I - ESTATE TAX indebtedness against the estate of a deceased, person, as in an inheritance (estate)

tax, is for the claimant to present a claim before the probate court so that said court
1. MARCOS v. CA may order the administrator to pay the amount therefor." This remedy is allegedly,
(G.R. No. 120880, June 5, 1997) exclusive, and cannot be effected through any other means. Petitioner goes further,
submitting that the probate court is not precluded from denying a request by the
government for the immediate payment of taxes, and should order the payment of the
FACTS: On September 29, 1989, former President Ferdinand Marcos died in Honolulu,
same only within the period fixed by the probate court for the payment of all the
Hawaii, USA. A Special Tax Audit Team was created to conduct investigations and
debts of the decedent.
examinations of the tax liabilities and obligations of the late president, as well as that
of his family, associates and “cronies.”
Respondent’s Contentions:
The state's authority to collect internal revenue taxes is paramount. Thus, the pendency
The investigation disclosed that the Marcoses failed to file a written notice of the
of probate proceedings over the estate of the deceased does not preclude the
death of the decedent, an estate tax returns, as well as several income tax returns
assessment and collection, through summary remedies, of estate taxes over the same.
covering the years 1982 to 1986, — all in violation of the National Internal Revenue
According to the respondent, claims for payment of estate and income taxes due and
Code (NIRC). Subsequently, criminal charges were filed against Mrs. Imelda R.
assessed after the death of the decedent need not be presented in the form of a
Marcos.
claim against the estate. These can and should be paid immediately. The probate
court is not the government agency to decide whether an estate is liable for payment
The deficiency tax assessments were not protested administratively, by Mrs. Marcos
of estate of income taxes. Well-settled is the rule that the probate court is a court
and the other heirs of the late president, within 30 days from service of said
with special and limited jurisdiction.
assessments. Thereafter, the BIR Commissioner issued notices of levy on real property
against certain parcels of land owned by the Marcoses — to satisfy the alleged
ISSUE: Whether or not the Bureau of Internal Revenue has the authority to collect by the
estate tax and deficiency income taxes of Spouses Marcos.
summary remedy of levying upon, and sale of real properties of the decedent, estate
tax deficiencies, without the cognition and authority of the court sitting in probate over
Notices of sale at public auction were posted, and the public auction for the sale of
the supposed will of the deceased.
the eleven (11) parcels of land took place. There being no bidder, the lots were
declared forfeited in favor of the government.
HELD: YES.
Petitioner Ferdinand "Bongbong" Marcos II filed the instant petition for certiorari and
The nature of the process of estate tax collection has been described as follows:
prohibition under Rule 65 of the Rules of Court, with prayer for temporary restraining
order and/or writ of preliminary injunction.
Strictly speaking, the assessment of an inheritance tax does not directly
involve the administration of a decedent's estate, although it may be
After the parties had pleaded their case, the Court of Appeals rendered its Decision
viewed as an incident to the complete settlement of an estate, and,
ruling that the deficiency assessments for estate and income tax made upon the
under some statutes, it is made the duty of the probate court to make the
petitioner and the estate of the deceased President Marcos have already become final
amount of the inheritance tax a part of the final decree of distribution of
and unappealable, and may thus be enforced by the summary remedy of levying upon
the estate. It is not against the property of decedent, nor is it a claim
the properties of the late President, as was done by the respondent Commissioner of
against the estate as such, but it is against the interest or property right
Internal Revenue.
which the heir, legatee, devisee, etc., has in the property formerly held by
decedent. Further, under some statutes, it has been held that it is not a
Petitioner’s Contentions:
suit or controversy between the parties, nor is it an adversary proceeding
Petitioner posits that notices of levy, notices of sale, and subsequent sale of
between the state and the person who owes the tax on the inheritance.
properties of the late President Marcos effected by the BIR are null and void for
However, under other statutes it has been held that the hearing and
disregarding the established procedure for the enforcement of taxes due upon the
determination of the cash value of the assets and the determination of the
estate of the deceased. The case of Domingo vs. Garlitos is specifically cited to
bolster the argument that "the ordinary procedure by which to settle claims of
 tax are adversary proceedings. The proceeding has been held to be
necessarily a proceeding in rem.
In the Philippine experience, the enforcement and collection of estate tax, is executive
in character, as the legislature has seen it fit to ascribe this task to the Bureau of
Internal Revenue. Thus, it was in Vera vs. Fernandez that the court recognized the
liberal treatment of claims for taxes charged against the estate of the decedent. Such
taxes, we said, were exempted from the application of the statute of non-claims, and
this is justified by the necessity of government funding, immortalized in the maxim
that taxes are the lifeblood of the government.
Such liberal treatment of internal revenue taxes in the probate proceedings
extends so far, even to allowing the enforcement of tax obligations against the
heirs of the decedent, even after distribution of the estate's properties. Thus, the
approval of the court, sitting in probate, or as a settlement tribunal over the
deceased is not a mandatory requirement in the collection of estate taxes. It
cannot therefore be argued that the Tax Bureau erred in proceeding with the
levying and sale of the properties allegedly owned by the late President, on the
ground that it was required to seek first the probate court's sanction. There is
nothing in the Tax Code, and in the pertinent remedial laws that implies the necessity
of the probate or estate settlement court's approval of the state's claim for estate
taxes, before the same can be enforced and collected. On the contrary, under Section
87 of the NIRC, it is the probate or settlement court which is bidden not to authorize
the executor or judicial administrator of the decedent's estate to deliver any distributive
share to any party interested in the estate, unless it is shown a Certification by the
Commissioner of Internal Revenue that the estate taxes have been paid. This provision
disproves the petitioner's contention that it is the probate court which approves the
assessment and collection of the estate tax. If there is any issue as to the validity of
the BIR's decision to assess the estate taxes, this should have been pursued through
the proper administrative and judicial avenues provided for by law.
Apart from failing to file the required estate tax return within the time required for the
filing of the same, petitioner, and the other heirs never questioned the assessments
served upon them, allowing the same to lapse into finality, and prompting the BIR to
collect the said taxes by levying upon the properties left by President Marcos.
The Notices of Levy upon real property were issued within the prescriptive
period and in accordance with the provisions of the present Tax Code. The
deficiency tax assessment, having already become final, executory, and
demandable, the same can now be collected through the summary remedy of
distraint or levy pursuant to Section 205 of the NIRC.
The omission to file an estate tax return, and the subsequent failure to contest or
appeal the assessment made by the BIR is fatal to the petitioner's cause, as under
Article 223 of the NIRC, in case of failure to file a return, the tax may be assessed at
any time within ten years after the omission, and any tax so assessed may be
collected by levy upon real property within three years following the assessment of the
tax. Since the estate tax assessment had become final and unappealable by the
petitioner's default as regards protesting the validity of the said assessment, there is
now no reason why the BIR cannot continue with the collection of the said tax. Any
objection against the assessment should have been pursued following the avenue
paved in Section 229 of the NIRC on protests on assessments of internal revenue
taxes.
2. RUIZ v. CA
(G.R. No. 118671, January 29, 1996)
FACTS: On June 27, 1987, Hilario M. Ruiz executed a holographic will naming as his
heirs his only son, Edmond Ruiz, his adopted daughter, private respondent Maria Pilar
Ruiz Montes, and his three granddaughters, private respondents Maria Cathryn,
Candice Albertine and Maria Angeline, all children of Edmond Ruiz. The testator
bequeathed to his heirs substantial cash, personal and real properties and named
Edmond Ruiz executor of his estate. On April 12, 1988, Hilario Ruiz died. Immediately
thereafter, the cash component of his estate was distributed among Edmond Ruiz and
private respondents in accordance with the decedents will.
One of the properties of the estate - the house and lot at No. 2 Oliva Street, Valle
Verde IV, Pasig which the testator bequeathed to Maria Cathryn, Candice Albertine
and Maria Angeline - was leased out by Edmond Ruiz to third persons. The probate
court ordered Edmond to deposit with the Branch Clerk of Court the rental deposit
and payments totalling P540,000.00 representing the one-year lease of the Valle Verde
property. In compliance, Edmond turned over the amount of P348,583.56, representing
the balance of the rent after deducting P191,416.14 for repair and maintenance
expenses on the estate.
In March 1993, Edmond moved for the release of P50,000.00 to pay the real estate
taxes on the real properties of the estate. The probate court approved the release of
P7,722.006.
On July 28, 1993, petitioner Testate Estate of Hilario Ruiz as executor, filed an Ex-
Parte Motion for Release of Funds. It prayed for the release of the rent payments
deposited with the Branch Clerk of Court. Respondent Montes opposed the motion and
concurrently filed a Motion for Release of Funds to Certain Heirs and Motion for
Issuance of Certificate of Allowance of Probate Will. Montes prayed for the release of
the said rent payments to Maria Cathryn, Candice Albertine and Maria Angeline and
for the distribution of the testators properties, specifically the Valle Verde property and
the Blue Ridge apartments, in accordance with the provisions of the holographic will.
On August 26, 1993, the probate court denied petitioners motion for release of funds
but granted respondent Montes motion in view of petitioners lack of opposition. It thus
ordered the release of the rent payments to the decedents three granddaughters. It
further ordered the delivery of the titles to and possession of the properties
bequeathed to the three granddaughters and respondent Montes upon the filing of a
bond of P50,000.00. Petitioner moved for reconsideration alleging that he actually filed
his opposition to respondent Montes motion for release of rent payments which
opposition the court failed to consider. Petitioner likewise reiterated his previous motion
for release of funds.
On November 23, 1993, petitioner, through counsel, manifested that he was
withdrawing his motion for release of funds in view of the fact that the lease contract
over Valle Verde property had been renewed for another year. Despite petitioners
manifestation, the probate court, on December 22, 1993, ordered the release of the
funds to Edmond but only such amount as may be necessary to cover the expenses
of administration and allowances for support of the testators three granddaughters
subject to collation and deductible from their share in the inheritance. The court,
however, held in abeyance the release of the titles to respondent Montes and the
three granddaughters until the lapse of six months from the date of first publication of
the notice to creditors.
Petitioner assailed this order before the Court of Appeals. Finding no grave abuse of
discretion on the part of respondent judge, the appellate court dismissed the petition and
sustained the probate court’s order.
ISSUES:
Whether or not the probate court, after admitting the will to probate but before payment
of the estates debts and obligations, has the authority:
(1) to grant an allowance from the funds of the estate for the support of the testators
grandchildren;
(2) to order the release of the titles to certain heirs; and,
(3) to grant possession of all properties of the estate to the executor of the will.
HELD:
1. No. Section 3 of Rule 83 of the Revised Rules of Court provides:
Sec. 3. Allowance to widow and family. - The widow and minor or incapacitated
children of a deceased person, during the settlement of the estate, shall
receive therefrom under the direction of the court, such allowance as are
provided by law.
It is settled that allowances for support under Section 3 of Rule 83 should not be
limited to the minor or incapacitated children of the deceased. Article 188 of the Civil
Code of the Philippines, the substantive law in force at the time of the testators
death, provides that during the liquidation of the conjugal partnership, the deceased’s
legitimate spouse and children, regardless of their age, civil status or gainful
employment, are entitled to provisional support from the funds of the estate. The law
is rooted on the fact that the right and duty to support, especially the right to
education, subsist even beyond the age of majority. Be that as it may, grandchildren
are not entitled to provisional support from the funds of the decedents estate.
The law clearly limits the allowance to widow and children and does not extend
it to the deceased’s grandchildren, regardless of their minority or incapacity. It
was error, therefore, for the appellate court to sustain the probate courts order
granting an allowance to the grandchildren of the testator pending settlement of his
estate.
2. No. An order releasing titles to properties of the estate amounts to an advance
distribution of the estate which is allowed only under the following conditions:
Sec. 2. Advance distribution in special proceedings. - Notwithstanding a
pending controversy or appeal in proceedings to settle the estate of a
decedent, the court may, in its discretion and upon such terms as it may deem
proper and just, permit that such part of the estate as may not be affected by
the controversy or appeal be distributed among the heirs or legatees, upon
compliance with the conditions set forth in Rule 90 of these Rules.
And Rule 90 provides that:
xxx xxx xxx
No distribution shall be allowed until the payment of the obligations
above-mentioned has been made or provided for, unless the
distributees, or any of them, give a bond, in a sum to be fixed by the
court, conditioned for the payment of said obligations within such time
as the court directs.
In settlement of estate proceedings, the distribution of the estate properties can only
be made: (1) after all the debts, funeral charges, expenses of administration, allowance
to the widow, and estate tax have been paid; or (2) before payment of said
obligations only if the distributees or any of them gives a bond in a sum fixed by the
court conditioned upon the payment of said obligations within such time as the court
directs, or when provision is made to meet those obligations.
In the case at bar, the probate court ordered the release of the titles to the Valle
Verde property and the Blue Ridge apartments to the private respondents after the
lapse of six months from the date of first publication of the notice to creditors. The
questioned order speaks of notice to creditors, not payment of debts and obligations.
Hilario Ruiz allegedly left no debts when he died but the taxes on his estate had not
hitherto been paid, much less ascertained. The estate tax is one of those
obligations that must be paid before distribution of the estate. If not yet paid, the
rule requires that the distributees post a bond or make such provisions as to meet
the said tax obligation in proportion to their respective shares in the inheritance.
Notably, at the time the order was issued the properties of the estate had not
yet been inventoried and appraised.
It was also too early in the day for the probate court to order the release of
the titles six months after admitting the will to probate. The probate of a will is
conclusive as to its due execution and extrinsic validity and settles only the question of
whether the testator, being of sound mind, freely executed it in accordance with the
formalities prescribed by law. Questions as to the intrinsic validity and efficacy of the
provisions of the will, the legality of any devise or legacy may be raised even after
the will has been authenticated.
The intrinsic validity of Hilarios holographic will was controverted by petitioner before
the probate court in his Reply to Montes Opposition to his motion for release of funds
and his motion for reconsideration of the August 26, 1993 order of the said court.
Therein, petitioner assailed the distributive shares of the devisees and legatees
inasmuch as his fathers will included the estate of his mother and allegedly impaired
his legitime as an intestate heir of his mother. The Rules provide that if there is a
controversy as to who are the lawful heirs of the decedent and their distributive
shares in his estate, the probate court shall proceed to hear and decide the same as
in ordinary cases.
3. No. The right of an executor or administrator to the possession and management of
the real and personal properties of the deceased is not absolute and can only be
exercised so long as it is necessary for the payment of the debts and expenses of
administration, Section 3 of Rule 84 of the Revised Rules of Court explicitly provides:
Sec. 3. Executor or administrator to retain whole estate to pay debts, and to
administer estate not willed. An executor or administrator shall have the right
to the possession and management of the real as well as the personal estate
of the deceased so long as it is necessary for the payment of the debts and
expenses for administration.
It was correct for the probate court to require him to submit an accounting of the
necessary expenses for administration before releasing any further money in his favor.
It was relevantly noted by the probate court that petitioner had deposited with it only
a portion of the one-year rental income from the Valle Verde property. Petitioner did
not deposit its succeeding rents after renewal of the lease. Neither did he render an
accounting of such funds. Petitioner must be reminded that his right of ownership
over the properties of his father is merely inchoate as long as the estate has
not been fully settled and partitioned. As executor, he is a mere trustee of his
fathers estate. The funds of the estate in his hands are trust funds and he is held
to the duties and responsibilities of a trustee of the highest order. He cannot
unilaterally assign to himself and possess all his parents properties and the fruits
thereof without first submitting an inventory and appraisal of all real and personal
properties of the deceased, rendering a true account of his administration, the
expenses of administration, the amount of the obligations and estate tax, all of which
are subject to a determination by the court as to their veracity, propriety and justness.
3. Commissioner of Internal Revenue v. CA
(G.R. No. 123206, March 22, 2000)
FACTS: Pedro Pajonar, a member of the Philippine Scout, Bataan Contingent, during
the second World War, was a part of the infamous Death March by reason of which
he suffered shock and became insane. His sister Josefina Pajonar became the
guardian over his person, while his property was placed under the guardianship of the
Philippine National Bank (PNB). He died on January 10, 1988. He was survived by his
two brothers Isidro P. Pajonar and Gregorio Pajonar, his sister Josefina Pajonar,
nephews Concordio Jandog and Mario Jandog, and niece Conchita Jandog.
The PNB filed an accounting of the decedent's property under guardianship valued at
P3,037,672.09 in Special Proceedings No. 1254. However, the PNB did not file an
estate tax return, instead it advised Pedro Pajonar's heirs to execute an extrajudicial
settlement and to pay the taxes on his estate. On April 5, 1988, pursuant to the
assessment by the Bureau of Internal Revenue (BIR), the estate of Pedro Pajonar
paid taxes in the amount of P2,557. The trial court also appointed Josefina Pajonar as
the regular administratrix of Pedro Pajonar's estate.
Pursuant to a second assessment by the BIR for deficiency estate tax, the estate of
Pedro Pajonar paid estate tax in the amount of P1,527,790.98. Josefina Pajonar, in
her capacity as administratrix and heir of Pedro Pajonar's estate, filed a protest with
the BIR praying that the estate tax payment in the amount of P1,527,790.98, or at
least some portion of it, be returned to the heirs.
However, on August 15, 1989, without waiting for her protest to be resolved by the
BIR, Josefina Pajonar filed a petition for review with the Court of Tax Appeals (CTA),
praying for the refund of P1,527,790.98, or in the alternative, P840,202.06, as
erroneously paid estate tax. The CTA ordered the Commissioner of Internal Revenue
to refund Josefina Pajonar the amount of P252,585.59, representing erroneously paid
estate tax for the year 1988. Among the deductions from the gross estate allowed by
the CTA were the amounts of P60,753 representing the notarial fee for the
Extrajudicial Settlement and the amount of P50,000 as the attorney's fees in Special
Proceedings No. 1254 for guardianship.
The Commissioner of Internal Revenue filed a motion for reconsideration of the CTA's
decision asserting, among others, that the notarial fee for the Extrajudicial Settlement
and the attorney's fees in the guardianship proceedings are not deductible expenses.
The CTA issued the assailed Resolution ordering the Commissioner of Internal Revenue
to refund Josefina Pajonar, as administratrix of the estate of Pedro Pajonar, the
amount of P76,502.42 representing erroneously paid estate tax for the year 1988.
Also, the CTA upheld the validity of the deduction of the notarial fee for the
Extrajudicial Settlement and the attorney's fees in the guardianship proceedings.
The Commissioner of Internal Revenue filed with the Court of Appeals a petition for
review of the CTA's May 6, 1993 Decision and its June 7, 1994 Resolution,
questioning the validity of the abovementioned deductions. However, the Court of
Appeals denied the Commissioner's petition.
ISSUE: Whether or not the notarial fee paid for the extrajudicial settlement in the
amount of P60,753 and the attorney's fees in the guardianship proceedings in the
amount of P50,000 may be allowed as deductions from the gross estate of decedent
in order to arrive at the value of the net estate.
HELD:
Yes. Judicial expenses are expenses of administration. Administration expenses, as an
allowable deduction from the gross estate of the decedent for purposes of arriving at
the value of the net estate, have been construed by the federal and state courts of
the United States to include all expenses "essential to the collection of the assets,
payment of debts or the distribution of the property to the persons entitled to
it." In other words, the expenses must be essential to the proper settlement of the
estate. Expenditures incurred for the individual benefit of the heirs, devisees or
legatees are not deductible. This distinction has been carried over to our jurisdiction.
Thus, in Lorenzo v. Posadas the Court construed the phrase "judicial expenses of the
testamentary or intestate proceedings" as not including the compensation paid to a
trustee of the decedent's estate when it appeared that such trustee was appointed for
the purpose of managing the decedent's real estate for the benefit of the testamentary
heir. In another case, the Court disallowed the premiums paid on the bond filed by
the administrator as an expense of administration since the giving of a bond is in the
nature of a qualification for the office, and not necessary in the settlement of the
estate. Neither may attorney's fees incident to litigation incurred by the heirs in
asserting their respective rights be claimed as a deduction from the gross estate.
Coming to the case at bar, the notarial fee paid for the extrajudicial settlement is
clearly a deductible expense since such settlement effected a distribution of Pedro
Pajonar's estate to his lawful heirs. Similarly, the attorney's fees paid to PNB for acting
as the guardian of Pedro Pajonar's property during his lifetime should also be
considered as a deductible administration expense. PNB provided a detailed accounting
of decedent's property and gave advice as to the proper settlement of the latter's
estate, acts which contributed towards the collection of decedent's assets and the
subsequent settlement of the estate.
4. DIZON v. CTA
(G.R. No. 140944, April 30, 2008)
FACTS: On November 7, 1987, Jose P. Fernandez (Jose) died. Thereafter, a petition
for the probate of his will was filed with Branch 51 of the Regional Trial Court (RTC)
of Manila (probate court). The probate court then appointed retired Supreme Court
Justice Arsenio P. Dizon (Justice Dizon) and petitioner, Atty. Rafael Arsenio P. Dizon
(petitioner) as Special and Assistant Special Administrator, respectively, of the Estate of
Jose (Estate).
Justice Dizon informed respondent Commissioner of the Bureau of Internal Revenue
(BIR) of the special proceedings for the Estate. Petitioner alleged that several requests
for extension of the period to file the required estate tax return were granted by the
BIR since the assets of the estate, as well as the claims against it, had yet to be
collated, determined and identified. Thus, Justice Dizon authorized Atty. Jesus M.
Gonzales (Atty. Gonzales) to sign and file on behalf of the Estate the required estate
tax return and to represent the same in securing a Certificate of Tax Clearance.
Eventually, Atty. Gonzales wrote a letter the BIR Regional Director for San Pablo City
and filed the estate tax return addressed to with the same BIR Regional Office, showing
therein a NIL estate tax liability.
On April 27, 1990, BIR Regional Director for San Pablo City, Osmundo G. Umali
issued Certification Nos. 2052 and 2053 stating that the taxes due on the transfer of
real and personal properties of Jose had been fully paid and said properties may be
transferred to his heirs. Sometime in August 1990, Justice Dizon passed away. Thus,
on October 22, 1990, the probate court appointed petitioner as the administrator of the
Estate.
Petitioner requested the probate court's authority to sell several properties forming part
of the Estate, for the purpose of paying its creditors, namely: Equitable Banking
Corporation (P19,756,428.31), Banque de L'Indochine et. de Suez (US$4,828,905.90 as
of January 31, 1988), Manila Banking Corporation (P84,199,160.46 as of February 28,
1989) and State Investment House, Inc. (P6,280,006.21). Petitioner manifested that
Manila Bank, a major creditor of the Estate was not included, as it did not file a
claim with the probate court since it had security over several real estate properties
forming part of the Estate.
On November 26, 1991, the Assistant Commissioner for Collection of the BIR issued Estate
Tax Assessment Notice demanding the payment of P66,973,985.40 as deficiency estate tax.
(Note: Nothing was mentioned as to the basis of the BIR. However, in the SC ruling, it was
discussed that there were debts of the estate condoned by the creditors.)
Atty. Gonzales moved for the reconsideration of the said estate tax assessment. However,
the BIR Commissioner denied the request and reiterated that the estate is liable for the
payment of P 66,973,985.40 as deficiency estate tax. Petitioner then filed a petition for
review before the respondent CTA. Trial on the merits ensued.
The CTA did not fully adopt the assessment made by the BIR and it came up with its
own computation of the deficiency estate tax (Total deficiency estate tax P 37,419,493.71
exclusive of 20% interest from due date of its payment until full payment thereof.) The
CA affirmed the ruling of the CTA.
ISSUE: Whether or not the CA erred in affirming the CTA in the latter's determination
of the deficiency estate tax imposed against the Estate.
HELD:
Yes. It is admitted that the claims of the Estate's aforementioned creditors have been
condoned. The second issue in this case involves the construction of Section 79 of the
Internal Revenue Code of the National (Tax Code) which provides for the allowable
deductions from the gross estate of the decedent. The specific question is whether the
actual claims of the aforementioned creditors may be fully allowed as deductions from
the gross estate of Jose despite the fact that the said claims were reduced or
condoned through compromise agreements entered into by the Estate with its creditors.
The decisions of American courts construing the federal tax code are entitled to great
weight in the interpretation of our own tax laws. It is noteworthy that even in the
United States, there is some dispute as to whether the deductible amount for a claim
against the estate is fixed as of the decedent's death which is the general rule, or the
same should be adjusted to reflect post-death developments, such as where a
settlement between the parties results in the reduction of the amount actually paid.
On one hand, the U.S. court ruled that the appropriate deduction is the value that the
claim had at the date of the decedent's death.[62] Also, as held in Propstra v. U.S.,
where a lien claimed against the estate was certain and enforceable on the date of
the decedent's death, the fact that the claimant subsequently settled for lesser amount
did not preclude the estate from deducting the entire amount of the claim for estate
tax purposes. These pronouncements essentially confirm the general principle that post-
death developments are not material in determining the amount of the deduction.
We express our agreement with the date-of-death valuation rule, made pursuant to
the ruling of the U.S. Supreme Court in Ithaca Trust Co. v. United States. First. There
is no law, nor do we discern any legislative intent in our tax laws, which
disregards the date-of-death valuation principle and particularly provides that
post-death developments must be considered in determining the net value of the
estate. It bears emphasis that tax burdens are not to be imposed, nor presumed to
be imposed, beyond what the statute expressly and clearly imports tax statutes being
construed strictissimi juris against the government. Any doubt on whether a person,
article or activity is taxable is generally resolved against taxation. Second. Such
construction finds relevance and consistency in our Rules on Special
Proceedings wherein the term "claims" required to be presented against a
decedent's estate is generally construed to mean debts or demands of a
pecuniary nature which could have been enforced against the deceased in his
lifetime, or liability contracted by the deceased before his death. Therefore, the
claims existing at the time of death are significant to, and should be made the basis
of, the determination of allowable deductions.
5. Commissioner of Internal Revenue vs. Gonzales
(G.R. No. L-19495, November 24, 1966)
Facts:
 Matias Yusay, a resident of Iloilo City, died intestate, leaving two heirs, namely, Jose S.
Yusay, a legitimate child, and Lilia Yusay Gonzales, an acknowledged natural child.
Intestate proceedings for the settlement of his estate were instituted in the Court of First
Instance of Iloilo.
 Jose Yusay was appointed as the administrator. He then filed with the Bureau of Internal
Revenue (BIR) an estate tax return covering several properties. However, the return
mentioned no heir. The BIR made its investigation, finding that the value of the properties
are taxable with estate and inheritance taxes in the sums of P6,849.78 and P16,970.63,
respectively.
 On January 25, 1955 the Bureau of Internal Revenue increased the assessment to
P8,225.89 as estate tax and P22,117.10 as inheritance tax plus delinquency interest and
demanded payment thereof on or before February 28, 1955.
 Meanwhile, on February 16, 1955, the Court of First Instance of Iloilo required Jose S.
Yusay to show proof of payment of said estate and inheritance taxes.
 Jose Yusay asked for an extention of time to pay the tax and filed a surety bond to
guarantee payment but it was denied by the BIR Commissioner. Then he issued a warrant
of distraint and levy which he transmitted to the Municipal Treasurer of Pototan for
execution. This warrant was not enforced because all the personal properties subject to
distraint were located in Iloilo City.
 On May 30, 1956, the commissioner appointed by the Court of First Instance for such
purpose, submitted a reamended project of partition. More than a year later, particularly
on July 12, 1957, an agent of the Bureau of Internal Revenue apprised the Commissioner
of Internal Revenue of the existence of said reamended project of partition. Whereupon,
the Internal Revenue Commissioner caused the estate of Matias Yusay to be
reinvestigated for estate and inheritance tax liability. In the said reinvestigation, it was
assessed that there is due a total estate and inheritance taxes of P97,723.96.
 CIR: In view of the demise of Jose S. Yusay, said assessment was sent to his widow, Mrs.
Florencia Piccio Vda. de Yusay, who succeeded him in the administration of the estate of
Matias Yusay.No payment has been made, causing the CIR to file a proof of claim for the
estate and inheritance taxes due and a motion for its allowance with the settlement court
in voting priority of lien pursuant to Section 315 of the Tax Code.
 On June 1, 1959, Lilia Yusay, through her counsel, Ramon Gonzales, filed an answer to
the proof of claim alleging non-receipt of the assessment of February 13, 1958, the
existence of two other administrators, and her willingness to pay the taxes corresponding
to her share, and praying for deferment of the resolution on the motion for the payment of
taxes until after a new assessment corresponding to her share was issued.
 On November 17, 1959 Lilia Yusay disputed the legality of the assessment dated
February 13, 1958. She claimed that the right to make the same had prescribed inasmuch
as more than five years had elapsed since the filing of the estate and inheritance tax
return on May 11, 1949. She therefore requested that the assessment be declared invalid
and without force and effect. This request was rejected by the Commissioner.
 CTA: On April 13, 1960 Lilia Yusay filed a petition for review in the Court of Tax Appeals
assailing the legality of the assessment dated February 13, 1958. After hearing the
parties, said Court declared the right of the Commissioner of Internal Revenue to assess
the estate and inheritance taxes in question to have prescribed. Hence, the Commissioner
of Internal Revenue appealed to this Court.
Issues:
1. Whether or not the right of the Commissioner of Internal Revenue to assess the estate and
inheritance taxes in question prescribed.
2. Whether or not Lilia Yusay is liable only for the one-third of the estate of Matias Yusay.
Ruling and Ratio:
1. No.
 Accordingly, for purposes of determining whether or not the Commissioner's assessment
of February 13, 1958 is barred by prescription, Section 332(a) which is an exception to
Section 331 of the Tax Code finds application. We quote Section 332(a):
SEC. 332. Exceptions as to period of limitation of assessment and collection of
taxes.— (a) In the case of a false or fraudulent return with intent to evade tax or of a
failure to file a return, the tax may be assessed, or a proceeding in court for the
collection of such tax may be begun without assessment, at any time within ten years
after the discovery of the falsity, fraud or omission.
 In the case at bar, the Commissioner came to know of the identity of the heirs on
September 24, 1953 and the huge under declaration in the gross estate on July 12, 1957.
From the latter date, Section 94 of the Tax Code obligated him to make a return or amend
one already filed based on his own knowledge and information obtained through
testimony or otherwise, and subsequently to assess thereon the taxes due. The running of
the period of limitations under Section 332(a) of the Tax Code should therefore be
reckoned from said date for, as aforesaid, it is from that time that the Commissioner was
expected by law to make his return and assess the tax due thereon. From July 12, 1957 to
February 13, 1958, the date of the assessment now in dispute, less than ten years have
elapsed. Hence, prescription did not abate the Commissioner's right to issue said
assessment.
2. No.
 It should be pointed out that Lilia Yusay Gonzales appealed the whole assessment to the
Court of Tax Appeals. Thereupon, the Commissioner of Internal Revenue questioned her
legal capacity to institute the appeal on the ground that she administered only one-third of
the estate of Matias Yusay. In opposition, she espoused the view, which was sustained by
the Tax Court, that in co-administration, the administratrices are regarded as one person
and the acts of one of them in relation to the regular administration of the estate are
deemed to be the acts of all; hence, each administratrix can represent the whole estate.
 In advancing such proposition, Lilia Yusay Gonzales represented the whole estate and
hoped to benefit from the favorable outcome of the case. For the same reason that she
represented her co-administratrix and the whole estate of Matias Yusay, she risked being
ordered to pay the whole assessment, should the assessment be sustained.
 It is immaterial therefore that Lilia Yusay Gonzales administers only one-third of the estate
and will receive as her share only said portion, for her right to the estate comes after
taxes. As an administatrix, she is liable for the entire estate tax. As an heir, she is liable for
the entire inheritance tax although her liability would not exceed the amount of her share
in the estate.
II- DONOR’S TAX
1. Pirovano vs. CIR
(G.R. No. L-19865, July 31, 1965)
Facts:
 Sometime in the early part of 1941, De la Rama Steamship Co. insured the life of said
Enrico Pirovano, who was then its President and General Manager until the time of his
death, with various Philippine and American insurance companies for a total sum of one
million pesos, designating itself as the beneficiary of the policies, obtained by it.
 Due to the Japanese occupation of the Philippines during the second World War, the
Company was unable to pay the premiums on the policies issued by its Philippine insurers
and these policies lapsed, while the policies issued by its American insurers were kept
effective and subsisting. During the said Japanese occupation Enrico Pirovano also died.
 After the liberation from the Japanese forces, the Board of Directors of the company
passed a resolution granting to the heirs of Pirovano his insurance proceeds and waived
the company’s proceeds from the life insurance policies of the American insurers in favor
of said heirs as donation.
 A Memorandum of Agreement was entered into by the Company and the guardian of the
heirs, Estefania to carry out the resolution.
 The Company repeatedly made ratifications on various resolutions as to the payment of
the donation, until March 8, 1951, where the majority stockholders of the Company voted
to revoke the resolution approving the donation in favor of the Pirovano children.
 CFI: Estefania brought an action for the recovery of said amount, plus interest and
damages against De la Rama Steamship Co., in the Court of First Instance of Rizal, which
case ultimately culminated to an appeal to this Court. The Court in the prior case held that
the donation was valid and remunerative in nature. The above decision became final and
executory. The Company made partial payments to the heirs.
 On March 6, 1955, respondent Commissioner of Internal Revenue assessed the amount
of P60,869.67 as donees' gift tax, inclusive of surcharges, interests and other penalties,
against each of the petitioners-appellants, or for the total sum of P243,478.68; and, on
April 23, 1955, a donor's gift tax in the total amount of P34,371.76 was also assessed
against De la Rama Steamship Co., which the latter paid.
 This was contested by the petitioners-appellants where they filed two cases before the
Court of Tax Appeals ( first case- disputing the legality of the assessment of the donor’s
tax; second case- claim for refund for the gift tax already paid).
 CTA: The CTA rendered its decision in the two cases in favor of the petitioners-
appellants. The Court ruled that the BIR erroneously assessed and collected the taxes,
and that they are entitled to the refund.
 The Court ruled that the BIR erroneously assessed and collected the taxes, and that they
are entitled to the refund. Petitioners-appellants herein filed a motion to reconsider the
above decision, which the lower court denied. Hence, this appeal.
Issue: Whether or not the donation made is a taxable gift under the Tax Code.
Ruling: Yes. The decision of the Court of Tax Appeals is affirmed.
Ratio:
 The argument for petitioners-appellants fails to take into account the fact that neither in
Spanish nor in Anglo-American law was it considered that past services, rendered without
relying on a coetaneous promise, express or implied, that such services would be paid for
in the future, constituted cause or consideration that would make a conveyance of
property anything else but a gift or donation. This conclusion flows from the text of Article
619 of the Code of 1889 (identical with Article 726 of the present Civil Code of the
Philippines):
When a person gives to another a thing ... on account of the latter's merits or of the
services rendered by him to the donor, provided they do not constitute a demandable
debt, ..., there is also a donation. ... .
 There is nothing on record to show that when the late Enrico Pirovano rendered services
as President and General Manager of the De la Rama Steamship Co. he was not fully
compensated for such services, or that, because they were "largely responsible for the
rapid and very successful development of the activities of the company". The fact that his
services contributed in a large measure to the success of the company did not give rise to
a recoverable debt, and the conveyances made by the company to his heirs remain a gift
or donation. That the tax court regarded the conveyance as a simple donation, instead of
a remuneratory one as it was declared to be in our previous decision, is but an innocuous
error; whether remuneratory or simple, the conveyance remained a gift, taxable under
Chapter 2, Title III of the Internal Revenue Code.
 Moreover, then appellants also contend, the entire property or right donated should not
be considered as a gift for taxation purposes; only that portion of the value of the property
or right transferred, if any, which is in excess of the value of the services rendered should
be considered as a taxable gift. They cite in support Section 111 of the Tax Code which
provides that —
“Where property is transferred for less, than an adequate and full consideration in money
or money's worth, then the amount by which the value of the property exceeded the value
of the consideration shall, for the purpose of the tax imposed by this Chapter, be deemed
a gift.”
The flaw in this argument lies in the fact that, as copied from American law, the term
consideration used in this section refers to the technical "consideration" defined by the
 American Law Institute (Restatement of Contracts) as "anything that is bargained for by
the promisor and given by the promisee in exchange for the promise" (Also, Corbin on
Contracts, Vol. I, p. 359). But, as we have seen, Pirovano's successful activities as officer
of the De la Rama Steamship Co. cannot be deemed such consideration for the gift to his
heirs, since the services were rendered long before the Company ceded the value of the
life policies to said heirs; cession and services were not the result of one bargain or of a
mutual exchange of promises.
2. GESTOPA VS. COURT OF APPEALS
(G.R. No. 111904, October 5, 2000)
Facts:
 Spouses Diego and Catalina Danlag were the owners of six parcels of unregistered
lands. They executed three deeds of donation mortis causa, two of which are dated March
4, 1965 and another dated October 13, 1966, in favor of private respondent Mercedes
Danlag-Pilapil. All deeds contained the reservation of the rights of the donors (1) to
amend, cancel or revoke the donation during their lifetime, and (2) to sell, mortgage, or
encumber the properties donated during the donors' lifetime, if deemed necessary.
 Diego, with the consent of his wife, executed a deed of donation inter vivos covering the
aforementioned parcels of land plus two other parcels again in favor of private respondent
Mercedes. This contained two conditions, that (1) the Danlag spouses shall continue to
enjoy the fruits of the land during their lifetime, and that (2) the donee cannot sell or
dispose of the land during the lifetime of the said spouses, without their prior consent and
approval. Mercedes caused the transfer of the parcels' tax declaration to her name and
paid the taxes on them.
 The spouses later on sold parcels 3 and 4 to herein petitioners, Mr. and Mrs. Agripino
Gestopa. They then executed a deed of revocation for the six parcels of land donated
inter vivos.
 On March 1, 1983, Mercedes Pilapil (herein private respondent) filed with the RTC a
petition against the Gestopas and the Danlags, for quieting of title over the above parcels
of land. She alleged that the following:
1. She was an illegitimate daughter of Diego Danlag
2. That she lived and rendered incalculable beneficial services to Diego and his
mother, Maura Danlag, when the latter was still alive.
3. In recognition of the services she rendered, Diego executed a Deed of Donation
on March 20, 1973, conveying to her the six (6) parcels of land. She accepted the
said donation.
4. Through machination, intimidation and undue influence, Diego persuaded the
husband of Mercedes, Eulalio Pilapil, to buy two of the six parcels covered by the
deed of donation. Said donation inter vivos was coupled with conditions and,
according to Mercedes which she faithfully complied with, not causing any legal
grounds to revoke the donation.
 In their opposition, the Gestopas and the Danlags averred that the deed of donation dated
January 16, 1973 was null and void because it was obtained by Mercedes through
machinations and undue influence.
 RTC: The trial court rendered its decision in favor of Diego Danlag. The donations made
were deemed revoked and Danlag was declared by the court as the absolute and
exclusive owner of the six parcels of land. The trial court also ruled that the Deed of Sale in
favor of the spouses Gestopa is enforceable.
 CA: Mercedes appealed to the Court of Appeals, wherein the latter ruled in her favor,
nullifying the deed of revocation and declaring her as the absolute owner of the parcels of
land. The Court of Appeals held that the reservation by the donor of lifetime usufruct
indicated that he transferred to Mercedes the ownership over the donated properties; that
the right to sell belonged to the donee, and the donor's right referred to that of merely
giving consent; that the donor changed his intention by donating inter vivos properties
already donated mortis causa. Hence, this instant petition for review filed by the Gestopa
spouses.
Issue: Whether or not the donation made was inter vivos or mortis causa.
Ruling: The donation was inter vivos. The instant petition for review is DENIED. The assailed
decision of the Court of Appeals dated August 31, 1993, is AFFIRMED.
Ratio:
There are several reasons why the donation in the case at bar may be considered as a
donation inter vivos.
 First, in examining the deed of donation executed by the spouses Danlag, the granting
clause showed that Diego donated the properties out of love and affection for the
donee. This is a mark of a donation inter vivos. Second, the reservation of lifetime usufruct
indicates that the donor intended to transfer the naked ownership over the properties.
Third, the donor reserved sufficient properties for his maintenance in accordance with his
standing in society, indicating that the donor intended to part with the six parcels of
land. Lastly, the donee accepted the donation. In the case of Alejandro vs. Geraldez, 78
SCRA 245 (1977), we said that an acceptance clause is a mark that the donation is inter
vivos. Acceptance is a requirement for donations inter vivos. Donations mortis causa,
being in the form of a will, are not required to be accepted by the donees during the
donors' lifetime.
 Second, the attending circumstances in the execution of the subject donation also
demonstrated the real intent of the donor to transfer the ownership over the subject
properties upon its execution.Prior to the execution of donation inter vivos, the Danlag
spouses already executed three donations mortis causa. As correctly observed by the
 Court of Appeals, the Danlag spouses were aware of the difference between the two
donations. If they did not intend to donate inter vivos, they would not again donate the four
lots already donated mortis causa. Petitioners' counter argument that this proposition was
erroneous because six years after, the spouses changed their intention with the deed of
revocation, is not only disingenious but also fallacious. Petitioners cannot use the deed of
revocation to show the spouses' intent because its validity is one of the issues in this case.
 Third, Petitioners assert that since private respondent purchased two of the six parcels of
land from the donor, she herself did not believe the donation was inter vivos. As aptly
noted by the Court of Appeals, however, it was private respondent's husband who
purchased the two parcels of land. As a rule, a finding of fact by the appellate court,
especially when it is supported by evidence on record, is binding on the Court. .On the
alleged purchase by her husband of two parcels, it is reasonable to infer that the purchase
was without private respondent's consent. Purchase by her husband would make the
properties conjugal to her own disadvantage. That the purchase is against her self-interest,
weighs strongly in her favor and gives credence to her claim that her husband was
manipulated and unduly influenced to make the purchase, in the first place.
 Fourth, another question arising from this case is whether or not the revocation made was
valid. In the case of Vda. de Arceo vs. CA, it was ruled that a valid donation, once
accepted, becomes irrevocable, except on account of officiousness, failure by the donee to
comply with the charges imposed in the donation, or ingratitude. The donor-spouses did
not invoke any of these reasons in the deed of revocation. Thus, they cannot cause the
revocation of their donation due to such failure.
 Finally, the records do not show that the donor-spouses instituted any action to revoke the
donation in accordance with Article 769 of the Civil Code. Consequently, the supposed
revocation on September 29, 1979, had no legal effect.
3. VILLANUEVA VS. BRANOCO
(G.R. No. 172804, January 24, 2011)
Facts:
 Petitioner Gonzalo Villanueva (petitioner), here represented by his heirs, sued
respondents, spouses Froilan and Leonila Branoco (respondents), in the trial court of
Naval, Biliran to recover a 3,492 square-meter parcel of land and collect damages.
Petitioner claimed ownership over the Property through purchase from Casimiro Vere
(Vere), who, in turn, bought the Property from Alvegia Rodrigo (Rodrigo). Petitioner
declared the Property in his name for tax purposes soon after acquiring it.
 In their Answer, respondents similarly claimed ownership over the Property through
purchase from Eufracia Rodriguez (Rodriguez) to whom Rodrigo donated the Property. It
was evidenced by a two-pages deed of donation. Respondents entered the Property in
1983 and paid taxes afterwards.
 RTC: The trial court ruled for petitioner, declared him owner of the Property, and ordered
respondents to surrender possession to petitioner, and to pay damages, the value of the
Property’s produce since 1982 until petitioner’s repossession and the costs. The trial court
rejected respondents’ claim of ownership after treating the Deed as a donation mortis
causa which Rodrigo effectively cancelled by selling the Property to Vere in 1970. Thus, by
the time Rodriguez sold the Property to respondents in 1983, she had no title to transfer.
 CA: Respondents appealed to the Court of Appeals (CA), which ruled in its favor, stating
the following:
1. That Rodriguez had been in possession of the Property as owner since 21 May
1962, subject to the delivery of part of the produce to Apoy Alve;
2. The Deed’s consideration was not Rodrigo’s death but her "love and affection" for
Rodriguez, considering the services the latter rendered;
3. Rodrigo waived dominion over the Property in case Rodriguez predeceases her,
implying its inclusion in Rodriguez’s estate; and
4. Rodriguez accepted the donation in the Deed itself, an act necessary to effectuate
donations inter vivos, not devises.
 Accordingly, the CA upheld the sale between Rodriguez and respondents, and,
conversely found the sale between Rodrigo and petitioner’s predecessor-in-interest, Vere,
void for Rodrigo’s lack of title.
Issue: Whether or not the petitioner’s title over the Property is superior to respondents’.
Ruling: No. The Court finds respondents’ title superior, and thus, affirm the decision of the
CA.
Ratio:
In the case at bar, naked title had passed from Rodrigo to Rodriguez under a perfected
donation inter vivos.
 First, Rodrigo stipulated that "if the herein Donee predeceases me, the [Property] will not
be reverted to the Donor, but will be inherited by the heirs of x x x Rodriguez," signaling
the irrevocability of the passage of title to Rodriguez’s estate, waiving Rodrigo’s right to
reclaim title. This transfer of title was perfected the moment Rodrigo learned of
Rodriguez’s acceptance of the disposition which, being reflected in the Deed, took place
on the day of its execution on 3 May 1965. Rodrigo’s acceptance of the transfer
underscores its essence as a gift in presenti, not in futuro, as only donations inter
vivos need acceptance by the recipient.
 Second, what Rodrigo reserved for herself was only the beneficial title to the Property,
evident from Rodriguez’s undertaking to "give one [half] x x x of the produce of the land to
Apoy Alve during her lifetime." Thus, the Deed’s stipulation that "the ownership shall be
vested on [Rodriguez] upon my demise," taking into account the non-reversion clause,
could only refer to Rodrigo’s beneficial title.
 Third, the existence of consideration other than the donor’s death, such as the donor’s
love and affection to the donee and the services the latter rendered, while also true of
devises, nevertheless "corroborates the express irrevocability of x x x [inter vivos]
transfers.” Thus, the CA committed no error in giving weight to Rodrigo’s statement of
"love and affection" for Rodriguez, her niece, as consideration for the gift, to underscore
its finding.
In consideration of the statements above, it is proved that the respondent in the case at bar
has a superior right over the petitioner due to the perfected donation inter vivos made to him
by Rodrigo.
4. Jarabini Del Rosario v Asuncion Ferrer
G.R. No. 187056, September 20, 2010
Facts: Spouses Leopoldo and Guadalupe Gonzales executed a document titled
Donation Mortis Causa in favor of their children Asuncion and Emiliano, and their
granddaughter, Jarabini, who is the daughter of their predeceased son, Zoilo. The
donation covered a 126-square meter lot and the house on it, to be divided in equal
shares among the donees.
The deed of donation specified that the donation shall be irrevocable and shall be
respected by the surviving donor spouse. The deed had no attestation clause and was
witnessed by only 2 persons. The donees also signified their acceptance on the face
of the document.
A few months after the death of Guadalupe, Leopoldo assigned his rights and interest
in the subject property to Asuncion.
In 1998, Jarabini filed a petition for probate of the August 27, 1968 deed of donation
mortis causa before the RTC of Manila. Asuncion opposed the petition, contending
that Leopoldo had assigned his rights and interests in the property to her.
RTC held that the donation was in fact one made inter vivos due to the fact that the
donors intended to transfer title over the property to the donees during the donors’
lifetime, given its irrevocability. RTC further held that Leopoldo’s subsequent
assignment was void for he had nothing to assign.
CA reversed the RTC’s decision. It held that Jarabini cannot, through a petition for
probate of the deed of donation mortis causa, collaterally attack Leopoldo’s deed of
assignment.
Issue:
Whether the donation executed by spouses Gonzales in favor of Asuncion, Emiliano,
and Jarabini was a donation mortis causa or donation inter vivos.
Ruling:
It was a donation inter vivos. The court held that if a donation by its terms is inter
vivos, this character is not altered by the fact that the donor styles it mortis causa.
Thus, the caption on the document is not controlling.
The court held in Austria-Magat v. Court of Appeals that irrevocability is a quality
absolutely incompatible with the idea of conveyances mortis causa, where revocability
is precisely the essence of the act. Furthermore, the court provided the following
characteristics for donation mortis causa:
1. It conveys no title or ownership to the transferee before the death of the
transferor; or, what amounts to the same thing, that the transferor should retain
the ownership (full or naked) and control of the property while alive;
2. That before his death, the transfer should be revocable by the transferor at will,
ad nutum; but revocability may be provided for indirectly by means of a
reserved power in the donor to dispose of the properties conveyed; and
3. That the transfer should be void if the transferor should survive the transferee
Otherwise stated, express irrevocability of the donation is the distinctive standard that
identifies the document as a donation inter vivos. In the case, the intent to make the
donation irrevocable is evident in the proviso indicating that the surviving donor shall
respect the irrevocability of the donation.
While donors reserve the right, ownership, possession, and administration of the
property and make the donation operative upon their death, the court has consistently
held that such reservation in the context of an irrevocable donation means that only
beneficial ownership of the donated property is retained by the donor while they are
alive, but the donors already part with the naked title of the property.
The fact that the deed has an acceptance clause indicates that the donation is inter
vivos, since acceptance is required only in such donations. Since a donation mortis
causa is essentially a will, it need not be accepted by the donee during the donor’s
lifetime to be valid.
Finally in Puig v. Peaflorida, the court held that in case of doubt, the conveyance
should be deemed a donation inter vivos rather than mortis causa, in order to avoid
uncertainty as to the ownership of the property subject of the deed.
The donation being one made inter vivos and therefore immediately operative and
final, Leopoldo’s subsequent assignment of rights and interests in the property in favor
of Asuncion is void for her no more rights and interests to assign.
5. Mario Siochi v Alfredo Gozon,
Winifred Gozon, Inter-Dimensional Realty, Inc., Gil Tabije
G.R. No. 169900, March 18, 2010
Facts: This case involves a parcel of land covered by TCT No. 5357 situated in
Malabon, Manila and registered in the name of Alfredo Gozon, married to Elvira
Gozon.
On December 23, 1991, Elvira filed with the RTC of Cavite a petition for legal
separation against Alfredo. She also filed a notice of lis pendens, which was then
annotated on TCT No. 5357.
During the pendency of the legal separation case, Alfredo and petitioner Mario Siochi
entered into an agreement to buy and sell the subject property for P18 Million. Alfredo
failed to comply with the stipulations of the agreement despite repeated demands
from Mario. Thus, after paying the P5 Million earnest money as partial payment, Mario
took possession of the property. The agreement was also annotated on TCT No.
5357.
The RTC of Cavite then decreed the legal separation between Alfredo and Elvira. The
subject property was also deemed part of their conjugal property.
On August 22, 1994, Alfredo executed a deed of donation over the property in favor of
their daughter, Winifred. TCT No. 5357 was cancelled and TCT No. M-10508 was
issued in Winifred’s name. The agreement and notice of lis pendens was not
annotated on the new certificate of title.
By virtue of a special power of attorney executed by Winifred, Alfredo sold the
property to Inter-Dimensional Realty, Inc. (IDRI) for P18 Million. TCT No. M-10508
was cancelled and TCT No. M-10976 was issued to IDRI.
In its decision, Malabon RTC enjoined defendants from continuing any act of further
alienating or disposing of the subject property. It also held that the sale between
Alfredo and Mario is null and void as it was done without Elvira’s consent.
The CA affirmed the RTC’s decision but with modifications as to other reliefs prayed
for.
Issue:
1. Whether or not the sale entered into by Alfredo and Mario is void.
Yes, it is void. Pursuant to Article 124 of the Family Code, in the event that one
spouse is incapacitated or otherwise unable to participate in the administration of the
conjugal property, the other spouse may assume sole powers of administration. In this
case, Alfredo was the sole administrator because as Elvira was separated in fact from
Alfredo, she was unable to participate in the administration of the property. However,
even though he is the sole administrator, Alfredo still cannot sell the property without
the written consent of Elvira or the court. The absence of the consent of one of the
spouse renders the entire sale void, including the portion of the conjugal property
pertaining to the spouse who contracted the sale.
Regarding Mario’s contention that the agreement should be considered as a
continuing offer which may be perfected by Elvira’s acceptance before the offer is
withdrawn, the same is untenable since the fact that Alfredo donated the property to
Winifred and subsequently sold it to IDRI already indicates that the offer has been
withdrawn.
2. Whether one-half of Alfredo’s undivided share has already been forfeited in
favor of Winifred.
No. When legal separation is decreed, the offending spouse would have no right to
any share of the net profits earned by the conjugal partnership. It is only Alfredo’s
share in the net profits which is forfeited in favor of Winifred.
3. Whether or not IDRI is a buyer in good faith.
No. As found by RTC Malabon, IDRI had actual knowledge of facts and
circumstances which should impel a reasonably cautious person to make further
inquiries about the vendor’s title to the property being sold.
IDRI was aware of the existence of the lis pendens on TCT No. 5357 as well as the
legal separation case. Clearly, he was not a buyer in good faith. Moreover, had IDRI
been more prudent, it would have discovered that the property was donated by
Alfredo to Winifred without Elvira’s consent, making it null and void.
III. VALUE-ADDED TAX The court held that EO 273 satisfies all the requirements of a valid tax as it is uniform.
In the case of City of Baguio vs. De Leon, the court stated: “A tax is considered
uniform when it operates with the same force and effect in every place where the
1. Kapatiran Ng Mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc.
subject may be found.”
v. Bienvenido Tan
GR No. 81311, June 30, 1988
Moreover, in Eastern Theatrical Co. v. Alfonso, the court held: “Equality and uniformity
in taxation means that all taxable articles or kinds of property of the same class shall
Facts: The case involves a petition seeking to nullify Executive Order No. 273, issued
be taxed at the same rate. The taxing power has the authority to make reasonable
by the President of the Philippines on July 25, 1987, which amended certain sections
and natural classifications for purposes of taxation.”
of the NIRC and adopted the Value-Added Tax system. Petitioners allege that it is
unconstitutional for having been enacted outside the powers of the President; that the
The sales tax adopted in EO 273 is applied similarly on all goods and services sold to
VAT is oppressive, discriminatory, regressive, and violates the due process and equal
the public, which are not exempt, at the constant rate of 0% or 10%. It is also
protection clauses and other provisions of the 1987 Constitution.
equitable as it is imposed only on sales of goods or services by persons engaged in
business with an aggregate gross annual sales exceeding P200,000.00.
Issues:
1. Whether or not EO 273 is unconstitutional on the ground that the President had
3. Whether or not EO 273 discriminates against customs brokers.
no authority to issue it.
No. The phrase “except custom brokers” is not meant to discriminate against custom
Contention is without merit. Under Article XVIII, sec. 6 of the 1987 Constitution, the
brokers but to avoid a potential conflict between Sections 102 and 103 of the Tax
incumbent President shall continue to exercise legislative powers until the first
Code, as amended. The distinction of the customs brokers from the other
Congress is convened. The first Congress, created and elected under the 1987
professionals who are subject to occupation tax under the Local Tax Code is based
Constitution, was convened on July 27, 1987. Hence, the enactment of EO 273 on
on material differences, in that the activities of customs partake more of a business,
July 25, 1987, 2 days before Congress convened on July 27, 1987, was within the
rather than a profession and were thus subjected to the percentage tax under Section
President's constitutional power and authority to legislate.
174 of the Tax Code prior to its amendment by EO 273.
Moreover, the court found no merit in the petitioners’ claim that EO 273 was issued by
2. Asia International Auctioneers, Inc. v CIR
the President President in grave abuse of discretion amounting to lack or excess of
G.R. No. 179115, September 26, 2012
jurisdiction. “Grave abuse of discretion” implies such capricious and whimsical
exercise of judgment as is equivalent to lack of jurisdiction or where the power is
Facts: Asia International Auctioneers, Inc. is a duly organized corporation operating within the
exercised in an arbitrary or despotic manner by reason of passion or personal
Subic Special Economic Zone. It is engaged in the importation of used motor vehicles and
hostility. Petitioners failed to show that EO 273 was issued in such manner. heavy equipment which it sells to the public through auction

