exemption from payment of
taxes, which is the lifeblood of the nation.18 They also aver that RMO No. 23-2014 never
intended to diminish the powers of local government units. It merely reiterates the
obligation of the government as an employer to withhold taxes, which has long been
provided by the Tax Code.19
Moreover, respondents assert that the allowances and benefits enumerated in Section III A,
B, C, and D, are not fringe benefits which are exempt from taxation under Section 33 of the
Tax Code, nor de minimis benefits excluded from employees' taxable basic salary. They
explain that the SAJ under RA No. 9227 and AdCOLA under PD No. 1949 are additional
allowances which form part of the employee's basic salary; thus, subject to withholding
taxes.20
Respondents also claim that RMO No. 23-2014 does not violate petitioners' right to equal
protection of laws as it covers all employees and officials of the government. It does not
create a new category of taxable income nor make taxable those which are not taxable but
merely reflect those incomes which are deemed taxable under existing laws.21
Lastly, respondents aver that mandamus will not lie to compel respondents to increase the
ceiling for tax exemptions because the Tax Code does not impose a mandatory duty on the
part of respondents to do the same.22
The Petitions-in-Intervention
Meanwhile, on September 11, 2014, the National Federation of Employees Associations of
the Department of Agriculture (NAFEDA) et al., duly registered union/association of
employees of the Department of Agriculture, National Agricultural and Fisheries Council,
Commission on Elections, Mines and Geosciences Bureau, and Philippine Fisheries
Development Authority, claiming similar interest as petitioners in G.R. No. 213446, filed a
Petition-in-Intervention23 seeking the nullification of items III, VI and VII of RMO No. 23-2014
based on the following grounds: (1) that respondent CIR acted with grave abuse of discretion
and usurped the power of the Legislature in issuing RMO No. 23-2014 which imposes
additional taxes on government employees and prescribes penalties for government official's
failure to withhold and remit the same;24 (2) that RMO No. 23-2014 violates the equal
protection clause because the Commission on Human Rights (CHR) was not included among
the constitutional commissions covered by the issuance and the ADCOM of employees of the
Judiciary was subjected to withholding tax but those received by employees of the Legislative
and Executive branches are not;25 and (3) that respondent CIR failed to upgrade the tax
exemption ceiling for benefits under Section 32(B)(7) of the NIRC of 1997, as amended.26
In its Comment,27 respondents, through the OSG, sought the denial of the Petition-in-
Intervention for failure of the intervenors to seek prior leave of Court and to demonstrate
that the existing consolidated petitions are not sufficient to protect their interest as parties
affected by the assailed RMO.28 They further contend that, contrary to the intervenors'
position, the CHR is not exempt from the applicability of RMO No. 23-2014.29 They explain
that the enumeration of government offices and constitutional bodies covered by RMO No.
23-2014 is not exclusive; Section III thereof in fact states that RMO No. 23-2014 covers all
employees of the public sector.30 They also allege that the ADCOM referred to in Section
III(B) of the assailed RMO is unique to the Judiciary; employees and officials in the executive
and legislative do not receive this specific type of ADCOM enjoyed by the employees and
officials of the Judicial branch.31
On October 10, 2014, a Motion for Intervention with attached Complaint in Intervention32
was filed, in G.R. No. 213658, by the Members of the Association of Regional Trial Court
Judges in Iloilo City. Claiming that they are similarly situated with petitioners, said intervenors
pray that the Court declare null and void RMO No. 23-2014 and direct the Bureau of Internal
Revenue (BIR) to refund the amount illegally exacted from the salaries/compensations of the
judges by virtue of the implementation of RMO No. 23-2014.33 The intervenors claim that
RMO No. 23-2014 violates their right to due process as it takes away a portion of their
salaries and compensation without giving them the opportunity to be heard.34 They also aver
that the implementation of RMO No. 23-2014 resulted in the diminution of their
salaries/compensation in violation of Sections 3 and 10, Article VIII of the Constitution.35
In their Comment36 to the Motion, respondents adopted the arguments in their Consolidated
Comment and further stated that: (1) RMO No. 23-2014 does not diminish the salaries and
compensation of members of the judiciary as it has been judicially settled that the imposition
of taxes on salaries and compensation of judges and justices is not equivalent to diminution
of the same;37 (2) the allowances and benefits enumerated under Section III(B) of RMO No.
23-2014 are not fringe benefits exempt from taxation;38 (3) the AdCOLA and SAJ are not
fringe benefits as these are considered part of the basic salary of government employees
subject to income tax;39 and (4) there is no valid ground for the refund of the taxes withheld
pursuant to RMO No. 23-2014.40
In sum, petitioners and intervenors (collectively referred to as petitioners) argue that:
RMO No. 23-2014 is ultra vires insofar as:
Sections III and IV of RMO No. 23-2014, for subjecting to withholding taxes non-taxable
allowances, bonuses and benefits received by government employees;
Sections VI and VII, for defining new offenses and prescribing penalties therefor, particularly
upon government officials;
RMO No. 23-2014 violates the equal protection clause as it discriminates against government
employees;
RMO No. 23-2014 violates fiscal autonomy enjoyed by government agencies;
The implementation of RMO No. 23-2014 results in diminution of benefits of government
employees, a violation of Article 100 of the Labor Code; and
Respondents may be compelled through a writ of mandamus to increase the tax-exempt
ceiling for 13th month pay and other benefits.
On the other hand, respondents counter that:
The instant consolidated petitions are barred by the doctrine of hierarchy of courts;
The CIR did not abuse its discretion in the issuance of RMO No. 23-2014 because:
It was issued pursuant to the CIR's power to interpret the NIRC of 1997, as amended, and
other tax laws, under Section 4 of the NIRC of 1997, as amended;
RMO No. 23-2014 does not discriminate against government employees. It does not create a
new category of taxable income nor make taxable those which are exempt;
RMO No. 23-2014 does not result in diminution of benefits;
The allowances, bonuses or benefits listed under Section III of the assailed RMO are not
fringe benefits;
The fiscal autonomy granted by the Constitution does not include tax exemption; and
Mandamus does not lie against respondents because the NIRC of 1997, as amended, does
not impose a mandatory duty upon them to increase the tax-exempt ceiling for 13th month
pay and other benefits.
Incidentally, in a related case docketed as A.M. No. 16-12-04-SC, the Court, on July 11, 2017,
issued a Resolution directing the Fiscal Management and Budget Office of the Court to
maintain the status quo by the non-withholding of taxes from the benefits authorized to be
granted to judiciary officials and personnel, namely, the Mid-year Economic Assistance, the
Year-end Economic Assistance, the Yuletide Assistance, the Special Welfare Assistance (SWA)
and the Additional SWA, until such time that a decision is rendered in the instant
consolidated cases.
The Court's Ruling
I.
Procedural
Non-exhaustion of administrative remedies.
It is an unquestioned rule in this jurisdiction that certiorari under Rule 65 will only lie if there
is no appeal, or any other plain, speedy and adequate remedy in the ordinary course of law
against the assailed issuance of the CIR.41 The plain, speedy and adequate remedy expressly
provided by law is an appeal of the assailed RMO with the Secretary of Finance under Section
4 of the NIRC of 1997, as amended, to wit:
SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. – The
power to interpret the provisions of this Code and other tax laws shall be under the
exclusive and original jurisdiction of the Commissioner, subject to review by the Secretary
of Finance.
The power to decide disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties imposed in relation thereto, or other matters arising under this Code or
other laws or portions thereof administered by the Bureau of Internal Revenue is vested in
the Commissioner, subject to the exclusive appellate jurisdiction of the Court of Tax
Appeals.42
The CIR's exercise of its power to interpret tax laws comes in the form of revenue issuances,
which include RMOs that provide "directives or instructions; prescribe guidelines; and outline
processes, operations, activities, workflows, methods and procedures necessary in the
implementation of stated policies, goals, objectives, plans and programs of the Bureau in all
areas of operations, except auditing."43 These revenue issuances are subject to the review of
the Secretary of Finance. In relation thereto, Department of Finance Department Order No.
007-0244 issued by the Secretary of Finance laid down the procedure and requirements for
filing an appeal from the adverse ruling of the CIR to the said office. A taxpayer is granted a
period of thirty (30) days from receipt of the adverse ruling of the CIR to file with the Office
of the Secretary of Finance a request for review in writing and under oath.45
In Asia International Auctioneers, Inc. v. Parayno, Jr.,46 the Court dismissed the petition
seeking the nullification of RMC No. 31-2003 for failing to exhaust administrative remedies.
The Court held:
x x x It is settled that the premature invocation of the court's intervention is fatal to one's
cause of action. If a remedy within the administrative machinery can still be resorted to by
giving the administrative officer every opportunity to decide on a matter that comes within
his jurisdiction, then such remedy must first be exhausted before the court's power of judicial
review can be sought. The party with an administrative remedy must not only initiate the
prescribed administrative procedure to obtain relief but also pursue it to its appropriate
conclusion before seeking judicial intervention in order to give the administrative agency an
opportunity to decide the matter itself correctly and prevent unnecessary and premature
resort to the court.47
The doctrine of exhaustion of administrative remedies is not without practical and legal
reasons. For one thing, availment of administrative remedy entails lesser expenses and
provides for a speedier disposition of controversies. It is no less true to state that courts of
justice for reasons of comity and convenience will shy away from a dispute until the system
of administrative redress has been completed and complied with so as to give the
administrative agency concerned every opportunity to correct its error and to dispose of the
case.48 While there are recognized exceptions to this salutary rule, petitioners have failed to
prove the presence of any of those in the instant case.
Violation of the rule on hierarchy of courts.
Moreover, petitioners violated the rule on hierarchy of courts as the petitions should have
been initially filed with the CTA, having the exclusive appellate jurisdiction to determine the
constitutionality or validity of revenue issuances.
