TAXATION

Taxation is a mode of raising revenue for public purpose.

Taxes, on the other hand, are enforced proportional contributions from persons and property, levied by
the state by virtue of its sovereignty for the support of the government and for all its public needs.

NATURE OF THE TAXING POWER

The taxing power has two natures;

1. Taxation as an inherent Attribute of Sovereignty;

2. Taxation is Legislative in Character Inherent Attribute of Sovereignty

The power of taxation is an incident of sovereignty as it is inherent in the state, belonging as a matter of
right to every independent government. It does not need constitutional conferment.

Constitutional provisions do not give rise to the power to tax but merely impose limitations on
what would otherwise be an invincible power.

Legislative in Character

The power to tax is inherent in the State, and the state is free to select the object of taxation, such as
being exclusively vested in the legislature, except where the constitution provides otherwise.

[1]

Q: What is the Life Blood Doctrine

A: The lifeblood doctrine is one that is enunciated by the Supreme Court in Commissioner of Internal
Revenue v. Pineda,[2] as follows: taxes are the lifeblood of the government and their prompt and
certain availability is an imperious need.” This means that, without taxes, the State can neither
exist nor endure. Taxes should be collected without unnecessary hindrance.

Q: What is the Necessity Theory?

A: The necessity theory, as pronounced by the Supreme Court in Philippine Guaranty Co., Inc. v.
Commissioner of Internal Revenue, [3]states that taxation is a power predicated upon necessity. It is a
necessary burden to preserve the State’s sovereignty and a means to give the citizenry an army
to resist aggression, a navy to defend its shores from invasion, a corps of civil servants to serve,
public improvements for the enjoyment of the citizenry, and those which come within the State’s
territory and facilities and protection which a government is supposed to provide.

Q: What is the Symbiotic Theory?

A: The doctrine of symbiotic relationship is a term culled from the ruling of the Supreme Court in
Commissioner of Internal Revenue v Algue, Inc., which stressed that: “Taxes are what we pay for a
civilized society. Without taxes, the government would be paralyzed for lack of the motive power to
activate and operate it. Hence, despite the natural reluctance to surrender part of one’s hard-earned

income to the taxing authorities, every person who is able to must contribute his share in the burden of
running the government. The government, for its part, is expected to respond in the form of tangible
and intangible benefits intended to improve the lives of the people and enhance their material and
moral values.”

LIFEBLOOD THEORY

Dimaampao: Now, holistic approach --- interplay of lifeblood theory and tax remedies. This
happened in the last bar exams. In enunciating certain rule, the court cited lifeblood theory and
you must mark this with Sec. 112 of NIRC. Sec. 112 was asked in the bar for three consecutive bar
exams. It will come out again.

Now you must know how the court mentioned lifeblood theory here. Sec. 112 is about tax remedy
on value-added tax. Sec. 112 provides for remedies on tax refund or tax credit involving VAT.

There are three prescriptive periods there: the 2-year period, the 90-day period under the TRAIN
Law (no longer 120 days), and the 30-day period. Explain how they are applied.

The 2-year period must be observed in filing tax refund with the BIR, reckoned from the close
of taxable year.

The 90-day period refers to the period within which the BIR Commissioner must render decision
from the submission of the claim.

The 30-day period must be observed in appealing the decision of the BIR Commissioner to the Court of
Tax Appeals from the receipt of the adverse decision.

Q:What does lifeblood doctrine dictate regarding the application of these rules in Section 112?
What is the ruling in CIR v. San Roque Power Corporation?

A: The lifeblood doctrine dictates that the rules in Section 112 must be applied strictly. Tax refunds
are in the nature of tax exemptions which must be strictly construed against the taxpayers and
liberally in favor of the government. This is so because taxes are the lifeblood of the nation.

Dimaampao: Camp John Hay Development Corporation v. CBAA, also appeared in the bar exam. It
is about the interplay of the lifeblood theory and another tax remedy - one of the rules under real
property taxation. Mentioned therein is the provision of Sec. 252 of R.A. No. 7160, which isdenominated
as payment under protest.

Q:When must the payment under protest be lodged?

A: It must be lodged within 30 days from payment

of the tax.

Q: Explain the rule of payment under protest?

A: Payment under protest means payment of real property tax before filing a protest.

Q: What does the lifeblood doctrine dictate or require regarding the application of Sec. 252?

A: Before you can protest, you must first pay the real property tax.

Q: What does lifeblood doctrine require regarding the rule of payment under protest?

A: The lifeblood doctrine requires strict compliance of this rule.

Dimaampao: Payment under protest is thus consistent with the lifeblood doctrine, and as such their
collection cannot be curtailed by injunction or any like action; otherwise, the state or, in this case, the
local government unit, shall be crippled in dispensing the needed services to the people, and its
machinery gravely disabled.

CIR v. Pineda, came out in the difficult bar exam in 1999 where only 5% passed taxation.

Q: What is the ruling of the Court in this case?

A: This case enunciates that the Bureau of Internal Revenue has the necessary discretion to avail itself of
the most expeditious way to collect taxes because taxes are the lifeblood of the government and
their prompt and certain availability is an imperious need.

DIMAAMPAO: The ruling means that no one should interfere with the remedy availed of by the BIR
to collect taxes because it has the discretion to do so.

Q: What was the administrative remedy resorted to by the BIR in that case, which may in effect
bring about speedy collection of taxes?

A: Enforcement of tax lien was resorted to by the BIR.

Q: Why is enforcement of a tax lien the most expeditious way to collect taxes?

A: It is the most expeditious way to collect taxes because it is an administrative remedy which may
require no judicial proceedings.

DIMAAMPAO: Davao Gulf Lumber Corporation v. CIR, came out in the bar exam in 1998.

Q: Why are tax exemptions strictly construed against the taxpayer and liberally construed in favor of
the government?

A: Tax exemptions are strictly construed against the taxpayer and liberally construed in favor of the
government because taxes are the lifeblood of the government. This is so because by the
government’s relinquishment of its power to tax, it loses revenue. Thus, exemptions from taxation are
highly disfavored, so much so that they may almost be said to be odious to the law.
Q: What is the principle of strictissimi juris?

A: This principle states that tax exemptions are strictly construed against the taxpayer and
liberally construed in favor of the government.

Q: What are the exceptions to the principle of strictissimi juris?

A: The exceptions to the principle of strictissimi juris are:

1. When the law expressly provides for liberal interpretation or construction of tax exemptions;

2. When the grantee of tax exemption is a religious or charitable institution;

3. When the grantee of tax exemption is the government, its political subdivisions or
instrumentalities;

4. When the taxpayer falls within the purview of exemption by clear legislative intent;

5. When the grantee is a municipal corporation with respect to its public property only; and

6. When the imposition is special taxes relating to special cases and affecting only special classes of
persons.

Q: What is a political subdivision?

A: Political subdivisions include provinces, municipalities, cities, and barangays.

Q: Is GSIS an instrumentality or GOCC?

A: GSIS is a government instrumentality.

Q: Why does the principle of strictissimi juris not apply to government, its political subdivisions or

instrumentalities?

A: It is because it will result in the absurd situation of the government taking money from one pocket
and putting it in another.

When do you apply this rule; that “tax exemption is the general rule and taxation is the exemption”?

A: The general rule is that taxation is the rule and exemption is the exemption. It shall apply when the
grantee is a municipal corporation, and the property is not held in private ownership but a public
property.

Dimaampao: This case is asked thrice already in the bar examinations.

Q: What is the jurisprudential ruling of the Court in Ferdinand Marcos II v. Court of Appeals,?

A: The Court ruled therein that the approval of the court, sitting in probate or as a settlement tribunal
over the deceased’s estate, is not a mandatory requirement in the collection of estate taxes.

Explanation: The collection of taxes does not necessitate the approval of the probate court
because taxes are the lifeblood of the government and should be collected without unnecessary
hindrance. To require the approval of the probate court is a cause of delay to the collection of taxes.

Q: Is there a provision that before the BIR can collect taxes there must be approval of the
probate court?

A: No. There is none.

Q: Is there a revenue regulation to that effect?

A: No. There is none

DIMAAMPAO: Philex Mining Corporation v. CIR was also asked in the bar exam. It is about setoff of
taxes.

Q: What is the ruling of the Court in that case?

A: The Court did not allow the setoff of taxes. The lifeblood doctrine disfavors the setoff of taxes
because it will reduce tax collection and there will be less revenue for the government.

Q: May the taxes be the subject of setoff or compensation?

No. Taxes may not be the subject of setoff or compensation because:

(1) Taxes are not ordinary obligations which may be governed by the Civil Code;

(2) Taxes are not based on a contract, debt or judgment, but on legal impositions; and

(3) The government and the taxpayer are not creditors and debtors of each other.

Q: Is there an exception to this rule?

A: Yes, that is the case of Domingo v. Garlitos.

The peculiar circumstance therein is the enactment of R.A. No. 2700 appropriating certain amount of
money for the taxpayer’s claim that made such claim due and demandable or liquidated. Thus, the
Court allowed compensation.

Dimaampao: YMCA v. CIR, also came out in the bar exams. YMCA claimed that as a non-stock, non-profit
organization, it should be exempt from income taxation with regard to its profits on leasing its
facilities to non-exempt entities.

Q: What is ruling in that landmark case?

A: YMCA is taxable on its rental income. The exemption provided in Section 30(e) of the NIRC
must be strictly construed against YMCA. Moreover, it is taxable because the Tax Code provides
that the income of charitable organizations, such as YMCA, from any of their properties, real or
personal, or from any of their activities conducted for profit regardless of the disposition made of
such income, shall be subject to tax.

Q: What does YMCA stand for?

A: YMCA is short for Young Men’s Christian Association.

Read Section 30(e) of the NIRC;

Non-stock corporation or association organized and operated exclusively for religious, charitable,
scientific, athletic, or cultural purposes, or for the rehabilitation of veterans, no part of its net income
or asset shall belong to or inures to the benefit of any member, organizer, officer or any specific
person.

Read the last paragraph of Section 30 of the NIRC. That is the YMCA doctrine;

Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and
character of the foregoing organizations from any of their properties, real or personal, or from
any of their activities conducted for profit regardless of the disposition made of such income, shall be
subject to tax imposed under this Code.

(Emphasis supplied)

Stages, Aspects, and Phases of taxation

Explain the stages or aspects of taxation. These aspects do not refer to the fundamental principles of
taxation. This is so basic.

The stages of taxation are; (L-A-P)

(1) Levy or imposition, which refers to the enactment of tax laws;

(2) Assessment and collection, which provides for the implementation, enforcement or administration
of tax laws; and

(3) Payment, which is defined as the compliance by the taxpayer.

Q: What is the nature of levy or imposition?

A: It is legislative in nature.

Q: What is the nature of assessment and collection?

A: They are administrative in nature.

Q: What is the technical term for levy or imposition?

A: It is the impact of taxation.

Q: What is the technical term for payment?

A: It is the incidence of taxation.

DIMAAMPAO: You take note of these cases:

1. Adamson v. Court of Appeals;

2. Meralco v. Narvales;

3. Pilipinas Shell Petroleum Corporation v. Commissioner of Customs;

Q: How is assessment under the internal revenue taxation?

A: In Adamson v. Court of Appeals, assessment under the internal revenue taxation is defined as

“the written notice and demand made by the BIR on the taxpayer for the settlement of a tax due liability
that is definite, final and fixed.”
Q: Is the letter of the BIR to the taxpayer qualified?

A: No, because the assessment must contain final assessment or determination.

Q: What is assessment in real property taxation?

A: Assessment under real property taxation is the act or process of determining the value of a
property, or proportion thereof subject to tax, including the discovery, listing, classification, and
appraisal of properties.

Q: What are the requisites or conditions for a valid assessment of real property tax? There are five
requisites.

A: In Meralco v. Narvales, the Supreme Court enumerated the following guideline: (K-A-L-M-A)

1. The assessment must contain the kind of property;

2. It must set forth the assessed value of the real property;

3. It must indicate the level of assessment;

4. It must specify the fair market value of the property;

5. It must clearly indicate the actual use of property.

Q:What is assessment in customs law?

A: In Pilipinas Shell Petroleum Corporation v. Commissioner of Customs, the Supreme Court ruled
that assessment in customs law is known as liquidation. It refers to the final computation and
ascertainment of the collector of duties on imported merchandise, based on official reports as to the
quantity, character and value thereof, and the collector’s finding of the applicable rate of duty.

Taxation as Inherent Power of the state

Q: Why is the power to tax inherent in a sovereign State?

A: It is considered inherent in a sovereign State because it is a necessary attribute of sovereignty.

Without this power, no sovereign State can exist nor endure. The power to tax proceeds upon
the theory that the existence of a government is a necessity and this power is an essential and
inherent attribute of sovereignty, belonging as amatter of right to every independent State or
government. No sovereign State can continue to exist without the means to pay its expenses,
and that for those means, it has the right to compel all citizens and property within its limits to
contribute, hence, the emergence of the power to tax.

Q: Explain the two-fold nature of taxation?

A: Taxation is an (1) inherent attribute of sovereignty, and it is also (2) legislative in character.
Such power is exclusively vested in the Congress. This is based upon 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.”

Dimaampao: If you can cite that, the bar examiner will surely be impressed. Try to memorize.

NON-DELEGATIONS OF POWER

The power to tax is exclusively vested in the legislative body.

Q: What are the exceptions to the principle of non-delegation of powers?

A: Delegation of the powers of the Congress is allowed in:

1. Article VI, Section 28(2) of the Constitution, which states that “The Congress may, by law,
authorize the President to fix within specified limits, and subject to such limitations and restrictions as
it may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties
or imposts within the framework of the national development program of the Government.”

2. Article X, Section 5 of the Constitution, which states that “Each local government unit shall have
the power to create its own sources of revenues and to levy taxes, fees and charges subject to such
guidelines and limitations as the Congress may provide, consistent with the basic policy of local
autonomy. Such taxes, fees, and charges shall accrue exclusively to the local governments.”

Flexible Tariff Clause

Q: What is the law allowing the exercise by the President of tariff power?

A: It is the flexible tariff clause.

DIMAAMPAO: Read the Customs Modernization and Tariff Act or R.A. No. 10863, Sec. 102 in relation
to Section 1608.

Legal parameters where the President may exercise its tariff powers;
Sec. 102(u). Flexible Clause refer to the power of the President upon

recommendation of the National Economic and Development Authority (NEDA): (1) to increase, reduce
or remove existing protective tariff rates of import duty, but in no case shall be higher than one
hundred percent (100%) ad valorem; (2) to establish import quota or to ban importation of any
commodity as may be necessary; and (3) to impose additional duty on all import not exceeding ten
percent (10%) ad valorem, whenever necessary.

Sec. 1608. Flexible Clause. –

a) In the interest of the general welfare and national security, and, subject to the limitations
prescribed under this Act, the President, upon the recommendation of the NEDA, is hereby
empowered to:

1. Increase, reduce, or remove existing rates of import duty including any necessary change

in classification. The existing rates may be increased or decreased to any level, in one or

several stages, but in no case shall the increased rate of import duty be higher than a

maximum of one hundred percent (100%) ad valorem;

2. Establish import quotas or ban imports of any commodity, as may be necessary; and

3. Impose an additional duty on all imports not exceeding ten percent (10%) ad valorem whenever
necessary: Provided, That upon periodic investigations by the Commission and recommendation of
the NEDA, the President may cause a gradual reduction of rates of import duty granted in Section
1611 of this Act, including those subsequently granted pursuant to this section.

b) Before any recommendation is submitted to the President by the NEDA pursuant to the provisions
of thissection, except in the imposition of an additional duty not exceeding ten percent (10%) ad
valorem, the Commission shall conduct an investigation and shall hold public hearings wherein
interested parties shall be afforded reasonable opportunity to be present, to produce evidence and
to be heard. The Commission shall also hear the views and recommendations of any government
office, agency, or instrumentality. The Commission shall submit its findings and recommendations to
the NEDA within thirty (30) days after the termination of the public hearings;
c) The power of the President to increase or decrease rates of import duty within the limits fixed in
subsection (a) hereof shall include the authority to modify the form of duty. In modifying the form of
duty, the corresponding ad valorem or specific equivalents of the duly with respect to imports from the
principal competing foreign country for the most recent representative period shall be used as basis;

d) Any order issued by the President pursuant to the provisions of this section shall take effect
thirty (30) days after promulgation, except in the imposition of additional duty not exceeding ten
percent (10%) ad valorem which shall take effect at the discretion of the President.

e) The power delegated to the President as provided for in this section shall be exercised only when
Congress is not in session.
f) The power herein delegated may be withdrawn or terminated by Congress through a joint
resolution.

The NEDA shall promulgate rules and regulations necessary to carry out the provisions of this
section.

DIMAAMPAO: Read Sections 130, 133 and 198 of

the Local Government Code.

Section 130. Fundamental Principles. - The

The following fundamental principles shall govern the
exercise of the taxing and other revenue-raising
powers of local government units:

a. Taxation shall be uniform in each local government unit;

b. Taxes, fees, charges and other impositions
shall:
1. Be equitable and based as far as practicable on the taxpayer's ability to pay;
2. Be levied and collected only for public purposes;
3. Not be unjust, excessive, oppressive, or confiscatory;
4. Not be contrary to law, public policy, national economic policy, or in the restraint of trade;

c. The collection of local taxes, fees, charges and other impositions shall in no case be let to any
private person;

d. The revenue collected pursuant to the provisions of this Code shall inure solely to the benefit of,
and be subject to the disposition by, the local government unit levying the tax, fee, charge or
other imposition unless otherwise specifically provided herein; and,

e. Each local government unit shall, as far as practicable, evolve a progressive system of taxation.

Section 133. Common Limitations on the

Taxing Powers of Local Government
Units. - Unless otherwise provided herein,
the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend
to the levy of the following:

a. Income tax, except when levied on banks and other financial institutions;
b. Documentary stamp tax;
c. Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa, except as
otherwise provided herein;
d. Customs duties, registration fees of vessel and wharfage on wharves, tonnage dues, and all other
kinds of customs fees, charges and dues except wharfage on wharves constructed and maintained by
the local government unit concerned;
e. Taxes, fees, and charges and other impositions upon goods carried into or out of, or passing through,
the territorial jurisdictions of local government units in the guise of charges for wharfage, tolls for
bridges or otherwise, or other taxes, fees, or charges in any form whatsoever upon such goods or
merchandise;

f. Taxes, fees or charges on agricultural and aquatic products when sold by marginal farmers or
fishermen;

g. Taxes on business enterprises certified to by the Board of

Investments as pioneer or non-pioneer for a period of six (6) and four (4) years, respectively from
the date of registration;

h. Excise taxes on articles enumerated under the national Internal Revenue Code, as amended, and
taxes, fees or charges on petroleum products;

i. Percentage or value-added tax (VAT) on sales, barters or exchanges or similar transactions

on goods or services except as otherwise provided herein;

j. Taxes on the gross receipts of transportation contractors and persons engaged in the
transportation of passengers or freight by hire and common carriers by air, land or water,
except as provided in this Code;

k. Taxes on premiums paid by way or reinsurance or retrocession;

l. Taxes, fees or charges for the registration of motor vehicles and for the issuance of all kinds of
licenses or permits for the driving thereof, except tricycles;

m. Taxes, fees, or other charges on Philippine products actually exported, except as otherwise
provided herein;

n. Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and cooperatives duly
registered under

R.A. No. 6810 and Republic Act Numbered Sixty-nine hundred thirty-eight (R.A. No. 6938)
otherwise known as the "Cooperative Code of the Philippines" respectively; and,

o. Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities,
and local government units.

Section 198. Fundamental Principles. -

The appraisal, assessment, levy and collection of real property tax shall be guided by the
following fundamental principles:

a. Real property shall be appraised at its current and fair market value;
b. Real property shall be classified for assessment purposes on the basis of its actual use;
c. Real property shall be assessed on the basis of a uniform classification within each local government
unit;
d. The appraisal, assessment, levy and collection of real property tax shall not be let to any private
person; and,
e. The appraisal and assessment of real property shall be equitable.

Dimaampoa: These all came out in the bar.

Power to Tax is the Power to Destroy

DIMAAMPAO: Reconcile these seemingly
conflicting views.

Chief Justice Marshall opines that the power to tax

is the power to destroy. Justice Malcolm opines that
the power to tax does not include the power to
destroy. This is worth 5 points.

“The conflict is more apparent than real. Chief

Justice Marshall is correct in the sense that the power to tax is the power to destroy if it is
used validly as an implement of the police power of the State. Justice Malcolm is likewise correct in
this perspective: where the power to tax is used solely for the purpose of raising revenues, it cannot be
allowed to confiscate or destroy.” (J. Isagani Cruz)

Q: What is the meaning of the phrase “the

conflict is more apparent than real”?
A: It means that there is no real conflict here.

Q: What does this mean: “the power to tax is not

the power to destroy, so long as the Supreme
Court sits”?
A: In the case of Sison v. Ancheta,
[1]
, the Supreme
Court held that, “While taxation is said to be the

power to destroy, it is by no means unlimited. If so great an abuse is manifested as to destroy natural and
fundamental rights which no free government could consistently violate, it is the duty of the
judiciary to hold such an act unconstitutional. The Constitution as the fundamental law of the land
overrides any legislative or executive act that runs counter to it. In any case, therefore, where it can be
demonstrated that the challenged statutory provision fails to abide by its command, then the court
must so declare and adjudge it null.”

Scope of taxation (C-U-P-S)

Taxation is said to be comprehensive, unlimited, plenary and supreme.

It is comprehensive as it covers persons, businesses, activities, professions, rights and privileges.

It is unlimited because the tax does not cease to be valid merely because it regulates, discourages or
even definitely deters the activities taxed, and the courts scarcely venture to declare that it is subject to
any restrictions whatever, except such as rest in the discretion of the authority which exercises it.

It is plenary in the sense that it is complete.

It is supreme insofar as the selection of the subject of taxation is concerned.

Dimaampao: J. Malcolm stresses that taxation is the strongest of all the powers of the government.

Q: What does that mean? It is strongest in what sense?

A: The police power of the State is supreme under the principle of salus populi est suprema lex.
The power of eminent domain is supreme under the concept of expropriation. Taxation thus,
although referred to as the strongest of all the powers of the government, cannot be interpreted to mean
that it is superior to the other inherent powers of the government. It is supreme insofar as the
selection of the subject of taxation is concerned.

Fundamental Principles of a Sound Tax System

Q: What are the three fundamental principles of a sound taxation system? Briefly explain each.
A: The three fundamental principles of a sound taxation are fiscal adequacy, theoretical justice, and
administrative feasibility.

Fiscal adequacy dictates that sources of revenue must be sufficient to meet government
expenditures.

Theoretical justice mandates that taxes must be imposed based on the taxpayer’s ability to pay.

Administrative feasibility requires that tax laws must be capable of effective and efficient
enforcement.

Q: If a tax law violates any of these principles, will it render the tax law invalid?

A: The purpose of these principles is to make tax laws sound. A tax law will therefore retain its
validity even if it is not in consonance with the principles of fiscal adequacy and administrative
feasibility because the Constitution does not expressly require so. However, if a tax law runs
contrary to the principle of theoretical justice, such violation will render the law unconstitutional
considering that under the Constitution, the rule of taxation should be uniform and equitable. (Section
28(1), Article VI)

Secondary Purpose of Taxation

Q: What are the non-revenue /regulatory /secondary purposes of taxation? There are four.
Explain each.
A:The secondary purposes of taxation are as follows; (R-I-P-E)
1. Reduction of social inequality;
2. Implement of the police power of the State:
3. Protection of the local industry against unfair competition;
4. Encouragement of the growth of local industries.

