G.R. No.

179259

September 25, 2013 REVENUE, Petitioner,

COMMISSIONER OF INTERNAL vs. PHILIPPINE AIRLINES, INC. (PAL), Respondent. DECISION PEREZ, J.:

Taxpayers Service demanding the payment of the total amount ofP326,778,723.35, inclusive of interest, as contained in Assessment Notice No. INC-FY-99-2000-000085. In response thereto, respondent filed its formal written protest on 13 January 2004 reiterating the following defenses:(1) that it is exempt from, or is not subject to, the 2% MCIT by virtue of its charter, Presidential Decree No. (PD) 1590;3 and (2) that the three-year period allowed by law for the BIR to assess deficiency internal revenue taxes for the taxable year ending 31 March 2000 had already lapsed on 15July 2003. Since no final action has been taken by petitioner on respondents formal written protest, respondent filed a Petition for Review before the Second Division of the CTA on 4 August 2004 docketed as CTA Case No.7029. The Ruling of the CTA Second Division In a Decision dated 22 August 2006,4 the CTA Second Division granted respondents petition and accordingly ordered for the cancellation and withdrawal of Assessment Notice No. INC-FY-99-2000-000085 and Formal Letter of Demand for the payment of deficiency MCIT in the amount of P326,778,723.35, covering the fiscal year ending 31 March 2000, issued against respondent. The CTA Second Division made the following factual and legal findings, to wit: (a) Section 13 of PD 1590 acquiring and limiting the extent of the tax liability of respondent under its franchise is coached in a clear, plain and unambiguous manner, and needs no further interpretation or construction; (b) Section 13 clearly provides that respondent is liable only for either the basic corporate income tax based on its annual net taxable income, or the 2% franchise tax based on gross revenue, whichever is lower; (c) Respondent-grantee must only choose between the two alternatives mentioned in Section 13 in the payment of its tax liability to the government, and its choice must be that which will result in a lower tax liability; (d) Since the income tax return of respondent reflected a zero taxable income for the fiscal year ending 31 March 2000,obviously being lower than the 2% franchise tax, its choice of the former is definitely a better alternative as basis for its tax liability to the government;5 (e) The basic corporate income tax mentioned in Section 13 of PD1590 does not refer to the MCIT under Section 27(E) of the NIRC of 1997, as amended, but particularly to the applicable rate of 32% income tax under Section 27(A) of the same Code, on the taxable income of domestic corporations; (f) The MCIT is regarded to belong to "other taxes" as it was not included in the choices provided by the franchise. To hold otherwise would be to give another option to respondent which is evidently not within the ambit of PD 1590;6 (g) The "in lieu of all other taxes" clause under Section 13 of respondents legislative franchise exempts it from all taxes necessary in the conduct of its business covered by the franchise, except the tax on its real property for which respondent is expressly made payable;7 and (h) The rationale or purpose for the exemption from all other taxes except the income tax and real property tax granted to respondent upon the payment of the basic corporate income tax or the 2% franchise tax is that such tax exemption is part of inducement for the acceptance of the franchise and the rendition of public service by the grantee.8 Simply put, it pronounced that the only qualification provided for in the law is the option given to respondent to choose between the taxes which will yield the lesser liability. Thus, if as a result of the exercise of the option, the respondent ends up without any tax liability, it should not be held liable for any other tax, such as the MCIT, except for real property tax.9 On 30 January 2007, the CTA Second Division denied petitioners Motion for Reconsideration for lack of merit.10

Before the Court is a Petition for Review on Certiorari seeking to reverse and set aside the 19 July 2007 Decision1and 23 August 2007 Resolution2 of the Court of Tax Appeals (CTA) En Bane in CTA EB No. 271 which affirmed the cancellation and withdrawal of Assessment Notice No. INC-FY -99-2000000085 and Formal Letter of Demand for the payment by the respondent Philippine Airlines, Inc. (respondent), of deficiency Minimum Corporate Income Tax (MCIT) in the amount of P326,778,723.35, covering the fiscal year ending 31 March 2000. The Facts The factual antecedents of the case are undisputed: Petitioner, the Commissioner of Internal Revenue, has the power to assess and collect national internal revenue taxes, fees, and charges, including the 2% per centum MCIT imposed under Section 27(E) of the National Internal Revenue Code (NIRC) of 1997, as amended. Respondent, on the other hand, is a domestic corporation duly organized and existing under and by virtue of the laws of the Philippines. For the fiscal year that ended 31 March 2000, respondent filed on 17July 2000 its Tentative Corporate Income Tax Return, reflecting a creditable tax withheld for the fourth quarter amounting to P524,957.00, and a zero taxable income for said year. Hence, respondent filed on 16 July 2001 a written claim for refund before the petitioner. As a consequence thereof, respondent received on 10 September 2001the Letter of Authority No. 200000002247 from the Bureau of Internal Revenue (BIR) Large Taxpayers Service, dated 3 September 2001,authorizing the revenue officers named therein to examine respondents books of accounts and other accounting records for the purpose of evaluating respondents "Claim for Refund on Creditable Withholding Tax Income Tax" covering the fiscal year ending 31 March 2000. Numerous correspondences between respondent and the Group Supervisor of the BIR Large Taxpayers Service, the revenue officers examining its accounting records, and the Chief of LT Audit & Investigation Division I of the BIR ensued, particularly as to the submission of various supporting documents and presentation of records. On 16 July 2003, respondent received a "Summary of Creditable Withholding Tax at Source Certified by RAD Fiscal Year Ending March 31,2000," together with a computation labeled "Compromise Penalties for Late Filing of Return." Likewise, on same date, respondent received a letter dated 8 July 2003 issued by the Chief of LT Audit & Investigation Division I, informing the former that the results of the investigation of its claim for refund on creditable withholding tax for fiscal year ending 31 March 2000had already been submitted, and that an informal conference was set on 17July 2003 to be held on the latters office. On 11 August 2003, respondent received from the same revenue officers a computation of their initial deficiency MCIT assessment in the amount of P537,477,867.64. Consequently, respondent received on 20October 2003 a Preliminary Assessment Notice and Details of Assessment issued by the Large Taxpayers Service dated 22 September 2003, assessing respondent deficiency MCIT including interest, in the aggregate amount ofP315,566,368.68. A written protest to said preliminary assessment was filed by respondent on 3 November 2003. Thereafter, on 16 December 2003, respondent received a Formal Letter of Demand and Details of Assessment dated 1 December 2003 from the Large

Aggrieved, petitioner appealed to the CTA En Banc by filing a Petition for Review pursuant to Section 18 of Republic Act (RA) No. 9282(should be RA No. 1125, as amended by RA No. 9282)11 on 1 March 2007,docketed as CTA EB No. 271.12 The Ruling of the CTA En Banc The CTA En Banc affirmed both the aforesaid Decision and Resolution rendered by the CTA Second Division in CTA Case No. 7029,ruling that under Section 13 of PD 1590, respondent, as consideration for the franchise, is indeed granted the privilege to choose between two options in the payment of its tax liability to the government. Naturally, its choice will be that which will result in a lower tax liability since such choice is "in lieu of all other taxes" imposed by all government entities in the country.13 The only exception is the real property tax. The appellate court pointed out that even if respondent opted to be covered by the Income Tax provisions of the NIRC, it does not follow that it is covered by the MCIT provisions of the same Code. There is nothing in PD 1590 which obliges the respondent to pay other taxes, much less the MCIT, in case it suffers a net operating loss. Otherwise, it would negate the tax relief granted under Section 13 of its franchise and would render it useless. The tax relief allows respondent to carry over as a deduction from taxable income any net loss incurred in any year up to five years following the year of such loss.14 Likewise, it elucidated that the MCIT is not the basic corporate income tax referred to in Section 13 of PD 1590. There is a distinction between the MCIT and the basic corporate income tax. The MCIT under Section 27(E)(1) of the NIRC of 1997, as amended, is imposed upon gross income; while the basic corporate income tax refers to the 32% income tax on the taxable income of domestic corporations under Section 27(A) of the same Code. In other words, the court a quo ruled that since the MCIT is imposed upon gross income, it cannot be made to apply to respondent by virtue of the express provision in its franchise that its basic corporate income tax shall be based on its annual net taxable income. Hence, it is in this sense that the MCIT qualifies as "other taxes" from which the respondent had been granted tax exemption by its franchise.15 Moreover, the provision on MCIT, Section 27(E) of the NIRC of 1997, as amended, did not repeal respondents franchise considering that it is a general law which cannot impliedly repeal, alter, or amend PD 1590, being a special law. Neither can Revenue Memorandum Circular (RMC) No. 66-2003 amend respondents franchise as it is merely an administrative issuance. Lastly, there is no provision in RA No. 842416 which provides and specifies that the MCIT shall be in addition to the taxes for which respondent is liable. To rule otherwise would be violative of Section 24 of PD 1590 which states that respondents franchise may only be modified, amended, or repealed expressly by a special law or decree that shall specifically modify, amend or repeal the franchise or any section or provision thereof. Therefore, in the absence of a law expressly repealing PD1590 at the time the subject assessment was issued and for the period covered by the assessment, respondents tax exemption privilege under the "in lieu of all other taxes" clause of Section 13 thereof must be applied. Upon denial of petitioners Motion for Reconsideration of the 19 July2007 Decision of the CTA En Banc, it filed this Petition for Review on Certiorari before this Court seeking the reversal of the aforementioned Decision and the 23 August 2007 Resolution17 rendered in CTA EB No. 271. The Issues The issues submitted before this Court for consideration are as follows: (1) Whether or not the CTA En Banc erred in holding that the MCIT is properly categorized as "other taxes" pursuant to respondents charter; and (2) Whether or not the CTA En Banc erred in ruling that respondent is not liable for the 2% MCIT deficiency for the fiscal year ending 31March 2000.18