In The Philippine American Life and General Insurance Co. v. Secretary of Finance,49 the Court
held that rulings of the Secretary of Finance in its exercise of its power of review under
Section 4 of the NIRC of 1997, as amended, are appealable to the CTA.50 The Court explained
that while there is no law which explicitly provides where rulings of the Secretary of Finance
under the adverted to NIRC provision are appealable, Section 7(a)51 of RA No. 1125, the law
creating the CTA, is nonetheless sufficient, albeit impliedly, to include appeals from the
Secretary's review under Section 4 of the NIRC of 1997, as amended.
Moreover, echoing its pronouncements in City of Manila v. Grecia-Cuerdo,52 that the CTA has
the power of certiorari within its appellate jurisdiction, the Court declared that "it is now
within the power of the CTA, through its power of certiorari, to rule on the validity of a
particular administrative rule or regulation so long as it is within its appellate jurisdiction.
Hence, it can now rule not only on the propriety of an assessment or tax treatment of a
certain transaction, but also on the validity of the revenue regulation or revenue
memorandum circular on which the said assessment is based."53
Subsequently, in Banco de Oro v. Republic,54 the Court, sitting En Banc, further held that the
CTA has exclusive appellate jurisdiction to review, on certiorari, the constitutionality or
validity of revenue issuances, even without a prior issuance of an assessment. The Court En
Banc reasoned:
We revert to the earlier rulings in Rodriguez, Leal, and Asia International Auctioneers, Inc.
The Court of Tax Appeals has exclusive jurisdiction to determine the constitutionality or
validity of tax laws, rules and regulations, and other administrative issuances of the
Commissioner of Internal Revenue.
Article VIII, Section 1 of the 1987 Constitution provides the general definition of judicial
power:
ARTICLE [VIII]
JUDICIAL DEPARTMENT
Section 1. The judicial power shall be vested in one Supreme Court and in such lower courts
as may be established by law.
Judicial power includes the duty of the courts of justice to settle actual controversies
involving rights which are legally demandable and enforceable, and to determine whether or
not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on
the part of any branch or instrumentality of the Government. (Emphasis supplied)
Based on this constitutional provision, this Court recognized, for the first time, in The City of
Manila v. Hon. Grecia-Cuerdo, the Court of Tax Appeals' jurisdiction over petitions for
certiorari assailing interlocutory orders issued by the Regional Trial Court in a local tax case.
Thus:
[W]hile there is no express grant of such power, with respect to the CTA, Section 1, Article
VIII of the 1987 Constitution provides, nonetheless, that judicial power shall be vested in one
Supreme Court and in such lower courts as may be established by law and that judicial power
includes the duty of the courts of justice to settle actual controversies involving rights which
are legally demandable and enforceable, and to determine whether or not there has been a
grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any
branch or instrumentality of the Government.
On the strength of the above constitutional provisions, it can be fairly interpreted that the
power of the CTA includes that of determining whether or not there has been grave abuse of
discretion amounting to lack or excess of jurisdiction on the part of the RTC in issuing an
interlocutory order in cases falling within the exclusive appellate jurisdiction of the tax court.
It, thus, follows that the CTA, by constitutional mandate, is vested with jurisdiction to issue
writs of certiorari in these cases. (Emphasis in the original)
This Court further explained that the Court of Tax Appeals' authority to issue writs of
certiorari is inherent in the exercise of its appellate jurisdiction:
A grant of appellate jurisdiction implies that there is included in it the power necessary to
exercise it effectively, to make all orders that will preserve the subject of the action, and to
give effect to the final determination of the appeal. It carries with it the power to protect
that jurisdiction and to make the decisions of the court thereunder effective. The court, in aid
of its appellate jurisdiction, has authority to control all auxiliary and incidental matters
necessary to the efficient and proper exercise of that jurisdiction. For this purpose, it may,
when necessary, prohibit or restrain the performance of any act which might interfere with
the proper exercise of its rightful jurisdiction in cases pending before it.

Lastly, it would not be amiss to point out that a court which is endowed with a particular
(2) Decisions of the Commissioner of Customs in cases involving liability for customs
jurisdiction should have powers which are necessary to enable it to act effectively within
duties, fees or other money charges; seizure, detention or release of property
such jurisdiction. These should be regarded as powers which are inherent in its jurisdiction
affected fines, forfeitures or other penalties imposed in relation thereto; or other
and the court must possess them in order to enforce its rules of practice and to suppress any
matters arising under the Customs Law or other law or part of law administered by
abuses of its process and to defeat any attempted thwarting of such process.
the Bureau of Customs; and
In this regard, Section 1 of RA 9282 states that the CTA shall be of the same level as the CA
and shall possess all the inherent powers of a court of justice.

Indeed, courts possess certain inherent powers which may be said to be implied from a
general grant of jurisdiction, in addition to those expressly conferred on them. These (3) Decisions of provincial or city Boards of Assessment Appeals in cases involving the
inherent powers are such powers as are necessary for the ordinary and efficient exercise of assessment and taxation of real property or other matters arising under the
jurisdiction; or are essential to the existence, dignity and functions of the courts, as well as to Assessment Law, including rules and regulations relative thereto.
the due administration of justice; or are directly appropriate, convenient and suitable to the
execution of their granted powers; and include the power to maintain the court's jurisdiction
Republic Act No. 1125 transferred to the Court of Tax Appeals jurisdiction over all matters
and render it effective in behalf of the litigants.
involving assessments that were previously cognizable by the Regional Trial Courts (then
Thus, this Court has held that "while a court may be expressly granted the incidental powers courts of first instance).
necessary to effectuate its jurisdiction, a grant of jurisdiction, in the absence of prohibitive
In 2004, Republic Act No. 9282 was enacted. It expanded the jurisdiction of the Court of Tax
legislation, implies the necessary and usual incidental powers essential to effectuate it, and,
Appeals and elevated its rank to the level of a collegiate court with special jurisdiction.
subject to existing laws and constitutional provisions, every regularly constituted court has
Section 1 specifically provides that the Court of Tax Appeals is of the same level as the Court
power to do all things that are reasonably necessary for the administration of justice within
of Appeals and possesses "all the inherent powers of a Court of Justice."
the scope of its jurisdiction and for the enforcement of its judgments and mandates." Hence,
demands, matters or questions ancillary or incidental to, or growing out of, the main action, Section 7, as amended, grants the Court of Tax Appeals the exclusive jurisdiction to resolve
and coming within the above principles, may be taken cognizance of by the court and all tax-related issues:
determined, since such jurisdiction is in aid of its authority over the principal matter, even
though the court may thus be called on to consider and decide matters which, as original Section 7. Jurisdiction. — The CTA shall exercise:
causes of action, would not be within its cognizance. (Citations omitted)
(a) Exclusive appellate jurisdiction to review by appeal, as herein provided:
Judicial power likewise authorizes lower courts to determine the constitutionality or validity
of a law or regulation in the first instance. This is contemplated in the Constitution when it
speaks of appellate review of final judgments of inferior courts in cases where such
constitutionality is in issue.

On June 16, 1954, Republic Act No. 1125 created the Court of Tax Appeals not as another 1) Decisions of the Commissioner of Internal Revenue in cases involving disputed
superior administrative agency as was its predecessor — the former Board of Tax Appeals — assessments, refunds of internal revenue taxes, fees or other charges,
but as a part of the judicial system with exclusive jurisdiction to act on appeals from: penalties in relation thereto, or other matters arising under the National
Internal Revenue Code or other laws administered by the Bureau of Internal
(1) Decisions of the Collector of Internal Revenue in cases involving disputed Revenue;
assessments, refunds of internal revenue taxes, fees or other charges, penalties
imposed in relation thereto, or other matters arising under the National Internal
Revenue Code or other law or part of law 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;
3) Decisions, orders or resolutions of the Regional Trial Courts in local tax cases
originally decided or resolved by them in the exercise of their original or
appellate jurisdiction;
4) Decisions of the Commissioner of Customs in cases involving liability for
customs duties, fees or other money charges, seizure, detention or release of
property affected, fines, forfeitures or other penalties in relation thereto, or
other matters arising under the Customs Law or other laws administered by
the Bureau of Customs;
5) Decisions of the Central Board of Assessment Appeals in the exercise of its
appellate jurisdiction over cases involving the assessment and taxation of real
property originally decided by the provincial or city board of assessment
appeals;
6) Decisions of the Secretary of Finance on customs cases elevated to him
automatically for review from decisions of the Commissioner of Customs
which are adverse to the Government under Section 2315 of the Tariff and
Customs Code;
7) Decisions of the Secretary of Trade and Industry, in the case of nonagricultural
product, commodity or article, and the Secretary of Agriculture in the case of
agricultural product, commodity or article, involving dumping and
countervailing duties under Section 301 and 302, respectively, of the Tariff
and Customs Code, and safeguard measures under Republic Act No. 8800,
where either party may appeal the decision to impose or not to impose said
duties.
The Court of Tax Appeals has undoubted jurisdiction to pass upon the constitutionality or
validity of a tax law or regulation when raised by the taxpayer as a defense in disputing or
contesting an assessment or claiming a refund. It is only in the lawful exercise of its power
to pass upon all matters brought before it, as sanctioned by Section 7 of Republic Act No.
1125, as amended.
This Court, however, declares that the Court of Tax Appeals may likewise take cognizance
of cases directly challenging the constitutionality or validity of a tax law or regulation or
administrative issuance (revenue orders, revenue memorandum circulars, rulings).
Section 7 of Republic Act No. 1125, as amended, is explicit that, except for local taxes,
appeals from the decisions of quasi-judicial agencies (Commissioner of Internal Revenue,
Commissioner of Customs, Secretary of Finance, Central Board of Assessment Appeals,
Secretary of Trade and Industry) on tax-related problems must be brought exclusively to the
Court of Tax Appeals.