Taxation is used to reduce the inequality in the distribution of wealth by preventing its undue
concentration in the hands of a few individuals.

It is likewise used in the form of exemptions and reliefs to serve as incentives to encourage
investment in the local industry and thereby promote economic growth.

It protects the local industry by imposing certain taxes upon imported goods or articles.

It may be used as an implement of the police power of the State through the imposition of taxes with
the end in view of regulating a particular activity.
Dimaampao: The Supreme Court ruled in CIR v. Central Luzon Drug Corporation,that in recent
years, the power to tax has become the most effective tool to realize social justice, public
welfare, and the equitable distribution of wealth.

This is an abandoned doctrine.

Mark the case of Manila Memorial Park, Inc. v. DSWD Secretary,which abandons the Central
Luzon ruling. The power of taxation was used as an implement of police power in this case.

Q: What is that ruling?

A: The senior’s citizen discount is an exercise of police power. In holding so, the Court
explained that the 20% discount is intended to improve the welfare of senior citizens who, at their age, are
less likely to be gainfully employed, more prone to illnesses and other disabilities, and thus, in need
of subsidy in purchasing basic commodities. The 20% discount may be properly viewed as belonging to
the category of price regulatory measures which affect the profitability of establishments subjected
thereto. On this face, the subject regulation is a police power measure. (Manila Memorial Park v.
DSWD Secretary)

Dimaampao: We really look for keywords.

The keyword here is price regulatory measures.

TAXES ARE NOT SUBJECT OF SET OFF

As a rule, taxes cannot be subject to compensation because the government and the taxpayer are not
creditors and debtors of each other.

However, the Supreme Court allowed offsetting of taxes only because the determination of the
taxpayer’s liability is intertwined with the resolution of the claim for tax refund of
erroneously or illegally collected taxes under Section 229 of the NIRC.

--xXx--

Assignment

1. Start from the inherent and constitutional limitations of taxation.

 Exemption of the government from taxation is an emerging favorite bar question.
2. Find the 16 instrumentalities exempt from taxation in the following cases:
 Manila International Airport Authority v. Court of Appeals, 495 SCRA 591, 618, 632, 633
MIAA is one.

On page 618, there are four other instrumentalities enumerated by the Supreme Court.

On pages 632-633, there are eight more.

1. Manila International Airport Authority
2. Mactan-Cebu International Airport Authority
3. Philippine Ports Authority
4. University of the Philippines
5. Bangko Sentral ng Pilipinas
6. Philippine Rice Research Institute
7. Laguna Lake Development Authority
8. Philippine Fisheries Development Authority
9. Bases Conversion Development Authority
10. Philippine National Railways
11. Cagayan de Oro Port Authority
12. San Fernando Port Authority
13. Cebu Port Authority
 Republic of the Philippines v. City of Parañaque, 677 SCRA 246

There is only one mentioned in this case. This is the one asked in the bar.

14. Philippine Reclamation Authority, formerly Public Estates Authority

 City of Lapu-Lapu v. Philippine Economic Zone Authority, 742 SCRA 524

The remaining two instrumentalities can be found in this case.

15. Philippine Economic Zone Authority
16. Government Service Insurance System

3. Learn why the instrumentalities in those cases are exempt from taxation by determining their
distinct characteristics or features in the following case: Manila International Airport
Authority v. City of Lapu-Lapu, 757 SCRA 323.

These are the reasons why instrumentalities are exempt from tax.
 Instrumentality refers to any agency of the National Government,
1. not integrated within the department framework,
2. vested with special functions or jurisdiction by law,
3. endowed with some if not all corporate powers,
4. administering special funds, and
5. enjoying operational autonomy, usually through a charter.

(Section 2(10) of the Introductory Provisions of the Administrative Code)

4. Research about technical smuggling.

 Smuggling refers to the fraudulent act of importing any goods into the Philippines, or the act of
assisting in receiving, concealing, buying, selling, disposing or transporting such goods, with full
knowledge that the same has been fraudulently imported, or the fraudulent exportation of goods.
Goods referred to under this definition shall be known as smuggled goods. (Section 102(nn), R.A.
No. 10863)

 Technical Smuggling refers to the act of importing goods into the country by
means of fraudulent, falsified or erroneous declaration of the goods to its nature, kind, quality, quantity
or weight, for the purpose of reducing or avoiding payment of prescribed taxes, duties and other
charges. (Section 102(pp), R.A. No. 10863)

GENERAL PRINCIPLES
Part II

DIMAAMPAO: You must know the prevailing jurisprudence here on pages 33-34 of your book.
You must have noticed the decided cases there. There are mentioned 1,2,3,4. These were asked
twice already in the bar exams.

In Progressive Development Corp. vs Quezon City, the case involves a market in Cubao – the Farmers’
Market. So, there is this issue whether the market stall fee collected by the city government is a tax or a
license. What is the prevailing jurisprudence?

Q: Is market stall fee a license or a tax?

A: The market stall fees are considered as license because the objective of imposing market stall fees
is regulation and not revenue generation. Tax is imposed in the exercise of police power primarily for
purposes of regulation, while the latter is imposed under the taxing power primarily for purposes
of raising revenues. Thus, if the generating of revenue is the primary purpose and regulation is merely
incidental, the imposition is a tax; but if regulation is the primary purpose, the fact that incidentally
revenue is also obtained does not make the imposition a tax.

Q: What is the reason behind this ruling?

A: Tax is imposed in the exercise of police power primarily for purposes of regulation, while the
latter is imposed under the taxing power primarily for purposes of raising revenues. Thus, if the
generating of revenue is the primary purpose and regulation is merely incidental, the imposition is a
tax; but if regulation is the primary purpose, the fact that incidentally revenue is also obtained
does not make the imposition a tax.

Dimaampao: Based on my experience as bar examiner for two bar exams, some examinees
never take full credit though their answers were correct because their reasons are not enough to
explain the SC ruling.

This came out in the bar examination.

Q: What are the distinctions between a license and a tax?

A: The distinctions between a license and a tax are as follows;

1. As to the exercise of power – a tax is levied in the exercise of the taxing power, while license fees
emanate from the police power of the State;

2. As to purpose – the primary purpose of taxation is to generate revenues, while

license fees are imposed primarily for regulation;

3. As to subject – the subject of taxation is persons, properties, activities, while the

subject of license is limited to the right to engage in a business or activity;

4. As to consequence in case of non-payment – failure to pay tax makes your business

illegal. While failure to pay does not have that effect as it is merely a regulatory fee.

DIMAAMPAO: Let’s have another case. This has yet to be asked in the bar exam. This is about the
charge imposed under the EPIRA Law (Electric Power Industry Reform Act of 2001) called the
Universal Charge.

Q: Is that a license or a tax?

A: It is a license. In Gerochi v. Department of Energy, the Supreme Court held that the Universal
Charge is a license. It is imposed and can be amply discerned as regulatory in character because in the
EPIRA Law, the State’s police power, particularly its regulatory dimension, is invoked.

Q: Is the Coco Levy Fund a tax or a license? Is it a regulatory imposition or tax?

A: It is a tax. In Cojuangco, Jr. vs. Republic,the Court ruled that the coco levy funds are taxes since
the purpose of its imposition is to raise revenue for the rehabilitation of the coconut industry.

Q: Is the building permit fee a tax or a license?

A: NO. It is a regulatory fee.

Q: Why is a building permit a regulatory fee?

A: That a building permit fee is a regulatory imposition is highlighted by the fact that:

1. In processing an application for a building permit, the Building Official shall see to it that
the applicant satisfies and conforms to the approved standard requirements on zoning and land
use, lines and grades, structural design, sanitary and sewerage, environmental health, electrical and
mechanical safety;

2. Clearances from various government authorities exercising and enforcing regulatory functions
affecting buildings /structures may be required before a building permit may be issued.
meaning of Destination Principle?

A: It is a principle applied in value-added tax. It dictates that value-added tax may be imposed on
goods and services only in the country where these are consumed.

Q: What is the tax situs of VAT?

A: Its tax situs is the place where the transaction is made.

Q: What is the situs of real property tax?

A: Its situs is the state or country where it is located, regardless whether its owner is a resident or a
non-resident.

Q: What about income tax? Can we tax income derived from sources without? Whose income
derived from sources without is subject to Philippine income tax? So, when we tax the
income of a resident citizen derived from sources without, what is the criterion?

A: The situs of income tax depends upon the nationality and residence of the taxpayer. If the
taxpayer is both a resident and a national of the Philippines, the income is taxed upon sources
derived from within and without the Philippines. Otherwise, the taxpayer is taxed upon sources
derived from within the Philippines only.

Q: What about community tax?

A: Community taxes are imposed on the residence of the taxpayer.

Q: Can estate tax be imposed upon property situated outside the Philippines?
A: Yes, if the decedent is a citizen of the Philippines.

Dimaampao: The same is true in case of donor’s tax. Provided that the donor is a citizen, even if the
property donated is situated outside the Philippines, the same can be the subject of donor’s tax.

Q: What is the Cross Border Doctrine?

A: The Cross Border Doctrine mandates that no VAT shall be imposed to form part of the cost of the
goods destined for consumption outside the territorial border of the taxing authority. Hence, actual
export of goods and services from the Philippines to a foreign country must be free of VAT,
while those destined for use or consumption within the Philippines shall be imposed with 10% VAT.

Q: What are export processing zones? What is the tax treatment on the sales of goods or services
within these export processing zones?

A: Export processing zones are to be managed as a separate customs territory from the rest of the
Philippines and, thus, for tax purposes, are effectively considered as foreign territory. For this reason,
sales by persons from the Philippine customs territory to those inside the export
processing zones are effectively zero-rated.

INTERNATIONAL COMITY

Q: Can the income of the Ambassador of the United States derived from sources within the
Philippines be subject to income tax?

A: NO, because it is one of the inherent limitations – international comity. Subjecting their income to
income tax will violate the internationally accepted principle of sovereign equality among nations.

Q: Does it have a constitutional basis?

A: YES. Article 2, Section 2 of the Constitution states that the Philippines adopts the generally accepted
principles of international law as the law of the land. Such generally accepted principle pertains to
the sovereign equality of nations. Neither can we impose real property tax on the foreign embassies as
these are extension of territories of sovereign states.

EXEMPTION FROM TAXATION OF GOVERNMENT AGENCIES AND INSTRUMENTALITIES

Q: What are the 16 Exempt Instrumentalities of the National Government?

A: The following instrumentalities are exempt from tax;

1. Philippine Economic Zone Authority;
2. Government Service Insurance System;
3. Bangko Sentral ng Pilipinas;
4. Mactan-Cebu International Airport Authority;
5. Philippine Ports Authority;
6. San Fernando Port Authority;
7. University of the Philippines;
8. Philippine Fisheries Development Authority;
9. Philippine Rice Research Institute;
10. Cagayan De Oro Port Authority;
11. Cebu Port Authority;
12. Manila International Airport Authority;
13. Philippine Reclamation Authority;
14. Laguna Lake Development Authority;
15. Bases Conversion Development Authority;
16. Philippine National Railways;

Q: What must be the reasons why they are exempt?

A: The Supreme Court explained in the case of PEZA vs Lapu-Lapu City that they must possess the
characteristics of an instrumentality of the national government.

Manila International Airport Authority v. CA

G.R. No. 155650. July 20, 2006
CARPIO, J.:

Facts: Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino
International Airport (NAIA) Complex in Parañaque City under Executive Order No. 903, otherwise
known as the Revised Charter of the Manila International Airport Authority ("MIAA Charter").

On 21 March 1997, the Office of the Government Corporate Counsel (OGCC) issued Opinion
No. 061 withdrawing the exemption from real estate tax granted to MIAA under Section 21 of the
MIAA Charter. The City of Parañaque, through its City Treasurer, issued notices of levy and
warrants of levy on the Airport Lands and Buildings.

MIAA filed with the Court of Appeals an original petition for prohibition and injunction, with
prayer for preliminary injunction or temporary restraining order. MIAA argues that the Airport Lands
and Buildings are for the benefit of the general public thus, the ownership of these properties
remains with the State and are not subject to real estate tax by local governments.

Respondents invoke Section 193 of the Local Government Code, which expressly withdrew the tax
exemption privileges of "government-owned and-controlled corporations" upon the
effectivity of the Local Government Code. Respondents also argue that a basic rule of statutory
construction is that the express mention of one person, thing, or act excludes all others. An
international airport is not among the exceptions mentioned in Section 193 of the Local Government
Code. Thus, respondents assert that MIAA cannot claim that the Airport Lands and Buildings are
exempt from real estate tax.

ISSUE: whether the Airport Lands and Buildings of MIAA are exempt from real estate tax under
existing laws.

HELD:

Yes. First, MIAA is not a government-owned or controlled corporation but an instrumentality of the
National Government and thus exempt from local taxation. Second, the real properties of
MIAA are owned by the Republic of the Philippines and thus exempt from real estate tax.

A government-owned or controlled corporation must be "organized as a stock or non-stock corporation."

MIAA is not organized as a stock or non-stock corporation. MIAA is not a stock corporation
because it has no capital stock divided into shares. MIAA has no stockholders or voting shares. Clearly,
under its Charter, MIAA does not have capital stock that is divided into shares.

MIAA is also not a non-stock corporation because it has no members. Section 87 of the
Corporation Code defines a non-stock corporation as "one where no part of its income is distributable as
dividends to its members, trustees or officers." A non-stock corporation must have members. Even
if we assume that the Government is considered as the sole member of MIAA, this will not make
MIAA a non-stock corporation. Non-stock corporations cannot distribute any part of their income to
their members. Section 11 of the MIAA Charter mandates MIAA to remit 20% of its annual gross
operating income to the National Treasury. This prevents MIAA from qualifying as a non-stock
corporation.

Section 88 of the Corporation Code provides that non-stock corporations are "organized for
charitable, religious, educational, professional, cultural, recreational, fraternal, literary, scientific,
social, civil service, or similar purposes, like trade, industry,agriculture and like chambers." MIAA is
not organized for any of these purposes. MIAA, a public utility, is organized to operate an international
and domestic airport for public use.

MIAA is a government instrumentality vested with corporate powers to perform efficiently its
governmental functions. MIAA is like any other government instrumentality, the only difference is that
MIAA is vested with corporate powers.

When local governments invoke the power to tax on national government instrumentalities, such
power is construed strictly against local governments. The rule is that a tax is never presumed and there
must be clear language in the law imposing the tax. Any doubt whether a person, article or activity is
taxable is resolved against taxation. This rule applies with greater force when local governments
seek to tax national government instrumentalities.

Another rule is that a tax exemption is strictly construed against the taxpayer claiming the exemption.
However, when Congress grants an exemption to a national government instrumentality from local
taxation, such exemption is construed liberally in favor of the
national government instrumentality.

Q: What are the 5 characteristics of an instrumentality of the national government under Sec. 2
(10) of the 1987 Administrative Code?

A: The reasons are as follows;

1. They are not integrated within the department network;
2. They are vested with special functions or jurisdiction by law;
3. They are endowed with some if not all corporate powers;
4. They are administering special fund;
5. hey are enjoying operational autonomy, usually through a charter

MCIAA vs. City of Lapu-Lapu

G.R. No. 181756. June 15, 2015
Leonardo-De Castro, J;

FACTS: Petitioner Mactan-Cebu International Airport Authority (MCIAA) was created by Congress
on July 31, 1990 under Republic Act No. 69583 to "undertake the economical, efficient and
effectivecontrol, management and supervision of the Mactan International
Airport in the Province of Cebu and the Lahug Airport in Cebu City x x x and such other airports as may
be established in the Province of Cebu.Upon its creation, petitioner enjoyed exemption from realty taxes
under Republic Act No. 6958.

On September 11, 1996, however, this Court rendered a decision in Mactan-Cebu International Airport
Authority v. Marcos4 (the 1996 MCIAA case) declaring that upon the effectivity of Republic Act No.
7160 (The Local Government Code of 1991), petitioner was no longer exempt from real estate taxes.

On January 7, 1997, respondent City issued to petitioner a Statement of Real Estate Tax assessing the
lots comprising the Mactan International Airport in the amount of ₱151,376,134.66.

Petitioner is before us now claiming that this Court, in the 2006 MIAA case, had expressly
declared that petitioner, while vested with corporate powers, is not considered a government-owned
or controlled corporation, but is a government instrumentality like the Manila International Airport
Authority (MIAA), Philippine Ports Authority (PPA), University of the Philippines, and Bangko Sentral
ng Pilipinas (BSP). Petitioner alleges that as a government
instrumentality, all its airport lands and buildings are exempt from real estate taxes imposed by
respondent City.

Respondents point out that petitioner and MIAA are two very different entities. Respondents
argue that petitioner is a GOCC contrary to its assertions, based on its Charter and on DOJ Opinion
No. 50.

Respondents argue that MCIAA properties such as the terminal building, taxiway and runway are
not exempt from real property taxation. As discussed in the 1996 MCIAA case, Section 234 of the
LGC omitted GOCCs such as MCIAA from entities enjoying tax exemptions. Said decision also
provides that the transfer of ownership of the land to petitioner was absolute and
petitioner cannot evade payment of taxes.

ISSUE: Whether or not Mactan International Airport is exempt from real estate tax.

HELD:

YES. The petitioner is an instrumentality of the government; thus, its properties actually, solely and
exclusively used for public purposes, consisting of the airport terminal building, airfield, runway,
taxiway and the lots on which they are situated, are not subject to real property taxand respondent
City is not justified in collecting taxes from petitioner over said properties.

While it is true, as respondents allege, that the 1996 MCIAA case was cited in a long line of cases, still,
in 2006, the Court en banc decided a case that in effect reversed the 1996 Mactan ruling. The
2006 MIAA case had, since the promulgation of the questioned Decision and Resolution, reached
finality and had in fact been either affirmed or cited in numerous cases by the Court.

The decision became final and executory on November 3, 2006. Furthermore, the 2006 MIAA case was
decided by the Court en banc while the 1996 MCIAA case was decided by a Division. Hence, the 1996
MCIAA case should be read in light of the subsequent and unequivocal ruling
in the 2006 MIAA case.

Petitioner MCIAA is vested with corporate powers but it is not a stock or non-stock corporation,
which is a necessary condition before an agency or instrumentalityis deemed a government-owned or
controlled corporation. Like MIAA, petitioner MCIAA has capital under its charter but it is not
divided into shares of stock. It also has no stockholders or voting shares.

Like in MIAA, the airport lands and buildings of MCIAA are properties of public dominion
because they are intended for public use. As properties of public dominion, they indisputably belong to
the State or the Republic of the Philippines, and are outside the commerce of man. This, unless
petitioner leases its real property to a taxable person, the specific property leased becomes subject to real
property tax; in which case, only those portions of petitioner’s
properties which are leased to taxable persons like private parties are subject to real property tax by the
City of Lapu-Lapu.

Under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code, which governs
the legal relation and status of government units, agencies and offices within the entire government
machinery, MIAA is a government instrumentality and not a
government-owned or controlled corporation.

Under Section 133(o) of the Local Government Code, MIAA as a government instrumentality is not
a taxable person because it is not subject to "[t]axes, fees or charges of any kind" by local
governments. The only exception is when MIAA leases its real property to a "taxable person" as
provided in Section 234(a) of the Local Government Code, in which case the specific real
property leased becomes subject to real estate tax. Thus, only portions of the Airport Lands
and Buildings leased to taxable persons like private parties are subject to real estate tax by the City
of Parañaque.

Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being devoted to
public use, are properties of public dominion and thus owned by the State or the Republic of the
Philippines.

Article 420 specifically mentions "ports x x x constructed by the State," which includes public
airports and seaports, as properties of public dominion and owned by the Republic. Asproperties of
public dominion owned by the Republic, there is no doubt whatsoever that the Airport Lands and
Buildings are expressly exempt from real estate tax under Section 234(a) of
the Local Government Code. This Court has also repeatedly ruledthat properties of public dominion are
not subject to execution or foreclosure sale.

NON-DELEGATION OF POWER TO TAX

Q: What underlying settled doctrine/principle will be violated if we allow the delegation of

power to tax?

A: Delegation of power to tax violates the principle of separation of powers. Delegation is allowed
when expressly authorized by the Constitution.

Under the Constitution, there are two provisions;

1. Art. VI, Sec. 28 (2) – Tariff powers of the President;

2. Art. X, Sec. 5 – Delegation to Local Government

Congress passed a law authorizing the President to impose income tax on certain items of income.
Q: Is that covered by that constitutional provision?

A: NO. It is not covered by that constitutionally delegated power.

Q: So, what are the taxes covered by that constitutionally delegated power?

A: It made no mention about income tax, donor’s tax, estate tax, value-added tax. The taxes covered
are customs duties.

Dimaampao: The constitutional provision says that the Congress may, by law, authorize the
President to fix within specified limits, and subject to such limitations and restrictions as it may
impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or
imposts within the framework of the national development program of the Government.

Q: What is that law authorizing the President to increase or decrease tariff rates?

A: That law is the flexible power clause under Sec. 221 of the Old Tariff and Customs Law. However,
there is a new law: R.A. No. 10863 – Customs Modernization and Tariff Act.

Dimaampao: Read Sec. 102 (u) in relation to Sec. 1608 of RA 10863.

Explain the flexible power clause. The Constitution says, “within the national development program of
the Government.”

Q: Under what conditions or criteria will the President increase or decrease tariff rates?

A: Under the Constitution, it says “within the national development program of the
Government,” meaning in the interest of the national economy.

Unfortunately, this is now deleted. I could not understand why it was deleted! It’s what the
Constitution says! That’s how brilliant our Congressmen are. The most important criterion is deleted.
What are left are “in the interest of national security,” “in the interest of the general
welfare of the people.” Read Sec. 1608, you will not find therein this constitutional criterion “within the
national development program of the Government.”

Q: What is that provision in the Constitution that likewise allow the delegation of the power to tax?

A: Art. X, Sec. 5. Delegation to Local Government.

Dimaampao: The Constitution made mention of these two striking words: guidelines and
limitations.

Q: What do you understand by the word guidelines?

A: R.A. No. 7160 does not use the word guidelines.

It uses “fundamental principles.” These principles are found in two sections:
1. Sec. 130 – Fundamental principles of local government taxation; and
2. Sec. 198 – Fundamental principles of real property taxation.

SECTION 130. Fundamental Principles.

 -
The following fundamental principles shall govern the exercise of the taxing and other revenue-
raising powers of local government units:

1. Taxation shall be uniform in each local government unit;

2. Taxes, fees, charges and other impositions shall:
a. be equitable and based as far as practicable on the taxpayer's ability to pay;
b. be levied and collected only for public purposes;
c. not be adjust, excessive, oppressive, or confiscatory;
d. not be contrary to law, public policy, national economic policy, or in restraint of trade;
3. The collection of local taxes, fees, charges and other impositions shall in no case be let
to any private person;
4. The revenue collected pursuant to the provisions of this Code shall inure solely to the benefit of,
and be subject to disposition by, the local government unit levying the tax, fee, charge or other
imposition unless otherwise specifically provided herein; and,

5. Each local government unit shall, as far as practicable, evolve a progressive system of taxation.

Section 198. Fundamental Principles. -

The appraisal, assessment, levy and collection of real property tax shall be guided by the following
fundamental principles:

a. Real property shall be appraised at its current and fair market value;
b. Real property shall be classified for assessment purposes on the basis of its
actual use;
c. Real property shall be assessed on the basis of a uniform classification within each local government
unit;
d. The appraisal, assessment, levy and collection of real property tax shall not be let to any private
person; and
e. The appraisal and assessment of real property shall be equitable.