The above mentioned issues may be consolidated and restated as follows: whether or not the CTA En Banc erred when it affirmed the cancellation of Assessment Notice No. INC-FY-99-2000-000085 and Formal Letter of Demand issued by petitioner against respondent for the payment of deficiency MCIT in the amount of P326,778,723.35, covering the fiscal year ending 31 March 2000. In support thereof, petitioner submits the following arguments: (a) respondent clearly opted to be covered by the income tax provision of the NIRC of 1997, as amended; hence, it is covered by the MCIT provision of the same Code and liable to pay the same; (b) the MCIT does not belong to the category of "other taxes" which may enable respondent to avail of the "in lieu of all other taxes" clause under Section 13 of PD 1590 because it is a category of an income tax pursuant to Section 27 (E) (1) of the NIRC of 1997,as amended; (c) the MCIT provision of the NIRC of 1997, as amended, is not an amendment of respondents charter, but an amendment of the same Code. Hence, respondents obligation to pay the MCIT is not the result of an implied amendment of PD 1590, but rather, the consequence of respondents option of paying income tax rather than franchise tax; (d) respondent is not only given the privilege to choose between what will give it the benefit of a lower tax, but also the responsibility of paying its share of the tax burden. Otherwise stated, it is the legislative intent to give respondent a privilege in the form of an option in paying its taxes which would result in paying a lower tax liability, but not in dispensing the sharing of a tax burden to which every taxpayer is obligated to bear; and (e) a claim for exemption from taxation is never presumed; thus, respondent is liable for the deficiency MCIT. Respondent, in its Comment thereto, counters among others, that there is nothing in PD 1590 which obliges respondent to pay other taxes, much less the MCIT, in case it suffers a net operating loss. Since the MCIT is not the basic corporate income tax, nor the 2% franchise tax, nor the real property tax mentioned by Section 13 thereof, then it is but logical to conclude that the MCIT belongs to the category of "other taxes" for which respondent is not liable. Our Ruling Respondents exemption from the MCIT is already a settled matter. Section 27 of the NIRC of 1997, as amended, provides as follows: SEC. 27. Rates of Income Tax on Domestic Corporations. (A) In General. Except as otherwise provided in this Code, an income tax of thirty-five percent (35%) is hereby imposed upon the taxable income derived during each taxable year from all sources within and without the Philippines by every corporation, as defined in Section 22(B) of this Code and taxable under this Title as a corporation, organized in, or existing under the law of the Philippines: Provided, That effective January 1, 1998, the rate of income tax shall be thirty-four percent (34%); effective January 1, 1999, the rate shall be thirty-three percent (33%); and effective January 1, 2000 and thereafter, the rate shall be thirty-two percent (32%). xxxx (E) Minimum Corporate Income Tax on Domestic Corporations. (1) Imposition of Tax A minimum corporate income tax of two percent (2%) of the gross income as of the end of the taxable year, as defined herein, is hereby imposed on a corporation taxable under this Title, beginning on the fourth taxable year immediately following the year in which such corporation commenced its business operations, when the minimum income tax is greater than the tax computed under Subsection(A) of this Section for the taxable year. (Emphasis supplied) Based on the foregoing, a domestic corporation must pay whichever is the higher of: (1) the income tax under Section 27(A) of the NIRC of 1997,as amended, computed by applying the tax rate therein to the taxable income of the corporation; or (2) the MCIT under Section 27(E), also of the same Code, equivalent to 2% of the gross income of the corporation. The Court

would like to underscore that although this may be the general rule in determining the income tax due from a domestic corporation under the provisions of the NIRC of 1997, as amended, such rule can only be applied to respondent only as to the extent allowed by the provisions of its franchise. Relevant thereto, PD 1590, the franchise of respondent, contains the following pertinent provisions governing its taxation: Section 13. In consideration of the franchise and rights hereby granted, the grantee shall pay to the Philippine Government during the life of this franchise whichever of subsections (a) and (b) hereunder will result in a lower tax: (a) The basic corporate income tax based on the grantees annual net taxable income computed in accordance with the provisions of the National Internal Revenue Code; or (b) A franchise tax of two per cent (2%) of the gross revenues derived by the grantee from all sources, without distinction as to transport or non transport operations; provided, that with respect to international air-transport service, only the gross passenger, mail, and freight revenues from its outgoing flights shall be subject to this tax. The tax paid by the grantee under either of the above alternatives shall be in lieu of all other taxes, duties, royalties, registration, license, and other fees and charges of any kind, nature, or description, imposed, levied, established, assessed, or collected by any municipal, city, provincial, or national authority or government agency, now or in the future, including but not limited to the following: xxxx The grantee, shall, however, pay the tax on its real property in conformity with existing law. For purposes of computing the basic corporate income tax as provided herein, the grantee is authorized: (a) To depreciate its assets to the extent of not more than twice as fast the normal rate of depreciation; and (b) To carry over as a deduction from taxable income any net loss incurred in any year up to five years following the year of such loss. Section 14. The grantee shall pay either the franchise tax or the basic corporate income tax on quarterly basis to the Commissioner of Internal Revenue. Within sixty (60) days after the end of each of the first three quarters of the taxable calendar or fiscal year, the quarterly franchise or income-tax return shall be filed and payment of either the franchise or income tax shall be made by the grantee. A final or an adjustment return covering the operation of the grantee for the preceding calendar or fiscal year shall be filed on or before the fifteenth day of the fourth month following the close of the calendar or fiscal year. The amount of the fiscal franchise or income tax to be paid by the grantee shall be the balance of the total franchise or income tax shown in the final or adjustment return after deducting therefrom the total quarterly franchise or income taxes already paid during the preceding first three quarters of the same taxable year. Any excess of the total quarterly payments over the actual annual franchise of income tax due as shown in the final or adjustment franchise or incometax return shall either be refunded to the grantee or credited against the grantees quarterly franchise or income-tax liability for the succeeding taxable year or years at the option of the grantee. The term "gross revenue" is herein defined as the total gross income earned by the grantee; (a) transport, nontransport, and other services; (b) earnings realized from investments in money-market placements, bank deposits, investments in shares of stock and other securities, and other investments; (c) total gains net of total losses realized from the disposition of assets and

foreign-exchange transactions; and (d) gross income from other sources. (Emphasis supplied) From the foregoing provisions, during the lifetime of the franchise of respondent, its taxation shall be strictly governed by two fundamental rules, to wit: (1) respondent shall pay the Government either the basic corporate income tax or franchise tax, whichever is lower; and (2) the tax paid by respondent, under either of these alternatives, shall be in lieu of all other taxes, duties, royalties, registration, license, and other fees and charges, except only real property tax. Parenthetically, the basic corporate income tax of respondent shall be based on its annual net taxable income, computed in accordance with the NIRC of 1997, as amended. PD 1590 also explicitly authorizes respondent, in the computation of its basic corporate income tax, to: (1) depreciate its assets twice as fast the normal rate of depreciation;19 and (2) carry over deduction from taxable income any net loss incurred in any year up to five years following the year of such loss.20 The franchise tax, on the other hand, shall be 2% of the gross revenues derived by respondent from all sources, whether transport or nontransport operations. However, with respect to international air-transport service, the franchise tax shall only be imposed on the gross passenger, mail, and freight revenues of respondent from its outgoing flights.21 Accordingly, considering the foregoing precepts, this Court had the opportunity to finally settle this matter and categorically enunciated in Commissioner of Internal Revenue v. Philippine Airlines, Inc.,22 that respondent cannot be subjected to MCIT for the following reasons: First, Section 13(a) of [PD] 1590 refers to "basic corporate income tax." In Commissioner of Internal Revenue v. Philippine Airlines, Inc.,23 the Court already settled that the "basic corporate income tax, "under Section 13(a) of [PD] 1590, relates to the general rate of 35%(reduced to 32% by the year 2000) as stipulated in Section 27(A) of the NIRC of 1997. Section 13(a) of [PD] 1590 requires that the basic corporate income tax be computed in accordance with the NIRC. This means that PAL shall compute its basic corporate income tax using the rate and basis prescribed by the NIRC of 1997 for the said tax. There is nothing in Section 13(a) of [PD] 1590 to support the contention of the CIR that PAL is subject to the entire Title II of the NIRC of 1997, entitled "Tax on Income." Second, Section 13(a) of Presidential Decree No. 1590 further provides that the basic corporate income tax of PAL shall be based on its annual net taxable income. This is consistent with Section 27(A) of the NIRC of 1997, which provides that the rate of basic corporate income tax, which is 32% beginning 1 January 2000, shall be imposed on the taxable income of the domestic corporation. Taxable income is defined under Section 31 of the NIRC of 1997as the pertinent items of gross income specified in the said Code, less the deductions and/or personal and additional exemptions, if any, authorized for such types of income by the same Code or other special laws. The gross income, referred to in Section 31, is described in Section32 of the NIRC of 1997 as income from whatever source, including compensation for services; the conduct of trade or business or the exercise of profession; dealings in property; interests; rents; royalties; dividends; annuities; prizes and winnings; pensions; and a partners distributive share in the net income of a general professional partnership. Pursuant to the NIRC of 1997, the taxable income of a domestic corporation may be arrived at by subtracting from gross income deductions authorized, not just by the NIRC of 1997, but also by special laws. [PD] 1590 may be considered as one of such special laws authorizing PAL, in computing its annual net taxable income, on which its basic corporate income tax shall be based, to deduct from its gross income the following: (1) depreciation of assets at twice the normal rate; and (2) net loss carry-over up to five years following the year of such loss.