In other words, within the judicial system, the law intends the Court of Tax Appeals to have
exclusive jurisdiction to resolve all tax problems. Petitions for writs of certiorari against the
acts and omissions of the said quasi-judicial agencies should, thus, be filed before the Court
of Tax Appeals.
Republic Act No. 9282, a special and later law than Batas Pambansa Blg. 129 provides an
exception to the original jurisdiction of the Regional Trial Courts over actions questioning the
constitutionality or validity of tax laws or regulations. Except for local tax cases, actions
directly challenging the constitutionality or validity of a tax law or regulation or
administrative issuance may be filed directly before the Court of Tax Appeals.
Furthermore, with respect to administrative issuances (revenue orders, revenue
memorandum circulars, or rulings), these are issued by the Commissioner under its power
to make rulings or opinions in connection with the implementation of the provisions of
internal revenue laws. Tax rulings, on the other hand, are official positions of the Bureau
on inquiries of taxpayers who request clarification on certain provisions of the National
Internal Revenue Code, other tax laws, or their implementing regulations. Hence, the
determination of the validity of these issuances clearly falls within the exclusive appellate
jurisdiction of the Court of Tax Appeals under Section 7(1) of Republic Act No. 1125, as
amended, subject to prior review by the Secretary of Finance, as required under Republic
Act No. 8424.55
A direct invocation of this Court's jurisdiction should only be allowed when there are special,
important and compelling reasons clearly and specifically spelled out in the petition. 56
Nevertheless, despite the procedural infirmities of the petitions that warrant their outright
dismissal, the Court deems it prudent, if not crucial, to take cognizance of, and accordingly
act on, the petitions as they assail the validity of the actions of the CIR that affect thousands
of employees in the different government agencies and instrumentalities. The Court,
following recent jurisprudence, avails itself of its judicial prerogative in order not to delay the
disposition of the case at hand and to promote the vital interest of justice. As the Court held
in Bloomberry Resorts and Hotels, Inc. v. Bureau of Internal Revenue:57
From the foregoing jurisprudential pronouncements, it would appear that in questioning the
validity of the subject revenue memorandum circular, petitioner should not have resorted
directly before this Court considering that it appears to have failed to comply with the
doctrine of exhaustion of administrative remedies and the rule on hierarchy of courts, a clear
indication that the case was not yet ripe for judicial remedy. Notably, however, in addition to
the justifiable grounds relied upon by petitioner for its immediate recourse (i.e., pure
question of law, patently illegal act by the BIR, national interest, and prevention of
multiplicity of suits), we intend to avail of our jurisdictional prerogative in order not to
further delay the disposition of the issues at hand, and also to promote the vital interest of
substantial justice. To add, in recent years, this Court has consistently acted on direct
actions assailing the validity of various revenue regulations, revenue memorandum
circulars, and the likes, issued by the CIR. The position we now take is more in accord with
latest jurisprudence. x x x 58
II.
Substantive
The petitions assert that the CIR's issuance of RMO No. 23-2014, particularly Sections III, IV,
VI and VII thereof, is tainted with grave abuse of discretion. "By grave abuse of discretion is
meant, such capricious and whimsical exercise of judgment as is equivalent to lack of
jurisdiction."59 It is an evasion of a positive duty or a virtual refusal to perform a duty
enjoined by law or to act in contemplation of law as when the judgment rendered is not
based on law and evidence but on caprice, whim and despotism.60
As earlier stated, Section 4 of the NIRC of 1997, as amended, grants the CIR the power to
issue rulings or opinions interpreting the provisions of the NIRC or other tax laws. However,
the CIR cannot, in the exercise of such power, issue administrative rulings or circulars
inconsistent with the law sought to be applied. Indeed, administrative issuances must not
override, supplant or modify the law, but must remain consistent with the law they intend to
carry out.61 The courts will not countenance administrative issuances that override, instead
of remaining consistent and in harmony with the law they seek to apply and implement. 62
Thus, in Philippine Bank of Communications v. Commissioner of Internal Revenue,63 the Court
upheld the nullification of RMC No. 7-85 issued by the Acting Commissioner of Internal
Revenue because it was contrary to the express provision of Section 230 of the NIRC of 1977.
Also, in Banco de Oro v. Republic,64 the Court nullified BIR Ruling Nos. 370-2011 and DA 378-
2011 because they completely disregarded the 20 or more-lender rule added by Congress in
the NIRC of 1997, as amended, and created a distinction for government debt instruments as
against those issued by private corporations when there was none in the law.65
Conversely, if the assailed administrative rule conforms with the law sought to be
implemented, the validity of said issuance must be upheld. Thus, in The Philippine American
Life and General Insurance Co. v. Secretary of Finance,66 the Court declared valid Section 7
(c.2.2) of RR No. 06-08 and RMC No. 25-11, because they merely echoed Section 100 of the
NIRC that the amount by which the fair market value of the property exceeded the value of
the consideration shall be deemed a gift; thus, subject to donor's tax.67
In this case, the Court finds the petitions partly meritorious only insofar as Section VI of the
assailed RMO is concerned. On the other hand, the Court upholds the validity of Sections III,
IV and VII thereof as these are in fealty to the provisions of the NIRC of 1997, as amended,
and its implementing rules.
Sections III and IV of RMO No. 23-2014 are valid.
Compensation income is the income of the individual taxpayer arising from services rendered
pursuant to an employer-employee relationship.68 Under the NIRC of 1997, as amended,
every form of compensation for services, whether paid in cash or in kind, is generally subject
to income tax and consequently to withholding tax.69 The name designated to the
compensation income received by an employee is immaterial.70 Thus, salaries, wages,
emoluments and honoraria, allowances, commissions, fees, (including director's fees, if the
director is, at the same time, an employee of the employer/corporation), bonuses, fringe
benefits (except those subject to the fringe benefits tax under Section 33 of the Tax Code),
pensions, retirement pay, and other income of a similar nature, constitute compensation
income71 that are taxable and subject to withholding.
The withholding tax system was devised for three primary reasons, namely: (1) to provide the
taxpayer a convenient manner to meet his probable income tax liability; (2) to ensure the
collection of income tax which can otherwise be lost or substantially reduced through failure
to file the corresponding returns; and (3) to improve the government's cash flow.72 This
results in administrative savings, prompt and efficient collection of taxes, prevention of
delinquencies and reduction of governmental effort to collect taxes through more
complicated means and remedies.73
Section 79(A) of the NIRC of 1997, as amended, states:
SEC. 79. Income Tax Collected at Source. –
(A) Requirement of Withholding - Except in the case of a minimum wage earner as defined in
Section 22(HH) of this Code, every employer making payment of wages shall deduct and
withhold upon such wages a tax determined in accordance with the rules and regulations
to be prescribed by the Secretary of Finance, upon recommendation of the
Commissioner.74
In relation to the foregoing, Section 2.78 of RR No. 2-98,75 as amended, issued by the
Secretary of Finance to implement the withholding tax system under the NIRC of 1997, as
amended, provides:
SECTION 2.78. Withholding Tax on Compensation. — The withholding of tax on compensation
income is a method of collecting the income tax at source upon receipt of the income. It
applies to all employed individuals whether citizens or aliens, deriving income from
compensation for services rendered in the Philippines. The employer is constituted as the
withholding agent.76
Section 2.78.3 of RR No. 2-98 further states that the term employee "covers all employees,
including officers and employees, whether elected or appointed, of the Government of the
Philippines, or any political subdivision thereof or any agency or instrumentality"; while an
employer, as Section 2.78.4 of the same regulation provides, "embraces not only an
individual and an organization engaged in trade or business, but also includes an organization
exempt from income tax, such as charitable and religious organizations, clubs, social
organizations and societies, as well as the Government of the Philippines, including its
agencies, instrumentalities, and political subdivisions."
The law is therefore clear that withholding tax on compensation applies to the Government
of the Philippines, including its agencies, instrumentalities, and political subdivisions. The
Government, as an employer, is constituted as the withholding agent, mandated to deduct,
withhold and remit the corresponding tax on compensation income paid to all its employees.