2. Whether or not EO 273 is oppressive, discriminatory, unjust and regressive, in AIA received a formal Letter of Demand from the CIR dated July 9, 2004, containing an
violation of the provisions of Art. VI, sec. 28(1) of the 1987 Constitution, which assessment for deficiency value-added tax and excise tax in the amounts P102,535,520.00
provides that the rule of taxation shall be uniform and equitable. and P 4,334,715.00, respectively, inclusive of penalties and interests.

The petitioners failed to support their assertions with facts and circumstances that
would warrant their conclusions. They failed to adequately show that the VAT is
oppressive, discriminatory or unjust. They merely relied on newspaper articles which
were merely hearsay. To justify the nullification of a law, there must be a clear and
unequivocal breach of the Constitution, not a doubtful and argumentative implication.
AIA claimed that it filed a protest letter dated August 29, 2004 through registered mail on
August 30, 2004. Additional supporting documents were also filed on September 24 and
November 22 of the same year. CIR failed to act on the protest, so AIA filed a petition for
review before the CTA.
CIR filed a motion to dismiss on the ground of lack of jurisdiction due to AIA’s failure to file a
timely protest, thereby rendering the assessment final and executory.
The CTA First Division granted CIR’s motion to dismiss. It held that ruled that AIA’s evidence
was not sufficient to prove receipt by CIR of the protest letter in question. AIA’s motion for
reconsideration was denied. On appeal, CTA En Banc affirmed the ruling of the CTA First
Division.
On January 30, 2008, AIA Filed a Manifestation and Motion with Leave of Court to Defer or
Suspend Further Proceedings on the ground that it availed of the Tax Amnesty Program
under RA No. 9480, . The following month, AIA submitted to the court a Certification of
Qualification issued by the BIR stating that AIA has availed of and is qualified for Tax
Amnesty for the Taxable Year 2005.
Issue: Whether or not AIA qualified to avail of tax amnesty under RA 9480.
Ruling:
Yes, AIA is qualified. A tax amnesty is a general pardon or the intentional overlooking by the
State of its authority to impose penalties on persons otherwise guilty of violating a tax law. It
partakes of an absolute waiver by the government of its right to collect what is due it and to
give tax evaders who wish to relent a chance to start with a clean slate.
A tax amnesty, much like a tax exemption, is never favored or presumed in law. The grant of
a tax amnesty, similar to a tax exemption, must be construed strictly against the taxpayer and
liberally in favor of the taxing authority.
Under RA 9480, Tax Amnesty may be available of by any person except those disqualified
under Sec. 8 thereof. CIR contends that AIA is disqualified under Sec. 8(a) because it is
deemed as a withholding agent for deficiency taxes. The court found this argument is
untenable.
AIA was not assessed as a withholding agent that failed to withhold or remit deficiency VAT
and excise tax to the BIR. AIA was assessed as a taxpayer directly liable for the said taxes.
Indirect taxes, like VAT and excise tax, are different from withholding taxes. To distinguish, in
indirect taxes, the incidence of taxation falls on one person but the burden thereof can be
shifted or passed on to another person, such as when the tax is imposed upon goods before
reaching the consumer who ultimately pays for it. On the other hand, in case of withholding
taxes, the incidence and burden of taxation fall on the same entity, the statutory taxpayer. The
burden of taxation is not shifted to the withholding agent who merely collects, by withholding,
the tax due from income payments to entities arising from certain transactions and remits the
same to the government. Thus, deficiency VAT and excise tax cannot be deemed as
withholding taxes simply because they constitute indirect taxes.
CIR also contends that AIA should have availed of tax amnesty under RA 9399 and not RA
9480. This is also untenable. There is nothing in RA 9480 that excludes from its coverage
taxpayers operating within special economic zones.
3. CIR v. CA & Commonwealth Management and Services Corporation
(G.R. No. 125355, March 20, 2000)
FACTS: Commonwealth Management and Services Corporation (COMASERCO), is a
corporation duly organized and existing under the laws of the Philippines. It is an affiliate of
Philippine American Life Insurance Co. (Philamlife), organized by the letter to perform
collection, consultative and other technical services, including functioning as an internal
auditor, of Philamlife and its other affiliates.
On January 24, 1992, the Bureau of Internal Revenue (BIR) issued an assessment to private
respondent COMASERCO for deficiency value-added tax (VAT) amounting to P351,851.01,
for taxable year 1988. COMASERCO's annual corporate income tax return ending December
31, 1988 indicated a net loss in its operations in the amount of P6,077.00.
On February 10, 1992, COMASERCO filed with the BIR, a letter-protest objecting to the
latter's finding of deficiency VAT. On August 20, 1992, the Commissioner of Internal Revenue
sent a collection letter to COMASERCO demanding payment of the deficiency VAT.
On September 29,1992, COMASERCO filed with the Court of Tax Appeals a petition for
review contesting the Commissioner's assessment. COMASERCO asserted that the services
it rendered to Philamlife and its affiliates were on a "no-profit, reimbursement-of-cost-only"
basis. It averred that it did not generate profit but suffered a net loss in taxable year 1988 and
that since it was not engaged in business, it was not liable to pay VAT.
On June 22, 1995, the Court of Tax Appeals rendered decision in favor of the Commissioner
of Internal Revenue. On July 26, 1995, respondent filed with the Court of Appeals, petition for
review of the decision of the Court of Appeals. After due proceedings, on May 13, 1996, the
Court of Appeals rendered decision reversing that of the Court of Tax Appeals.
The Court of Appeals anchored its decision on the ratiocination in another tax case involving
the same parties, where it was held that COMASERCO was not liable to pay fixed and
contractor's tax for services rendered to Philamlife and its affiliates. The Court of Appeals, in
that case, reasoned that COMASERCO was not engaged in business of providing services to
Philamlife and its affiliates. In the same manner, the Court of Appeals held that COMASERCO
was not liable to pay VAT for it was not engaged in the business of selling services.
On July 16, 1996, the Commissioner of Internal Revenue filed with this Court a petition for
review on certiorari assailing the decision of the Court of Appeals. On August 7, 1996, we
required respondent COMASERCO to file comment on the petition, and on September 26,
1996, COMASERCO complied with the resolution.
ISSUE: Whether COMASERCO was engaged in the sale of services, and thus liable to pay
VAT thereon.
HELD: YES.
COMASERCO contends that the term "in the course of trade or business" requires that the
"business" is carried on with a view to profit or livelihood. It avers that the activities of the
entity must be profit- oriented. However, contrary to his, Sec. 105 of the Expanded VAT Law
(EVAT) provides that even a non-stock, non-profit, organization or government entity, is liable
to pay VAT on the sale of goods or services.
VAT is a tax on transactions, imposed at every stage of the distribution process on the sale,
barter, exchange of goods or property, and on the performance of services, even in the
absence of profit attributable thereto. The term "in the course of trade or business" requires
the regular conduct or pursuit of a commercial or an economic activity, regardless of whether
or not the entity is profit-oriented.
Hence, it is immaterial whether the primary purpose of a corporation indicates that it receives
payments for services rendered to its affiliates on a reimbursement-on-cost basis only, without
realizing profit, for purposes of determining liability for VAT on services rendered. As long as
the entity provides service for a fee, remuneration or consideration, then the service rendered
is subject to VAT.
At any rate, it is a rule that because taxes are the lifeblood of the nation, statutes that allow
exemptions are construed strictly against the grantee and liberally in favor of the government.
Otherwise stated, any exemption from the payment of a tax must be clearly stated in the
language of the law; it cannot be merely implied therefrom. In the case of VAT, Section 109,
Republic Act 8424 clearly enumerates the transactions exempted from VAT. The services
rendered by COMASERCO do not fall within the exemptions.
4. Panasonic v. CIR
(G.R. No. 178090, February 8, 2010)
FACTS: Petitioner Panasonic Communications Imaging Corporation of the Philippines
(Panasonic) produces and exports plain paper copiers and their sub-assemblies, parts, and
components. It is registered with the Board of Investments as a preferred pioneer enterprise
under the Omnibus Investments Code of 1987. It is also a registered value-added tax (VAT)
enterprise.
From April 1 to September 30, 1998 and from October 1, 1998 to March 31, 1999, petitioner
Panasonic generated export sales amounting to US$12,819,475.15 and US$11,859,489.78,
respectively, for a total of US$24,678,964.93. Believing that these export sales were zero-
rated for VAT, Panasonic paid input VAT of P4,980,254.26 and P4,388,228.14 for the two
periods or a total of P9,368,482.40 attributable to its zero-rated sales.
Claiming that the input VAT it paid remained unutilized or unapplied, on March 12, 1999 and
July 20, 1999 petitioner Panasonic filed with the Bureau of Internal Revenue (BIR) two
separate applications for refund or tax credit of what it paid. When the BIR did not act on the
same, Panasonic filed on December 16, 1999 a petition for review with the CTA, averring the
inaction of the respondent Commissioner of Internal Revenue (CIR) on its applications.
After trial the CTAs First Division rendered judgment in favor of the CIR, stating while
petitioner Panasonics export sales were subject to 0% VAT, the same did not qualify for zero-
rating because the word zero-rated was not printed on Panasonics export invoices. This
omission, said the First Division, violates the invoicing requirements of Section 4.108-1 of
Revenue Regulations (RR) 7-95.
Panasonic filed a motion for reconsideration which was denied. Panasonic later on appealed
to the CTA en banc which was then dismissed. Panasonic then filed a motion for
reconsideration of the en banc decision but this was denied.
ISSUE: Whether or not the CTA en banc correctly denied petitioner Panasonics claim for
refund of the VAT it paid as a zero-rated taxpayer on the ground that its sales invoices did not
state on their faces that its sales were zero-rated.
HELD: YES.
The VAT is a tax on consumption, an indirect tax that the provider of goods or services may
pass on to his customers. Under the VAT method of taxation, which is invoice-based, an
entity can subtract from the VAT charged on its sales or outputs the VAT it paid on its
purchases, inputs and imports.
Zero-rated transactions generally refer to the export sale of goods and services. The tax rate
in this case is set at zero. When applied to the tax base or the selling price of the goods or
services sold, such zero rate results in no tax chargeable against the foreign buyer or
customer. But, although the seller in such transactions charges no output tax, he can claim a
refund of the VAT that his suppliers charged him. The seller thus enjoys automatic zero rating,
which allows him to recover the input taxes he paid relating to the export sales, making him
internationally competitive.
For the effective zero rating of such transactions, however, the taxpayer has to be VAT-
registered and must comply with invoicing requirements. Interpreting these requirements,
respondent CIR ruled that under Revenue Memorandum Circular (RMC) 42-2003, the
taxpayer’s failure to comply with invoicing requirements will result in the disallowance of his
claim for refund.
If the claim for refund/TCC is based on the existence of zero-rated sales by the taxpayer but it
fails to comply with the invoicing requirements in the issuance of sales invoices (e.g., failure to
indicate the TIN), its claim for tax credit/refund of VAT on its purchases shall be denied
considering that the invoice it is issuing to its customers does not depict its being a VAT-
registered taxpayer whose sales are classified as zero-rated sales. Nonetheless, this
treatment is without prejudice to the right of the taxpayer to charge the input taxes to the
appropriate expense account or asset account subject to depreciation, whichever is
applicable. Moreover, the case shall be referred by the processing office to the concerned BIR
office for verification of other tax liabilities of the taxpayer.
The ground for denial of petitioner Panasonics claim for tax refund is the absence of the word
zero-rated on its invoices which is specifically and precisely included in the above
enumeration. Consequently, the BIR correctly denied Panasonics claim for tax refund.
Tax refunds in relation to the VAT are in the nature of such exemptions. The general rule is
that claimants of tax refunds bear the burden of proving the factual basis of their claims.
Taxes are the lifeblood of the nation. Therefore, statutes that allow exemptions are construed
strictly against the grantee and liberally in favor of the government.
5. CIR v. Sekisui Jushi Philippines
496 SCRA 207 (2006)
FACTS: Respondent is a domestic corporation duly organized and existing under and by
virtue of the laws of the Philippines with principal office located at the Special Export
Processing Zone, Laguna Technopark, Bian, Laguna. It is principally engaged in the business
of manufacturing, importing, exporting, buying, selling, or otherwise dealing in, at wholesale
such goods as strapping bands and other packaging materials and goods of similar nature,
and any and all equipment, materials, supplies used or employed in or related to the
manufacture of such finished products.
Having registered as a value-added tax (VAT) taxpayer, respondent filed its quarterly returns
with the BIR, for the period January 1 to June 30, 1997, reflecting therein input taxes in the
amount of P4,631,132.70 paid by it in connection with its domestic purchase of capital goods
and services. Said input taxes remained unutilized since respondent has not engaged in any
business activity or transaction for which it may be liable for output tax and for which said
input taxes may be credited.
On November 11, 1998, respondent filed two (2) separate applications for tax credit/refund of
VAT input taxes paid for the period January 1 to March 31, 1997 and April 1 to June 30, 1997,
respectively. There being no action on its application for tax credit/refund, private respondent
filed, within the two (2)-year prescriptive period, a petition for review with the Court of Tax
Appeals on March 26, 1999.
Petitioner filed its Answer to the petition asseverating that:
(1) said claim for tax credit/refund is subject to administrative routinary investigation by the
BIR;
(2) respondent miserably failed to show that the amount claimed as VAT input taxes were
erroneously collected or that the same were properly documented;
(3) taxes due and collected are presumed to have been made in accordance with law, hence,
not refundable;
(4) the burden of proof is on the taxpayer to establish his right to a refund in an action for tax
refund. Failure to discharge such duty is fatal to his action;
(5) respondent should show that it complied with the provisions of Section 204 in relation to
Section 229 of the 1997 Tax Code; and
(6) claims for refund are strictly construed against the taxpayer as it partakes of the nature of
a tax exemption. Hence, petitioner prayed for the denial of respondent’s petition.
The CTA ruled that respondent was entitled to the refund. While the company was exempt
from income tax, it availed itself of the fiscal incentive under Executive Order No. 226 and
subjected itself to other internal revenue taxes like the VAT. The CTA then found that only
input taxes amounting to P4,377,102.26 were duly substantiated by invoices and Official
Receipts, while those amounting to P254,313.43 had not been sufficiently proven and were
thus disallowed.
The Court of Appeals upheld the Decision of the CTA. According to the CA, respondent had
complied with the procedural and substantive requirements for a claim by 1) submitting
receipts, invoices, and supporting papers as evidence; 2) paying the subject input taxes on
capital goods; 3) not applying the input taxes against any output tax liability; and 4) filing the
claim within the two-year prescriptive period under Section 229 of the 1997 Tax Code.
ISSUE: Whether or not respondent is entitled to the refund or issuance of tax credit certificate
in the amount of P4,377,102.26 as alleged unutilized input taxes paid on domestic purchase
of capital goods and services for the period covering January 1 to June 30, 1997.
HELD: YES.
The CA and CTA found that respondent had availed itself of the fiscal incentive of an income
tax holiday under Executive Order No. 226. This Court respects that factual finding. Absent a
sufficient showing of error, findings of the CTA as affirmed by the CA are deemed conclusive.
By availing itself of the income tax holiday, respondent became subject to the VAT. It correctly
registered as a VAT taxpayer, because its transactions were not VAT-exempt.