In comparison, the 2% MCIT under Section 27 (E) of the NIRC of 1997 shall be based on the gross income of the domestic corporation. The Court notes that gross income, as the basis for MCIT, is given a special definition under Section 27(E) (4) of the NIRC of 1997, different from the general one under Section 34 of the same Code. According to the last paragraph of Section 27 (E) (4) of the NIRC of 1997, gross income of a domestic corporation engaged in the sale of service means gross receipts, less sales returns, allowances, discounts and cost of services. "Cost of services" refers to all direct costs and expenses necessarily incurred to provide the services required by the customers and clients including (a) salaries and employee benefits of personnel, consultants, and specialists directly rendering the service; and (b) cost of facilities directly utilized in providing the service, such as depreciation or rental of equipment used and cost of supplies. Noticeably, inclusions in and exclusions/deductions from gross income for MCIT purposes are limited to those directly arising from the conduct of the taxpayers business. It is, thus, more limited than the gross income used in the computation of basic corporate income tax. In light of the foregoing, there is an apparent distinction under the NIRC of 1997 between taxable income, which is the basis for basic corporate income tax under Section 27(A); and gross income, which is the basis for the MCIT under Section 27(E). The two terms have their respective technical meanings, and cannot be used interchangeably. The same reasons prevent this Court from declaring that the basic corporate income tax, for which PAL is liable under Section 13(a) of [PD] 1590, also covers MCIT under Section 27(E) of the NIRC of 1997, since the basis for the first is the annual net taxable income, while the basis for the second is gross income. Third, even if the basic corporate income tax and the MCIT are both income taxes under Section 27 of the NIRC of 1997, and one is paid in place of the other, the two are distinct and separate taxes. The Court again cites Commissioner of Internal Revenue v. Philippine Airlines, Inc.,24 wherein it held that income tax on the passive income of a domestic corporation, under Section 27(D) of the NIRC of 1997, is different from the basic corporate income tax on the taxable income of a domestic corporation, imposed by Section 27(A), also of the NIRC of 1997. Section 13 of [PD] 1590 gives PAL the option to pay basic corporate income tax or franchise tax, whichever is lower; and the tax so paid shall be in lieu of all other taxes, except real property tax. The income tax on the passive income of PAL falls within the category of "allot her taxes" from which PAL is exempted, and which, if already collected, should be refunded to PAL. The Court herein treats MCIT in much the same way. Although both are income taxes, the MCIT is different from the basic corporate income tax, not just in the rates, but also in the bases for their computation. Not being covered by Section 13(a) of [PD] 1590,which makes PAL liable only for basic corporate income tax, then MCIT is included in "all other taxes" from which PAL is exempted. That, under general circumstances, the MCIT is paid in place of the basic corporate income tax, when the former is higher than the latter, does not mean that these two income taxes are one and the same. The said taxes are merely paid in the alternative, giving the Government the opportunity to collect the higher amount between the two. The situation is not much different from Section 13 of [PD] 1590, which reversely allows PAL to pay, whichever is lower of the basic corporate income tax or the franchise tax. It does not make the basic corporate income tax in distinguishable from the franchise tax. Given the fundamental differences between the basic corporate income tax and the MCIT, presented in the preceding discussion, it is not baseless for this Court to rule that, pursuant to the franchise of PAL, said corporation is subject to the first tax, yet exempted from the second. Fourth, the evident intent of Section 13 of [PD] 1520 (sic) is to extend to PAL tax concessions not ordinarily available to other domestic corporations. Section 13 of [PD] 1520 (sic) permits PAL to pay whichever is lower of the basic corporate income tax or the franchise tax; and the tax so paid shall be

in lieu of all other taxes, except only real property tax. Hence, under its franchise, PAL is to pay the least amount of tax possible. Section 13 of [PD] 1520 (sic) is not unusual. A public utility is granted special tax treatment (including tax exceptions/exemptions) under its franchise, as an inducement for the acceptance of the franchise and the rendition of public service by the said public utility. In this case, in addition to being a public utility providing air-transport service, PAL is also the official flag carrier of the country. The imposition of MCIT on PAL, as the CIR insists, would result in a situation that contravenes the objective of Section 13 of [PD] 1590. In effect, PAL would not just have two, but three tax alternatives, namely, the basic corporate income tax, MCIT, or franchise tax. More troublesome is the fact that, as between the basic corporate income tax and the MCIT, PAL shall be made to pay whichever is higher, irrefragably, in violation of the avowed intention of Section 13 of [PD] 1590 to make PAL pay for the lower amount of tax. Fifth, the CIR posits that PAL may not invoke in the instant case the "in lieu of all other taxes" clause in Section 13 of [PD] No. 1520 (sic),if it did not pay anything at all as basic corporate income tax or franchise tax. As a result, PAL should be made liable for "other taxes" such as MCIT. This line of reasoning has been dubbed as the Substitution Theory, and this is not the first time the CIR raised the same. The Court already rejected the Substitution Theory in Commissioner of Internal Revenue v. Philippine Airlines, Inc.,25 to wit: "Substitution of the CIR Untenable Theory"

A careful reading of Section 13 rebuts the argument of the CIR that the "in lieu of all other taxes "proviso is a mere incentive that applies only when PAL actually pays something. It is clear that PD 1590 intended to give respondent the option to avail itself of Subsection (a) or (b) as consideration for its franchise. Either option excludes the payment of other taxes and dues imposed or collected by the national or the local government. PAL has the option to choose the alternative that results in lower taxes. It is not the fact of tax payment that exempts it, but the exercise of its option. Under Subsection (a), the basis for the tax rate is respondents annual net taxable income, which (as earlier discussed) is computed by subtracting allowable deductions and exemptions from gross income. By basing the tax rate on the annual net taxable income, PD 1590 necessarily recognized the situation in which taxable income may result in a negative amount and thus translate into a zero tax liability. Notably, PAL was owned and operated by the government at the time the franchise was last amended. It can reasonably be contemplated that PD 1590 sought to assist the finances of the government corporation in the form of lower taxes. When respondent operates at a loss(as in the instant case), no taxes are due; in this instances, it has a lower tax liability than that provided by Subsection (b). The fallacy of the CIRs argument is evident from the fact that the payment of a measly sum of one peso would suffice to exempt PAL from other taxes, whereas a zero liability arising from its losses would not. There is no substantial distinction between a zero tax and a one-peso tax liability. (Emphasis theirs) Based on the same ratiocination, the Court finds the Substitution Theory unacceptable in the present Petition. The CIR alludes as well to Republic Act No. 9337, for reasons similar to those behind the Substitution Theory. Section 22 of Republic Act No. 9337, more popularly known as the Expanded Value Added Tax(E-VAT) Law, abolished the franchise tax imposed by the charters of particularly identified public utilities, including [PD] 1590 of PAL. PAL may no longer exercise its options or alternatives under Section 13 of [PD] 1590, and is now liable for both