However, not all income payments to employees are subject to withholding tax. The
following allowances, bonuses or benefits, excluded by the NIRC of 1997, as amended, from
the employee's compensation income, are exempt from withholding tax on compensation:
Retirement benefits received under RA No. 7641 and those received by officials and
employees of private firms, whether individual or corporate, under a reasonable private
benefit plan maintained by the employer subject to the requirements provided by the Code
[Section 32(B)(6)(a) of the NIRC of 1997, as amended and Section 2.78.1(B)(1)(a) of RR No. 2-
98];
Any amount received by an official or employee or by his heirs from the employer due to
death, sickness or other physical disability or for any cause beyond the control of the said
official or employee, such as retrenchment, redundancy, or cessation of business [Section
32(B)(6)(b) of the NIRC of 1997, as amended and Section 2.78.1(B)(1)(b) of RR No. 2-98];
Social security benefits, retirement gratuities, pensions and other similar benefits received by
residents or non-resident citizens of the Philippines or aliens who come to reside
permanently in the Philippines from foreign government agencies and other institutions
private or public [Section 32(B)(6)(c) of the NIRC of 1997, as amended and Section
2.78.1(B)(1)(c) of RR No. 2-98];
Payments of benefits due or to become due to any person residing in the Philippines under
the law of the United States administered by the United States Veterans Administration
[Section 32(B)(6)(d) of the NIRC of 1997, as amended and Section 2.78.1(B)(1)(d) of RR No. 2-
98];
Payments of benefits made under the Social Security System Act of 1954 as amended
[Section 32(B)(6)(e) of the NIRC of 1997, as amended and Section 2.78.1(B)(1)(e) of RR No. 2-
98];
Benefits received from the GSIS Act of 1937, as amended, and the retirement gratuity
received by government officials and employees [Section 32(B)(6)(f) of the NIRC of 1997, as
amended and Section 2.78.1(B)(1)(f) of RR No.2- 98];
Thirteenth (13th) month pay and other benefits received by officials and employees of public
and private entities not exceeding P82,000.00 [Section 32(B)(7)(e) of the NIRC of 1997, as
amended, and Section 2.78.1(8)(11) of RR No. 2-98, as amended by RR No. 03-15];
GSIS, SSS, Medicare and Pag-Ibig contributions, and union dues of individual employees
[Section 32(B)(7)(f) of the NIRC of 1997, as amended and Section 2.78.1(8)(12) of RR No. 2-
98];
Remuneration paid for agricultural labor [Section 2.78.1 (B)(2) of RR No. 2-98];
Remuneration for domestic services [Section 28, RA No. 10361 and Section 2.78.1 (B)(3) of RR
No. 2-98];
Remuneration for casual labor not in the course of an employer's trade or business [Section
2.78.1(8)(4) of RR No. 2-98];
Remuneration not more than the statutory minimum wage and the holiday pay, overtime
pay, night shift differential pay and hazard pay received by Minimum Wage Earners [Section
24(A)(2) of the NIRC of 1997, as amended];
Compensation for services by a citizen or resident of the Philippines for a foreign government
or an international organization [Section 2.78.1(8)(5) of RR No. 2-98];
Actual, moral, exemplary and nominal damages received by an employee or his heirs
pursuant to a final judgment or compromise agreement arising out of or related to an
employer-employee relationship [Section 32(B)(4) of the NIRC of 1997, as amended and
Section 2.78.1 (B)(6) of RR No. 2-98];
The proceeds of life insurance policies paid to the heirs or beneficiaries upon the death of the
insured, whether in a single sum or otherwise, provided however, that interest payments
agreed under the policy for the amounts which are held by the insured under such an
agreement shall be included in the gross income [Section 32(B)(1) of the NIRC of 1997, as
amended and Section 2.78.1 (B)(7) of RR No. 2-98];
The amount received by the insured, as a return of premium or premiums paid by him under
life insurance, endowment, or annuity contracts either during the term or at the maturity of
the term mentioned in the contract or upon surrender of the contract [Section 32(8)(2) of the
NIRC of 1997, as amended and Section 2.78.1(B)(8) of RR No. 2-98];
Amounts received through Accident or Health Insurance or under Workmen's Compensation
Acts, as compensation for personal injuries or sickness, plus the amount of any damages
received whether by suit or agreement on account of such injuries or sickness [Section
32(8)(4) of the NIRC of 1997, as amended and Section 2.78.1(8)(9) of RR No. 2-98];
Income of any kind to the extent required by any treaty obligation binding upon the
Government of the Philippines [Section 32(8)(5) of the NIRC of 1997, as amended and Section
2.78.1(B)(10) of RR No. 2-98];
Fringe and De minimis Benefits. [Section 33(C) of the NIRC of 1997, as amended); and
Other income received by employees which are exempt under special laws (RATA granted to
public officers and employees under the General Appropriations Act and Personnel Economic
Relief Allowance granted to government personnel).
Petitioners assert that RMO No. 23-2014 went beyond the provisions of the NIRC of 1997, as
amended, insofar as Sections III and IV thereof impose new or additional taxes to allowances,
benefits or bonuses granted to government employees. A closer look at the assailed Sections,
however, reveals otherwise.
For reference, Sections III and IV of RMO No. 23-2014 read, as follows:
III. OBLIGATION TO WITHHOLD ON COMPENSATION PAID TO GOVERNMENT OFFICIALS
AND EMPLOYEES
As an employer, government offices including government-owned or controlled corporations
(such as but not limited to the Bangko Sentral ng Pilipinas, Metropolitan Waterworks and
Sewerage System, Philippine Deposit Insurance Corporation, Government Service Insurance
System, Social Security System), as well as provincial, city and municipal governments are
constituted as withholding agents for purposes of the creditable tax required to be withheld
from compensation paid for services of its employees.
Under Section 32(A) of the NIRC of 1997, as amended, compensation for services, in
whatever form paid and no matter how called, form part of gross income. Compensation
income includes, among others, salaries, fees, wages, emoluments and honoraria,
allowances, commissions (e.g. transportation, representation, entertainment and the like);
fees including director's fees, if the director is, at the same time, an employee of the
employer/corporation; taxable bonuses and fringe benefits except those which are subject to
the fringe benefits tax under Section 33 of the NIRC; taxable pensions and retirement pay;
and other income of a similar nature.
The foregoing also includes allowances, bonuses, and other benefits of similar nature
received by officials and employees of the Government of the Republic of the Philippines or
any of its branches, agencies and instrumentalities, its political subdivisions, including
government-owned and/or controlled corporations (herein referred to as officials and
employees in the public sector) which are composed of (but are not limited to) the following:
Allowances, bonuses, honoraria or benefits received by employees and officials in the
Legislative Branch, such as anniversary bonus, Special Technical Assistance Allowance,
Efficiency Incentive Benefits, Additional Food Subsidy, Eight[h] (8th) Salary Range Level
Allowance, Hospitalization Benefits, Medical Allowance, Clothing Allowance, Longevity Pay,
Food Subsidy, Transition Allowance, Cost of Living Allowance, Inflationary Adjustment
Assistance, Mid-Year Economic Assistance, Financial Relief Assistance, Grocery Allowance,
Thirteenth (13th Month Pay, Cash Gift and Productivity Incentive Benefit and other
allowances, bonuses and benefits given by the Philippine Senate and House of
Representatives to their officials and employees, subject to the exemptions enumerated
herein.
Allowances, bonuses, honoraria or benefits received by employees and officials in the Judicial
Branch, such as the Additional Compensation (ADCOM), Extraordinary and Miscellaneous
Expenses (EME), Monthly Special Allowance from the Special Allowance for the Judiciary,
Additional Cost of Living Allowance from the Judiciary Development Fund, Productivity
Incentive Benefit, Grocery Allowance, Clothing Allowance, Emergency Economic Allowance,
Year-End Bonus, Cash Gift, Loyalty Cash Award (Milestone Bonus), SC Christmas Allowance,
anniversary bonuses and other allowances, bonuses and benefits given by the Supreme Court
of the Philippines and all other courts and offices under the Judicial Branch to their officials
and employees, subject to the exemptions enumerated herein.
Compensation for services in whatever form paid, including, but not limited to allowances,
bonuses, honoraria or benefits received by employees and officials in the Constitutional
bodies (Commission on Election, Commission on Audit, Civil Service Commission) and the
Office of the Ombudsman, subject to the exemptions enumerated herein.
Allowances, bonuses, honoraria or benefits received by employees and officials in the
Executive Branch, such as the Productivity Enhancement Incentive (PEI), Performance-Based
Bonus, anniversary bonus and other allowances, bonuses and benefits given by the
departments, agencies and other offices under the Executive Branch to their officials and
employees, subject to the exemptions enumerated herein.
Any amount paid either as advances or reimbursements for expenses incurred or reasonably
expected to be incurred by the official and employee in the performance of his/her duties are
not compensation subject to withholding, if the following conditions are satisfied:
The employee was duly authorized to incur such expenses on behalf of the government; and
Compliance with pertinent laws and regulations on accounting and liquidation of advances
and reimbursements, including, but not limited to withholding tax rules. The expenses should
be duly receipted for and in the name of the government office concerned.
Other than those pertaining to intelligence funds duly appropriated and liquidated, any
amount not in compliance with the foregoing requirements shall be considered as part of the
gross taxable compensation income of the taxpayer. Intelligence funds not duly appropriated
and not properly liquidated shall form part of the compensation of the government
officials/personnel concerned, unless returned.
IV. NON-TAXABLE COMPENSATION INCOME – Subject to existing laws and issuances, the
following income received by the officials and employees in the public sector are not subject
to income tax and withholding tax on compensation:
Thirteenth (13th Month Pay and Other Benefits not exceeding Thirty Thousand Pesos
(P30,000.00) paid or accrued during the year. Any amount exceeding Thirty Thousand Pesos
(P30,000.00) are taxable compensation. This includes:
Benefits received by officials and employees of the national and local government pursuant
to Republic Act no. 6686 ("An Act Authorizing Annual Christmas Bonus to National and Local
Government Officials and Employees Starting CY 1998");
Benefits received by employees pursuant to Presidential Decree No. 851 ("Requiring All
Employers to Pay Their Employees a 13th Month Pay"), as amended by Memorandum Order
No. 28, dated August 13, 1986;
Benefits received by officials and employees not covered by Presidential Decree No. 851, as
amended by Memorandum Order No. 28, dated August 19, 1986;
Other benefits such as Christmas bonus, productivity incentive bonus, loyalty award, gift in
cash or in kind and other benefits of similar nature actually received by officials and
employees of government offices, including the additional compensation allowance (ACA)
granted and paid to all officials and employees of the National Government Agencies (NGAs)
including state universities and colleges (SUCs), government-owned and/or controlled
corporations (GOCCs), government financial institutions (GFIs) and Local Government Units
(LGUs).