Dimaampao: Tax ordinance is valid if complies with these fundamental principles of local
government taxation. Assessment, or appraisal or collection or real property tax is valid if it complies
with these fundamental principles of real property taxation.

Q: What are the common principles?

A: (1) Rule on uniformity; (2) That taxes must be equitable; (3) No let principle.

Q: What is the “no let principle”?

A: The appraisal, assessment, levy and collection of real property tax cannot be delegated to any
private person.

Q: Can the collection of income tax or internal revenue tax that be delegated to private
corporations such as banks?

A: YES. You should know that distinction. In the case of local tax or real property tax, in the light of
that honored principle, the collection thereof should not be delegated or entrusted to private
corporations. That’s why you must have noticed that banks are not authorized to collect local taxes or
real property tax. But in the case of income tax, donor’s tax, estate tax, and other internal revenue taxes,
these can be collected by authorized agents.

Dimaampao: In the last bar examination, this was asked: common limitations on local government
taxation, meaning these taxes cannot be imposed by local government units. When the Constitution says
under Art. X, Sec. 5 “subject to limitations as the Congress may provide,” that refers to Sec. 133 of R.A.
No. 7160 which enumerates 15 taxes orcharges which could not be imposed by local government
units. Can you mention some of them?

SECTION 133. Common Limitations on the Taxing Powers of Local Government Units. -

Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities,
municipalities, and Barangays shall not extend to the levy of the
following:

1. Income tax, except when levied on banks and other financial institutions;
2. Documentary stamp tax;
3. Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa, except as
otherwise provided herein;
4. Customs duties, registration fees vessels and wharfage on wharves, tonnage dues, and all other
kinds of customs fees, charges and dues except wharfage on wharves constructed and
maintained by the local government unit concerned;
5. Taxes, fee and charges and other impositions upon goods carried into or
out of, or passing through, the territorial jurisdictions of local government units in the guise of
charges for wharfage, tolls for bridges or otherwise, or other taxes, fees or charges in any form
whatsoever upon such goods or merchandise;
6. Taxes, fees, or charges on agricultural and aquatic products when sold by marginal farmers or
fishermen;
7. Taxes on business enterprises certified to by the Board of Investments as pioneer or non-pioneer
for a period of six (6) and (4) four years, respectively from the date of registration;
8. Excise taxes on articles enumerated under the National Internal Revenue
Code, as amended, and taxes, fees or charges on petroleum products;
9. Percentage or value added tax (VAT) on sales, barters or exchanges or
similar transactions on goods or services except as otherwise provided herein;
10. Taxes on the gross receipts of transaction contractors and persons engaged in the
transportation of passengers or freight by hire and common carriers by air, land or water,
except as provided in this Code;
11. Taxes on premium paid by way or reinsurance or retrocession;
12. Taxes, fees or charges for the registration of motor vehicle and for the issuance of all kinds of
licenses or permits for the driving thereof, except tricycles;
13. Taxes, fees or charges on Philippine products actually exported, except as otherwise provided
herein;

14. Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and cooperatives duly
registered under R.A. No. 6810 and Republic Act Numbered Sixty-nine hundred thirty-eight (R.A.
No. 6938) otherwise known as the "Cooperatives Code of the Philippines"respectively; and

15. Taxes, fees or charges, of any kind on the National Government, its agencies and
instrumentalities, and local government units.
Dimaampao: You note here that all national internal revenue taxes are not within the taxing
authority of the local government units. You must memorize these.

In the last item there, (15) Taxes, fees or charges, of any kind on the National Government, its agencies
and instrumentalities, and local government units, it was cited in the landmark case of Manila
International Airport Authority. Justice Carpio mentioned that. Since Manila International Airport
Authority is an instrumentality of the national government, the City Government of Paranaque
cannot impose real property tax against it. Now, he cited this Doctrine of Supremacy of National
Government over Local Government Units. Explain the Doctrine of Supremacy of National Government
over Local Government Units based on three American cases.

The basis of these limitations proceeds from this Doctrine of Pre-emption.

Q: What is this Doctrine of Pre-emption?

A: The imposition of these limitations is a classic application of that Doctrine. Pre-empt. To pre-
empt the exercise. Here, where it not for these limitations, local government units may impose
these taxes. But the national government elects to over these field or area of taxation thereby
withholding this power to tax on the part of local government units. So those taxes which may not be
covered by these, they can be imposed by local government units. In other words, if the national
government does not impose taxes on certain subject, that may be taxed by the LGU.

CONSTITUTIONAL LIMITATIONS

These are provisions affecting the power of taxation.

Q: How do you classify these constitutional provisions?

A: The classifications are as follows;

1. Constitutional Limitations - these provisions involve restrictions, direct or indirect;
2. Constitutional Conferment; (delegation)
3. Constitutional Exemptions;

EQUAL PROTECTION CLAUSE

Equal Protection Clause – There are so many cases here. It boils down to the application of the
requisites of a valid classification.

Q: What are these requisites?

A: The requisites are as follows;

1. It must be based on substantial distinctions;
2. It must apply to both present and future conditions;
3. It must be germane to the purpose of the law;
4. It must apply to all members of the same
class

Dimaampao: So, there may be differential tax treatment or classification as long as it has these 4
requisites, that law does not violate equal protection clause. Jurisprudence in a long line of
cases classify things or articles for purposes of taxation. There may be differential tax treatment
but for as long as the classification has these requisites, that law is still constitutional.

There are so many cases decided by the Supreme Court on this. I must tell you that in the previous
bar exams cases involving violations are the ones being asked.

Q: Can you think of a case where the Supreme Court held that this ordinance is discriminatory?

A: Ormoc Sugar Co. vs. Treasurer of Ormoc City; Motor vehicles in Manila; Association of
Customs Brokers vs. Manila

Dimaampao: There was this tax imposed on export sale made by Ormoc Sugar Co. The ruling of
the Court was clearly, the tax was discriminatory. It singled out a particular sugar industry. It applied
only to existing conditions. To conform with that condition number 2 that it must apply to both
present and future conditions

Q: How do you cure the defect in the Ormoc Sugar Co. case?

A: If an ordinance was passed imposing tax on installation manager conditioned on the ground
that it singled out a particular group of people, will you challenge that claiming that you were singled out
and therefore it violates the equal protection clause. This is where the Supreme Court applies this-
inequality or inequity, resulting from singling out a particular class for taxation or exemption infringe
no constitutional limitation. The mere fact that he is singled out does not necessarily infringe
constitutional limitations since all the requisites are present.

Differential tax treatment or classification that will result in singling out a particular class provided
that all the requisites of a valid classification are present. In other words,
differential tax treatment is allowed as long as the classification is valid, meaning it must have all the
requisites of a valid classification.

UNIFORMITY IN TAXATION

Equal protection clause, Art. 3, Sec. 1, you cannot avoid equality here that’s why you jump to Art. VI,
Sec. 28 (1) (Question No. 1 in Bar Exam 1996).

Q: What is the rule of uniformity in taxation?

A: Uniformity means that things belonging to the same class shall be treated alike - impositions,
privileges conferred, limitation imposed. Uniform requires that persons, corporations, associations
similarly situated must be taxed similarly. So, the important word there is “similarly situated” to make
it allowed.

PROGRESSIVE SYSTEM OF TAXATION

Let’s go to this principle that the Congress shall evolve a progressive system of taxation.

Q: What do you mean by this constitutional provision?

A: It means that direct taxes are to be preferred and indirect taxes, as much as possible, should be
minimized.
Dimaampao: These are the words of the Supreme Court in the ponencia of Chief Justice Enrique
Fernando, which was given judicial imprimatur by the Supreme Court. I will look for these words
which were mentioned in the recent case of Camacho: Directive; Not judicially imposable right;
moral incentives.

Q: Is it a directive to Congress? Is it mandatory?

A: No. That’s why the word “shall” is misleading. The operative word there is “evolve.”
: Now what does evolve mean?

Definitely it does not mean prescribe, it means to develop. So it’s not mandatory.

Dimaampao: That’s why this Value Added Tax Law, which is a regressive tax, has been challenged
for no less than 4 times before the Court. The Court consistently held that it does not violate this
because it is not mandatory upon Congress to prescribe or impose direct tax. That’s why as much as
possible, indirect taxes must be minimized.

It is not a directive to Congress to pass a law imposing progressive tax. To pass a law imposing
progressive tax, is that a legally enforceable or justiciable right? No! It is just a moral incentive.
This is where you apply the art of articulation. Pagalingan yan ng English! We are impressed by
answers that contain no grammatical error.

Q: What do you understand by progressive system of taxation?

A: It is a system of taxation that imposes progressive rates, which provides that the tax rates
increase as the tax base increases. It means that the bigger your income, the higher your taxes; the
lower your income, the lower your taxes.

DUE PROCESS
The due process clause prohibits the taking of property, deprivation of property without due
process of law.

Dimaampao: So here, in taxation, the government is in effect taking your money. That’s why due
process must be observed. Can you think of a case wherein the Supreme Court held that a tax law is not
valid or unconstitutional because it violated the due process of law? Relate this to tax remedies. If you fail
to pay your tax, the government will resort to these remedies- distraint of personal property, levy of real
property, tax lien. These are taking of property. But these could only be done with due regard with
the requirement of due process law.

Before the government will take your property as a result of your failure to pay your tax, there has to be
notice. That is why we have this Notice of Assessment. That is mandated by due process.

In your book, I hope you have come across the case of Reyes vs. Almanzor.

That’s a case that shows a classic violation of due process. It is about a land in Tondo, Manila that has
been the subject of real property assessment. That the land was in the nature of a residential and
therefore subject to the Rental Control Law. So here, the Court ruled that there is a violation of due
process. The assessment of real property tax is unjust, oppressive, and
confiscatory. It is in this case that the Supreme Court recognized two (2) methods of making an
assessment – comparable sales approach method and income approach method.

So, when a local government unit will make an assessment, it must be governed by this. It must
observe either comparable sales approach method and income approach method. It turned out that the
real property tax exceeded the income derived from the lease of the property, that’s why it is unjust,
oppressive and confiscatory. So, if the property is leased, income is derived therefrom, this
jurisprudence tells us that if the real property tax is more than the income derived from the lease of the
property, is unjust, oppressive and confiscatory and is a violation of the due process of law.

This question came out in Political Law.

The question in taxation has something to do with Value Added Tax. These are the two cases:

(1) Tolentino et al vs. Secretary of Finance And American Bible Society vs. City of Manila.

In the latter case, the City of Manila is requiring a religious society to pay a certain fee or amount
before it could sell its religious articles. Is that valid?

That’s an undue restraint in the exercise of religious profession.

On the other hand, in the Tolentino case, there is no violation. VAT can be imposed on the sale of
religious articles. What cannot be imposed are regulatory fees. The right is the religious freedom to
disseminate, to sell. That could not be the subject of a fee because that is a regulation. You cannot
regulate that. But the imposition of sales tax or VAT, that’s allowed.

NON-IMPAIRMENT CLAUSE
The old case is the Tolentino case. Casanova vs Court - new case. Justice Vitug asked this in the bar
exams. It has something to do with revocation of tax exemptions. You associate that with revocation
of tax exemption.

Exemption may be granted under Congressional franchise. Congress may grant a franchise subject to
amendment or repeal.

Q: Can that be revoked unilaterally?

A: Yes. Congress can unilaterally revoke a franchise it granted because the provision says “subject to
amendment or repeal.”

Q: When will the revocation of tax exemption constitute impairment of contract?

When the exemption is based on contract whereby valuable consideration has been given. (Casanova
ruling).

In the case of Tolentino et al. vs. Secretary of Finance, it was an imposition of Value Added Tax
on the sale of real property. At the time of the passage of that Act, VAT, which imposes VAT on
the sale of real property, there were contracts executed for the sale of real estate. The parties argued it is a
violation of non-impairment. Is there a violation?
No. There can only be a violation when it involves revocation of tax exemption based on contract
whereby valuable consideration has been given.

That’s the settled jurisprudence.

That where contracts were executed before the passage of a law, a subsequent tax law may be filed by
Congress imposing tax on these certain contracts, that is allowed. Because it does not
involve exemption. So, your knowledge of exemption comes into play.

Q: When is tax exemption irrevocable? When is it revocable?

A: It is revocable if it is based on franchise, equity, public policy, economic policy, the state can
unilaterally revoke that. On the other hand, tax exemption is irrevocable if that revocation would
result in violation of non-impairment clause- and that is when it is based on contract whereby
valuable consideration is given.

BILLS TO ORIGINATE FROM THE HOUSE OF REPRESENTIVES

We now come to the most important, and this is the issue that will eventually be passed upon by the
Court in the TRAIN Law and this I think has been raised by the petitioners. You read again Tolentino et
al. vs. Secretary of Finance. You read the original, 235 SCRA 630.

The contention of Speaker Alvarez, as you might have heard him, is that the insertion of the tax on
coal is unconstitutional because it was not in the version of the House. On the other hand, Senator
Drilon, opines otherwise – we have the power to amend.

Is the Senate making an amendment?

Is that tax on coal found in the original version of the House?

I’m sure the court will be guided by this.

What’s the ruling of the Court here?

How did the Court construe that Article VI, Sec. 24?

So please read that case and let us pre-empt the ruling of the Court. Let us discuss this in the light of the
TRAIN Act. Is there a violation of Art. VI, Sec. 24?

GENERAL PRINCIPLES
Part III

Dimaampao: We will finish General Principles today, so that next week we will start with Tax
Remedies.

TOLENTINO V. SECRETARY OF FINANCE

So we will start with a very interesting case, the case of Tolentino, et.al., vs. Secretary of Finance.
Two prominent senators of the Republic questioned the constitutionality of the Expanded Value Added
Tax (VAT) Law, on the ground that the same fails to comply with the constitutional requirement
under Art. 6, Sec. 2 of the Constitution.

Q:What was the main argument of Senators’ Tolentino & Salonga?

A: In that case they are questioning the constitutionality of RA 7716 or the Expanded Value
Added Tax Law because according to them it did not follow the procedural requirement in the
constitution regarding the tax bills, which should originate from the House of Representatives
(HOR). According to them the law that was passed was the consolidation of the senate and the HOR’s
version, thus, unconstitutional. But, according to the Supreme Court

Q: So, House Bill No. 1197 and Senate Bill 1630, what happened to this two?
A: When House Bill No. 1197 was brought to the Senate, they made their own version and what was
passed was merely a consolidation of the distinct versions of the HOR and the Senate.

Q: Is there no single provision of House Bill No. 1197 has been enacted?
A: There are similar provisions coming from the House.

Q: Did the bicameral committee adopt majority of the provisions of House Bill No. 1197 or majority
of the provisions of Senate Bill 1630?
A: Yes, these two were consolidated.

Q: Constitutional or not?
A: It is constitutional.

Dimaampao: Reason out in accordance with the ruling of the court. That was already asked in the bar
exams, 10 points. Ruling of the Court, RA 7716 is declared constitutional, in other words it complies
with the constitutional requirement under Art. 6, Sec. 2 of the Constitution.

Q: What was the reason?

A: The reason for that, what was required by the Constitution, is that the bill and not the law which
must originate exclusively in the HOR, to insist that the bill must originate exclusively in the HOR,
would undermine the power of the Senate.

Dimaampao: There are two reasons cited by the Supreme Court.

Q: What are they?

A: The first is that, to insist that the revenue statute must be substantially the same as that of the HOR’s
version would be to deprive the Senate of their power not only to concur but also to propose amendments.
Second, this will violate the principle of co-equality of legislative powers as it would make the
House superior to the Senate. In other words, what the constitution simply requires is that the
initiative or the filing of the Revenue and Tariff bills must originate from the HOR. (as
synthesized by J. Dimaampao)

Q: Why does the constitution require that the initiative of filing the revenue and tariff bill
originate from the House of Representatives?
A: Because as local representatives elected by their own districts, they are expected to be more
sensitive to the local needs and problems. The Senate on the other hand, given that they are
nationally (nationwide) elected, they are expected to approach these problems from the national
perspective.

Dimaampao: Let us focus on the TRAIN Law. With regard to Speaker Alvarez’ contention that the
excise tax on coal was not on the version of HOR, answered by Senator Drilon that “ e have the power to
propose amendments.”

Q: Now, whose contention is tenable?

A: It is the Senator’s contention that is more tenable. The Constitution merely requires that
Revenue and Tariff bills must originate from the HOR, not the statute itself.

Q: What do you mean by the word amend?

A: Amendment, according to Tolentino vs Secretary of Finance, may include modification of the terms of
the house bill. It may likewise include rewording, or a total overhaul of the provision included in the
House Bill.

Dimaampao: You focus on pages 631 (661) and 633 (663) of Tolentino, et. al vs Secretary of
Finance. In pg. 631, there you will find the ruling of the case citing the 2 reasons. In pg. 663, there the
Court said what the constitution simply requires isthat the initiative or the filing of the Revenue and Tariff
bills must originate from the HOR.

TAX EXEMPTIONS

Another favorite question of Bar Examiners is that which is found in Art. 6, Sec. 28 par. 3 of the
Constitution as discussed there in your book.

Compare this with another constitutional provision Art. 14, Sec. 4, par. 3. Now, point out the
distinctions.

ART. VI, Sec. 28(3) ART. XIV Sec. 4(3) Institution Exempt Religious, Charitable, and Educational
Institutions; Non-stock and Non-Profit Educational Institutions; Taxes Covered Property Tax; Income
Tax, Custom Duties, and Property Tax; Scope Lands, Buildings, and Improvements; Revenues and
Assets;

Criteria Actually, Directly, and Exclusively Used;

Tax Exemptions under NIRC

Section 30. Exemptions from Tax on

Corporations. - The following organizations shall not be taxed under this Title in respect to income
received by them as such;

xxx

(E) Nonstock corporation or association organized and operated exclusively for

religious, charitable, scientific, athletic, orcultural purposes, or for the rehabilitation
of veterans, no part of its net income or asset shall belong to or inures to the benefit of any member,
organizer, officer or any specific person;

xxx
Dimaampao: Sec. 30(e) of NIRC, grant exemptions from income tax to Religious and Charitable
Institutions, but for Educational Institutions, it depends.

There are 3 kinds of educational institutions;

1. Private
2. Public; and
3. Non-stock non-profit.

Q: Which of these 3 are exempt?

A: Non-stock non-profit educational institutions.

Dimaampao: You must read Sec. 30 (e) of the NIRC (National Internal Revenue Code), because it
likewise provides exemptions for religious and charitable institutions from corporate income tax.

SECTION 28. (1) The rule of taxation shall be uniform and equitable. The Congress shall evolve a
progressive system of taxation.

xxx

(3) Charitable institutions, churches and parsonages or convents appurtenant

thereto, mosques, non-profit cemeteries, and all lands, buildings, and improvements, actually, directly,
and exclusively used for religious, charitable, or educational purposes shall be exempt from taxation.

xxx

Q: Now what are the constitutional criteria?

A: It must be actually, directly, and exclusively used for that purpose.

Q: What is the Ruling of the Supreme Court in the case of Lung Center v. Quezon City?
A: The commercial establishments are not tax exempt. Only those properties, directly, &
Exclusively Used shall be exempt from tax.

Q: What was the definition of the court of the word exclusively?

A: Apart from all others; without admission of others to participation; in a manner to exclude.

Q: What do you mean by the word “Actually”?

A: Actually- opposed to seemingly, pretendedly, or feignedly as actually engaged in farming means,
truly in fact.

Q: What do you mean by the word “Directly”?

A: Directly- in a direct way without anything intervening; not by secondary, but by direct means.

J. DIMAAMPAO: You answer this basic question. You always hear about these, “exemptions”.
Exemptions are granted to charitable institutions. So now, I ask you, what is the rational of granting
these exemptions? You must have a mastery of that,because you might be asked why we grant
exemptions.

Q: What is the rationale of granting tax exemptions?

 A: Charitable institutions provide for free goods and services to the public which would otherwise
fall on the shoulders of the government. Thus, as a matter of efficiency, the government forgoes taxes
which should have been spent to address public needs, because certain private entities already
assume a part of the burden. This is the rationale for the tax exemption of charitable institutions. The loss
of taxes by the government is compensated by its relief from doing public works which would have
been funded from the appropriations from
the Treasury.

Q: So, what are the three reasons for the grant of exemptions?
A: The reasons for the grant of tax exemptions are;
1. They perform ministrant functions that would have done by the government;
2. In exchange for those taxes that have been forgone, are the services that these charitable institutions
render;
3. The loss of taxes is compensated by the relief it gives to the government to
perform certain acts that may require appropriation from the Treasury;

TAX AVOIDANCE AND TAX EVASION

Now, let’s go to tax evasion.

Q: In 1998 Bar Exam, it asked, what is the distinction between tax avoidance and tax evasion?
A: Tax Evasion (Tax Dodging) - Willful act to defeat or circumvent the law in order to illegally reduce
one’s tax liability.

Tax Avoidance (Tax Minimization) - It is the act of taking advantage of legally available tax
opportunities in order to minimize one’s tax liability.

Dimaampao: Can you give an example of tax avoidance relative to income tax? Okay, I will give
you an example. When you sell capital assets, personal property. Apply this holding period rule.
Holding period rule, Sec. 39 (b) of the National Internal Revenue Code. When you sell capital asset,
this is what you should do, so that, should gain bederived from that transaction, only half of it will be
subjected to capital gains tax.

So, this is a legally available tax opportunity. You can take advantage of that. So when are you going
to sell your capital asset, within what period? Sell it after twelve months.

Dimaampao: What about a classic example of tax evasion? Have you read the case of CIR v. Toda, Jr.
case? The mother of all tax evasion cases according to one author. There the Court cited the
elements of Tax evasion, what are the elements? I must pressure you to memorize this.

Q: What are the elements of tax evasion?

A: Tax evasion connotes three factors;
1. The end to be achieved i.e. the payment of less than that known by the taxpayer to be
legally due, or the non-payment of tax when it is shown that tax is due;
2. An accompanying state of mind which is described as being “evil”, in “bad faith”,
“willful”, or “deliberate and not accidental”;
3. A course of action or failure of action which is unlawful;

Dimaampao: Have you heard of estate planning scheme? Did I not mention the case of Delcar Trade
vs IAC?
Read that, I might ask you that in your exam.

Q: What is estate planning? Please memorize that.

A: The preparation of the management of the person’s estate through wills, trust, insurance
policies, and other arrangements designed to reduce administration costs and estate tax
liabilities.

Q: If a person fails to pay tax, will he be liable for tax evasion? Mere understatement of income,
will that amount to tax evasion?
A: No, there has to be fraud! That is the defense of a taxpayer, e.g. honest mistake.

Dimaampao: I mentioned in my example tax avoidance with regard to sale of capital asset.

Q: What is another form of tax avoidance? When you deposit your money in the bank, that would
earn interest income, hence it will be subject to 20% final tax. Now, how do you minimize it?
A: Through Long Term deposits. The term of which is 5 years are exempt from tax.