Notably, while an ecozone is geographically within the Philippines, it is deemed a separate
customs territory and is regarded in law as foreign soil. Sales by suppliers from outside the
borders of the ecozone to this separate customs territory are deemed as exports and treated
as export sales. These sales are zero-rated or subject to a tax rate of zero percent.
Notwithstanding the fact that its purchases should have been zero-rated, respondent was able
to prove that it had paid input taxes in the amount of P4,377,102.26 and that this amount was
substantially supported by invoices and Official Receipts.
On the other hand, since 100 percent of the products of respondent are exported, all its
transactions are deemed export sales and are thus VAT zero-rated. It has been shown that
respondent has no output tax with which it could offset its paid input tax. Since the subject
input tax it paid for its domestic purchases of capital goods and services remained unutilized,
it can claim a refund for the input VAT previously charged by its suppliers. The amount of
P4,377,102.26 is excess input taxes that justify a refund.
6. CIR v. Burmeister and Wain Scandanavian Contractor Mindanao, Inc.
512 SCRA 125 (2007)
FACTS: Respondent is a domestic corporation duly organized and existing under and by
virtue of the laws of the Philippines with principal address located at Daruma Building, Jose P.
Laurel Avenue, Lanang, Davao City.
It is represented that a foreign consortium composed of Burmeister and Wain Scandinavian
Contractor A/S (BWSC-Denmark), Mitsui Engineering and Shipbuilding, Ltd., and Mitsui and
Co., Ltd. entered into a contract with the National Power Corporation (NAPOCOR) for the
operation and maintenance of [NAPOCORs] two power barges. The Consortium appointed
BWSC-Denmark as its coordination manager.
BWSC-Denmark established [respondent] which subcontracted the actual operation and
maintenance of NAPOCORs two power barges as well as the performance of other duties
and acts which necessarily have to be done in the Philippines.
NAPOCOR paid capacity and energy fees to the Consortium in a mixture of currencies (Mark,
Yen, and Peso). On the other hand, the Consortium pays [respondent] in foreign currency
inwardly remitted to the Philippines through the banking system.
In order to ascertain the tax implications of the above transactions, [respondent] sought a
ruling from the BIR which responded with BIR Ruling No. 023-95 dated February 14, 1995,
declaring therein that if [respondent] chooses to register as a VAT person and the
consideration for its services is paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas, the aforesaid
services shall be subject to VAT at zero-rate.
[Respondent] chose to register as a VAT taxpayer. For the year 1996, [respondent]
seasonably filed its quarterly Value-Added Tax Returns reflecting, among others, a total zero-
rated sales of P147,317,189.62 with VAT input taxes of P3,361,174.14.
On December 29, 1997, [respondent] availed of the Voluntary Assessment Program (VAP) of
the BIR. It allegedly misinterpreted Revenue Regulations No. 5-96 dated February 20, 1996 to
be applicable to its case. In [conformity] with the aforecited Revenue Regulations,
[respondent] subjected its sale of services to the Consortium to the 10% VAT in the total
amount of P103,558,338.11 representing April to December 1996 sales since said Revenue
Regulations No. 5-96 became effective only on April 1996.
The sum of P43,893,951.07, representing January to March 1996 sales was subjected to zero
rate. Consequently, [respondent] filed its 1996 amended VAT return consolidating therein the
VAT output and input taxes for the four calendar quarters of 1996. It paid the amount of
P6,994,659.67 through BIRs collecting agent, PCIBank, as its output tax liability for the year
1996.
On January 7,1999, [respondent] was able to secure VAT Ruling No. 003-99 from the VAT
Review Committee which reconfirmed BIR Ruling No. 023-95 insofar as it held that the
services being rendered by BWSCMI is subject to VAT at zero percent (0%).
On the strength of the aforementioned rulings, [respondent] on April 22,1999, filed a claim for
the issuance of a tax credit certificate with Revenue District No. 113 of the BIR. [Respondent]
believed that it erroneously paid the output VAT for 1996 due to its availment of the Voluntary
Assessment Program (VAP) of the BIR.
On 27 December 1999, respondent filed a petition for review with the CTA in order to toll the
running of the two-year prescriptive period under the Tax Code.
In its 8 August 2001 Decision, the CTA ordered petitioner to issue a tax credit certificate for
P6,994,659.67 in favor of respondent stating that [Respondents’] sale of services to the
Consortium [was] paid for in acceptable foreign currency inwardly remitted to the Philippines
and accounted for in accordance with the rules and regulations of Bangko Sentral ng
Pilipinas.
Since it is apparent that the payments for the services rendered by [respondent] were indeed
subject to VAT at zero percent, it follows that it mistakenly availed of the Voluntary
Assessment Program by paying output tax for its sale of services.
Petitioner filed a petition for review with the Court of Appeals, which dismissed the petition for
lack of merit and affirmed the CTA decision.
The Court of Appeals affirmed the CTA ruling and found untenable petitioners contention that
under VAT Ruling No. 040-98, respondents services should be destined for consumption
abroad to enjoy zero-rating.
ISSUE: Whether respondent is entitled to the refund of P6,994,659.67 as erroneously paid
output VAT for the year 1996.
HELD: NO.
At the outset, the Court declares that the denial of the instant petition is not on the ground that
respondents services are subject to 0% VAT. Rather, it is based on the non-retroactivity of the
prejudicial revocation of BIR Ruling No. 023-95 and VAT Ruling No. 003-99, which held that
respondents services are subject to 0% VAT and which respondent invoked in applying for
refund of the output VAT.
In insisting that its services should be zero-rated, respondent claims that it complied with the
requirements of the Tax Code for zero rating under the second paragraph of Section 102(b).
Respondent is mistaken.
The Tax Code not only requires that the services be other than processing, manufacturing or
repacking of goods and that payment for such services be in acceptable foreign currency
accounted for in accordance with BSP rules. Another essential condition for qualification to
zero-rating under Section 102(b)(2) is that the recipient of such services is doing business
outside the Philippines. While this requirement is not expressly stated in the second
paragraph of Section 102(b), this is clearly provided in the first paragraph of Section 102(b)
where the listed services must be for other persons doing business outside the Philippines. In
short, services other than processing, manufacturing, or repacking of goods must likewise be
performed for persons doing business outside the Philippines.
Thus, when Section 102(b)(2) speaks of [s]ervices other than those mentioned in the
preceding subparagraph, the legislative intent is that only the services are different between
subparagraphs 1 and 2. The requirements for zero-rating, including the essential condition
that the recipient of services is doing business outside the Philippines, remain the same under
both subparagraphs.
Nevertheless, in seeking a refund of its excess output tax, respondent relied on VAT Ruling
No. 003-99, which reconfirmed BIR Ruling No. 023-95 insofar as it held that the services
being rendered by BWSCMI is subject to VAT at zero percent (0%). Respondent’s reliance on
these BIR rulings binds petitioner.
Petitioners filing of his Answer before the CTA challenging respondents claim for refund
effectively serves as a revocation of VAT Ruling No. 003-99 and BIR Ruling No. 023-95.
However, such revocation cannot be given retroactive effect since it will prejudice respondent.
Changing respondent’s status will deprive respondent of a refund of a substantial amount
representing excess output tax. Section 246 of the Tax Code provides that any revocation of a
ruling by the Commissioner of Internal Revenue shall not be given retroactive application if
the revocation will prejudice the taxpayer. Further, there is no showing of the existence of any
of the exceptions enumerated in Section 246 of the Tax Code for the retroactive application of
such revocation.
However, upon the filing of petitioners Answer dated 2 March 2000 before the CTA contesting
respondents claim for refund, respondents services shall be subject to the regular 10% VAT.
Such filing is deemed a revocation of VAT Ruling No. 003-99 and BIR Ruling No. 023-95.
7. ATLAS CONSOLIDATED MINING & DEVELOPMENT CORPORATION v.
COMMISSIONER OF INTERNAL REVENUE
[G.R. No. 134467, November 17, 1999]
ANTECEDENT FACTS: Atlas Consolidated Mining & Development Corporation (Atlas) is
engaged in the business of mining, production, and sale of various mineral products. It is duly
registered with the BIR as a VAT enterprise per its Registration No. 32-A-6-002224. Among
its sales are gold to the Central Bank, copper concentrates to the Philippines Smelting and
Refining Corp. (PASAR), and pyrite to Philippine Phosphates, Inc. (Philphos).
PASAR and Philphos are both Board of Investments (BOI) and Export Processing Zone
Authority (EPZA) registered export-oriented enterprises located in an EPZA zone and sales
made to them have been approved as zero-rated by the BIR effective April 21, 1988 and June
1, 1988, respectively.
Atlas filed a claim for refund/credit of VAT input taxes for the first quarter of 1990. CIR,
however, recommended only a portion of the total amount claimed after disallowing input tax
from sales to PASAR and PhilPhos, and those due to noncompliance with Article 108(a) of
the NIRC. In its computation, it also subjected the sale of gold to Central Bank with output tax.
It is CIR’s contention that in order for zero-rating to be applied, the purchaser must export
more than 70% of its total sales. Furthermore, CIR alleged that Atlas became VAT-registered
only starting August 15, 1990.
The CTA denied the appeal of Atlas, as well as its motion for reconsideration.
At the CA level, the court upheld VAT Ruling No. 008-92 regarding the schedule of taxes to
be imposed on VAT-registered entities, explaining that the "zero-percent rating" of BOI-
registered enterprises shall be set in proportion to the amount of its actual exports; and that
EPZA and BOI registrations were by themselves not enough for zero-rating to apply.
Finally, the CA ruled as mandatory the information which Revenue Regulation 5-87 required
to be stated in VAT invoices and receipts, as such information had already been prescribed
by Sections 108 (a) and 238 of the Tax Code and violations thereof were penalized under
Sections 111 and 263 of the same Code.
ISSUES:
1. Whether or not the petitioner is VAT-registered for the first quarter of 1990 and beyond.
2. Whether or not the totality of sales to EPZA-registered enterprises should be zero-rated,
not merely the proportion which such sales have to the actual exports of the enterprise.
3. Whether or not Section 21 of Revenue Regulations No. 5-87 is invalid, insofar as it went
beyond the law by disallowing input VAT for purchases not covered by VAT invoices.
RULING:
First issue: YES
In the Joint Stipulation of Facts, petitioner admitted that it was registered as a VAT enterprise
effective only from August 15, 1990, well beyond the first quarter of 1990, the period for which
it is applying for tax credit.
Generally, a judicial admission is binding on the declarant. However, such rule does not apply
when there is a showing that (1) the admission was made through a "palpable mistake," or
that (2) "no such admission was made."
As it appears in BIR Records, Atlas is registered as VAT enterprise with number 32-0-004622
and effective August 15, 1990. But the actual VAT Registration Certificate, which petitioner
mentioned in the stipulation, is numbered 32-A-6-002224 and became effective on January 1,
1988, thereby showing that petitioner had been VAT-registered even prior to the first quarter
of 1990. Clearly, there exists a discrepancy, since the VAT registration number stated in the
joint stipulation is NOT the one mentioned in the actual Certificate attached to the BIR
Records.
It was found that Atlas acquired another registration number, 32-0-004622, because
sometime during the third quarter of 1990, it moved its principal place of business to a
different revenue district. Its second registration as a VAT enterprise on August 15, 1990 was
made in compliance with Section 3 of Revenue Memo Circular No. 6-88, which required it to
re-register after it moved its principal place of business to another revenue district.
Under these circumstances, it is concluded that petitioner made a "palpable mistake" that can
be easily verified from the stipulated facts themselves and from other incontrovertible pieces
of evidence admitted by the other party. A patently clerical mistake in the stipulation of facts,
which would result in falsehood, unfairness and injustice, cannot be countenanced.
Second issue: YES
Again, the Joint Stipulation of Facts expressly states that petitioner's sales of raw materials
have been approved for zero-rating. Verily, the commissioner has already conceded that
PASAR and Philphos qualify as export-oriented enterprises whose export sales exceed 70
percent of their total annual production, and that petitioner's sales to them thus qualify for
zero-rating.
This status is demonstrated in (1) Revenue Regulation No. 2-88, wherein it recognized sales
to BOI-registered enterprises which export over 70% of its sales as zero-rated, subject to
certain conditions, (2) VAT Ruling No. 271-88 (dated June 24, 1988), wherein it was
recognized that sales to PHILPHOS are zero-rated, (3) letter dated April 18, 1988, whereby it
recognized that sales of copper concentrates to PASAR are zero-rated, and (4) VAT Ruling
No. 008-92, which states that the sale of raw materials to BOI-registered enterprises can
qualify for zero-rating—all of which are annexed in the Joint Stipulation of Facts.
Even an examination of Section 4.100.2 of Revenue Regulation 7-95 in relation to Section
102 (b) of the Tax Code shows that sales to an export-oriented enterprise whose export sales
exceed 70 percent of its annual production are to be zero-rated, provided the seller complies
with other requirements, like registration with the BOI and the EPZA. The said Regulation
does not even hint, much less expressly mention, that only a percentage of the sales would
be zero-rated. The internal revenue commissioner cannot, by administrative fiat, amend the
law by making compliance therewith more burdensome.
Third issue: NO
Atlas alleged that Section 21 of Revenue Regulation 5-87 is invalid in as much as it provides
that “Value-Added Tax, whether indicated as a separate item or not in the `VAT Invoice' shall
be allowed as input tax credits to those liable to the value-added tax. All purchases covered
by invoices other than `VAT Invoice' shall not be entitled to input taxes”—something not
provided for in Section 108 of the Tax Code. Petitioner insists that while Section 108 of the
Tax Code lists the information necessary for VAT Invoices, it is silent on the withholding of
input tax credits for purchases that are not subjects to VAT.
The Court held that Section 21 of Revenue Regulation 5-87 is not invalid, as it simply
prescribes the penalty for failure to comply with the accounting and invoicing requirements
laid down in Section 108, a penalty similar to that found in Sections 111 and 263. Section 111
of the Tax Code empowers the commissioner to suspend the business operations of VAT-
registered persons for the specific violations listed therein. Corollary thereto, punishment for
other types of violations similar to but other than those listed in Section 111 are provided for in
Section 263 of the Tax Code.
In short, Section 108 provides the guidelines and necessary requirements for VAT invoices;
Sections 111 and 263 of the Tax Code provide penalties for different types of violations of
Section 108; and Section 21 of Revenue Regulation 5-87 specifies the penalty for a specific
violation of Section 108.
 8. COMMISSIONER OF INTERNAL REVENUE v. AMERICAN EXPRESS
INTERNATIONAL, INC. (PHILIPPINE BRANCH)
[G.R. NO. 152609 : June 29, 2005]
ANTECEDENT FACTS: American Express International, Inc. (AMEX) is a servicing unit of
American Express International, Inc. – Hong Kong, engaged primarily to facilitate the
collections of the latter’s receivables from card members in the Philippines and payment to
service establishments in the Philippines.
As VAT-registered taxpayer, AMEX filed with the BIR a letter-request for the refund of its
excess input taxes for the third and fourth quarters of 1997. No action was made thus AMEX
filed a Petition for Review before the CTA. The claim for refund was based on the provisions
of Section 102 of the 1977 Tax Code. In addition, it relied on VAT Ruling No. 080-89, dated
April 3, 1989, which categorically stated that respondent’s service income is automatically
zero rated effective January 1, 1998, because it is a VAT registered entity whose service is
paid for in acceptable foreign currency which is remitted inwardly to the Philippines and
accounted for in accordance with the rules and regulations of the Central Bank of the
Philippines.
The CTA rendered a decision in favor of AMEX holding that its services are subject to zero-
rate pursuant to Section 108(b) of the 1997 Tax Code and Section 4.102-2 (b)(2) Revenue
Regulations 5-96.
CIR appealed before the CA relying on VAT Ruling No. 040-98. It alleged, among others, that
respondent’s services must be consumed abroad in order to be zero-rated.
In affirming the CTA, the CA held that respondent’s services are “services other than the
processing, manufacturing or repacking of goods for persons doing business outside the
Philippines.” The consideration was paid for in acceptable foreign currency and accounted for
in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas.
Furthermore, the CA reasoned that reliance on VAT Ruling No. 040-98 was unwarranted. By
requiring that respondent’s services be consumed abroad in order to be zero-rated, petitioner
went beyond the sphere of interpretation and into that of legislation. Even granting that it is
valid, the ruling cannot be given retroactive effect, for it will be harsh and oppressive to
respondent, which has already relied upon VAT Ruling No. 080-89 for zero rating.
ISSUE: Whether or not AMEX is entitled to tax refund.
RULING: YES.
Destination Principle
It is the contention of CIR that service needs to be done abroad in order to be zero-rated. As a
general rule, the VAT system uses the destination principle as a basis for the jurisdictional
reach of the tax. That is, goods and services are taxed only in the country where they are
consumed. Thus, exports are zero-rated, while imports are taxed.
As explained by the Court, consumption is “the use of a thing in a way that thereby exhausts
it.” For service oriented industries, it pertains to the successful completion of a contractual
duty, usually resulting in the performer’s release from any past or future liability.
In the present case, the services rendered by AMEX are performed or successfully completed
upon its sending to its foreign client the drafts and bills it has gathered from service
establishments here. Its services, having been performed in the Philippines, are therefore also
consumed in the Philippines. Under the destination principle, AMEX should have been subject
to VAT.
However, the law provides for an exception to the destination principle. To be exempt, (1)
the service be performed in the Philippines; (2) the service fall under any of the categories in
Section 102(b) of the Tax Code (NIRC of 1986); and, (3), it be paid in acceptable foreign
currency accounted for in accordance with BSP rules and regulations.
These requirements are met by respondent who is a VAT-registered person that facilitates the
collection and payment of receivables in the Philippines belonging to its non-resident foreign
client, for which it gets paid in acceptable foreign currency inwardly remitted and accounted
for in conformity with BSP rules and regulations. It falls under the second category found in
Section 102(b) of the Tax Code, because it is a service other than "processing, manufacturing
or repacking of goods" as mentioned in the provision. Thus, it should be zero-rated.
VAT Ruling Nos. 040-98 and 080-89
In arguing, CIR relied on VAT Ruling No. 040-98 on one hand, and on the other hand, AMEX
relied on the earlier VAT Ruling No. 080-89. The former’s reliance on the VAT Ruling which
provides that the service must be "destined for consumption outside of the Philippines" in
order to qualify for zero rating must fail as it contravenes both the law and the regulations
issued pursuant to it.
Assuming arguendo that VAT Ruling No. 040-98 revoked VAT Ruling No. 080-89, such
revocation could not be given retroactive effect as it will certainly deprive AMEX of a refund of
the substantial amount of excess input taxes to which it is entitled. Section 246 of the Tax
Code categorically declares that any revocation of the rulings promulgated by the
Commissioner shall not be given retroactive application if the revocation will be prejudicial to
the taxpayers.
9. ACCENTURE, INC. v. COMMISSIONER OF INTERNAL REVENUE
[G.R. NO. 190102 - July 11, 2012]
ANTECEDENT FACTS:
Accenture, Inc. (Accenture) is a corporation engaged in the business of providing
management consulting, business strategies development, and selling and/or licensing of
software. In its monthly and quarterly VAT returns, it showed that it had excess or unutilized
input VAT credits. For this, it filed with the Department of Finance (DOF) an administrative
claim for refund or the issuance of a Tax Credit Certificate (TCC).
There was no action from the DOF on the claim, hence, Accenture filed a Petition for Review
with the Court Tax Appeals (CTA)
The CTA Division denied the petition of Accenture for failing to prove that the latter’s sale of
services to the alleged foreign clients qualified for zero percent VAT citing Commissioner of
Internal Revenue v. Burmeister and Wain Scandinavian Contractor Mindanao, Inc.
(Burmeister) as basis. In Burmeister, the Court held that for a service to be considered zero-
rated, the recipient of the services must be doing business outside of the Philippines.
Accenture filed a Motion for Reconsideration saying that Burmeister does not apply to the
case since it was ruled when the 1977 Tax Code was still in force. The motion was denied by
the Division.
On appeal before the CTA En Banc, Accenture argued that nowhere does Section 108(B) of
the 1997 Tax Code state that services, to be zero-rated, should be rendered to clients doing
business outside the Philippines. It alleged that, prior to the amendment by RA 9337, what is
required is the consideration for the services rendered to be in foreign currency and in
accordance with the rules of the Bangko Sentral ng Pilipinas (BSP). Since Accenture had
already complied with all the conditions imposed in Section 108(B), it is entitled to the refund
prayed for.
The CTA En Banc ruled that although the 1997 Tax Code should govern as the case
pertained to the third and fourth quarters of the taxable year 2002, the ruling in Burmeister
was still applicable because Section 108(B)(2) of the 1997 Tax Code was a mere
reenactment of Section 102(b)(2) of the 1977 Tax Code. Hence, the Resolution of the Division
was affirmed.
ISSUES:
 Should the recipient of the services be "doing business outside the Philippines" for the
transaction to be zero-rated under Section 108(B)(2) of the 1997 Tax Code?
 Has Accenture successfully proven that its clients are entities doing business outside
the Philippines?
RULING:
Issue 1: YES
The Court upheld the position of the CTA en banc that, because Section 108(B) of the 1997
Tax Code is a verbatim copy of Section 102(b) of the 1977 Tax Code, any interpretation of the
latter holds true for the former.
In the Burmeister case, the Supreme Court harmonized both Sections 102(B)(1) and
102(B)(2) of the 1977 Tax Code, as amended, pertaining to zero-rated transactions. In
conjunction with Section 108(B)(1), Section 108(B)(2) requires as follows: a) services other
than processing, manufacturing or repacking rendered by VAT registered persons in the
Philippines; and b) the transaction paid for in acceptable foreign currency duly accounted for
in accordance with BSP rules and regulations. The same provision made reference to Section
108(B)(1) further imposing the requisite c) that the recipient of services must be performing
business outside of Philippines. Otherwise, if both the provider and recipient of service are
doing business in the Philippines, the sale transaction is subject to regular VAT.
These pronouncements may be applied to the present one without violating the rule against
retroactive application. “When this Court decides a case, it does not pass a new law, but
merely interprets a preexisting one.” In other words, an interpretation by the Court of
Section 102(b) of the 1977 Tax Code in Burmeister case became part of the law from the
moment it became effective—the interpretation merely establishes the contemporaneous
legislative intent that the interpreted law carried into effect.
Thus, as previously mentioned, an interpretation of Section 102(b) of the 1977 Tax Code is an
interpretation of Section 108 of the 1997 Tax Code, the latter being a mere reproduction of the
former.
Rationale for the requirement:
If the provider and recipient of the "other services" are both doing business in the Philippines,
the payment of foreign currency is irrelevant. Without the requirement, the payment of the
regular VAT would be dependent on the generosity of the taxpayer. The provider of services
can choose to pay the regular VAT or avoid it by stipulating payment in foreign currency
inwardly remitted by the payer-recipient. A tax is a mandatory exaction, not a voluntary
contribution.
Issue 2: NO
There is no specific criterion as to what constitutes "doing" or "engaging in" or "transacting"
business. Each case must be judged in the light of its peculiar environmental circumstances.
In order that a foreign corporation may be regarded as doing business within a State, there
must be continuity of conduct and intention to establish a continuous business, such as the
appointment of a local agent, and not one of a temporary character.
As ruled by the CTA En Banc, the Official Receipts, Intercompany Payment Requests, Billing
Statements, Memo Invoices-Receivable, Memo Invoices-Payable, and Bank Statements
presented by Accenture merely substantiated the existence of sales, receipt of foreign
currency payments, and inward remittance of the proceeds of such sales duly accounted for
in accordance with BSP rules, all of these were devoid of any evidence that the clients were
doing business outside of the Philippines.
The evidence presented by Accenture may have established that its clients are foreign. This
fact does not automatically mean, however, that these clients were doing business outside the
Philippines.
A taxpayer claiming a tax credit or refund has the burden of proof to establish the factual
basis of that claim. Tax refunds, like tax exemptions, are construed strictly against the
taxpayer.
10. COMMISSIONER OF INTERNAL REVENUE v. PHILIPPINE HEALTH CARE
PROVIDERS, INC.
[G.R. NO. 168129 : April 24, 2007]
FACTS: Before the VAT Law (E.O. No. 273) took effect, Philippine Health Care Providers,
Inc. (PhilHealth) wrote the Commissioner of Internal Revenue (CIR) asking whether its
services which consist of operating a prepaid group practice health care delivery system to its
members are subject to VAT.
On June 8, 1998, the CIR responded through the issuance of VAT Ruling No. 231-88 stating
that respondent, a provider of medical services, is exempt from the VAT coverage. This was
also confirmed by the Regional Director Umali of Revenue Region No. 8.
Subsequently, on January 1, 1996, Expanded-VAT Law (R.A. No. 7716) took effect.
On January 1, 1998, the new Tax Code or the National Internal Revenue Code of 1997 (R.A.
8424) took effect and substantially adopted and reproduced VAT and E-VAT provisions of the
two special laws.
A Preliminary Assessment Notice was sent to PhilHealth on October 1, 1999 for deficiency
payments in VAT and DST for the taxable years 1996 and 1997. This was followed by a
demand letter from the CIR dated January 27, 2000 in the amount totaling P224, 702, 641.18.
PhilHealth protested against these two letters.
Following the nonaction by CIR on its protests, PhilHealth filed with the CTA a petition for
review. The CTA rendered its decision on April 5, 2002 partially granting the petition,
cancelling and setting aside the deficiency DST assessment and lowering the amount of
deficiency VAT. Accordingly, VAT Ruling No. 231-88 was declared void and without force
effect.
Upon Motion for Partial Reconsideration by PhilHealth, the CTA modified its earlier decision.
Accordingly, the VAT assessment for 1996 and 1997 was withdrawn and set aside.
CIR appealed before the CA. The CA affirmed the CTA Resolution.
ISSUES:
1. Whether respondent’s services are subject to VAT;
2. Whether respondent is exempted from VAT based on VAT Ruling No. 231-88.
RULING:
Issue 1: YES.
Section 102 of the NIRC of 1977, as amended, subjects any “sale or exchange of service” to
10% VAT, but the Code also exempts taxpayers engaged in the performance of medical,
dental, hospital, and veterinary services from VAT under Section 103.
PhilHealth is engaged in what is described as prepaid group practice health care delivery
system, wherein based on a health care program, members are entitled to medical services to
be dispensed by participating health practitioners in a hospital or clinic owned, operated, or
accredited by Health Care. Members must be enrolled in a health care program and pay an
annual fee. Enrollment in Health Care's health care program is on a year-to-year basis and
enrollees are issued identification cards.
As correctly held by CTA, respondent "is not actually rendering medical service but
merely acting as a conduit between the members and their accredited and recognized
hospitals and clinics." Neither modified nor reversed by the CA, these factual findings shall
be regarded as final, binding, and conclusive. Therefore, the respondent’s services are not
exempt from VAT as these are not the “medical services” contemplated under Section 103 of
the Code.
Issue 2: YES
Generally, rulings, circulars, rules and regulations promulgated by the CIR have no retroactive
application if to apply them would prejudice the taxpayer.
The exceptions to this rule are:
 where the taxpayer deliberately misstates or omits material facts from his return or in
any document required of him by the Bureau of Internal Revenue;
 the facts subsequently gathered by the Bureau of Internal Revenue are materially
different from the facts on which the ruling is based; or
 where the taxpayer acted in bad faith. (Section 246, 1997 Tax Code)
When PhilHealth wrote the CIR in 1987 asking for its VAT liability, it did not describe itself as
a health maintenance organization, which is subject to VAT. However, such failure is not
tantamount to bad faith. When VAT Ruling No. 231-88 was issued in respondent's favor, the
term "health maintenance organization" was yet unknown or had no significance for taxation
purposes. The term "health maintenance organization" was first recorded in the Philippine
statute books only upon the passage of "The National Health Insurance Act of 1995"
(Republic Act No. 7875). Section 4 (o) (3) thereof defines a health maintenance organization
as "an entity that provides, offers, or arranges for coverage of designated health services
needed by plan members for a fixed prepaid premium." Under this law, a health maintenance
organization is one of the classes of a "health care provider." Respondent, therefore, believed
in good faith that it was VAT exempt for the taxable years 1996 and 1997 on the basis of VAT
Ruling No. 231-88.
As held previously by the Court, “the Commissioner of Internal Revenue is precluded
from adopting a position contrary to one previously taken where injustice would result
to the taxpayer.” In this case, the CIR cannot deny the tax exemption it granted previously to
PhilHealth in taxable years 1996 and 1997 and demand payment based on newer rulings
because the retroactive application thereof would be prejudicial to the taxpayer.
11. Tambunting v. C.I.R.
(G.R. No. 179085, January 21, 2010)
Facts: Herein petitioner, Tambunting was issued an assessment for VAT deficiency for the
year 1999, to which the petitioner filed a protest but was not acted upon by the CIR. The
petitioner filed a petition for review with the Court of Tax Appeals asserting that they are not
subject to VAT under the NIRC. The CTA however did not agree, and held them liable to the
VAT deficiency. The petitioner is now asserting before the SC that Tambunting is a pawnshop
and is not one of those enumerated as engaged in sale or exchange of services in Section
108 of the NIRC.
Issue: W/N Tambuting is liable for the VAT deficiency for the year 1999.
SC Ruling: NO. The court in its discussion explained that prior to the passage of the EVAT
law in 1994, pawnshops were treated as lending investors subject to lending investor’s tax.
Then, as per jurisprudence (Lhuillier Case in 2003), the SC ruled that pawnshops are VAT-
able under Sec. 108(a) of the Tax Code. Subsequently, upon the advent of R.A. 9238 (2004)
pawnshops were classified as “Other non-bank financial intermediaries”
In view of the foregoing, the following rule applies: before the EVAT-Law was enacted ( prior
to 1994), pawnshops are subject to 5% percentage tax on gross receipts imposed on bank
and non-bank financial intermediaries under 121 of the Tax Code of 1997. And with the
imposition of the VAT under R.A. No. 7716 or the EVAT Law, pawnshops are subject to the
10% VAT imposed on banks and non-bank financial intermediaries and financial institutions
under Section 108 of the Tax Code of 1997 but the EVAT-Law was amended by R.A. No.
8241 which mandated that the levy, collection and assessment of the 10% VAT be made
effective only on January 1, 1998.
Under R.A. No. 8424 or the Tax Reform Act of 1997 pawnshops are subject to a 10% VAT
under Section 108 but the levy, collection and assessment thereof were again deferred until
December 31, 1999. This was again further deferred by R.A. No. 8761 until December 31,
2000. R.A. No. 9010, yet again deferred this until December 31, 2002. With no further
deferments given by law, the levy, collection and assessment of the 10% VAT on banks, non-
bank financial intermediaries, finance companies, and other financial intermediaries not
performing quasi-banking functions were finally made effective beginning January 1, 2003.
Finally, with the enactment of R.A. No. 9238 in 2004, the services of banks, non-bank
financial intermediaries, finance companies, and other financial intermediaries not performing
quasi-banking functions were specifically exempted from VAT, and the 0% to 5% percentage
tax on gross receipts on other non-bank financial intermediaries was reimposed under Section
122 of the Tax Code of 1997.
In conclusion, since petitioner is a non-bank financial intermediary, it is subject to 10% VAT
for the tax years 1996 to 2002. However, with its levy, assessment and collection being
specifically deferred by law, petitioner is not liable for VAT during these tax years. But with the
full implementation of the VAT system on non-bank financial intermediaries starting January
1, 2003, petitioner is liable for 10% VAT for said tax year. And beginning 2004 up to the
present, by virtue of R.A. No. 9238, pawnshops are no longer liable for VAT but it is subject to
percentage tax on gross receipts from 0% to 5%.
12. Timbol v. Sec. of Finance
(G.R. No. 193007, July 19, 2011)
Facts: Aurora Ma. F. Timbol instituted an action for declaratory relief challenging the validity
of the impending imposition of VAT by the BIR on the collections of tollway operators.
Petitioners hold the view that Congress did not, when it enacted the NIRC, intend to include
toll fees within the meaning of "sale of services" that are subject to VAT and that a toll fee is a
"user's tax," not a sale of services and since VAT was never factored into the formula for
computing toll fees, its imposition would violate the non-impairment clause of the constitution.
The government in return asserts that the NIRC imposes VAT on all kinds of services of
franchise grantees, including tollway operations. The government also argues that the non-
impairment of contracts clause is inapplicable because they clearly have no personal interest
in existing toll operating agreements between the government and tollway operators. More
importantly, the non-impairment clause cannot limit the State's taxing power.
Issue: Are toll fees subject to VAT?
SC Ruling: YES. The toll fee is not a user’s tax and thus it is permissible to impose a VAT on
the said fee. This is because toll fees are collected by private operators as reimbursement for
their costs and expenses with a view to a profit while taxes are imposed by the government as
an attribute of its sovereignty. Even so, if the toll fees were treated as user’s tax, the VAT can
not be deemed as a ‘tax on tax’ because it is imposed on the tollway operator and the fact
that it might pass-on the same to the tollway user, it will not make the latter directly liable for
VAT since the shifted VAT simply becomes part of the cost to use the tollways. Finally, VAT
is imposed on “all kinds of services” and tollway operators who are engaged in constructing,
maintaining, and operating expressways are no different from lessors of property,
transportation contractors, or the like.
13. C.I.R. v. Seagate Tech.
(G.R. No. 153866, February 11, 2005)
Facts: Respondent is a resident foreign corporation registered with the Philippine Export
Zone Authority or PEZA. It is Value Added Tax-registered, and it filed for VAT returns. On
October 4, 1999 it filed a claim for refund of VAT input taxes in the amount of P28,369,226.38
inclusive of the P12,267,981.04 VAT input taxes subject of this Petition for Review, but no
action has been received from the petitioner CIR on the claim for VAT refund.
Seagate elevated the case to CTA by way of Petition for review in order to toll the running of
prescriptive period. Before the CTA, CIR asserted that by virtue of the PEZA registration
alone of respondent, its business is not subject to VAT. As such, the capital goods and
services it purchased are considered not used in VAT taxable business. Thus, it is not entitled
to refund of input taxes on such capital goods pursuant to Section 4.106.1 of Revenue
Regulations No. ([RR])7-95, and of input taxes on services pursuant to Section 4.103 of said
regulations. The CTA granted the claim for refund in the reduced amount of P12,122,922.66.
This sum represented the unutilized but substantiated input VAT paid on capital goods
purchased for the period covering April 1, 1998 to June 30, 1999.
Issue: Is Seagate Tech. Entitled to VAT refund under the circumstances?
SC Ruling: YES. Although the petitioner claimed that the capital goods and services
respondent has purchased are not considered used in the VAT taxable business, and thus no
VAT refund or credit is due, still the SC was not convinced. It held that by the very nature of
VAT as a tax on consumption, the capital goods and services respondent has purchased are
subject to the VAT, although at zero rate.
Respondent, a VAT and PEZA registered enterprises not subject to internal revenue laws and
regulations and is even entitled to tax credits. Special laws expressly grant preferential tax
treatment to business establishments registered and operating within an ecozone, which by
law is considered as a separate customs territory. As such, respondent is exempt from all
internal revenue taxes, including the VAT, and regulations pertaining thereto. Lastly,
respondent complied with all the requisites for claiming a VAT refund or credit.
First, respondent is a VAT-registered entity. Second, the input taxes paid on the capital goods
of respondent are duly supported by VAT invoices and have not been offset against any
output taxes.
14. Fort Bonifacio Dev. Corp. v. C.I.R.
(G.R. No. 173425, September 4, 2012)
Facts: FBDC purchased from the national government a portion of the Fort Bonifacio
reservation sometime in 1995. On January 1, 1996, upon the advent of RA 7716, real
properties held primarily for sale to customers or held for lease in the ordinary course of trade
or business were subjected to VAT. Thus, FBDC sought to register by submitting to BIR an
inventory of all its real properties, the book value of which amounted to a little over P70
Billion.
In 1996, FBDC sold Global City lots to interested buyers and for the first quarter of 1997, it
paid the output VAT to the BIR and credited its unutilized input tax credit on purchases of
goods and services. Realizing that its 8% transitional input tax credit was not applied in
computing its output VAT for the first quarter of 1997, FBDC filed with the BIR a claim for
refund of the amount erroneously paid as output VAT for the said period.
The CTA denied refund on the ground that the benefit of transitional input tax credit comes
with the condition that business taxes should have been paid first. It contends that since
FBDC acquired the Global City property under a VAT-free sale transaction, it cannot avail of
the transitional input tax credit. Before the SC, petitioner now raises three major issues.
Issue: Is prior payment of taxes required in availing of the transitional input tax credit?
SC Ruling: No. Sec. 105 of the old National Internal Revenue Code clearly provides that for a
taxpayer to avail of the 8% transitional input tax credit, all that is required from the taxpayer is
to file a beginning inventory with the Bureau of Internal Revenue. It was never mentioned in
Section 105 that prior payment of taxes is a requirement. To require it now would result in
judicial legislation, furthermore, input tax credit is not a tax refund. Tax refund is defined as
the money that a taxpayer overpaid and is thus returned by the taxing authority. Tax credit, on
the other hand, is an amount subtracted directly from one’s total tax liability. It is any amount
given to a taxpayer as a subsidy or an incentive to encourage investment.
15. INTEL TECHNOLOGY PHILIPPINES, INC., vs. COMMISSIONER OF
INTERNAL REVENUE
│G.R. No. 166732│April 27, 2007|
Facts: Intel is a domestic corporation engaged primarily in the business of designing,
developing, manufacturing and exporting advanced and large- scale integrated circuit
components (ICs). It is registered with the BIR as a value-added tax (VAT) entity in 1996; it is
likewise registered with the PEZA as an Ecozone export enterprise.
As a VAT-registered entity, petitioner filed with the CIR its Monthly VAT Declarations and
Quarterly VAT Return for the second quarter of 1998 declaring zero-rated export sales of
₱2,538,906,840.16 and VAT input taxes from domestic purchases of goods and services in
the total amount of ₱11,770,181.70.
On May 18, 1999, petitioner filed with the CIR a claim for tax credit/refund of VAT input taxes
on its domestic purchases of goods and services directly used in its commercial operations.
Petitioner’s claim for refund amounted to ₱11,770,181.70 covering the period April 1, 1998 to
June 30, 1998. When the two-year prescriptive period to file a refund was about to lapse
without any action by the CIR on its claim, petitioner filed with the CTA a petition for review
with the Commissioner of Internal Revenue (Commissioner) as respondent.
CTA rendered judgment denying petitioner’s claim for refund or issuance of a tax credit
certificate. Petitioner filed a Motion for Reconsideration and Supplemental Motion for
Reconsideration which was denied. Aggrieved, petitioner filed before the CA a petition for
review of the tax court’s decision. CA rendered its Decision affirming the CTA ruling. Hence
this petition.
Issues:
(1) Whether the absence of the BIR authority to print or the absence of the TIN-V in
petitioner’s export sales invoices operates to forfeit its entitlement to a tax refund/credit of its
unutilized input VAT attributable to its zero-rated sales; and
(2) Whether petitioner’s failure to indicate "TIN-V" in its sales invoices automatically
invalidates its claim for a tax credit certification.
Ruling: The petition is partially granted.
Under Sections 106 (A)(2)(a)(1) in relation to 112(A) of the Tax Code, a taxpayer engaged in
zero-rated or effectively zero-rated transactions may apply for a refund or issuance of a tax
credit certificate for input taxes paid attributable to such sales upon complying with the
following requisites: (1) the taxpayer is engaged in sales which are zero-rated (like export
sales) or effectively zero-rated; (2) the taxpayer is VAT-registered; (3) the claim must be filed
within two years after the close of the taxable quarter when such sales were made; (4) the
creditable input tax due or paid must be attributable to such sales, except the transitional input
tax, to the extent that such input tax has not been applied against the output tax; and (5) in
case of zero-rated sales under Section 106(A)(2)(a)(1) and (2), Section 106(B), and Section
108(B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly
accounted for in accordance with BSP rules and regulations. It is added that, "where the
taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt
sale of goods or properties or services, and the amount of creditable input tax due or paid
cannot be directly or entirely attributed to any one of the transactions, it shall be allocated
proportionately on the basis of the volume of the sales."
In this connection, petitioner’s evidence, juxtaposed with the requirements of Sections 106
(A)(2)(a)(1) and 112(A) of the Tax Code, as enumerated earlier, sufficiently establish that it is
entitled to a claim for refund or issuance of a tax credit certificate for creditable input taxes.
Significantly, the CTA and the CA have similarly found petitioner to be legally entitled to a
claim for refund or issuance of tax credit certificate of its unutilized VAT input taxes on
domestic purchases of goods and services attributable to its zero-rated sales.
As correctly argued by petitioner, there is no law or BIR rule or regulation requiring
petitioner’s authority from the BIR to print its sales invoices (BIR authority to print) to
be reflected or indicated therein.
It is clear that while entities engaged in business are required to secure from the BIR an
authority to print receipts or invoices and to issue duly registered receipts or invoices, it is not
required that the BIR authority to print be reflected or indicated therein. Only the
following items are required to be indicated in the receipts or invoices: (1) a statement that the
seller is a VAT-registered entity followed by its TIN-V; (2) the total amount which the
purchaser pays or is obligated to pay to the seller with the indication that such amount
includes the value-added tax; (3) date of the transaction; (4) quantity of merchandise; (5) unit
cost; (6) description of merchandise or nature of service; (7) the name, business style, if any,
and address of the purchaser, customer or client in the case of sales, receipt or transfers in
the amount of ₱100.00 or more, or regardless of the amount, where the sale or transfer is
made by a person liable to VAT to another person also liable to VAT, or where the receipt is
issued to cover payment made as rentals, commissions, compensations or fees; and (8) the
TIN of the purchaser where the purchaser is a VAT-registered person.
It should be noted that petitioner is engaged in export sales, such that the purchasers of its
goods are foreign entities, which are, logically, not VAT-registered in our country or liable to
pay VAT in our jurisdiction. Items (7) and (8) in the above enumeration do not, thus, apply to
petitioner; that is, they need not be reflected or indicated in the invoices or receipts, given that
it is an entity engaged in export sales, and the purchasers of its goods which are foreign
entities are not VAT-registered in our country nor liable to pay VAT in our jurisdiction.
In any case, the provisions of law and revenue regulations do not provide that failure to
reflect or indicate in the invoices or receipts the BIR authority to print, as well as the
TIN-V, would result in the outright invalidation of these invoices or receipts. Neither is it
provided that such omission or failure would result in the outright denial of a claim for tax
credit/refund. Instead, Section 264 of the Tax Code imposes the penalty of fine and
imprisonment for, among others, invoices or receipts that do not truly reflect or contain all the
required information.
The appellate court’s reliance on RMC No. 42-2003 is misplaced. In any case, the said
Circular was issued on July 15, 2003 while petitioner’s claim was filed on May 18, 1999.
Hence, RMC No. 42-2003 cannot be applied retroactively because to do so would be
prejudicial to petitioner. In a long line of cases, the Court has affirmed that the rulings,
circulars, rules and regulations promulgated by the Commissioner on Internal Revenue would
have no retroactive application if to so apply them would be prejudicial to the taxpayers.
It bears reiterating that while the pertinent provisions of the Tax Code and the rules and
regulations implementing them require entities engaged in business to secure a BIR authority
to print invoices or receipts and to issue duly registered invoices or receipts, it is not
specifically required that the BIR authority to print be reflected or indicated therein. Indeed,
what is important with respect to the BIR authority to print is that it has been secured or
obtained by the taxpayer, and that invoices or receipts are duly registered.
In a claim for refund or issuance of a tax credit certificate attributable to zero-rated sales, what
is to be closely scrutinized is the documentary substantiation of the input VAT paid, as may be
proven by other export documents, rather than the supporting documents for the zero-rated
export sales. And since petitioner has established by sufficient evidence that it is
entitled to a refund or issuance of a tax credit certificate, in accordance with the
requirements of Sections 106 (A)(2)(a)(1) and 112(A) of the Tax Code, then its claim
should not be denied, notwithstanding its failure to state on the invoices the BIR
authority to print and the TIN-V.
What applies to petitioner, as a PEZA-registered export enterprise, is the Court’s
pronouncement that leniency in the implementation of the VAT is an imperative, precisely to
spur economic growth in the country and attain global competitiveness as envisioned in our
laws. The incentives offered to PEZA enterprises, among which are tax exemptions and tax
credits, ultimately redound to the benefit of the national economy, enticing as they do more
enterprises to invest and do business within the zones, thus creating more employment
opportunities and infusing more dynamism to the vibrant interplay of market forces.
Even as the Court now holds that petitioner is legally entitled to a refund or issuance of a tax
credit certificate of its unutilized VAT input taxes on domestic purchases of goods and
services attributable to its zero-rated sales, the case shall nevertheless be remanded to the
CTA for proper determination and computation of petitioner’s tax credit/refund.
16. EASTERN TELECOMMUNICATIONS PHILIPPINES, INC., vs. THE
COMMISSIONER OF INTERNAL REVENUE
|G.R. No. 168856│August 29, 2012|
Facts: Petitioner Eastern Telecommunications Philippines, Inc. (ETPI) is a duly authorized
corporation engaged in telecommunications services by virtue of a legislative franchise. It has
entered into various international service agreements with international non-resident
telecommunications companies and it handles incoming telecommunications services for non-
resident foreign telecommunication companies and the relay of said international calls within
the Philippines. In addition, to broaden the coverage of its distribution of telecommunications
services, it executed several interconnection agreements with local carriers for the receipt of
foreign calls relayed by it and the distribution of such calls to the intended local end-receiver.
From these services to non-resident foreign telecommunications companies, ETPI generates
foreign currency revenues which are inwardly remitted in accordance with the rules and
regulations of the BSP to its US dollar accounts in banks. The manner and mode of payments
follow the international standard as set forth in the Blue Book or Manual prepared by the
Consultative Commission of International Telegraph and Telephony.
ETPI seasonably filed its Quarterly Value-Added Tax (VAT) Returns for the year 1999, later
amended on February 22, 2001. Believing that it is entitled to a refund for the unutilized input
VAT attributable to its zero-rated sales, ETPI filed with the BIR an administrative claim for
refund and/or tax credit in the amount of P 23,070,911.75 representing excess input VAT
derived from its zero-rated sales for the period from January 1999 to December 1999.
On March 26, 2001, without waiting for the decision of the BIR, ETPI filed a petition for review
before the CTA to toll the running of the two-year prescriptive period. In its Decision, the CTA
(CTA-Division) denied the petition for lack of merit, finding that ETPI failed to imprint the word
"zero-rated" on the face of its VAT invoices or receipts, in violation of Revenue Regulations
No. 7-95. In addition, ETPI failed to substantiate its taxable and exempt sales, the verification
of which was not included in the examination of the commissioned independent certified
public accountant.
Aggrieved, ETPI elevated the case to the CTA-En Banc, which promulgated its Decision
dismissing the petition and affirming the decision of the CTA-Division. ETPI filed a motion for
reconsideration, but it was denied by the CTA-En Banc. Hence, this petition.
Issue: Whether ETPI’s failure to imprint the word "zero-rated" on its invoices or receipts is
fatal to its claim for tax refund or tax credit for excess input VAT.
Ruling: Imprinting of the word "zero-rated" on the invoices or receipts is required
Section 244 of the NIRC explicitly grants the Secretary of Finance the authority to promulgate
the necessary rules and regulations for the effective enforcement of the provisions of the tax
code. Such rules and regulations "deserve to be given weight and respect by the courts in
view of the rule-making authority given to those who formulate them and their specific
expertise in their respective fields."
Consequently, the following invoicing requirements enumerated in Section 4.108-1 of
Revenue Regulations No. 7-95 must be observed by all VAT-registered taxpayers:
Sec. 4.108-1. Invoicing Requirements. – All VAT-registered persons shall, for every sale or
lease of goods or properties or services, issue duly registered receipts or sales or commercial
invoices which must show: 1. the name, TIN and address of seller; 2. date of transaction; 3.
quantity, unit cost and description of merchandise or nature of service; 4. the name, TIN,
business style, if any, and address of the VAT-registered purchaser, customer or client; 5. the
word "zero-rated" imprinted on the invoice covering zero-rated sales; and 6. the invoice
value or consideration. Xxx
The need for taxpayers to indicate in their invoices and receipts the fact that they are zero-
rated or that its transactions are zero-rated became more apparent upon the integration of the
above quoted provisions of Revenue Regulations No. 7-95 in Section 113 of the NIRC
enumerating the invoicing requirements of VAT-registered persons when the tax code was
amended by Republic Act (R.A.) No. 9337. A consequence of failing to comply with the
invoicing requirements is the denial of the claim for tax refund or tax credit.
If the claim for refund/TCC is based on the existence of zero-rated sales by the taxpayer but it
fails to comply with the invoicing requirements in the issuance of sales invoices (e.g. failure to
indicate the TIN), its claim for tax credit/refund of VAT on its purchases shall be denied
considering that the invoice it is issuing to its customers does not depict its being a VAT-
registered taxpayer whose sales are classified as zero-rated sales. Nonetheless, this
treatment is without prejudice to the right of the taxpayer to charge the input taxes to the
appropriate expense account or asset account subject to depreciation, whichever is
applicable. Moreover, the case shall be referred by the processing office to the concerned BIR
office for verification of other tax liabilities of the taxpayer.
In this regard, the Court has consistently held that the absence of the word "zero-rated" on the
invoices and receipts of a taxpayer will result in the denial of the claim for tax refund. In
Panasonic Communications Imaging Corporation of the Philippines v. Commissioner of
Internal Revenue, the court ruled that the appearance of the word "zero-rated" on the face of
invoices covering zero-rated sales prevents buyers from falsely claiming input VAT from their
purchases when no VAT was actually paid. If, absent such word, a successful claim for input
VAT is made, the government would be refunding money it did not collect.
Further, the printing of the word "zero-rated" on the invoice helps segregate sales that are
subject to 10% (now 12%) VAT from those sales that are zero-rated. Unable to submit the
proper invoices, petitioner Panasonic has been unable to substantiate its claim for refund.
Tax refunds are strictly construed against the taxpayer; ETPI failed to substantiate its claim
ETPI should be reminded of the well-established rule that tax refunds, which are in the nature
of tax exemptions, are construed strictly against the taxpayer and liberally in favor of the
government. This is because taxes are the lifeblood of the nation. Thus, the burden of proof is
upon the claimant of the tax refund to prove the factual basis of his claim. Unfortunately, ETPI
failed to discharge this burden.
17. SILICON PHILIPPINES, INC., (Formerly INTEL PHILIPPINES
MANUFACTURING, INC.) vs. COMMISSIONER OF INTERNALREVENUE
|G.R. No. 172378│ January 17, 2011|
DOCTRINE: The burden of proving entitlement to a refund lies with the claimant.
Facts: Petitioner Silicon Philippines, Inc., a corporation duly organized and existing under and
by virtue of the laws of the Republic of the Philippines, is engaged in the business of
designing, developing, manufacturing and exporting advance and large-scale integrated
circuit components or ICs. Petitioner is registered with the Bureau of Internal Revenue (BIR)
as a Value Added Tax (VAT) taxpayer and with the Board of Investments (BOI) as a preferred
pioneer enterprise.
On May 21, 1999, petitioner filed with the respondent CIR, an application for credit/refund of
unutilized input VAT for the period October 1, 1998 to December 31, 1998 in the amount
of P31,902,507.50.
On December 27, 2000, due to the inaction of the respondent, petitioner filed a Petition for
Review with the CTA Division.
On November 18, 2003, the CTA Division rendered a Decision partially granting petitioners
claim for refund of unutilized input VAT on capital goods. Out of the amount
of P15,170,082.00, only P9,898,867.00 was allowed to be refunded because training
materials, office supplies, posters, banners, T-shirts, books, and other similar items
purchased by petitioner were not considered capital goods under Section 4.106-1(b) of
Revenue Regulations (RR) No. 7-95 (Consolidated Value-Added Tax Regulations). With
regard to petitioners claim for credit/refund of input VAT attributable to its zero-rated export
sales, the CTA Division denied the same because petitioner failed to present an Authority to
Print (ATP) from the BIR; neither did it print on its export sales invoices the ATP and the word
zero-rated.
Not satisfied with the Decision, petitioner moved for reconsideration. On its part, respondent
filed a Motion for Partial Reconsideration. The CTA Division denied both motions in a
Resolution. Undaunted, petitioner elevated the case to the CTA En Banc via a Petition for
Review which was later denied for lack of merit. Petitioner sought reconsideration of the
assailed Decision but the CTA En Banc denied the Motion in a Resolution. Hence the instant
petition.
Issues:
(1) whether the CTA En Banc erred in denying petitioners claim for credit/ refund of input VAT
attributable to its zero-rated sales in the amount of P16,732,425.00 due to its failure:
(a) to show that it secured an ATP from the BIR and to indicate the same in its export
sales invoices; and
(b) to print the word zero-rated in its export sales invoices.
(2) whether the CTA En Banc erred in ruling that only the amount of P9,898,867.00 can be
classified as input VAT paid on capital goods.
Ruling: The petition is bereft of merit.
Before us are two types of input VAT credits. One is a credit/refund of input VAT attributable
to zero-rated sales under Section 112 (A) of the NIRC, and the other is a credit/refund of input
VAT on capital goods pursuant to Section 112 (B) of the same Code.
Credit/refund of input VAT on zero-rated sales
In a claim for credit/refund of input VAT attributable to zero-rated sales, Section 112 (A) of the
NIRC lays down four requisites, to wit:
1) the taxpayer must be VAT-registered;
2) the taxpayer must be engaged in sales which are zero-rated or effectively zero-rated;
3) the claim must be filed within two years after the close of the taxable quarter when such
sales were made; and
4) the creditable input tax due or paid must be attributable to such sales, except the
transitional input tax, to the extent that such input tax has not been applied against the output
tax.
Printing the ATP on the invoices or receipts is not required
It has been settled in Intel Technology Philippines, Inc. v. Commissioner of Internal Revenue
that the ATP need not be reflected or indicated in the invoices or receipts because there is no
law or regulation requiring it. Thus, in the absence of such law or regulation, failure to print the
ATP on the invoices or receipts should not result in the outright denial of a claim or the
invalidation of the invoices or receipts for purposes of claiming a refund.
ATP must be secured from the BIR
But while there is no law requiring the ATP to be printed on the invoices or receipts, Section
238 of the NIRC expressly requires persons engaged in business to secure an ATP from the
BIR prior to printing invoices or receipts. Failure to do so makes the person liable under
Section 264 of the NIRC.
This brings us to the question of whether a claimant for unutilized input VAT on zero-rated
sales is required to present proof that it has secured an ATP from the BIR prior to the printing
of its invoices or receipts.
We rule in the affirmative.
Under Section 112 (A) of the NIRC, a claimant must be engaged in sales which are zero-rated
or effectively zero-rated. To prove this, duly registered invoices or receipts evidencing zero-
rated sales must be presented. However, since the ATP is not indicated in the invoices or
receipts, the only way to verify whether the invoices or receipts are duly registered is by
requiring the claimant to present its ATP from the BIR. Without this proof, the invoices or
receipts would have no probative value for the purpose of refund. In the case of Intel, we
emphasized that: It bears reiterating that while the pertinent provisions of the Tax Code and
the rules and regulations implementing them require entities engaged in business to secure a
BIR authority to print invoices or receipts and to issue duly registered invoices or receipts, it is
not specifically required that the BIR authority to print be reflected or indicated
therein. Indeed, what is important with respect to the BIR authority to print is that it has been
secured or obtained by the taxpayer, and that invoices or receipts are duly registered.
Failure to print the word zero-rated on the sales invoices is fatal to a claim for refund of
input VAT
Similarly, failure to print the word zero-rated on the sales invoices or receipts is fatal to a claim
for credit/refund of input VAT on zero-rated sales.
In Panasonic Communications Imaging Corporation of the Philippines (formerly Matsushita
Business Machine Corporation of the Philippines) v. Commissioner of Internal Revenue, we
upheld the denial of Panasonics claim for tax credit/refund due to the absence of the word
zero-rated in its invoices. We explained that compliance with Section 4.108-1 of RR 7-95,
requiring the printing of the word zero rated on the invoice covering zero-rated sales, is
essential as this regulation proceeds from the rule-making authority of the Secretary of
Finance under Section 244 of the NIRC.
All told, the non-presentation of the ATP and the failure to indicate the word zero-rated in the
invoices or receipts are fatal to a claim for credit/refund of input VAT on zero-rated sales. The
failure to indicate the ATP in the sales invoices or receipts, on the other hand, is not. In this
case, petitioner failed to present its ATP and to print the word zero-rated on its export sales
invoices. Thus, we find no error on the part of the CTA in denying outright petitioners claim for
credit/refund of input VAT attributable to its zero-rated sales.
Credit/refund of input VAT on capital goods
Capital goods are defined under Section 4.106-1(b) of RR No. 7-95
To claim a refund of input VAT on capital goods, Section 112 (B) of the NIRC requires that:
1. the claimant must be a VAT registered person;
2. the input taxes claimed must have been paid on capital goods;
3. the input taxes must not have been applied against any output tax liability; and
4. the administrative claim for refund must have been filed within two (2) years after the close
of the taxable quarter when the importation or purchase was made.
Corollarily, Section 4.106-1 (b) of RR No. 7-95 defines capital goods as follows:
Capital goods or properties refer to goods or properties with estimated useful life greater that
one year and which are treated as depreciable assets under Section 29 (f), used directly or
indirectly in the production or sale of taxable goods or services.
Based on the foregoing definition, we find no reason to deviate from the findings of the CTA
that training materials, office supplies, posters, banners, T-shirts, books, and the other similar
items reflected in petitioners Summary of Importation of Goods are not capital goods. A
reduction in the refundable input VAT on capital goods from P15,170,082.00 to P9,898,867.00
is therefore in order.
18. COMMISSIONER OF INTERNAL REVENUE vs. SAN ROQUE POWER CORP.
| G.R. No. 187485│ February 12, 2013│ 707 SCRA 66 |
Facts: On October 11, 1997, San Roque Power Corporation (San Roque) entered into a
Power Purchase Agreement (PPA) with the National Power Corporation (NPC) by building the
San Roque Multi-Purpose Project in San Manuel, Pangasinan.
The San Roque Multi-Purpose Project allegedly incurred, excess input VAT in the amount of
P559,709,337.54 for taxable year 2001 which it declared in its Quarterly VAT Returns filed for
the same year.
San Roque duly filed with the BIR separate claims for refund, amounting to P559,709,337.54,
representing unutilized input taxes as declared in its VAT returns for taxable year 2001.
However, on March 28, 2003, San Roque filed amended Quarterly VAT Returns for the year
2001 since it increased its unutilized input VAT To the amount of P560,200,283.14. San
Roque filed with the BIR on the same date, separate amended claims for refund in the
aggregate amount of P560,200,283.14.
April 10, 2003, a mere 13 days after it filed its amended administrative claim with the CIR on
March 28, 2003, San Roque filed a Petition for Review with the CTA.
CIR alleged that the claim by San Roque was prematurely filed with the CTA.
Issue: Whether or not San Roque is entitled to tax refund?
Ruling:
No. San Roque is not entitled to a tax refund because it failed to comply with the mandatory
and jurisdictional requirement of waiting 120 days before filing its judicial claim.
On April 10, 2003, a mere 13 days after it filed its amended administrative claim with the CIR
on March 28, 2003, San Roque filed a Petition for Review with the CTA, which showed that
San Roque did not wait for the 120-day period to lapse before filing its judicial claim.
Compliance with the 120-day waiting period is mandatory and jurisdictional, under RA 8424 or
the Tax Reform Act of 1997. Failure to comply renders the petition void.
It violates the doctrine of exhaustion of administrative remedies and renders the petition
premature and without a cause of action, with the effect that the CTA does not acquire
jurisdiction over the taxpayer’s petition.
Article 5 of the Civil Code provides, "Acts executed against provisions of mandatory or
prohibitory laws shall be void, except when the law itself authorizes their validity."
Thus, San Roque’s petition with the CTA is a mere scrap of paper. Well-settled is the rule that
tax refunds or credits, just like tax exemptions, are strictly construed against the taxpayer.
Whether the Atlas doctrine or the Mirant doctrine is applied to San Roque is immaterial
because what is at issue in the present case is San Roque’s non-compliance with the 120-day
mandatory and jurisdictional period, which is counted from the date it filed its administrative
claim with the CIR. The 120-day period may extend beyond the two-year prescriptive period,
as long as the administrative claim is filed within the two-year prescriptive period. However,
San Roque’s fatal mistake is that it did not wait for the CIR to decide within the 120-day
period, a mandatory period whether the Atlas or the Mirant doctrine is applied.
Section 112(D) of the 1997 Tax Code is clear, unequivocal, and categorical that the CIR has
120 days to act on an administrative claim. The taxpayer can file the judicial claim (1) Only
within 30 days after the CIR partially or fully denies the claim within the 120- day period, or (2)
only within 30 days from the expiration of the 120- day period if the CIR does not act within
the 120-day period.
Even if, contrary to all principles of statutory construction as well as plain common sense, we
gratuitously apply now Section 4.106-2(c) of Revenue Regulations No. 7-95, still San Roque
cannot recover any refund or credit because San Roque did not wait for the 60-day period to
lapse, contrary to the express requirement in Section 4.106-2(c). SC granted the petition of
CIR to deny the tax refund or credit claim of San Roque.
19. TAGANITO MINING V. COMMISSION ON INTERNAL REVENUE
G.R. NO. 196113, FEBRUARY 12, 2013
ORIGIN OF THE CASE:
This case is the second of the three consolidated cases docketed G.R. No. 187485 decided
by the SC involving a claim for tax refund filed in the Commission of Internal Revenue (CIR).
The facts of the case are as follows:
 Taganito Mining Corporation (Taganito), is a corporation duly organized and existing
under and by virtue of the laws of the Philippines and is a VAT-registered entity. It is also
registered with the Board of Investments (BOI) as an exporter of beneficiated nickel
silicate and chromite ores.
 Taganito filed all its Monthly VAT Declarations and Quarterly Vat Returns for the period
January 1, 2005 to December 31, 2005.
 On November 14, 2006, Taganito filed with the CIR, a letter dated November 13, 2006
claiming a tax credit/refund of its supposed input VAT.
 On November 29, 2006, Taganito sent again a letter dated November 29, 2004 to the
CIR, to correct the period of the above claim for tax credit/refund in the said amount of
P8,365,664.38 as actually referring to the period covering January 1, 2005 to December
31, 2005.
 As the statutory period within which to file a claim for refund for said input VAT is about to
lapse without action on the part of the CIR, Taganito filed the instant Petition for Review
on February 17, 2007.
PETITION FOR REVIEW WITH CTA
 In his Answer the CIR interposes CTA has no jurisdiction to entertain the instant petition
for review for failure on the part of Taganito to comply with the provision of Section 112
(D) of the 1997 Tax Code which provides for the 120 days from the date of submission of
complete documents for CIR to decide whether to grant or deny a refund and only within
thirty (30) days from the receipt of the decision denying the claim or after the
expiration of the one hundred twenty day-period, then can he appeal the decision or
the unacted claim with the Court of Tax Appeals.
 As stated, Taganito filed the administrative claim for refund with the Bureau of Internal
Revenue on November 14, 2006. Subsequently on February 14, 2007, the instant petition
was filed. Obviously the 120 days given to the Commissioner to decide on the claim has
not yet lapsed when the petition was filed. The petition was prematurely filed, hence it
must be dismissed for lack of jurisdiction.
PETITION FOR REVIEW WITH CTA-2nd Division:
 The CTA Second Division partially granted Taganito’s claim and found that Taganito
complied with the requirements of Section 112(A) of RA 8424, as amended, to be entitled
to a tax refund or credit of input VAT attributable to zero-rated or effectively zero-rated
sales.
 CIR is hereby ORDERED to REFUND to Taganito the amount of P8,249,883.33
representing its unutilized input taxes attributable to zero-rated sales from January 1, 2005
to December 31, 2005.
 Commissioner filed a Motion for Partial Reconsideration. CTA Second Division denied the
CIR’s motion.
 The Commissioner filed a Petition for Review before the CTA EB assailing the 8 January
2010 Decision and the 7 April 2010 Resolution in CTA Case No. 7574 and praying that
Taganito’s entire claim for refund be denied.
PETITION FOR REVIEW WITH CTA EN BANC:
 In its 8 December 2010 Decision, the CTA EB granted the CIR’s petition for review and
reversed and set aside the challenged decision and resolution.
 The CTA EB found that Taganito filed its administrative claim on 14 November 2006,
which was well within the period prescribed under Section 112(A) and (B) of the 1997 Tax
Code.
 However, the CTA EB found that Taganito’s judicial claim was prematurely filed. Taganito
filed its Petition for Review before the CTA Second Division on 14 February 2007. The
judicial claim was filed after the lapse of only 92 days from the filing of its administrative
claim before the CIR, in violation of the 120-day period prescribed in Section 112(D) of the
1997 Tax Code.
ISSUE: Whether or not CTA committed grave abuse of authority and discretion in erroneously
applying the Aichi doctrine in violation of Taganito’s right to due process and in interpreting
the provisions of Sec. 112(D) of the Tax Code.
SC RULING ON PETITION FOR REVIEW:
No. For reference, the following are the provisions of the Tax Code applicable to the present
case:
Section 105:
Persons Liable. — Any person who, in the course of trade or business,
sells, barters, exchanges, leases goods or properties, renders services,
and any person who imports goods shall be subject to the value-added tax
(VAT) imposed in Sections 106 to 108 of this Code.
The value-added tax is an indirect tax and the amount of tax may be
shifted or passed on to the buyer, transferee or lessee of the goods,
properties or services. This rule shall likewise apply to existing contracts of
sale or lease of goods, properties or services at the time of the effectivity of
Republic Act No. 7716.
xxxx