Facilities and privileges of relatively small value or "De Minimis Benefits" as defined in
existing issuances and conforming to the ceilings prescribed therein;
Fringe benefits which are subject to the fringe benefits tax under Section 33 of the NIRC, as
amended;
Representation and Transportation Allowance (RATA) granted to public officers and
employees under the General Appropriations Act;
Personnel Economic Relief Allowance (PERA) granted to government personnel;
The monetized value of leave credits paid to government officials and employees;
Mandatory/compulsory GSIS, Medicare and Pag-Ibig Contributions, provided that, voluntary
contributions to these institutions in excess of the amount considered
mandatory/compulsory are not excludible from the gross income of the taxpayer and hence,
not exempt from Income Tax and Withholding Tax;
Union dues of individual employees;
Compensation income of employees in the public sector with compensation income of not
more than the Statutory Minimum Wage (SMW) in the non-agricultural sector applicable to
the place where he/she is assigned;
Holiday pay, overtime pay, night shift differential pay, and hazard pay received by Minimum
Wage Earners (MWEs);
Benefits received from the GSIS Act of 1937, as amended, and the retirement
gratuity/benefits received by government officials and employees under pertinent
retirement laws;
All other benefits given which are not included in the above enumeration but are exempted
from income tax as well as withholding tax on compensation under existing laws, as
confirmed by BIR.77
Clearly, Sections III and IV of the assailed RMO do not charge any new or additional tax. On
the contrary, they merely mirror the relevant provisions of the NIRC of 1997, as amended,
and its implementing rules on the withholding tax on compensation income as discussed
above. The assailed Sections simply reinforce the rule that every form of compensation for
personal services received by all employees arising from employer-employee relationship is
deemed subject to income tax and, consequently, to withholding tax,78 unless specifically
exempted or excluded by the Tax Code; and the duty of the Government, as an employer, to
withhold and remit the correct amount of withholding taxes due thereon.
While Section III enumerates certain allowances which may be subject to withholding tax, it
does not exclude the possibility that these allowances may fall under the exemptions
identified under Section IV – thus, the phrase, "subject to the exemptions enumerated
herein." In other words, Sections III and IV articulate in a general and broad language the
provisions of the NIRC of 1997, as amended, on the forms of compensation income deemed
subject to withholding tax and the allowances, bonuses and benefits exempted therefrom.
Thus, Sections III and IV cannot be said to have been issued by the CIR with grave abuse of
discretion as these are fully in accordance with the provisions of the NIRC of 1997, as
amended, and its implementing rules.
Furthermore, the Court finds untenable petitioners' contention that the assailed provisions
of RMO No. 23-2014 contravene the equal protection clause, fiscal autonomy, and the rule
on non-diminution of benefits.
The constitutional guarantee of equal protection is not violated by an executive issuance
which was issued to simply reinforce existing taxes applicable to both the private and public
sector. As discussed, the withholding tax system embraces not only private individuals,
organizations and corporations, but also covers organizations exempt from income tax,
including the Government of the Philippines, its agencies, instrumentalities, and political
subdivisions. While the assailed RMO is a directive to the Government, as a reminder of its
obligation as a withholding agent, it did not, in any manner or form, alter or amend the
provisions of the Tax Code, for or against the Government or its employees.
Moreover, the fiscal autonomy enjoyed by the Judiciary, Ombudsman, and Constitutional
Commissions, as envisioned in the Constitution, does not grant immunity or exemption from
the common burden of paying taxes imposed by law. To borrow former Chief Justice
Corona's words in his Separate Opinion in Francisco, Jr. v. House of Representatives,79 "fiscal
autonomy entails freedom from outside control and limitations, other than those provided
by law. It is the freedom to allocate and utilize funds granted by law, in accordance with law
and pursuant to the wisdom and dispatch its needs may require from time to time."80
It bears to emphasize the Court's ruling in Nitafan v. Commissioner of Internal Revenue81 that
the imposition of taxes on salaries of Judges does not result in diminution of benefits. This
applies to all government employees because the intent of the framers of the Organic Law
and of the people adopting it is "that all citizens should bear their aliquot part of the cost of
maintaining the government and should share the burden of general income taxation
equitably."82
Determination of existence of fringe benefits is a question of fact.
Petitioners, nonetheless, insist that the allowances, bonuses and benefits enumerated in
Section III of the assailed RMO are, in fact, fringe and de minimis benefits exempt from
withholding tax on compensation. The Court cannot, however, rule on this issue as it is
essentially a question of fact that cannot be determined in this petition questioning the
constitutionality of the RMO.
To be sure, settled is the rule that exemptions from tax are construed strictissimi juris against
the taxpayer and liberally in favor of the taxing authority.83 One who claims tax exemption
must point to a specific provision of law conferring, in clear and plain terms, exemption from
the common burden84 and prove, through substantial evidence, that it is, in fact, covered by
the exemption so claimed.85 The determination, therefore, of the merits of petitioners' claim
for tax exemption would necessarily require the resolution of both legal and factual issues,
which this Court, not being a trier of facts, has no jurisdiction to do; more so, in a petition
filed at first instance.
Among the factual issues that need to be resolved, at the first instance, is the nature of the
fringe benefits granted to employees. The NIRC of 1997, as amended, does not impose
income tax, and consequently a withholding tax, on payments to employees which are either
(a) required by the nature of, or necessary to, the business of the employer; or (b) for the
convenience or advantage of the employer.86 This, however, requires proper documentation.
Without any documentary proof that the payment ultimately redounded to the benefit of the
employer, the same shall be considered as a taxable benefit to the employee, and hence
subject to withholding taxes.87
Another factual issue that needs to be confirmed is the recipient of the alleged fringe benefit.
Fringe benefits furnished or granted, in cash or in kind, by an employer to its managerial or
supervisory employees, are not considered part of compensation income; thus, exempt from
withholding tax on compensation.88 Instead, these fringe benefits are subject to a fringe
benefit tax equivalent to 32% of the grossed-up monetary value of the benefit, which the
employer is legally required to pay.89 On the other hand, fringe benefits given to rank and file
employees, while exempt from fringe benefit tax,90 form part of compensation income
taxable under the regular income tax rates provided in Section 24(A)(2) of the NIRC, of 1997,
as amended;91 and consequently, subject to withholding tax on compensation.
Furthermore, fringe benefits of relatively small value furnished by the employer to his
employees (both managerial/supervisory and rank and file) as a means of promoting health,
goodwill, contentment, or efficiency, otherwise known as de minimis benefits, that are
exempt from both income tax on compensation and fringe benefit tax; hence, not subject to
withholding tax,92 are limited and exclusive only to those enumerated under RR No. 3-98, as
amended.93 All other benefits given by the employer which are not included in the said list,
although of relatively small value, shall not be considered as de minimis benefits; hence, shall
be subject to income tax as well as withholding tax on compensation income, for rank and
file employees, or fringe benefits tax for managerial and supervisory employees, as the case
may be.94
Based on the foregoing, it is clear that to completely determine the merits of petitioners'
claimed exemption from withholding tax on compensation, under Section 33 of the NIRC of
1997, there is a need to confirm several factual issues. As such, petitioners cannot but first
resort to the proper courts and administrative agencies which are better equipped for said
task.
All told, the Court finds Sections III and IV of the assailed RMO valid. The NIRC of 1997, as
amended, is clear that all forms of compensation income received by the employee from his
employer are presumed taxable and subject to withholding taxes. The Government of the
Philippines, its agencies, instrumentalities, and political subdivisions, as an employer, is
required by law to withhold and remit to the BIR the appropriate taxes due thereon. Any
claims of exemption from withholding taxes by an employee, as in the case of petitioners,
must be brought and resolved in the appropriate administrative and judicial proceeding, with
the employee having the burden to prove the factual and legal bases thereof.
Section VII of RMO No. 23-2014 is valid; Section VI contravenes, in part, the provisions of
the NIRC of 1997, as amended, and its implementing rules.
Petitioners claim that RMO No. 23-2014 is ultra vires insofar as Sections VI and VII thereof
define new offenses and prescribe penalties therefor, particularly upon government officials.
The NIRC of 1997, as amended, clearly provides the offenses and penalties relevant to the
obligation of the withholding agent to deduct, withhold and remit the correct amount of
withholding taxes on compensation income, to wit:
TITLE X
Statutory Offenses and Penalties
CHAPTER I
Additions to the Tax
SEC. 247. General Provisions. –
(a) The additions to the tax or deficiency tax prescribed in this Chapter shall apply to all taxes,
fees and charges imposed in this Code. The amount so added to the tax shall be collected at
the same time, in the same manner and as part of the tax.
(b) If the withholding agent is the Government or any of its agencies, political subdivisions or
instrumentalities, or a government owned or -controlled corporation, the employee thereof
responsible for the withholding and remittance of the tax shall be personally liable for the
additions to the tax prescribed herein.
(c) The term "person", as used in this Chapter, includes an officer or employee of a
corporation who as such officer, employee or member is under a duty to perform the act in
respect of which the violation occurs.
SEC. 248. Civil Penalties. — x x x95
SEC. 249. Interest. – x x x96
xxxx
SEC. 251. Failure of a Withholding Agent to Collect and Remit Tax. – Any person required to
withhold, account for, and remit any tax imposed by this Code or who willfully fails to
withhold such tax, or account for and remit such tax, or aids or abets in any manner to evade
any such tax or the payment thereof, shall, in addition to other penalties provided for under
this Chapter, be liable upon conviction to a penalty equal to the total amount of the tax not
withheld, or not accounted for and remitted.97
SEC. 252. Failure of a Withholding Agent to Refund Excess Withholding Tax. – Any
employer/withholding agent who fails or refuses to refund excess withholding tax shall, in
addition to the penalties provided in this Title, be liable to a penalty equal to the total
amount of refunds which was not refunded to the employee resulting from any excess of the
amount withheld over the tax actually due on their return.
CHAPTER II
Crimes, Other Offenses and Forfeitures
xxxx
SEC. 255. Failure to File Return, Supply Correct and Accurate Information, Pay Tax, Withhold
and Remit Tax and Refund Excess Taxes Withheld on Compensation. – Any person required
under this Code or by rules and regulations promulgated thereunder to pay any tax, make a
return, keep any record, or supply correct and accurate information, who willfully fails to pay
such tax, make such return, keep such record, or supply such correct and accurate
information, or withhold or remit taxes withheld, or refund excess taxes withheld on
compensation, at the time or times required by law or rules and regulations shall, in addition
to other penalties provided by law, upon conviction thereof, be punished by a fine of not less
than Ten thousand pesos (P10,000) and suffer imprisonment of not less than one (l) year but
not more than ten (10) years.