corporate income tax and the 12% VAT on its sale of services. The CIR alleges that Republic Act No. 9337reveals the intention of the Legislature to make PAL share the tax burden of other domestic corporations. The CIR seems to lose sight of the fact that the Petition at bar involves the liability of PAL for MCIT for the fiscal year ending 31March 2001. Republic Act No. 9337, which took effect on 1 July 2005,cannot be applied retroactively and any amendment introduced by said statute affecting the taxation of PAL is immaterial in the present case. And sixth, [PD] 1590 explicitly allows PAL, in computing its basic corporate income tax, to carry over as deduction any net loss incurred in any year, up to five years following the year of such loss. Therefore, [PD] 1590 does not only consider the possibility that, at the end of a taxable period, PAL shall end up with zero annual net taxable income (when its deductions exactly equal its gross income), as what happened in the case at bar, but also the likelihood that PAL shall incur net loss (when its deductions exceed its gross income). If PAL is subjected to MCIT, the provision in [PD] 1590 on net loss carry-over will be rendered nugatory. Net loss carry-over is material only in computing the annual net taxable income to be used as basis for the basic corporate income tax of PAL; but PAL will never be able to avail itself of the basic corporate income tax option when it is in a net loss position, because it will always then be compelled to pay the necessarily higher MCIT. Consequently, the insistence of the CIR to subject PAL to MCIT cannot be done without contravening [PD] 1520 (sic). Between [PD] 1520 (sic), on one hand, which is a special law specifically governing the franchise of PAL, issued on 11 June 1978;and the NIRC of 1997, on the other, which is a general law on national internal revenue taxes, that took effect on 1 January 1998, the former prevails. The rule is that on a specific matter, the special law shall prevail over the general law, which shall be resorted to 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 is general creates a presumption that the special is to be considered as remaining an exception to the general, one as a general law of the land, the other as the law of a particular case. It is a canon of statutory construction that a later statute, general in its terms and not expressly repealing a prior special statute, will ordinarily not affect the special provisions of such earlier statute. xxxx The MCIT was a new tax introduced by Republic Act No.8424. Under the doctrine of strict interpretation, the burden is upon the CIR to primarily prove that the new MCIT provisions of the NIRC of 1997, clearly, expressly, and unambiguously extend and apply to PAL, despite the latters existing tax exemption. To do this, the CIR must convince the Court that the MCIT is a basic corporate income tax, and is not covered by the "in lieu of all other taxes" clause of [PD] 1590. Since the CIR failed in this regard, the Court is left with no choice but to consider the MCIT as one of "all other taxes," from which PAL is exempt under the explicit provisions of its charter. (Emphasis supplied) Based on the foregoing pronouncements, it is clear that respondent is exempt from the MCIT imposed under Section 27(E) of the NIRC of 1997,as amended. Thus, respondent cannot be held liable for the assessed deficiency MCIT of P326,778,723.35 for fiscal year ending 31 March 2000.1wphi1 More importantly, as to petitioners contention that respondent needs to actually pay a certain amount as basic corporate income tax or franchise tax before it can enjoy the tax exemption granted to it since it should retain the responsibility of paying its share of the tax burden, this Court has categorically ruled in the above-cited cases that it is not the fact of tax payment that exempts it, but the exercise of its option.. Notably, in another case involving the same parties,26 the Court further expressed that a strict interpretation of the word "pay" in Section 13of PD 1590 would effectively render nugatory the other rights categorically

conferred upon the respondent by its franchise. Hence, there being no qualification to the exercise of its options under Section 13, then respondent is free to choose basic corporate income tax, even if it would have zero liability for the same in light of its net loss position for the taxable year. By way of, reiteration, although it appears that respondent is not completely exempt from all forms of taxes under PD 1590 considering that Section 13 thereof requires it to pay, either the lower amount of the basic corporate income tax or franchise tax (which are both direct taxes), at its option, mere exercise of such option already relieves respondent of liability for all other taxes and/or duties, whether direct or indirect taxes. This is an expression of the same thought in Our ruling that, to repeat, it is not the fact of tax payment that exempts it, but the exercise of its option. All told, the CTA En Bane was correct in dismissing the petition in CTA EB No. 271, and affirming the CTA Second Division's Decision and Resolution dated 22 August 2006 and 30 January 2007, respectively, in CTA Case No. 7029. WHEREFORE, the petition is DENIED for lack of merit. No costs. SO ORDERED.

G.R. Nos. 167274-75

September 11, 2013 REVENUE, Petitioner,

COMMISSIONER OF INTERNAL vs. FORTUNE TOBACCO CORPORATION, Respondent. x-----------------------x G.R. No. 192576

FORTUNE TOBACCO CORPORATION, Petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, Respondent. DECISION VELASCO, JR., J.: Fortune Tobacco Corporation (FTC), as petitioner in G.R. No. 192576,1 assails and seeks the reversal of the Decision of the Court of Tax Appeals (CTA) En Banc dated March 12, 2010, as effectively reiterated in a Resolution of June 11, 2010, both rendered in C.T.A. EB No. 530 entitled Fortune Tobacco Corporation v. Commissioner of Internal Revenue. The assailed issuances affirmed the Resolution of the CTA First Division dated June 4, 2009, denying the Motion for Issuance of Additional Writ of Execution filed by herein petitioner in CTA Case Nos. 6365, 6383 & 6612, and the Resolution dated August 10, 2009 which denied its Motion for Reconsideration. The present appellate proceedings traces its origin from and finds context in the July 21, 2008 Decision2 of the Court in G.R. Nos. 167274-75, an appeal thereto interposed by the Commissioner of Internal Revenue (BIR Commissioner) from the consolidated Decision and Resolution issued by the Court of Appeals on September 28, 2004 and March 1, 2005, respectively, in CA-G.R. SP Nos. 80675 and 83165. The decretal part of the July 21, 2008 Decision reads: WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA G.R. SP No. 80675, dated 28 September 2004,and its Resolution, dated 1 March 2005, are AFFIRMED. No pronouncement as to costs. SO ORDERED.3 (Emphasis supplied.) The antecedent facts, as summarized by the CTA in its adverted March 12, 2010 Decision, are as follows: FTC (herein petitioner Fortune Tobacco Corporation) is engaged in manufacturing or producing cigarette brands with tax rate classification based on net retail price prescribed as follows:

Brand Champion M 100 Salem M 100 Salem M King Camel F King Camel Lights Box 20s Camel Filters Box 20s Winston F King Winston Lights

Tax Rate P1.00 P1.00 P1.00 P1.00 P1.00 P1.00 P5.00 P5.00

January 1, 2000 to February 7, 2000 January 31, 2000

P35,651,410.00

February 1, 2000 Various claims filed from P644,735,615.00 to December 31, March 21, 2000 2001 January 28, 2002 January 1, 2002 to February 3, 2003 December 31, 2002 (CTA En Annex "A," Petition, pp. 2-4) Banc P355,385,920.00

Decision,

2. Since the claim for refund was not acted upon, petitioner filed on December 11, 2001 and January 30, 2002, respectively, Petitions for Review before the Court of Tax Appeals (CTA) docketed as CTA Case Nos. 6365 and 6383 questioning the validity of Revenue Regulations No.17-99 with claims for refund in the amounts P35,651,410.00 and P644,735,615.00, respectively. These amounts represented overpaid excise taxes for the periods from January 1, 2000 to January 31, 2000 and February 1, 2000 to December 31, 2001, respectively (Ibid., pp. 4-5). 3. In separate Decision dated October 21, 2002, the CTA in Division ordered the Commissioner of Internal Revenue (respondent herein) to refund to petitioner the erroneously paid excise taxes in the amounts ofP35,651,410.00 for the period covering January 1, 2000 to January 31, 2000 (CTA Case No. 6365) andP644,735,615.00 for the period February 1, 2000 to December 31, 2001 (CTA Case No.6383) (Ibid.). 4. Respondent filed a motion for reconsideration of the Decision dated October 21, 2002 covering CTA Case Nos. 6365 and 6383which was granted in the Resolution dated July 15, 2003. 5. Subsequently, petitioner filed another petition docketed as CTA Case No. 6612 questioning the validity of Revenue Regulations No.17-99 with a prayer for the refund of overpaid excise tax amounting toP355,385,920.00, covering the period from January 1, 2002 to December 31, 2002 (Ibid., p. 5). 6. Petitioner thereafter filed a consolidated Motion for Reconsideration of the Resolution dated July 15, 2003 (Ibid., pp. 5-6). 7. The CTA in Division issued Resolution dated November 4,2003 which reversed the Resolution dated July 15, 2003 and ordered respondent to refund to petitioner the amounts of 35,651,410.00 for the period covering January 1 to January 31, 2000 and P644,735,615.00 for the period covering February 1, 2000 to December 31, 2001, or in the aggregate amount of P680,387,025.00, representing erroneously paid excise taxes (Ibid., p. 6). 8. In its Decision dated December 4, 2003, the CTA in Division in Case No. 6612 declared RR No. 17-99 invalid and contrary to Section 145 of the 1997 National Internal Revenue Code (NIRC). The Court ordered respondent to refund to petitioner the amount of P355,385,920.00 representing overpaid excise taxes for the period covering January 1, 2002 to December 21, 2002 (Ibid.) 9. Respondent filed a motion for reconsideration of the Decision dated December 4, 2003 but this was denied in the Resolution dated March 17, 2004 (Ibid.) 10. On December 10, 2003, respondent Commissioner filed a Petition for Review with the Court of Appeals (CA) questioning the CTA Resolution dated November 4, 2003 which was issued in CTA Case Nos. 6365 and 6383. The case was docketed as CA-G.R. SP No.80675 (Ibid.). 11. On April 28, 2004, respondent Commissioner filed another appeal before the CA questioning the CTA Decision dated December 4, 2003 issued in CTA Case No. 6612. The case was docketed as CA-G.R. SP No. 83165 (Ibid., p. 7).

