Taxation Law

COMMISSIONER OF INTERNAL REVENUE v. MANILA MINING

CORPORATION
468 SCRA 571 (2005), THIRD DIVISION, (Carpio Morales, J.)

For a judicial claim for refund to prosper, the party must not only prove that it is a VAT registered entity, it
must substantiate the input VAT paid by purchase invoices or official receipts.

Respondent Manila Mining Corporation (MMC), a VAT-registered enterprise, filed its VAT
Returns for the year of 1991 with the BIR. MMC, relying on Sec. 2 of Executive Order (E.O.) 581 as
amended which provides that 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 such
year.

The Commissioner of Internal Revenue (CIR) failed to act upon MMC’s application within sixty
(60) days from the dates of filing. MMC was then filed a Petition for Review against the CIR before the
Court of Tax Appeals (CTA) seeking the issuance of tax credit certificate or refund. The CIR specifically
denied the veracity of the amounts stated in MMC’s VAT returns and application for credit/refund as
the same continued to be under investigation. However, such was not verified prompting MMC to file a
“SUPPLEMENT (To Annotation of Admission)” alleging that as the reply was not under oath, “an
implied admission of its requests arose” as a consequence thereof. The CTA granted MMC’s Request for
Admissions and denied the CIR’s Motion to Admit Reply.

The CTA denied MMC’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
having been presented. Upon appeal of MMC to the Court of Appeals (CA), it reversed the decision of
the CTA and granted MMC’s claim for refund or issuance of tax credit certificates on the ground that
there was no need for MMC to present the photocopies of the purchase invoices or receipts evidencing
the VAT paid and the best evidence rule is misplaced since this rule does not apply to matters which have
been judicially admitted.

ISSUE:

Whether or not MMC adduced sufficient evidence to prove its claim for refund of its input VAT
for taxable year 1991

HELD:

As export sales, the sale of gold to the Central Bank is zero-rated, hence, no tax is chargeable to it
as purchaser. Zero rating is primarily intended to be enjoyed by the seller – MMC, which charges no
output VAT but can claim a refund of or a tax credit certificate for the input VAT previously charged to
it by suppliers.

For a judicial claim for refund to prosper, however, MMC 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. It is required that a photocopy of the purchase

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invoice or receipt evidencing the value added tax paid shall be submitted together with the
application. This MMC failed to do.
AB LEASING AND FINANCE CORPORATION v. COMMISSION ON
INTERNAL REVENUE
405 SCRA 380 (2003), THIRD DIVISION, (Carpio Morales, J.)

A corporation that is entitled to a refund of the excess estimated quarterly income taxes paid may be credited
against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding year.

In the year 1993, Petitioner AB Leasing and Finance Corporation (AB LFC) had a net income of
P1,775,832.00, for which it was liable to pay an income tax amounting to P621,541.00. On the other
hand, AB LFC had previously made payments in the total amount of P1,594,756.00, inclusive of unused
prior year's tax credits. AB LFC thus opted to apply its excess payment of P973,215.00 as tax credits for
the following year, 1994. In 1994, AB LFC had a net income of P3,624,280.89 for which it paid income
tax in the amount of P295,283.32. At the end of 1994, however, AB LFC incurred a net loss of
P3,450,916.00, thereby exempting it from payment of income tax for that year. It was thus unable to
apply the P973,215.00 tax credits incurred in 1993. AB LFC then indicated in its amended annual
income tax return for calendar year ending December 31, 1994 that it made excess tax payments totaling
P1,268,498.00 (P973,215.00 in 1993 plus P295,283.32 in 1994).

AB LFC filed a claim for refund to the respondent Commission on Internal Revenue (CIR) for
the taxable year 1993 in the amount of P973,215.00, offering as evidence its income tax return for 1993
and 1994. The CIR failed to act on the said claim, prompting AB LFC to file an action in the Court of
Tax Appeals. AB LFC likewise filed a claim for refund for the taxable year 1994 in the amount of
P295,283.32. The CTA granted its initial petition, but denied the latter on the ground that AB LFC failed
to present its 1995 income tax return as well as the breakdown of the excess taxes paid in 1994. The
Court of Appeals (CA) affirmed the decision of the CIR.