CHAPTER III
Penalties Imposed on Public Officers
xxxx
SEC. 272. Violation of Withholding Tax Provision. – Every officer or employee of the
Government of the Republic of the Philippines or any of its agencies and instrumentalities, its
political subdivisions, as well as government-owned or -controlled corporations, including the
Bangko Sentral ng Pilipinas (BSP), who, under the provisions of this Code or rules and
regulations promulgated thereunder, is charged with the duty to deduct and withhold any
internal revenue tax and to remit the same in accordance with the provisions of this Code
and other laws is guilty of any offense hereinbelow specified shall, upon conviction for each
act or omission be punished by a fine of not less than Five thousand pesos (P5,000) but not
more than Fifty thousand pesos (P50,000) or suffer imprisonment of not less than six (6)
months and one day (1) but not more than two (2) years, or both:
(a) Failing or causing the failure to deduct and withhold any internal revenue tax under any of
the withholding tax laws and implementing rules and regulations;
(b) Failing or causing the failure to remit taxes deducted and withheld within the time
prescribed by law, and implementing rules and regulations; and
(c) Failing or causing the failure to file return or statement within the time prescribed, o
rendering or furnishing a false or fraudulent return or statement required under the
withholding tax laws and rules and regulations.98
Based on the foregoing, and similar to Sections III and IV of the assailed RMO, the Court finds
that Section VII thereof was issued in accordance with the provisions of the NIRC of 1997, as
amended, and RR No. 2-98. For easy reference, Section VII of RMO No. 23-2014 states:
VII. PENALTY PROVISION
In case of non-compliance with their obligation as withholding agents, the abovementioned
persons shall be liable for the following sanctions:
Failure to Collect and Remit Taxes (Section 251, NIRC) "Any person required to withhold,
account for, and remit any tax imposed by this Code or who willfully fails to withhold such
tax, or account for and remit such tax, or aids or abets in any manner to evade any such tax
or the payment thereof, shall, in addition to other penalties provided for under this Chapter,
be liable upon conviction to a penalty equal to the total amount of the tax not withheld, or
not accounted for and remitted."
Failure to File Return, Supply Correct and Accurate Information, Pay Tax Withhold and Remit
Tax and Refund Excess Taxes Withheld on Compensation (Section 255, NIRC) "Any person
required under this Code or by rules and regulations promulgated thereunder to pay any tax
make a return, keep any record, or supply correct the accurate information, who willfully fails
to pay such tax, make such return, keep such record, or supply correct and accurate
information, or withhold or remit taxes withheld, or refund excess taxes withheld on
compensation, at the time or times required by law or rules and regulations shall, in addition Section VI of RMO No. 23-2014 reads:
to other penalties provided by law, upon conviction thereof, be punished by a fine of not less
than Ten thousand pesos (P10,000) and suffer imprisonment of not less than one (1) year but VI. PERSONS RESPONSIBLE FOR WITHHOLDING
not more than ten (10) years. The following officials are duty bound to deduct, withhold and remit taxes:
Any person who attempts to make it appear for any reason that he or another has in fact
filed a return or statement, or actually files a return or statement and subsequently a) For Office of the Provincial Government-province- the Chief Accountant, Provincial
withdraws the same return or statement after securing the official receiving seal or stamp of Treasurer and the Governor;
receipt of internal revenue office wherein the same was actually filed shall, upon conviction
therefor, be punished by a fine of not less than Ten thousand pesos (P10,000) but not more
than Twenty thousand pesos (P20,000) and suffer imprisonment of not less than one (1) year
but not more than three (3) years."
b) For Office of the City Government-cities- the Chief Accountant, City Treasurer and
Violation of Withholding Tax Provisions (Section 272, NIRC)
the City Mayor;
"Every officer or employee of the Government of the Republic of the Philippines or any of its
agencies and instrumentalities, its political subdivisions, as well as government-owned or
controlled corporations, including the Bangko Sentral ng Pilipinas (BSP), who is charged with
the duty to deduct and withhold any internal revenue tax and to remit the same is guilty of
any offense herein below specified shall, upon conviction for each act or omission be c) For Office of the Municipal Government-municipalities- the Chief Accountant,
punished by a fine of not less than Five thousand pesos (P5,000) but not more than Fifty Municipal Treasurer and the Mayor;
thousand pesos (P50,000) or suffer imprisonment of not less than six (6) months and one (1)
day but not more than two (2) years, or both:

Failing or causing the failure to deduct and withhold any internal revenue tax under any of
the withholding tax laws and implementing rules and regulations; or
d) Office of the Barangay-Barangay Treasurer and Barangay Captain
Failing or causing the failure to remit taxes deducted and withheld within the time prescribed
by law, and implementing rules and regulations; or

Failing or causing the failure to file return or statement within the time prescribed, or
rendering or furnishing a false or fraudulent return or statement required under the
withholding tax laws and rules and regulations."
All revenue officials and employees concerned shall take measures to ensure the full
enforcement of the provisions of this Order and in case of any violation thereof, shall
commence the appropriate legal action against the erring withholding agent.
Verily, tested against the provisions of the NIRC of 1997, as amended, Section VII of RMO No.
23-2014 does not define a crime and prescribe a penalty therefor. Section VII simply mirrors
the relevant provisions of the NIRC of 1997, as amended, on the penalties for the failure of
the withholding agent to withhold and remit the correct amount of taxes, as implemented by
RR No. 2-98.
However, with respect to Section VI of the assailed RMO, the Court finds that the CIR
overstepped the boundaries of its authority to interpret existing provisions of the NIRC of
1997, as amended.
e) For NGAs, GOCCs and other Government Offices, the Chief Accountant and the
Head of Office or the Official holding the highest position (such as the President,
Chief Executive Officer, Governor, General Manager).
To recall, the Government of the Philippines, or any political subdivision or agency thereof, or
any GOCC, as an employer, is constituted by law as the withholding agent, mandated to
deduct, withhold and remit the correct amount of taxes on the compensation income
received by its employees. In relation thereto, Section 82 of the NIRC of 1997, as amended,
states that the return of the amount deducted and withheld upon any wage paid to
government employees shall be made by the officer or employee having control of the
payments or by any officer or employee duly designated for such purpose.99 Consequently,
RR No. 2-98 identifies the Provincial Treasurer in provinces, the City Treasurer in cities, the
Municipal Treasurer in municipalities, Barangay Treasurer in barangays, Treasurers of
government-owned or -controlled corporations (GOCCs), and the Chief Accountant or any
person holding similar position and performing similar function in national government
offices, as persons required to deduct and withhold the appropriate taxes on the income
payments made by the government.100
However, nowhere in the NIRC of 1997, as amended, or in RR No. 2-98, as amended, would
one find the Provincial Governor, Mayor, Barangay Captain and the Head of Government
Office or the "Official holding the highest position (such as the President, Chief Executive
Officer, Governor, General Manager)" in an Agency or GOCC as one of the officials required
to deduct, withhold and remit the correct amount of withholding taxes. The CIR, in imposing
upon these officials the obligation not found in law nor in the implementing rules, did not
merely issue an interpretative rule designed to provide guidelines to the law which it is in
charge of enforcing; but instead, supplanted details thereon — a power duly vested by law
only to respondent Secretary of Finance under Section 244 of the NIRC of 1997, as amended.
Moreover, respondents' allusion to previous issuances of the Secretary of Finance
designating the Governor in provinces, the City Mayor in cities, the Municipal Mayor in
municipalities, the Barangay Captain in barangays, and the Head of Office (official holding the
highest position) in departments, bureaus, agencies, instrumentalities, government-owned
or -controlled corporations, and other government offices, as officers required to deduct and
withhold,101 is bereft of legal basis. Since the 1977 NIRC and Executive Order No. 651, which
allegedly breathed life to these issuances, have already been repealed with the enactment of
the NIRC of 1997, as amended, and RR No. 2-98, these previous issuances of the Secretary of
Finance have ceased to have the force and effect of law.
Accordingly, the Court finds that the CIR gravely abused its discretion in issuing Section VI of
RMO No. 23-2014 insofar as it includes the Governor, City Mayor, Municipal Mayor, Barangay
Captain, and Heads of Office in agencies, GOCCs, and other government offices, as persons
required to withhold and remit withholding taxes, as they are not among those officials
designated by the 1997 NIRC, as amended, and its implementing rules.
Petition for Mandamus is moot and academic.
As regards the prayer for the issuance of a writ of mandamus to compel respondents to
increase the P30,000.00 non-taxable income ceiling, the same has already been rendered
moot and academic due to the enactment of RA No. 10653.102
The Court takes judicial notice of RA No. 10653, which was signed into law on February 12,
2015, which increased the income tax exemption for 13th month pay and other benefits,
under Section 32(B)(7)(e) of the NIRC of 1997, as amended, from P30,000.00 to
P82,000.00.103 Said law also states that every three (3) years after the effectivity of said Act,
the President of the Philippines shall adjust the amount stated therein to its present value
using the Consumer Price Index, as published by the National Statistics Office.104
Recently, RA No. 10963,105 otherwise known as the "Tax Reform for Acceleration and
Inclusion (TRAIN)" Act, further increased the income tax exemption for 13th month pay and
other benefits to P90,000.00.106
A case is considered moot and academic if it ceases to present a justiciable controversy by
virtue of supervening events, so that an adjudication of the case or a declaration on the issue
would be of no practical value or use. Courts generally decline jurisdiction over such case or
dismiss it on the ground of mootness.107
With the enactment of RA Nos. 10653 and 10963, which not only increased the tax
exemption ceiling for 13th month pay and other benefits, as petitioners prayed, but also
conferred upon the President the power to adjust said amount, a supervening event has
transpired that rendered the resolution of the issue on whether mandamus lies against
respondents, of no practical value. Accordingly, the petition for mandamus should be
dismissed for being moot and academic.
