CIR v.

PLDT Facts: For equipment, machineries and spare parts it imported from October 1, 1992 to May 31, 1994, PLDT paid the BIR the amount of P164,510,953.00, broken down as follows: (a) compensating tax of P126,713,037.00; (b) advance sales tax of P12,460,219.00 and (c) other internal revenue taxes of P25,337,697.00. For similar importations made between March 1994 to May 31, 1994, PLDT paid P116,041,333.00 value-added tax (VAT). (Note: PLDT did not necessarily pay VAT directly to the BIR.) After a ruling was handed down by the BIR to the effect that the PLDT is exempt from paying all taxes on its franchise and earnings including the VAT because of the 3% franchise tax imposed on it by Section 12 of RA 7082, the PLDT claimed from the BIR a tax credit/refund of the VAT, compensating taxes, advance sales taxes and other taxes it had been paying. When its claim was not acted upon by the BIR, PLDT went to the CTA. The CTA ruled for PLDT, but made deductions (refundable amounts which period to claim had already prescribed) from the total tax refund prayed for by PLDT. The CIR appealed to the CA. The CA affirmed the CTAs decision. The CIR appealed to the SC, saying that the CA erred in ruling that because of the 3% franchise tax the PLDT is exempt from paying all taxes, including indirect taxes. Issue: WON the 3% franchise tax exempts the PLDT from paying all other taxes, including indirect taxes. Held: No. 1. Direct taxes are those exacted from the very person who, it is intended or desired, should pay them. They are impositions for which a taxpayer is directly liable on the transaction or business he is engaged in. 2. Indirect taxes are those that are demanded, in the first instance, from, or are paid by, one person in the expectation and intention that he can shift the burden to someone else. In other words, indirect taxes are taxes wherein the liability for the payment of the tax 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. When the seller passes on the tax to his buyer, he, in effect, shifts the tax burden, not the liability to pay it, to the purchaser as part of the price of goods sold or services rendered. 3. The NIRC classifies VAT as an indirect tax the amount of [which] may be shifted or passed on to the buyer, transferee or lessee of the goods. The 10% VAT on importation of goods is in the nature of an excise tax levied on the privilege of importing articles. It is imposed on all taxpayers who import goods. It

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is not a tax on the franchise of a business enterprise or on its earnings, as stated in Section 2 of RA 7082. Advance sales tax has the attributes of an indirect tax because the tax-paying importer of goods for sale or of raw materials to be processed into merchandise can shift the tax or lay the economic burden of the tax on the purchaser by subsequently adding the tax to the selling price of the imported article or finished product. Compensating tax also partakes of the nature of an excise tax payable by all persons who import articles, whether in the course of business or not. The liability for the payment of the indirect taxes lies with the seller of the goods or services, not in the buyer thereof. Thus, one cannot invoke ones exemption privilege to avoid the passing on or the shifting of the VAT to him by the manufacturers/suppliers of the goods he purchased. Hence, it is important to determine if the tax exemption granted to a taxpayer specifically includes the indirect tax which is shifted to him as part of the purchase price, otherwise it is presumed that the tax exemption embraces only those taxes for which the buyer is directly liable. Since RA 7082 did not specifically include indirect taxes in the exemption granted to PLDT, the latter cannot claim exemption from VAT, advance sales tax and compensating tax. The clause in lieu of all taxes in Section 12 of RA 7082 is immediately followed by the qualifying clause on this franchise or earnings thereof, suggesting that the exemption is limited to taxes imposed directly on PLDT since taxes pertaining to PLDTs franchise or earnings are its direct liability. Accordingly, indirect taxes, not being taxes on PLDTs franchise or earnings, are not included in the exemption provision. PLDTs allegation that the Bureau of Customs assessed the company for advance sales tax and compensating tax for importations entered between October 1, 1992 and May 31, 1994 when the value-added tax system already replaced, if not totally eliminated, advance sales and compensating taxes, is with merit. Pursuant to Executive Order No. 273, a multi-stage value-added tax was put into place to replace the tax on original and subsequent sales tax. Therefore, compensating tax and advance sales tax were no longer collectible internal revenue taxes under the NIRC when the Bureau of Customs made the assessments in question and collected the corresponding tax. Stated a bit differently, PLDT was no longer under legal obligation to pay compensating tax and advance sales tax on its importation from 1992 to 1994. A refund of the amounts paid as such taxes is thus proper. P87,257,031.00 of compensating tax + P7,416,391.00 advanced sales tax = P94,673,422.00 total refund.