Dimaampao: Double Taxation was asked in the last Bar Exam as we predicted. That’s a favorite bar
question. There are two kinds of Double Taxation.

Q: What are the two kinds of double taxation?

A: Direct double taxation and indirect double taxation.

Q: how do you distinguish one from the other?

A: There is direct double taxation when the same property is taxed twice when it should only be tax
once, and both taxes are imposed;
1. On the same property or subject matter;
2. For the same purpose;
3. By the same taxing authority;
4. Within the same taxing jurisdiction;
5. During the same taxing period; and
6. Must be of the same kind/character of tax;

There is indirect taxation if among the elements ofdirect double taxation, one of them is absent.

Q: Which of the kinds double taxation is prohibited?

A: Direct double Taxation.

Q: Why is direct double taxation prohibited?

A: Direct double taxation is prohibited because it would amount to confiscation of property without due
process of law.

Dimaampao: Another probable bar question is International Juridical Double Taxation as

enunciated in CIR v S. C. Johnson & Sons.
Q: What do you understand by that?
A: International Juridical Double Taxation refers to the imposition of comparable taxes in two or more
states on the same taxpayer in respect of the same subject matter and for incidental periods.

Double taxation usually takes place when a person is resident of a contracting state and derives
income from, or owns capital in, the other contracting state and both states impose tax on that
income or capital.

Q: Is that an example of direct or indirect double taxation?

A: This is an example of indirect double taxation because the tax is imposed by different jurisdiction
and taxing authority.

Q: What are its elements?

A: The elements of International Juridical Double Taxation are;
1. There are two or more states;
2. There is one and the same taxpayer;
3. The same subject matter is taxed;
4. The same period;

Q: what are the ways enunciated by this case to eliminate/minimize double taxation?
A: In order to eliminate double taxation, a tax treaty may be entered into, resorting to two
methods;
1. Tax Exemption Method;
2. Tax Credit Method;

Exemption Method
The income or capital which is taxable in the state of source or situs is exempted in the state of
residence, although in some instances it may be taken into account in determining the rate of tax
applicable to the taxpayer’s remaining income or capital.

The focus is on the income or capital itself. It eliminates double taxation.

Credit Method
The tax paid or levied in the state of source is credited against the tax levied in the state o
residence.

The focus is upon the tax. It only minimizes double taxation.

Dimaampao: Think of Manny Pacquiao, for you to understand this tax credit method. He earns
income from the US, he also earns income here. He is taxed in both jurisdictions; thus he is claiming the
taxes he paid in the US as a deduction from his tax liability in the Phils. It’s a classical definition of that.
Again there is that double taxation, but to minimize its effect there is that tax credit. So, it does not
eliminate double taxation here, it only minimizes.

There is a case I mentioned in your book, which involves double taxation. It’s about Ericsson
Telecommunications vs. City of Pasig. You mark that case, it’s a possible bar question. It’s a classic
case of direct double taxation. It boils down to the tax base.
Q: What is that case all about? What must be the tax base?
A: The imposition of local business tax based on gross revenue will inevitably result in the
constitutionally proscribed double taxation – taxing the same person twice by the same jurisdiction
for the same thing- inasmuch as petitioner’s gross revenue or income for a taxable
year will definitely include its gross receipts already reported during the previous year and for
which local business tax has already been paid.

Dimaampao: Sec. 143 of RA 7160 provides that the tax base for local business tax should be gross
sales or gross receipts, not gross revenue. Gross Sales are derived from the sale of goods and
properties, on the other hand, gross receipts are derived from sale of services.

Q: So, with that, how will that amount to double taxation? Which is broader, gross sales or gross revenue?
A: Gross revenue, because it covers both gross sales and gross receipts. So that, when the local
government of Pasig prescribed it as the tax base, that compounded the tax because a portion of it has
already been paid in the previous year. That is the simplification of the ruling.

Q: In case of a building can it be taxed twice?

A: YES.

Q: What is the tax that is imposed by the local and national government?
A: Real Property tax for the local government and income tax imposed by the National Government
for the lease of the building because rent Income is subject to income tax.

Q: In estate tax, what is that form of or method/device which may minimize the effect of
double taxation?
A: Vanishing deduction.

Dimaampao: Do you recall there is double taxation there? This property has been taxed in the previous
decedent, and when its transferred it was taxed in the present decedent.Vanishing deduction
presupposes double taxation. Because the same property forms part of the two estate, hence it is
taxed twice. The purpose of double taxation is to reduce, minimize, lessen double taxation.

Q: What are its elements?

A: Its elements are as follows;
1. Death of the decedent occurring within 5 years from the transfer of the property through
succession
2. Identity of property;
3. The same property is taxed;
4. It was previously taxed;
5. No previous vanishing deduction;

IMPRESCRIPTIBILITY OF TAXES

As a general rule, taxes are imprescriptible as they are the life blood of the government. However, tax
statutes may provide for statute of limitations.

Dimaampao: You must bear in mind that there are four major tax statutes, namely;

1. National Internal Revenue Code, as amended by the TRAIN Act;

2. Local Government Code;

3. Real Property Taxation;

4. Customs Modernization and Tariffs Act;

Q: What is the general rule?

A: As a general rule, taxes are imprescriptible as they are the life blood of the government.
However, tax statutes may provide for statute of limitations.

Q: What are the period for the statute of limitations?

A: Under the NIRC – the statute of limitation for assessment of tax if a return is filed is within three
(3) years from the last day prescribed by law for the filing of the return or if filed after the last day,
within three (3) years from the date of actual filing.

If no return is filed or the return filed is false or fraudulent, the period to assess is within ten (10)
years from the discovery of the omission, fraud, or falsity.

Any internal revenue tax which has been assessed within the period of limitation as prescribed in
paragraph (a) of Section 22 may be collected by distraint or levy or by proceeding in court within
five (5) years following the assessment of the tax.

Under the tariff and Customs Code – it does not express any general statute of limitations; it
provides, however, that “when articles have been entered and passed free of duty of final
adjustments of duties made, with subsequent delivery, such entry and passage free of duty or
settlements of duties will after the expiration of three (3) years from the date of the final payment of
duties, in the absence of fraud or protest or compliance audit pursuant to the provision of this Code,
be final and conclusive upon all parties, unless the liquidation of the import entry was merely
tentative.

Local Government Code - Local taxes, fees, or charges shall be assessed within five (5) years from
the date they became due. In case of fraud or intent to evade the payment of taxes, fees, or charges, the
same may be assessed within ten (10) years from discovery of the fraud or intent to evade payment. They
shall also be collected either by administrative or judicial action within five (5) years from date of
assessment.

i. Local taxes, fees, or charges may be collected within five (5) years from the date of assessment
by administrative or judicial action. No such action shall be instituted after the expiration of said period.

ii. The basic real property tax and any other tax levied under this Title shall be collected within five
(5) years from the date they become due. No action for the collection of the tax, whether
administrative or judicial, shall be instituted after the expiration of such period. In case of fraud
or intent to evade payment of the tax, such action may be instituted for the collection of the same
within ten (10) years from the discovery of such fraud or intent to evade payment.
Dimaampao: You memorize those periods!

Q: When do you apply the general rule that taxes are imprescriptible?
A: Taxes as a rule are imprescriptible for those which are not covered by any statute of limitations!

Q: What is that tax?

A: Improperly Accumulated Earnings Tax.

Dimaampao: You cannot compel corporations to report this. In effect its imprescriptible.

Q: Now when do you apply or consider that Taxes are imprescriptible?

A: If the law is silent.

Dimaampao: Yes! If the law is silent, if it did not provide for any limitations! Thus, you cannot apply
this rule to those 4 kinds of tax since the law provides for prescriptive periods.

NATURE AND PROSEPCTIVITY OF TAX LAWS

As a rule tax laws apply prospectively, except when it provides for its retroactive application.

Exception to the exception as held in Republic vs Oasan Vda. De Fernandez, is when its
retroactiveapplication will impose harsh and oppressive tax or would amount to denial of due process.

That is the time when you will disregard the retroactive application of tax.

TAX PAYER’S SUIT

There have been rulings in taxpayer’s suit.

Q: What are the two indispensable requisites of taxpayer’s suit as held in Gonzales vs Marcos ?
A: The requisites of taxpayer’s suit under Gonzales vs Marcos are;
1. Illegal or unlawful disbursement of public funds;
2. The public funds must be derived from taxes;

Dimaampao: Did I not mention that the coverage of your Bar Exam includes the distinction of
taxpayers’ suit and citizens suit? What do you mean by a citizen’s suit? You discuss that under the
Constitution. Did I not ask you to research on that?

Its discussed in David vs Arroyo. Including the doctrine of transcendental importance. This
doctrine is always discussed in all these landmark cases. It’s there in the case of 489 SCRA 160.

Q: What do you mean by a citizen’s suit.

A: In citizen’s suit the petitioner is just an instrument of public concern.

Dimaampao: There is a public concern there, it’s just that it don’t involve disbursement of public
funds.

Q: If you question this TRAIN Law, what will you file, a taxpayer suit or a citizen suit?
A: A citizen’s suit because there is a public concern which may affect the people. It involves the general
welfare of the people.
Dimaampao: What about this doctrine of transcendental importance? There are tax cases
which involves matters of transcendental importance. Its an exception of the requirement of
locus standi.

In making this one of the coverage, it only pertains to tax cases.

So locus standi may be relaxed when a cases has transcendental importance. So, you need not prove
this so called locus standi.

Q: does the doctrine of locus standii this apply to the TRAIN Act?
A: Yes, it applies to the TRAIN Act. Can you think of other tax cases that are of transcendental
importance, that’s why that doctrine is now included in the coverage? E-Vat Law RA 7716

TAX REMEDIES
PART I

Dimaampao: There are remedies that may be availed of by the government. There are remedies
that may be resorted to by the taxpayer.

Q: What are the remedies of the government?

A: These are:
1. Compromise;
2. Enforcement of a tax lien;
3. Forfeiture;
4. Distraint of personal property;
5. Levy of real property;
6. Civil action;
7. Criminal action;
8. Civil penalties;

Q: What is the purpose of the remedies insofar as the government is concerned?

A: These remedies available to the government are designed to ensure the collection of taxes. In
resorting to these remedies, the government must observe/comply with the legal parameters that are set
forth in the tax laws.

Q: On the other hand, what is the underlying purpose of the remedies that may be resorted to
by the taxpayer?
A: The purpose of these taxpayer’s remedies is to safeguard the interests of the taxpayers against
unreasonable or arbitrary assessment, collection or investigation.

Dimaampao: These remedies are either administrative or judicial.

Q: What is the difference between these administrative and judicial remedies?

A: Administrative remedies are those that do not require judicial proceedings, whereas judicial
remedies are those that require /necessitate/warrant judicial actions or proceedings.

Dimaampao: Do not use the word “exercise.” We are not talking about power. Use the words
“resorted to,” “availed of” because these are remedies.

ASPECTS OF TAXATION
There are two aspects of taxation;
1. Assessment; and
2.Collection;

In the bar examination, this came out;

Q: What is the difference between assessment and collection?

A: Assessment is the written notice and demand to the taxpayer of his due tax liability. Collection is the
enforcement of the assessment.

Q: Which comes first, assessment or collection?

A: Assessment precedes collection except when the unpaid tax is a tax due per return as in the case of a
self-assessed income tax under the pay-as-you-file system in which case collection may be instituted
without need of assessment.

Q: Is assessment a condition sine qua non to collection insofar as the NIRC is concerned?
A: NO. Sections 203 and 222 of the NIRC do not require prior assessment before collection may be
made. Therefore, collection may be made with or without prior assessment.

Q: What is meant by assessment?

A: An assessment contains not only a computation of tax liabilities, but also a demand for payment
within a prescribed period. It also signals the time when penalties and interests begin to accrue against
the taxpayer. To enable the taxpayer to determine his remedies thereon, due process requires that it
must be served on and received by the taxpayer.

Dimaampao: Adamson v. Court of Appeals is the authoritative definition. You memorize that.

Q: What is meant by assessment under the NIRC?

A: It is a written notice and demand made by the BIR on a taxpayer for the settlement of due tax
liability that is set and fixed within a prescribed period.

Dimaampao: This is a defective definition.

Q: What are the requisites of a valid assessment under the NIRC?

A: The requisites of a valid assessment under the NIRC are as follows:
1. It must be a written notice and demand;
2. It must state the due tax liability of a taxpayer;
3. The taxpayer’s tax liability must be final;
4. It must state the law and the facts upon which it is based.
5. It must be served on and duly received by the taxpayer;

Example;
The BIR wrote the taxpayer allowing him to counter or present his side, or asking him if the
assessment is to be his final tax liability.
Q: Will that constitute valid assessment?
A: NO. It does not contain the taxpayer’s final tax liability.

Example;
An affidavit executed by a revenue officer or agent setting forth the final tax liability of the taxpayer.

Q: Will that qualify as assessment?

A: No, because there is no written notice and demand. It is just an affidavit.

Q: If there is a violation of the 4the or the 5th requisite, what is the effect on the assessment?
A: The assessment is void ab initio because it is a violation of due process.

Dimaampao: There must be proof of receipt by the taxpayer of the assessment.

Q: Who has the burden of proof?

A: It is the BIR who must prove that the assessment is duly received by the taxpayer. This is an
exception to the presumption of regularity in the performance of official functions.

Q: Can the BIR invoke the presumption of regularity in the performance of official functions to
discharge the burden of proof?
A: NO. This is an exception to the presumption.

Q: What is assessment for purposes of real property taxation?

A: Assessment for purposes of real property taxation is the act or process of determining the
value of a property, or proportion thereof subject to tax, including the discovery, listing, classification,
and appraisal of properties.

Q: What is assessment for purposes of customs duties?

A: Assessment for purposes of customs duties refers to the final computation and ascertainment by the
collector of duties on imported merchandise based on official reports as to the quantity,
character, and value thereof, and the collector’s own finding as to the applicable rate of duty.

Q: What are the requisites of a valid assessment for purposes of customs duties?
A: The requisites are as follows;
1. It must contain the final computation and ascertainment of duties on imported merchandise;
2. It must be based on official reports as to the quantity, character, and value of the imported
merchandise;
3. It must set forth/contain the collector’s own finding as to the applicable rate of
duty.

Methods of Assessment

Dimaampao: In your book, I mentioned methods that may be used by the BIR to make an
assessment.

Q: What are these methods?

The methods of assessment are:
1. Networth Method of Investigation;
2. Presumed gross sales or receipts method;
3. Expenditures method;

BEST EVIDENCE OBTAINABLE

The networth method of investigation finds support in the Best Evidence Obtainable Rule. It is a
different concept in Remedial Law.

Q: What do you mean by best evidence obtainable?

A: This includes corporate and accounting recordsof the taxpayer who is the subject of the assessment
process; the accounting records of other taxpayers engaged in the same line of business, including
their gross profit and net profit sales; data, record, paper, document or any evidence gathered by
internal revenue officers from other taxpayers who had personal transactions or from whom the
subject taxpayer received any income; and record, data, document and information secured from
government offices or agencies, such as the SEC, the
BSP, the BOC and the TCC.

Q: What are the four instances wherein the BIR may resort to this best evidence obtainable rule?
A: These are;
1. When a report required by law as a basis for the assessment of any national internal revenue tax shall
not be forthcoming within the time fixed by laws or rules and regulations;
2. When there is reason to believe that any such report is false;
3. When there is reason to believe that any such report is incomplete;
4. When there is reason to believe that any such report is erroneous;

1. Can you strictly apply the hearsay evidence rule in tax cases? No. Hearsay is admissible in tax
cases because other sources may include information or data from third persons.

Dimaampao: Read Campbell v. Guetersloh and Kenny v. Commissioner, as cited in CIR v. Hantex
Trading Co., Inc.

Q: Can mere photocopies of records/documents constitute best evidence obtainable?

A: NO. They have no probative weight if offered as proof of the contents thereof.

Dimaampao: Best evidence obtainable allows the BIR to use the networth investigation method.

Q: How do you apply this method?

A: The steps are as follows;
Step 1: Get the difference of networth end and networth beginning.
Step 2: Add the non-deductible expenses which understated the income.
Step 3: Deduct the exclusions which overstated the income.
Step 4: Compare the total amount obtained with the taxpayer’s taxable income reported in the return. If
there is discrepancy between the two, this will be the subject of assessment.

Q: When is it proper for the BIR to fix the presumed gross sales or receipts?
A: It is resorted to in the following cases;
1. When it is found that a person has failed to issue receipts and invoices in violation of the requirements
of Sections 113 and 237 of this Code; or
2. When there is reason to believe that the books of accounts or other records do not
correctly reflect the declarations made or to be made in a return required to be filed under the provisions
of this Code.

Dimaampao: Collector v. Jamir discusses the other method of assessment: the expenditures method.

Q: How does it apply?

A: It is applied by deducting the aggregate yearly expenditures from the declared yearly income, not the
expenditures incurred each month, from thedeclared income therefor. If the amount spent is more
than the amount earned for the same year, the excess is the unreported income.

PRESCRIPTIVE PERIODS

Sections 203, 222 and 223 of the NIRC provide for prescriptive periods. This clearly shows that
internal revenue taxes are prescriptible. Let us discuss in this regard these three related
provisions.

Q: Does Section 203 apply to assessment and collection?

A: YES. It is in the law. With due respect to the BIR, it not only applies to assessment, but also
collection.

Q: When do you reckon the three-year period?

A: It is reckoned from the last day prescribed by law for the filing of the return or from the day the
return was filed.

Q: In the case of individual taxpayers, when will be the deadline for filing the return?
A: In case of individual taxpayers, the deadline is April 15 of the applicable year.

Q: What about the corporate taxpayers?

A: In case of corporate taxpayers, the tax return is filed quarterly. If it has adopted the calendar year
period, the deadline for filing the final adjusted return is April 15. If it has adopted the fiscal year
period, the deadline is the 15thay of the fourth month following the close of the fiscal year.

Q: If the return has been amended, when do you commence/reckon the three-year period?
A: It depends. If the amendment is substantial, the three-year period will be reckoned from the filing of
the substantially amended return. Otherwise, the period will be reckoned from the date of the
original filing.

Q: What is the distinction between Section 203 and Section 222?

A: In Section 203, the return is neither false nor fraudulent. Section 222, on the other hand,
contemplates three situations *triple F*: when a false or fraudulent return is filed, or when there is
failure or omission to file a return.

Q: How do you apply the five-year period in Section 222?

A: The five-year period only applies to collection. It is reckoned from the assessment of the tax.
Q: How about the ten-year period?
A: The ten-year period is applied to both assessment and collection. It is reckoned from the discovery
of the falsity, fraud or omission. This allows collection even without prior assessment.

Grounds to suspend prescriptive period.

Having discussed these prescriptive periods in Section 203 and 222, you must know the grounds
in Section 223 to suspend the prescriptive period.

Q: What are these grounds?

A: The grounds for suspension of prescriptive period are as follows:
1. When the Commissioner is prohibited from making the assessment or beginning distraint or levy or
a proceeding in court
and for sixty (60) days thereafter;
2. When the taxpayer requests for a reinvestigation which is granted by the Commissioner;
3. When the taxpayer cannot be located in the address given by him in the return filed upon which a
tax is being assessed or collected;
4. When the warrant of distraint or levy is duly served upon the taxpayer, his authorized
representative, or a member of his household with sufficient discretion, and no property could be
located;
5. When the taxpayer is out of the Philippines; and
6. When there is a waiver of the Statute of Limitations.

7. When the Commissioner files an answer to taxpayer’s petition for review;

Q: Who can enjoin the collection of taxes?

A: No court shall have the authority to grant an injunction to restrain the collection of any national
internal revenue tax, fee or charge imposed by this Code.

Dimaampao: The “court” referred to in the “No Injunction Rule” is limited to “regular courts” only.
Republic Act No. 9282, in Section 9, para. 4 thereof, confers upon the Court of Tax Appeals the
authority to enjoin/suspend the collection of taxes under the circumstances stated therein.

Q: What are the grounds upon which the CTA may restraint/enjoin the collection of taxes?
A: Section 9, para. 4 of R.A. No. 9282 provides for the following grounds;
1. When in the opinion of the Court the collection by the government agency may jeopardize the
interest of the Government or the taxpayer; and
2. When the taxpayer is required either to deposit the amount claimed or to file a surety bond for
not more than double the amount of the tax sought to be collected with the Court.

Dimaampao: Read Pacquiao v. CTA.

The Court reiterated therein that a bond must be posted, whether cash or surety bond.

Q: If surety bond is posted, what is the requirement of the law?

A: The surety bond must be posted for more than double the amount of the tax sought to be collected.

Dimaampao: The posting of the bond in order to suspend the collection of taxes admits of two
exceptions.
Q: What are these?
A: These are;
1) If the method employed by the Collector of Internal Revenue in the collection of tax is not sanctioned
by law;

2) If the collection of taxes was made after the lapse of the three-year limitation period;

The prescriptive periods may be extended by agreement between the BIR and the taxpayer. Read the
landmark case on the waiver of the prescriptive period: Commissioner v. Kudos Metal
Corporation.
It discussed the requisites in Revenue Memorandum Order No. 2090.

Q: What are the requisites of valid waiver of prescriptive period?

A: The requisites of a valid waiver of prescriptive period are as follows;
1. An agreement must be reached /made before the expiration of the prescriptive period;
2. It must be in writing;
3. It must be signed by the BIR authorized representative and the taxpayer;
4. It must be approved by the BIR;
5. If the taxpayer is a corporation, the Board must approve the waiver.

Dimaampao: There are five grounds for suspension of the prescriptive period underSection 223.
Another ground is a judicial ground the waiver of prescriptive period.

Q: What is the other ground for suspension of prescriptive period?

A: The judicial ground for suspension of prescriptive period is the filing of Answer to taxpayer’s
petition for review.

COMPROMISE

Let us now discuss one of the most important topics - compromise.

Dimaampao: The BIR is authorized to compromise internal revenue tax cases.

Q: What are the grounds upon which the BIR may compromise an internal revenue tax?
A: The grounds as stated in Section 204 of the NIRC are:
2. The existence of doubtful validity of the assessment against the taxpayer; or
3. The financial incapacity of the taxpayer to pay the assessed tax.

Dimaampao: There are nine doubtful validity cases in your book. Note that assessment made
based on the best evidence obtainable is one of them.

Q: Why is it a doubtful validity case? Can you explain that?

A: It falls under the doubtful validity cases because the source of information or data may come from
other persons. It may be hearsay. That makes it doubtful.

Dimaampao: Another one asked in the Bar is jeopardy assessment. It is another doubtful validity
case.
Q: What is a jeopardy assessment?
A: A jeopardy assessment is a tax assessment made by an authorized Revenue Officer without the
benefit of complete or partial audit, in light of the revenue officer's belief that the government’s
interest will be jeopardized by delay caused by the taxpayer.

Q: Whys is jeopardy assessment doubtful?

A: It is doubtful because there is no audit made by the BIR. That makes it doubtful.

Dimaampao: Out of these nine cases, these two are the most important;
1. Assessment based on best evidence obtainable; and
2. Jeopardy assessment.