As a final point, the Court cannot turn a blind eye to the adverse effects of this Decision on
ordinary government employees, including petitioners herein, who relied in good faith on the
belief that the appropriate taxes on all the income they receive from their respective
employers are withheld and paid. Nor does the Court ignore the situation of the relevant
officers of the different departments of government that had believed, in good faith, that
there was no need to withhold the taxes due on the compensation received by said ordinary
government employees. Thus, as a measure of equity and compassionate social justice, the
Court deems it proper to clarify and declare, pro hac vice, that its ruling on the validity of
Sections III and IV of the assailed RMO is to be given only prospective effect.108
WHEREFORE, premises considered, the Petitions and Petitions-in Interventions are
PARTIALLY GRANTED. Section VI of Revenue Memorandum Order No. 23-2014 is DECLARED
null and void insofar as it names the Governor, City Mayor, Municipal Mayor, Barangay
Captain, and Heads of Office in government agencies, government-owned or -controlled
corporations, and other government offices, as persons required to withhold and remit
withholding taxes.
Sections III, IV and VII of RMO No. 23-2014 are DECLARED valid inasmuch as they merely
mirror the provisions of the National Internal Revenue Code of 1997, as amended. However,
the Court cannot rule on petitioners' claims of exemption from withholding tax on
compensation income because these involve issues that are essentially factual or evidentiary
in nature, which must be raised in the appropriate administrative and/or judicial proceeding.
The Court's Decision upholding the validity of Sections III and IV of the assailed RMO is to be
applied only prospectively.
Finally, the Petition for Mandamus in G.R. No. 213446 is hereby DENIED on the ground of
mootness.
SO ORDERED.
G.R. No. 207843 July 15, 2015
COMMISSION OF INTERNAL REVENUE, Petitioner,
vs.
COURT OF TAX APPEALS (SECOND DIVISION) and PETRON CORPORATION,* Respondents.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for certiorari1 are the Resolutions dated February 13, 20132 and May
8, 20133 of the Court of Tax Appeals, Second Division (CTA) in CTA Case No. 8544 reversing
and setting aside the earlier dismissal of the petition for review filed by private respondent
Petron Corporation (Petron) in the said case on the bases of prematurity and lack of
jurisdiction.
The Facts
Petron, which is engaged in the manufacture and marketing of petroleum products, imports
alkylate as a raw material or blending component for the manufacture of ethanol-blended
motor gasoline.4 For the period January 2009 to August 2011, as well as for the month of
April 2012, Petron transacted an aggregate of 22 separate importations for which petitioner
the Commissioner of Internal Revenue (CIR) issued Authorities to Release Imported Goods
(ATRIGs), categorically stating that Petron's importation of alkylate is exempt from the
payment of the excise tax because it was not among those articles enumerated as subject to
excise tax under Title VI of Republic Act No. (RA) 8424,5 as amended, or the 1997 National
Internal Revenue Code (NIRC). With respect, however, to Petron's alkylate importations
covering the period September 2011 to June 2012 (excluding April 2012), the CIR inserted,
without prior notice, a reservation for all ATRIGs issued,6 stating that:
This is without prejudice to the collection of the corresponding excise taxes, penalties and
interest depending on the final resolution of the Office of the Commissioner on the issue of
whether this item is subject to the excise taxes under the National Internal Revenue Code of
1997, as amended.7
In June 2012, Petron imported 12,802,660 liters of alkylate and paid value-added tax (VAT) in
the total amount of ?41,657,533.00 as evidenced by Import Entry and Internal Revenue
Declaration (IEIRD) No. SN 122406532. Based on the Final Computation, said importation was
subjected by the Collector of Customs of Port Limay, Bataan, upon instructions of the
Commissioner of Customs (COC), to excise taxes of ₱4.35 per liter, or in the aggregate
amount of ₱55,691,571.00, and consequently, to an additional VAT of 12% on the imposed
excise tax in the amount of ₱6,682,989.00.8 The imposition of the excise tax was supposedly
premised on Customs Memorandum Circular (CMC) No. 164-2012 dated July 18, 2012,
implementing the Letter dated June 29, 2012 issued by the CIR, which states that:
[A]lkylate which is a product of distillation similar to that of naphta, is subject to excise tax
under Section 148( e) of the National Internal Revenue Code (NIRC) of 1997. 9
In view of the CIR's assessment, Petron filed before the CTA a petition for review,10 docketed
as CTA Case No. 8544, raising the issue of whether its importation of alkylate as a blending
component is subject to excise tax as contemplated under Section 148 (e) of the NIRC.
On October 5, 2012, the CIR filed a motion to dismiss on the grounds of lack of jurisdiction
and prematurity.11
Initially, in a Resolution12 dated November 15, 2012, the CTA granted the CIR's motion and
dismissed the case. However, on Petron's motion for reconsideration,13 it reversed its earlier
disposition in a Resolution14 dated February 13, 2013, and eventually denied the CIR's motion
for reconsideration15 therefrom in a Resolution16 dated May 8, 2013. In effect, the CTA gave
due course to Petron's petition, finding that: (a) the controversy was not essentially for the
determination of the constitutionality, legality or validity of a law, rule or regulation but a
question on the propriety or soundness of the CIR's interpretation of Section 148 (e) of the
NIRC which falls within the exclusive jurisdiction of the CTA under Section 4 thereof,
particularly under the phrase "other matters arising under [the NIRC]";17 and (b) there are
attending circumstances that exempt the case from the rule on non-exhaustion of
administrative remedies, such as the great irreparable damage that may be suffered by
Petron from the CIR's final assessment of excise tax on its importation.18
Aggrieved, the CIR sought immediate recourse to the Court, through the instant petition,
alleging that the CTA committed grave abuse of discretion when it assumed authority to take
cognizance of the case despite its lack of jurisdiction to do so.19
The Issue Before the Court
The core issue to be resolved is whether or not the CTA properly assumed jurisdiction over
the petition assailing the imposition of excise tax on Petron's importation of alkylate based
on Section 148 (e) of the NIRC.
The Court's Ruling
The petition is meritorious.
The CIR asserts that the interpretation of the subject tax provision, i.e., Section 148 (e) of the
NIRC, embodied in CMC No. 164-2012, is an exercise of her quasi-legislative function which is
reviewable by the Secretary of Finance, whose decision, in turn, is appealable to the Office of
the President and, ultimately, to the regular courts, and that only her quasi-judicial functions
or the authority to decide disputed assessments, refunds, penalties and the like are subject
to the exclusive appellate jurisdiction of the CTA.20 She likewise contends that the petition
suffers from prematurity due to Petron 's failure to exhaust all available remedies within the
administrative level in accordance with the Tariff and Customs Code (TCC).21
The CIR's position is well-grounded.
Section 4 of the NIRC confers upon the CIR both: (a) the power to interpret tax laws in the
exercise of her quasi-legislative function; and (b) the power to decide tax cases in the
exercise of her quasi-judicial function. It also delineates the jurisdictional authority to review
the validity of the CIR's exercise of the said powers, thus:
SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. - The
power to interpret the provisions of this Code and other tax laws shall be under the exclusive
and original jurisdiction of the Commissioner, subject to review by the Secretary of Finance.
The power to decide disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties imposed in relation thereto, or other matters arising under this Code or
other laws or portions thereof administered by the Bureau of Internal Revenue is vested in
the Commissioner, subject to the exclusive appellate jurisdiction of the Court of Tax Appeals.
(Emphases and underscoring supplied)
The CTA is a court of special jurisdiction, with power to review by appeal decisions involving
tax disputes rendered by either the CIR or the COC.1âwphi1 Conversely, it has no jurisdiction
to determine the validity of a ruling issued by the CIR or the COC in the exercise of their
quasi-legislative powers to interpret tax laws. These observations may be deduced from a
reading of Section 7 of RA 1125,22 as amended by RA 9282,23 entitled "An Act Creating the
Court of Tax Appeals," enumerating the cases over which the CT A may exercise its
jurisdiction:
b. Jurisdiction over cases involving criminal offenses as herein provided:
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 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;
3. Decisions, orders or resolutions of the Regional Trial Comis in local tax
cases originally decided or resolved by them in the exercise of their
original or appellate jurisdiction;
4. Decisions of the Commissioner of Customs in cases involving liability
for customs duties, fees or other money charges, seizure, detention or
release of property affected, fines, forfeitures or other penalties in
relation thereto, or other matters arising under the Customs Law or other
laws administered by the Bureau of Customs;
5. Decisions of the Central Board of Assessment Appeals in the exercise of
its appellate jurisdiction over cases involving the assessment and taxation
of real property originally decided by the provincial or city board of
assessment appeals;
6. Decisions of the Secretary of Finance on customs cases elevated to him
automatically for review from decisions of the Commissioner of Customs
which are adverse to the Government under Section 2315 of the Tariff
and Customs Code;
7. Decisions of the Secretary of Trade and Industry, in the case of
nonagricultural product, commodity or article, and the Secretary of
Agriculture in the case of agricultural product, commodity or article,
involving dumping and countervailing duties under Section 301 and 302,
respectively, of the Tariff and Customs Code, and safeguard measures
under Republic Act No. 8800, where either party may appeal the decision
to impose or not to impose said duties.