ISSUE:

Whether or not the claim for tax refund should be denied

HELD:

The CIR’s arguments, premised on the assumption that the 1993 excess tax payment of
P973,215.00 can be carried over as tax credit for the 1995 taxable year, does not lie. There was no need
for AB LFC to present in evidence the 1995 income tax return or to give a breakdown of the excess
taxes paid for the taxable year ending 1994 to support a claim for refund of overpayment of income
taxes for 1993.

Section 69 of the old NIRC provides that in case the corporation is entitled to a refund of the
excess estimated quarterly income taxes paid, the refundable amount shown on its final adjustment
return may be credited against the estimated quarterly income tax liabilities for the taxable quarters of the
succeeding year. The carrying forward of any excess or overpaid income tax for a given taxable year
then is limited to the succeeding taxable year only. This, the CTA and the CA have repeatedly held.

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Since the case at bar involves a claim for refund of overpaid taxes for 1993, AB
LFC only have applied the 1993 excess tax credits to its 1994 income tax liabilities. To
further carry-over to 1995 the 1993 excess tax credits is violative of above-quoted Section 69 of the old
NIRC.

That AB LFC had signified its intention to apply the entire amount of P1,268,498 representing
excess tax payments of P973,215.00 for 1993 and P295,283.00 for 1994 to the year 1995 is immaterial.
For, it bears repeating, only the amount of P295,283.00 representing the 1994 income tax overpayments
may only be applied to the succeeding taxable year, 1995.

But even assuming that there was a need for the CIR to present in evidence the 1995 income tax
return or the breakdown of its excess taxes paid for the taxable year ending 1994, the CTA could have
taken judicial notice of the records of CTA Case No. 5513, AB LFC’s claim for refund of P295,283.00
overpaid income taxes for taxable year 1994, which was already pending before it. It is significant to note
that AB LFC’s claim for refund in said case was granted by the CTA, as mentioned earlier, by Decision
of February 10, 1999 and that out of the amount of P1,268,498.00 indicated in petitioner’s income tax
return, the refund being claimed by AB LFC in the same case was only P295,283.32.

Clearly, the amount of P973,215.00 representing the 1993 tax credits subject of the petition at
bar was excluded from the claim for refund in CTA Case No. 5513. Moreover, the 1994 and 1995
income tax returns were offered as evidence in said CTA Case No. 5513. Thus, the CTA had sufficient
means to ascertain whether or not the 1993 tax credits were utilized in 1994.

COMMISSIONER OF INTERNAL REVENUE v. PHILIPPINE GLOBAL

COMMUNICATIONS, INC.
499 SCRA 53 (2006), THIRD DIVISION (Carpio Morales, J.)

The wordings of the Temporary Restraining Order suspended the implementation of the E-VAT law in its
entirety, but not the collection of 10% VAT on service under the National Internal Revenue Code.

By reason of a legislative franchise, Respondent Philippine Global Communications, Inc. (PGCI)

constructs, maintains and operates communications system subject to 3% franchise tax under the Tax
Code. However, the said provision of the Tax Code on franchise tax was amended by Section 12 of the
Expanded Value Added Tax Law (E-VAT Law) which omitted the 3% franchise tax imposed upon a
telecommunications company.

A Temporary Restraining Order (TRO) was subsequently issued by the Court in the
consolidated cases of Tolentino et al. v. Secretary of Finance, et al., “ordering all the respondents to cease and
desist from enforcing and/or implementing the E-VAT Law.” By reason of the suspension of the E-
VAT Law, PGCI filed a claim for tax refund before Respondent Commission of Internal Revenue (CIR)
stating therein that upon the effectivity of the E-VAT Law, it was no longer required to pay the 3%
franchise tax. Due to the inaction of CIR, PGCI filed a case against it before the Court of Tax Appeals
(CTA). CTA ruled that BIR should refund the 3% to PGCI.