Read the other seven cases of doubtful validity in the book. The other seven cases are;
1. Assessment appearing to be arbitrary or based on presumptions;
2. Failure of taxpayer to file protest on account of alleged failure to receive notice
of assessment or preliminary assessment;
3. Failure of taxpayer to file request for reinvestigation or reconsideration within
30 days from receipt of final assessment notice;
4. Failure of taxpayer to elevate to CTA an adverse decision of the Commissioner or his
representative within 30 days from receipt thereof;
5. Assessment issued on or after January 1, 1998, where demand allegedly failed to comply with
the formalities of the Tax Code of 1997;
6. Assessment issued within the extended prescriptive period where the waiver of the statute of
limitations is being questioned or at issue;
7. Assessment based on an issue decided against the Bureau, but for which the SC
has not decided upon with finality

Q: What are the obvious grounds under the cases of the taxpayer’s financial incapacity?
A: There are five in your book. These are:
1. When the corporation ceased operation or is already dissolved;
2. then the taxpayer is suffering from surplus or earnings deficit resulting in impairment of the original
capital by at least 50%;
3. When the taxpayer is suffering from a networth deficit;
4. When the taxpayer is a compensation income earner with no other source of income, and the
family’s gross monthly compensation income does not exceed the levels provided for under the
revenue regulations;
5. When the taxpayer has been granted by the SEC or the competent tribunal a moratorium or
suspension of payments to creditors, or otherwise declared bankrupt or insolvent.

Dimaampao: Memorize those that cannot be compromised. Memorize those seven and apply
expressio unius. It is a must that you memorize these. Section 204 mentions only two. It is
incomplete. The other cases are found in revenue regulations. It is in your book in page 198.

Q: What are these cases that the Commissioner cannot compromise?

A: These cases are as follows;
1. Criminal tax fraud cases;
2. Criminal violation already filed in court;
3. Withholding tax cases;
4. Delinquent accounts with duly approved schedule of installment payments;
5. Final reports of reinvestigation or reconsideration resulting in reduction in the original
assessment, and the taxpayer is agreeable to such decision by signing the required agreement form for the
purpose;
6. Final and executory judgment of a court;
7. Estate tax cases where the ground for compromise is the financial incapacity of the taxpayer;

Q: If there is fraud involved, why can we not compromise it?

A: It is because that will open the floodgates to the commission of tax fraud. That is contrary to public
policy. When cases are compromised, the law or jurisprudence allows that if it is not contrary to
public policy.

Q: Why can we not compromise criminal cases not attended by fraud if it is already filed in
court?
A: It is because the BIR no longer has jurisdiction. It is now the court which has jurisdiction, and the
BIR can no longer interfere.

Q: Why can we not compromise final judgments or final reports?

A: It is because they are already binding upon the taxpayer.

Dimaampao: Take note there is a qualification in estate tax cases.

Q: What does the qualification imply?

A: It is not an absolute that estate tax cases may be compromised. This means that estate tax cases
where the ground for compromise is the financial incapacity of the taxpayer cannot be compromised.

Q: Why can we not compromise estate tax cases where the request for compromise is based on
financial incapacity of the taxpayer?
A: When there is a case filed with the Commissioner, all issues are passed upon. That is why that
can no longer be raised. This rule is basedon the fact that the taxpayer is given ample time to
settle his tax liability. (5 years in case of judicial settlement of estate, 2 years in case of extrajudicial
settlement of estate – Section 91 of the NIRC)

Dimaampao: If you can explain that, you are better than tax authors, revenue officers, and tax lawyers. If
you ask them, they can hardly explain that.

ADMINISTRATIVE REMEDIES AVAILABLE TO

THE GOVERNMENT

Let us have a brief review of these three administrative remedies that may be availed of the
government;
1. Enforcement of a tax lien;
2. Distraint; and
3. Levy.

Dimaampao: Section 219 – Enforcement of a tax lien. It is defined in your book.

Q: How is tax lien defined?

A tax lien is a legal claim or charge on property, whether real or personal, established by law as a
sort of security for the payment of tax obligations.
Q: What is the difference between tax lien and forfeiture?
A: In tax lien, the excess, after satisfying the tax liability, will go to the taxpayer. In forfeiture, all
the proceeds of the sale will go to the coffers of the government.

Dimaampao: The issue in CIR v. NLRC involves the determination of who has the superior claim to
the barges.

Q: Between a claim based on judgment and a claim based on tax lien, which will prevail?
Explain.
A: The government’s claim predicated upon a tax lien is superior to a claim based on judgment. The
reasons are as follows;
1. A tax lien attaches upon all property and rights to property of the taxpayer in case he fails to pay
taxes.

2. It attaches from the moment the taxpayer fails to pay the tax. Thus, there is nothing left to be attached
by the sheriff for a claim based on judgment because the government has acquired tax lien on the
property.

Q: Can LGUs avail of these administrative remedies?

A: Yes, as provided for by Section 173 of the Local Government Code.

Section 173. Local Government's Lien. - Local taxes, fees, charges and other revenues constitute a
lien, superior to all liens, charges or encumbrances in favor of any person, enforceable by appropriate
administrative or judicial action, not only upon any property or rights therein which may be subject
to the lien but also upon property used in business, occupation, practice of profession or calling, or
exercise of privilege with respect to which the lien is imposed. The lien may only be extinguished upon
full payment of the delinquent local taxes fees and charges including related surcharges and
interest.

Q: Can LGUs resort to enforcement of tax lien?

A: Yes as provided by Section 257 of the Local Government Code.

Section 257. Local Governments Lien. - The basic real property tax and any other tax levied under
this Title constitutes a lien on the property subject to tax, superior to all liens, charges or encumbrances in
favor of any person, irrespective of the owner or possessor thereof, enforceable by administrative or
judicial action, and may only be extinguished upon payment of the
tax and the related interests and expenses.

Q: May the Collector of Customs avail of the enforcement of tax lien?

A: Under the Customs and Tariff Modernization Act (R.A. No. 10863), the answer is NO. However,
under the Old Customs Code, the answer is yes.

Q: What is the subject of distraint?

A: The subject of distraint is personal property, such as goods, chattels, or effects of the taxpayer, as
well as stocks and other securities, debts, credits, bank accounts, and interest in and rights to personal
property.

Q: What is the subject of levy?

A: On the other hand, the subject of levy is real property or any interest therein.

Dimaampao: It is clear under Section 207(a) that

the BIR is allowed to resort to distraint.

Q: Is distraint an available remedy under the LGC?

A: Yes as provided under Section 175 of the Local Government Code.

Section 175. Distraint of Personal Property. - The remedy by distraint shall proceed as follows:

(a) Seizure - Upon failure of the person owing any local tax, fee, or charge to pay the same at the
time required, the local treasurer or his deputy may, upon written notice, seize or confiscate any
personal property belonging to that person or any personal property subject to the lien in sufficient
quantity to satisfy the tax, fee, or charge in question, together with any increment thereto incident to
delinquency and the expenses of seizure.

Q: Is distraint available under real property taxation?

A: Yes, under Section 254 of the LGC. However, it is an erroneous provision because the subject of
distraint is personal property.

Section 254. Notice of Delinquency in the Payment of the Real Property Tax. -

xxx

(b) Such notice shall specify the date upon which the tax became delinquent and shall state that personal
property may be distrained to effect payment.

Q: Is distraint available under the Old Customs Code?

A: No. There is no such remedy in this law to that effect.

Q: Is distraint available under the CMTA?

A: Yes as provided by Section 1134(a)

Section 1134. Summary Remedies.—

(A) Distraint of Personal

Property.— Upon failure of the person owing any delinquent duty, tax and other charges to pay
at the time required, the Commissioner shall seize and distraint the goods, chattels or effects, and the
personal property, including stocks and other securities, debts, credits, hank accounts, and interests in
and rights to personal property of such persons, in sufficient quantity to satisfy the duty, tax or other
charge and the expenses of the distraint and the cost of the subsequent sale.

The officer serving the warrant of distraint shall make or cause to be made an account of the goods,
chattels, effects, or other personal property distrained, a copy of which, signed by the said officer,
shall he left either with the owner or person from whose possession such goods, chattels, or effects or
other personal property were taken, or at the dwelling or other place of business of such person
and with someone of suitable age and discretion, to which list shall be
added a statement of the sum demanded and note of the time and place of sale.
Stocks and other securities shall be distrained by serving a copy of the warrant of distraint upon the
importer and upon the president, manager, treasurer, or other responsible officer of the corporation,
company or association, which issued the said stocks or securities.

Debts and credits shall be distrained by leaving with the person owing the debts or having in his/her
possession or under his/her control such credits, or with his/her agent, a copy of the warrant of
distraint. The warrant of distraint shall be sufficient authority to the person owing the debts or having in
his possession or under his control any credits belonging to the importer to pay
to the Commissioner the amount of such debts of credits.

Bank accounts shall be garnished by serving a warrant of garnishment upon the importer and upon the
president, manager, treasurer, or other responsible officer of the bank Upon the receipt of the warrant
of garnishment, the bank shall turn over to the Commissioner so much of the bank accounts as may be
sufficient to satisfy the claim of the government.

A report on the distraint shall, within ten (10) days from receipt of the warrant, be submitted by
the Commissioner to the Secretary of Finance: Provided, That the
Commissioner shall have the power to lift such order of distraint subject to the rules and regulations
promulgated pursuant to this Act.

Dimaampao: It is clear under Section 207(b) that the BIR is allowed to resort to levy.

Q: Is levy available under the LGC?

A: Yes as provided by Section 176 of the Local Government Code.

Section 176. Levy on Real Property. -

After the expiration of the time required to pay the delinquent tax, fee, or charge, real property may be
levied on before, simultaneously, or after the distraint of personal property belonging to the
delinquent taxpayer.

Q: Is levy available under real property taxation?

A: Yes as provided under Section 258 of the Local Government Code.

Section 258. Levy on Real Property. - After the expiration of the time required to pay the basic real
property tax or any other tax levied under this Title, real property subject to such tax may be
levied upon through the issuance of a warrant on or before, or simultaneously with, the
institution of the civil action for the collection of the delinquent tax.

Q: Is levy available under the Old Customs Code?

A: NO.

Q: Is levy available under the CMTA?

A: Yes as provided under Section 1134(b) of the CMTA

Section 1134. Summary Remedies.—

xxx

(B) Levy on Real Property.— After the expiration of the period within which to pay the duty, tax
and other charges as prescribed in this section, real property may be levied upon, before,
simultaneously, or after the distraint of personal property belonging to the importer. To this end, the
Commissioner or the duly authorized representative shall prepare a duly authenticated certificate
showing the name of the importer and the amounts of the duty and tax and penalty due. The certificate
shall operate with the force of a legal execution throughout the Philippines.

The levy shall be effected by writing upon the certificate a description of the property on which levy
is made. At the same time, written notice of the levy shall be mailed to or served upon the register of
deeds of the province or city where the property is located and upon the importer, or if the latter
is not in the Philippines, upon the agent or the manager of the business from
which the liability arose, or if there be none, to the occupant of the property in question.

In case the warrant of levy on real property is not issued before or simultaneously with the warrant of
distraint on personal property, and the personal property of the importer is not sufficient to satisfy the
duty and tax due, the Commissioner or a duly authorized representative shall, within thirty (30)
days after execution of the distraint, proceed with the levy on the real
property of the importer.

Within ten (10) days after receipt of the warrant, a report on any levy shall be submitted by the
levying officer to the Commissioner; Provided, That the Commissioner may lift such warrants of levy
issued, subject to the rules and regulations promulgated pursuant to this Act.

Distraint v. Levy
DISTRAINT

LEVY Involves Real Property; Involves Personal Property; May be Actual or Constructive; No such
thing as constructive Levy; Requires posting; Requires publication;

Q: How is constructive distraint effected?

A: The constructive distraint of personal property shall be effected by requiring the taxpayer or any
person having possession or control of such property to sign a receipt covering the property
distrained and obligate himself to preserve the same intact and unaltered and not to dispose of the
same, in any manner whatever, without the express authority of the Commissioner.

Q: When can the BIR resort to constructive distraint?

A: To safeguard the interest of the Government, the Commissioner may place under constructive
distraint the property of any taxpayer:
1. When he is retiring from any business subject to tax;
2. When he is intending to leave the Philippines;
3. When he is intending to remove his property therefrom or to hide or conceal his property; or
4. When he is intending to perform any act tending to obstruct the proceedings for collecting the
tax due or which may be due from him. (Section 206, NIRC)

Q: In levy, is notice of sale still required to be served on the delinquent taxpayer?

A: Yes, because the taxpayer cannot exercise his right under Section 213 to prevent the sale if he is
not informed of such sale. What you learned that publication is a notice to the whole world does not
apply here because of that provision.

SEC. 213. Advertisement and Sale. –

xxx
At any time before the day fixed for the sale, the taxpayer may discontinue all proceedings by paying
the taxes, penalties and interest.

Assignment:
Cases which will answer this bar question: what may constitute decisions of the BIR appealable to
the CTA?
1. Republic v. Lim Tian Teng Sons, 16 SCRA 584
2. Surigao Electric v. CA, 57 SCRA 523
3. Commissioner v. Ayala Securities Corporation, 70 SCRA 204
4. Yabes v. Flojo, 115 SCRA 278
5. Commissioner v. Advertising Associates, 133 SCRA 765
6. Commissioner v. Algue, 158 SCRA 9
7. Commissioner v. Union Shipping Lines, 185 SCRA 547
8. Commissioner v. Isabela Cultural Corporation, 361 SCRA 71
9. Oceanic Wireless Network, Inc. v. Commissioner, 477 SCRA 205
10. Allied Banking Corporation v. Commissioner, 611 SCRA 692

I will ask you one or two liner on the jurisprudential ruling of the court.
Smuggled notes - DIMAAMPAO (2019)
Abunales, Bernardo, Evidente, Pabalay, Rafael, Ramos 36
Updated by: Anonymous Lawyer (https://www.facebook.com/Anonymouslawer/)

TAX REMEDIES
PART II

Protest under the NIRC

Q: What must be protested?

A: The final assessment notice or final letter of
demand

Q: Is notice of informal conference under Rev.

Reg. 12-1999 required?
A: YES.

Q: Is notice of informal conference under Rev.

Reg. 18-2013 required?
A: NO LONGER REQUIRED.

Q: What do you file?

A: Request for reinvestigation or reconsideration

Q: Where do you file your protest under Income

Tax?
A: BIR.

Q: When do you file?

A: Within 30 days from receipt of the final
assessment notice or final letter of demand.

Protest under the Local Government Code

(Section 195)

Q: Where do you file?

A: Local treasurer

Q: When do you file?

A: Within 60 days from receipt of the local tax
assessment.

Protest under Real Property Tax

(Section 252)

Q: What do you file?

A: Payment under protest is required.

Q: Where do you file?

A: Local treasurer.
Q: When do you file?
A: Within 30 days from the date of payment of
taxes.

Preliminary Assessment

Q: Is preliminary assessment notice required?

A: Yes. The sending of a Preliminary Assessment
Notice (PAN) to taxpayer to inform him of the
assessment made is but part of the due process
requirement in the issuance of a Deficiency Tax
Assessment, the absence of which renders
nugatory any assessment by the tax authorities.

Q: What is the prescriptive period to respond?

A: 15 days from receipt of PAN.

Q: When there is no response given within 15

days, what will happen?
A: The BIR will issue the Final Assessment Notice
(FAN) or Final Letter of Demand (FLD).

Reinvestigation v. Reconsideration

REQUEST FOR
REINVESTIGA
TION
REQUEST FOR
RECONSIDERA
TION
Basis
Newly
discovered
evidence
Existing records
Suspensi
on of
prescript
ive
period
Allowed
(Section 228)
Not allowed

Q: What is the reason why request for

reinvestigation suspends the running of
prescriptive period?
A: If both suspend the running of prescriptive
period, then an erroneous assessment may never
prescribe.

General rule: PAN must first be sent before FAN.

Exception:

1. When the finding for any deficiency tax is

the result of mathematical error in the
computation of the tax as appearing on the
face of the return; or
2. When a discrepancy has been determined
between the tax withheld and the amount
actually remitted by the withholding
agent; or
3. When a taxpayer who opted to claim a
refund or tax credit of excess creditable
withholding tax for a taxable period was
determined to have carried over and
automatically applied the same amount
claimed against the estimated tax
liabilities for the taxable quarter or
quarters of the succeeding taxable year; or
4. When the excise tax due on excisable
articles has not been paid; or
5. When the article locally purchased or
imported by an exempt person, such as,
but not limited to, vehicles, capital
equipment, machineries and spare parts,
has been sold, traded or transferred to
non-exempt persons.
[83]

Q: What is the purpose of PAN?

A: To rectify the amount. The taxpayer is given
chance to explain why PAN is erroneous.

Q: Why are there 5 exceptions?

A: The ratio decidendi is that in the 5 exceptions,
the BIR can easily rectify the assessment.

Q: Who can issue PAN?

A: BIR and its duly authorized representative

Q: Who are the duly authorized representatives?

A: Regional Revenue Directors.

Q: What is the purpose of the 60-day period after

filing the administrative protest?
A: It is required in request for reinvestigation
where relevant supporting documents shall be
submitted.

Q: Does this apply to reconsideration?

A: NO.
Q: What is the 180-day period?
A: It is the period of inaction on the part of BIR. The
taxpayer will have the option to either;
1. File a petition for review under Rule 42
within 30 days after the lapse of 180-day
period; or
2. Await the final decision of the
Commissioner of Internal Revenue.

Q: What happens if there is a decision by the

Commissioner?
A: If there is a decision, the taxpayer may opt to;
1. Appeal to the CTA within 30 days from
receipt of the decision ;or
2. File a request for reinvestigation within 30
days from receipt.

Tax Refund

Tax refund v. Tax credit

Tax credit is not synonymous with tax refund.

Tax refund is defined as the money that a taxpayer

overpaid and is thus returned by the taxing
authority.

Tax credit, on the other hand, is an amount

subtracted directly from one’s total tax liability.

Two Fold purpose of tax refund

The two-fold purpose of the tax refund are as
follows;
1. To afford the collector an opportunity to
correct the action of subordinate officers;
2. To notify the government that such taxes
have been questioned, and the notice
should then be borne in mind in estimating
the revenue available for expenditure;

Q: What is the prescriptive period to file a tax

refund under the NIRC?
A: Under Section 229, the tax refund must be filed
within 2 years from the date of the payment.
Q: Is tax refund available under the Local
Government Code?
ime he is entitled thereto. But if it
were a revenue tax, you should count that from the
date of payment.

Q: Is tax refund available to Real property

Taxation?
A: YES. Section 253 allows refund.

Q: What is the Prescriptive period to claim syuch

refund?
A: 2 years from the date of payment or from the
time he is entitled thereto. Therefore, the doctrine
of supervening cause applies.
Q: Is refund available under the Tariff and
customs Code?
A: YES.

Q: What is the prescription period?

A: Prescription period under Section 193 is Within
12 months from the date of payment of duties and
taxes. This is a new prescriptive period.

Justice DIMAAMPAO: So, it’s 2-2-2 except customs

duties. So, its 12 months or 1 year.

Q: What is the difference between 12 months and

1year?
A: Art. 13 of New Civil Code provides that “It shall
be understood that years are of three hundred
sixty-five days each”. In Administrative Code, a year
is counted 12 months regardless of the number of
the days in each month.

The law says 12 months from the payment of duties

and taxes.

Tax Refund under the NIRC

So Let’s us focus on Sec. 229, we can review here a
lot of jurisprudence. I hope you recall. I think I cited
38 decisions of the court from page 225 to 242.
Some of them has already asked in the bar exam.
With that number of cases, this serve as a notice of
you that this is the most favorite bar question next
to protest.

Q: What are the requisites for a tax refund under

the NIRC?
A: The requisites are as follows;
1. There must be a written claim for refund
filed by the taxpayer with the
commissioner;
2. The claim for refund must be a categorical
demand for reimbursement;
3. The claim for refund must be filed within
two years from date of payment of the tax
or penalty regardless of any supervening
cause;

Q: What do you mean when you say “categorical

demand”?
A: Since you are requesting for a refund, therefore,
demand for reimbursement of taxes illegally,
erroneously, unlawfully or excessively assessed or
collected.

Q: Under Section 229 of the NIRC, who shall file

such refund?
A: It is the Tax Payer.

Bar Question.
I think it was asked 5 times already.

Q: may a withholding agent file a written claim

for refund?
A: YES. The withholding agent is not only the agent
of the government. It is also an agent of the
taxpayer. As an agent of the taxpayer, the
withholding agent has two fold duties to pay the tax
and to file the return. So with that obligation to pay
the tax, the withholding agent is technically
considered as taxpayer. Withholding agent has the
legal obligation to file the return of the taxpayer to
pay the tax of the taxpayer as such withholding
agent technically considered as taxpayer. That is
the jurisprudence there.

In 1988, there were two conflicting decisions of the

Court, The Proctor & Gamble Case and the Wander
Case. In the Wander Case, Yes, but in Proctor &
Gamble Case, No. But it has been reconciled by the
Supreme Court. The prevailing jurisprudence now
is that the withholding agent may file a claim for tax
refund.

That case that I cited to your book on page 225 on

the case of Commissioner vs. TMX Sales 25 SCRA 184
what asked not less than 5 times in the bar exams.
That is the case explains the meaning of "date of
payment".

Now from the date of payment, what do you mean

by payment? What is the jurisprudence there in
"Date of Payment"? When there is payment in
contemplation of law? Or recall what you learn in
civil law. That’s why civil law in the suppletory law.
When there is payment? Do you recall the three
characteristics of payment? Identity of Payment,
Integrity of Payment and Indivisibility of Payment.
Which one is clearly applicable to you? Because
that decision is deficient. It should have cited the
payment under the provision of the civil code.
From there, corporate taxpayer was the one
making filing such refund.

Q: Now, when do you apply that the reckoning

date of 2 year period?
A: From the filing of the Final Adjustment
Corporate return where you read sec. 76, NIRC.
There can be payment in contemplation of law
upon the filing of final adjustment corporate
return.

Justice DIMAAMPAO: Remember that corporate

taxpayers file their corporate income tax returns
on quarterly. For instance, excessive payment or
erroneous payment or illegal payment of the
payment of the first quarterly return. So, payment
was made there. Will you count the 2 year period
from the first quarterly return?

Justice DIMAAMPAO: There is no payment in the

contemplation of the law but a partial payment. In
partial payment, there is no payment at all under
the civil code.

There will only be payment when there is Integrity,

when there is a final payment.

Q: In case of a leap year, which will prevail; the

Civil Code or the Administrative Code?
A: The Administrative Code. Lex posterior derogat
prior. It means that recent law prevails over prior
law. The prior law must yield to recent law
otherwise. The recent law is the 1987
Administrative Code. That is you’re your reason
why.

Justice DIMAAMPAO: As the case of CIR v.

Primetown property group, Inc., 531 SCRA 436,
supposed that leap year intervene, there is a
problem now because there seems to be a conflict
between the Civil Code and the 1987
Administrative code. Under the Civil Code, a year
consists of 365 days and how about the declaration
of 1 year in the 1987 Administrative Code? In Sec.
31, Chapter 7, Book I of the Administrative Code

provides a year is composed of 12 calendar

months.