1. Exclusive original jurisdiction over all criminal offenses arising from
violations of the National Internal Revenue Code or Tariff and Customs
Code and other laws administered by the Bureau of Internal Revenue or
the Bureau of Customs: Provided, however, That offenses or felonies
mentioned in this paragraph where the principal amount of taxes and
fees, exclusive of charges and penalties, claimed is less than One million
pesos (₱1,000,000.00) or where there is no specified amount claimed
shall be tried by the regular Courts and the jurisdiction of the CTA shall be
appellate. Any provision of law or the Rules of Court to the contrary
notwithstanding, the criminal action and the corresponding civil action
for the recovery of civil liability for taxes and penalties shall at all times be
simultaneously instituted with, and jointly determined in the same
proceeding by the CT A, the filing of the criminal action being deemed to
necessarily carry with it the filing of the civil action, and no right to
reserve the filling of such civil action separately from the criminal action
will be recognized.
2. Exclusive appellate jurisdiction in criminal offenses:
 a. Over appeals from the judgments, resolutions or orders of
the Regional Trial Courts in tax cases originally decided by
them, in their respective territorial jurisdiction.
b. Over petitions for review of the judgments, resolutions or
orders of the Regional Trial Courts in the exercise of their
appellate jurisdiction over tax cases originally decided by the
Metropolitan Trial Courts, Municipal Trial Courts and Municipal
Circuit Trial Courts in their respective jurisdiction.
c. Jurisdiction over tax collection cases as herein provided:
1. Exclusive original jurisdiction in tax collection cases involving final and executory
assessments for taxes, fees, charges and penalties: Provided, however, That
collection cases where the principal amount of taxes and fees, exclusive of charges
and penalties, claimed is less than One million pesos (₱1,000,000.00) shall be tried
by the proper Municipal Trial Court, Metropolitan Trial Court and Regional Trial
Court.
2. Exclusive appellate jurisdiction in tax collection cases:
a. Over appeals from the judgments, resolutions or orders of the Regional
Trial Courts in tax collection cases originally decided by them, in their
respective territorial jurisdiction.
b. Over petitions for review of the judgments, resolutions or orders of the
Regional Trial Courts in the exercise of their appellate jurisdiction over tax
collection cases originally decided by the Metropolitan Trial Courts,
Municipal Trial Courts and Municipal Circuit Trial Courts, in their
respective jurisdiction. (Emphasis supplied)
In this case, Petron's tax liability was premised on the COC's issuance of CMC No. 164-2012,
which gave effect to the CIR's June 29, 2012 Letter interpreting Section 148 (e) of the NIRC as
to include alkyl ate among the articles subject to customs duties, hence, Petron's petition
before the CTA ultimately challenging the legality and constitutionality of the CIR's aforesaid
interpretation of a tax provision. In line with the foregoing discussion, however, the CIR
correctly argues that the CT A had no jurisdiction to take cognizance of the petition as its
resolution would necessarily involve a declaration of the validity or constitutionality of the
CIR's interpretation of Section 148 (e) of the NIRC, which is subject to the exclusive review by
the Secretary of Finance and ultimately by the regular courts. In British American Tobacco v.
Camacho,24 the Court ruled that the CTA's jurisdiction to resolve tax disputes excludes the
power to rule on the constitutionality or validity of a law, rule or regulation, to wit:
While the above statute confers on the CTA jurisdiction to resolve tax disputes in general,
this does not include cases where the constitutionality of a law or rule is challenged. Where
what is assailed is the validity or constitutionality of a law, or a rule or regulation issued by
the administrative agency in the performance of its quasi-legislative function, the regular
courts have jurisdiction to pass upon the same. x x x.25
In asserting its jurisdiction over the present case, the CTA explained that Petron's petition
filed before it "simply puts in question" the propriety or soundness of the CIR's interpretation
and application of Section 148 (e) of the NIRC (as embodied in CMC No. 164-2012) "in
relation to" the imposition of excise tax on Petron's importation of alkylate; thus, the CTA
posits that the case should be regarded as "other matters arising under [the NIRC]" under the
second paragraph of Section 4 of the NIRC, therefore falling within the CTA's jurisdiction:26
SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. - The
power to interpret the provisions of this Code and other tax laws shall be under the exclusive
and original jurisdiction of the Commissioner, subject to review by the Secretary of Finance.
The power to decide disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties imposed in relation thereto, or other matters arising under this Code or
other laws or portions thereof administered by the Bureau of Internal Revenue is vested in
the commissioner, subject to the exclusive appellate jurisdiction of the Court of Tax Appeals.
(Emphases and underscoring supplied)
The Court disagrees.
As the CIR aptly pointed out, the phrase "other matters arising under this Code," as stated in
the second paragraph of Section 4 of the NIRC, should be understood as pertaining to those
matters directly related to the preceding phrase "disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties imposed in relation thereto" and must
therefore not be taken in isolation to invoke the jurisdiction of the CTA.27 In other words, the
subject phrase should be used only in reference to cases that are, to begin with, subject to
the exclusive appellate jurisdiction of the CTA, i.e., those controversies over which the CIR
had exercised her quasi-judicial functions or her power to decide disputed assessments,
refunds or internal revenue taxes, fees or other charges, penalties imposed in relation
thereto, not to those that involved the CIR's exercise of quasi-legislative powers.
In Enrile v. Court of Appeals,28 the Court, applying the statutory construction principle of
ejusdem generis,29 explained the import of using the general clause "other matters arising
under the Customs Law or other law or part of law administered by the Bureau of Customs"
in the enumeration of cases subject to the exclusive appellate jurisdiction of the CTA, saying
that: [T]he 'other matters' that may come under the general clause should be of the same
nature as those that have preceded them applying the rule of construction known as
ejusdem generis.30 (Emphasis and underscoring supplied)
Hence, as the CIR's interpretation of a tax provision involves an exercise of her quasi-
legislative functions, the proper recourse against the subject tax ruling expressed in CMC No.
164-2012 is a review by the Secretary of Finance and ultimately the regular courts. In
Commissioner of Customs v. Hypermix Feeds Corporation,31 the Court has held that:
The determination of whether a specific rule or set of rules issued by an administrative
agency contravenes the law or the constitution is within the jurisdiction of the regular courts.
Indeed, the Constitution vests the power of judicial review or the power to declare a law,
treaty, international or executive agreement, presidential decree, order, instruction,
ordinance, or regulation in the courts, including the regional trial courts. This is within the
scope of judicial power, which includes the authority of the courts to determine in an
appropriate action the validity of the acts of the political departments. x x x.32
Besides, Petron prematurely invoked the jurisdiction of the CT A. Under Section 7 of RA 1125,
as amended by RA 9282, what is appealable to the CT A is the decision of the COC over a
customs collector's adverse ruling on a taxpayer's protest:
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 or other laws
administered by the Bureau of Internal Revenue;
xxxx
4. Decisions of the Commissioner of Customs in cases involving liability for customs duties,
fees or other money charges, seizure, detention or release of property affected, fines,
forfeitures or other penalties in relation thereto, or other matters arising under the Customs
Law or other laws administered by the Bureau of Customs;
xxxx
Section 11 of the same law is no less categorical in stating that what may be the subject of an
appeal to the CT A is a decision, ruling or inaction of the CIR or the COC, among others:
SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. – Any party adversely affected
by a decision, ruling or inaction of the Commissioner of Internal Revenue, the Commissioner
of Customs, the Secretary of Finance, the Secretary of Trade and Industry or the Secretary of
Agriculture or the Central Board of Assessment Appeals or the Regional Trial Courts may file
an appeal with the CTA within thirty (30) days after the receipt of such decision or ruling or
after the expiration of the period fixed by law for action as referred to in Section 7(a)(2)
herein.
xxxx
In this case, there was even no tax assessment to speak of. While customs collector Federico
Bulanhagui himself admitted during the CTA's November 8, 2012 hearing that the
computation he had written at the back page of the IEIRD served as the final assessment
imposing excise tax on Petron's importation of alkylate,33 the Court concurs with the CIR's
stance that the subject IEIRD was not yet the customs collector's final assessment that could
be the proper subject of review. And even if it were, the same should have been brought first
for review before the COC and not directly to the CTA. It should be stressed that the CTA has
no jurisdiction to review by appeal, decisions of the customs collector.34 The TCC prescribes
that a party adversely affected by a ruling or decision of the customs collector may protest
such ruling or decision upon payment of the amount due35 and, if aggrieved by the action of
the customs collector on the matter under protest, may have the same reviewed by the
COC.36 It is only after the COC shall have made an adverse ruling on the matter may the
aggrieved party file an
appeal to the CT A.37
Notably, Petron admitted to not having filed a protest of the assessment before the customs
collector and elevating a possible adverse ruling therein to the COC, reasoning that such a
procedure would be costly and impractical, and would unjustly delay the resolution of the
issues which, being purely legal in nature anyway, were also beyond the authority of the
customs collector to resolve with finality.38 This admission is at once decisive of the issue of
the CTA's jurisdiction over the petition. There being no protest ruling by the customs
collector that was appealed to the COC, the filing of the petition before the CTA was
premature as there was nothing yet to review.39
Verily, the fact that there is no decision by the COC to appeal from highlights Petron's failure
to exhaust administrative remedies prescribed by law. Before a party is allowed to seek the
intervention of the courts, it is a pre-condition that he avail of all administrative processes
afforded him, such that if a remedy within the administrative machinery can be resorted to
by giving the administrative officer every opportunity to decide on a matter that comes
within his jurisdiction, then such remedy must be exhausted first before the court's power of
judicial review can be sought, otherwise, the premature resort to the court is fatal to one's
cause of action.40 While there are exceptions to the principle of exhaustion of administrative
remedies, it has not been sufficiently shown that the present case falls under any of the
exceptions.
WHEREFORE, the petition is GRANTED. The Resolutions dated February 13, 2013 and May 8,
2013 of the Court of Tax Appeals (CTA), Second Division in CTA Case No. 8544 are hereby
REVERSED and SET ASIDE. The petition for review filed by private respondent Petron
Corporation before the CTA is DISMISSED for lack of jurisdiction and prematurity.
SO ORDERED.