Section 110(B):
Sec. 110. Tax Credits. —
(B) Excess Output or Input Tax. — If at the end of any taxable quarter the
output tax exceeds the input tax, the excess shall be paid by the VAT-
registered person. If the input tax exceeds the output tax, the excess
shall be carried over to the succeeding quarter or quarters: [Provided,
That the input tax inclusive of input VAT carried over from the previous
quarter that may be credited in every quarter shall not exceed seventy
percent (70%) of the output VAT:][43] Provided, however, That any input tax
attributable to zero-rated sales by a VAT-registered person may at his
option be refunded or credited against other internal revenue taxes,
subject to the provisions of Section 112.
Section 112:
Sec. 112. Refunds or Tax Credits of Input Tax. —
(A) Zero-Rated or Effectively Zero-Rated Sales.— Any VAT-registered
person, whose sales are zero-rated or effectively zero-rated may,
within two (2) years after the close of the taxable quarter when the
sales were made, apply for the issuance of a tax credit certificate or
refund of creditable input tax due or paid attributable to such sales,
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 complete documents in
support of the application filed in accordance with Subsection (A) and (B)
hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the
failure on the part of the Commissioner to act on the application within the
period prescribed above, the taxpayer affected may, within thirty (30) days
from the receipt of the decision denying the claim or after the
expiration of the one hundred twenty day-period, appeal the decision or
the unacted claim with the Court of Tax Appeals.
Section 229:
Recovery of Tax Erroneously or Illegally Collected. — No suit or proceeding
shall be maintained in any court for the recovery of any national internal
revenue tax hereafter alleged to have been erroneously or illegally assessed
or collected, or of any penalty claimed to have been collected without
authority, or of any sum alleged to have been excessively or in any
manner wrongfully collected, until a claim for refund or credit has been
duly filed with the Commissioner; but such suit or proceeding may be
maintained, whether or not such tax, penalty, or sum has been paid under
protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration
of two (2) years from the date of payment of the tax or penalty regardless
of any supervening cause that may arise after payment: Provided, however,
That the Commissioner may, even without a written claim therefor, refund or
credit any tax, where on the face of the return upon which payment was
made, such payment appears clearly to have been erroneously paid.
Taganito filed its petition for review with the CTA without waiting for the 120-day period to
lapse and filed its judicial claim before the promulgation of the Atlas doctrine.
However, Taganito can invoke BIR Ruling No. DA-489-03 dated 10 December 2003, which
expressly ruled that the “taxpayer-claimant need not wait for the lapse of the 120-day
period before it could seek judicial relief with the CTA by way of Petition for
Review.” Taganito filed its judicial claim after the issuance of BIR Ruling No. DA-489-03 but
before the adoption of the Aichi doctrine. Thus Taganito is deemed to have filed its judicial
claim with the CTA on time.
Prescriptive Periods under Section 112(A) and (C)
There are three compelling reasons why the 30-day period need not necessarily fall within the
two-year prescriptive period, as long as the administrative claim is filed within the two-year
prescriptive period.
First, Section 112(A) clearly, plainly, and unequivocally provides that the taxpayer
“may, within two (2) years after the close of the taxable quarter when the sales were
made, apply for the issuance of a tax credit certificate or refund of the creditable input tax
due or paid to such sales.” In short, the law states that the taxpayer may apply with the
Commissioner for a refund or credit “within two (2) years,” which means at anytime within
two years. Thus, the application for refund or credit may be filed by the taxpayer with the
Commissioner on the last day of the two-year prescriptive period and it will still strictly comply
with the law. The two-year
Second, Section 112(C) provides that the Commissioner shall decide the application for refund
or credit “within one hundred twenty (120) days from the date of submission of complete
documents in support of the application filed in accordance with Subsection (A).” The
reference in Section 112(C) of the submission of documents “in support of the application filed
in accordance with Subsection A” means that the application in Section 112(A) is the
administrative claim that the Commissioner must decide within the 120-day period. In short,
the two-year prescriptive period in Section 112(A) refers to the period within which the
taxpayer can file an administrative claim for tax refund or credit. Stated otherwise, the two-
year prescriptive period does not refer to the filing of the judicial claim with the CTA but
to the filing of the administrative claim with the Commissioner. As held in Aichi, the
“phrase ‘within two years x x x apply for the issuance of a tax credit or refund’ refers to
applications for refund/credit with the CIR and not to appeals made to the CTA.”
Third, if the 30-day period, or any part of it, is required to fall within the two-year prescriptive
period (equivalent to 730 days[60]), then the taxpayer must file his administrative claim for
refund or credit within the first 610 days of the two-year prescriptive period. Otherwise, the
filing of the administrative claim beyond the first 610 days will result in the appeal to the
CTA being filed beyond the two-year prescriptive period. Thus, if the taxpayer files his
administrative claim on
The theory that the 30-day period must fall within the two-year prescriptive period adds a
condition that is not found in the law. It results in truncating 120 days from the 730 days that
the law grants the taxpayer for filing his administrative claim with the Commissioner.
Section 112(A) and (C) must be interpreted according to its clear, plain, and unequivocal
language. The taxpayer can file his administrative claim for refund or credit at anytime within
the two-year prescriptive period. If he files his claim on the last day of the two-year prescriptive
period, his claim is still filed on time. The Commissioner will have 120 days from such filing to
decide the claim. If the Commissioner decides the claim on the 120th day, or does not decide it
on that day, the taxpayer still has 30 days to file his judicial claim with the CTA. This is not only
the plain meaning but also the only logical interpretation of Section 112(A) and (C).
Excess” Input VAT and “Excessively” Collected Tax
In a claim for refund or credit of “excess” input VAT under Section 110(B) and Section 112(A),
the input VAT is not “excessively” collected as understood under Section 229. At the time of
payment of the input VAT the amount paid is the correct and proper amount. Under the VAT
System, there is no claim or issue that the input VAT is “excessively” collected, that is, that the
input VAT paid is more than what is legally due. The person legally liable for the input VAT
cannot claim that he overpaid the input VAT by the mere existence of an “excess” input VAT.
The term “excess” input VAT simply means that the input VAT available as credit exceeds the
output VAT, not that the input VAT is excessively collected because it is more than what is
legally due. Thus, the taxpayer who legally paid the input VAT cannot claim for refund or credit
of the input VAT as “excessively” collected under Section 229.
Under Section 229, the prescriptive period for filing a judicial claim for refund is two years from
the date of payment of the tax “erroneously, x x x illegally, x x x excessively or in any manner
wrongfully collected.” The prescriptive period is reckoned from the date the person liable for
the tax pays the tax. Thus, if the input VAT is in fact “excessively” collected, that is, the person
liable for the tax actually pays more than what is legally due, the taxpayer must file a judicial
claim for refund within two years from his date of payment. Only the person legally liable to
pay the tax can file the judicial claim for refund. The person to whom the tax is passed
on as part of the purchase price has no personality to file the judicial claim under
Section 229.
Under Section 110(B), a taxpayer can apply his input VAT only against his output VAT. The
only exception is when the taxpayer is expressly “zero-rated or effectively zero-rated” under
the law, like companies generating power through renewable sources of energy. Thus, a non
zero-rated VAT-registered taxpayer who has no output VAT because he has no sales cannot
claim a tax refund or credit of his unused input VAT under the VAT System. Even if the
taxpayer has sales but his input VAT exceeds his output VAT, he cannot seek a tax refund or
credit of his “excess” input VAT under the VAT System. He can only carry-over and apply
his “excess” input VAT against his future output VAT. If such “excess” input VAT is an
“excessively” collected tax, the taxpayer should be able to seek a refund or credit for such
“excess” input VAT whether or not he has output VAT. The VAT System does not allow such
refund or credit. Such “excess” input VAT is not an “excessively” collected tax under Section
229. The “excess” input VAT is a correctly and properly collected tax. However, such “excess”
input VAT can be applied against the output VAT because the VAT is a tax imposed only on
the value added by the taxpayer. If the input VAT is in fact “excessively” collected under
Section 229, then it is the person legally liable to pay the input VAT, not the person to whom
the tax was passed on as part of the purchase price and claiming credit for the input VAT
under the VAT System, who can file the judicial claim under Section 229.
From the plain text of Section 229, it is clear that what can be refunded or credited is a tax that
is “erroneously, x x x illegally, x x x excessively or in any manner wrongfully collected.” In
short, there must be a wrongful payment because what is paid, or part of it, is not legally due.
As the Court held in Mirant, Section 229 should “apply only to instances of erroneous
payment or illegal collection of internal revenue taxes.” Erroneous or wrongful payment
includes excessive payment because they all refer to payment of taxes not legally due.
Under the VAT System,
What is important, as far as the present cases are concerned, is that the mere filing by a
taxpayer of a judicial claim with the CTA before the expiration of the 120-day period
cannot operate to divest the Commissioner of his jurisdiction to decide an
administrative claim within the 120-day mandatory period, unless the Commissioner
has clearly given cause for equitable estoppel to apply as expressly recognized in
Section 246 of the Tax Code.
BIR Ruling No. DA-489-03 dated 10 December 2003 expressly states that the “taxpayer-
claimant need not wait for the lapse of the 120-day period before it could seek judicial
relief with the CTA by way of Petition for Review.” Prior to this ruling, the BIR held, as
shown by its position in the Court of Appeals, that the expiration of the 120-day period is
mandatory and jurisdictional before a judicial claim can be filed.
Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, all taxpayers can rely
on BIR Ruling No. DA-489-03 from the time of its issuance on 10 December 2003 up to its
reversal by this Court in Aichi on 6 October 2010, where this Court held that the 120+30 day
periods are mandatory and jurisdiction. Taganito, however, filed its judicial claim with the CTA
on 14 February 2007, after the issuance of BIR Ruling No. DA-489-03 on 10 December 2003.
WHEREFORE, the Court hereby GRANTS the petition of Taganito Mining Corporation in G.R.
No. 196113 for a tax refund or credit of P8,365,664.38.
20. PHILEX MINING V. COMMISSION OF INTERNAL REVENUE
G.R. NO. 197516, FEBRAURY 12, 2103
ORIGIN OF THE CASE:
This case is the third of the three consolidated cases docketed G.R. No. 187485
decided by the SC involving a claim for tax refund filed in the Commission of Internal
Revenue (CIR). The facts of the case are as follows:
 Philex is a corporation duly organized and existing under the laws of the Republic of the
Philippines, which is principally engaged in the mining business, which includes the
exploration and operation of mine properties and commercial production and marketing of
mine product.
 On March 20, 2006, Philex filed its claim for refund/tax credit of the amount of
P23,956,732.44 with the One Stop Shop Center of the Department of Finance.
 However, due to the CIR’s failure to act on such claim, on October 17, 2007, pursuant
to Sections 112 and 229 of the NIRC of 1997, as amended, Philex filed a Petition for
Review.
PETITION FOR REVIEW WITH CTA- 2nd Division:
1. CTA 2nd Division denied Philex’s claim due to prescription and ruled that the two-year
prescriptive period specified in Section 112(A) of RA 8424, as amended, applies not
only to the filing of the administrative claim with the BIR, but also to the filing of the
judicial claim with the CTA.
2. Since Philex’s claim covered the 3rd quarter of 2005, its administrative claim filed on 20
March 2006 was timely filed, while its judicial claim filed on 17 October 2007 was filed
late and therefore barred by prescription.
3. On 10 November 2009, the CTA Second Division denied Philex’s Motion for
Reconsideration.
4. Philex filed a Petition for Review before the CTA EB praying for a reversal of the 20
July 2009 Decision and the 10 November 2009 Resolution of the CTA Second
Division.
PETITION FOR REVIEW WITH CTA-EB:
1. The CTA EB, in its Decision dated 3 December 2010, denied Philex’s petition and
affirmed the CTA Second Division’s Decision and Resolution. From March 20, 2006,
which is also presumably the date Philex submitted supporting documents, together
with the aforesaid application for refund, the CIR has 120 days, or until July 18, 2006,
within which to decide the claim. Within 30 days from the lapse of the 120-day period,
or from July 19, 2006 until August 17, 2006, Philex should have elevated its claim for
refund to the CTA.
2. However, Philex filed its Petition for Review only on October 17, 2007, which is 426
days late or way beyond the 30-day period prescribed by law. Thus, the Petition for
Review in CTA should have been dismissed; thus, no jurisdiction was acquired by the
CTA in Division.
ISSUE: Whether or not petition for review was filed with the CTA within the period set by
prevailing court rulings at the time it was filed.
SC RULING ON PETITION FOR REVIEW:
No. Philex (1) filed on 21 October 2005 its original VAT Return for the third quarter of taxable
year 2005; (2) filed on 20 March 2006 its administrative claim for refund or credit; (3) filed on
17 October 2007 its Petition for Review with the CTA.
The Commissioner had until 17 July 2006, the last day of the 120-day period, to decide
Philex’s claim. Since the Commissioner did not act on Philex’s claim on or before 17 July
2006, Philex had until 17 August 2006, the last day of the 30-day period, to file its judicial
claim. The CTA EB held that 17 August 2006 was indeed the last day for Philex to file its
judicial claim. However, Philex filed its Petition for Review with the CTA only on 17 October
2007, or four hundred twenty-six (426) days after the last day of filing. In short, Philex was
late by one year and 61 days in filing its judicial claim.
Philex’s situation is not a case of premature filing of its judicial claim but of late filing, indeed
very late filing. BIR Ruling No. DA-489-03 allowed premature filing of a judicial claim, which
means non-exhaustion of the 120-day period for the Commissioner to act on an administrative
claim. Philex cannot claim the benefit of BIR Ruling No. DA-489-03 because Philex did not file
its judicial claim prematurely but filed it long after the lapse of the 30-day period following the
expiration of the 120-day period. In fact, Philex filed its judicial claim 426 days after the
lapse of the 30-day period.
The Atlas doctrine cannot save Philex from the late filing of its judicial claim which held that
claims for refund or credit of input VAT must comply with the two-year prescriptive period
under Section 229, should be effective only from its promulgation on 8 June 2007 until its
abandonment on 12 September 2008 in Mirant. The Atlas doctrine was limited to the
reckoning of the two-year prescriptive period from the date of payment of the output VAT.
Prior to the Atlas doctrine, the two-year prescriptive period for claiming refund or credit of
input VAT should be governed by Section 112(A) following the verba legis rule.
The Mirant ruling, which abandoned the Atlas doctrine, adopted the verba legis rule, thus
applying Section 112(A) in computing the two-year prescriptive period in claiming refund or
credit of input VAT.
The inaction of the Commissioner on Philex’s claim during the 120-day period is, by express
provision of law, “deemed a denial” of Philex’s claim. Philex had 30 days from the expiration
of the 120-day period to file its judicial claim with the CTA. Philex’s failure to do so rendered
the “deemed a denial” decision of the Commissioner final and inappealable. The right to
appeal to the CTA from a decision or “deemed a denial” decision of the Commissioner is
merely a statutory privilege, not a constitutional right. The exercise of such statutory privilege
requires strict compliance with the conditions attached by the statute for its exercise. Philex
failed to comply with the statutory conditions and must thus bear the consequences.
WHEREFORE, The Court hereby DENIES the petition of Philex Mining Corporation in G.R.
No. 197156 for a tax refund or credit of P23,956,732.44.
21. COMMISSION OF INTERNAL REVENUE V. ACESITE HOTEL
CORPORATION
G.R. NO. 147295, FEBRUARY 16. 2007
ORIGIN OF THE CASE:
This case started with an administrative claim for refund with CIR due to the erroneous
payment of VAT by the Acesite Hotel Corporation to CIR. The facts are as follows:
 Acesite is the owner and operator of the Holiday Inn Manila Pavilion Hotel. It leases
6,768.53 square meters of the hotels premises to the Philippine Amusement and
Gaming Corporation (PAGCOR) for casino operations. It also caters food and
beverages to PAGCOR’s casino patrons through the hotel’s restaurant outlets.
 Acesite incurred VAT amounting to P30,152,892.02 from its rental income and sale
of food and beverages to PAGCOR for the period January 1996 to April 1997.
 Acesite tried to shift the said taxes to PAGCOR by incorporating it in the amount
assessed to PAGCOR but the latter refused to pay it on account of its tax exempt
status.
 Therefore, Acesite assumed the burden and paid the P30,152,892,02 VAT assessed
to the CIR as it feared the legal consequences of non-payment of the tax.
 However, Acesite later realized its transaction with PAGCOR was subject to zero
rate as was rendered to a tax-exempt entity.
 On 21 May 1998, Acesite filed an administrative claim for refund with the CIR but the
latter failed to resolve the same. Thus on 29 May 1998, Acesite filed a petition with
CTA.
PETITION FOR REVIEW WITH CTA:
CTA held that the Petitioner(Acesite) is subject to zero percent tax pursuant to Section 102
(b)(3) [now 108(b)(3)] insofar as its gross income from rentals and sales to PAGCOR, a tax
exempt entity by virtue of a special law. Accordingly, the amounts representing the 10% EVAT
on its sales of food and services and gross rentals, respectively from PAGCOR shall be
refunded to the petitioner for having been inadvertently remitted to the respondent and
considering further the principle of solutio indebiti which requires the return of what has been
delivered through mistake, Respondent must refund to the Petitioner the amount of
P30,054,148.64
APPEAL TO CA:
Upon appeal by petitioner, the CA affirmed in toto the decision of the CTA holding that
PAGCOR was not only exempt from direct taxes but was also exempt from indirect taxes like
the VAT and consequently, the transactions between respondent Acesite and PAGCOR were
effectively zero-rated because they involved the rendition of services to an entity exempt from
indirect taxes.
ISSUE: Whether PAGCORs tax exemption privilege includes the indirect tax of VAT to entitle
Acesite to zero percent (0%) VAT rate.
SC RULING ON PETITION FOR REVIEW ON CERTIORARI:
YES. PAGCOR is exempt from payment of indirect taxes (such as VAT) and VAT
exemption extends to Acesite.
Section 13 of P.D. 1869 on exemptions pertinently provides:
xxxx
 Income and other taxes. (a) Franchise Holder: No tax of any kind or form,
income or otherwise, as well as fees, charges or levies of whatever nature, whether
National or Local, shall be assessed and collected under this Franchise from the
Corporation; nor shall any form of tax or charge attach in any way to the earnings
of the Corporation, except a Franchise Tax of five (5%) percent of the gross revenue or
earnings derived by the Corporation from its operation under this Franchise. x x x x

(b) Others: The exemptions herein granted for earnings derived from the
operations conducted under the franchise specifically from the payment of
any tax, income or otherwise, as well as any form of charges, fees or
levies, shall inure to the benefit of and extend to corporation(s), association(s),
agency(ies), or individual(s) with whom the Corporation or operator has any
contractual relationship in connection with the operations of the casino(s)
authorized to be conducted under this Franchise.
The above provisions clearly gives PAGCOR a blanket exemption to taxes with no
distinction on whether they are direct or indirect.
The Court is one with the CA ruling that PAGCOR is also exempt from indirect taxes, like
VAT, as follows:
Although the law does not specifically mention PAGCORs exemption
from indirect taxes, PAGCOR is undoubtedly exempt from such taxes
because the law exempts from taxes persons or entities contracting
with PAGCOR in casino operations. Although, differently worded, the
provision clearly exempts PAGCOR from indirect taxes. In fact, it goes
one step further by granting tax exempt status to persons dealing
with PAGCOR in casino operations. The unmistakable conclusion is
that PAGCOR is not liable for the of effectively subject to zero percent
rate under Sec. 108 B (3). R.A. 8424.
Such exemption falls within the former Section 102 (b) (3) of the 1977 Tax Code, as amended
(now Sec. 108 [b] [3] of R.A. 8424), which provides:
(b) Transactions subject to zero percent (0%) rated.
(3) Services rendered to persons or entities whose exemption under special
laws or international agreements to which the Philippines is a signatory effectively
subjects the supply of such services to zero (0%) rate.
Also, Acesite paid under a mistake of fact when it was not aware that the transactions it had
with PAGCOR were zero-rated at the time it made the payments.
In UST Cooperative Store v. City of Manila, we explained that there is erroneous payment of
taxes when a taxpayer pays under a mistake of fact, as for the instance in a case where he is
not aware of an existing exemption in his favor at the time the payment was made. Such
payment is held to be not voluntary and, therefore, can be recovered or refunded.
Tax refunds are based on the principle of quasi-contract or solutio indebiti and the pertinent
laws governing this principle are found in Arts. 2142 and 2154 of the Civil Code, which
provide, thus:
Art. 2142. Certain lawful, voluntary, and unilateral acts give rise to the juridical
relation of quasi-contract to the end that no one shall be unjustly enriched or
benefited at the expense of another.
Art. 2154. If something is received when there is no right to demand it, and it was
unduly delivered through mistake, the obligation to return it arises.
In the instant case, the records show that Acesite proved its actual VAT payments subject to
refund, as attested to by an independent Certified Public Accountant who was duly
commissioned by the CTA. On the other hand, petitioner never disputed nor contested
respondents testimonial and documentary evidence. In fact, petitioner never presented any
evidence on its behalf. Indeed, fair dealing is expected by our taxpayers from the BIR and
this duty demands that the BIR should refund without any unreasonable delay what it has
erroneously collected.
22. COMMISSIONER OF INTERNAL REVENUE V. SONY PHILIPPINES INC.
G.R. NO. 178697, NOVEMBER 17, 2010
ORIGIN OF THE CASE:
The case started with a protest filed by Sony Phil. Inc. on the preliminary assessment of 1997
deficiency taxes and penalties issued by CIR. The facts of the case are as follows:
 November 24, 1998, the CIR issued Letter of Authority authorizing certain revenue
officers to examine Sony’s books of accounts and other accounting records regarding
revenue taxes for the period 1997 and unverified prior years.
 On December 6, 1999, a preliminary assessment for 1997 deficiency taxes and
penalties was issued by the CIR which Sony protested.
 Acting on the protest, the CIR issued final assessment notices, the formal letter of
demand and the details of discrepancies amounting to 15,895,632.65.
 Sony sought re-evaluation of the aforementioned assessment by filing a protest and
supporting documents on February 2 and 16, 2000 respectively.
 On October 24, 2000, within 30 days after the lapse of 180 days from submission of
the said supporting documents to the CIR, Sony filed a petition for review before the
CTA.
PETITION FOR REVIEW WITH CTA-First Division:
The CTA-First Division cancelled the deficiency VAT assessment but upheld a modified
deficiency expanded withholding tax (EWT) assessment as well as the penalties and directed
the petitioner to PAY the respondent the deficiency expanded withholding tax in the amount
of P1,035,879.70 and the following penalties for late remittance of internal revenue taxes in
the sum of P1,269,593.90. Plus 20% delinquency interest from January 17, 2000 until fully
paid.
The CIR sought a reconsideration which the CTA-First Division denied. Thus, CIR filed a
petition for review with the CTA-EB.
PETITION FOR REVIEW WITH CTA-EB:
CTA-EB dismissed CIRs petition on May 17, 2007. CIRs motion for reconsideration was
denied by the CTA-EB on July 5, 2007. CIR then filed a petition for review with the SC.
ISSUE: Whether Petitioner is liable for deficiency Value Added Tax?
Before any VAT may be levied, there must be a sale, barter or exchange of goods or
properties. In this case, there was no such sale, barter or exchange in the subsidy given by
SIS to Sony. It was but a dole out by SIS and not in payment for goods or properties sold,
bartered or exchanged by Sony.
In the case of CIR v. Court of Appeals (CA), the Court had the occasion to rule that services
rendered for a fee even on reimbursement-on-cost basis only and without realizing profit are
also subject to VAT. The case, however, is not applicable to the present case. In that case,
COMASERCO rendered service to its affiliates and, in turn, the affiliates paid the former
reimbursement-on-cost which means that it was paid the cost or expense that it incurred
although without profit. This is not true in the present case. Sony did not render any service to
SIS at all. The services rendered by the advertising companies, paid for by Sony using SIS
dole-out, were for Sony and not SIS. SIS just gave assistance to Sony in the amount
equivalent to the latters advertising expense but never received any goods, properties or
service from Sony.

SC RULING ON PETITION FOR REVIEW:

No. The coverage of LOA 19734, particularly the phrase “and unverified prior years”, violated
Section C of Revenue Memorandum Order No. 43-90, the pertinent portion of which reads:

A Letter of Authority should cover a taxable period not exceeding one taxable
year. The practice of issuing L/As covering audit of unverified prior years is
hereby prohibited. If the audit of a taxpayer shall include more than one taxable
period, the other periods or years shall be specifically indicated in the L/A.

As found by the CTA, Sony’s deficiency VAT assessment stemmed from the CIR’s
disallowance of the input VAT credits that should have been realized from the advertising
expense of the latter. Under Section 110 of the 1997 Tax Code, an advertising expense duly
covered by a VAT invoice is a legitimate business expense. This is confirmed by no less than
CIRs own witness, Revenue Officer Antonio Aluquin. Aluquin testified that advertising
companies issued invoices in the name of Sony and the latter paid for the same showing
without doubt that Sony incurred and paid for advertising expense/ services.

The fact that Sony-Singapore(SIS) has granted to our client a subsidy equivalent to the latter’s
advertising expenses due to adverse economic conditions will not affect the validity of the
input taxes from such expenses. Such subsidy may be considered as income and, therefore,
subject to income tax. However, the Court does not agree that the same subsidy should be
subject to the 10% VAT. To begin with, the said subsidy termed by the CIR as reimbursement
was not even exclusively earmarked for Sony’s advertising expense for it was but an
assistance or aid in view of Sony’s dire or adverse economic conditions, and was only
equivalent to the latter’s (Sonys) advertising expenses.
IV. OTHER PERCENTAGE TAXES
1. Commissioner of Internal Revenue v Solidbank Corporation
(G.R. No. 148191, 25 November 2003)
FACTS: For the year 1995, respondent Solidbank filed its Quarterly Percentage Tax Returns
reflecting gross receipts in the total amount of P1,474,691,693.44 with corresponding gross
receipts tax payments in the sum of P73,734,584.60. Respondent alleges that the total gross
receipts in the amount of P1,474,691,693.44 included the sum of P350,807,875.15
representing gross receipts from passive income which was already subjected to 20% final
withholding tax. Later, respondent filed with BIR a letter-request for the refund or issuance of
a tax credit certificate in the aggregate amount of P3,508,078.75, representing allegedly
overpaid gross receipts tax for the year 1995.
COURT OF TAX APPEALS:
Without waiting for an action from the petitioner, respondent filed a petition for review with the
CTA in order to toll the running of the 2-year prescriptive period to judicially claim for the
refund of any overpaid internal revenue tax.
The Court of Tax Appeals rendered its decision ordering petitioner to refund in favor of
respondent the reduced amount of P1,555,749.65 as overpaid gross receipts tax for the year
1995.
COURT OF APPEALS:
The CA held that the 20% FWT on a bank’s interest income did not form part of the taxable
gross receipts in computing the 5% GRT because the FWT was not actually received by the
bank but was directly remitted to the government.
ISSUE: Whether the 20% final withholding tax on a bank’s interest income forms part of the
taxable gross receipts in computing the 5% gross receipts tax
SUPREME COURT: Yes. The 20% final withholding tax on a bank’s interest income forms
part of the taxable gross receipts in computing the 5% gross receipts tax.
The earnings of banks from passive income are subject to a 20% FWT. This tax is withheld at
source and is not actually and physically received by the banks, because it is paid directly to
the government by the entities from which the banks derived the income. Apart from the 20%
FWT, banks are also subject to a 5% gross receipts tax which is imposed by the Tax Code on
their gross receipts, including the passive income. Since the 20% FWT
is constructively received by the banks and forms part of their gross receipts or earnings, it
follows that it is subject to the 5% GRT. After all, the amount withheld is paid to the
government on their behalf. That they do not actually receive the amount does not alter the
fact that it is remitted for their benefit in satisfaction of their tax obligations.
The FWT and the GRT are two different taxes and therefore, there is no double taxation
involved. The 20% FWT is a tax on passive income, deducted and withheld at source by the
withholding agent and is paid after every calendar quarter in which it is earned, while the 5%
GRT is not subject to withholding and is neither deducted nor withheld, but is paid only after
every taxable quarter in which it is earned. The banks and non-bank financial intermediaries
liable therefor are to file quarterly returns on the amount of gross receipts and pay the taxes
due thereon within 20 days after the end of each taxable quarter. The FWT is an income tax,
a tax imposed on the net or the gross income realized in a taxable year, while the GRT is a
percentage tax. The subject matter of the FWT is the passive income generated in the form of
interest on deposits and yield on deposit substitutes, while that of the GRT is the privilege of
engaging in the business of banking or a tax on business. As a bank, respondent is covered
by both taxes. In our withholding tax system, possession is acquired by the payor as the
withholding agent of the government, because the taxpayer ratifies the very act of possession
for the government. There is thus a constructive receipt, not subject to any reservation, the
withholding agent being merely a conduit in the collection process. The processes of
bookkeeping and accounting for interest on deposits and yield on deposit substitutes that are
subjected to FWT are, for legal purposes, tantamount to delivery, receipt or remittance. The
government subsequently becomes the owner of the money when the financial institutions
pay the FWT to extinguish their obligation to the government. Being originally owned by these
financial institutions as part of their interest income, the FWT should form part of their taxable
gross receipts.
Moreover, Section 7(c) of the later RR 17-84 provided that all interests earned shall be
included in computing for the GRT which superseded Section 4(e) of the earlier RR 12-80
which provides that only items of income actually received shall be included in the tax base
for computing the GRT. There was an implied repeal when the later regulation took effect.
The Supreme Court granted the Petition and reversed the decision and resolution of the Court
of Appeals.
2. Philippine Basketball Association v CA, CTA, and Commissioner of Internal
Revenue (G.R. No. 119122, 8 August 2000)
FACTS: Petitioner received an assessment letter from respondent Commissioner for the
payment of deficiency amusement tax in which the total amount due and collectible is
P 5,864,260.84. Petitioner contested the assessment by filing a protest with respondent
Commissioner who denied the same. This prompted petitioner to file a petition for review with
the Court of Tax Appeals questioning the denial by respondent Commissioner of its tax
protest. Petitioner argued that the jurisdiction to collect amusement taxes of PBA games is not
vested in the national government but to the the local governments and that the cession of
advertising and streamer spaces in the venue to a third person is not subject to amusement
taxes.

COURT OF TAX APPEALS:
The CTA dismissed petitioner’s petition and ordered it to pay respondent the amount of
P5,864,260.84 as deficiency amusement tax for the year 1987 plus 20% annual delinquency
interest.
COURT OF APPEALS:
Due to petitioner’s motion for reconsideration being denied by the CTA, petitioner appealed to
the CA. However, the CA affirmed the CTA’s decision and dismissed petitioner’s appeal. The
same was denied on Motion for Reconsideration by the petitioner.
ISSUES:
1) Whether the amusement tax on admission tickets to PBA games a national tax or local tax;
2) Whether the cession of advertising and streamer spaces to Vintage Enterprises, Inc.
subject to the payment of amusement tax
SUPREME COURT:
It is petitioner’s contention that the Local Tax Code of 1973 transferred the power and
authority to levy and collect amusement taxes from the sale of admission tickets to places of
amusement from the national government to the local governments. However, this is not the
case. Section 13 of the Local Tax Code provides that: "The province shall impose a tax on
admission to be collected from the proprietors, lessees, or operators of theaters,
cinematographs, concert halls, circuses and other places of amusement xxx".
The province can only impose a tax on admission from the proprietors, lessees, or operators
of theaters, cinematographs, concert halls, circuses and other places of amusement. The
authority to tax professional basketball games is not included. While Section 13 of the Local
Tax Code mentions "other places of amusement", professional basketball games are not
within its scope under the principle of ejusdem generis. In determining the meaning of the
phrase "other places of amusement", one must refer to the prior enumeration of theaters,
cinematographs, concert halls and circuses with artistic expression as their common
characteristic. Professional basketball games do not fall under the same category as theaters,
cinematographs, concert halls and circuses as they belong to artistic forms of entertainment
while the former caters to sports and gaming. SEC. 44, Section 268 of the Code provides that:
“There shall be collected from the proprietor, lessee or operator of cockpits, cabarets, night or
day clubs, boxing exhibitions, professional basketball games, Jai-Alai, race tracks and
bowling alleys, a tax equivalent to:
xxx
4. Fifteen per centum in the case of professional basketball games as envisioned in
Presidential Decree No. 871. Provided, however, That the tax herein shall be in lieu of all
other percentage taxes of whatever nature and description; xxx”.
It is therefore clear that the proprietor, lessee or operator of professional basketball games is
required to pay an amusement tax equivalent to 15% of their gross receipts to the BIR, which
payment is a national tax. The said payment of amusement tax is in lieu of all other
percentage taxes of whatever nature and description. There is a recognition under the laws of
this country that the amusement tax on professional basketball games is a national and not a
local tax.
Untenable also is the contention of the petitioner that income from the cession of streamer
and advertising spaces to VEI is not subject to amusement tax. SEC. 1, Section 268 of the tax
code of 1977 provides: “xxx There shall be collected from the proprietor, lessee or operator of
cockpits, cabarets, night or day clubs, boxing exhibitions, professional basketball games, Jai-
Alai, race tracks and bowling alleys, a tax equivalent to:
xxx
of their gross receipts, irrespective of whether or not any amount is charged or paid for
admission. For the purpose of the amusement tax, the term gross receipts embraces all the
receipts of the proprietor, lessee or operator of the amusement place. Said gross receipts also
include income from television, radio and motion picture rights, if any. xxx”
The foregoing definition of gross receipts is broad enough to embrace the cession of
advertising and streamer spaces as the same embraces all the receipts of the proprietor,
lessee or operator of the amusement place.
Thus, the Court ruled that the petitioner is liable to pay amusement tax to the national
government, and not to the local government. It denied petitioner’s petition and affirmed the
CTA and CA’s decisions.
3. Commissioner of Internal Revenue v SM Prime Holdings, Inc. and First Asia
Realty Development Corporation (G.R. No. 183505, 26 February 2010)
FACTS: Respondents SM Prime and First Asia are domestic corporations engaged in the
business of operating cinema houses, among others. On 2003, BIR sent SM Prime a
Preliminary Assessment Notice for value added tax deficiency on cinema ticket sales for
taxable year 2000 to which SM Prime protested. On the same year, BIR sent SM Prime a
Formal Letter of Demand for the alleged VAT deficiency, which the latter, again, protested in a
letter. On 2004, BIR denied the protest filed by SM Prime and ordered it to pay the VAT
deficiency for taxable year 2000. This prompted SM Prime to file a Petition for Review before
the CTA.
On 2002, BIR sent First Asia a Preliminary Assessment Notice for VAT deficiency on cinema
ticket sales for taxable year 1999, and on 2004 for the taxable year 2000, 2002 and 2003, to
which First Asia protested in a letter. Subsequently, the BIR issued Formal Letters of
Demand for the alleged VAT deficiency which was protested again by First Asia. On 2004,
BIR rendered a Decision denying the protests and ordering First Asia to pay the for the VAT
deficiencies. Accordingly, First Asia filed a Petition for Review before the CTA.
On 2005, SM Prime filed a Motion to Consolidate the cases filed on the grounds that the
issues raised therein are identical and that SM Prime is a majority shareholder of First Asia
which was granted.
COURT OF TAX APPEALS FIRST DIVISION
The First Division of the CTA rendered a Decision reversing the petitioner’s
decision. Resorting to the language used and the legislative history of the law, it ruled that the
activity of showing cinematographic films is not a service covered by VAT under the NIRC of
1997, but an activity subject to amusement tax under the Local Government Code of 1991. It
held that the House of Representatives resolved that there should only be one business tax
applicable to theaters and movie houses, which is the 30% amusement tax imposed by cities
and provinces under the LGC of 1991.
COURT OF TAX APPEALS EN BANC
On appeal, the CTA En Banc denied and dismissed the Petition for Review, as well as
petitioner’s Motion for Reconsideration. The CTA En Banc held that Section 108 of the NIRC
actually sets forth an exhaustive enumeration of what services are intended to be subject to
VAT. And since the showing or exhibition of motion pictures, films or movies by cinema
operators or proprietors is not among the enumerated activities contemplated in the phrase
sale or exchange of services, then gross receipts derived by cinema/ theater operators or
proprietors from admission tickets in showing motion pictures, film or movie are not subject to
VAT. The exhibition or showing of motion pictures, films, or movies is instead subject to
amusement tax under the LGC of 1991.
ISSUE: Whether the gross receipts derived from admission tickets by cinema/theater
operators or proprietors are subject to VAT
SUPREME COURT
Petitioner argues that the enumeration of services subject to VAT in Section 108 of the NIRC
is not exhaustive because it covers all sales of services unless exempted by law and
maintains that the exhibition of movies by cinema operators or proprietors to the paying
public, being a sale of service, is subject to VAT. This is not the case.
A cursory reading of Section 108 of the NIRC would show that the enumeration of the sale or
exchange of services subject to VAT is not exhaustive. Among those included in the
enumeration is the lease of motion picture films, films, tapes and discs. This, however, is not
the same as the showing or exhibition of motion pictures or films. Since the activity of
showing motion pictures, films or movies by cinema/ theater operators or proprietors is not
included in the enumeration, the court should determine whether such activity falls under the
phrase similar services. When the application of the law would lead to absurdity or injustice,
legislative history is all important. In such cases, courts may take judicial notice of the origin
and history of the law, the deliberations during the enactment, as well as prior laws on the
same subject matter to ascertain the true intent or spirit of the law.
The legislature never intended for the operators or proprietors of cinema/theater houses to be
covered by VAT. Persons subject to amusement tax under the NIRC of 1997 are exempt from
the coverage of VAT. The sole jurisdiction for collection of amusement tax on admission
receipts in places of amusement rests exclusively on the local government. Since the Bureau
of Internal Revenue is an agency of the national government, it follows that it has no legal
mandate to levy amusement tax on admission receipts in the said places of amusement. The
local government had the power to impose amusement tax on proprietors, lessees, or
operators of theaters, cinemas, concert halls, circuses, boxing stadia, and other places of
amusement at a rate of not more than 30% of the gross receipts from admission fees.
At present, only lessors or distributors of cinematographic films are subject to
VAT. Historically, the activity of showing motion pictures, films or movies by cinema/theater
operators or proprietors has always been considered as a form of entertainment subject to
amusement tax. Amendments to the VAT law have been consistent in exempting persons
subject to amusement tax under the NIRC from the coverage of VAT. These clearly show the
legislative intent not to impose VAT on persons already covered by the amusement tax. To
hold otherwise would impose an unreasonable burden on cinema/theater houses operators or
proprietors, who would be paying an additional VAT on top of the 30% amusement tax
imposed by the LGC of 1991.
Thus, the Court affirmed the decision of the CTA En Banc holding that the gross receipts
derived by respondents from admission tickets in showing motion pictures, films or movies are
not subject to value-added tax.
4. China Banking Corporation v CA, CTA, and Commissioner of Internal
Revenue (G.R. No. 146749, 10 June 2003)
FACTS: On 1994, CBC paid P12,354,933.00 as gross receipts tax on its income from
interests on loan investments, commissions, services, collection charges, foreign exchange
profits and other operating earnings during the second quarter of 1994.
On 30 January 1996, the CTA in Asian Bank Corp. vs. CIR ruled that the 20% final
withholding tax on a bank’s passive interest income does not form part of its taxable gross
receipts. Due to this ruling, CBC filed with the Commissioner of Internal Revenue a formal
claim for tax refund or credit of P1,140,623.82 from the P12,354,933.00 gross receipts tax
that CBC paid. To ensure that it filed its claim within the 2-year prescriptive period, CBC also
filed a petition for review with the Court of Tax Appeals. CBC argued that it was not liable for
the gross receipts tax amounting to P1,140,623.82, withheld by the BSP, as final withholding
tax on CBCs passive interest income in 1994. The Commissioner, on the other hand argued
that the FWT on a bank’s interest income forms part of its gross receipts in computing the
gross receipts tax and contended that gross receipts means the entire income or receipt,
without any deduction.
COURT OF TAX APPEALS
The CTA ruled in favor of CBC and held that the 20% final withholding tax on interest income
does not form part of CBC’s taxable gross receipts and granted CBC a partial refund
of P123,778.73 as the evidence of CBC was sufficient only to support the payment of the
gross receipts tax on its medium term investments. The tax court based its decision on its
earlier ruling in Asian Bank which provided that the 20% final withholding tax on the
petitioner’s interest income should not form part of its taxable gross receipts. Revenue
Regulations No. 12-80 provided that the rates of taxes to be imposed on the gross receipts of
financial institution shall be based on all items on income actually received and the mere
accrual is not to be considered. It would therefore be logical to conclude that the final tax, not
having been received by the petitioner but instead went to the funds of the government,
should not form part of its gross receipts for the purpose of computing the GRT. This
earmarking prevented the final withholding tax from being actually received by the bank.
Further, the CTA held that the highest tribunal of the land interpreted the term gross receipts
to mean all receipts of a taxpayer excluding those which have been especially earmarked by
law or regulation for the government or some person other than the taxpayer.
COURT OF APPEALS
The CBC and the Commissioner both filed petitions for review with the CA. But the CA did not
consolidate the petitions filed by CBC and the Commissioner as the parties failed to move for
the consolidation of the two petitions.
The 14th Division of the CA affirmed the tax court’s ruling on the ground that substantial
evidence supported the factual findings of the tax court, and denied CBC’s subsequent motion
for reconsideration. Also, the 13th Division of the CA affirmed the tax court’s ruling on the
ground that the 20% final withholding tax does not form part of CBC’s taxable gross receipts,
and denied the Commissioner’s motion for reconsideration.
ISSUE: Whether the 20% final withholding tax on interest income should form part of China
Banking Corporation’s gross receipts in computing the gross receipts tax on banks
SUPREME COURT:
The Court ruled that the amount of interest income withheld in payment of the 20% final
withholding tax forms part of CBC’s gross receipts in computing the gross receipts tax on
banks.
Section 121 of the Tax Code provides that: “There shall be collected a tax on gross receipts
derived from sources within the Philippines by all banks and non-bank financial intermediaries
in accordance with the following schedule: (a) On interest, commissions and discounts from
lending activities as well as income from financial leasing, on the basis of remaining maturities
on instruments from which such receipts are derived xxx”. Such section expressly includes
interest income as part of banks gross receipts for purposes of the gross receipts tax. The
express inclusion creates a presumption that the entire amount of the interest income, without
any deduction, is subject to the gross receipts tax.
Eventually, the CTA reversed its ruling in Asian Bank and held that the final withholding tax
forms part of the banks gross receipts in computing the gross receipts tax. Section 4(e) of RR
No. 12-80 did not prescribe the computation of the gross receipts but merely authorized the
determination of the amount of gross receipts. In addition, Section 7(c) of RR No. 17-84 had
already superseded Section 4(e) of RR No. 12-80, which states that: “xxx (c) If the recipient of
the above-mentioned items of income are financial institutions, the same shall be included as
part of the tax base upon which the gross receipts tax is imposed.” The items being referred
here are are interest on bank deposits and yield from deposit substitutes. Section 4(e) merely
provides for an exception to the rule, making interest income taxable for gross receipts tax
purposes only upon actual receipt. It does not exclude accrued interest income from gross
receipts but merely postpones its inclusion until actual payment of the interest. Actual receipt
may either be physical receipt or constructive receipt.
Gross receipts should be interpreted as the whole amount received as interests without
deductions, otherwise, it will be considered as net receipts. The amount of the final
withholding tax on interest income should not be deducted from the banks interest income for
purposes of the gross receipts tax. The final withholding tax on interest, comes from the
bank’s income and is a money own by it and constitutes payment by the bank to extinguish a
tax obligation to the government. CBC owns the interest income which is the source of
payment of the final withholding tax. The government subsequently becomes the owner of the
money constituting the final tax when CBC pays the final withholding tax. Thus, the amount
constituting the final tax, being originally owned by CBC as part of its interest income, should
form part of its taxable gross receipts. Ownership is the circumstance that makes interest
income part of the taxable gross receipts of the taxpayer.
CBC’s contention that it can deduct the final withholding tax from its interest income amounts
to a claim of tax exemption. Exemptions are highly disfavored and whoever claims an
exemption must justify his right by the clearest grant of the law. Tax exemption cannot arise
by mere implication and any doubt about whether the exemption exists is strictly construed
against the taxpayer. CBC must point to a specific provision of law allowing the deduction of
the final withholding tax from its taxable gross receipts, however, CBC failed in this regard.
Thus, the amount of interest income withheld should form part of CBC’s gross receipts in
computing the gross receipts tax, there being no legal basis for CBCs claim for a tax refund or
credit.