Section 112 v. Section 229

SECTION 229
As to the Tax involve;
Involves internal Revenue Tax such as Income tax other than Value added tax;

SECTION 112
Covers refund of Value- Added Tax;

As to the Prescriptive Period;

The running of the 2-year period commence to run from the date of payment. In the case of corporate
taxpayer, the running of the 2-year period commence to run from the date of filing of the final adjustment
corporate return;

The running of the 2-year period runs from the close of the taxable quarter which such sales were made;

Period for the BIR to render a decision;

There is no period for the BIR to render a decision;

As amended by the TRAIN Law, within ninety (90) days from the date of submission of compete
documents;

Q: Is the 90 day period in Section112 mandatory and jurisdictional?

A: NO. It is no longer mandatory and jurisdictional.

Q: What does jurisdictional mean?

A: It means that you cannot appeal to the CTA before the lapse of that.

Justice DIMAAMPAO: But now, the period It is no longer mandatory and jurisdictional. There is no
provision to appeal after the expiration of the period. There is no provision similar to from NIRC to
the TRAIN act. With that amended provision, the ruling of the court is deemed abandoned that it is
mandatory and jurisdictional.

Sec 112, of the NIRC prior to the Train Law, reads;

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 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 (120), appeal the decision or the unacted claim with
the Court of Tax Appeals (emphasis supplied)

xxx

On the other hand, Section 112 of the NIRC, as amended by the TRAIN Law read;
(C) Period within which Refund of Input Taxes shall be Made— In proper cases, the Commissionershall
grant a refund for creditable input taxes within ninety (90) days from the dateof submission of the
official receipts or invoices and other documents in support of the application filed in accordance
with Subsections (A) and (B) hereof:
Provided, That should the Commissioner find that the grant of refund is not proper, the
Commissioner must state in writing the legal and factual basis for the denial.

In case of full or partial denial of the claim for tax refund, the taxpayer affected may, within thirty
(30) days from the receipt of the decision denying the claim, appeal the decision with the Court of Tax
Appeals: Provided, however, That failure on the part of any official, agent, oremployee of the BIR to act
on the application within the ninety (90)-day period shall be punishable under Section 269 of this Code.

xxx

New Rules according to Section 112 as amended by the TRAIN law;

1. The prescriptive period within which the CIR shall grant a refund for creditable input tax is ninety
(90) days from the submission of the official receipts or invoices and other documents in support of
the application therefore;
2. In case the CIR finds the refund improper, he must state in writing the legal and factual basis for
the denial;
3. The taxpayer aggrieved may within thirty (30) days from receipt of the CIR decision denying the
claim, appeal the decision with the Court of Tax appeals;
4. Any official, agent, or employee of the BIR who fails to act on the application within
the ninety (90) day period shall be punishable under Section 269;

Q: What is the 30-day period under Section 112?

A: In case of full or partial denial of the claim for tax refund, the taxpayer affected may, within thirty
(30) days from the receipt of the decision denying the claim, appeal the decision with the Court of Tax
Appeals.

Q: What is the 90-day period under Section 112?

A: In proper cases, the Commissioner shall grant a refund for creditable input taxes within ninety (90)
days from the date of submission of the official receipts or invoices and other documents in
support of the application.
Q: If the decision has been rendered by the BIR within the 90-day period, what is the remedy of
the taxpayer?
A: The remedy is to file such petition for review on the BIR’s decision on the Value Added Tax to Court
of Tax Appeals.

Requisites
For claiming unutilized/excess VAT, except transitional input vat, are as follows;
1. The taxpayer-claimant is VAT-registered;
2. The taxpayer-claimant is engaged in zero-rated or effectively zero-rated sales;
3. There are creditable input taxes due or paid attributable to the zero-rated or effectively zero-
rated sales;
4. The input tax has not been applied against the output tax;
5. The application and claim for refund have been filed within the prescribed period;

Section 229

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, of any sum alleged to have been excessively or in any manner
wrongfully 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.

Q: What is the 30-days period in Section 229?

A: The period to appeal the BIR’s decision from the receipt of said decision, or from the lapse of the 180
day period for the submission of documents.

Under the Rules of Court of the Tax Appeals, there is under Rule 4, it’s been there that there are two
period that must be observed.

Q: What are these two periods?

A: The 30-days period and the 2 years period.

Q: What is the 2-year period under Section 229?

A: The suit must be filed within 2 years from the date of payment of the tax or penalty regardless ofany
supervening cause that may arise after payment.
Justice DIMAAMPAO: The appeal of the decision of the BIR for refund to the CTA must
observed these two periods. One, it must be filed within 30 days from the receipt of the decision and it
must also within 2 years from the date of payment.

Q: Is the 2 year period available in Section 112?

A: NO. Under Section 112, (Last Paragraph), There is only one period must be observed.

Justice DIMAAMPAO: That why in your bar, you check the subject tax is a value added tax, income
tax, donor’s tax or other revenue taxes.

The court construed that there is only one period in the appeal of the decision of the BIR involving
refund of Value added tax. The only remedy is 30 days from the receipt of such decision.

Q: may the 2-year period be suspended by an intervening cause?

A: NO. These 2-year period must be observed and cannot be suspended by any supervening cause.

Q: Is there an exception to the rule?

A: YES. In case of CIR v. Philamlife and CIR v. PNB, the 2 year period may be suspended based on
these two equitable and principle grounds;
1. Assurance on the part of the BIR that steps were being taken to credit taxpayer with the amount
sought to be refunded;
2. An agreement or understanding with the BIR that they await the result of a pending case involving
similar issue raised in the claim for refund;

Q: Why equitable consideration?

A: Because the assurance of the BIR is bound by the equitable principle of estoppel. Understand before
you memorize. If you understood what the Supreme Court Said, that the
time you memorize that.

CASES

Republic v. Lim Tan Tieng

(G.R. No. L-21731. March 31, 1966)

FACTS: Lim Tian Teng Sons & Co., Inc., a domestic corporation engaged in the exportation of copra in
the year 1951 and 1952. The copra was weighed before shipment in the port of departure, called
copra outturn, and upon arrival in the port of destination.

On March 30, 1953 Lim Tian Teng Sons & Co., Inc. filed its income tax return for 1952 based
on accrued income and expenses. Its return showed a loss of P56,109.98. It took up as part of the
beginning inventory for 1952 the copra outturn shipped in 1951 in the sum of P95,500.00 already
partially collected, as part of its outstanding stock as of December 31,
1951.

In the audit and examination of taxpayer's 1952 income tax return, the Collector of Internal
Revenue eliminated the P95,500.00 outturn from the beginning inventory for 1952 and considered it as
accrued income for 1951 which increased taxpayer's 1952 net income by P95,500.00 and raised
the taxpayer's net taxable income for 1952 to P50,370.87.
The Collector of Internal Revenue assessed a deficiency income tax of P10,074.00 and 50% surcharge
thereon amounting to P5,037.00.

On January 31, 1957 Lim Tian Teng Sons & Co., Inc. requested reinvestigation of its 1952 income tax
liability. The Collector of Internal Revenue did not reply; instead, he referred the case to the Solicitor
General for collection by judicial action.

Lim Tian Teng Sons & Co., Inc. reiterated its request for reinvestigation. Thereupon, the Deputy
Collector of Internal Revenue, informed the taxpayer that its request for reinvestigation would be
granted provided it executed within ten days a waiver of the statute of limitations.

As Lim Tian Teng Sons & Co., Inc. failed to file a waiver of the statute of limitations, the Collector of
Internal Revenue instituted eight months after an action in the Court of First Instance of Cebu for
the collection of deficiency income tax.

Plaintiff maintains that the lower court has no jurisdiction to entertain this case on the ground that the
Collector of Internal Revenue has not yet issued his final decision on its requests for reinvestigation. The
taxpayer's stand is that final decision of the Collector of Internal Revenue on the disputed assessment is
a condition precedent to the filing of an action in the Court of First
Instance for the collection of a tax.

ISSUE: whether or not the assessment contained in the letter of

the Collector of Internal Revenue is final and executory.

HELD: YES. Said court, to our mind, committed no error. For what is more indicative of the
Collector's decision against reinvestigation than his insistence to collect the tax?

On October 15, 1957 the Collector of Internal Revenue wrote defendant that its "request for a
reinvestigation will be granted only upon compliance with General Circular No. V-258 dated August
20, 1957, which requires as a prerequisite to the grant of a reinvestigation the execution of a waiver of the
statute of limitations". In a subsequent letter, he extended the period within which to submit the
aforesaid waiver to December 31, 1957.

In effect, the Collector of Internal Revenue placed in the hands of the defendant the holding of a
reinvestigation. However, no such reinvestigation was made inasmuch as taxpayer failed to submit a
written waiver of the statute of limitations on or before December 31, 1957. Such omission automatically
brought about the denial of the request for reinvestigation.

Surigao Electric co. v. CTA

G.R. No. L-25289. June 28, 1974

FACTS: The petitioner Surigao Electric Co., Inc., grantee of a legislative electric franchise, received
a warrant of distraint and levy to enforce the collection from "Mainit Electric" of a deficiency
franchise tax plus surcharge in the total amount of P718.59. In a letter to the Commissioner of
Internal Revenue, the petitioner contested this warrant, stating that it did not have a franchise in Mainit,
Surigao.

Thereafter the Commissioner advised the petitioner to take up the matter with the General Auditing
Office. In a letter to the Auditor General, the petitioner asked for reconsideration of the assessment,
admitting liability only for the 2% franchise tax in accordance with its legislative franchise and not at the
higher rate of 5% imposed by section 259 of the National Internal
Revenue Code, as amended, which latter rate the Auditor General used as basis in computing the
petitioner's deficiency franchise tax.

The controversy culminated in a revised assessment in the amount of P11,533.53, representing the
petitioner's deficiency franchise-tax and surcharges thereon for the period from April 1, 1956 to June
30, 1959. The petitioner then requested a recomputation of the revised assessment. The
Commissioner, however, denied the request for recomputation.

On August 1, 1963 the petitioner appealed to the Court of Tax Appeals. The tax court dismissed the
appeal on October 1, 1965 on the ground that the appeal was filed beyond the thirty-day period of appeal
provided by section 11 of Republic Act 1125.

ISSUE: whether or not the petitioner's appeal to the Court of Tax Appeals was time-barred.

HELD: YES. A close reading of the numerous letters exchanged between the petitioner and the
Commissioner clearly discloses that the letter of demand issued by the Commissioner constitutes the
definite determination of the petitioner's deficiency franchise tax liability or the decision on the
disputed assessment and, therefore, the decision appealable to the tax
court.

Moreover, the letter of demand dated April 29, 1963 unquestionably constitutes the final action
taken by the Commissioner on the petitioner's several requests for reconsideration and
recomputation. In this letter, the Commissioner not only in effect demanded that the petitioner
pay the amount of P11,533.53 but also gave warning that in the event it failed to pay, the said
Commissioner would be constrained to enforce the collection thereof by means of the remedies
provided by law. The tenor of the letter, specifically, the statement regarding the resort to legal
remedies, unmistakably indicates the final nature of the determination made by the Commissioner
of the petitioner's deficiency franchise tax liability.

To sustain the petitioner's contention that the Commissioner's letter of June 28, 1963 denying its
request for further amendment of the revised assessment constitutes the ruling appealable to the
tax court and that the thirty-day period should, therefore, be counted from July 16, 1963, the day
it received the June 28, 1963 letter, would, in effect, leave solely to the petitioner's will the determination
of the commencement of the statutory thirty-day period, and place the petitioner — and for that matter,
any taxpayer — in a position, to delay at will and on convenience the finality of a tax assessment.
This absurd interpretation espoused by the petitioner would result in grave detriment to the interests of
the Government, considering that taxes constitute its life-blood and their prompt and certain
availability is an imperative need.6

The revised assessment embodied in the Commissioner's letter dated April 29, 1963 being, in legal
contemplation, the final ruling reviewable by the tax court, the thirty-day appeal period should be
counted from May 8, 1963 (the day the petitioner received a copy of the said letter). From May 8,
1963 to June 7, 1963 (the day the petitioner, by registered mail, sent to the Commissioner its letter
of June 6, 1963 requesting for further recomputation of the amount demanded from it) saw the lapse of
thirty days. The June 6, 1963 request for further recomputation, partaking of a motion for
reconsideration, tolled the running of the thirty-day period from June 7, 1963 (the day the petitioner sent
its letter by registered mail) to July 16, 1963 (the day the petitioner received the letter of the
Commissioner dated June 28, 1963 turning down its request). The prescriptive period commenced to run
again on July 16, 1963. The petitioner filed its petition for review with the tax court on August 1, 1963 —
after the lapse of an additional sixteen days. The petition for review having been filed beyond the thirty-
day period, we rule
that the Court of Tax Appeals correctly dismissed the same.

CIR v. Ayala Securities Corp.

G.R. No. L-29485. March 31, 1976

FACTS: On November 29, 1955, respondent Ayala Securities Corporation filed its income tax
returns for its fiscal year which ended on September 30, 1955 which showed a surplus of
P2,758,442.37. The income tax due on the return of the respondent corporation was duly paid for
within the time prescribed by law.

In a letter dated February 21, 1961, petitioner advised the respondent corporation of the assessment
of P758.687.04 on its accumulated surplus reflected on its income tax return. The respondent
corporation protested against the assessment and sought reconsideration thereof for the reasons (1)
that the accumulation of the surplus was for a bona fide business purpose and not to avoid the
imposition of income tax on the individual shareholders, and (2) that the said assessment was issued
beyond the five-year prescriptive period.

On May 30, 1961, petitioner wrote respondent corporation's auditing and accounting firm with the
"advise that your request for reconsideration will be the subject matter of further
reinvestigation and a thorough analysis of the issues involved conditioned, however, upon the
execution of your client of the enclosed form for waiver of the defense of prescription". However,
respondent corporation did not execute the requested waiver of
the statute of limitations.

On February 21, 1963, respondent corporation received a letter dated February 18, 1963, from the Chief,
Manila Examiners, of the Office of the herein petitioner, requesting for the payment of its outstanding and
unpaid tax in the amount of P708,687.04. Believing the aforesaid letter to be a denial of its protest, the
herein respondent corporation filed with the Court of Tax
Appeals a Petition for Review of the assessment.

After trial the Court of Tax Appeals rendered its decision reversing the decision of the
respondent Commissioner of Internal Revenue assessing petitioner the amount of
P758,687.04 as surtax.

From this decision, the Commissioner of Internal Revenue interposed this appeal. Petitioner
maintains that respondent Court of Tax Appeals erred in holding that the letter dated
February 18, 1963, is a denial of the private respondent corporation's protest against the
assessment. Petitioner contends that the letter dated February 18, 1963, is merely an ordinary office letter
designed to remind delinquent taxpayers of their obligations to pay their taxes to the Government and,
certainly, not a decision on a disputed or protested assessment contemplated under Section 7(1) of R.A.
1125.

ISSUE: Whether the letter dated February 18, 1963 is a decision on a disputed protest.

HELD: YES. It is to be noted that the respondent Court of Tax Appeals is a court of special appellate
jurisdiction created under R. A. No. 1125. Thus under Section 7 (1), R. A. 1125, the Court of by appeal
"decisions of the Collector 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 letter of February 18, 1963 (Exh. G), in the view of the Court, is tantamount to a denial of the
reconsideration or protest of the respondent corporation on the assessment made by the
petitioner, considering that the said letter is in itself a reiteration of the demand by the Bureau of
Internal Revenue for the settlement of the assessment already made, and for the
immediate payment of the sum of P758, 687.04 in spite of the vehement protest of the respondent
corporation on April 21, 1961. This certainly is a clear indication of the firm stand of petitioner
against the reconsideration of the disputed assessment in view of the continued refusal of the
respondent corporation to execute the waiver of the period of limitation upon the assessment in
question.

This being so, the said letter amounts to a decision on a disputed or protested assessment and, therefore,
the court a quo did not err in taking cognizance of this case.

Yabes v. Flojo
G.R. No. L-46954 July 20, 1982

FACTS: Doroteo Yabes of Calamaniugan Cagayan was an exclusive dealer of products of the
International Harvester Macleod, Inc. He received on or about May 1, 1962, a letter from the
Commissioner of Internal Revenue dated March 27, 1962, demanding payment of the amount of
P15,976.81, as commercial broker's fixed and percentage taxes plus surcharges and the sum of P2,530
as compromise penalty alledgely due from Yabes for the years 1956-1960.

Doroteo Yabes, protested the assessment on the ground that his agreements with the International
Harvester Macleod, Inc. were of purchase and sale, and not of agency, hence he claimed he was
not able to pay such kind of taxes.

Yabes requested for the reinvestigation, or review of the case by the appellate division of the Bureau
of Internal Revenue. In reply, the Commissioner informed Doroteo Yabes that his
request for reinvestigation was denied on the ground that he has "not submitted any evidence to
offset the findings of this Office as to warrant a reinvestigation thereof".

Eight days later, the Commissioner advised Yabes that "the administrative appeal will be held in
abeyance pending the resolution of the issues in a similar case. To give time for the Commissioner
to study the case, Yabes filed a tax waiver on October 20, 1962, extending the period of
prescription to December 31, 1967. Doroteo Yabes died on March 13, 1963. The
petitioners are the children of the deceased taxpayer.

anew the Statute of Limitations". Conformably with the request of the Commissioner, the heirs of
Doroteo Yabes filed a revised waiver further extending the period of prescription to
December 31, 1970.

On January 20, 1971, petitioners as heirs of the deceased Doroteo Yabes received the summons
and a copy of the complaint filed by the Commissioner on December 4, 1970 with the Court of First
Instance of Cagayan which seeks to collect from the petitioners the sum of P 15,976.82, as
deficiency commercial broker's fixed and percentage taxes.
Taking the complaint as the final decision of the Commissioner, petitioners filed on February 12, 1971, a
petition for review of said disputed assessment with the Court of Tax Appeals; later on the same day,
February 12, 1971, petitioners filed their answer to the complaint of the Commissioner before the
Court of First Instance of Cagayan; and alleged therein, by way of
special defense, that the Court of Tax Appeals has exclusive jurisdiction of the action and that there
is another action of the same nature between the parties relating to the same
assessment pending before the Court of Tax Appeals.

ISSUE: whether or not the assessment made by the Commissioner of Internal Revenue against the
deceased taxpayer Doroteo Yabes, as contained in the letter dated March 27, 1962, has become final and
executory and incontestable.

HELD: YES.There is no reason for Us to disagree from or reverse the Court of Tax Appeals'
conclusion that under the circumstances of this case, what may be considered as final decision or
assessment of the Commissioner is the filing of the complaint for collection in the respondent Court
of First Instance of Cagayan, the summons of which was served on petitioners on January 20, 1971,
and that therefore the appeal with the Court of Tax Appeals in CTACase No. 2216 was filed on time.

The respondent Court of First Instance of Cagayan can only acquire jurisdiction over this case filed
against the heirs of the taxpayer if the assessment made by the Commissioner of Internal Revenue
had become final and incontestable. If the contrary is established, as this Court holds it to be,
considering the aforementioned conclusion of the Court of Tax Appeals on the finality and
incontestability of the assessment made by the Commissioner is correct, then the Court of Tax
Appeals has exclusive jurisdiction over this case.

Petitioners received the summons in Civil Case No. II-7 of the respondent Court of First Instance of
Cagayan on January 20, 1971, and petitioners filed their appeal with the Court of Tax Appeals in
CTA Case No. 2216, on February 12, 1971, well within the thirty-day prescriptive period under Section
11 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. For want of jurisdiction over the case,
the Court of First Instance of Cagayan should have dismissed the complaint.

Advertising Association v. CA

FACTS: Advertising Associates alleged that it sold in 1949 its advertising agency business to
Philippine Advertising Counsellors, that its business is limited to the making, construction and
installation of billboards and electric signs and making and printing of posters, signs, handbills, etc. It
contends that it is a media company, not an advertising company,

It paid sales taxes for selling billboards, electric signs, calendars, posters, etc., realty dealer's tax for
leasing billboards and electric signs and 3% contractor's tax for repairing electric signs.

The Commissioner required Advertising Associates to pay

P297,927.06 and P84,773.10 as contractor's tax for 1967-1971 and 1972, respectively, including 25%
surcharge (the latter amount includes interest) on its income from billboards and
neon signs.

The basis of the assessment is the fact that the taxpayer's articles of incorporation provide that its
primary purpose is to engage in general advertising business. Its income tax returns
indicate that its business was advertising.

Advertising Associates contested the assessments in its 'letters of June 25, 1973 (for the 1967-71
deficiency taxes) and March 7, 1974 (for the 1972 deficiency). The Commissioner reiterated the
assessments in his letters of July 12 and September 16,1974.

The taxpayer requested the cancellation of the assessments in its letters of September 13 and
November 21, 1974. Inexplicably, for about four years there was no movement in the case. Then, on
March 31, 1978, the Commissioner resorted to the summary remedy of issuing two warrants of
distraint, directing the collection enforcement division to levy on the taxpayer's personal properties
as would be sufficient to satisfy the deficiency taxes. The warrants were served upon the taxpayer on
April 18 and May 25, 1978.

More than a year later, Acting Commissioner Efren I. Plana wrote a letter justifying the
assessments by stating that the rental income of Advertising Associates from billboards and neon
signs constituted fees or compensation for its advertising services. He requested the taxpayer to pay the
deficiency taxes within ten days from receipt of the demand; otherwise, the Bureau would enforce
the warrants of distraint. He closed his demand letter with this paragraph:

“This you may appeal to the Court of Tax Appeals within 30 days from receipt of this letter constitutes
our final decision on the matter. If you are not agreeable.”

Advertising Associates received that letter on June 18, 1979. Nineteen days later or on July 7, it filed
its petition for review. The Tax Court did not resolve the case on the merits. It ruled that the warrants
of distraint were the Commissioner's

The Tax Court did not resolve the case on the merits. It ruled that the warrants of distraint were the
Commissioner's appealable decisions. Since Advertising Associates appealed from the decision of
May 23, 1979, the petition for review wasfiled out of time. It was dismissed. The taxpayer appealed to
this Court.

Issue: Whether or not the petition for Review was filed on time.

HELD: YES. No amount of quibbling or sophistry can blink the fact that said letter, as its tenor
shows, embodies the Commissioner's final decision within the meaning of section 7 of Republic Act No.
1125. The Commissioner said so. He even directed the taxpayer to appeal it to the Tax Court.

The directive is in consonance with this Court's dictum that the Commissioner should always indicate to
the taxpayer in clear and unequivocal language what constitutes his final determination of the
disputed assessment. That procedure is demanded by the pressing need for fair play, regularity
and orderliness in administrative action.

CIR v. Algue
G.R. No. L-28896 February 17, 1988

FACTS: The record shows that on January 14, 1965, the private respondent, a domestic corporation
engaged in engineering, construction and other allied activities, received a letter from the petitioner
assessing it in the total amount of P83,183.85 as delinquency income taxes for the years 1958 and 1959.
On January 18, 1965, Algue flied a letter of protest or request for reconsideration, which letter was
stamp received on the same day in the office of the petitioner.

On March 12, 1965, a warrant of distraint and levy was presented to the private respondent, through
its counsel, Atty. Alberto Guevara, Jr., who refused to receive it on the ground of the pending protest. A
search of the protest in the dockets of the case proved fruitless. Atty. Guevara produced his file copy and
gave a photostat to BIR agent Ramon Reyes, who deferred
service of the warrant.

On April 7, 1965, Atty. Guevara was finally informed that the BIR was not taking any action on the
protest and it was only then that he accepted the warrant of distraint and levy earlier sought to be served.
Sixteen days later, on April 23, 1965, Algue filed a petition for review of the decision of the
Commissioner of Internal Revenue with the Court of Tax Appeals.