Prior to January 1, 1997, the aforesaid cigarette brands were subject to advalorem tax under Section 142 of the 1977 Tax Code, as amended. However, upon the effectivity of Republic Act (R.A.) No. 8240on January 1, 1997, a shift from ad valorem tax system to the specific tax system was adopted imposing excise taxes on cigarette brands under Section 142 thereof, now renumbered as Section 145 of the 1997 Tax Code, stating the following pertinent provision: The excise tax from any brand of cigarettes within the next three (3) years from the effectivity of R.A. No. 8240 shall not be lower than the tax, which is due from each brand on October 1, 1996. x x x The rates of excise tax on cigars and cigarettes under paragraphs (1), (2), (3) and (4) hereof, shall be increased by twelve percent (12%) on January 1, 2000. Upon the Commissioners recommendation, the Secretary of Finance, issued Revenue Regulations (RR) No. 17-99 dated December 16,1999 for the purpose of implementing the provision for a 12% increase of excise tax on, among others, cigars and cigarettes packed by machines by January 1, 2000. RR No. 17-99 provides that the new specific tax rate for any existing brand of cigars, cigarettes packed by machine x x x shall not be lower than the excise tax that is actually being paid prior to January 1, 2000. FTC paid excise taxes on all its cigarettes manufactured and removed from its place of production for the following period: PERIOD PAYMENT

January 1, 2000 to P585,705,250.00 January 31, 2000 February 1, 2000 to P19,366,783,535.00 December 31, 2001 January 1, 2002 to P11,359,578,560.00 December 31, 2002 FTC subsequently sought administrative redress for refund before the Commissioner on the following dates: PERIOD ADMINISTRATIVE FILING OF CLAIM AMOUNT CLAIMED

12. Thereafter, petitioner filed a Consolidated Motion for Execution Pending Appeal before the CTA for CTA Case Nos. 6365 and 6383 and an Amended Motion for Execution Pending Appeal for CTA Case No. 6612 (Ibid.). 13. The motions were denied in the CTA Resolutions dated August 2, 2004 and August 3, 2004, respectively. The CTA in Division pointed out that Section 12, Rule 43 of the1997 Rules of Civil Procedure should be interpreted with Section 18 of R.A. 1125 which provides that CTA rulings become final and conclusive only where there is no perfected appeal. Considering that respondent filed an appeal with the CA, the CTA in Divisions rulings granting the amounts of P355,385,920.00 and P680,387,025.00 were not yet final and executory (Ibid.). 14. In the consolidated CA Decision dated September 28,2004 issued in CAG.R. SP Nos. 80675 (CTA Case Nos. 6365 and6383) and 83165 (CTA Case No. 6612), the appellate court denied respondents petitions and affirmed petitioners refund claims in the amounts of P680,387,025.00 (CTA Case Nos. 6365 and 6383) andP355,385,920.00 (CTA Case No. 6612), respectively (Ibid., p. 8). 15. Respondent filed a motion for reconsideration of the CA Decision dated September 28, 2004 but this was denied in the CAs Resolution dated March 1, 2005 (Ibid.). 16. Respondent, filed a Petition for Review on Certiorari docketed as G.R. Nos. 167274-75 on May 4, 2005 before the Honorable Court. On June 22, 2005, a Supplemental Petition for Review was filed and the petitions were consolidated (Ibid.). 17. In its Decision dated July 21, 2008 in G.R. Nos. 167274-75, the Honorable Court affirmed the findings of the CA granting petitioners claim for refund. The dispositive portion of said Decision reads: WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. SP No.80675, dated 28 September 2004, and its Resolution, dated 1 March 2005, are AFFIRMED. No pronouncement as to costs. SO ORDERED. Commissioner Revenue Corporation, (2008) of vs. 559 Fortune SCRA Internal Tobacco 160

the amounts of P35,651,410.00 (C.T.A Case No. 6365) and P644,735,615.00 (C.T.A Case No. 6383) or a total ofP680,387,025.00 representing petitioners erroneously paid excise taxes for the periods January 1-31, 2000 and February 1, 2000 to December 31, 2001,respectively under CA G.R. SP No. 80675 (C.T.A. Case No. 6365 and C.T.A. Case No. 6383). (CTA Resolution 2009, pp. 2-3) dated 1st June Division 04,

20. On April 21, 2009, petitioner filed a motion for the issuance of an additional writ of execution praying that the CTA order the Commissioner of Internal Revenue to pay petitioner the amount of Three Hundred Fifty-Five Million Three Hundred Eighty Five Thousand Nine Hundred Twenty Pesos (P355,385,920.00) representing the amount of tax to be refunded in C.T.A. Case No. 6612 under its Decision dated December 4, 2003 and affirmed by the Honorable Court in its Decision dated July 21, 2008 (Petition, p. 12, CTA Decision dated March 12, 2010, supra, p. 10). 21. In the CTA Resolution dated June 4, 2009, the CTA denied petitioners Motion for the Issuance of Additional Writ of Execution (Ibid., p. 11). 22. Petitioner filed a motion for reconsideration of the Resolution dated June 4, 2009, but this was denied in the CTA Resolution dated August 10, 2009 (Ibid.). The dispositive portion of the Resolution reads: WHEREFORE, premises considered, the instant" Motion for Reconsideration" is hereby DENIED for lack of merit. 23. Aggrieved by the Decision, petitioner filed a petition for review before the CTA En Banc docketed as CTA EB Case No. 530,raising the following arguments, to wit: The Honorable Court of Tax Appeals seriously erred contrary to law and jurisprudence when it held in the assailed decision and resolution that petitioner Fortune Tobacco Corporation is not entitled to the writ of execution covering the decision in CTA Case No. 6612. The Decision of the Court of Tax Appeals in CTA Case Nos. 6365, 6383 and 6612 has become final and executory. The Decision of the Honorable Supreme Court in GR Nos. 167274-75 covers both CA GR SP No. 80675 and 83165. 24. The CTA En Banc, in the Decision dated March 12, 2010,dismissed said petition for review. The dispositive portion of said Decision reads: WHEREFORE, premises considered, the Petition for Review is DISMISSED. The Resolutions dated June 4,2009 and August 10, 2009 are AFFIRMED. SO ORDERED. (Annex "A," Petition, p. 16) 25. Petitioner filed a Motion for Leave to file Motion for Reconsideration with attached Motion for Reconsideration but this was denied in the CTA En Bancs Resolution dated June 11, 2010. The dispositive portion of said Resolution reads: WHEREFORE, premises considered, petitioners Motion for Leave to file attached Motion for Reconsideration and its Motion for Reconsideration are hereby DENIED for lack of merit. SO ORDERED.4 (Emphasis supplied.) Undeterred by the rebuff from the CTA, petitioner FTC has come to this Court via a petition for review, the recourse docketed as G.R. 192576,thereat praying in essence that an order issue (a) directing the CTA to issue an additional writ of execution directing the Bureau of Internal Revenue(BIR) to pay FTC the amount of tax refund (P355,385,920.00) as adjudged in CTA Case

18. On January 23, 2009, petitioner filed a motion for execution praying for the issuance of a writ of execution of the Decision of the Honorable Court in G.R. Nos. 167274-75 dated July 21, 2008 which was recorded in the Book of Entries of Judgments on November 6, 2008(Ibid., p. 10). Petitioners prayer was for the CTA to order the BIR to pay/refund the amounts adjudged by the CTA, as follows: a) CTA Case No. 6612 under the Decision 04 December 2003 the amount of Three Hundred Fifty Five Million Three Hundred Eighty Five Thousand Nine Hundred Twenty Pesos (P355,385,920.00). b) CTA Case Nos. 6365 and 6383 under the Decisions dated 21 October 2002 and Resolution dated 04 November 2003 the amount of Six Hundred Eighty Million Three Hundred Eighty Seven Thousand Twenty Five Pesos (P680,387,025.00). (Petition, p. 11) 19. On April 14, 2009, the CTA issued a Writ of Execution, which reads: You are hereby ORDERED TO REFUND in favor of the petitioner FORTUNE TOBACCO CORPORATION, pursuant to the Supreme Court Decision in the above-entitled case (SC G.R. 167274-75),dated July 21, 2008, which has become final and executory on November 6, 2008, by virtue of the Entry of Judgment by the Supreme Court on said dated, which reads as follows: xxxx