ISSUE:

Whether or not PGCI was exempted from paying franchise taxes during the effectivity of the
TRO suspending the enforcement of the E-VAT Law

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HELD:

Under Section 12 of the E-VAT Law, the 3% franchise tax on “telephone and/or telegraph
systems and radio broadcasting stations” to which category PGCI belongs was omitted. Under Section 3
of the E-VAT Law, however, PGCI’s sale of services is subject to VAT, thus, under the E-VAT Law,
PGCI ceased to be liable to pay the 3% franchise tax. It instead is made liable to pay 10% VAT on sale
of services.

The effectivity of the E-VAT Law was, however, suspended, by this Court when it issued a TRO
pending the resolution of the Tolentino et al. cases challenging the constitutionality of the law. The
wording of the order leaves no doubt that what was restrained by the TRO was the implementation of
the E-VAT law in its entirety.

That the provisions of the Tax Code, prior to their amendment by the E-VAT Law, were to
apply in the interim, that is, while the TRO in Tolentino et al. was effective, is clearly reflected in Revenue
Memorandum Circular No. 27-94 issued by CIR which directed all internal revenue officers to comply
with the following directives, to wit: “3. All VAT and non-VAT persons shall be governed by the
provisions of the National Internal Revenue Code prior to its amendment by Republic Act No. 7716 x x
x x 5. All other amendments of the NIRC made by RA 7716 shall be considered ineffective until the
Supreme Court has declared otherwise.”

With the issuance of the TRO, the enforcement and/or implementation of the entire E-VAT
law was stopped. The abolition of the 3% franchise tax on telecommunications companies, and its
replacement by the 10% VAT, was effective and implemented only on January 1, 1996. Thus, PGCI’s
claim for refund of the franchise tax must fail. To grant a refund of the franchise tax it paid prior to the
effectivity and implementation of the VAT would create a vacuum and thereby deprive the government
from collecting either the VAT or the franchise tax

COMMISSIONER OF INTERAL REVENUE v. MANILA ELECTRIC COMPANY

535 SCRA 399 (2007), SECOND DIVISION (Carpio Morales, J.)

The factual findings of the Court of Tax Appeals, when supported by substantial evidence, will not be disturbed
on appeal, unless it is shown that it committed gross error in the appreciation of facts, which did not happen in this case.

Manila Electric Company (Meralco) filed its tentative income tax reflecting a refundable amount
of P101,897,741. Only P77,931,812 was applied as tax credit. An investigation was conducted showing
that Meralco was liable for (1) deficiency income tax in the amount of P2,340,902.52; and (2) deficiency
franchise tax in the amount of P2,838,335.84."
Later, Meralco filed an amended final corporate Income Tax Return reflecting a refundable
amount of P107,649,729 and thus filed a letter-claim for refund or credit representing overpaid income
taxes for the years 1987 and 1988. The Commission of Internal Revenue not having acted on its request,
Meralco filed a judicial claim for refund or credit with the Court of Tax Appeals.
It is gathered that Meralco paid the deficiency franchise tax in the amount of P2,838,335.84. It
protested the payment of the alleged deficiency income tax and claimed as an alternative remedy the
deduction thereof from its claim for refund or credit. After trial, the Court of Tax Appeals found in
favour of Meralco being convinced that they proved its entitlement for the refund. The Court of Appeals
affirmed the decision.

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ISSUE:

Whether or not the appellate court failed to consider Meralco's failure to substantiate by positive
evidence its entitlement to a tax refund or credit

HELD:

In case the corporation is entitled to a refund of the excess estimated quarterly income taxes
paid, the refundable amount shown on its final adjustment return may be credited against the estimated
quarterly income tax liabilities for the taxable quarters of the succeeding taxable year.
The issue of whether MERALCO adduced sufficient evidence to prove its entitlement to a
refund is a question of fact. It bears noting that the tax court and the appellate court found
MERALCO's claim for tax refund or credit meritorious on the basis of the testimonial and documentary
evidence adduced by the parties.
It bears noting too that the Commissioner did not dispute the validity and authenticity of
MERALCO's quarterly income tax returns as well as the final adjustment returns for the years 1987 and
1988 and proofs of payment of its tax liabilities. Neither did the Commissioner refute MERALCO's
assertion that Commissioner failed to cross-examine its accountant who testified on the returns, and to
object to its offer of evidence which included its quarterly and final adjustment returns and proofs of
payment of its tax liabilities.
It is doctrinal that the factual findings of the Court of Tax Appeals, when supported by
substantial evidence, will not be disturbed on appeal, unless it is shown that it committed gross error in
the appreciation of facts. Hence, as a matter of practice and principle, this Court will not set aside the
conclusion reached by the said court, especially if affirmed by the Court of Appeals as in the present
case. For by the nature of its functions, the tax court dedicates itself to the study and consideration of tax
problems and necessarily develops expertise thereon, unless there has been an abuse or improvident
exercise of authority on its part. None such is appreciated by this Court, however.

INTERNATIONAL EXCHANGE BANK v. COMMISSIONER

OF INTERNAL REVENUE
520 SCRA 675 (2007), SECOND DIVISION, (CARPIO MORALES, J.)

To claim that time deposits evidenced by passbooks should not be subject to documentary stamp tax is a clear
evasion of the rule on equality and uniformity in taxation that requires the imposition of documentary stamp tax on
documents evidencing transactions of the same kind, in this particular case, on all certificates of deposits drawing interest.

The International Exchange Bank (IEB) personally received an assessment for deficiency
Documentary Stamp Tax (DST) on its purchases of securities from the Bangko Sentral ng Pilpinas (BSP)
or Government Securities Purchased-Reverse Repurchase Agreement (RRPA) and its Savings Account-
Fixed Savings Deposit (FSD) for the taxable years 1996 and 1997. The IEB then filed a protest letter
alleging that its FSD is not subject to DST since it cannot be considered a certificate of deposit subject
to DST under Section 180 of the Tax Code for, unlike a certificate of deposit which is a negotiable
instrument, the passbook it issued for its FSD was not payable to the order of the depositor or to some
other person as the deposit could only be withdrawn by the depositor or by a duly authorized
representative. Furthermore, the bank argued that deposits evidenced by a passbook which have features
akin to a time deposit such as petitioner’s FSD, is not subject to DST under the Tax Code and the
NIRC.

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ISSUE:

Whether or not the IEB’s Fixed Savings Deposit evidenced by a passbook is subject to
Documentary Stamp Tax for the years assessed

HELD:

A passbook representing an interest earning deposit account issued by a bank qualifies as a

certificate of deposit drawing interest. A document to be deemed a certificate of deposit requires no
specific form as long as there is some written memorandum that the bank accepted a deposit of a sum of
money from a depositor. What is important and controlling is the nature or meaning conveyed by the
passbook and not the particular label or nomenclature attached to it, inasmuch as substance, not form, is
paramount. The negotiable character of any and all documents under Section 180 is immaterial for
purposes of imposing DST. Orders for the payment of sum of money payable at sight or on demand are
of course explicitly exempted from the payment of DST. Thus, a regular savings account with a
passbook which is withdrawable at any time is not subject to DST, unlike a time deposit which is payable
on a fixed maturity date.

As for the IEB’s argument that its FSD is similar to a regular savings deposit because it is
evidenced by a passbook, the same does not lie.

The FSD, like a time deposit, provides for a higher interest rate when the deposit is not
withdrawn within the required fixed period; otherwise, it earns interest pertaining to a regular savings
deposit. Having a fixed term and the reduction of interest rates in case of pre-termination are essential
features of a time deposit.

It bears emphasis that DST is an excise tax upon the privilege, opportunity or facility offered at
exchanges for the transaction of the business. While tax avoidance schemes and arrangements are not
prohibited, tax laws cannot be circumvented in order to evade payment of just taxes. To claim that time
deposits evidenced by passbooks should not be subject to DST is a clear evasion of the rule on equality
and uniformity in taxation that requires the imposition of DST on documents evidencing transactions of
the same kind, in this particular case, on all certificates of deposits drawing interest.

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