The policy objective why no deductions, exemptions or exclusions are normally allowed in a
gross receipts tax is to maintain simplicity in tax collection and to assure a steady source of
state revenue even during periods of economic slowdown. Deductions, exemptions or
exclusions complicate the tax system and lessen the tax collection, thus, they are avoided.

With the foregoing, the Court denied the Petition for Review filed by China Banking
Corporation and granted that of the Commissioner of Internal Revenue, and set aside the
Court of Appeals’ decisions and resolutions.
IV. EXCISE TAXES ON CERTAIN GOODS
1. BRITISH AMERICAN TOBACCO v. JOSE CAMACHO
GR 163583, April 15, 2009
BACKGROUND (BAT VS CAMACHO, 2008 Case):
 R.A. 8240 was amending certain provisions of the NIRC
 British American Tobacco assailed the validity of Sec. 145 of the NIRC as amended by RA
8240, arguing that the said provisions are violative of the equal protection and uniformity
clause of the Constitution.
 Section 145 provides for a four-tier tax rate based on net retail price per pack of
cigarettes: (1) low-priced, (2) medium-priced, (3) high-priced, and (4) premium priced.
 It also provides that NEW BRANDS (registered after January 1, 1997) of cigarettes shall
be taxed at their current retail price. If the current net retail price has not been
established, the suggested net retail price shall be used to determine the specific tax
classification.
 While, Old or existing brands (registered before January 1, 1997) shall be taxed at their
net retail price as of October 1, 1996.
 DEFINITION OF TERMS:
o Net retail price = price wherein cigarettes are sold on retail in 20 supermarkets in
Metro Manila
o Suggested net retail price = net retail price wherein brands of cigarettes are
intended by the manufacturer to be sold
 To implement RA 8240, BIR issued a Revenue Regulation (RR No. 1-97) classifying
existing brands of cigarettes as those existing or active (old) brands prior to January 1,
1997, while new brands of cigarettes are those registered after January 1, 1997.
 Another Revenue Regulation was issued amending the first (RR No. 9-2003) by providing
BIR with the power to periodically review every two years earlier the current net retail price
of new brands to ESTABLISH / UPDATE their tax classification.
 In June 2001, British American Tobacco (BAT) introduced the Lucky Strike Filter, Lucky
Strike Lights and Lucky Strike Menthol Lights. Lucky Strike was taxed based on its
suggested gross retail price from the time of its introduction in the market in 2001 until the
BIR market survey in 2003. The brands were sold at P22.54, P22.61 and P21.23 so the
applicable tax rate is P13.44 per pack.
 BAT now argues that the "classification freeze provision" violates the equal protection
and uniformity of taxation clauses because the Lucky Strike brands are taxed based on
their 1996 net retail prices while new brands are taxed based on their present day net
retail prices. Thus, Lucky Strike suffers from higher taxes while its competitors pay a lower
amount.
 BAT further argued that the tobacco excise law was discriminatory because under it,
brands that entered the market after 1996 were imposed taxes based on their current
retail prices while older brands paid taxes based on their 1996 retail prices.
FACTS (2009 CASE):
Petitioner in a motion for reconsideration assails the earlier decision of the SC in affirming the
decision of the RTC in (1) Sustaining the constitutionality of Section 145 of the NIRC, as
amended by RA 9334 and (2) Declaring Section 4(B)(e)(c), 2nd paragraph of Revenue
Regulations No. 1-97, as amended by Section 2 of Revenue Regulations 9-2003, and
Sections II(1)(b), II(4)(b), II(6), II(7), III (Large Tax Payers Assistance Division II) II(b) of
Revenue Memorandum Order No. 6-2003 INVALID insofar as they grant the BIR the power to
reclassify or update the classification of new brands every two years or earlier.
ISSUES:
(1) W/N the assailed provisions violate the equal protection and uniformity of taxation clauses
of the Constitution
(2) W/N petition is entitled to a downward reclassification of Lucky Strike from the premium-
priced to the high-priced tax bracket.
RULING: Motion for reconsideration is DENIED.
RATIO:
1. The assailed law DOES NOT violate the equal protection and uniformity of taxation
clauses.
 The SC applied the rational basis test in ruling for the constitutionality of said law. Under
the test, it is sufficient that the legislative classification is rationally related to achieving
some legitimate State interest. The classification is considered valid and reasonable
provided that:
o (1) it rests on substantial distinctions;
o (2) it is germane to the purpose of the law;
o (3) it applies, all things being equal, to both present and future conditions; and
o (4) it applies equally to all those belonging to the same class.
 The first, third and fourth requisites are satisfied. The classification freeze provision was
inserted in the law for reasons of practicality and expediency. That is, since a new brand
was not yet in existence at the time of the passage of RA 8240, then Congress needed a
uniform mechanism to fix the tax bracket of a new brand. The current net retail price,
similar to what was used to classify the brands under Annex D as of October 1, 1996, was
thus the logical and practical choice.
 Further, with the amendments introduced by RA 9334, the freezing of the tax
classifications now expressly applies not just to old brands but to newer brands introduced
after the effectivity of RA 8240 on January 1, 1997 and any new brand that will be
introduced in the future.
 As for the second requisite, the classification freeze provision addressed Congress
administrative concerns in the simplification of tax administration of sin products:
o (1) Elimination of potential areas for abuse and corruption in tax collection - the
periodic reclassification of brands would tempt the cigarette manufacturers to
manipulate their price levels or bribe the tax implementers in order to allow their
brands to be classified at a lower tax bracket even if their net retail prices have
already migrated to a higher tax bracket after the adjustment of the tax brackets to
the increase in the consumer price index.
o (2) Buoyant and stable revenue generation and ease of projection of revenues -
With the frozen tax classifications, the revenue inflow would remain stable and the
government would be able to predict with a greater degree of certainty the amount
of taxes that a cigarette manufacturer would pay given the trend in its sales volume
over time.
 Administrative concerns may provide a legitimate, rational basis for legislative
classification. Consequently, there can be no denial of the equal protection of the laws
since the rational-basis test is amply satisfied.
 Uniformity of taxation requires that all subjects or objects of taxation, similarly situated, are
to be treated alike both in privileges and liabilities. In the instant case, there is no question
that the CFP meets the geographical uniformity requirement because the assailed law
applies to ALL CIGARETTE BRANDS n the Philippines.
2. Petitioner is not entitled to a downward reclassification of Lucky Strike.
 Petitioner alleges that assuming the assailed law is constitutional, its Lucky Strike brand
should be reclassified from the premium-priced to the high-priced tax bracket. Relying on
BIR Ruling No. 018-2001 dated May 10, 2001, it claims that it timely sought redress from
the BIR to have the market survey conducted within three months from product launch, as
provided for under Section 4(B) of Revenue Regulations No. 1-97, in order to determine
the actual current net retail price of Lucky Strike, and thus, fix its tax classification. Had the
market survey been timely conducted sometime in 2001, the current net retail price of
Lucky Strike would have been found to be under the high-priced tax bracket.
 The SC ruled that there was no upward reclassification of Lucky Strike because it was
taxed based on its suggested gross retail price from the time of its introduction in the
market in 2001 until the BIR market survey in 2003.
o Lucky Strikes actual current net retail price was surveyed for the first time in 2003 and
was found to be from P10.34 to P11.53 per pack, which is within the premium-priced
tax bracket. There was, thus, no prohibited upward reclassification of Lucky Strike by
the BIR based on its current net retail price.
 Furthermore, the failure of the BIR to conduct the market survey within the three-month
period under the revenue regulations then in force can in no way make the initial tax
classification of Lucky Strike based on its suggested gross retail price permanent.
o Otherwise, this would contravene the clear mandate of the law which provides that the
basis for the tax classification of a new brand shall be the current net retail price and
not the suggested gross retail price. It is a basic principle of law that the State cannot
be estopped by the mistakes of its agents.
 Lastly, the said BIR Ruling contained an express reservation that the tax classification of
Lucky Strike set therein is without prejudice, however, to the subsequent conduct of a
survey x x x in order to determine if the actual gross retail price thereof is consistent with
[petitioners] suggested gross retail price. In short, petitioner acknowledged that the initial
tax classification of Lucky Strike may be modified depending on the outcome of the survey
which will determine the actual current net retail price of Lucky Strike in the market.
2. EXXONMOBIL PETROLEUM AND CHEMICAL HOLDINGS, INC PHILIPPINE
BRANCH v. COMISSIONER OF INTERNAL REVENUE
GR 180909, January 19, 2011
FACTS:
 Petitioner Exxon is a foreign corporation engaged in the business of selling petroleum
products to domestic and international carriers.
 Exxon purchased from Caltex Philippines, Inc. (Caltex) and Petron Corporation (Petron)
Jet A-1 fuel and other petroleum products, the excise taxes on which were paid for and
remitted by both Caltex and Petron.
 Said taxes, however, were passed on to Exxon which ultimately shouldered the excise
taxes on the fuel and petroleum products
 Petitioner files administrative claims for refund with the BIR amounting to 105,093,536.47
on the basis of Sec 145 of the NIRC Code which grants exemption from excise tax of the
petroleum products sold to international carriers
 Due to inaction, said claim was filed under a petition for review with the CTA
 CTA dismissed the petition for review ruling that only the taxpayer or the manufacturer of
the petroleum products sold has the legal personality to claim the refund of excise taxes
paid on petroleum products sold to international carriers.
 Hence, this petition for review on certiorari by petitioner.
ISSUE: Whether Exxon, as the distributor and vendor of petroleum products to international
carriers registered in foreign countries which have existing bilateral agreements with the
Philippines, is the proper party to claim a tax refund for the excise taxes paid by the
manufacturers, Caltex and Petron, and passed on to it as part of the purchase price.
RULING: Petition is DENIED.
RATIO:
1. The excise tax, when passed on to the purchaser, becomes part of the purchase price.
 Excise taxes are indirect taxes, the liability for payment of which may fall on a person
other than he who actually bears the burden of the tax.
 Although the manufacturer/seller is the one who is statutorily liable for the tax, it is the
buyer who actually shoulders or bears the burden of the tax, albeit not in the nature of a
tax, but part of the purchase price or the cost of the goods or services sold.
2. As petitioner is not the statutory taxpayer, it is not entitled to claim a refund of excise taxes
paid.
 It is well settled in jurisprudence that the proper party to question, or to seek a refund of,
an indirect tax, is the statutory taxpayer, or the person on whom the tax is imposed by law
and who paid the same, even if he shifts the burden thereof to another
 This is because the excise tax on petroleum products is the direct liability of the
manufacturer/producer, and when added to the cost of the goods sold to the buyer, it is no
longer a tax but part of the price which the buyer has to pay to obtain the article.
 Therefore, as Exxon is not the party statutorily liable for payment of excise taxes under
Section 130, in relation to Section 129 of the NIRC, it is not the proper party to claim a
refund of any taxes erroneously paid.
3. There is no unilateral amendment of existing bilateral agreements of the Philippines with
other countries.
1. Exxon argues that in holding that only petroleum products purchased directly from the
manufacturers or producers are exempt from excise taxes, the CTA sanctioned a
unilateral amendment of existing bilateral agreements which the Philippines has with
other countries, in violation of the basic international law principle of pacta sunt
servanda
a. The fact that when petitioner sold the Jet A-1 fuel to international carriers, it did
so free of tax, as the burden becomes part of the purchase price, negates any
violation of the exemption from excise tax of the petroleum products sold to
international carriers insofar as this case is concerned.
3. COMISSIONER OF INTERNAL REVENUE v PILIPINAS SHELL PETROLEUM
CORPORATION, GR 188497, February 19, 2014
FACTS:
 Respondent is engaged in the business of processing, treating and refining petroleum for
the purpose of producing marketable products and the subsequent sale thereof.
 Respondent filed with the Large Taxpayers Audit & Investigation Division II of the Bureau
of Internal Revenue (BIR) a formal claim for refund or tax credit, representing excise taxes
it allegedly paid on sales and deliveries of gas and fuel oils to various international
carriers.
 Since no action was taken by the petitioner on its claims, respondent filed petitions for
review before the CTA
 THE CTA First Division and En Banc ruled in favor of the respondents granted
respondent’s claim for refund on the basis of excise tax exemption for petroleum products
sold to international carriers of foreign registry for their use or consumption outside the
Philippines.
 On a petition for review on certiorari, the SC denied respondent’s claim for refund on the
ground that Pilipinas Shell’s locally manufactured petroleum products are subject to excise
tax under Section 148 of the NIRC. The exemption from excise tax payment on petroleum
products under Section 135(a) “merely allows the international carriers to purchase
petroleum products without the excise tax component as an added cost in the price fixed
by the manufacturers or distributors/sellers. Consequently, the oil companies which sold
such petroleum products to international carriers are not entitled to a refund of excise
taxes previously paid on the goods
 Hence, this motion for reconsideration by respondent
ISSUE: Whether respondent as manufacturer or producer of petroleum products is exempt
from the payment of excise tax on such petroleum products it sold to international carriers.
RULING: Motion for reconsideration granted. Decision of CTA affirmed.
RATIO:
 Section 135 (a), in fulfillment of international agreement and practice to exempt aviation
fuel from excise tax and other impositions, prohibits the passing of the excise tax to
international carriers who buys petroleum products from local manufacturers/sellers such
as respondent. However, there is a need to reexamine the effect of denying the
domestic manufacturers/sellers’ claim for refund of the excise taxes they already paid
on petroleum products sold to international carriers, and its serious implications on our
Government’s commitment to the goals and objectives of the Chicago Convention.
 The Chicago Convention, which established the legal framework for international civil
aviation, did not deal comprehensively with tax matters. Article 24 (a) of the Convention
 simply provides that fuel and lubricating oils on board an aircraft of a Contracting State, on
arrival in the territory of another Contracting State and retained on board on leaving the
territory of that State, shall be exempt from customs duty, inspection fees or similar
national or local duties and charges. Subsequently, the exemption of airlines from national
taxes and customs duties on spare parts and fuel has become a standard element of
bilateral air service agreements (ASAs) between individual countries.
 The importance of exemption from aviation fuel tax was underscored in the following
observation made by a British author in a paper assessing the debate on using tax to
control aviation emissions and the obstacles to introducing excise duty on aviation fuel,
thus:
 With the prospect of declining sales of aviation jet fuel sales to international carriers on
account of major domestic oil companies’ unwillingness to shoulder the burden of excise
tax, or of petroleum products being sold to said carriers by local manufacturers or sellers
at still high prices, the practice of “Tankering” would not be discouraged.
 Aircraft would be travelling further than necessary to fill up in low-tax jurisdictions; in
addition they would be burning up more fuel when carrying the extra weight of a full fuel
tank.
 This scenario does not augur well for the Philippines-growing economy and the booming
tourism industry. Worse, our Government would be risking retaliatory action under several
bilateral agreements with various countries. Evidently, construction of the tax
exemption provision in question should give primary consideration to its broad
implications on our commitment under international agreements.
 In view of the foregoing reasons, we find merit in respondent’s motion for reconsideration.
We therefore hold that respondent, as the statutory taxpayer who is directly liable to
pay the excise tax on its petroleum products, is entitled to a refund or credit of the
excise taxes it paid for petroleum products sold to international carriers, the latter
having been granted exemption from the payment of said excise tax under Sec.
135(a) of the NIRC.⁠
4. COMISSIONER OF INTERNAL REVENUE v SAN MIGUEL CORPORATION,
GR 205045, January 25, 2017
FACTS:
 The excise tax on beer is a specific tax based on volume, or on a per liter basis. Before its
amendment, Section 143 provided for three (3) layers of tax rates, depending on the net
retail price per liter. How a new beer product is taxed depends on its classification, i.e.
whether it is a variant of an existing brand or a new brand.
 Variants of a brand that were introduced in the market after January 1, 1997 are taxed
under the highest tax classification of any variant of the brand.
 New brands are initially classified and taxed according to their suggested net retail price,
until a survey is conducted by the Bureau of Internal Revenue to determine their current
net retail price in accordance with the specified procedure.
 DEFINITION OF TERMS:
o VARIANT:
o Before Rep. Act No. 9334 was passed, the definition of variant in the Tax Code
under Republic Act No. 8240 includes two (2) types of "variants." The first involves
the use of a modifier that is prefixed and/ or suffixed to a brand root name, and the
second involves the use of the same logo or design of an existing brand.
o Rep. Act No. 9334 took effect on January 1, 2005 and deleted the second type of
"variant" from the definition.
o The purpose behind the definition was to properly tax brands that were presumed
to be riding on the popularity of previously registered brands by being marketed
under an almost identical name with a prefix, suffix, or a variant
o NEW BRAND:
o New brand' shall mean a brand registered after the date of effectivity of R.A. No.
8240. (January 1, 1997)
 On Oct 19, 1999, De Guzman SMC Assistant President for Finance wrote the BIR
requesting registration and authority to manufacture “San Mig Light” which was granted.
 On Jan 28, 2002, Villacorte, SMC’s VP and Manager of the Group Tax Services, wrote to
BIR for tax rate and classification of “San Mig Light”
 On Feb 7, 2002, the BIR confirmed that “San Might Light” was a new brand and shall be
taxed as such.
 SMC was issued a Notice of Discrepancy stating that "San Mig Light" was a variant of its
existing beer products and must, therefore, be subjected to the higher excise tax rate for
variants. The notice demand for payments of deficiency excise tax.
 The CIR denied the protests filed by SMC on the ground of lack of factual and legal basis.
 To prevent the issuance of additional excise tax assessments on San Mig Light products
and the disruption of its operations, San Miguel Corporation paid excise taxes at the rate
of ₱13.61 beginning February 1, 2004.
 SMC filed with BIR for refund, which was elevated to the CTA due to inaction.
 The CTA ruled in favor of SMC and ordered the issuance of a tax credit certificate.
 Hence, this petition for review on certiorari.
ISSUES:
 Whether "San Mig Light" is a new brand and not a variant of "San Miguel Pale Pilsen";
 Whether the Bureau of Internal Revenue may issue notices of discrepancy that
effectively changes "San Mig Light’s classification from new brand to variant
RULING: Petition denied, Decision of the CTA Affirmed.
RATIO:
1. San Mig Light is a new brand
1. The Bureau of Internal Revenue's actions reflect its admission and confirmation that
"San Mig Light" is a new brand.
a. In response to the Oct 19 letter of respondent, the LTAD II Acting Chief
confirmed that respondent was allowed to register, manufacture, and sell "San
Mig Light" as a new brand
b. The joint stipulation of facts, documents and issues signed by both parties
indicated that “San Mig Light” was a new brand
o Issuance of Revenue Memorandum Order No. 6-2003, which included "San
Mig Light" as a new brand.
2. Petitioner argues that although the Bureau of Internal Revenue erroneously allowed
San Miguel Corporation to manufacture and sell "San Mig Light" in 1999 as a "new
brand" with the lower excise tax rate for "new brands," government is not estopped
from correcting previous errors by its agents.
o While estoppel generally does not apply against government, especially when
the case involves the collection of taxes, an exception can be made when the
application of the rule will cause injustice against an innocent party.
o Respondent had already acquired a vested right on the tax classification of its
San Mig Light as a new brand. To allow petitioner to change its position will
result in deficiency assessments in substantial amounts against respondent to
the latter's prejudice.
3. The fact that "San Mig Light" is a "new brand" and not merely a variant of an existing
brand is bolstered by the fact that Annexes "C-1" and "C-2" of RA No. 8240, which
enumerated the fermented liquors registered with the BIR do not include the brand
name "San Mig Light"
o When the product "San Mig Light" was introduced in 1999, it was considered
as an entirely new product and a new brand of petitioner's fermented liquor,
there being no root name of "San Miguel" or "San Mig" in its existing
brand names. The existing registered and classified brand name of
petitioner at that time was "Pale Pilsen." Therefore, the word "Light"
cannot he considered as a mere suffix to the word "San Miguel," but it is
part and parcel of an entirely new brand name, "San Mig Light."
4. Anent the second type of "variant of brand," i.e., when a different brand carries the
same logo or design of an existing brand, records show that there are marked
differences in the designs of the existing brand "Pale Pilsen" and the new brand
"San Mig Light
o They have different bottles or a distinct design in its packaging "Pale Pilsen" is
in a steiny bottle, while "San Mig Light" is packed in a tall and slim transparent
bottle;
o the design and color of the inscription on the bottles are different from each
other. "Pale Pilsen" has its label encrypted or embossed on the bottle itself,
while "San Mig Light" has a silver and blue label of distinctive design that is
printed on paper pasted on the bottle;
o the color of the letters in the "Pale Pilsen" brand is white against the color of
the bottle, while that of the words "San Mig" is white against a blue background
and the word "Light" is blue against a silver background
2. Any reclassification of fermented liquor products should be by act of Congress. Section 143
of the Tax Code, as amended by Rep. Act No. 9334, provides for this classification freeze
referred to by the parties:
Provided, however, That brands of fermented liquors introduced in the domestic market
between January 1, 1997 and December 31, 2003 shall remain in the classification under
which the Bureau of Internal Revenue has determined them to belong as of December 31,
2003. Such classification of new brands and brands introduced between January 1,
1997 and December 31, 2003 shall not be revised except by an act of Congress.
Petitioner's letters and Notices of Discrepancy, which effectively changed San Mig Light's
brand's classification from "new brand to variant of existing brand," necessarily changes San
Mig Light's tax bracket. A reclassification of a fermented liquor brand introduced between
January 1, 1997 and December 31, 2003, such as "San Mig Light," must be by act of
Congress. There was none in this case. Petitioner has no power to do this.
Thus, refund of erroneously collected excise taxes on "San Mig Light" is proper.
5. CHEVRON PHILIPPINES INC. v. COMMISSIONER OF INTERNAL REVENUE
G.R. No. 210836, September 01, 2015
Facts:
 Chevron imported petroleum products and paid the excise tax for said products.
 Chevron sold and delivered petroleum products to Clark Development Corporation (CDC)
from August to December 2007.
 CDC is a tax-exempt entity under Section 135(a) of the NIRC.
 Chevron did not pass on to CDC the excise taxes it paid on the importation of the
petroleum products.
 Thus, Chevron filed with the Commissioner of Internal Revenue (CIR) an administrative
claim for tax refund or issuance of tax credit certificate in the amount of P 6,542,400.00.
 The CIR did not act on Chevron’s administrative claim.
 Chevron then elevated its claim to the Court of Tax Appeals (CTA) by petition for review.
 The CTA First Division denied Chevron’s judicial claim for tax refund or tax credit and also
denied Chevron’s Motion for Reconsideration on November 20, 2012.
 Chevron then appealed to the CTA En Banc, which, in its decision, affirmed the ruling of
the CTA First Division. It stated that there was nothing in Section 135 (c) of the NIRC that
explicitly exempted Chevron as the seller of the imported petroleum products from the
 payment of the excise taxes; and held that because it did not fall under any of the
categories exempted from paying excise tax, Chevron was not entitled to the tax refund or
tax credit.
 Chevron sought reconsideration but the CTA En Banc denied its motion.
 Chevron appealed to the Supreme Court but the Second Division denied its petition for
review on certiorari.
 Hence, Chevron then filed a motion for reconsideration, submitting that it was entitled to
the tax refund or credit.
Issue: Whether Chevron was entitled to the tax refund or tax credit for the excise taxes paid
on the importation of petroleum products that it had sold to CDC.
Held: WHEREFORE, the Court GRANTS petitioner Chevron Philippines, Inc.’s Motion for
Reconsideration; DIRECTS respondent Commissioner of Internal Revenue to refund the
excise taxes in the amount of P 6,542,400.00 paid on the petroleum products sold to Clark
Development Corporation in the period from August 2007 to December 2007, or to issue a tax
credit certificate of that amount to Chevron Philippines, Inc.
Ratio: Pursuant to Section 135 (c), petroleum products sold to entities that are by law exempt
from direct and indirect taxes are exempt from excise tax.
CDC was created to be the implementing and operating arm of the Bases Conversion and
Development Authority to manage the Clark Special Economic Zone (CSEZ). As such, it has
been exempt from paying direct and indirect taxes.
Inasmuch as its liability for the payment of the excise taxes accrued immediately upon
importation and prior to the removal of the petroleum products from the customs house,
Chevron was bound to pay, and actually paid such taxes.
But the status of the petroleum products as exempt from the excise taxes would be confirmed
only upon their sale to CDC in 2007. Before then, Chevron did not have any legal basis to
claim the tax refund or the tax credit as to the petroleum products.
Consequently, the payment of the excise taxes by Chevron upon its importation of petroleum
products was deemed illegal and erroneous upon the sale of the petroleum products to CDC.
Section 204 of the NIRC explicitly allowed Chevron as the statutory taxpayer to claim the
refund or the credit of the excise taxes thereby paid.
Excise taxes are considered as a kind of indirect tax, the liability for the payment of which may
fall on a person other than whoever actually bears the burden of the tax. Simply put, the
statutory taxpayer may shift the economic burden of the excise tax payment to another—
usually the buyer.
In cases involving excise tax exemptions on petroleum products under Section 135 of the
NIRC, the Court has consistently held that it is the statutory taxpayer, not the party who only
bears the economic burden who is entitled to claim the tax refund or tax credit.
But the Court has also made clear that this rule does not apply where the law grants the party
to whom the economic burden of the tax is shifted by virtue of an exemption from both direct
and indirect taxes. In which case, such party must be allowed to claim the tax refund or tax
credit even if it is not considered as the statutory taxpayer under the law.
The general rule applies here because Chevron did not pass on to CDC the excise taxes paid
on the importation of the petroleum products, the latter being exempt from indirect taxes.
Accordingly, conformably with Section 204 (c) of the NIRC, Chevron was entitled to the refund
or credit of the excise taxes erroneously paid on the importation of the petroleum products
sold to CDC.
6. COMMISSIONER OF INTERNAL REVENUE v. PHILIPPINE AIRLINES, INC.
G.R. Nos. 212536-37, August 27, 2014
Facts:
 On June 11, 1978, PAL was granted under PD 1590 a franchise to operate air transport
services domestically and internationally.
 Section 13 of the decree prescribes the tax component of PAL’s franchise. Under it, PAL,
during the lifetime of its franchise, shall pay the government either basic corporate income
tax or franchise tax based on revenues and/or the rate defined in the provision, whichever
is lower and the taxes thus paid under either scheme shall be in lieu of all other taxes,
duties and other fees.
 On January 1, 2005, RA 9334 took effect. Of pertinent relevance in this proceeding is its
Sec. 6 which amended Sec. 131 of the NIRC to read:
SEC. 6. Section 131 of the NIRC, as amended, is hereby amended to read as follows:
SEC. 131. Payment of Excise Taxes on Imported Articles.-
"(A) Persons Liable.- Excise taxes on imported articles shall be paid by the owner or importer
to the Customs Officers, x x x before the release of such articles from the customs house, or
by the person who is found in possession of articles which are exempt from excise taxes other
than those legally entitled to exemption.
"In the case of tax-free articles brought or imported into the Philippines by persons, entities, or
agencies exempt from tax which are subsequently sold, transferred or exchanged in the
Philippines to non-exempt persons or entities, the purchasers or recipients shall be
considered the importers thereof x x x.
"The provision of any special or general law to the contrary notwithstanding, the importation
of x x x cigarettes, distilled spirits, fermented liquors and wines x x x, even if destined for tax
and duty-free shops, shall be subject to all applicable taxes, duties, charges, including excise
taxes due thereon. This shall apply to [said items] x x x brought directly into the duly chartered
or legislated free ports x x x, and such other free ports as may hereafter be established or
created by law x x x. “
 Pursuant to the above-quoted tax code provisions, PAL was assessed excise taxes on its
February and March 2007 importation of cigarettes and alcoholic drinks for its commissary
supplies used in its international flights.
 PAL paid a total of P 4,550,858.85, under protest.
 PAL then filed separate administrative claims for refund before the BIR. The CIR did not
act on it.
 PAL then filed with the CTA a petition for review.
 The CTA Second Division rendered a decision ordering respondents CIR and COC to pay
PAL by way of refund P 4,550,858.85, representing the excise taxes paid in February to
March 2007, covering PAL’s importation of commissary supplies.
 The CIR and the COC interposed separate motions for reconsideration, both were denied.
 The CIR and the COC both elevated the case to the CTA En Banc.
 The CTA En Banc affirmed the judgment of the CTA Second Division and dismissed the
petition for review.
 Petitioners sought reconsideration but the CTA En Banc denied their motions. Hence, this
petition.
 Petitioners argued that the tax exemption PAL enjoyed under Sec. 13 of its franchise had
been revoked by Congress via RA 9334, when it amended Sec. 131 of the NIRC, which
subjects the importation of cigars, cigarettes, distilled spirits and wines to all applicable
taxes inclusive of excise tax “the provision of any special or general law to the contrary
notwithstanding.”
 PAL, on the other hand, contends that its exemption from excise tax, as provided in its
franchise under PD 1590, has not been withdrawn by the NIRC, as amended by RA 9334.
 On the postulate that RA 9334 partakes the nature of a general law which could not have
plausibly repealed a special law (PD 1590), PAL drew attention to SEC. 24 of PD 1590
which provides that its franchise may only be modified, amended or repealed expressly by
a special law or decree that specifically modify, amend or repeal its franchise.
Issue: Whether PAL’s claim for refund over excise tax on its importations of alcohol and
tobacco products for its commissary supplies should be granted.
Held: WHEREFORE, the instant Petition for Review is DENIED. The assailed Decision of the
Court of Tax Appeals En Banc dated December 9, 2013 and its Resolution date May 2, 2014
are hereby AFFIRMED.
Ratio:
The tax privilege of PAL provided in Sec. 13 of PD 1590 has been revoked by Sec. 131 of the
NIRC of 1997, as amended by Sec. 6 of RA 9334.
PD 1590 is a special law, which governs the franchise of PAL. Between the provisions under
PD 1590 as against the provisions under the NIRC of 1997, as amended by RA 9334, which
is a general law, the former necessary prevails.
This is in accordance with the rule that on a specific matter, the special law shall prevail over
the general law, which shall be resorted only to supply deficiencies in the former.
In addition, where there are two statutes, the earlier special and the later general-the terms of
the general broad enough to include the matter provided for in the special-the fact that one is
special and the other general creates a presumption that the special is considered as
remaining an exception to the general, one as a general law of the land and the other as the
law of a particular case.
Under it’s franchise, PAL’s payment of either the basic corporate income tax or franchise tax,
whichever is lower, PAL is exempt from paying: (a) taxes directly due from or imposable upon
it as the purchaser of the subject petroleum products; and (b) the cost of the taxes billed or
passed on to it by the seller, producer, manufacturer, or importer of the said products either
as part of the purchase price or by mutual agreement or other agreement.
Therefore, given the foregoing direct and indirect tax exemptions under its franchise, and
applying the principles as above-discussed, PAL is endowed with the legal standing to file the
subject tax refund claim, notwithstanding the fact that it is not the statutory taxpayer as
contemplated by law.
PAL has presented in context a clear statutory basis for its refund claim of excise tax, a claim
predicated on a statutory grant of exemption from that forced exaction. It thus behooves the
government to refund what it erroneously collected.
As held in CIR v. Fortune Tobacco Corporation, of the state expect taxpayers to observe
fairness and honesty in paying their taxes, it must hold itself against the same standard in
refunding erroneous exactions and payment of such taxes.
7. LA SUERTE CIGAR & CIGARETTE FACTORY v. COURT OF APPEALS and
COMMISIONER OF INTERNAL REVENUE
G.R. No. 125346, November 11, 2014
Facts:
 These cases involve the taxability of stemmed leaf tobacco imported and locally
purchased by cigarette manufacturers for use as raw material in the manufacture of their
cigarettes.
 La Suerte Cigar & Cigarette Factory (La Suerte) is a domestic corporation engaged in the
production and manufacture of cigars and cigarettes.
 La Suerte import leaf tobacco from foreign sources and purchase locally produced leaf
tobacco to be used in the manufacture of cigars and cigarettes. In this case, there is no double taxation in the prohibited sense despite the fact that they are
 On January 3, 1990, La Suerte received a letter from then Commissioner Jose U. Ong paying the specific (excise) tax on the raw material and on the finished product in which the
demanding the payment of P 34, 934,827.67 as deficiency excise tax on its entire raw material was a part, because the specific (excise) tax is imposed by explicit provisions of
importation and local purchase of stemmed leaf tobacco. the Tax Code on two different articles or products: (1) on the stemmed leaf tobacco; and (2)
 La Suerte protested stressing that the BIR assessment was based solely on Section 141 on cigar or cigarette.
(b) of the Tax Code without applying Section 137 thereof, which expressly allows the sale
of stemmed leaf tobacco as raw material by one manufacturer directly to another without
payment of the excise tax.
 The Commissioner insisted that stemmed leaf tobacco is subject to excise tax unless
there is an express grant of exemption from the payment of tax.
 The Court of Tax Appeals (CTA) decided in favor of La Suerte.
 The Commissioner appealed the CTA’s decision to the Court of Appeals (CA) which ruled
against La Suerte and found that RR No. V-39 (The Tobacco Product Regulations) limits
the tax exemption on transfers of stemmed leaf tobacco to transfers between two
manufacturers.
 La Suerte then filed a petition for review on certiorari with the Supreme Court.

Issues:
1. Whether stemmed leaf tobacco is subject to specific (excise) tax under Section 141 of the
1986 Tax Code.
2. Whether stemmed leaf tobacco imported by La Suerte is exempt from specific tax under
Section 137 of the 1986 Tax Code.

Held: WHEREFORE, this Court DENIES the petition for review by La Suerte Cigar &
Cigarrette Factory and AFFIRMS the questioned decision and resolution of the Court of
Appeals.

Ratio:
Stemmed leaf tobacco is subject to the specific (excise) tax under Section 141 (b). It is
partially prepared tobacco. The removal of the stem or midrib from the leaf tobacco makes the
resulting stemmed leaf tobacco prepared or partially prepared tobacco.
Since the Tax Code contained no definition of “partially prepared tobacco,” then the term
should be construed in its general, ordinary, and comprehensive sense.

However, importation of stemmed leaf tobacco is not included in the exemption under Section
137. The transaction contemplated in Section 137 does not include importation of stemmed
leaf tobacco for the reason that the law uses the word “sold” to describe the transaction of
transferring the raw materials from one manufacturer to another.