No. 6612 and (b) clarifying that the Courts Decision in G.R. Nos. 167274-75 applies to the affirmatory ruling of the CA in CA G.R. SP80675 and CA G.R. SP No. 83165. FTC predicates its instant petition on two (2) stated grounds, viz.: I The Decision of the Honorable Supreme Court in S.C. GR Nos.167274-75, which has become final and executory, affirmed the Decision of the Court of Tax Appeals in CTA Case Nos. 6365, 6383 and 6612 and to the Decision of the Court of Appeals in CA G.R. SP No. 80675 and CAG.R. SP No. 83165. II The writ of execution prayed for and pertaining to CTA Case No.6612 and CA G.R. SP No. 83165 is consistent with the decision of the Supreme Court in GR Nos. 167274-75. The petition is meritorious. But before delving on the merits of this recourse, certain undisputed predicates have to be laid and basic premises restated to explain the consolidation of G.R. Nos. 167274-75 and G.R. No.192576, thus: 1. As may be recalled, FTC filed before the CTA three (3) separate petitions for refund covering three different periods involving varying amounts as hereunder indicated: a) CTA Case No. 6365 (Jan. 1 to Jan. 31, 2000) for P35,651,410.00; b) CTA Case No. 6383 (Feb. 1, 2000 to Dec. 31, 2001) for P644,735,615.00; and c) CTA Case No. 6612 (Jan. 1 to Dec. 31, 2002) for 355,385,92 In three (3) separate decisions/resolutions, the CTA found the claims for refund for the amounts aforestated valid and thus ordered the payment thereof. 2. From the adverse ruling of the CTA in the three (3) cases, the BIR Commissioner went to the CA on a petition for review assailing in CA-G.R.SP No. 80675 the CTA decision/resolution pertaining to consolidated CTA Case Nos. 6365 & 6383. A similar petition, docketed as CA G.R. SP No.83165, was subsequently filed assailing the CTA decision/resolution on CTA Case No. 6612. 3. Eventually, the CA, by Decision dated September 4, 2004, denied the Commissioners consolidated petition for review. The appellate Court also denied the Commissioners motion for reconsideration on March 1,2005. 4. It is upon the foregoing state of things that the Commissioner came to this Court in G.R. Nos. 167274-75 to defeat FTCs claim for refund thus granted initially by the CTA and then by the CA in CA-G.R. SP No. 80675and CA-G.R. SP No. 83165. By Decision dated July 21, 2008, the Court found against the Commissioner, disposing as follows: WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA G.R. SP No. 80675, dated 28 September 2004,and its Resolution, dated 1 March 2005, are AFFIRMED. No pronouncement as to costs. SO ORDERED.5 (Emphasis supplied.) From the foregoing narration, two critical facts are at once apparent. First , the BIR Commissioner came to this Court on a petition for review in G.R. Nos. 167274-75 to set aside the consolidated decision of the CA in CA-G.R. SP No. 80675 and CA-G.R. SP No. 83165. Second, while the Courts Decision dated July 21, 2008 in G.R. Nos. 167274-75 denied the Commissioners petition for review, necessarily implying that the CAs appealed consolidated decision is affirmed in toto, the fallo of that decidendi makes no mention or even alludes to the appealed CA decision in CA-G.R. No. 83165, albeit the main decisions recital of facts made particular reference to that appealed CA decision. In fine, there exists an apparent in consistency between the

dispositive portion and the body of the main decision, which ideally should have been addressed before the finality of the said decision. Owing to the foregoing aberration, but cognizant of the fact that the process of clarifying the dispositive portion in G.R. Nos. 167274-75 should be acted upon in the main case, the Court, by Resolution6 dated February 25,2013 ordered the consolidation of this petition (G.R. No. 192576) with G.R. Nos. 167274-75, to be assigned to any of the members of the Division who participated in the rendition of the decision. Now to the crux of the controversy. Petitioner FTC posits that the CTA should have issued the desired additional writ of execution in CTA Case No. 6612 since the body of the Decision of this Court in G.R. Nos. 167274-75 encompasses both CA G.R. Case No. 80675 which covers CTA Case Nos. 6365 and 6383 and CA G.R. Case No. 83165 which embraces CTA Case No. 6612. While the fallo of the Decision dated July 21, 2008 in G.R. Case Nos. 167274-75 did not indeed specifically mention CA G.R. SP No. 83165, petitioner FTC would nonetheless maintain that such a slip is but an inadvertent omission in the fallo. For the text of the July 21, 2008 Decision, FTC adds, clearly reveals that said CA case was intended to be included in the disposition of the case. Respondent Commissioner, on the other hand, argues that per the CTA, no reversible error may be attributed to the tax court in rejecting, without more, the prayer for the additional writ of execution pertaining to CTA Case No. 6612, subject of CA G.R. SP No. 83165. For the purpose, the Commissioner cited a catena of cases on the limits of a writ of execution. It is pointed out that such writ must conform to the judgment to be executed; its enforcement may not vary the terms of the judgment it seeks to enforce, nor go beyond its terms. As further asseverated, "whatever may be found in the body of the decision can only be considered as part of the reasons or conclusions of the court and while they may serve as guide or enlightenment to determine the ratio decidendi, what is controlling is what appears in the dispositive part of the decision."7 Respondent Commissioners posture on the tenability of the CTAs assailed denial action is correct. As it were, CTA did no more than simply apply established jurisprudence that a writ of execution issued by the court of origin tasked to implement the final decision in the case handled by it cannot go beyond the contents of the dispositive portion of the decision sought to be implemented. The execution of a judgment is purely a ministerial phase of adjudication. The executing court is without power its own, to tinker let alone vary the explicit wordings of the dispositive portion, as couched. But the state of things under the premises ought not to remain uncorrected. And the BIR cannot plausibly raise a valid objection for such approach. That bureau knew where it was coming from when it appealed, first before the CA then to this Court, the award of refund to FTC and the rationale underpinning the award. It cannot plausibly, in all good faith, seek refuge on the basis of slip on the formulation of the fallo of a decision to evade a duty. On the other hand, FTC has discharged its burden of establishing its entitlement to the tax refund in the total amount indicated in its underlying petitions for refund filed with the CTA. The successive favorable rulings of the tax court, the appellate court and finally this Court in G.R. Nos. 167274-75 say as much. Accordingly, the Court, in the higher interest of justice and orderly proceedings should make the corresponding clarification on the fallo of its July 21, 2008 Decision in G.R. Case Nos.162274-75. It is an established rule that when the dispositive portion of a judgment, which has meanwhile become final and executory, contains a clerical error or an ambiguity arising from a inadvertent omission, such error or ambiguity may be clarified by reference to the body of the decision itself. After a scrutiny of the body of the aforesaid July 21, 2008 Decision, the Court finds it necessary to render a judgment nunc pro tunc and address an error in the fallo of said decision. The office of a judgment nunc pro tunc is to record some act of the court done at a former time which was not then carried into the record, and the power of a court to make such entries is restricted to placing upon the record evidence of judicial action which has actually been taken.9 The object of a judgment nunc pro tunc is not the rendering of a new

judgment and the ascertainment and determination of new rights, but is one placing in proper form on the record, that has been previously rendered, to make it speak the truth, so as to make it show what the judicial action really was, not to correct judicial errors, such as to render a judgment which the court ought to have rendered, in place of the one it did erroneously render, not to supply non-action by the court, however erroneous the judgment may have been.10The Court would thus have the record reflect the deliberations and discussions had on the issue. In this particular case it is a correction of a clerical, not a judicial error. The body of the decision in question is clear proof that the fallo must be corrected, to properly convey the ruling of this Court. We thus declare that the dispositive portion of said decision should be clarified to include CA G.R. SP No. 83165 which affirmed the December 4,2003 Decision of the Court of Tax Appeals in CTA Case No. 6612, for the following reasons, heretofore summarized: 1. The petition for review on certiorari in G.R. Nos. 167274-75filed by respondent CIR sought the reversal of the September 28, 2004Decision of the Court of Appeals rendered in the consolidated cases of CA-G.R. SP No. 80675 and CA-G.R. SP No. 83165, thus:Hence, this petition for review on certiorari under Rule 45 of the Rules of Court which seeks the nullification of the Court of Appeals (1)Decision promulgated on September 28, 2004 in CA-G.R. SP No. 80675and CA-G.R. SP No. 83165, both entitled "Commissioner of Internal Revenue vs. Fortune Tobacco Corporation," denying the CIRs petition and affirming the assailed decisions and resolutions of the Court of Tax Appeals (CTA) in CTA Cases Nos. 6365, 6383 and 6612; and (2)Resolution dated March 1, 2005 denying petitioners motion for reconsideration of the said decision."11 Earlier on, it was made clear that respondent CIR questioned the Decision of the CTA dated October 21, 2002 in CTA Case Nos. 6365 and 6383 in CA G.R. SP No. 80675 before the Court of Appeals. In CA G.R. SP No. 83165, the Commissioner also assailed the Decision of the CTA dated December 4, 2003 in CTA Case No. 66l2 also before the same appellate court. The two CA cases were later consolidated. Since the appellate court rendered its September 28, 2004 Decision in the consolidated cases of CAG.R. SP Nos. 80675 and 83165, what reached and was challenged before this Court in G.R. Nos. 167274-75 is the ruling of the Court of Appeals in both cases. When this Court rendered its July 21, 2008 Decision, the ruling necessarily embraced both CA G.R. SP Case Nos. 80675 and 83165 and adjudicated the respective rights of the parties. Clearly then, there was indeed an inadvertence in not specifying in the fallo of our July 21, 2008Decision that the September 28, 2004 CA Decision included not only CAG.R. SP No. 80675 but also CA G.R. SP No. 83165 since the two cases were merged prior to the issuance of the September 28, 2004 Decision. Given the above perspective, the inclusion of CA G.R. SP Case No.83165 in the fallo of the Decision dated July 21, 2008 is very much in order and is in keeping with the imperatives of fairness. 2. The very contents of the body of the Decision dated July 21,2008 rendered by this Court in G.R. Nos. 167274-75 undoubtedly reveal that both CA G.R. SP No. 80675 and CA G.R. SP No. 83165 were the subject matter of the petition therein. And as FTC would point out at every turn, the Courts Decision passed upon and decided the merits of the September 28,2004 Decision of the Court of Appeals in the consolidated cases of CA G.R.SP Case Nos. 80675 and 83165 and necessarily CA G.R. SP No. 83165 was included in our disposition of G.R. Nos. 167274-75. We quote the pertinent portions of the said decision: The following undisputed facts, summarized by the Court of Appeals, are quoted in the assailed Decision dated 28 September 2004: CAG.R. SP No. 80675 xxxx