ISSUE: Whether or not the petition was seasonably filed.

HELD: YES. The above chronology shows that the petition was filed seasonably. According to Rep. Act
No. 1125, the appeal may be made within thirty days after receipt of the decision or ruling challenged. It
is true that as a rule the warrant of distraint and levy is "proof of the finality of the assessment" and
renders hopeless a request for reconsideration," being "tantamount to
an outright denial thereof and makes the said request deemed rejected." But there is a special
circumstance in the case at bar that prevents application of this accepted doctrine.

The proven fact is that four days after the private respondent received the petitioner's notice of
assessment, it filed its letterof protest. This was apparently not taken into account before the warrant
of distraint and levy was issued; indeed, such protest could not be located in the office of the
petitioner. It was only after Atty. Guevara gave the BIR a copy of the protest that it was, if at all,
considered by the tax authorities. During the intervening period, the warrant was premature and
could therefore not be served.

As the Court of Tax Appeals correctly noted," the protest filed by private respondent was not pro forma
and was based on strong legal considerations. It thus had the effect of suspending on January 18,
1965, when it was filed, the reglementary period which started on the date the assessment was
received, viz., January 14, 1965. The period started running again only on
April 7, 1965, when the private respondent was definitely informed of the implied rejection of
the said protest and the warrant was finally served on it. Hence, when the appeal was filed on April
23, 1965, only 20 days of the reglementary period had been consumed.

CIR v. Union Shipping

G.R. No. L-66160. May 21, 1990

FACTS: In a letter dated December 27, 1974 herein petitioner Commissioner of Internal Revenue
assessed against Yee Fong Hong, Ltd. and/or herein private respondent Union Shipping
Corporation, the total sum of P583,155.22 as deficiency income taxes due for the years 1971 and 1972.
Said letter was received on January 4, 1975, and in a letter dated January 10, 1975 ,
received by petitioner on January 13, 1975, private respondent protested the assessment.

Petitioner, without ruling on the protest, issued a Warrant of Distraint and Levy, which was served
on private respondent's counsel, Clemente Celso, on November 25, 1976. In a letter
dated November 27, 1976, received by petitioner on November 29, 1976 private respondent reiterated
its request for reinvestigation of the assessment and for the reconsideration of
the summary collection thru the Warrant of Distraint and Levy.

Petitioner, again, without acting on the request for reinvestigation and reconsideration of the Warrant
of Distraint and Levy, filed a collection suit before the Court of First Instance
of Manila against private respondent.

On January 10, 1979, private respondent filed with respondent court its Petition for Review of the
petitioner's assessment of its deficiency income taxes , wherein it prays that judgment be rendered
holding that it is not liable for the payment of the income tax herein involved.

Petitioner argues therefore that the period to appeal to the Court of Tax Appeals commenced to
run from receipt of said warrant on November 25, 1976, so that on January 10, 1979 when
respondent corporation sought redress from the Tax Court, petitioner's decision has long become final
and executory

ISSUE: Whether or not the Court of Tax Appeals has jurisdiction over this case.

HELD: YES. The main thrust of this petition is that the issuance of a warrant of distraint and levy is
proof of the finality of an assessment because it is the most drastic action of all media of enforcing the
collection of tax, and is tantamount to an outright denial of a motion for reconsideration of an assessment.
Among others, petitioner contends that the warrant of distraint and levy was issued after respondent
corporation filed a request for reconsideration of subject assessment, thus constituting petitioner's final
decision in the disputed assessments

On this issue, this Court had already laid down the dictum that the Commissioner should always
indicate to the taxpayer in clear and unequivocal language what constitutes his final
determination of the disputed assessment.

There appears to be no dispute that petitioner did not rule on private respondent's motion for
reconsideration but contrary to the above ruling of this Court, left private respondent in the dark
as to which action of the Commissioner is the decision appealable to the Court of Tax Appeals.
Had he categorically stated that he denies private respondent's motion for
reconsideration and that his action constitutes his final determination on the disputed assessment,
private respondent without needless difficulty would have been able to determine
when his right to appeal accrues and the resulting confusion would have been avoided.

Much later, this Court reiterated the above-mentioned dictum in a ruling applicable on all fours to the
issue in the case at bar, that the reviewable decision of the Bureau of Internal Revenue is
that contained in the letter of its Commissioner, that such constitutes the final decision on the
matter which may be appealed to the Court of Tax Appeals and not the warrants of distraint. It was
likewise stressed that the procedure enunciated is demanded by the pressing need for fair play, regularity
and orderliness in administrative action.

Under the circumstances, the Commissioner of Internal Revenue, not having clearly signified his
final action on the disputed assessment, legally the period to appeal has not commenced to run.
Thus, it was only when private respondent received the summons on the civil suit for collection of
deficiency income on December 28, 1978 that the period to appeal commenced to run.
CIR v. Isabela Cultural Corporation.
G.R. No. 135210. July 11, 2001

FACTS: On February 23, 1990, respondent received from petitioner an assessment letter, dated
February 9, 1990, demanding payment of the amounts of P333,196.86 and P4,897.79 as deficiency
income tax and expanded withholding tax for the taxable period from January 1, 1986 to December 31,
1986. Respondent requested a reconsideration of the subject assessment with a waiver of Statute of
Limitation.

On February 9, 1995, respondent received from petitioner a Final Notice Before Seizure with a
demanded payment of the subject assessment within ten (10) days from receipt thereof.

Otherwise, failure on its part would constrain petitioner to collect the subject assessment through
summary remedies.

Petitioner maintains that this Final Notice was a mere reiteration of the delinquent taxpayer's
obligation to pay the taxes due. It was supposedly a mere demand that should not have been mistaken for
a decision on a protested assessment. Such decision, the commissioner contends, must unequivocably
indicate that it is the resolution of the taxpayer's request for reconsideration and must likewise state
the reason therefor.

Respondent, on the other hand, points out that the Final Notice Before Seizure should be considered
as a denial of its request for reconsideration of the disputed assessment. The Notice should be deemed as
petitioner's last act, since failure to comply with it would lead to the distraint and levy of
respondent's properties, as indicated therein.

ISSUE: Whether or not the Final Notice constitutes a final decision of the CIR.

HELD: YES. In the light of the above facts, the Final Notice Before Seizure cannot but be considered
as the commissioner's decision disposing of the request for reconsideration filed by respondent, who
received no other response to its request. Not only was the Notice the only response received; its
content and tenor supported the theory that it was the CIR's final act regarding the request for
reconsideration. The very title expressly indicated that it was a final notice prior to seizure of
property. The letter itself clearly stated that respondent was being given "this LAST
OPPORTUNITY" to pay; otherwise, its properties would be subjected to distraint and levy. How then
could it have been made to believe that its request for reconsideration was still
pending determination, despite the actual threat of seizure of its properties?

Oceanic Wireless v. CIR

G.R. No. 148380 December 9, 2005

FACTS: On March 17, 1988, petitioner received from the Bureau of Internal Revenue (BIR)
deficiency tax assessments for the taxable year 1984 in the total amount of ₱8,644,998.71.

Petitioner filed its protest against the tax assessments and requested a reconsideration or cancellation
of the same in a letter to the BIR Commissioner dated April 12, 1988.

BIR reiterated the tax assessments while denying petitioner’s request for reinvestigation in a letter 1 dated
January 24, 1991.
Upon petitioner’s failure to pay the subject tax assessments within the prescribed period, the Assistant
Commissioner for Collection, acting for the Commissioner of Internal Revenue,
issued the corresponding warrants of distraint and/or levy and garnishment. On November 8, 1991,
petitioner filed a Petition for Review to contest the issuance of the warrants to enforce the collection of
the tax assessments.

ISSUE: is whether or not a demand letter for tax deficiency assessments issued and signed by a
subordinate officer who was acting in behalf of the Commissioner of Internal Revenue, is deemed final
and executory.

A demand letter for payment of delinquent taxes may be considered a decision on a disputed or
protested assessment. The determination on whether or not a demand letter is final is conditioned upon
the language used or the tenor of the letter being sent to the taxpayer.

We laid down the rule that the Commissioner of Internal Revenue should always indicate to the
taxpayer in clear and unequivocal language what constitutes his final determination of the disputed
assessment.

The rule of conduct would also obviate all desire and opportunity on the part of the taxpayer to
continually delay the finality of the assessment – and, consequently, the collection of the amount
demanded as taxes – by repeated requests for recomputation and reconsideration. On the part of the
Commissioner, this would encourage his office to conduct a careful and thorough study of every
questioned assessment and render a correct and definite decision thereon in the first instance. This would
also deter the Commissioner from unfairly making the taxpayer grope in the dark and speculate as
to which action constitutes the decision
appealable to the tax court. Of greater import, this rule of conduct would meet a pressing need for
fair play, regularity, and orderliness in administrative action.

In this case, the letter of demand dated January 24, 1991, unquestionably constitutes the final
action taken by the Bureau of Internal Revenue on petitioner’s request for reconsideration when it
reiterated the tax deficiency assessments due from petitioner, and requested its payment. Failure to do
so would result in the "issuance of a warrant of distraint and levy to enforce its collection without
further notice."11 In addition, the letter contained a notation indicating that petitioner’s request for
reconsideration had been denied for lack of supporting documents.

Allied Banking Corp. v. CIR.

G.R. No. 175097 February 5, 2010

FACTS:
On April 30, 2004, the Bureau of Internal Revenue (BIR) issued a Preliminary Assessment Notice
(PAN) to petitioner Allied Banking Corporation for deficiency Documentary Stamp Tax (DST) in the
amount of ₱12,050,595.60 and Gross Receipts Tax (GRT) in the amount of ₱38,995,296.76 on
industry issue for the taxable year 2001.Petitioner filed a protest against it on May 27, 2004.

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

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

ISSUE: whether the Formal Letter of Demand can be construed as a final decision of the CIR.

HELD: YES. It appears from the foregoing demand letter that the CIR has already made a final decision
on the matter and that the remedy of petitioner is to appeal the final decision within 30 days.

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

Moreover, we cannot ignore the fact that in the Formal Letter of Demand with Assessment Notices,
respondent used the word "appeal" instead of "protest", "reinvestigation", or "reconsideration".
Although there was no direct reference for petitioner to bring the matter directly to the CTA, it cannot be
denied that the word "appeal" under prevailing tax laws refers to the filing of a Petition for Review
with the CTA. As aptly pointed out by petitioner, under Section 228 of the NIRC, the terms
"protest", "reinvestigation" and "reconsideration" refer to the administrative remedies a taxpayer
may take before the CIR, while the term "appeal" refers to the remedy available to the taxpayer
before the CTA.

Section 9 of RA 9282, amending Section 11 of RA 1125,27 likewise uses the term "appeal" when
referring to the action a taxpayer must take when adversely affected by a decision, ruling, or inaction
of the CIR. As we see it then, petitioner in appealing the Formal Letter of Demand with Assessment
Notices to the CTA merely took the cue from respondent. Besides, any doubt in the interpretation
or use of the word "appeal" in the Formal Letter of Demand with Assessment Notices should be
resolved in favor of petitioner, and not the respondent who caused the confusion.

COMPARATIVE REVIEW OF THE

TAXPAYER’S REMEDIES
In case of protest
What to file
When to File
To whom filed
To whom
appealed
When to
Appeal
National
Internal
Revenue Code
[89]

Request for
Reinvestigation
or
Reconsideration;
Within 30 days
from the
receipt if the
assessment;
Commissioner
of Internal
Revenue
Court of Tax
Appeals;
Within 30
days from the
receipt of the
decision of
the
Commissioner
or 180 days
from the date
of submission
of the
documents;
Local
Government
Code
[90]
Written protest;
Within 60 days
from the
notice of
Assessment;
Local Treasurer;
Regional Trial
Court;
Within sixty
(60) days
from the
receipt of the
notice of
assessment;
Real Property
Tax
Payment under
protest;
[91]

within thirty
(30) days from
payment of the
tax;
Provincial
treasurer, City
treasurer or
municipal
treasurer;
Board of
Assessment
Appeals;
[92]

Within sixty
(60) days
from the date
of receipt of
the written
notice of
assessment
Customs Code
Payment under
protest;
[93]

Within 15 days
from the date
of payment of
taxes;
Commissioner
of Customs;
Court of Tax
Appeals
Within 15
days from the
receipt of the
notice of
decision (Rule
42, Rules of
Court)
Tax Refund
When to File
To whom filed
National Internal
Revenue Code;
[94]

Within 2 years from the date of

payment;
Commissioner of Internal
Revenue
Local Government
Code;
[95]
2 years from the date of payment or
from the
time he is entitled thereto;
Local Treasurer;
Real Property Tax;
[96]

Within two (2) years from the date the

taxpayer is entitled to such reduction
or
adjustment;
Provincial treasurer, City
treasurer or municipal
treasurer;
Customs Code;
[97]

Within 12 months from the date of

payment
of duties and taxes;
Commissioner of Customs;
COMPARATIVE REVIEW OF THE
TAXPAYER’S REMEDIES
In case of protest
What to file
When to File
To whom filed
To whom
appealed
When to
Appeal
National
Internal
Revenue Code
[89]

Request for
Reinvestigation
or
Reconsideration;
Within 30 days
from the
receipt if the
assessment;
Commissioner
of Internal
Revenue
Court of Tax
Appeals;
Within 30
days from the
receipt of the
decision of
the
Commissioner
or 180 days
from the date
of submission
of the
documents;
Local
Government
Code
[90]

Written protest;
Within 60 days
from the
notice of
Assessment;
Local Treasurer;
Regional Trial
Court;
Within sixty
(60) days
from the
receipt of the
notice of
assessment;
Real Property
Tax
Payment under
protest;
[91]

within thirty
(30) days from
payment of the
tax;
Provincial
treasurer, City
treasurer or
municipal
treasurer;
Board of
Assessment
Appeals;
[92]

Within sixty
(60) days
from the date
of receipt of
the written
notice of
assessment
Customs Code
Payment under
protest;
[93]

Within 15 days
from the date
of payment of
taxes;
Commissioner
of Customs;
Court of Tax
Appeals
Within 15
days from the
receipt of the
notice of
decision (Rule
42, Rules of
Court)
Tax Refund
When to File
To whom filed
National Internal
Revenue Code;
[94]
Within 2 years from the date of
payment;
Commissioner of Internal
Revenue
Local Government
Code;
[95]

2 years from the date of payment or

from the
time he is entitled thereto;
Local Treasurer;
Real Property Tax;
[96]

Within two (2) years from the date the

taxpayer is entitled to such reduction
or
adjustment;
Provincial treasurer, City
treasurer or municipal
treasurer;
Customs Code;
[97]

Within 12 months from the date of

payment
of duties and taxes;
Commissioner of Customs;
COMPARATIVE REVIEW OF THE
TAXPAYER’S REMEDIES
In case of protest
What to file
When to File
To whom filed
To whom
appealed
When to
Appeal
National
Internal
Revenue Code
[89]

Request for
Reinvestigation
or
Reconsideration;
Within 30 days
from the
receipt if the
assessment;
Commissioner
of Internal
Revenue
Court of Tax
Appeals;
Within 30
days from the
receipt of the
decision of
the
Commissioner
or 180 days
from the date
of submission
of the
documents;
Local
Government
Code
[90]

Written protest;
Within 60 days
from the
notice of
Assessment;
Local Treasurer;
Regional Trial
Court;
Within sixty
(60) days
from the
receipt of the
notice of
assessment;
Real Property
Tax
Payment under
protest;
[91]

within thirty
(30) days from
payment of the
tax;
Provincial
treasurer, City
treasurer or
municipal
treasurer;
Board of
Assessment
Appeals;
[92]

Within sixty
(60) days
from the date
of receipt of
the written
notice of
assessment
Customs Code
Payment under
protest;
[93]

Within 15 days
from the date
of payment of
taxes;
Commissioner
of Customs;
Court of Tax
Appeals
Within 15
days from the
receipt of the
notice of
decision (Rule
42, Rules of
Court)
Tax Refund
When to File
To whom filed
National Internal
Revenue Code;
[94]

Within 2 years from the date of

payment;
Commissioner of Internal
Revenue
Local Government
Code;
[95]

2 years from the date of payment or

from the
time he is entitled thereto;
Local Treasurer;
Real Property Tax;
[96]

Within two (2) years from the date the

taxpayer is entitled to such reduction
or
adjustment;
Provincial treasurer, City
treasurer or municipal
treasurer;
Customs Code;
[97]

Within 12 months from the date of

payment
of duties and taxes;
Commissioner of Customs;
COMPARATIVE REVIEW OF THE
TAXPAYER’S REMEDIES
In case of protest
What to file
When to File
To whom filed
To whom
appealed
When to
Appeal
National
Internal
Revenue Code
[89]

Request for
Reinvestigation
or
Reconsideration;
Within 30 days
from the
receipt if the
assessment;
Commissioner
of Internal
Revenue
Court of Tax
Appeals;
Within 30
days from the
receipt of the
decision of
the
Commissioner
or 180 days
from the date
of submission
of the
documents;
Local
Government
Code
[90]

Written protest;
Within 60 days
from the
notice of
Assessment;
Local Treasurer;
Regional Trial
Court;
Within sixty
(60) days
from the
receipt of the
notice of
assessment;
Real Property
Tax
Payment under
protest;
[91]

within thirty
(30) days from
payment of the
tax;
Provincial
treasurer, City
treasurer or
municipal
treasurer;
Board of
Assessment
Appeals;
[92]
Within sixty
(60) days
from the date
of receipt of
the written
notice of
assessment
Customs Code
Payment under
protest;
[93]

Within 15 days
from the date
of payment of
taxes;
Commissioner
of Customs;
Court of Tax
Appeals
Within 15
days from the
receipt of the
notice of
decision (Rule
42, Rules of
Court)
Tax Refund
When to File
To whom filed
National Internal
Revenue Code;
[94]

Within 2 years from the date of

payment;
Commissioner of Internal
Revenue
Local Government
Code;
[95]

2 years from the date of payment or

from the
time he is entitled thereto;
Local Treasurer;
Real Property Tax;
[96]

Within two (2) years from the date the

taxpayer is entitled to such reduction
or
adjustment;
Provincial treasurer, City
treasurer or municipal
treasurer;
Customs Code;
[97]

Within 12 months from the date of

payment
of duties and taxes;
Commissioner of Customs;
THE NEW
COURT OF TAX APPEALS

Q: Why is it considered a specialized court?

A: It is tasked to resolves tax issues.

JURISDICTION OF THE CTA

Under R.A. 9282, the CTA has two jurisdictions;
1. Exclusive original jurisdiction; and
2. Appellate jurisdiction;

Exclusive Original Jurisdiction

The Court of Tax Appeals has exclusive original jurisdiction over the following cases;
1. Criminal cases where the principal amount of taxes and penalties involve one million
pesos or more arising from the violations of;
a. NIRC;
b. Tariff and Customs Code;
c. Other laws administered by the BIR and BOC;
2. Tax collection cases where the principal amount involve one million pesos or more;

Appellate Jurisdiction
The Court of Tax Appeals has appellate jurisdiction over the following cases;
1. Decisions of the Regional trial Court where the amount is less than one million pesos;
2. Decisions of the Regional trial Court in local tax cases;
3. Decision of the Central Board of Assessment Appeals over cases involving the assessment of
taxation of real property;

Q: What is the jurisdictional amount?

A: Principal amount of taxes & penalties involved is 1 million or more.

COMPOSITION

The CTA’s membership was increased from one division of three judges comprised of the Presiding
Judge and two associate judges to three divisions of nine Justices composed of a Presiding Justice and
eight associate justice.
Q: Since it is a specialized court, is it bound by the technical rules on Evidence?
A: NO. As a rule, No. It is not bound by basic evidentiary rules.

2ND MOTION FOR RECONSIDERATION

As a rule, filing of second motion for reconsideration is not allowed pursuant to Sec.7, Rule 15
Revised Rules of CTA;

SEC. 7. No second motion for reconsideration or for new trial. – No party shall be allowed to file a
second motion for reconsideration of a decision, final resolution or order; or for new trial.

But BPI v. CIR, the procedural rules were relaxed in the interest of substantial justice and allowed the
filing of the second motion for reconsideration as BPI was able to prove that it is entitled to refund.

Q: Can you file a Motion for Reconsideration on the decision of the BIR before you can file an
appeal with the CTA?
A: No. It is not allowed.

Q: Is motion for extension to file a petition for review with the CTA allowed?
A: Yes. The Supreme Court allowed a motion for extension to file a petition for review in the case of
City of Manila v. Coca-Cola Bottlers.

7 DECISIONS APPEALABLE TO THE CTA

Exclusive Appellate Jurisdiction to Review by Appeal;

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; (via petition for Review under Rule 42)
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; (via petition for Review under Rule 42)
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; (via petition for
Review under Rule 43)

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; (via petition for Review under Rule 42)
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; (via petition for Review under Rule 43)
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; (via petition for Review under Rule 42)
7. Decisions of the Secretary of Trade and Industry, in the case of non-agricultural 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. (via petition
for Review under Rule 42)

Q: What is question of law and question of fact?

A: A question of fact is a question that must be answered by reference to facts and evidence as
well as inferences arising from those facts. A question of law, which must be answered by
applying relevant legal principles.

Q: What is Automatic review procedure and what is the purpose?

A: The decisions of the Commissioner of customs which are adverse to the government shall be
elevated to the Secretary of Finance automatically for review. The purpose is to protect the
government against corrupt & conniving customs collector.

APPEAL TO THE CTA EN BANC

In cases falling under the exclusive appellate jurisdiction of the Court en banc, the petition for
review of a decision or resolution of the Court in Division must be preceded by the filing of a timely
motion for reconsideration or new trial with the Division.

Q: Does the CTA En Banc have certiorari jurisdiction over interlocutory orders issued by its
division?
A: NO. The CTA en banc is devoid of certiorari jurisdiction over its division’s interlocutory orders.
R.A. No. 9282 conferred no such jurisdiction. Settled is the rule that jurisdiction is conferred by law.

Q: What is the period to file an appeal to the CTA?

A: A party adversely affected by a decision, ruling or the inaction of the Commissioner of Internal
Revenue on disputed assessments or claims for refund of internal revenue taxes, or by a decision or
ruling of the Commissioner of Customs, the Secretary of Finance, the Secretary of Trade and
Industry, the Secretary of Agriculture, or a Regional Trial Court in the exercise of its original jurisdiction
may appeal to the Court by petition for review filed within thirty (30) days after receipt of a
copy of such decision or ruling, or expiration of the period fixed by law for the Commissioner of
Internal Revenue to act on the disputed assessments.

Q: What is the exception to the 30 day period?

A: A party adversely affected by a decision or resolution of a Division of the Court on a motion for
reconsideration or new trial may appeal to the Court by filing before it a petition for review
within fifteen (15)days from receipt of a copy of the questioned decision or resolution. Upon proper
motion and the payment of the full amount of the docket and other lawful fees and deposit for costs
before the expiration of the reglementary period herein fixed, the Court may grant an additional
period not exceeding fifteen days from the expiration of the original period within which to file the
petition for review.

Does the CTA have certiorari jurisdiction over the decisions of the RTC?
A: YES. 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 grave abuse of discretion amounting tolack or excess of jurisdiction on the part of any
branch or instrumentality of the government.