Excise taxes are essentially taxes on property because they are levied on certain specified
goods or articles manufactured or produced in the Philippines for domestic sale or
consumption or for any other disposition, and on goods imported.
V. DOCUMENTARY STAMP TAXES
1. MICHEL J. LHUILLIER PAWNSHOP, INC. v. COMMISSIONER OF
INTERNAL REVENUE
G.R. No. 166786, May 3, 2006
Facts:
 Petitioner, a corporation engaged in the pawnshop business, received assessment
notices for deficiency VAT in the amount of P 19,961,636.09 and deficiency DST in the
amount of P 13,142,986.02, for the year 1997.
 Petitioner filed a motion for reconsideration of said assessment notices but was denied by
respondent CIR.
 On petition for review with the CTA, the latter rendered decision in favor of petitioner
setting aside the assessment notices issued by the CIR. It ruled, inter alia, that the subject
of DST under Section195 of the NIRC is the document evidencing the covered
transaction. Holding that a pawn ticket is neither security nor a printed evidence of
indebtedness, the tax court concluded that such pawn ticket cannot be the subject of a
DST.
 Respondent filed a petition for review with the CA, which reversed the CTA decision and
sustained the assessments against petitioner. It ratiocinated, among others, that a pawn
ticket, per se, is not subject to DST; rather, it is the transaction involved, which in this case
is pledge, that is being taxed. Hence, petitioner was properly assessed to pay DST.
 Respondent filed a motion for partial reconsideration praying that petitioner be ordered to
pay deficiency interest of 20% per annum for failure to pay the same on January 2, 2000,
as indicated in the notices.
 The CA granted the motion and modified its earlier decision.
 Petitioner elevated the case to the Supreme Court.
 Subsequently, it filed a motion to withdraw the petition with respect to the issue of VAT.
Petitioner manifested that the Chamber of Pawnbrokers of the Philippines, where it is a
member, entered into a Memorandum of Agreement with the BIR allowing the pawnshop
industry to compromise the issue of VAT on pawnshops. Considering that petitioner
already paid the agreed amount of settlement, it prayed that the case be decided solely on
the issue of DST.
 The court granted petitioners partial withdrawal of the petition.
Issue: Whether petitioner’s pawnshop transactions are subject to DST.
Held: WHEREFORE, the petition is DENIED and the June 29, 2004 Decision of the Court of
Appeals, as modified on December 29, 2004, in CA-G.R. SP No. 67667, is AFFIRMED.
Ratio: It is clear from Sections 173 and 195 of the NIRC that the subject of a DST is not
limited to the document embodying the enumerated transactions.
A DST is an excise tax on the exercise of a right or privilege to transfer obligations, rights or
properties incident thereto.
In Philippine Home Assurance Corporation v. Court of Appeals, it was held:
“In general, documentary stamp taxes are levied on the exercise by persons of certain
privileges conferred by law for the creation, revision, or termination of specific legal
relationships through the execution of specific instruments. Examples of such privileges, the
exercise of which, as effected through the issuance of particular documents, are subject to the
payment of documentary stamp taxes are leases of lands, mortgages, pledges and trusts, and
conveyances of real property.”
Pledge is among the privileges, the exercise of which is subject to DST.
A pledge may be defined as an accessory, real and unilateral contract by virtue of which the
debtor or third person delivers to the creditor or to a third person movable property as security
for the performance of the principal obligation, upon the fulfillment of which, the thing pledged,
with all its accessions and accessories, shall be returned to the debtor or to the third person.
This is essentially the business of pawnshops.
Pawnshops are required by law to issue, at the time of every such loan or pledge, a
memorandum or ticket signed by the pawnbroker. A pawn ticket is defined by Section 3 of the
Pawnshop Regulation Act as the pawnbrokers receipt for a pawn. It is neither a security nor a
printed evidence of indebtedness.
True, the law does not consider said ticket as an evidence of security or indebtedness.
However, for purposes of taxation, the same pawn ticket is proof of an exercise of a taxable
privilege of concluding a contract of pledge.
At any rate, it is not said ticket that creates the pawnshop’s obligation to pay DST but the
exercise of the privilege to enter into a contract of pledge.
There is therefore, no basis in petitioners assertion that a DST is literally a tax on a document
and that no tax may be imposed on a pawn ticket.
2. PHILIPPINE HEALTH CARE PROVIDERS, INC. vs. COMMISSIONER OF
INTERNAL REVENUE
G.R. No. 167330 September 18, 2009
FACTS: The petitioner, a prepaid health-care organization offering benefits to its members.
The CIR found that the organization had a deficiency in the payment of the Documentary
Stamp Tax under Section 185 of the 1997 Tax Code which stipulated its implementation:
“On all policies of insurance or bonds or obligations of the nature of indemnity for loss,
damage, or liability made or renewed by any person, association or company or corporation
transacting the business of accident, fidelity, employer's liability, plate, glass,
steam boiler, burglar, elevator, automatic sprinkler, or other branch of insurance (except life,
marine, inland, and fire insurance)”
The CIR sent a demand for the payment of deficiency taxes, including surcharges and
interest, for 1996-1997 in the total amount of P224,702,641.18. The petitioner protested to the
CIR, but it didn’t act on the appeal. Hence, the company had to go to the CTA.
COURT OF TAX APPEALS: Petition is partially granted. Petitioner is ordered to pay the
deficiency VAT amounting to ₱22,054,831.75 inclusive of 25% surcharge plus 20% interest
from January 20, 1997 until fully paid for the 1996 VAT deficiency and ₱31,094,163.87
inclusive of 25% surcharge plus 20% interest from January 20, 1998 until fully paid for the
1997 VAT deficiency. Accordingly, VAT Ruling No. [231]-88 is declared void and without force
and effect. The 1996 and 1997 deficiency DST assessment against petitioner is hereby
CANCELLED AND SET ASIDE. Respondent is ORDERED to DESIST from collecting the
said DST deficiency tax.
COURT OF APPEALS: Petition for review of the decision of the CTA insofar as the
cancellation of the DST is granted. It held that petitioner’s health care agreement was in the
nature of a non-life insurance contract subject to DST.
ISSUE: Whether or not a health care agreement in the nature of an insurance contract and
therefore subject to the documentary stamp tax (DST) imposed under Section 185 of Republic
Act 8424.
SUPREME COURT: Petition is dismissed.
The DST is levied on the exercise by persons of certain privileges conferred by law for the
creation, revision, or termination of specific legal relationships through the execution of
specific instruments.
The DST is an excise upon the privilege, opportunity, or facility offered at exchanges for the
transaction of the business. In particular, the DST under Section 185 of the 1997 Tax Code is
imposed on the privilege of making or renewing any policy of insurance (except life, marine,
inland and fire insurance), bond or obligation in the nature of indemnity for loss, damage, or
liability. Petitioner's health care agreement is primarily a contract of indemnity.
In the recent case of Blue Cross Healthcare, Inc. v. Olivares, this Court ruled that a
health care agreement is in the nature of a non-life insurance policy. Its
health care agreement is not a contract for the provision of medical services. Petitioner does
not actually provide medical or hospital services but merely arranges for the same.
It is also incorrect to say that the health care agreement is not based on loss or damage
because, under the said agreement, petitioner assumes the liability and indemnifies its
member for hospital, medical and related expenses (such as professional fees of physicians).
The term "loss or damage" is broad enough to cover the monetary expense or liability a
member will incur in case of illness or injury.
The health care agreement was in the nature of non-life insurance, which is primarily a
contract of indemnity. Similarly, the insurable interest of every member of petitioner's
health care program in obtaining the health care agreement is his own health. Under
the agreement, petitioner is bound to indemnify any member who incurs hospital, medical or
any other expense arising from sickness, injury or other stipulated contingency to the extent
agreed upon under the contract.
3. PHILIPPINE HOME ASSURANCE CORPORATION v COURT OF APPEALS
G.R. No. 119446 January 21, 1999
FACTS: Petitioners are the Philippine Home Assurance Corporation (PHAC), the Philippine
American Accident Insurance Company (PAAIC), the Philippine American General Insurance
Company (PAGIC), and the American International Underwriters (Phils.) Inc. (AIUPI), which
are domestic corporations engaged in the insurance business. From January to June 1986,
they paid under protest the total amount of P10,456,067.83 as documentary stamp taxes on
various life and non-life insurance policies issued by them. On August 4, 1987, petitioners
filed separate claims for refund from the Bureau of Internal Revenue. They alleged that the
premiums on the insurance policies issued by them had not been paid thus, in accordance
with sec. 77 of the Insurance Code, no documentary stamp taxes were due on the policies. As
the Bureau of Internal Revenue failed to act on their claims, the petitioners appealed on
December 29, 1987 to the Court of Tax Appeals.
COURT OF TAX APPEALS: Ruled against the petitioners. The payment or non-payment of
the premium by the insured is immaterial since a documentary stamp tax is in the nature of an
excise tax upon a facility used in the transaction of a business which is separate and distinct
from the business itself. The subsequent cancellation of an insurance policy will not exempt
the issuer from the corresponding documentary stamp tax. And thus, no refund can be
allowed of the documentary stamp tax paid on an insurance policy which for some reason or
another has been cancelled or for that matter, the premium was unpaid.
COURT OF APPEALS: Affirmed the decision of the CTA.
ISSUE: Whether or not the payment of premiums is necessary so that Documentary Stamp
Tax may be imposed.
SUPREME COURT: Affirmed the decision of the CA. The documentary stamp taxes must be
paid upon the issuance of the said instruments, without regard to whether the contracts which
gave rise to them are rescissible, void, voidable, or unenforceable. It is thus settled that the
life and non-life insurance policies in question are subject to documentary stamp taxes
pursuant to sec. 183 and 184 of the National Internal Revenue Code by their mere issuance,
and the fact that the policies have not become effective for non-payment of the corresponding
premiums as required by sec. 77 of the Insurance Code cannot affect petitioners' liability for
payment of documentary stamp taxes.
4. JAKA INVESTMENTS CORPORATION vs. COMMISSIONER OF INTERNAL
REVENUE
G.R. No. 147629 July 28, 2010
FACTS: Sometime in 1994, petitioner sought to invest in JAKA Equities Corporation (JEC),
which was then planning to undertake an initial public offering (IPO) and listing of its shares of
stock with the Philippine Stock Exchange. JEC increased its authorized capital stock from
One Hundred Eighty-Five Million Pesos (P185,000,000.00) to Two Billion Pesos
(P2,000,000,000.00). Petitioner proposed to subscribe to Five Hundred Eight Million Eight
Hundred Six Thousand Two Hundred Pesos (P508,806,200.00) out of the increase in the
authorized capital stock of JEC through a tax-free exchange under Section 34(c)(2) of the
National Internal Revenue Code (NIRC) of 1977, as amended, which was effected by the
execution of a Subscription Agreement and Deed of Assignment of Property in Payment of
Subscription. The intended IPO and listing of shares of JEC did not materialize.
However, JEC still decided to proceed with the increase in its authorized capital stock and
petitioner agreed to subscribe thereto, but under different terms of payment. Thus, petitioner
and JEC executed the Amended Subscription Agreement. On October 14, 1994, petitioner
paid One Million Three Thousand Eight Hundred Ninety-Five Pesos and Sixty-Five Centavos
(P1,003,895.65) for basic documentary stamp tax inclusive of the 25% surcharge for late
payment on the Amended Subscription Agreement. Petitioner, after seeing the RDO's
certifications, the total amount of which (P 593, 528.15) was less than the actual amount it
had paid as documentary stamp tax, concluded that it had overpaid. Petitioner subsequently
sought a refund for the alleged excess documentary stamp tax and surcharges it had paid on
the Amended Subscription Agreement in the amount of Four Hundred Ten Thousand Three
Hundred Sixty-Seven Pesos (P410,367.00). On October 11, 1996, petitioner filed a petition for
refund before the Court of Tax Appeals.
COURT OF TAX APPEALS: Denied the petition and the motion for reconsideration.
COURT OF APPEALS: Sustained the Court of Tax Appeals and denied the motion for
reconsideration.
ISSUE: Whether petitioner is entitled to a partial refund of the documentary stamp tax and
surcharges it paid on the execution of the Amended Subscription Agreement.
SUPREME COURT: Petition is dismissed. The governing principle is that tax exemptions are
to be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing
authority; and he who claims an exemption must be able to justify his claim by the clearest
grant of statute. Tax refunds are a derogation of the State's taxing power. Hence, like tax
exemptions, they are construed strictly against the taxpayer and liberally in favor of the State.
Consequently, he who claims a refund or exemption from taxes has the burden of justifying
the exemption by words too plain to be mistaken and too categorical to be misinterpreted. It
was thus incumbent upon petitioner to show clearly its basis for claiming that it is entitled to a
tax refund.
Understood to mean what it plainly expressed, the Documentary Stamp Tax imposition is
essentially addressed and directly brought to bear upon the DOCUMENT evidencing the
transaction of the parties which establishes its rights and obligations. Documentary stamp
taxes are levied independently of the legal status of the transactions giving rise thereto. The
documentary stamp taxes must be paid upon the issuance of the said instruments, without
regard to whether the contracts which gave rise to them are rescissible, void, voidable, or
unenforceable.
5. COMMISSIONER OF INTERNAL REVENUE vs. CONSTRUCTION
RESOURCES OF ASIA, INC., and THE COURT OF TAX APPEAL
G.R. No. L-68230 November 25, 1986
FACTS: In July, 1977, Construction Resources of Asia entered into a contract with the
Malaysian government for the construction of a road at Sabah (par. II, Petition). In connection
therewith, petitioner incurred foreign loans in the amount of $3,900,000.00 at 9-1/16% interest
per annum for the period from December 7, 1977 to June 5, 1978, petitioner paid the sum of
$179,156.25 to the foreign creditors as interest on its loan. In an investigation conducted by
BIR examiners, it was ascertained that petitioner failed to file withholding tax return and to
withhold 15% tax on interest on foreign loans remitted abroad.
It was also ascertained that petitioner failed to purchase and affix the corresponding
documentary and science stamps on the stock certificates issued by it covering
P17,880,000.00 worth of shares pursuant to Sections 222 and 224 of the Tax Code. Thus, in
a demand letter dated January 25, 1980, the BIR sought payment of withholding tax-at-source
in the amount of P300,170.46 and in a letter dated March 5, 1980, respondent demanded
payment of petitioner's documentary and science stamps tax liability in the sum of
P89,400.00.
Construction Resources of Asia, in letters dated November 7, 1979 and February 15, 1980,
protested the assessment for withholding tax-at-source, stating that the actual payment of
interest was made only on June 5, 1978 and, therefore, it had nothing yet to withhold in 1977.
Petitioner seas contractor, it is exempt from the withholding tax-at-source provisions of the
Tax Code. As regards its documentary and science stamps tax liability, petitioner contends
that up to the date of the filing of its petition with this Honorable Court, no actual transfer of
ownership of shares has been effected. Per investigation of respondent's examiners,
however, it was ascertained that the shares have been duly issued and, therefore, the
corresponding amount of documentary and science stamps should have been properly affixed
and paid. Consequently, in a letter dated April 30, 1981 (p. 109 BIR rec.) respondent denied
petitioner's protest.
 November 5, 2001 - The Bureau of Internal Revenue (BIR) imposed a Documentary
Stamp Tax (DST) on the above exchange based on Section 196 of the NIRC.
 Respondent subsequently paid the DST on various dates.
 Origin of the case: The Bureau of Internal Revenue (BIR)
 October 14, 2003 – Respondent filed for a tax refund or tax credit with the BIR, asserting
that such exchange was exempt from DST.

COURT OF TAX APPEALS: Affirmed the assessment assessment by the petitioner of the  Appeal: The Court of Tax Appeals (CTA) – 2nd Division
withholding tax-at-source for the fourth quarter of 1977 and the first and second quarters of
1978 in the amount of P299,720.16, plus delinquency penalties on the interest payments  Respondent appealed the case to the 2nd Division of the Court of Tax Appeals (CTA).
remitted abroad. HOWEVER, denied the assessment for documentary and science stamps
taxes on the ground that "there is absolutely nothing in the records which will show or indicate  CTA - 2nd Division Ruling
that the stock certificates on the paid-in-capital of P17,880,000.00 were issued or delivered,
 Respondent is entitled to the tax refund or tax credit.
actually or constructively, to the stockholders, granting that such paid-in-capital was originally
issued." It ruled that the bare statement of the petitioner's examiners that the paid-in-capital of
 The application of Section 196 of the NIRC is misplaced because the surviving
P17,880,000.00 which was originally issued was not subjected to documentary and science
corporation’s absorption of the other corporations’ assets and liabilities in a Plan of Merger
stamps taxes, unaccompanied by inadequate evidence, does not constitute sufficient basis to
is not a sale.
sustain the imposition of the said taxes in the amount of P89,700.00.

ISSUE: Whether or not the liability to pay documentary and science stamps taxes attaches
upon the issuance of certificates of stocks or upon delivery thereof.
SUPREME COURT: Petition granted. The delivery of the certificates of stocks to the private
respondent's stockholders whether actual or constructive, is not essential for the documentary
and science stamps taxes to attach. What is taxed is the privilege of issuing shares of stock
and, therefore, the taxes accrue at the time the shares are issued. Furthermore, the private
respondent never disputed the amount of the documentary and science stamps taxes
assessment but only asked that it be given more time to be able to pay them after it had
formally transferred in its favor the contributed capital of its stockholders.
6. COMMISSIONER OF INTERNAL REVENUE vs. LA TONDENA DISTILLERS,
Inc.
G.R. No. 175188 July 15, 2015
Facts
 September 17, 2001 – Respondent (La Tondena Distillers, Inc.) entered into a Merger with
companies Sugarland Beverage Corporation (SBC for brevity), SMC Juice, Inc. (SMJCI),
and Metro Bottled Water Corporation (MBWC).
 There are neither purchasers nor buyers in a Merger.
 According to Section 8022 of the Corporation Code of the Philippines, the assets and
liabilities of the absorbed corporations were vested in Respondent as a legal
consequence of the Merger; It is nowhere near a sales transaction.
 Appeal: The Court of Tax Appeals En Banc
 Petitioner appealed the matter to the CTA En Banc through a Petition for Review.
 CTA En Banc Ruling
 CTA – 2nd Division Decision is AFFIRMED.
 Section 196 does not apply to Plans of Merger because the properties being absorbed are
not conveyed through sale but rather by operation of law.
Issue: W/N Respondent is exempt from paying DST
SC Ruling: Yes, it is exempt from DST. The Petition is DENIED.

 As a legal consequence of the Merger, the assets and liabilities of SBC, SMJCI, and
MBWC were absorbed by the surviving corporation, herein Respondent.
 The Court has already held in CIR vs. Pilipinas Shell Petroleum Corp. that Section 196
does not apply to all conveyances of realty; only to sales transactions involving real
properties or those for a consideration in money or money’s worth.
 Like the Merger in the above case, the absorption of the assets and liabilities by
Respondent in the case at bar is not a sale.
 Respondent is not a purchaser or a buyer of the assets and liabilities that it absorbed from
SBC, SMJCI, and MBWC.
 Such is but a legal consequence of the Merger according to Philippine Corporation Laws
on Plans of Merger.
 By virtue of the stare decisis doctrine, the Court rules in the same way as it have in the
previous case of CIR vs. Pilipinas Shell Petroleum Corp that no DST should be imposed
on herein Respondent La Tondena Distellers, Inc. because the absorption of the assets
and liabilities by the surviving corporation in a Plan of Merger is not a sale.
7. COMMISSIONER OF INTERNAL REVENUE vs. PILIPINAS SHELL
PETROLEUM CORPORATION
G.R. No. 192398 September 29, 2014
Facts
 Respondent (PSPC) went into a Merger with its affiliate company, Shell Philippine
Petroleum Corporation (SPPC for brevity), with Respondent being the surviving company
in accordance with Philippine Corporation Laws.
 PSPC, the surviving corporation, absorbed all of SPPC’s real properties and
improvements therein as a legal consequence of the Merger.
 The Bureau of Internal Revenue (BIR) subjected the above exchange to Documentary
Stamp Tax (DST) by virtue of Section 196 of the Tax Code of 1997 which Respondent
paid.
● Origin of the Case – The Bureau of Internal Revenue (BIR)
 Respondent objected the allegedly erroneous tax imposition and then filed for a tax refund
with the BIR.
 Petitioner did not file a subsequent action which made Respondent file a Petition for
Review with the Court of Tax Appeals (CTA).
 Petitioner eventually filed an Answer asserting that a DST is imposed on tax deferred
exchanges (i.e. the one in the case at bar) by virtue of BIR Ruling No. 2-20018.
● Appeal: The Court of Tax Appeals (CTA)
● CTA Ruling: The CTA ruled in Respondent’s favor; Respondent PSPC is entitled to a tax
refund or credit.
 DST cannot attach in PSPC’s absorption of SPPC’s real properties.
 The real properties in the case at bar was not conveyed by means of any formal deed, or
written instrument since the vesting of SPPC’s real properties to PSPC was automatic,
occurring by operation of law; Ergo there should be no DST imposed.
 Revenue Memorandum Circular No. 44-86 states that DST is imposed only if the
transaction involving real property was a sale or was made for a consideration in money or
money’s worth.
 The exchange of real properties between the two companies in favor of the surviving
corporation was clearly not a sale; it is a legal consequence of the Merger agreement.
● Appeal: The Court of Appeals (CA)
CA Ruling:
 The CTA Decision is AFFIRMED.
 Respondent PSCP is entitled to a tax refund or tax credit.
Issue: W/N the absorption by Respondent PSPC of SPPC’s real properties and
improvements therein is subject to Documentary Stamp Tax
SC Ruling: No, it is not subject to DST. The Petition is DENIED for lack of merit.
 Petitioner erroneously construed Sec. 196 of the Tax Code.
 The given provision does not apply to each and every conveyance, deed, or written
instruments embodying transactions that involve land and other real properties.
 The context of the section is calrified by the word “sold” meaning the DST is levied only to
a transfer of real property by way of sale; the realty must be sold or conveyed for a
consideration in money or money’s worth in order for DST to be properly imposed.
 The exchange in the case at bar was not a sale but rather a legal consequence of a
Merger.
 The law provides that in a Plan of Merger, the real properties are not considered “sold” to
the surviving corporation; the real properties are simply infused into the surviving
corporation’s assets by operation of law.
 The properties are considered automatically transferred to and vested in the surviving
corporation without any further act or deed.
 A DST is an excise tax meaning it is levied on the privilege to transact business. It is a tax
on documents, written instruments, etc. that embody the transaction or obligation.
 In the case at bar, no DST can be imposed based on the above fact because the transfer
of SPPC’s real properties to PSPC was not conveyed by means of any specific deed, or
written instrument. It is an automatic consequence of the Merger which is also
incorporated therein.
8. ANTAM PAWNSHOP, CORP. vs. COMMISSIONER OF INTERNAL REVENUE
G.R. No. 167962 September 19, 2008
Facts
 Petitioner is a pawnshop business.
 Respondent assessed Petitioner’s accounting records for the year 1998 and found a
deficiency Documentary Stamp Tax (DST) payment, among other deficiency tax
payments.
● Origin of the case – The Bureau of Internal Revenue (BIR)
 Respondent demanded Petitioner to pay said deficiency taxes.
 Petitioner filed a written protest with the BIR.
● Appeal: The Court of Tax Appeals (CTA)
 Petitioner Antam appealed to the Court of Tax Appeals due to the BIR’s inaction to the
protest.
 CTA Ruling: The CTA ordered Petitioner Antam to pay the deficiency DST assessment on
subscribed capital stock (among the other deficiency taxes) but NOT the DST assessment
on pawn tickets.
 The CTA ruled that since a pawn ticket is neither a security nor a printed instrument of
indebtedness according to Sec. 3 of P.D. 114, it is not a document that is subject to DST.
● Appeal: The Court of Appeals (CA)
 Respondent appealed to the CA, assailing the CTA’s cancellation of Petitioner’s payment
of the DST on pawn tickets.
 Petitioner’s contention – Pawn tickets are not subject to DST because for such to be
taxable, it must be an evidence of indebtedness on its face. By express virtue of P.D. 114,
pawn tickets are not such evidence therefore it should not be subject to DST.
 Respondent’s contention – A pawn ticket is an evidence of a pledge, ergo, it must be
subjected to DST by virtue of Sec. 195 of the NIRC.
 CA Ruling: Pawn tickets ARE subject to DST.
 A pawn ticket evidences a contract of pledge which subjects it to a DST in accordance
with Sec. 195 of the NIRC.
 The DST is levied on a person’s exercise of certain privileges to engage in legally binding
relationships via the execution of specific instruments. A contract of pledge is a pertinent
example of those legally conferred privileges.
 Despite P.D. 114, pawnshops enter into contracts of pledge with their customers. This fact
justifies the imposition of DST on the pawn tickets that embody such taxable privilege.
Issue: W/N pawn tickets are subject to Documentary Stamp Tax (DST)
SC Ruling: Yes, they are. Pawn tickets are subject to payment of DST.
 Section 195 of the NIRC unequivocally levies a DST on pledge of personal property, the
main transaction being made in a pawnshop business like the Petitioner’s.
 The pawn ticket itself is not subject to DST but rather the privilege to enter into pledge.
 A DST is taxed on certain privileges to enter into specific legally binding relationships via
the execution of specific instruments; one of those privileges is a contract of pledge which
is the pertinent transaction in the case at bar.
 In Michel J. Lhuillier Pawnshop, Inc. v. CIR, this Court ruled that although the law does not
treat a pawn ticket as evidence of security or indebtedness, a ticket is still proof of the
exercise of a taxable privilege for tax purposes.
 In the above case and the case at bar, that taxable privilege is a contract of pledge, ergo,
DST must be imposed.
9. BLUE CROSS HEALTH CARE, Inc. vs. NEOMI and DANILO OLIVARES
 G.R. No. 169737 February 12, 2008
Facts
 Respondent Neomi applied for a health care program with Petitioner Blue Cross; the
application was eventually approved and took effect on October 22, 2002.
 The agreement does not cover illnesses due to pre-existing conditions if they occur within
one year from the date of the effectivity of said agreement.
 November 30, 2002 – 38 days after the policy took effect, Respondent Neomi suffered a
stroke and was eventually hospitalized; she incurred expenses which she asked Petitioner
to settle as her insurer.
 Petitioner suspended payment since it was still waiting for confirmation from her doctor
that indeed her stroke was not due to a pre-existing condition.
 Respondent spouses eventually had to settle the medical bills since Petitioner still refused
to pay.
● Origin of the Case – Metropolitan Trial Court (MeTC)
 Respondents sued Petitioner for collection of sum of money in the MeTC.
 Petitioner asserted that it was not liable to pay yet since it was still waiting the doctor’s
confirmation.
 The doctor eventually informed Petitioner via a letter that Respondent was invoking
patient-physician confidentiality which prevents him from releasing any medical
information about her stroke without her approval.
 MeTC Ruling: It ruled IN FAVOR of Petitioner, Blue Cross.
 Petitioner cannot be blamed for suspending the payment of her money claim because
only through the doctor’s information can Petitioner ascertain that Respondent’s stroke
was truly not due to a pre-existing condition.
● Appeal – Regional Trial Court (RTC)
 Respondents appealed to the RTC.
 RTC Ruling
 The MeTC Decision is REVERSED, ruling in favor of Respondents.
 The burden of proving that Respondent Neomi’s stroke was not due to a pre-existing
condition lied on the Petitioner Blue Cross.
 Since Petitioner was unable to overcome such burden, it should be liable to pay
Respondent’s medical bills as her insurer.
● Appeal – Court of Appeals (CA)
 Aggrieved, Petitioner appealed to the CA.
 CA Ruling
 The RTC Decision is AFFIRMED, holding Petitioner liable for the medical bills.
Issue: W/N the Petitioner was able to prove that Respondent Neomi’s stroke was due to a
pre-existing condition which therefore excludes coverage of the health care agreement
SC Ruling: No, Petitioner was not. It was its burden to prove that Respondent’s stroke
was excluded from coverage which it was not able to do.
 Health care agreements are non-life insurance policies.
 Health care agreements are contracts of adhesion which must be construed strictly
against the insurer that made the terms of the contract and in favor of the insured who
accepts the same.
 In the case at bar, Petitioner was unable to prove that the stroke was excluded from the
agreed coverage; the stroke wasn’t proven to be due to a pre-existing medical condition.
 Since it is established that Petitioner had the burden of proving that the agreement did not
cover the stroke and that it eventually was unable to overcome such burden, Petitioner
must then be liable to pay Respondent’s medical bills.
Note: For discussion on Documentary Stamp Tax (DST), since the health care agreement in
the instant case was declared by the Supreme Court to be in the nature of a non-life
insurance policy, it is not within the coverage of Section 185 of the NIRC, thus it would not be
subjected to DST.
10. CIR v. Filinvest Development Corporation
Facts:
- On various dates during the years 1996 and 1997, taxpayer Filinvest Development
Corporation, a holding company, extended advances in favor of its affiliates Filinvest Alabang
incorporated (FAI) and Filinvest land inc. (FLI).
- In 1996, FDC and FAI entered into a Deed of Exchange with FLI whereby the former both
transferred in favor of the latter parcels of land in exchange for shares of stock of FLI were
issued to FDC and FAI.

- BIR issued Ruling No. S-34-046-97 dated 3 February 1997, finding that the exchange is
among those contemplated under Section 34 (c) (2) of the old National Internal Revenue
Code (NIRC) which provides that no gain or loss shall be recognized if property is transferred
to a corporation by a person in exchange for a stock in such corporation of which as a result
of such exchange said person, alone or together with others, not exceeding four (4) persons,
gains control of said corporation."
- FDC also entered into a Shareholders Agreement with RHPL for the formation of a
Singapore-based joint venture company called Filinvest Asia Corporation (FAC). FDC
subscribed to shares in said joint venture company to RHPLs subscription. Having paid its
subscription by executing a Deed of Assignment transferring to FAC a portion of its rights and
interest in the Project, FDC eventually reported a net loss of P190,695,061.00 in its Annual
Income Tax Return for the taxable year 1996.
- On 3 January 2000, FDC received from the BIR a Formal Notice of Demand to pay
deficiency income and documentary stamp taxes, plus interests and compromise penalties,
- Deficiency taxes were assessed on the taxable gain supposedly realized by FDC from the
Deed of Exchange it executed with FAI and FLI, on the dilution resulting from the
Shareholders Agreement FDC executed with RHPL as well as the arms-length interest rate
and documentary stamp taxes imposable on the advances FDC extended to its affiliates.
- On 3 January 2000, FAI similarly received from the BIR a Formal Letter of Demand for
deficiency income taxes in the sum of P1,477,494,638.23 for the year 1997.
- Within the reglementary period of thirty (30) days from notice of the assessment, both FDC
and FAI filed their respective requests for reconsideration/protest, on the ground that the
deficiency income and documentary stamp taxes assessed by the BIR were bereft of factual
and legal basis.
- In view of the failure of petitioner Commissioner of Internal Revenue (CIR) to resolve their
request for reconsideration/protest within the aforesaid period, FDC and FAI filed on 17
October 2000 a petition for review with the Court of Tax Appeals (CTA) The petition alleged,
among other matters, that not being promissory notes or certificates of obligations, the
instructional letters as well as the cash and journal vouchers evidencing said cash advances
were not subject to documentary stamp taxes.
CTA decision: Documentary stamp taxes are cancelled and set aside, but income taxes are
payable.
1. The instructional letters as well as the cash and journal vouchers evidencing the advances
FDC extended to its affiliates are not subject to documentary stamp taxes pursuant to BIR
Ruling No. 116-98, dated 30 July 1998, since they do not partake the nature of loan
agreements;
2. Although BIR Ruling No. 116-98 had been subsequently modified by BIR Ruling No. 108-
99, dated 15 July 1999, to the effect that documentary stamp taxes are imposable on inter-
office memos evidencing cash advances similar to those extended by FDC, said latter ruling
cannot be given retroactive application if to do so would be prejudicial to the taxpayer;
ISSUES:
1. Are inter-company advances subject to DST?
2. Can the amended ruling be given retroactive effect?
SC decision:
On Issue 1: YES. FDC was assessed by the BIR for non-payment of documentary stamp
taxes on the advances. The Supreme Court ruled that the instructional letters as well as the
journal vouchers evidencing advances extended to affiliates qualify as loan agreements upon
which documentary stamp taxes may be imposed because Sec. 180 of the NIRC, when read
in conjunction with sec. 173 of the 1993 NIRC, shows that the provision applies to "(a)ll loan
agreements, whether made or signed in the Philippines, or abroad when the obligation or right
arises from Philippine sources or the property or object of the contract is located or used in
the Philippines."
On Issue 2: NO. Not being the taxpayer who, in the first instance, sought a ruling from the
CIR, FDC cannot invoke the foregoing principle on non-retroactivity of BIR rulings.
On the topic of income tax:
Supreme Court ruled that the Commissioner’s power of distribution, apportionment or
allocation of gross income and deductions under Section 43 of the 1993 NIRC (now Section
50 of the 1997 Tax Code) and Section 179 of Revenue Regulations No. 2 does not include
the power to impute “theoretical interests” to the controlled taxpayer’s transactions. The term
“income” has been variously interpreted to mean “cash received or its equivalent”, the amount
of money coming to a person within a specific time or something distinct from principal or
capital. Otherwise stated, there must be proof of the actual, or at the very least, probable
receipt or realization by the controlled taxpayer of the items of gross income sought to be
distributed, apportioned or allocated by the Commissioner. There is no evidence of actual or
possible showing that the advances extended to affiliates had resulted to interests
subsequently assessed by the Commissioner. The Commissioner had adduced no evidence
that the advances extended to affiliates were sourced from the borrowings made by the
taxpayer from the commercial banks. The Court further said that pursuant to Article 1956 of
the Civil Code of the Philippines, no interest shall be due unless it has been expressly
stipulated in writing.
VI. REMEDIES
1. CIR v. Metro star