Petitioner FTC is the manufacturer/producer of, among others, the following cigarette brands, with tax rate classification based on net retail price prescribed by Annex "D" to R.A. No. 4280, to wit: Brand Champion M 100 Salem M 100 Salem M King Camel F King Camel Lights Box 20s Camel Filters Box 20s Winston F Kings Winston Lights Tax Rate P1.00 P1.00 P1.00 P1.00 P1.00 P1.00 P5.00 P5.00

Immediately prior to January 1, 1997, the above-mentioned cigarette brands were subject to ad valorem tax pursuant to then Section142 of the Tax Code of 1977, as amended. However, on January 1, 1997,R.A. No. 8240 took effect whereby a shift from the ad valorem tax (AVT)system to the specific tax system was made and subjecting the aforesaid cigarette brands to specific tax under Section 142 thereof, now renumbered as Sec. 145 of the Tax Code of 1997, pertinent provisions of which are quoted thus: xxxx The rates of excise tax on cigars and cigarettes under paragraphs (1), (2) (3) and (4) hereof, shall be increased by twelve percent (12%) on January 1, 2000. (Emphasis supplied.) xxxx To implement the provisions for a twelve percent (12%) increase of excise tax on, among others, cigars and cigarettes packed by machines by January 1, 2000, the Secretary of Finance, xxx issued Revenue Regulations [RR] No. 1799, dated December 16, 1999, which provides the increase on the applicable tax rates on cigar and cigarettes x x x. [tax rates deleted] Revenue Regulations No. 17-99 likewise provides in the last paragraph of Section 1 thereof, "(t)hat the new specific tax rate for any existing brand of cigars, cigarettes packed by machine, distilled spirits, wines and fermented liquor shall not be lower than the excise tax that is actually being paid prior to January 1, 2000." For the period covering January 1-31, 2000, petitioner allegedly paid specific taxes on all brands manufactured and removed in the total amounts of P585,705,250.00. On February 7, 2000, petitioner filed with respondents Appellate Division a claim for refund or tax credit of its purportedly overpaid excise tax for the month of January 2000 in the amount of P35,651,410.00. On June 21, 2001, petitioner filed with respondents Legal Service a letter dated June 20, 2001 reiterating all the claims for refund/tax credit of its overpaid excise taxes filed on various dates, including the present claim for the month of January 2000 in the amount of P35,651,410.00.

As there was no action on the part of the respondent, petitioner filed the instant petition for review with this Court on December 11, 2001,in order to comply with the two-year period for filing a claim for refund. xxxx CA G.R. SP No. 83165 The petition contains essentially similar facts, except that the said case questions the CTAs December 4, 2003 decision in CTA Case No.6612 granting respondents claim for refund of the amount of P355,385,920.00 representing erroneously or illegally collected specific taxes covering the period January 1, 2002 to December 31, 2002, as well as its March 17, 2004 Resolution denying a reconsideration thereof. xxxx However, on consolidated motions for reconsideration filed by the respondent in CTA Case Nos. 6363 and 6383, the July 15, 2002 resolution was set aside, and the Tax Court ruled, this time with a semblance of finality, that the respondent is entitled to the refund claimed. Hence, in are solution dated November 4, 2003, the tax court reinstated its December 21, 2002 Decision and disposed as follows: WHEREFORE, our Decisions in CTA Case Nos.6365 and 6383 are hereby REINSTATED. Accordingly, respondent is hereby ORDERED to REFUND petitioner the total amount of P680,387,025.00 representing erroneously paid excise taxes for the period January 1, 2000 to January 31, 2000 and February 1,2000 to December 31, 2001. SO ORDERED. Meanwhile, on December 4, 2003, the CTA rendered a decision in CTA Case No. 6612 granting the prayer for the refund of the amount of P355,385,920.00 representing overpaid excise tax for the period covering January 1, 2002 to December 31, 2002. The tax court disposed of the case as follows: IN VIEW OF THE FOREGOING, the Petition for Review is GRANTED. Accordingly, respondent is hereby ORDERED to REFUND to petitioner the amount of P355,385,920.00 representing overpaid excise tax for the period covering January 1, 2002 to December 31, 2002. SO ORDERED. Petitioner sought reconsideration of the decision, but the same was denied in a Resolution dated March 17, 2004.1wphi1 (Emphasis supplied; citations omitted.) The Commissioner appealed the aforesaid decisions of the CTA. The petition questioning the grant of refund in the amount of P680,387,025.00 was docketed as CA-G.R. SP No. 80675, whereas that assailing the grant of refund in the amount of P355,385,920.00 was docketed as CA-G.R. SP No. 83165. The petitions were consolidated and eventually denied by the CA. The appellate court also denied reconsideration in its Resolution dated 1 March 2005. In its Memorandum 22 dated November 2006, filed on behalf of the Commissioner, the Office of the Solicitor General (OSG) seeks to convince the Court that the literal interpretation given by the CTA and the CA of Section 145 of the Tax Code of 1997 (Tax Code) would lead to a lower tax imposable on 1 January 2000 than that imposable during the transition period. Instead of an increase of 12% in the tax rate effective on 1 January 2000 as allegedly mandated by the Tax Code, the appellate courts ruling would result in a significant decrease in the tax rate by as much as 66%. xxxx Finally, the OSG asserts that a tax refund is in the nature of a tax exemption and must, therefore, be construed strictly against the taxpayer, such as Fortune Tobacco. In its Memorandum dated 10 November 2006, Fortune Tobacco argues that the CTA and the CA merely followed the letter of the law

when they ruled that the basis for the 12% increase in the tax rate should be the net retail price of the cigarettes in the market as outlined in paragraph C, sub par. (1)-(4), Section 145 of the Tax Code. The Commissioner allegedly has gone beyond his delegated rule-making power when he promulgated, enforced and implemented RR No. 17-99,which effectively created a separate classification for cigarettes based on the excise tax "actually being paid prior to January 1, 2000." xxxx This entire controversy revolves around the interplay between Section 145 of the Tax Code and RR 17-99. The main issue is an inquiry into whether the revenue regulation has exceeded the allowable limits of legislative delegation. xxxx Revenue Regulation 17-99, which was issued pursuant to the unquestioned authority of the Secretary of Finance to promulgate rules and regulations for the effective implementation of the Tax Code, interprets the above-quoted provision and reflects the 12% increase in excise taxes in the following manner: [table on tax rates deleted] This table reflects Section 145 of the Tax Code insofar as it mandates a 12% increase effective on 1 January 2000 based on the taxes indicated under paragraph C, sub-paragraph (1)-(4). However, RR No.17-99 went further and added that "The new specific tax rate for any existing brand of cigars, cigarettes packed by machine, distilled spirits, wines and fermented liquor shall not be lower than the excise tax that is actually being paid prior to January 1, 2000." Parenthetically, Section 145 states that during the transition period ,i.e., within the next three (3) years from the effectivity of the Tax Code, the excise tax from any brand of cigarettes shall not be lower than the tax due from each brand on 1 October 1996. This qualification, however, is conspicuously absent as regards the 12% increase which is to be applied on cigars and cigarettes packed by machine, among others, effective on 1 January 2000. Clearly and unmistakably, Section 145mandates a new rate of excise tax for cigarettes packed by machine due to the 12% increase effective on 1 January 2000 without regard to whether the revenue collection starting from this period may turn out to be lower than that collected prior to this date. By adding the qualification that the tax due after the 12% increase becomes effective shall not be lower than the tax actually paid prior to 1January 2000, RR No. 17-99 effectively imposes a tax which is the higher amount between the ad valorem tax being paid at the end of the three (3)-year transition period and the specific tax under paragraph C, sub-paragraph (1)-(4), as increased by 12%a situation not supported by the plain wording of Section 145 of the Tax Code. This is not the first time that national revenue officials had ventured in the area of unauthorized administrative legislation. In Commissioner of Internal Revenue v. Reyes, respondent was not informed in writing of the law and the facts on which the assessment of estate taxes was made pursuant to Section 228 of the 1997 Tax Code, as amended by Republic Act (R.A.) No. 8424. She was merely notified of the findings by the Commissioner, who had simply relied upon the old provisions of the law and RR No. 12-85 which was based on the old provision of the law. The Court held that in case of discrepancy between the law as amended and the implementing regulation based on the old law, the former necessarily prevails. The law must still be followed, even though the existing tax regulation at that time provided for a different procedure. xxxx