It can be briefly 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.

Q: May CTA en banc resolve petitions for annulment of judgment?

A: NO. The law did not confer jurisdiction

BPI-FAMILY vs. CA
G.R. No. 122480. April 12, 2000
330 SCRA 507

CASE DOCTRINE: Again, the BIR did not controvert the veracity of the said return. It did not even file
an opposition to petitioner's Motion and the 1990 Final Adjustment Return attached thereto.
In denying the Motion for Reconsideration, however, the CTA ignored the said Return. In the same
vein, the CA did not pass upon that significant document.

True, strict procedural rules generally frown upon the submission of the Return after the trial. The
law creating the Court of Tax Appeals, however, specifically provides that proceedings before it
"shall not be governed strictly by the technical rules of evidence." The paramount consideration
remains the ascertainment of truth. Verily, the quest for orderly
presentation of issues is not an absolute. It should not bar courts from considering undisputed facts to
arrive at a just determination of a controversy.

FACTS: This case involves a claim for tax refund in the amount of P112,491.00 representing
petitioner's tax withheld for the year 1989. It appears from the foregoing 1989 Income Tax
Return that petitioner had a total refundable amount of P297,492 inclusive of the P112,491.00
being claimed as tax refund in the present case. However, petitioner declared in the
same 1989 Income Tax Return that the said total refundable amount of P297,492.00 will be
applied as tax credit to the succeeding taxable year.

On October 11, 1990, petitioner filed a written claim for refund in the amount of P112,491.00 with the
respondent Commissioner of Internal Revenue alleging that it did not apply the 1989 refundable amount
of P297,492.00 (including P112,491.00) to its 1990 Annual Income Tax Return or other tax liabilities
due to the alleged business losses it incurred for the same year. Without waiting for respondent
Commissioner of Internal Revenue to act on the claim for refund, petitioner filed a petition for review
with respondent Court of Tax Appeals, seeking the refund of the amount of P112,491.00.

CTA Ruling: The respondent Court of Tax Appeals dismissed petitioner's petition on the ground
that petitioner failed to present as evidence its corporate Annual Income Tax Return for
1990 to establish the fact that petitioner had not yet credited the amount of P297,492.00 (inclusive of
the amount P112,491.00 which is the subject of the present controversy) to its 1990
income tax liability.
ISSUE: Whether or not petitioner is entitled to the refund of P112,491.90, representing excess
creditable withholding tax paid for the taxable year 1989.

HELD: YES. In the first place, petitioner presented evidence to prove its claim that it did not apply the
amount as a tax credit. During the trial before the CTA, Ms. Yolanda Esmundo, the manager of
petitioner's accounting department, testified to this fact.

The Bureau of Internal Revenue, for its part, failed to controvert petitioner's claim. In fact, it presented
no evidence at all. Because it ought to know the tax records of all taxpayers, the CIR could have easily
disproved petitioner's claim. To repeat, it did not do so. More important, a copy of the Final
Adjustment Return for 1990 was attached to petitioner's Motion for Reconsideration filed before the
CTA. A final adjustment return shows whether a corporation incurred a loss or gained a profit during the
taxable year. In this case, that Return clearly showed
that petitioner incurred P52,480,173 as net loss in 1990. Clearly, it could not have applied the
amount in dispute as a tax credit.

Again, the BIR did not controvert the veracity of the said return. It did not even file an opposition to
petitioner's Motion and the 1990 Final Adjustment Return attached thereto. In denying the Motion for
Reconsideration, however, the CTA ignored the said Return. In the same vein, the CA did not pass
upon that significant document.

True, strict procedural rules generally frown upon the submission of the Return after the trial. The
law creating the Court of Tax Appeals, however, specifically provides that proceedings before it
"shall not be governed strictly by the technical rules of evidence." The paramount consideration
remains the ascertainment of truth. Verily, the quest for orderly presentation of issues is not an absolute.
It should not bar courts from considering undisputed facts to arrive at a just determination of a
controversy.

In the present case, the Return attached to the Motion for Reconsideration clearly showed that
petitioner suffered a net loss in 1990. Contrary to the holding of the CA and the CTA,
petitioner could not have applied the amount as a tax credit. In failing to consider the said Return, as
well as the other documentary evidence presented during the trial, the appellate
court committed a reversible error.

CIR V. MANILA MINING CORPORATION

G.R. No. 153204 August 31, 2005
568 SCRA 571

CASE DOCTRINE: Under Section 8 of RA 1125, the CTA is described as a court of record. As
cases filed before it are litigated de novo, party litigants should prove every minute aspect of their
cases. No evidentiary value can be given the purchase invoices or receipts submitted to the BIR as the
rules on documentary evidence require that these documents must be formally offered before the CTA.
These sales invoices or receipts issued by the supplier are necessary to substantiate the actual
amount or quantity of goods sold and their selling price, and taken
collectively are the best means to prove the input VAT payments.

FACTS: Respondent, a mining corporation duly organized and existing under Philippines laws, is
registered with the Bureau of Internal Revenue (BIR) as a VAT-registered enterprise. In 1991,
respondent’s sales of gold to the Central Bank (now Bangko Sentral ng Pilipinas) amounted to
₱200,832,364.70. On April 22, 1991, July 23, 1991, October 21, 1991 and January 20, 1992, it
filed its VAT Returns for the 1st, 2nd, 3rd and 4th quarters of 1991, respectively, with the BIR.

Respondent, relying on a letter dated October 10, 1988 from then BIR Deputy Commissioner Victor
Deoferio that:

xxx under Sec. 2 of E.O. 581 as amended, gold sold to the Central Bank is considered an export sale
which under Section 100(a)(1) of the NIRC, as amended by E.O. 273, is subject to zero-rated if such
sale is made by a VAT-registered person[,] filed an application for tax refund/credit of the input VAT it
paid from July 1- December 31, 1999 in the amount of ₱8,173,789.60. Petitioner subsequently filed on
March 5, 1991 another application for tax refund/credit of input VAT it paid the amount of
₱5,683,035.04 from January 1 – June 30, 1991.

As the CIR failed to act upon respondent’s application within sixty (60) days from the dates of
filing, it filed on March 22, 1993 a Petition for Review against the CIR before the CTA seeking the
issuance of tax credit certificate or refund in the amount of ₱5,683,035.04 and ₱8,173,789.60
covering its input VAT payments for the 1st and 2nd quarters of 1991 and for the 3rd and 4th quarters
of 1991 respectively.

The CIR filed its Answer, it averring that sales of gold to the Central Bank may not be legally
considered export sales for purposes of Section 100(a) in relation to Section 100(a)(1)21 of the Tax
Code; and that assuming that a refund is proper, respondent must demonstrate that it complied
with the provisions of Section 204(3) in relation to Section 230 of the Tax
Code.

The CIR subsequently filed its Reply admitting that respondent filed its VAT returns and VAT
applications for tax credit for the 3rd and 4th quarters of 1991, but specifically denying the
correctness and veracity of the amounts indicated in the schedules and summary of importations,
VAT services and goods, the total input and output taxes, including the amount of
refund claimed.

CTA RULING: Nonetheless, the CTA denied respondent’s claim for refund of input VAT for failure
to prove that it paid the amounts claimed as such for the year 1991, no sales invoices, receipts or other
documents as required under Section 2(c)(1) of Revenue Regulations No. 3-88 having been presented.
The CTA explained that a mere listing of VAT invoices and receipts, even if certified to have been
previously examined by an independent certified public accountant, would not suffice to establish
the truthfulness and accuracy of the contents of such invoices and receipts unless offered and actually
verified by it (CTA) in accordance with CTA Circular No. 1-95, as amended by CTA Circular No. 10-
97, which requires that photocopies of invoices, receipts and other documents covering said accounts
of payments be pre-marked by the party concerned and submitted to the court.

CA RULING: By Decision39 of April 12, 2002, the Court of Appeals reversed the decision of
the CTA and granted respondent’s claim for refund or issuance of tax credit certificates in the
amounts of ₱5,683,035.04 and ₱8,173,789.60.

In granting the refund, the appellate court held that there was no need for respondent to present the
photocopies of the purchase invoices or receipts evidencing the VAT paid in view of Rule 26, Section
2 of the Revised Rules of Court and the Resolutions of the CTA holding that the matters
requested in respondent’s Request for Admissions in CTA No. 4968 were deemed admitted by the
CIR41 in light of its failure to file a verified reply thereto.
CIR Contends: The CIR arguing that respondent’s failure to submit documentary evidence to
confirm the veracity of its claims is fatal; and that the CTA, being a court of record, is not expected to
go out of its way and dig into the records of the BIR to supply the insufficient evidence presented by a
party, and in fact it may set a definite rule that only evidence formally presented will be considered
in deciding cases before it.44

MMC Contends: Respondent, in its Comment, avers that it complied with the provisions of
Section 2(c)(1) of Revenue Regulation No. 3-88 when it submitted the original receipts and
invoices to the BIR, which fact of submission had been deemed admitted by petitioner, as confirmed
by the CTA in its Resolutions in both cases granting respondent’s Requests for
Admissions therein.

ISSUE: whether respondent adduced sufficient evidence to prove its claim for refund of its input VAT
for taxable year 1991 in the amounts of ₱5,683,035.04 and ₱8,173,789.60.

HELD: NO. For a judicial claim for refund to prosper, however, respondent must not only prove that it is
a VAT registered entity and that it filed its claims within the prescriptive period. It must substantiate the
input VAT paid by purchase invoices or official receipts. This respondent failed to do. Sec.2. Section 16
of Revenue Regulations 5-87 is hereby amended to read as follows:

xxx

(c) Claims for tax credits/refunds. - Application for Tax Credit/Refund of Value-Added Tax Paid
(BIR Form No. 2552) shall be filed with the Revenue District Office of the city or municipality
where the principal place of business of the applicant is located or directly with the Commissioner,
Attention: VAT Division.

A photocopy of the purchase invoice or receipt evidencing the value added tax paid shall be
submitted together with the application. The original copy of the said invoice/receipt, however, shall be
presented for cancellation prior to the issuance of the Tax Credit Certificate or refund. (Emphasis and
underscoring supplied)

xxx

Under Section 8 of RA 1125, the CTA is described as a court of record. As cases filed before it are
litigated de novo, party litigants should prove every minute aspect of their cases. No evidentiary
value can be given the purchase invoices or receipts submitted to the BIR as the rules on
documentary evidence
require that these documents must be formally offered before
the CTA.

These sales invoices or receipts issued by the supplier are necessary to substantiate the actual
amount or quantity of goods sold and their selling price, and taken collectively are the
best means to prove the input VAT payments.

Respondent contends, however, that the certification of the independent CPA attesting to the
correctness of the contents of the summary of suppliers’ invoices or receipts which were examined,
evaluated and audited by said CPA in accordance with CTA Circular No. 1-95 as amended by CTA
Circular No. 10-97 should substantiate its claims.
There is nothing, however, in CTA Circular No. 1-95, as amended by CTA Circular No. 10-97, which
either expressly or impliedly suggests that summaries and schedules of input VAT payments, even if
certified by an independent CPA, suffice as evidence of input VAT payments.

The circular, in the interest of speedy administration of justice, was promulgated to avoid the time-
consuming procedure of presenting, identifying and marking of documents before the
Court. It does not relieve respondent of its imperative task of pre-marking photocopies of sales
receipts and invoices and submitting the same to the court after the independent CPA shall have
examined and compared them with the originals. Without presenting these pre-marked documents as
evidence – from which the summary and schedules were based, the court cannot verify the authenticity
and veracity of the independent auditor’s conclusions.

Mere listing of VAT invoices and receipts, even if certified to have been previously examined by
an independent certified public accountant, would not suffice to establish the truthfulness and
accuracy of the contents thereof unless offered and actually verified by this Court. CTA Circular No.
1-95, as amended by CTA Circular No. 10-97, requires that the photocopies of invoices, receipts
and other documents coveringsaid accounts or payments must be pre-marked by the party and submitted
to this Court. (Underscoring supplied)

While the CTA is not governed strictly by technical rules of evidence, as rules of procedure are not
ends in themselves but are primarily intended as tools in the administration of justice, the presentation of
the purchase receipts and/or invoices is not mere procedural technicality which may be disregarded
considering that it is the only means by which the CTA may ascertain and verify the truth of
respondent’s claims.

The records further show that respondent miserably failed to substantiate its claim for input VAT refund
for the first semester of 1991. Except for the summary and schedules of input VAT payments
prepared by respondent itself, no other evidence was adduced in support of its claim.

YAOKASIN V. THE COMMISSIONER OF CUSTOMS

G.R G.R. No. 84111 December 22, 1989
180 SCRA 591

CASE DOCTRINE: Taxes being the lifeblood of the Government, Section 12, which the
Commissioner of Customs in his Customs Memorandum Order No. 20-87, enjoined all collectors to
follow strictly, is intended to protect the interest of the Government in the collection of taxes and
customs duties in those seizure and protest cases which, without the automatic review provided
therein, neither the Commissioner of Customs nor the Secretary of Finance would probably ever know
about. Without the automatic review by the Commissioner of Customs and the Secretary of Finance,
a collector in any of our country's far-flung ports, would have absolute and unbridled discretion to
determine whether goods seized by him are locally produced, hence, not dutiable or of foreign origin,
and therefore subject to payment of customs duties and taxes. His decision, unless appealed by the
aggrieved party (the owner of the goods), would become final with 'the no one the wiser except himself
and the owner of the goods. The owner of the goods cannot be expected to appeal the collector's
decision when it is favorable to him. A decision that is favorable to the taxpayer would correspondingly
be unfavorable to the Government, but who will appeal the collector's decision in that case certainly not
the collector.
FACTS: On May 27, 1988, the Philippine Coast Guard seized 9000 bags/ sacks of refined sugar,
which were being unloaded from the M/V Tacloban, and turned them over to the custody of the Bureau of
Customs.

The petitioner presented a sales invoice from the Jordan Trading of Iloilo (Annex A, Petition) to
prove that the sugar was purchased locally. The District Collector of Customs, however, proceeded with
the seizure of the bags of sugar.

On June 7, 1988, the District Collector of Customs ordered the release of the sugar.

On June 10, 1988, the decision, together with the entire records of the case, were transmitted to, and
received by, the Commissioner of Customs.

On July 4, 1988, the Commissioner of Customs by "2nd Indorsement" returned to the District
Collector of Customs the folder of Tacloban S.I. No. 06-01 (R.P. vs. 9000 bags/sacks of refined
sugar, MR. JIMMY YAOKASIN, consignee/claimant), together with the proposed decision, for
hearing and/or resolution of the government is motion for reconsideration.

On the same date, July 4, 1988, petitioner applied for and secured a writ of replevin from the
Regional Trial Court of Leyte.

On July 12, 1988, respondent District Collector of Customs filed an Answer assailing the court's
jurisdiction. On the same day, with Application for a Writ of Preliminary Injunction and/or
Restraining Order to annul the July 4, 1988 — "Order Granting Replevin with Temporary Restraining
Order" (CA-G.R. SP NO. 15090; p. 396, Rollo).

On July 15, 1988, the Collector of Customs reconsidered his June 7, 1988 decision finding the the
9,000 bags/sacks of refined sugar in question are of foreign origin, smuggled into the country, and
declares them forfeited in favor of the government.

It is petitioner's contention that the June 7, 1988 decision of the District Collector of Customs became
final and executory, in view of the absence of an appeal therefrom by the "aggrieved
party" (himself) within the 15-day period provided for in Sec. 2313 of the Tariff and Customs Code.
Hence, the release of the 9,000 bags of sugar must be upheld.

On the other hand, the District Collector and the Commissioner of Customs argue that since the June 7,
1988 decision is adverse to the government, the case should go to the Commissioner of Customs on
automatic review, pursuant to Memorandum Order No. 20-87, dated May 18, 1987, of former Acting
Commissioner of Customs Alexander Padilla, which provides:

Decisions of the Collector of Customs in seizure and protest cases are subject to review by the
Commissioner upon appeal as provided under existing laws; provided, however, that where a
decision of the Collector of Customs in such seizure and protest cases is adverse to the government it
shall automatically be reviewed by the Commissioner of Customs. (PD. No. 1, Annex C.)

In view thereof, no releases in any seizure or like cases may be effected unless and until the decision of
the Collector has been confirmed in writing by the Commissioner of Customs.

ISSUE: Whether or not the case should go to the Commissioner of Customs on Automatic Review
HELD: YES. Taxes being the lifeblood of the Government, Section 12, which the Commissioner of
Customs in his Customs Memorandum Order No. 20-87, enjoined all collectors to follow strictly, is
intended to protect the interest of the Government in the collection of taxes and customs duties in those
seizure and protest cases which, without the automatic review provided therein, neither the
Commissioner of Customs nor the Secretary of Finance would probably ever know about. Without
the automatic review by the Commissioner of Customs and the Secretary of Finance, a collector in
any of our country's far-flung ports, would have absolute and unbridled discretion to determine
whether goods seized by him are locally produced, hence, not dutiable or of foreign origin, and therefore
subject to payment of customs duties and taxes. His decision, unless appealed by the aggrieved
party (the owner of the goods), would become final with 'the no one the wiser except himself and the
owner of the goods. The owner of the goods cannot be expected to appeal the collector's decision when it
is favorable to him. A decision that is favorable to the taxpayer would correspondingly be
unfavorable to the Government, but who will appeal the collector's decision in that case certainly not
thecollector.

Evidently, it was to cure this anomalous situation (which may have already defrauded our government
of huge amounts of uncollected taxes), that the provision for automatic review by the Commissioner of
Customs and the Secretary of Finance of unappealed seizure and protest cases was conceived to protect
the government against corrupt and conniving customs collectors.

WHEREFORE, the petition for review is denied for lack of merit.

Metro Manila Shopping Mecca v. Toledo

G.R. No. 190818. June 5, 2013
697 SCRA 425

CASE DOCTRINE: Although the RRCTA does not explicitly sanction extensions to file a petition
for review with the CTA, Section 1, Rule 7 thereof reads that in the absence of any express provision in
the RRCTA, Rules 42, 43, 44 and 46 of the Rules of Court may be applied in a suppletory manner. In
this light, Section 1 of Rule 42 states that the period for filing a petition for review may be extended upon
motion of the concerned party. Thus, in City of Manila v. Coca-Cola Bottlers Philippines, Inc., the
Court held that the original period for filing the petition for review may be extended for a period of
fifteen (15) days, which for the most compelling reasons, may be extended for another period not
exceeding fifteen (15) days. In other words, the reglementary period provided under Section 3, Rule
8 of the RRCTA is extendible and as such, CTA Division’s grant of respondents’ motion for
extension falls squarely within the law.

FACTS: Sometime in October 2001, respondent Liberty M. Toledo, as Treasurer of respondent

City of Manila (City), assessed petitioners for their fourth quarter local business taxes pursuant to
Section 21 the "Revenue Code of the City of Manila" (Manila Revenue Code).5 Consequently, on
October 20, 2001, petitioners paid the total assessed amount of ₱5,104,281.26 under protest.

In a letter dated October 19, 2001, petitioners informed the Office of the City Treasurer of
Manila of the nature of the foregoing payment, assailing as well the unconstitutionality of
Section 21 of the Manila Revenue Code. Petitioners’ protest was however denied on October 25, 2001.

On October 20, 2003, petitioners filed a case with the Regional Trial Court of Manila (RTC) against
respondents, reiterating their claim that Section 21 of the Manila Revenue Code is null
and void. Accordingly, they sought the refund of the amount of local business taxes they previously
paid to the City, plus interest.

Consequently, respondents filed their Answer. Respondents averred that petitioners failed to file any
written claim for tax refund or credit with the Office of the City Treasurer of Manila.

RTC Ruling: In its Decision dated December 7, 2006, the RTC held that respondents’ assessment of
local business tax under
Section 21 of the Manila Revenue Code is null and void thereby, warranting the issuance of a tax
refund, or tax credit in the alternative, in the amount of ₱5,104,281.26 in favor of petitioners.

Respondents filed a Motion for Reconsideration dated January 16, 2007 which the RTC, however, denied.
Thereafter, they filed two (2) Motions for Extension to File Petition for Review with the CTA, effectively
requesting for a period of thirty (30) days from May 27, 2007, or until June 26, 2007, to file their petition
for review.

On June 26, 2007, respondents filed their Petition for Review dated June 22, 2007 via registered mail.
In its Resolution dated July 6, 2007, the CTA Division granted respondents’ Motions for Extension,
noted their Manifestation, and admitted their Petition for Review.

Ruling of CTA Division: In its Decision dated October 31, 2008, the CTA Division reversed and set aside
the RTC’s ruling and in effect, denied petitioners’ request for tax refund/credit.

On November 19, 2008, petitioners moved for reconsideration, averring that respondents failed to file
their Petition for Review within the reglementary period thus, making the RTC decision already final
and executory. On March 16, 2009, the CTA Division issued a Resolution denying petitioners’
motion. Aggrieved, petitioners elevated the matter to the CTA En Banc.

Ruling of CTA En Banc: In its Decision dated September 8, 2009, the CTA En Banc upheld the
CTA Division’s ruling and found that: (1) respondents were able to file their Petition for Review within
the reglementary period; (2) the assessment of local business taxes against petitioners had become
conclusive and unappealable; and (3) petitioners’ claim for refund should be denied for their failure to
comply with the requisites provided for by law.

Petitioner Contends: Petitioners argue that the CTA Division erred in extending the reglementary
period within which respondents may file their Petition for Review, considering that Section 3, Rule 8
of the Revised Rules of the CTA (RRCTA) is silent on such matter. Further, even if it is assumed
that an extension is allowed, the CTA Division should not have entertained respondents’ Petition for
Review for their failure to comply with the filing requisites set forth in Section 4, Rule 5 and Section
2, Rule 6 of the RRCTA.

ISSUE: Whether or not the CTA Division may extend the reglementary period to file a Petition for
Review.

HELD: YES. Although the RRCTA does not explicitly sanction extensions to file a petition for
review with the CTA, Section 1, Rule 7 thereof reads that in the absence of any express provision
in the RRCTA, Rules 42, 43, 44 and 46 of the Rules of Court may be applied in a suppletory manner.

In this light, Section 1 of Rule 42 states that the period for filing a petition for review may be
extended upon motion of the concerned party. Thus, in City of Manila v. Coca-Cola Bottlers
Philippines, Inc., the Court held that the original period for filing the petition for review may be extended
for a period of fifteen (15) days, which for the most compelling reasons, may be
extended for another period not exceeding fifteen (15) days.

In other words, the reglementary period provided under Section 3, Rule 8 of the RRCTA is extendible and
as such, CTA Division’s grant of respondents’ motion for extension falls squarely within the law.

Neither did respondents’ failure to comply with Section 4, Rule 5 and Section 2, Rule 6 of the RRCTA
militate against giving due course to their Petition for Review. Respondents’ submission of only one
copy of the said petition and their failure to attach therewith a certified true copy of the RTC’s
decision constitute mere formal defects which may be relaxed in the interest of substantial justice.
It is well-settled that dismissal of appeals based purely on technical grounds is frowned upon as
every party litigant must be afforded the amplest opportunity for the proper and just determination of
his cause, free from the unacceptable plea of technicalities.41 In this regard, the CTA Division
did not overstep its boundaries when it admitted respondents’ Petition for Review despite the
aforementioned defects "in the broader interest of justice."