Facts: On January 26, 2001, a Revenue Officer examined the petitioner’s books of accounts
and other accounting records for income tax and other internal revenue taxes for the taxable
year 1999. A post audit review was held and it was ascertained that there was deficiency
value-added and withholding taxes due from petitioner.
Petitioner received a Formal Letter of Demand assessing petitioner for deficiency value-added
and withholding taxes for the taxable year 1999.
A revenue officer was authorized to examine the books of accounts of Metro Star Superama,
Inc.
In April 2002, after the audit review, the revenue district officer issued a formal assessment
notice against Metro Star advising the latter that it is liable to pay P292,874.16 in deficiency
taxes.
Metro Star assailed the issuance of the formal assessment notice as it averred that due
process was not observed when it was not issued a pre-assessment notice.
Nevertheless, the Commissioner of Internal Revenue authorized the issuance of a Warrant of
Distraint and/or Levy against the properties of Metro Star.
CTA decision: ruled in favor of Metro Star, ordering the CIR to desist from collecting the
subject taxes from petitioner.
Issue: are the requirements of due process satisfied if only the Formal assessment notice
(FAN) stating the computation of tax liabilities and a demand to pay within the prescribed
period was sent to the taxpayer?
Held: No. 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 made by
the tax authorities. The use of the word shall in subsection 3.1.2 (of the RR no 12-99)
describes the mandatory nature of the service of a PAN.
“3.1.2 Preliminary Assessment Notice (PAN). If after review and evaluation by the
Assessment Division or by the Commissioner or his duly authorized representative, as the
case may be, it is determined that there exists sufficient basis to assess the taxpayer for any
deficiency tax or taxes, the said Office shall issue to the taxpayer, at least by registered mail,
a Preliminary Assessment Notice (PAN) for the proposed assessment, showing in detail, the
facts and the law, rules and regulations, or jurisprudence on which the proposed assessment
is based (see illustration in ANNEX A hereof). If the taxpayer fails to respond within fifteen
(15) days from date of receipt of the PAN, he shall be considered in default, in which case, a
formal letter of demand and assessment notice shall be caused to be issued by the said
Office, calling for payment of the taxpayer's deficiency tax liability, inclusive of the applicable
penalties.”
The persuasiveness of the right to due process reaches both substantial and procedural rights
and the failure of the CIR to strictly comply with the requirements laid down by law and its own
rules is a denial of Metro Stars right to due process. Thus, for its failure to send the PAN
stating the facts and the law on which the assessment was made as required by Section 228
of R.A. No. 8424, the assessment made by the CIR is void.
2. CIR v. Enron
Facts: Enron, a domestic corporation registered with the Subic Bay Metropolitan Authority as
a freeport enterprise, filed its annual income tax return indicating a net loss.
Subsequently, the Bureau of Internal Revenue, through a preliminary five-day letter, informed
it of a proposed assessment of a deficiency income tax. Enron disputed the proposed
deficiency assessment in its first protest letter.
Due to the non-resolution of its protest within the 180-day period, Enron filed a petition for
review in the Court of Tax Appeals (CTA). It argued that the deficiency tax assessment
disregarded the provisions of Section 228 of the National Internal Revenue Code (NIRC), as
amended, and Section 3.1.4 of Revenue Regulations (RR) No. 12-99 by not providing the
legal and factual bases of the assessment. Enron likewise questioned the substantive validity
of the assessment.
CTA decision: granted Enron’s petition and ordered the cancellation of its deficiency tax
assessment for the year 1996. The CTA reasoned that the assessment notice sent to Enron
failed to comply with the requirements of a valid written notice under Section 228 of the NIRC
and RR No. 12-99. The CIRs motion for reconsideration of the CTA decision was denied in a
resolution dated November 12, 2001.
CA decision: Affirmed CTA. The CA held that the audit working papers did not substantially
comply with Section 228 of the NIRC and RR No. 12-99 because they failed to show the
applicability of the cited law to the facts of the assessment. The CIR filed a motion for
reconsideration but this was deemed abandoned when he filed a motion for extension to file a
petition for review in this Court.
ISSUE: Is the advice of tax deficiency (given by the CIR to an employee of Enron) as well as
the preliminary five-day letter valid substitutes for the mandatory notice in writing of the legal
and factual bases of the assessment?
Held: No. The advice of tax deficiency, given by the CIR to an employee of Enron, as well as
the preliminary five-day letter were mere perfunctory discharges of the CIRs duties in correctly
assessing a taxpayer. The requirement for issuing a preliminary or final notice, as the case
may be, informing a taxpayer of the existence of a deficiency tax assessment is markedly
different from the requirement of what such notice must contain. Just because the CIR issued
an advice, a preliminary letter during the pre-assessment stage and a final notice, in the order
required by law, does not necessarily mean that Enron was informed of the law and facts on
which the deficiency tax assessment was made.
The law requires that the legal and factual bases of the assessment be stated in the formal
letter of demand and assessment notice.
Both the CTA and the CA concluded that the deficiency tax assessment merely itemized the
deductions disallowed and included these in the gross income. It also imposed the
preferential rate of 5% on some items categorized by Enron as costs. The legal and factual
bases were, however, not indicated.
The CIR errs in insisting that the notice of assessment in question complied with the
requirements of the NIRC and RR No. 12-99:
xxxxxxxxx
A notice of assessment is:
[A] declaration of deficiency taxes issued to a [t]axpayer who fails to respond to a Pre-
Assessment Notice (PAN) within the prescribed period of time, or whose reply to the PAN was
found to be without merit. The Notice of Assessment shall inform the [t]axpayer of this fact,
and that the report of investigation submitted by the Revenue Officer conducting the audit
shall be given due course.
The formal letter of demand calling for payment of the taxpayers deficiency tax or taxes
shall state the fact, the law, rules and regulations or jurisprudence on which the
assessment is based, otherwise the formal letter of demand and the notice of
assessment shall be void.
xxxxxxxxxxx
It is clear from the foregoing that a taxpayer must be informed in writing of the legal and
factual bases of the tax assessment made against him.
3. Adamson v. CIR
Facts: Lucas Adamson and AMC sold 131,897 common shares of stock in Adamson and
Adamson, Inc. (AAI) to APAC Holding Limited (APAC). The shares were valued at
P7,789,995.00. On June 22, 1990, P159,363.21 was paid as capital gains tax for the
transaction.
AMC sold to APAC Philippines, Inc. another 229,870 common shares of stock in AAI for
P17,718,360.00. AMC paid the capital gains tax of P352,242.96.
The Commissioner issued a Notice of Taxpayer to AMC, Lucas G. Adamson, Therese June
D. Adamson and Sara S. de los Reyes, informing them of deficiencies on their payment of
capital gains tax and Value Added Tax (VAT). The notice contained a schedule for preliminary
conference.
Commissioner filed with the Department of Justice (DOJ) her Affidavit of Complaint against
AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes for violation
of Sections 45 (a) and (d) , and 110 , in relation to Section 100 , as penalized under Section
255, and for violation of Section 253 , in relation to Section 252 (b) and (d) of the National
Internal Revenue Code (NIRC).
Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes were charged
before the Regional Trial Court (RTC) of Makati, Branch 150 in Criminal Case Nos. 94-1842
to 94-1846.
RTC decision in the criminal case: ruled that the complaints for tax evasion filed by the
Commissioner should be regarded as a decision of the Commissioner regarding the tax
liabilities of Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes, and
appealable to the CTA. It further held that the said cases cannot proceed independently of the
assessment case pending before the CTA, which has jurisdiction to determine the civil and
criminal tax liability of the respondents therein.
CA decision in the Criminal case: reversed the RTC decision and reinstated the criminal
complaints. The appellate court held that, in a criminal prosecution for tax evasion,
assessment of tax deficiency is not required because the offense of tax evasion is complete
or consummated when the offender has knowingly and willfully filed a fraudulent return with
intent to evade the tax. It ruled that private respondents filed false and fraudulent returns with
intent to evade taxes, and acting thereupon, petitioner filed an Affidavit of Complaint with the
Department of Justice, without an accompanying assessment of the tax deficiency of private
respondents, in order to commence criminal action against the latter for tax evasion.
AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes filed a letter
request for re-investigation with the Commissioner of the Examiners Findings earlier issued
by the Bureau of Internal Revenue (BIR), which pointed out the tax deficiencies.
Before the Commissioner could act on their letter-request, AMC, Lucas G. Adamson, Therese
June D. Adamson and Sara S. de los Reyes filed a Petition for Review with the CTA. They
assailed the Commissioners finding of tax evasion against them.
CTA decision in the civil case: it ruled that the criminal complaint filed by the Commissioner
with the DOJ as an implied formal assessment, and the filing of the criminal information with
the RTC as a denial of petitioners protest regarding the tax deficiency.
CA decision in the civil case: affirmed the CTA decision.
Issues:
 WHETHER THE COMMISSIONER HAS ALREADY RENDERED AN ASSESSMENT
(FORMAL OR OTHERWISE) OF THE TAX LIABILITY OF AMC, LUCAS G. ADAMSON,
THERESE JUNE D. ADAMSON AND SARA S. DE LOS REYES;
 WHETHER THERE IS BASIS FOR THE CRIMINAL CASES FOR TAX EVASION TO
PROCEED AGAINST AMC, LUCAS G. ADAMSON, THERESE JUNE D. ADAMSON AND
SARA S. DE LOS REYES; and
 WHETHER THE COURT OF TAX APPEALS HAS JURISDICTION TO TAKE
COGNIZANCE OF BOTH THE CIVIL AND THE CRIMINAL ASPECTS OF THE TAX
LIABILITY OF AMC, LUCAS G. ADAMSON, THERESE JUNE D. ADAMSON AND SARA
S. DE LOS REYES.
Held:
First issue: No.
The Commissioner denied that she issued a formal assessment of the tax liability of AMC,
Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes.
She admits though that she wrote the recommendation letter addressed to the Secretary of
the DOJ recommending the filing of criminal complaints against AMC and the aforecited
persons for fraudulent returns and tax evasion.
The first issue is whether the Commissioners recommendation letter can be considered as a
formal assessment of private respondents tax liability.
We rule that the recommendation letter of the Commissioner cannot be considered a formal
assessment. Even a cursory perusal of the said letter would reveal three key points:
1. It was not addressed to the taxpayers.
2. There was no demand made on the taxpayers to pay the tax liability, nor a period for
payment set therein.
3. The letter was never mailed or sent to the taxpayers by the Commissioner.
In fine, the said recommendation letter served merely as the prima facie basis for filing
criminal informations that the taxpayers had violated Section 45 (a) and (d), and 110, in
relation to Section 100, as penalized under Section 255, and for violation of Section 253, in
relation to Section 252 9(b) and (d) of the Tax Code.
Second issue: Yes.
The law is clear. When fraudulent tax returns are involved as in the cases at bar, a
proceeding in court after the collection of such tax may be begun without assessment. Here,
the private respondents had already filed the capital gains tax return and the VAT returns, and
paid the taxes they have declared due therefrom. Upon investigation of the examiners of the
BIR, there was a preliminary finding of gross discrepancy in the computation of the capital
gains taxes due from the sale of two lots of AAI shares, first to APAC and then to APAC
Philippines, Limited. The examiners also found that the VAT had not been paid for VAT-liable
sale of services for the third and fourth quarters of 1990. Arguably, the gross disparity in the
taxes due and the amounts actually declared by the private respondents constitutes badges
of fraud.
Section 205 of the same Code clearly mandates that the civil and criminal aspects of the case
may be pursued simultaneously.
Thus, the applicability of Ungab v. Cusi is evident to the cases at bar where this Court ruled
that there was no need for precise computation and formal assessment in order for criminal
complaints to be filed against him.
Third issue: No.
The CTA has no jurisdiction to take cognizance of both the criminal and civil cases here at
bar. The laws which expanded the jurisdiction of the CTA (Republic Act No. 8424, Republic
Act No. 9282) did not change the jurisdiction of the CTA to entertain an appeal only from a
final decision or assessment of the Commissioner, or in cases where the Commissioner has
not acted within the period prescribed by the NIRC. In the cases at bar, the Commissioner
has not issued an assessment of the tax liability of private respondents.
Finally, the doctrines laid down in CIR v. Union Shipping Co. and Yabes v. Flojo are not
applicable to the cases at bar. In these earlier cases, the Commissioner already rendered an
assessment of the tax liabilities of the delinquent taxpayers, for which reason the Court ruled
that the filing of the civil suit for collection of the taxes due was a final denial of the taxpayers
request for reconsideration of the tax assessment.
4. Commission of Internal Revenue v. Arturo Tulio
GR. No. 138858, October 25, 2005
Facts: Respondent, Arturo Tulio, is engaged in the construction business. On February 28,
1991, the CIR, petitioner, sent him a demand letter with two final assessment notices
requesting payment of his deficiency percentage taxes for the taxable year 1986 and 1987.
The respondent received such demand letter but he however failed to act on such notices.
Hence, the same became final and executor pursuant to Section 229 of the NIRC.
On October 15, 1991, petitioner, for it to enforce the payment of the deficiency percentage
taxes of the respondent issued a levy against the respondent but unfortunately, the latter has
no properties which can be placed under levy.
CIR gave plenty respondent opportunities to settle his liabilities; it sent letters to the former on
April 3, 1991, October 5, 1993 and lastly on May 14, 1997. But, the respondent still failed to
settle his deficiency tax liabilities.
On October 29, 1997, CIR filed with the RTC Branch 60 of Baguio City a civil action for the
collection of respondent’s liabilities. It is to be noted that the case at bars reminded us that it
is the Regional Trial Courts which has jurisdiction over the BIR money claims based on
assessments that have become final and executory, and not the Court of Tax Appeals.
The RTC dismissed the case by reason of prescription. It held that defendant Tulio admittedly
filed a return on August 15, 1990, hence the 3 year period shall be counted on such date, the
date return was filed as provided for in Section 203 of NIRC. The CIR then should had until
August 15, 1993 to file the case but it only filed the instant case on October 29, 1997, which is
way past the 3 years prescription period.
It is to be noted that the RTC did not recognize this case falls under Section 223 of the NIRC
as asserted by the CIR because of the fact that the complaint never alleged fraud. It further
held the 10 year prescriptive period provided under the Section 223 of the NIRC should not
apply in the case at bar.
CIR filed an MR but was dismissed, hence it resorted to petition for review on certiorari.
Issue: Whether or not the CIR’s cause of action for the collection of deficiency percentage
taxes against respondent Tulio has prescribed.
Held: The petition of CIR was granted. The RTC’s decision is reversed and set aside. The
CIR’s cause of action has not yet prescribed.
Ratio Decidendi:
The RTC is wrong when it failed to apply Section 223 of the NIRC Code. The records show
that the respondent failed to file a return tax, this fact is covered by Section 223 which
provides for a ten (10) year prescriptive period within which a proceeding in court may be
filed.
Section 223 of the NIRC provides for three (3) instances when the running ot the 3 year
prescriptive period does not apply. And these are the following:
1. filing a false return
2. filing a fraudulent return with intent to evade tax
3. failure to file a return.
It further provides that the period within which to assess tax is ten years from discovery of
fraud, falsification or omission. In summary, respondent Tulio failed to file his tax returns for
1986 and 1987. CIR found such omission on September 14, 1989, hence the running of the
10 year prescriptive period within which to assess and collect the taxes from the respondent
commenced on that date until September 14, 1999.
5. Commissioner of Internal Revenue v.
Hon. Raul Gonzales, Secretary of Justice,
L.M Camus Engineering Corporation
(represented by Luis Camus and Lino Mendoza)
GR. No. 177279, October 13, 2010
Facts: CIR issued a Letter of Authority (LA) No. 0000361 dated August 25, 2000, pursuant to
this LA the Tax Fraud Division (TFD), National Office, conducted a fraud investigation for all
internal revenue taxes to determine the tax liabilities of respondent LMEC for the taxable
years 1997, 1998, and 1999. This investigation was conducted because an informer provided
information that LCMEC had substantial under declared income for the said period.
LMCEC failed to comply with the subpoena duces tecum, hence BIR instituted a criminal
complaint against LCMEC on January 19, 2001 for violation of Section 266 of NIRC. With the
data obtained from the informer and the various clients of LMEC, it was then discovered that
LCMEC filed fraudulent tax returns with substantial under declarations for the said periods.
CIR then assessed the company and Preliminary Assessment Notice was received by
LMCEC on February 22, 2001. Assessment notices together with the letter of demand dated
August 7, 2002 were the sent to LMCEC through personal service on October 1, 2002 but the
company and its representatives refused to receive such, thus the revenue officers resorted to
constructive notice.
The CIR on May 21, 2003, referred the case to the Secretary of Justice for preliminary
investigation, Luis Camus and Lino Mendoza, were also then sued in their capacities as
President and Comptroller, respectively. The CIR asserted the despite receipt of the final
assessment notice and formal demand letter the company still failed to pay the deficient tax
assessment, which had become final and executory for the failure of the LMCEC to file a
protest thereon within the 30 day reglementary period.
Camus and Mendoza filed a Joint Counter – Affidavit alleging the following:
1. The complaint and its annexes all showed that the suit is a simple civil action for collection
and not a tax evasion case, hence the DOJ is not the proper forum for the BIR’s complaint.
2. The assessment notices are invalid for they bear no serial numbers.
3. The company had already undergone a series of routine examinations for the years 1997,
1998 and 1999, hence they cannot be subjected to such again for under the NIRC, only one
examination of the books of accounts is allowed per taxable year.
4. LMCEC availed the Bureaus Tax Amnesty Program in the said period hence the CIR is
now estopped from taking any further action against it. They averred that with the grant of
immunity, which have a feature of tax amnesty, the element of fraud is negated.
5. More importantly, LMCEC alleged that the informant who supplied the confidential
information which his true identity and personality could not be produced, is only a tactic of
harassment against the company. And that what the investigation was just a fishing
expedition.
Proceedings:
- After the preliminary investigation, the case was dismissed for lack of probable cause as
issued by the Investigating Prosecutor on May 2, 2001.
- CIR filed a Joint- Reply Affidavit.
- LMCEC filed a Joint – Rejoinder Affidavit,
- On September 22, 2003, the Chief State Prosecutor issued a resolution finding no sufficient
evidence to establish probably cause against the respondents.
- CIR filed an MR which was denied by the Chief State Prosecutor.
- CIR appealed to the Secretary of Justice which was also denied dated December 13, 2005.
- CIR filed an MR to the SOJ, but was denied.
- CIR appealed to the CA vie certiorari petition but the CA likewise denied the petition and
concurred with the SOJ dated October 31, 2006.
- CA denied the MR of the CIR.
This prompted the CIR to file in the SC a petition for review.
Remember: There is no dispute that prior to the filing of the complaint with the DOJ, the report
on the tax fraud investigation conducted on LMCEC disclosed that it made substantial
underdeclarations in its income tax returns for 1997, 1998 and 1999.
Issue No. 1: Whether or not LMCEC and its corporate officers may be prosecuted for
violation of Section 254 (Attempt to Evade or Defeat Tax) and 255 (Willful Failure to Supply
Correct and Accurate Information and Pay Tax)
Held 1: Yes.
Ratio Decidendi 1: As mentioned in the PAN, the revenue officers were not given the
opportunity to examine LMCECs books of accounts and other accounting records because its
officers failed to comply with the subpoena duces tecum earlier issued, to verify its alleged
under declarations of income reported by the Bureaus informant under Section 282 of the
NIRC. Hence, a criminal complaint was filed by the Bureau against private respondents for
violation of Section 266. Failure to Obey Summons.
It also to be noted that for the crime of tax evasion in particular, compliance by the taxpayer
with such subpoena, if any had been issued, is irrelevant. As held in Ungab v. Cusi, the crime
is complete when the taxpayer had knowingly and willfully filed a fraudulent return with intent
to evade and defeat the tax.
Issue No. 2: Whether or not the information gathered from third parties (LMCEC various
clients) are valid.
Held 2: Yes.
Ratio Decidendi 2: Private respondents were already notified that inasmuch as the revenue
officers were not given the opportunity to examine its books of accounts, accounting records
and other documents, then said revenue officers are authorized to gather information from
third parties. This procedure is provided and authorized under Section 5 of the NIRC.
Issue No. 3: Whether or not LMCEC can assert the qualifications of the informer and whether
or not the information gathered was illegal.
Held No. 3: No.
Ratio Decidendi 3: The SC held that the lack of consent of the taxpayer under investigation
does not imply that the BIR obtained the information from third parties illegally or that the
information received is false or malicious. Also, herein private respondents cannot be allowed
to escape criminal prosecution under Sections 254 and 255 of the NIRC by mere imputation
of a fictitious or disqualified informant under Section 282 simply because other than disclosure
of the official registry number of the third party informer, the Bureau insisted on maintaining
the confidentiality of the identity and personal circumstances of said informer.
Issue No. 4: Whether or not the assessment notices were invalid for being unnumbered and
the tax liabilities therein have already been settled or terminated.
Held 4: No.
Ratio Decidendi No. 4: The formality of a control number in the assessment notice is not a
requirement for its validity but rather the contents thereof which should inform the taxpayer of
the declaration of deficiency tax against the taxpayer.
It is to be noted that both the formal letter of demand and the notice of assessment shall be
void if the former failed to state the fact, the law, rules and regulations or jurisprudence on
which the assessment is based, which is a mandatory requirement under Section 228 of the
NIRC, this is however followed in the case at bar.
Issue No. 5: Whether or not LMCEC had under declarations.
Held No. 5: Yes.
Ratio Decidendi No. 5: The figures confirmed that the non-declaration by LMCEC for the
taxable years 1997, 1998 and 1999 of an amount exceeding 30% income declared in its
return is considered a substantial underdeclaration of income, which constituted prima
facie evidence of false or fraudulent return under Section 248(B) of the NIRC, as amended.
Issue No. 6: Whether or not the State is estopped:
Held No. 6: No.
Ratio Decidendi No. 6: It is axiomatic that the State can never be in estoppel, and this is
particularly true in matters involving taxation. The errors of certain administrative officers
should never be allowed to jeopardize the governments financial position.
Issue No. 7: Whether or not the revenue officers conducted the investigation in good faith.
Held No. 7: Yes.
Ratio Decidendi No. 7: Tax assessments by tax examiners are presumed correct and made
in good faith, and all presumptions are in favor of the correctness of a tax assessment unless
proven otherwise. We have held that a taxpayers failure to file a petition for review with the
Court of Tax Appeals within the statutory period rendered the disputed assessment final,
executory and demandable, thereby precluding it from interposing the defenses of legality or
validity of the assessment and prescription of the Governments right to assess.
NB: Whether or not the SC can determine probable cause.
The determination of probable cause is part of the discretion granted to the
investigating prosecutor and ultimately, the Secretary of Justice. However, this Court
and the CA possess the power to review findings of prosecutors in preliminary
investigations. Although policy considerations call for the widest latitude of deference
to the prosecutors findings, courts should never shirk from exercising their power,
when the circumstances warrant, to determine whether the prosecutors findings are
supported by the facts, or by the law. In so doing, courts do not act as prosecutors but
as organs of the judiciary, exercising their mandate under the Constitution, relevant
statutes, and remedial rules to settle cases and controversies.
6. Philippine Journalist, Inc. v. Commission of Internal Revenue
Gr. No. 162852, December 16, 2004
Facts: Pursuant to a Letter of Authority No. 87120 issued by the BIR, revenue officers were
tasked to examine the Phil. Journalist Inc. books of account and accounting records for
internal revenue taxes for the period of Jan. 1, 1994 to Dec. 31, 1994. As a result of the
investigation, the Phil. Journalist was told that there were deficiency taxes amounting to P
127,980,433.20.
The RDO then invited the petitioner (Phil. Journalist) to send a representative to an informal
conference for the opportunity to make objections to the proposed assessment. Petitioner’s
Comptroller then, Lorenza Tolentino, executed a Waiver of the Statute of Limitation under the
NIRC.
On December 9, 1998, the Assessment Division of the BIR issued Pre-Assessment Notices
which informed petitioner of the results of the investigation, stating among others the
deficiency taxes of P111,291,214.46. A preliminary collection letter was sent to the petitioner
however it did not act on it so a Final Notice of Seizure was also sent. When the Final Notice
of Seizure was received by the petitioner it asked to clarify its outstanding liabilities and asked
for an extension. Petitioner also send a follow up letter contending among others that the
assessment had no factual and legal basis.
Petitioner then filed a Petition for Review with the CTA asserting among others that the
assessment was made beyond the 3 year prescriptive period and thus null and void. The CTA
held that the Waiver of the Statute of Limitations has no binding effect. This is because the
waiver is an unlimited waiver, the waiver failed to state the date of acceptance and that the
petitioner was not furnished a copy of the waiver. In sum, the CTA ruled that the waiver is not
in accordance with was is set forth in RMO. 20-90.
The CA however disagreed with the CTA and pointed out two main points. First that, only
decisions of BIR, denying request for reconsideration or reinvestigation may be appealed,
being mere assessment notices which have become final after the lapse of reglementary
period are not appealable, the CTA should have not entertained the petition at all. And
secondly, that the waiver is valid. The CA pointed out that the case is not a extension of the
prescriptive period but a waiver thereof. Hence, what the petitioners executed was a
renunciation of its right to invoke the defense of prescription, which is a valid waiver. As
worded by the CTA, when one waives the prescriptive period, it is no longer necessary to
indicate the length of the extension of the prescriptive period since the person waiving may no
longer use this defense.
Issue: Whether or not the waiver is in accordance with RMO No. 20-90 to validly extend the 3
year prescriptive period under the NIRC.
HELD: No. The SC reversed the decision of the CA
Ratio Decidendi: The waiver document on its face is incomplete and defective thus the 3
year prescriptive period was not extended, hence it continued to run. The assessment was
therefore issued beyond the 3 year period and in the same vein the warrant of levy is also null
and void for having been issued pursuant to an invalid assessment.
It is to be noted that the NIRC, under Sections 203 and 222, provides for a statute of
limitations on the assessment and collection of internal revenue taxes in order to safeguard
the interest of the taxpayer against unreasonable investigation. Unreasonable investigation
contemplates cases where the period for assessment extends indefinitely because this
deprives the taxpayer of the assurance that it will no longer be subjected to further
investigation for taxes after the expiration of a reasonable period of time.
A waiver of the statute of limitations under the NIRC, to a certain extent, is a derogation of the
taxpayers’ right to security against prolonged and unscrupulous investigations and must
therefore be carefully and strictly construed. Thus, the law on prescription, being a remedial
measure, should be liberally construed in order to afford such protection.
The waiver is also defective from the government side because it was signed only by a
revenue district officer, not the Commissioner, as mandated by the NIRC and RMO No. 20-
90.
The waiver is not a unilateral act by the taxpayer or the BIR, but is a bilateral agreement
between two parties to extend the period to a date certain. The conformity of the BIR must be
made by either the Commissioner or the Revenue District Officer. This case involves taxes
amounting to more than One Million Pesos (P1,000,000.00) and executed almost seven
months before the expiration of the three-year prescription period. For this, RMO No. 20-90
requires the Commissioner of Internal Revenue to sign for the BIR.
7. Commissioner of Internal Revenue v. Petron Corporation
Gr. No. 185568, March 21,2012
Facts: Petron Corporation, herein respondent is engaged in the production of petroleum
products and is a Board of Investment (BOI) registered enterprise in accordance with the
Omnibus Investment Code.
The following are Joint Stipulation of Facts and Issues as agreed by the parties:
1. For the period covering the taxable years 1995 to 1998, Petron had been an assignee of
several Tax Credit Certificates from various BOI- registered companies for which Petron
utilized in the payment of its excise tax liabilities.
2. These transfers and assignments of TCC’s were approved by the Department Finances
One Stop Shop Inter- Agency Tax Credit and Duty Drawback Center.
3. BOI issued on May 15, 1998 considered the suppliers like Petron as qualified transferees of
tax credit.
4. On January 30, 2002, CIR issued the assailed assessment against Petron for deficiency
taxes for the said taxable years based on the ground that the TCC’s utilized by the petitioner
corporation in its payment of excise taxes have been cancelled by the DOF for having been
fraudulently issued and transferred, pursuant to its EXCOM Resolution No. 03-05-99.
Petron then filed a protest to the assessment stating among others that the
assignment/transfer of the TCCs to petitioner by the TCC holders was submitted to, examined
and approved by the concerned government agencies which processed the assignment in
accordance with law and revenue regulations.
After receiving Warrant of Levy, Petron filed an instant petition to the CTA Second Division.
The CTA Second Division held Petron liable for deficiency excise taxes on ground that the
cancellation by the DOF of the TCC’s issued and utilized by Petron to settle its tax liabilities
had the effect of nonpayment of its excise taxes. It further ruled that Petron’s acceptance of
the TCCs was considered a contract between Petron and CIR and thus subject to post-audit,
which was considered a suspensive condition governed by Art. 1181 of the Civil Code. Lastly,
it held that the TCC’s are transferred with fraud.
Petron then appealed to the CTA En Banc. CTA En Banc ruled in favor of Petron thus it
reversed and set aside CTA Second Division decision. It anchored its decision citing Shell v.
CIR which mainly ruled that the issued TCCs are immediately valid and effective and are not
subject to post-audit as a suspensive condition. The CTA En Banc also found that Petron had
no participation in or knowledge of the fraudulent issuance and transfer of the subject TCC’s.
Issue: Whether or not the post audit report has the effect of a suspensive condition that would
determine the validity of the TCC’s
The SC sustained the ruling of the CTA En Banc.
Held: No, the TCC’s in the case at bar is not subject to suspensive condition and thus valid.
Ratio Decidendi: As held in Shell v. CIR , TCCs are valid and effective from their issuance
and are not subject to a post-audit as a suspensive condition for their validity. Petron then
has the right to rely on the validity and effectivity of the TCCs that were assigned to it. In
finally determining their effectivity in the settlement of Petron’s excise tax liabilities, the validity
of those TCCs should not depend on the results of the DOFs post-audit findings. As an
exception, the transferee/assignee may be held liable if proven to have been a party to the
fraud or to have had knowledge of the fraudulent issuance of the subject TCCs. But here, the
parties entered into a joint stipulation of facts stating that Petron did not participate in the
procurement or issuance of those TCCs. Thus, the exception to the rule is not applicable as
Petron was an innocent transferee for value of the TCCs.
Issue 2: Whether or not the government is estopped in the case at bar.
Held: Yes, the principle of estoppel applies in the case at bar.
Ratio Decidendi: As a general rule, the principle of estoppel does not apply to the
government, especially on matters of taxation. Taxes are the nation’s lifeblood through which
government agencies continue to operate and with which the State discharges its functions
for the welfare of its constituents.
The exception however is that this rule cannot be applied it if it would work injustice against
an innocent party. Petron has not been proven to have had any participation in or knowledge
of the CIR’s allegation of fraudulent transfer and utilization of the TCCs. Petron’s status as an
innocent purchaser for value has been established and even stipulated upon by the CIR.
Petron was thereby amply protected from the adverse findings subsequently made by the
DOF agency.
8. COMMISSIONER OF INTERNAL REVENUE vs. KUDOS METAL
CORPORATION
G.R. No. 178087; May 5, 2010
FACTS: Kudos Metal Corporation filed its Annual Income Tax Return (ITR) for the taxable
year 1998. (BIR) served upon respondent three Notices of Presentation of Records.
Respondent failed to comply with these notices, hence, the BIR issued a Subpeona Duces
Tecum dated September 21, 2006, receipt of which was acknowledged by respondents
President, Mr. Chan Ching Bio, in a letter dated October 20, 2000.
Respondent accountant executed two Waiver of the Defense of Prescription.
BIR issued a Preliminary Assessment Notice for the taxable year 1998 against the
respondent. This was followed by a Formal Letter of Demand with Assessment Notices for
taxable year 1998.
Respondent challenged the assessments by filing its “Protest on Various Tax Assessments”
on December 3, 2003 and its “Legal Arguments and Documents in Support of Protests
against Various Assessments” on February 2, 2004.
BIR rendered a final Decision on the matter, requesting the immediate payment of the
Respondent’s tax liabilities.
Respondent filed a Petition for Review with the CTA. CTA cancelled the assessment notices
issued against respondent for having been issued beyond the prescriptive period.
Petitioner moved for reconsideration but the CTA Second Division denied the motion. On
appeal, the CTA En Banc affirmed the cancellation of the assessment notices. Petitioner
sought reconsideration but the same was unavailing.
ISSUE: Whether or not the CTA erred in ruling that the government’s right to assess unpaid
taxes has prescribed.
HELD: Section 203 of the National Internal Revenue Code of 1997 (NIRC) mandates the
government to assess internal revenue taxes within three years from the last day prescribed
by law for the filing of the tax return or the actual date of filing of such return, whichever
comes later. Hence, an assessment notice issued after the three-year prescriptive period
is no longer valid and effective. Exceptions however are provided under Section 222 of the
NIRC.
The waivers executed by respondents accountant did not extend the period within which the
assessment can be made.
Petitioner did not deny that the assessment notices were issued beyond the three-year
prescriptive period, but claims that the period was extended by the two waivers executed by
respondents accountant.
Section 222 (b) of the NIRC provides that the period to assess and collect taxes may only be
extended upon a written agreement between the CIR and the taxpayer executed before the
expiration of the three-year period.
Conversely, in this case, the assessments were issued beyond the prescribed period. Also,
there is no showing that respondent made any request to persuade the BIR to postpone the
issuance of the assessments.
The doctrine of estoppel cannot be applied in this case as an exception to the statute of
limitations on the assessment of taxes considering that there is a detailed procedure for the
proper execution of the waiver, which the BIR must strictly follow. As we have often said, the
doctrine of estoppel is predicated on, and has its origin in, equity which, broadly defined, is
justice according to natural law and right. As such, the doctrine of estoppel cannot give
validity to an act that is prohibited by law or one that is against public policy. It should be
resorted to solely as a means of preventing injustice and should not be permitted to defeat the
administration of the law, or to accomplish a wrong or secure an undue advantage, or to
extend beyond them requirements of the transactions in which they originate.24 Simply put,
the doctrine of estoppel must be sparingly applied.
9. CIR vs PASCOR REALTY AND DEVELOPMENT CORPORATION
G.R. No. 128315; June 29, 1999
FACTS: The CIR authorized certain BIR officers to examine the books of accounts and other
accounting records of Pascor Realty and Development Corp. (PRDC) for 1986, 1987 and
1988. The examination resulted in recommendation for the issuance of an assessment of
P7,498,434.65 and P3,015,236.35 for 1986 and 1987, respectively.
On March 1, 1995, Commissioner filed a criminal complaint for tax evasion against PRDC, its
president and treasurer before the DOJ. Private respondents filed immediately an urgent
request for reconsideration on reinvestigation disputing the tax assessment and tax liability.
On March 23, 1995, private respondents received a subpoena from the DOJ in connection
with the criminal complaint. In a letter dated, May 17, 1995, the Commissioner denied private
respondent’s request for reconsideration (reinvestigation on the ground that no formal
assessment has been issued which the latter elevated to the CTA on a petition for review.
The Commissioner’s motion to dismiss on the ground of the CTA’s lack of jurisdiction
inasmuch as no formal assessment was issued against private respondent was denied by
CTA and ordered the Commissioner to file an answer but did not instead filed a petition with
the CA alleging grave abuse of discretion and lack of jurisdiction on the part of CTA for
considering the affidavit/report of the revenue officers and the endorsement of said report as
assessment which may be appealed to he CTA. The CA sustained the CTA decision and
dismissed the petition.
ISSUES:
1. Whether or not the criminal complaint for tax evasion can be construed as an assessment.
2. Whether or not an assessment is necessary before criminal charges for tax evasion may be
instituted.
HELD:
The filing of the criminal complaint with the DOJ cannot be construed as a formal assessment.
Neither the Tax Code nor the revenue regulations governing the protest assessments provide
a specific definition or form of an assessment.
An assessment must be sent to and received by the taxpayer, and must demand payment of
the taxes described therein within a specific period. The revenue officer’s affidavit merely
contained a computation of respondent’s tax liability. It did not state a demand or period for
payment. It was addressed to the Secretary of Justice not to the taxpayer. They
joint affidavit was meant to support the criminal complaint for tax evasion; it was not meant to
be a notice of tax due and a demand to private respondents for the payment thereof. The fact
that the complaint was sent to the DOJ, and not to private respondent, shows that
commissioner intended to file a criminal complaint for tax evasion, not to issue an
assessment.
An assessment is not necessary before criminal charges can be filed. A criminal charge need
not only be supported by a prima facie showing of failure to file a required return. The CIR
had, in such tax evasion cases, discretion on whether to issue an assessment, or
to file a criminal case against the taxpayer, or to do both.
10. MARCOS II vs. CA
GR No. 120880; June 5, 1997
FACTS: Ferdinand R. Marcos II assailed the decision of the Court of Appeals declaring the
deficiency income tax assessments and estate tax assessments upon the estate and
properties of his late father despite the pendency of the probate proceedings of the will of the
late President. On the other hand, the BIR argued that the State’s authority to collect internal
revenue taxes is paramount.
Petitioner further argues that "the numerous pending court cases questioning the late
president's ownership or interests in several properties (both real and personal) make the total
value of his estate, and the consequent estate tax due, incapable of exact pecuniary
determination at this time. Thus, respondents' assessment of the estate tax and their
issuance of the Notices of Levy and sale are premature and oppressive." He points out the
pendency of Sandiganbayan Civil Case Nos. 0001-0034 and 0141, which were filed by the
government to question the ownership and interests of the late President in real and personal
properties located within and outside the Philippines. Petitioner, however, omits to allege
whether the properties levied upon by the BIR in the collection of estate taxes upon the
decedent's estate were among those involved in the said cases pending in the
Sandiganbayan. Indeed, the court is at a loss as to how these cases are relevant to the
matter at issue. The mere fact that the decedent has pending cases involving ill-gotten wealth
does not affect the enforcement of tax assessments over the properties indubitably included
in his estate.
ISSUE: Whether or not the contention of Marcos is correct.
HELD: No. 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.
There is nothing in the Tax Code, and in the pertinent remedial laws that implies the necessity
of the probate or estate settlement court's approval of the state's claim for estate taxes, before
the same can be enforced and collected.
The enforcement of tax laws and the collection of taxes are of paramount importance for the
sustenance of government. Taxes are the lifeblood of government and should be collected
without unnecessary hindrance. However, such collection should be made in accordance with
law as any arbitrariness will negate the existence of government itself.
It is not the Department of Justice which is the government agency tasked to determine the
amount of taxes due upon the subject estate, but the Bureau of Internal Revenue whose
determinations and assessments are presumed correct and made in good faith. The taxpayer
has the duty of proving otherwise. In the absence of proof of any irregularities in the
performance of official duties, an assessment will not be disturbed. Even an assessment
based on estimates is prima facie valid and lawful where it does not appear to have been
arrived at arbitrarily or capriciously. The burden of proof is upon the complaining party to
show clearly that the assessment is erroneous. Failure to present proof of error in the
assessment will justify the judicial affirmance of said assessment. In this instance, petitioner
has not pointed out one single provision in the Memorandum of the Special Audit Team which
gave rise to the questioned assessment, which bears a trace of falsity. Indeed, the
petitioner's attack on the assessment bears mainly on the alleged improbable and
unconscionable amount of the taxes charged. But mere rhetoric cannot supply the basis for
the charge of impropriety of the assessments made
11. SAMAR-I ELECTRIC COOPERATIVE vs. CIR
GR No. 193100, Dec 10, 2014
FACTS: Samar-I Electric Cooperative, Inc. (Petitioner) is an electric cooperative, with
principal office at Barangay Carayman, Calbayog City.
On July 13, 1999 and April 17, 2000, respectively, petitioner filed its 1998 and 1999 income
tax returns, respectively. Petitioner filed its 1997, 1998, and 1999 Annual Information Return
of Income Tax Withheld on Compensation, Expanded and Final Withholding Taxes on
February 17, 1998, February 1, 1999, and February 4, 2000, in that order.
November 13, 2000 respondent issued a duly signed Letter of Authority (LOA) No. 1998
00023803. Petitioner cooperated in the audit and investigation conducted by the Special
Investigation Division of the BIR by submitting the required documents on December 5, 2000.
October 19, 2001 Respondent sent a Notice for Informal Conference which was received by
petitioner in November 2001; indicating the allegedly income and withholding tax liabilities of
petitioner for 1997 to 1999.
In response, petitioner sent a letter dated November 26, 2001 to respondent maintaining its
indifference to the latter’s findings and requesting details of the assessment.
On December 13, 2001, Petitioner executed a Waiver of the Defense of Prescription under
the Statute of Limitations, good until March 29, 2002.
On February 28, 2002 Respondent issued a Preliminary Assessment Notice (PAN). The PAN
was received by petitioner on April 9, 2002, which was protested on April 18, 2002.
On July 8, 2002 Respondent dismissed petitioner’s protest and recommended the issuance of
a Final Assessment Notice. On September 15, 2002 Petitioner received a demand letter and
assessments notices (Final Assessment Notices) for the alleged 1997, 1998, and 1999
deficiency withholding tax in the amount of [P]3,760,225.69, as well as deficiency income tax
covering the years 1998 to 1999 in the amount of [P]440,545.71, or in the aggregate amount
of [P]4, 200,771.40.
On April 10, 2003 The Final Decision on Disputed Assessment ruled that petitioner was still
held liable for the alleged tax liabilities
ISSUE: Whether or not the 1997 and 1998 assessments on withholding tax on compensation
were issued within the prescriptive period provided by law and whether they were issued in
accordance with Section 228 of the NIRC of 1997.
HELD: Yes.
SEC. 203. Period of Limitation Upon Assessment and Collection. – Except as provided in
Section 222, internal revenue taxes shall be assessed within three (3) years after the last day
prescribed by law for the filing of the return, and no proceeding in court without assessment
for the collection of such taxes shall be begun after the expiration of such period: Provided,
That in a case where a return is filed beyond the period prescribed by law, the three (3)-year
period shall be counted from the day the return was filed. For purposes of this Section, a
return filed before the last day prescribed by law for the filing thereof shall be considered as
filed on such last day.
Section 203 sets the three-year prescriptive period to assess, the following exceptions are
provided under Section 222 of the NIRC of 1997, viz.:
SEC. 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxes.-
(a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a
return, the tax may be assessed, or a proceeding in court for the collection of such tax
may be filed without assessment, at any time within ten (10) years after the discovery
of the falsity, fraud or omission: Provided, That in a fraud assessment which has
become final and executory, the fact of fraud shall be judicially taken cognizance of in
the civil or criminal action for the collection thereof.
(b) If before the expiration of the time prescribed in Section 203 for the assessment of the
tax, both the Commissioner and the taxpayer have agreed in writing to its assessment
after such time, the tax may be assessed within the period agreed upon. The period
 so agreed upon may be extended by subsequent written agreement made before the
expiration of the period previously agreed upon.
(c) Any internal revenue tax which has been assessed within the period of limitation as
prescribed in paragraph (a) hereof may be collected by distraint or levy or by a
proceeding in court within five (5) years following the assessment of the tax.
(d) Any internal revenue tax, which has been assessed within the period agreed upon as
provided in paragraph (b) hereinabove, may be collected by distraint or levy or by a
proceeding in court within the period agreed upon in writing before the expiration of
the five (5)-y ear period. The period so agreed upon may be extended by subsequent
written agreements made before the expiration of the period previously agreed upon.
(e) Provided, however, That nothing in the immediately preceding Section and paragraph
(a) hereof shall be construed to authorize the examination and investigation or inquiry
into any tax return filed in accordance with the provisions of any tax amnesty law or
decree.
It was petitioner’s substantial under declaration of withholding taxes in the amount of
P2,690,850.91 which constituted the “falsity” in the subject returns – giving respondent the
benefit of the period under Section 222 of the NIRC of 1997 to assess the correct amount of
tax “at any time within ten (10) years after the discovery of the falsity, fraud or omission.” The
proper and reasonable interpretation of said provision should be that in the three different
cases of (1) false return, (2) fraudulent return with intent to evade tax, (3) failure to file a
return, the tax may be assessed, or a proceeding in court for the collection of such tax may be
begun without assessment, at any time within ten years after the discovery of the (1) falsity,
(2) fraud, (3) omission.
The difference between “false return” and “fraudulent return” cannot be denied. While the first
merely implies deviation from the truth, whether intentional or not, the second implies
intentional or deceitful entry with intent to evade the taxes due, the ordinary period of
prescription of 5 years within which to assess tax liabilities under Sec. 331 of the NIRC should
be applicable to normal circumstances, but whenever the government is placed at a
disadvantage so as to prevent its lawful agents from proper assessment of tax liabilities due
to false returns, fraudulent return intended to evade payment of tax or failure to file returns,
the period of ten years provided for in Sec. 332 (a) NIRC, from the time of the discovery of the
falsity, fraud or omission even seems to be inadequate and should be the one enforced.
SEC. 228. Protesting of Assessment. – x x x xxx x
The taxpayers shall be informed in writing of the law and the facts on which the assessment is
made: otherwise, the assessment shall be void.
3.1.4 Formal Letter of Demand and Assessment Notice. – The formal letter of demand and
assessment notice shall be issued by the Commissioner or his duly authorized representative.
The letter of demand calling for payment of the taxpayer’s deficiency tax or taxes shall state
the facts, the law, rules and regulations, or jurisprudence on which the assessment is based,
otherwise, the formal letter of demand and assessment notice shall be void. The same shall
be sent to the taxpayer only by registered mail or by personal delivery. x x x
Both Section 228 of the NIRC of 1997 and Section 3.1.4 of RR No. 12-99 clearly require the
written details on the nature, factual and legal bases of the subject deficiency tax
assessments. Considering the foregoing exchange of correspondence and documents
between the parties, we find that the requirement of Section 228 was substantially complied
with. Respondent had fully informed petitioner in writing of the factual and legal bases of the
deficiency taxes assessment, which enabled the latter to file an "effective" protest, much
unlike the taxpayer s situation in Enron. Petitioner’s right to due process was thus not
violated.
12. Republic of the Philippines, represented by the Commissioner of the Bureau
of Internal Revenue (BIR) v. Salud V. Hizon
GR No. 130430, December 13, 1999
Facts: Salud Hizon, respondent, on July 18, 1986, was issued by BIR a deficiency income tax
assessment of P1,113,359.68 covering the fiscal year 1981-1982. Hizon did not contest the
assessment. So on January 12, 1989, BIR served warrants of distraint and levy to collect the
tax deficiency. Despite the warrants, for reasons not known, BIR did not proceed to dispose
of the attached properties.
On November 3, 1992, more than three years later, Hizon wrote to BIR requesting a
reconsideration of her tax deficiency assessment. But BIR, in a letter dated August 11, 1994,
denied the request. BIR then filed a case with the RTC in Pampanga to collect the tax
deficiency on January 1, 1997. The complaint was signed by Norberto Salud, Chief of the
Legal Division, BIR Region 4, and verified by Amancio Saga, the Bureaus Regional
Director in Pampanga.
Hizon then moved to dismiss the case on two grounds:
a. that the complaint was not filed upon authority of the BIR Commissioner as required by
Section 221 of the National Internal Revenue Code; and
b. that the action had already prescribed.
RTC Pampanga Ruling: Granted the motion and dismissed the complaint over petitioners
objection.
Hence, the petition for review of RTC Decision.
Issues:
1. Whether or not the institution of the civil case for collection of taxes was without the
approval of the Commissioner in violation of Section 221 of the NIRC
2. Whether or not the action has prescribed
Ruling:
1. No.
The trial court’s decision was based on Sec. 221 of the NIRC because the complaint was filed
by BIR without the approval or signature of then Commissioner Liwayway Chato.
Sec. 221 of the NIRC provides:
Form and mode of proceeding in actions arising under this Code. Civil and criminal actions
and proceedings instituted in behalf of the Government under the authority of this Code or
other law enforced by the Bureau of Internal Revenue shall be brought in the name of the
Government of the Philippines and shall be conducted by the provincial or city fiscal, or the
Solicitor General, or by the legal officers of the Bureau of Internal Revenue deputized by the
Secretary of Justice, but no civil and criminal actions for the recovery of taxes or the
enforcement of any fine, penalty or forfeiture under this Code shall be begun without
the approval of the Commissioner.
To implement this provision, Revenue Administrative Order No. 10-95 specifically authorizes
the Litigation and Prosecution Section of the Legal Division of regional district offices to
institute the necessary civil and criminal actions for tax collection. As the complaint filed in
this case was signed by the BIRs Chief of Legal Division for Region 4 and verified by
the Regional Director, there was, therefore, compliance with the law.
The refusal of the lower court to recognize RAO No. 10-95 is erroneous. The general rule is
that as long as administrative issuances relate solely to carrying into effect the provisions of
the law, they are valid and have the force of law.
Additionally, the NIRC has also authorized the BIR Commissioner to delegate powers vested
in him with certain exceptions and the delegation, power to approve the filing of tax collection
cases, involved in this case was not one of the exceptions.
2. Yes.
Sec. 229 of the NIRC mandates that a request for reconsideration must be made within 30
days from the taxpayer's receipt of the tax deficiency assessment, otherwise the assessment
becomes final, unappealable and, therefore, demandable.
The notice of assessment for Hizon's tax deficiency was issued by BIR on July 18, 1986. On
the other hand, respondent made her request for reconsideration thereof only on November 3,
1992, without stating when she received the notice of tax assessment. Hizon also explained
that she was constrained to avoid harassment of BIR collectors which must have referred to
the distraint and levy of her properties by BIR’s agents which took place on January 12, 1989.
Hence, her request for reconsideration did not suspend the running of the prescriptive period
provided under Sec. 223(c). Although the Commissioner acted on her request by eventually
denying it on August 11, 1994, this is of no moment and does not detract from the fact that
the assessment had long become demandable.
BIR’s contentions that the action in this case had not prescribed when filed has no merit but
this decision is without prejudice to the disposition of the properties covered by the
warrants of distraint and levy which BIR served on Hizon since it would only be a mere
continuation of the summary remedy which BIR has already timely availed of. Although
considerable time has passed since then, as held in Advertising Associates Inc. v. Court of
Appeals and Palanca v. Commissioner of Internal Revenue, the enforcement of tax collection
through summary proceedings may be carried out beyond the statutory period considering
that such remedy was seasonably availed of.
13. Barcelon, Roxas Securities, Inc. (UBP Securities, Inc.) v. Commissioner of
Internal Revenue
GR No. 157064, August 7, 2006
Facts: Petitioner Barcelon, Roxas Securities Inc. (now known as UBP Securities, Inc.) is a
corporation engaged in the trading of securities. On April 14, 1988, petitioner filed its Annual
Income Tax Return for taxable year 1987. After an audit investigation conducted by the
Bureau of Internal Revenue (BIR), respondent Commissioner of Internal Revenue (CIR)
issued an assessment for deficiency income tax in the amount of P826,698.31 arising from
the disallowance of the item on salaries, bonuses and allowances in the amount
of P1,219,093,93 as part of the deductible business expense since petitioner failed to subject
the salaries, bonuses and allowances to withholding taxes. This assessment was covered by
Formal Assessment Notice No. FAN-1-87-91-000649 dated February 1, 1991, which,
respondent alleges, was sent to petitioner through registered mail on February 6,
1991. However, petitioner denies receiving the formal assessment notice.
March 17, 1992 – petitioner was served with a Warrant of Distraint and/or Levy to enforce
collection of the deficiency income tax for the year 1987.
March 25, 1992 - petitioner filed a formal protest against the Warrant of Distraint and/or Levy,
requesting for its cancellation.
July 3, 1998 - petitioner received a letter dated 30 April 1998 from the respondent denying the
protest with finality.
July 31, 1998 – petitioner filed a petition for review with CTA
Court of Tax Appeals:
May 17, 2000 – decision was in favor of petitioner ruling on the primary issue of prescription
and found it unnecessary to decide on the validity and propriety of the assessment.
CTA held that while a mailed letter is deemed received by the addressee in the course of
mail, this is merely a disputable presumption and a direct denial shifts the burden of proof to
the respondent. It also found that the BIR records submitted by CIR were immaterial, self-
serving, and insufficient to prove that the assessment notice was mailed and duly received by
the petitioner. The CTA ruled that the deficiency tax assessment is CANCELLED and ordered
CIR to DESIST from collecting the deficiency tax.
Court of Appeals:
August 31, 2001 – reversed the CTA decision and found that the evidence presented by the
CIR is sufficient proof that the tax assessment notice was mailed to the petitioner, therefore
the legal presumption that it was received should apply.
The CA, in granting the petition, ordered petitioner to pay the amount of P826,698.31 as
deficiency income tax for the year 1987 plus 25% surcharge and 20% interest per annum
from February 6, 1991 until fully paid pursuant to Sections 248 and 249 of the Tax Code.
Hence, this Petition for Review on Certiorari filed by petitioner at the Supreme Court.
Issue:
1. Whether or not the period to make an assessment has prescribed due to the failure of the
BIR to send the assessment notice to the taxpayer on time
Ruling:
1. Yes. The SC had first to address the issue of whether the burden of proving actual receipt
is shifted to the CIR upon a specific denial made by the taxpayer that the assessment was not
received.
Under Section 203 of the NIRC, respondent had 3 years from the last day for the filing of the
return to send an assessment notice to petitioner.
An assessment is made within the prescribed period if the notice is released, mailed or sent
by the CIR to the taxpayer within the prescriptive period. It should be clarified that the rule
does not dispense with the requirement that the taxpayer should actually receive, even
beyond the prescriptive period, the assessment notice which was timely released,
mailed and sent.
Although there exists a presumption that an assessment which was sent by registered mail is
received in the regular course of mail, a direct denial made by the taxpayer of the receipt
thereof shifts the burden to the BIR to prove that the assessment was indeed received by the
taxpayer.
In the present case, records show that:
April 14, 1988 – petitioner filed Annual Income Tax Return for taxable year 1987
April 15, 1988 – last day for filing by petitioner of its return
April 15, 1991 – date until which respondent can still send an assessment notice within
prescriptive period
Although respondent avers that it sent the assessment notice dates February 1, 1991 on
February 6, 1991, still within the period prescribed by law, petitioner denies having
received the same. Petitioner further alleges that it only knew of the deficiency tax
assessment on March 17, 1992 when it was served with the Warrant of Distraint and Levy.
Respondent was unable to present substantial evidential that such notice was, indeed, mailed
or sent by the respondent before the BIR’s right to assess had prescribed and that the notice
was indeed received by petitioner.
Respondent only presented the BIR record book where the name of the taxpayer, the kind of
tax assessed, the registry receipt number and the date of mailing were noted. The BIR
records custodian, Ingrid Versola, also testified that she made the entries therein. Both the
entry in the BIR record book and the testimony of its record custodian was offered as entries
in official records in accordance with Section 44, Rule 130 of the Rules of Court.
But the foregoing rule must be read in accordance with the case Africa v. Caltex (Phil.),
Inc., where it has been held that an entrant must have personal knowledge of the facts stated
by him or such facts were acquired by him from reports made by persons under a legal duty
to submit the same.
Under Rule 130 of the Rules of Court, to be admissible, the entries in official records must
meet the following requisites:
1. that the entry was made by a public officer of by another person specially enjoined by law
to do so;
2. that it was made by the public officer in the performance of his duties specially enjoined by
law; and
3. that the public officer or other person had sufficient knowledge of the facts that must have
been acquired by him personally or through official information.
In this case, the entries made by Ingrid Versola were not based on her personal knowledge as
she did not attest to the fact that she personally prepared and mailed the assessment notice.
Nor was it stated in the transcript of stenographic notes how and from whom she obtained the
pertinent information. Moreover, she did not attest to the fact that she acquired the reports
from persons under a legal duty to submit the same. Hence, the rule finds no application in
the present case. Thus, the evidence offered by respondent does not qualify as an exception
to the rule against hearsay evidence.
For failing to provide proof of actual receipt and for failure to present proof to raise the
disputable presumption, the court held that the right of the government to assess and collect
the alleged deficiency tax is now barred by prescription.