In the case at bar, the OSGs argument that by 1 January 2000, the excise tax on cigarettes should be the higher tax imposed under the specific tax system and the tax imposed under the ad valorem tax system plus the 12% increase imposed by paragraph 5, Section 145 of the Tax Code, is an unsuccessful attempt to justify what is clearly an impermissible incursion into the limits of administrative legislation. Such an interpretation is not supported by the clear language of the law and is obviously only meant to validate the OSGs thesis that Section 145 of the Tax Code is ambiguous and admits of several interpretations. The contention that the increase of 12% starting on 1 January 2000 does not apply to the brands of cigarettes listed under Annex "D" is likewise unmeritorious, absurd even. Paragraph 8, Section 145of the Tax Code simply states that, "The classification of each brand of cigarettes based on its average net retail price as of October 1, 1996, as set forth in Annex D, shall remain in force until revised by Congress." This declaration certainly does not lend itself to the interpretation given to it by the OSG. As plainly worded, the average net retail prices of the listed brands under Annex "D," which classify cigarettes according to their net retail price into low, medium or high, obviously remain the bases for the application of the increase in excise tax rates effective on 1 January 2000. The foregoing leads us to conclude that RR No. 17-99 is indeed indefensibly flawed. The Commissioner cannot seek refuge in his claim that the purpose behind the passage of the Tax Code is to generate additional revenues for the government. Revenue generation has undoubtedly been a major consideration in the passage of the Tax Code. However, as borne by the legislative record, the shift from the ad valorem system to the specific tax system is likewise meant to promote fair competition among the players in the industries concerned, to ensure an equitable distribution of the tax burden and to simplify tax administration by classifying cigarettes x x x into high, medium and low- priced based on their net retail price and accordingly graduating tax rates. xxxx WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA G.R. SP No. 80675, dated 28 September 2004, and its Resolution, dated 1 March 2005, are AFFIRMED. No pronouncement as to costs. SO ORDERED.12 The July 21, 2008 Decision in G.R. Nos. 167274-75 brings into sharp focus the following facts and proceedings: 1. It specifically mentioned CA G.R. SP No. 80675 and CA G.R.SP No. 83165 as the subject matter of the decision on p. 2 and p. 7,respectively. 2. It traced the history of CTA Case Nos. 6365 and 6383 from the time the CTA peremptorily resolved the twin refund suits to the appeal of the decisions thereat to the Court of Appeals via a petition docketed as CA-G.R. SP No. 80675 and eventually to this Court in G.R. Nos. 167274-75. It likewise narrated the events connected with CTA Case No. 6612 to the time the decision in said case was appealed to the Court of Appeals in CA-G.R.SP No. 83165, consolidated with CA G.R. SP No. 80675 and later decided by the appellate court. It cited the appeal from the CA decision by the BIR Commissioner to this Court in G.R. Nos. 167274-75. 3. It resolved in the negative the main issue presented in both CA-G.R. SP No. 80675 and CA-G.R. SP No. 83165 as to whether or not the last paragraph of Section 1 of Revenue Regulation No. 17-99 is in accordance with the pertinent provisions of Republic Act No. 8240, now incorporated in Section 145 of the Tax Code of 1997. 4. The very disposition in the fallo in G.R. Case Nos. 167274-75 that "the petition is denied" and that the "Decision of the Court of Appeals x x x dated 28 September 2004 and its Resolution dated 1 March 2005 are affirmed" reflects an intention that CA G.R. SP No. 83165 should have been stated therein, being one of the cases subject of the September 28, 2004 CA Decision.

The legality of Revenue Regulation No. 17-99 is the only determinative issue resolved by the July 21, 2008 Decision which was the very same issue resolved by the CA in the consolidated CA-G.R. SP Nos.80675 and 83165 and exactly the same issue in CTA Nos. 6365, 6383 and 6612. From the foregoing cogent reasons, We conclude that CA-G.R. SP No. 83165 should be included in the fallo of the July 21, 2008 decision.1wphi1 It is established jurisprudence that "the only portion of the decision which becomes the subject of execution and determines what is ordained is the dispositive part, the body of the decision being considered as the reasons or conclusions of the Court, rather than its adjudication."13 In the case of Ong Ching Kian Chung v. China National Cereals Oil and Foodstuffs Import and Export Corporation, the Court noted two (2)exceptions to the rule that the fallo prevails over the body of the opinion, viz: (a) where there is ambiguity or uncertainty, the body of the opinion may be referred to for purposes of construing the judgment because the dispositive part of a decision must find support from the decisions ratio decidendi; (b) where extensive and explicit discussion and settlement of the issue is found in the body of the decision.14 Both exceptions obtain in the present case. We find that there is an ambiguity in the fallo of Our July 21, 2008 Decision in G.R. Nos. 167274-75 considering that the propriety of the CA holding in CA-G.R. SP No.83165 formed part of the core issues raised in G.R. Case Nos. 167274-75, but unfortunately was left out in the all-important decretal portion of the judgment. The fallo of Our July 21, 2008 Decision should, therefore, be correspondingly corrected. For sure, the CTA cannot, as the Commissioner argues, be faulted for denying petitioner FTCs Motion for Additional Writ of Execution filed in CTA Case Nos. 6365, 6383 and 6612 and for denying petitioners Motion for Reconsideration for it has no power nor authority to deviate from the wording of the dispositive portion of Our July 21, 2008 Decision in G.R. Nos. 167274-75. To reiterate, the CTA simply followed the all too familiar doctrine that "when there is a conflict between the dispositive portion of the decision and the body thereof, the dispositive portion controls irrespective what appears in the body of the decision."15 Veering away from the fallo might even be viewed as irregular and may give rise to a charge of breach of the Code of Judicial Conduct. Nevertheless, it behooves this Court for reasons articulated earlier to grant relief to petitioner FTC by way of clarifying Our July 21, 2008 Decision. This corrective step constitutes, in the final analysis, a continuation of the proceedings in G.R. Case Nos. 167274-75. And it is the right thing to do under the premises. If the BIR, or other government taxing agencies for that matter, expects taxpayers to observe fairness, honesty, transparency and accountability in paying their taxes, it must, to borrow from BPI Family Savings Bank, Inc. v Court of Appeals16 hold itself against the same standard in refunding excess payments or illegal exactions. As a necessary corollary, when the taxpayers entitlement to are fund stands undisputed, the State should not misuse technicalities and legalisms, however exalted, to keep money not belonging to it.17 As we stressed in G.R. Nos. 167274-75, the government is not exempt from the application of solutio indebiti, a basic postulate proscribing one, including the State, from enriching himself or herself at the expense of another.18 So it must be here. WHEREFORE, the petition is GRANTED. The dispositive portion of the Courts July 21, 2008 Decision in G.R. Nos. 167274-75 is corrected to reflect the inclusion of CA G.R. SP No. 83165 therein. As amended, the fallo of the aforesaid decision shall read: WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in the consolidated cases of CA- G.R. SP No. 80675 and 83165 dated 28 September 2004, and its Resolution, dated 1 March 2005, are AFFIRMED. No pronouncement as to costs.

The Decision of the Court of Tax Appeals (CTA) En Banc dated March 12, 2010 and the Resolution dated June 11, 2010 in CTA EB No. 530 entitled "Fortune Tobacco Corporation vs. Commissioner of Internal Revenue" as well as the Resolutions dated June 4, 2009 and August 10, 2009which denied the Motion for Issuance of Additional Writ of Execution of the CTA First Division in CTA Cases Nos. 6365, 6383 and 6612 are SETASIDE. The CTA is ORDERED to issue a writ of execution directing the respondent CIR to pay petitioner Fortune Tobacco Corporation the amount of tax refund of P355,385,920.00 as adjudged in CTA Case No. 6612. SO ORDERED.