Republic v. Gonzales Facts: Gonzales was a concessionaire in Clark Air Base whose business was the manufacture of furniture which he supplied to the U.S. military. On March 1, 1947 and March 1, 1948, Gonzales filed his ITRs for the years 1946 and 1947, respectively, with the then Municipal Treasurer of Angeles, Pampanga. In the ITR for 1946, he declared a net income of P9,352.84 and income tax liability of P111.17 while for the year 1947, he declared as net income the amount of P16,829.10 and a tax liability of P1,395.95. In the above two returns, he declared the sums of P80,459.75 and P1,707,355.57 as his total sales for the said two years, respectively, or an aggregate sales of P1,787,848.32 for both years. Upon investigation, however, the BIR discovered that for the years 1946 and 1947, the appellant earned of P2,199,920.50 for furniture delivered by him to the base authorities. Thus, Gonzales was deemed to have underdeclared his income by P412,072.18. Further investigation into Gonzales' 1946 profit and loss statement disclosed "local sales," that is, sales to persons other than the United States Army, in the amount of P124,510.43. As a result, the BIR likewise considered the said amount as unreported income for the said year. The full amount of P124,510.43 was considered as taxable income because the appellant could not produce the books of account on the same upon which any deduction could be based. The BIR assessed Gonzales the total sum of P340,179.84 as total payables. The BIR sent a letter of demand to Gonzales for the above amount as deficiency income tax, the sum of P300.00 as compromise for his failure to keep the required journal and ledger, and finally, the sum of P153.75 as additional residence tax, all for the year 1946. Gonzales requested a reinvestigation, which was granted. After the reinvestigation, the Collector of Internal Revenue insisted on collecting the original amount of P340,179.84. The same assessment was heard before the Conference Staff of the BIR, which recommended a reduction of the same to P249,289.26, as deficiency income tax for the year 1946. After the recommendation was approved by the BIR, the corresponding assessment notice for the sum of P249,289.26 as deficiency income tax and 50% surcharge for the year 1946 and 1% monthly interest and penalty incident to delinquency was forthwith issued. The above assessment was further revised by segregating Gonzales tax liability for 1946 and 1947. Another demand was made upon Gonzales for the payment of P106,226.75 and P37,849.58 as income taxes due from him for the years 1946 and 1947, respectively, or a total of P144,076.33. When Gonzales failed to pay, the Republic brought suit in the CFI of Manila. Gonzales was declared in default. The CFI then ruled in favor of the Republic. Gonzales appealed, saying that as a concessionaire in an American Air Base, he is not subject to Philippine tax laws pursuant to the United States-Philippine Military Bases Agreement. Among other things he also found fault with the CFI's finding of fraud against him in this

incident. He argues that the facts invoked by the lower court do not sufficiently establish the same. Issues: 1. Whether Gonzales was exempt from the payment of income taxes under the US Bases Agreement. 2. Whether the CFIs finding of fraud was correct. Held: 1. No. a. There is nothing in the Agreement that shields a concessionaire from the payment of the income tax. As held in Naguiat v. Araneta and Canlas v. Republic, Article XVIII of the Agreement relied upon by Gonzales deals only with exemption from the licenses, fees and taxes to the right to establish Government agencies, including concessions, and to the merchandise or services sold or dispensed by such agencies. The income tax, which is certainly not on the right to establish agencies or on the merchandise or services sold or dispensed thereby, but on the owner or operator of such agencies, is logically excluded. b. The two cases (Naguiat v. Araneta and Canlas v. Republic) cited by the Supreme Court in the appeal are applicable to this case, even if they involved the income of public utility operators in the Air Base. In Araneta v. Manila Pencil Company, the Supreme Court ruled that operators of freight and bus services are within the meaning of the word "concession" appearing in the Military Bases agreement. Thus Naguiat and Canlas doctrines may be applied to the present case which has a concessionaire as defendant-appellant. 2. Yes. Since fraud is a state of mind, it need not be proved by direct evidence but may be inferred from the circumstances of the case. The failure of Gonzales to declare for taxation purposes his true and actual income derived from his furniture business at the Clark Field Air Base for two consecutive years is an indication of his fraudulent intent to cheat the Government of its due taxes.

Dumlao v. COMELEC Facts: Dumlao was the former governor of Nueva Vizcaya. He has retired from his office and he has been receiving retirement benefits therefrom. He filed for reelection to the same office for the 1980 local elections. On the other hand, BP 52 was passed providing disqualification for the likes of Dumlao. Dumlao assailed the BP averring that it is class legislation hence uncons titutional. His petitioned was joined by Atty. Igot and Salapantan Jt. These two however have different issues. The suits of Igot and Salapantan are more of a taxpayers suit assailing the other provisions of BP 52 regarding the term of office of the elected officials, the length of the campaign and the provision barring persons charged for crimes may not run for public office and that the filing of complaints against them and after preliminary investigation would already disqualify them from office.