14. People of the Philippines v. Sandiganbayan and Bienvenido A. Tan Jr.
GR No. 152532, August 16, 2005
Facts: Pursuant to a Letter of Authority January 2, 1986 and Memorandum of Authority dated
March 3, 1986, an investigation was conducted by BIR examiners on the ad valorem and
specific tax liabilities of San Miguel Corp. (SMC) covering the period from January 1, 1985 to
March 31, 1986.
The result of the investigation showed that SMC has a deficiency on specific and ad valorem
taxes totaling P342,616,217.88 which consisted of the following:
1. Specific Tax - P 33,817,613.21
2. Ad Valorem Tax - P308,798,604.67
BIR then sent a letter dated July 13, 1987 to SMC demanding the payment of its deficiency
tax in the amount of P342,616,217.88.
The letter was received by SMC since it protested the said assessment in a letter (August 10,
1987) which stated:
1) that the alleged specific tax deficiency was already paid when the BIR approved SMCs
request that its excess ad valorem payments be applied to its specific tax balance;
2) that the computation of the ad valorem tax deficiency was erroneous since the BIR
examiners disallowed the deduction of the price differential (cost of freight from brewery to
warehouse) and ad valorem tax.
On October 8, 1987, the protest was denied by BIR through a letter signed by the accused,
Commissioner Bienvenido Tan, Jr., but the original assessment was reduced
to P302,[0]51,048.93. This was because of the crediting of the excess ad valorem tax deposit
(P21,805,409.10) but the letter still reiterated the payment of the assessed specific and ad
valorem tax as reduced.
But in October 27, 1987, without any word from SMC, Tan referred the case to the Legal
Service Division of the BIR. Various BIR officials reviewed the case and they recommended
that SMC’s tax liability be reduced to P22 million (a significant reduction from the original
P342 million).
The reduction was justified by the BIR officials on the ground that the tax examiners had
made some errors in computing SMC’s tax liability.
SMC was demanded by BIR to pay the reduced amount of P22,000,000 but in a letter, SMC
offered the amount of P10,000,000.00 for the settlement of the assessment. It was again
referred to various BIR officials who concurred to the recommendation that the offer of SMC
for P10,000,000.00 in compromise settlement be accepted. The recommendation was
approved by Tan; and accordingly, in a letter, SMC was informed that its offer to compromise
was accepted.
These circumstances resulted to a criminal case against Commissioner Tan for violation of
violation of Section 3(e) of RA No. 3019, Anti-Graft and Corrupt Practices Act. Allegedly, the
act of Tan in accepting the P10 million compromise offer caused undue injury to the
government and it gave SMC unwarranted benefits due to the significantly reduced tax
liability.
Ruling of Sandiganbayan:
The Sandiganbayan originally convicted Tan and held that the compromise agreement was
entered into illegally. Therefore, BIR is ordered to collect from SMC the amount
of P292,951,048.93 representing its tax liabilities covering the period from January 1, 1985 to
March 31, 1986.
But upon motion of Tan, the Sandiganbayan found its motion meritorious and acquitted Tan.
In acquitting herein private respondent, the SB adduced several reasons.
1.The SB failed to give weight to the meeting between Tan and which resulted in the referral
of the assessment to Tan’s subordinates for further review and study. The referral showed
that the disputed assessment had not yet become final and executory.
2. Notwithstanding the prosecutions observation that BIR rejected SMCs protest against the
inclusion of the water component of beer, Tan unequivocally approved SMCs application of its
excess ad valorem deposit to complete the payment of its specific tax deficiency.
3. The abatement of SMCs ad valorem taxes is proper. The tax base for computing them
should not include the ad valorem tax itself and the price differential. Reliance upon EO No.
273 is not misplaced, because that law simply affirms general principles of taxation as well as
BIRs long-standing practice and policy not to impose a tax on a tax. Moreover, nothing
precludes private respondent from applying EO 273 on an assessment made prior to its
effectivity, because that law was merely intended to formalize such long-standing practice and
policy.
4. After inquiring into the discretionary prerogative of Tan to compromise, the SB found no
reason to conclude that he had acted contrary to law or been impelled by any motive other
than honest good faith. The compromise he had entered into regarding SMCs tax did not
result in any injury to the government. No genuine compromise is impeccable, since the
parties to it must perforce give up something in exchange for something else. No basis
existed to hold him liable for violation of Section 3(e) of RA 3019.
Issues:
1. Whether or not the SB erred in upholding Tan’s act in ruling upon SMC’s Motion for
Reconsideration (Reinvestigation), it disregarded Sec 228 of the NIRC
2. Whether or not the SB erred when it declared the validity of Tan’s act in approving SMC’s
application of the excess ad valorem to its specific tax deficiency
3. Whether or not the SB erred in upholding Tan’s act in accepting SMC’s offer of compromise
4. Whether or not Commissioner Bienvenido A. Tan Jr. should have been convicted.
Ruling: The petition has no merit.
1. No. Petitioner’s argument that since SMC did not appeal to the CTA the assessment of
P302,051,048.93 as tax liability the decision became final and can no longer be compromised
is wrong.
The Sec 229 of the Tax Code shows that the Motion for Reconsideration filed by SMC was
aptly ruled upon by private respondent. Despite the use of the phrase “finally decided”, his
October 8, 1987 letter to SMC did not constitute a final assessment. The phrase only referred
to the reduction of the assessment which was a result of SMC’s protests.
SMC was also able to timely request for a reinvestigation on November 2, 1987 which, under
Sec 229 of the NIRC, was a proper administrative protest done within 30 days from receipt of
the assessment and substantiated by facts and law; thus, the assessment had not yet
become final.
After the said request for reinvestigation, no other issuance emanated from BIR which could
be considered as a decision which means that no appeal can be made to the Tax Court since
the protest had not yet been acted upon.
No decision could as yet be made by the BIR, because the protest filed by SMC had been
referred by private respondent to several top BIR officials for further review. Had the
assessment already become final in 1987, there would then be no more reason to
reinvestigate and study the merits of SMCs protest in 1988.
The assessment was clearly not yet final, executory or demandable.
2. No. The approval given by Tan was correct. Ad valorem taxes and specific taxes are
both excise taxes on alcohol products. The payment by installment of a portion of the
total specific tax deficiency of SMC, in addition to the application of its excess and unused ad
valorem tax deposits to the remaining portion, fully covered the total net specific tax shortfall.
It was proper for the BIR officials to abate or cancel the specific taxes of SMC, after its ad
valorem tax deposits were credited.
The approval was also concurred with the top tax officials within the Bureau which enjoys a
presumption of regularity in the performance of their official functions; also, their collective
conclusion was controlling.
Pre-payment schemes were also allowed by law and revenue regulations wherein excise
taxes on alcohol products could be paid in advance of the dates they were due. Since the
equivalent value of specific taxes by way of advance ad valorem tax deposits had
already been paid, the government lost nothing. It was a simple request properly granted
for applying the advance deposits made on one type of excise tax to another type. Granting
such request was well within private respondents authority to administer tax laws and
regulations. Again, the assessment was not final, demandable or executory at the time.
3. No. In computing its ad valorem tax liabilities, SMC deducted from its brewers gross selling
price the specific tax, price differential, and ad valorem tax. The BIR allowed the deduction of
the specific tax, but not the deduction of the price differential and ad valorem tax, thus
increasing the tax base and consequently the ad valorem tax liabilities of SMC.
Price Differential Deduction
The excise taxes on domestic products shall be paid by the manufacturer or producer before
the removal of those products from the place of production. This means that the price that
should be used as the tax base for computing ad valorem tax on fermented liquor is the price
at the brewery. Since, after all, excise taxes are taxes on property.
The price differential cannot be ascertained at the time the fermented liquor is removed from
the brewery, because such ascertainment will involve amounts that cannot be determined
with certainty in advance, and that vary from one commercial outlet to another. Hence, no ad
valorem tax can ever be paid before the removal of the fermented liquor from the place of
production. This cannot be tolerated since the law states that there should be payment
before removal. It follows that the tax base to be used should be net of the price
differential. In other words, the gross selling price should be that which is charged at the
brewery prior to the removal of the fermented liquor.
Ad Valorem Tax Deduction
A tax should not be imposed upon another tax. This is tax pyramiding, which has no basis
either in fact or in law.
Tan has shown that the inclusion of the ad valorem tax in the tax base would only yield to a
roundabout manner of computation that will never end in just one ad valorem tax figure
properly chargeable against a taxpayer. And expectedly, petitioner was unable to negate the
mathematics proffered by Tan.
Having shown the appropriateness of deducting the ad valorem tax from the tax base upon
which it is computed, private respondent has shown prudence in exercising his power under
Section 204(2) of the NIRC of 1977 to abate an unjust, excessively assessed, and
unreasonable tax; and to accept the offer of P10 million, if only to avoid protracted and costly
litigation.
Abatement, not Compromise
Although referred to in the case as a compromise, the matter at hand is actually abatement
or a cancellation.
Abatement is the diminution or decrease in the amount of tax imposed. It refers to the act of
eliminating or nullifying; of lessening or moderating. To abate is “to nullify or reduce in value
or amount”.
The CIR has the power to abate or cancel the whole or any unpaid portion of a tax liability,
inclusive of increments, if its assessment is excessive or erroneous, or if the administration
costs involved do not justify the collection of the amount due. No mutual concessions need be
made, because an excessive or erroneous tax is not compromised; it is abated or canceled.
Only correct taxes should be paid. Further, Tan cannot be said to have acted in bad faith. He
acted upon concurrence and recommendation of the various BIR officials.
4. No. Clearly, the court a quo did not commit grave abuse of discretion in upholding private
respondent in his act of ruling upon the request of SMC for reinvestigation which necessarily
follows that his acquittal is proper and inevitable.
15. Commissioner of Internal Revenue v. San Roque Power Corporation
GR No. 187485, October 8, 2013
Facts: On October 11, 1997, San Roque Power Corporation (San Roque) entered into a
Power Purchase Agreement (PPA) with the National Power Corporation (NPC) by building the
San Roque Multi-Purpose Project in San Manuel, Pangasinan.
The San Roque Multi-Purpose Project allegedly incurred, excess input VAT in the amount of
P559,709,337.54 for taxable year 2001 which it declared in its Quarterly VAT Returns filed for
the same year.
San Roque duly filed with the BIR separate claims for refund, amounting to P559,709,337.54,
representing unutilized input taxes as declared in its VAT returns for taxable year 2001.
However, on March 28, 2003, San Roque filed amended Quarterly VAT Returns for the year
2001 since it increased its unutilized input VAT To the amount of P560,200,283.14. San
Roque filed with the BIR on the same date, separate amended claims for refund in the
aggregate amount of P560,200,283.14.
On April 10, 2003, a mere 13 days after it filed its amended administrative claim with the
CIR on March 28, 2003, San Roque filed a Petition for Review with the CTA.
CIR alleged that the claim by San Roque was prematurely filed with the CTA.
Court of Tax Apeals (Division):
The CTA Second Division initially denied San Roque’s claim. The bases for the denial of the
claim are as follows:
a. lack of recorded zero-rated or effectively zero-rated sales;
b. failure to submit documents specifically identifying the purchased goods/services related to
the claimed input VAT which were included in its Property, Plant and Equipment account; and
c. failure to prove that the related construction costs were capitalized in its books of account
and subjected to depreciation.
The CTA Second Division required San Roque to show that it complied with the following
requirements of Section 112(B) of RA 8424 to be entitled to a tax refund or credit of input VAT
attributable to capital goods imported or locally purchased:
(1) it is a VAT-registered entity;
(2) its input taxes claimed were paid on capital goods duly supported by VAT invoices and/or
official receipts;
(3) it did not offset or apply the claimed input VAT payments on capital goods against any
output VAT liability; and
(4) its claim for refund was filed within the two year prescriptive period both in the
administrative and judicial levels.
The CTA Second Division found that San Roque complied with the first, third and fourth
requirements that upon San Roque filing of a Motion for New Trial and/or Reconsideration, it
amended its previous Decision. The CTA Second Division found legal basis to partially grant
San Roque’s claim. The CTA Second Division ordered the Commissioner to refund or issue
a tax credit in favor of San Roque in the amount of ₱483,797,599.65, which represents
San Roque’s unutilized input VAT on its purchases of capital goods and services for the
taxable year 2001.
Court of Tax Appeals (En Banc):
The CTA EB dismissed the CIR’s petition for review and affirmed the challenged decision and
resolution.
The CTA EB cited Commissioner of Internal Revenue v. Toledo Power, Inc. and Revenue
Memorandum Circular No. 49-03, as its bases for ruling that San Roque’s judicial claim
was not prematurely filed.
However, what the petitioner failed to consider is Section 112(A) of the same provision. The
respondent is also covered by the two (2) year prescriptive period. We have repeatedly held
that the claim for refund with the BIR and the subsequent appeal to the Court of Tax
Appeals must be filed within the two-year period.
San Roque, in its Motion for Reconsideration and Supplemental Motion for Reconsideration
prays that that the rules be given only a prospective effect and arguing that the manner by
which BIR and CTA actually treated the 120+30 day periods constitutes an operative fact
wherein the effects and consequences cannot be undone.
Issue: Whether or not San Roque is entitled to a tax refund
Ruling: No. San Roque Power Corporation is not entitled to a tax refund because it failed to
comply with the mandatory and jurisdictional requirement of waiting 120 days before filing its
judicial claim.
The Doctrine of Operative Fact
The general rule is that a void law or administrative act cannot be the source of legal rights or
duties. The doctrine of operative fact is an exception to the general rule wherein a judicial
declaration of invalidity may not necessarily obliterate all the effects and consequences of a
void act prior to such declaration.
For the doctrine to apply, there must be a :
a. “legislative or executive measure” – law or executive issuance
b. Invalidated by the court
c. Relied upon by the public in good faith
When all these circumstances are the present, the effects of said law or executive issuance
may have to be recognized a valid.
In the present case, there is no such law or executive issuance that has been invalidated
by the Court except BIR Ruling No. DA-489-03.
To support its claim for refund, San Roque asserts that BIR and CTA do not observe and do
not require taxpayers who seek refund to comply with the 120+30 day periods. This is
erroneous because administrative practice is neither law nor an executive issuance.
Furthermore, there is even no such administrative practice.
At the time San Roque filed its petition for review with the CTA, the 120+30 day mandatory
periods were already in the law. Section112(C) expressly grants the Commissioner 120
days within which to decide the taxpayer’s claim and a 30-day period to appeal to the
CTA the decision or inaction of the Commissioner. The law is clear, plain, and
unequivocal.
A taxpayer cannot simply file a petition with the CTA without waiting for the Commissioner’s
decision within the 120-day mandatory and jurisdictional period. The CTA will have no
jurisdiction because there will be no "decision" or "deemed a denial" decision of the
Commissioner for the CTA to review.
In this case, it filed its petition with the CTA a mere 13 days after it filed its administrative
claim with the Commissioner. Indisputably, San Roque knowingly violated the mandatory
120-day period, and it cannot blame anyone but itself.
16. Taganito Mining v. CIR, GR No. 196113
FACTS: Petitioner Taganito Mining is a duly organized Philippine corporation engaged in the
business of exploring, producing and exporting nickel silicate ores and chromite ores and is a
VAT-registered entity and also registered with the Board of Investments as an exporter.
Taganito filed all its Monthly VAT Declarations and Quarterly Vat Returns for the period
January 1, 2005 to December 31, 2005.
On November 29, 2006, Taganito a letter dated November 29, 2004 to the CIR, for tax
credit/refund on its excess input VAT paid on its domestic purchases of taxable goods and
services and importation of goods in the amount of ₱8,365,664.38 for the period covering
January 1, 2005 to December 31, 2005.
The CIR took no action on Taganito's claim for refund and since the statutory period for filing
the claim is about to expire, Taganito filed a Petition for Review on February 17, 2007.
In its Decision dated January 8, 2010, the CTA Second Division partially granted Taganito's
claim in compliance with the requirements of Section 112(A) of RA 8424 (NIRC), to be entitled
to a tax refund or credit of input VAT attributable to zero-rated or effectively zero-rated sales
in the amount of ₱8,249,883.33.
A motion for reconsideration was filed by the CIR arguing that the petition for review was
prematurely filed because Taganito did not wait for the lapse of 120 days mandated by
Section 112(D) of the National Internal Revenue Code of 1997 (NIRC). Hence, the CTA lacks
jurisdiction to rule on the petition. However, the motion was denied.
A petition for review was then filed by the CIR before the CTA En Banc, claiming that
Taganito failed to exhaust administrative remedies under Section 112(D) of the NIRC before
resorting to judicial appeal.
The CTA EB granted the CIR’s petition for review and reversed and set aside the decision of
the CTA Second Division.
The CTA EB found that Taganito’s judicial claim was prematurely filed. Taganito filed its
Petition for Review before the CTA Second Division on February 14, 2007. The judicial claim
was filed after the lapse of only 92 days from the filing of its administrative claim before the
CIR, in violation of the 120-day period prescribed in Section 112(D) of the 1997 Tax Code.
The CTA EB explained that the 120-day period is mandatory and jurisdictional to the filing of a
judicial claim and since Taganito’s filing of a judicial claim was premature, the CTA Second
Division was unable to acquire jurisdiction over the it.
ISSUE: Whether or not Taganito's claim for refund or credit was prematurely filed.
RULING: It has been settled in the recent case of CIR v. San Roque Power Corporation, that
it is Section 112 of the NIRC which applies to claims for tax credit certificates and tax refunds
arising from sales of VAT-registered persons that are zero-rated or effectively zero-rated,
which are, simply put, claims for unutilized creditable input VAT.
Upholding the ruling in CIR v. Aichi, the Court held that the 120+30 day period prescribed
under Section 112(D) is mandatory and jurisdictional. Prior filing of an administrative case
before the CIR under Section 112 is required since the jurisdiction of the CTA over decisions
or inaction of the CIR is only appellate in nature. The CTA can only acquire jurisdiction over a
case after the CIR has rendered its decision, or after the lapse of the period for the CIR to act,
in which case such inaction is considered a denial. A petition filed prior to the lapse of the
120-day period prescribed under said Section would be premature for violating the doctrine on
the exhaustion of administrative remedies.
However, Taganito can invoke BIR Ruling No. DA-489-0357 dated December 10, 2003, which
expressly ruled that the "taxpayer-claimant need not wait for the lapse of the 120-day period
before it could seek judicial relief with the CTA by way of Petition for Review." Taganito filed
its judicial claim after the issuance of BIR Ruling No. DA-489-03 but before the adoption of the
Aichi doctrine. Thus, Taganito is deemed to have filed its judicial claim with the CTA on time.
17. Philex Mining v. CIR, GR No. 197156
FACTS: Philex is a duly organized Philippine corporation engaged in the mining business. It
filed for its VAT Return for the third quarter of taxable year 2005.
On March 20, 2006, Philex filed its claim for refund/tax credit in the amount of ₱23,956,732.44
However, due to the CIR’s failure to act on such claim, on October 17, 2007, pursuant to
Sections 112 and 229 of the NIRC of 1997, Philex filed a Petition for Review.
The CTA Second Division,mdenied Philex’s claim due to prescription. It ruled that the two-
year prescriptive period specified in Section 112(A) of RA 8424 applies not only to the filing of
the administrative claim with the BIR, but also to the filing of the judicial claim with the CTA
and that since Philex’s claim covered the 3rd quarter of 2005, its administrative claim filed on
March 20, 2006 was timely filed but its judicial claim filed on October 17, 2007 was filed late
and therefore barred by prescription.
Philex filed a Petition for Review before the CTA EB but the CTA EB denied Philex’s petition
and affirmed the CTA Second Division’s decision. It ruled that from March 20, 2006, the CIR
has 120 days, or until July 18, 2006, within which to decide the claim. Within 30 days from the
lapse of the 120-day period, or from July 19, 2006 until August 17, 2006, Philex should have
elevated its claim for refund to the CTA. However, Philex filed its Petition for Review only on
October 17, 2007, which is 426 days way beyond the 30- day period prescribed by law. Thus,
no jurisdiction was acquired by the CTA in Division.
ISSUE: Whether or not the judicial claim for tax refund or credit was filed within the period/s
prescribed by the NIRC.
RULING: Philex filed on October 21, 2005 its original VAT Return for the third quarter of
taxable year 2005; then it filed on October 17, 2007 its Petition for Review with the CTA. The
close of the third taxable quarter in 2005 is September 30, 2005, which is the reckoning date
in computing the two-year prescriptive period under Section 112(A).
Philex timely filed its administrative claim on March 20, 2006, within the two-year prescriptive
period. However, Philex filed its Petition for Review with the CTA only on October 17, 2007 or
four hundred twenty-six (426) days after the last day of filing. In short, Philex was late by one
year and 61 days in filing its judicial claim as correctly found by the CTA EB.
Whether the two-year prescriptive period is counted from the date of payment of the output
VAT following the Court's decision in the Atlas doctrine or from the close of the taxable
quarter when the sales attributable to the input VAT were made following the Mirant and Aichi
doctrines, Philex’s judicial claim was indisputably filed late.
Although the inaction of the Commissioner on Philex’s claim during the 120-day period is, by
express provision of law, "deemed a denial" of Philex’s claim, Philex still had 30 days from the
expiration of the 120-day period to file its judicial claim with the CTA. Philex’s failure to do so
rendered the "deemed a denial" decision of the Commissioner final and inappealable and the
right to appeal to the CTA from a decision or "deemed a denial" decision of the Commissioner
is merely a statutory privilege, not a constitutional right. Such statutory privilege requires strict
compliance with its statutory conditions and due to its failure to comply, Philex must thus bear
the consequences.
18. Mindanao Geothermal v. CIR, GR No's. 193301 and 194637
FACTS: Mindanao Geothermal is a duly registered partnership and a VAT-registered entity
engaged in the generation, collection and distribution of electricity. It entered into a Build-
Operate-Transfer Contract with the Philippine National Oil Company-Energy Development
Corporation (PNOC-EDC) for the finance, installation, supply, operation and maintenance,
among other things, of a 48.25 megawatt geothermal plant. It was agreed in the contract that
PNOC-EDC shall supply and deliver steam to petitioner, which the petitioner in turn, shall
convert into electric capacity and energy for the PNOC-EDC and deliver the same to the
National Power Corporation.
Petitioner filed its quarterly VAT returns for the four quarters of 2008, with the amount of
P6,149, 256.25 as unutilized/excess input VAT.
On December 28, 2009, Mindanao Geothermal filed an administrative claim for tax
refund/credit of its unutilized input VAT for the year 2008 before the BIR District Office of
Kidapawan City. On March 30, 2010, petitioner filed a judicial claim for refund/credit of its
unutilized/excess input VAT for the first quarter of 2008 amounting to P1,624,603.33 before
the CTA and on May 27, 2010, petitioner filed another judicial claim for the second to fourth
quarters of 2008 amounting to P4, 525,652.92 before the CTA.
CIR, moved for the dismissal of the case on the ground of lack of jurisdiction. It relied on the
Court's decision in the case of CIR v. Aichi Forging Company of Asia, Inc. CIR argued that the
judicial claim was filed 107 days from the ruling of the administrative claim, hence, it should
be dismissed for being prematurely filed in violation of the prescribed 120-day period provided
by Section 112 (D) of the NIRC.
The CTA Division granted the CIR's Motion to Dismiss, stating that the judicial claim was
prematurely filed. It held that pursuant to the Aichi Doctrine, the expiration of the 120-day
period before a judicial claim for refund/credit may be filed is mandatory and jurisdictional.
The petitioner then appealed the case to the CTA En Banc, which dismissed the appeal and
affirmed the CTA Division ruling also citing and relying on the Aichi Case.
ISSUE: Whether or not the judicial claim for refund/credit of input VAT was prematurely filed.
RULING: The Supreme Court finds the petition meritorious. As ruled by the Court in the Aichi
Case, the observance and compliance of the 120-day period provided in Section 112 of the
NIRC is mandatory and jurisdictional and its non-observance would lead to the dismissal of
the judicial claim on the ground of lack of jurisdiction. However, an exception was recognized
as held in the case of CIR v. San Roque Power Corporation, wherein the Court ruled that BIR
Ruling No. DA-489-03 dated December 10, 2003 provided a valid claim for equitable estoppel
under Section 246 of the NIRC. The BIR Ruling stated that the "taxpayer-claimant need not
wait for the lapse of the 120-day period before it could seek judicial relief with the CTA by way
of Petition for Review.
To reconcile the pronouncements in the Aichi and San Roque cases, the rule therefore is that
during the period of December 10, 2003 (when BIR Ruling No. DA-489-03 was issued) to
October 6, 2010 (when the Aichi case was promulgated), taxpayers-claimants need not
observe the 120-day period before it could file a judicial claim for refund of excess input VAT
before the CTA.
The records disclose that Mindanao Geothermal filed its administrative and judicial claims for
refund/credit of its input VAT in the CTA on December 28, 2009 and March 30, 2010,
respectively, or during the period when BIR Ruling No. DA-489-03 was in place, from
December 10, 2003 to October 6, 2010. Applying the rule laid down in Aichi and San Roque
cases, it need not wait for the expiration of the 120-day period before filing its judicial claim
before the CTA, and hence, is deemed timely filed.
However, the Court did not grant outright the petitioner's Cali's for refund/credit of input VAT
since the determination of the entitlement to such claim involves a question of fact. The case
was therefore remanded to the CTA Second Division for its resolution.
19. CIR v. Aichi, GR No. 184823
FACTS: Aichi Forging Company of Asia, Inc. is a duly organized Philippine Corporation and a
VAT-registered entity engaged in the manufacturing, producing and processing of steel and
its by-products. It filed a claim for tax refund/credit of input VAT in the amount of
P3,891,123.82 with the CIR. Onion the same date, Aichi filed a Petition for review with the
CTA for refund/credit of the same input VAT. The CTA partially granted Aichi's claim for
refund/credit.
CIR filed a Motion for Partial Reconsideration arguing that the administrative and judicial
claims were filed after the lapse of the two-year period to claim a tax refund/credit as provided
under Sections 112 and 229 of the NIRC. That since 2004 is a leap year, the filing of such
claim on September 30, 2004 was one day late of the prescribed period which expired on
September 29, 2004. CIR also contended that the simultaneous filing of the administrative
and judicial claims violates Sections 112 and 229 of the NIRC, which provides that the filing of
an administrative claim is a requisite or condition precedent before filing a judicial claim.
The CTA denied CIR's MPR and was affirmed by the CTA En Banc upon appeal.
ISSUE: Whether or not the simultaneous filing of the administrative and the judicial claims
contravenes Section 229 of the NIRC, which requires the prior filing of an administrative
claim, and violates the doctrine of exhaustion of administrative remedies.
RULING: Yes. The Supreme Court held that the filing of the judicial claim with the CTA was
premature.
Section 112(D) of the NIRC provides that the CIR has 120 days, within which to grant or deny
the claim to be reckoned from the date of submission of complete documents to suppers the
tax refund/credit claim. The taxpayer can then file an appeal before the CTA within 30 days
from the receipt of the decision of the CIR, whether the claim will be fully or partially denied.
However, if after the 120-day period the CIR fails to act on the application for tax
refund/credit, the remedy of the taxpayer is to appeal the inaction of the CIR to CTA within 30
days.
Subsection (A) of Section 112 of the NIRC states that “any VAT-registered person, whose
sales are zero-rated or effectively zero-rated may, within two years after the close of the
taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or
refund of creditable input tax due or paid attributable to such sales.” The phrase “within two
(2) years x x x apply for the issuance of a tax credit certificate or refund” refers to applications
for refund/credit filed with the CIR and not to appeals made to the CTA.
The premature filing of respondent’s claim for refund/credit of input VAT before the CTA
warrants a dismissal in as much as no jurisdiction was acquired by the CTA.
20. LASCONA LAND VS. COMMISIONER INTERNAL REVENUE
GR 171251, MARCH 5 2012
FACTS:
 On March 27, 1998, the Commissioner of Internal Revenue issued Assessment Notice
No. 0000047-93-407 against Lascona Land Co. informing the latter of its alleged
deficiency income tax for the year 1993 in the amount of P753,266.56.
 On April 20, 1998, Lascona filed a letter protest, but was denied by Norberto R. Odulio,
Officer-in-Charge (OIC), Regional Director, Bureau of Internal Revenue, Revenue Region
No. 8, Makati City, in his Letter dated March 3, 1999 which stated among others, that
while they agree with the petitioner’s arguments, they cannot be given due course
because the case was not elevated to the Court of Tax Appeals as mandated by the last
paragraph of Section 228 of the Tax Code.
 On January 4, 2000, the CTA, in its Decision, reversed the CIR. It held that in cases of
inaction by the CIR on the protested assessment, Section 228 of the NIRC provided two
options for the taxpayer: a) appeal to the CTA within thirty (30) days from the lapse of the
one hundred eighty (180)-day period, or b) wait until the Commissioner decides on his
protest before he elevates the case. Subsequently CIR moved for reconsideration. It
argued that in declaring the subject assessment as final, executory and demandable, it did
so pursuant to Section 3 (3.1.5) of Revenue Regulations No. 12-99 dated September 6,
1999. However, the CTA denied the motion for reconsideration pointing out that that
Revenue Regulations No. 12-99 must conform to Section 228 of the NIRC. It pointed out
that the former spoke of an assessment becoming final, executory and demandable by
reason of the inaction by the Commissioner, while the latter referred to decisions
becoming final, executory and demandable should the taxpayer adversely affected by the
decision fail to appeal before the CTA within the prescribed period. Finally, it emphasized
that in cases of discrepancy, Section 228 of the NIRC must prevail over the revenue
regulations.
 Aggrieved by the decision, the CIR appealed to the Court of Appeals which sustained the
appeal by declaring that the subject Assessment Notice No. 0000047-93-407 dated March
27, 1998 as final, executory and demandable. Subsequent motion for reconsideration by
Lascona was denied by CA, hence this petition.
ISSUE: Whether the subject assessment has become final, executory and demandable due
to the failure of petitioner to file an appeal before the CTA within thirty (30) days from the
lapse of the One Hundred Eighty (180)-day period pursuant to Section 228 of the NIRC?
DECISION: Petition is Meritorious.
 Section 3, Rule 4 of the Revised Rules of the Court of Tax Appeals, maintains that in case
of inaction by the CIR on the protested assessment, it has the option to either: (1) appeal
to the CTA within 30 days from the lapse of the 180-day period; or (2) await the final
decision of the Commissioner on the disputed assessment even beyond the 180-day
period − in which case, the taxpayer may appeal such final decision within 30 days from
the receipt of the said decision. Corollarily, petitioner posits that when the Commissioner
failed to act on its protest within the 180-day period, it had the option to wait for the final
decision of the Commissioner on the protest, which it did. The last paragraph of Section
228 of the NIRC provides that If the protest is denied in whole or in part, or is not
acted upon within one hundred eighty (180) days from submission of documents,
the taxpayer adversely affected by the decision or inaction may appeal to the Court
of Tax Appeals within (30) days from receipt of the said decision, or from the lapse
of the one hundred eighty (180)-day period; otherwise the decision shall become
final, executory and demandable. (Emphasis supplied).
 We do not agree with the petitioner’s insistence Lascona's failure to file an appeal with the
CTA after the lapse of the 180-day period, the assessment became final and executory. In
arguing that the assessment became final and executory by the sole reason that petitioner
failed to appeal the inaction of the Commissioner within 30 days after the 180-day
reglementary period, respondent, in effect, limited the remedy of Lascona, as a taxpayer,
under Section 228 of the NIRC to just one, that is - to appeal the inaction of the
Commissioner on its protested assessment after the lapse of the 180-day period.
 As early as the case of CIR v. Villa, it was already established that the word "decisions" in
paragraph 1, Section 7 of Republic Act No. 1125, quoted above, has been interpreted to
mean the decisions of the Commissioner of Internal Revenue on the protest of the
taxpayer against the assessments. Definitely, said word does not signify the assessment
itself. Therefore, as in Section 228, when the law provided for the remedy to appeal the
inaction of the CIR, it did not intend to limit it to a single remedy of filing of an appeal after
the lapse of the 180-day prescribed period. Precisely, when a taxpayer protested an
assessment, he naturally expects the CIR to decide either positively or negatively. A
taxpayer cannot be prejudiced if he chooses to wait for the final decision of the CIR on the
protested assessment. More so, because the law and jurisprudence have always
contemplated a scenario where the CIR will decide on the protested assessment.
 Accordingly, considering that Lascona opted to await the final decision of the
Commissioner on the protested assessment, it then has the right to appeal such final
decision to the Court by filing a petition for review within thirty days after receipt of a copy
of such decision or ruling, even after the expiration of the 180-day period fixed by law for
the Commissioner of Internal Revenue to act on the disputed assessments.
 Petition is GRANTED. Accordingly, the Decision dated January 4, 2000 of the Court of
Tax Appeals in C.T.A. Case No. 5777 and its Resolution dated March 3, 2000
are REINSTATED
VIII – STATUTORY OFFENSES KEPCO CIR
The provisions of the 1997 Tax Code, Kepco is not entitled to a tax refund because it
1. KEPCO PHILIPPINES CORPORATION vs. COMMISSIONER OF INTERNAL
specifically Section 113 in relation to Section was not able to substantiate the amount of
REVENUE
237, do not mention the mandatory P10,514,023.92 representing zero-rated
[G.R. No. 179961; January 31, 2011] requirement of imprinting the words zero-rated transactions for failure to submit VAT official
to purchases covering zero-rated transactions. receipts and invoices imprinted with the
FACTS: Petitioner Kepco Philippines Corporation (Kepco) is a domestic corporation duly wordings zero-rated in violation of Section
organized and existing under and by virtue of the laws of the Republic of the Philippines. It is 4.108-1 of R.R. 7-95.
a value-added tax (VAT) registered taxpayer engaged in the production and sale of electricity
The condition imposed by the said
as an independent power producer. It sells its electricity to the National Power Corporation
administrative issuance should not be
(NPC). Kepco filed with respondent Commissioner of Internal Revenue (CIR) an application
controlling over Section 113 of the 1997 Tax
for effective zero-rating of its sales of electricity to the NPC.
Code, considering the long-settled rule that
administrative rules and regulations cannot
In 1999, Kepco incurred input VAT in the amount of P10,527,202.54 on its domestic
expand the letter and spirit of the law they seek
purchases of goods and services that were used in its production and sale of electricity to
to enforce.
NPC for the same period.
There is no law or regulation which imposes
In 2001, Kepco filed an administrative claim for refund corresponding to its reported unutilized automatic denial of taxpayers refund claim for
input VAT for the four quarters of 1999 in the amount of P10,527,202.54. failure to comply with the invoicing
requirements.
Thereafter, Kepco filed a petition for review before the CTA pursuant to Section 112(A) of the No jurisprudence sanctions the same, not even
1997 NIRC, which grants refund of unutilized input taxes attributable to zero-rated or the Atlas case, cited by the CTA En Banc.
effectively zero-rated sales.

CTA Second Division
Denying Kepcos claim for refund for failure to properly substantiate its effectively zero-rated
sales for the taxable year 1999 in the total amount of P860,340,488.96, with the alleged input
VAT of P10,527,202.54 directly attributable thereto. Kepco failed to comply with the invoicing
requirements in clear violation of Section 4.108-1 of Revenue Regulations (R.R.) No. 7-95,
implementing Section 108(B)(3) in conjunction with Section 113 of the 1997 NIRC.
Kepco filed an appeal via petition for review before the CTA En Banc, on the ground that the
CTA Second Division erred in not considering the amount of P10,514,023.92 as refundable
tax credit and in failing to appreciate that it was exclusively selling electricity to NPC, a tax
exempt entity.
ISSUE: Whether or not Kepco’s failure to imprint the words “zero-rated” on its VAT official
receipts issued to NPC is fatal to its claim for refund of unutilized input tax credits.
HELD: YES
NPC is an entity with a special charter and exempt from payment of all forms of taxes,
including VAT. As such, services rendered by any VAT-registered person/entity, like Kepco, to
NPC are effectively subject to zero percent (0%) rate.
For the effective zero rating of such services, however, the VAT-registered taxpayer must
comply with invoicing requirements under Sections 113 and 237 of the 1997 NIRC as
implemented by Section 4.108-1 of R.R. No. 7-95.
Sec. 113. Invoicing and Accounting Requirements for VAT-Registered Persons. –

CTA En Banc
Dismissed the petition, reasoning out that Kepcos failure to comply with the requirement of
imprinting the words zero-rated on its official receipts resulted in non-entitlement to the benefit
of VAT zero-rating and denial of its claim for refund of input tax.
(A) Invoicing Requirements. – A VAT-registered person shall, for every sale,
issue an invoice or receipt. In addition to the information required under
Section 237, the following information shall be indicated in the invoice or
receipt:
(1) A statement that the seller is a VAT-registered person, followed by
his taxpayer’s identification number; and
(2) The total amount which the purchaser pays or is obligated to pay to
the seller with the indication that such amount includes the value-added
tax.
(B) Accounting Requirements. – Notwithstanding the provisions of Section 233,
all persons subject to the value-added tax under Sections 106 and 108 shall, in
addition to the regular accounting records required, maintain a subsidiary sales
journal and subsidiary purchase journal on which the daily sales and
purchases are recorded. The subsidiary journals shall contain such information
as may be required by the Secretary of Finance.
Sec. 237. Issuance of Receipts or Sales or Commercial Invoices. – All
persons subject to an internal revenue tax shall, for each sale or transfer of
merchandise or for services rendered valued at Twenty-five pesos (P25.00) or
more, issue duly registered receipts or sales or commercial invoices, prepared
at least in duplicate, showing the date of transaction, quantity, unit cost and
description of merchandise or nature of service: Provided, however, That in the
case of sales, receipts or transfers in the amount of One Hundred Pesos
(P100.00) or more, or regardless of amount, where the sale or transfer is made
by a person liable to value-added tax to another person also liable to value-
added tax; or where the receipt is issued to cover payment made as rentals,
commissions, compensations or fees, receipts or invoices shall be issued
which shall show the name, business style, if any, and address of the
purchaser, customer or client; Provided, further, That where the purchaser is a
VAT-registered person, in addition to the information herein required, the
invoice or receipt shall further show the Taxpayer Identification Number (TIN)
of the purchaser.
The original of each receipt or invoice shall be issued to the purchaser, customer or client at
the time the transaction is effected, who, if engaged in business or in the exercise of
profession, shall keep and preserve the same in his place of business for a period of three (3)
years from the close of the taxable year in which such invoice or receipt was issued, while the
duplicate shall be kept and preserved by the issuer, also in his place of business, for a like
period.
The Commissioner may, in meritorious cases, exempt any person subject to an internal
revenue tax from compliance with the provisions of this Section.
Section 4.108-1. Invoicing Requirements. – All VAT-registered persons shall, for every sale
or lease of goods or properties or services, issue duly registered receipts or sales or
commercial invoices which must show:
1. The name, TIN and address of seller;
2. Date of transaction;
3. Quantity, unit cost and description of merchandise or nature of service;
4. The name, TIN, business style, if any, and address of the VAT-registered
purchaser, customer or client;
5. The word "zero-rated" imprinted on the invoice covering zero-rated
sales;
6. The invoice value or consideration.
In the case of sale of real property subject to VAT and where the zonal or
market value is higher than the actual consideration, the VAT shall be
separately indicated in the invoice or receipt.
Only VAT-registered persons are required to print their TIN followed by
the word "VAT" in their invoices or receipts and this shall be considered
as "VAT Invoice." All purchases covered by invoices other than "VAT Invoice"
shall not give rise to any input tax.
If the taxable person is also engaged in exempt operations, he should issue
separate invoices or receipts for the taxable and exempt operations. A "VAT
Invoice" shall be issued only for sales of goods, properties or services subject
to VAT imposed in Sections 100 and 102 of the code.
The invoice or receipt shall be prepared at least in duplicate, the original to be
given to the buyer and the duplicate to be retained by the seller as part of his
accounting records. (Emphases supplied)
Also, as correctly noted by the CTA En Banc, in Kepcos approved Application/Certificate for
Zero Rate issued by the CIR on January 19, 1999, the imprinting requirement was likewise
specified, viz:
Valid only for sale of services from Jan. 19, 1999 up to December 31,
1999 unless sooner revoked.
Note: Zero-Rated Sales must be indicated in the invoice/receipt.
Indeed, it is the duty of Kepco to comply with the requirements, including the imprinting of the
words zero-rated in its VAT official receipts and invoices in order for its sales of electricity to
NPC to qualify for zero-rating.
Contrary to Kepcos view, the denial of its claim for refund of input tax is not a harsh
penalty. The invoicing requirement is reasonable and must be strictly complied with, as it is
the only way to determine the veracity of its claim.
It must be emphasized that the requirement of imprinting the word “zero-rated” on the invoices
or receipts under Section 4.108-1 of R.R. No. 7-95 is mandatory as ruled by the CTA En
Banc, citing Tropitek International, Inc. v. Commissioner of Internal Revenue.
The imprinting of “zero-rated” is necessary to distinguish sales subject to 10% VAT, those that
are subject to 0% VAT (zero-rated) and exempt sales, to enable the Bureau of Internal
Revenue to properly implement and enforce the other provisions of the 1997 NIRC on VAT,
namely:
1. Zero-rated sales [Sec. 106(A)(2) and Sec. 108(B)];
2. Exempt transactions [Sec. 109] in relation to Sec. 112(A);
3. Tax Credits [Sec. 110]; and
4. Refunds or tax credits of input tax [Sec. 112]
xxx
Well-settled in this jurisdiction is the fact that actions for tax refund, as in this case, are in the
nature of a claim for exemption and the law is construed in strictissimi jurisagainst the
taxpayer. The pieces of evidence presented entitling a taxpayer to an exemption are
also strictissimi scrutinized and must be duly proven.
PETITION DENIED.
2. SILICON PHILIPPINES, INC., (Formerly INTEL PHILIPPINES
MANUFACTURING, INC.) vs. COMMISSIONER OF INTERNAL REVENUE
[G.R. No. 172378 ; January 17, 2011]
FACTS: Petitioner Silicon Philippines, Inc., a corporation duly organized and existing under
and by virtue of the laws of the Republic of the Philippines, is engaged in the business of
designing, developing, manufacturing and exporting advance and large-scale integrated
circuit components or ICs. Petitioner is registered with the BIR as a VAT taxpayer and with
the Board of Investments as a preferred pioneer enterprise. On May 21, 1999, petitioner filed
with the CIR an application for credit/refund of unutilized input VAT for the period October 1,
1998 to December 31, 1998:
 Amount Tax Paid on Imported/Locally Purchased Capital Equipment - P
15,170,082.00
 Total VAT paid on Purchases per Invoices Received During the Period for which this
Application is Filed - P 16,732,425.50
 Amount of Tax Credit/Refund Applied For Proceedings before the CTA Division
– P 31,902,507.50
Due to the inaction of the CIR, Silicon filed a Petition for Review with the CTA Division. Silicon
alleged that the 4th quarter of 1998, it generated and recorded zero-rated export sales paid to
Silicon in acceptable foreign currency and that for the said period, Silicon paid input VAT in
the total amount which have not been applied to any output VAT.
CTA RULING: Partially granting petitioners claim for refund of unutilized input VAT on capital
goods. Out of the amount of P15,170,082.00, only P9,898,867.00 was allowed to be refunded
because training materials, office supplies, posters, banners, T-shirts, books, and other
similar items purchased by petitioner were not considered capital goods under Section 4.106-
1(b) of Revenue Regulations (RR) No. 7-95. With regard to petitioners claim for credit/refund
of input VAT attributable to its zero-rated export sales, it denied the same because petitioner
failed to present an Authority to Print (ATP) from the BIR; neither did it print on its export sales
invoices the ATP and the word zero-rated.
Silicon moved for reconsideration claiming that it is not required to secure an ATP since it has
a “Permit to Adopt Computerized Accounting Documents such as Sales Invoice and Official
Receipts from the BIR. And that the printing of the word “zero-rated” on its export sales
invoices is not necessary because all its finished products are exported to its mother
company, Intel Corp., a non-resident corporation and a non-VAT registered entity.
ISSUE:
(1) WON CTA En Banc erred in denying petitioner’s claim for credit/ refund of input VAT
attributable to its zero-rated sales due to its failure: (a) to show that it secured an ATP from
the BIR and to indicate the same in its export sales invoices; and (b) to print the word "zero-
rated" in its export sales invoices.
(2) WON the CTA En Banc erred in ruling that only the amount of P9,898,867.00 can be
classified as input VAT paid on capital goods.
HELD:
(1) NO.
There are two types of input VAT credits:
1.A credit/refund of input VAT attributable to zero-rated sales under Sec. 112(A) of the NIRC;
and
2.A credit/refund of input VAT on capital goods pursuant to Sec. 112(B) of the same Code.
To claim for credit/refund of input VAT attributable to zero-rated sales, Sec. 112(A) laid down
4 requisites:
1. The taxpayer must be a VAT-registered;
2.The taxpayer must be engaged in sales which are zero-rated or effectively zero-rated;
3.The claim must be filed within 2 years after the close of the taxable quarter when such sales
were made; and
4.The creditable input tax due or paid must be attributable to such sales, except the
transitional input tax, to the extent that such input tax has not been applied against the output
tax.

A. Printing the ATP on the invoices or receipts is not required.

In a case, the SC ruled that ATP need not be reflected or indicated in the invoices or receipts
because there is no law or regulation requiring it. Thus, failure to print the ATP on the invoices
or receipts should not result in the outright denial of a claim or the invalidation of the invoices
or receipts for purposes of claiming a refund.

B. ATP must be secured from the BIR

Sec. 238 of the NIRC expressly requires persons engaged in business to secure an ATP from
the BIR prior to printing invoices or receipts. Failure to do so, makes the person liable under
Sec. 264 of the Tax Code.

CLAIMANT FOR UNUTILIZED INPUT VAT ON ZERO-RATED SALES IS REQUIRED TO

PRESENT PROOF THAT IT HAS SECURED AN ATP FROM THE BIR PRIOR TO THE
PRINTING OF ITS INVOICES OR RECEIPTS. THE NON-PRESENTATION OF THE ATP
AND THE FAILURE TO INDICATE THE WORD "ZERO-RATED" IN THE INVOICES OR
RECEIPTS ARE FATAL TO A CLAIM FOR CREDIT/REFUND OF INPUT VAT ON ZERO-
RATED SALES. THE FAILURE TO INDICATE THE ATP IN THE SALES INVOICES OR
RECEIPTS, ON THE OTHER HAND, IS NOT.

In this case, petitioner failed to present its ATP and to print the word "zero-rated" on its export
sales invoices. Thus, we find no error on the part of the CTA in denying outright petitioner’s
claim for credit/refund of input VAT attributable to its zero-rated sales.
(2) Capital goods are defined under Section 4.106-1(b) of RR No. 7-95. To claim a refund of
input VAT on capital goods, Section 112 (B)56 of the NIRC requires that:
1.the claimant must be a VAT registered person;
2.the input taxes claimed must have been paid on capital goods;
3.the input taxes must not have been applied against any output tax liability; and
4.the administrative claim for refund must have been filed within two (2) years after the close
of the taxable quarter when the importation or purchase was made.

Section 4.106-1 (b) of RR No. 7-95 defines capital goods as follows:

•"Capital goods or properties" refer to goods or properties with estimated useful life greater
that one year and which are treated as depreciable assets under Section 29 (f),57 used
directly or indirectly in the production or sale of taxable goods or services. Thus, there is no
reason to deviate from the findings of the CTA that training materials, office supplies, posters,
banners, T-shirts, books, and the other similar items reflected in petitioners Summary of
Importation of Goods are not capital goods. A reduction in the refundable input VAT on capital
goods from P15,170,082.00 to P9,898,867.00 is therefore in order.