Luzon Stevedoring Corp. vs.

Court
of Tax Appeals
GR L-30232, 29 July 1988
Second Division, Paras (J): 4 concur
Facts: Luzon Stevedoring Corp. imported
various engine parts and other equipment for
tugboat repair and
maintenance in 1961 and 1962. It paid the
assessed compensation tax under protest. Unable
to secure a tax
refund from the Commissioner (for the amount
of P33,442.13), it filed a petition for review with
the Court of
Tax Appeals (CTA). The CTA denied the
petition, as well as the motion for
reconsideration filed thereafter.
Issue: Whether the corporation is exempt
from the compensation tax.
Held: As the power of taxation is a high
prerogative of sovereignty, the relinquishment of
such is never
presumed and any reduction or dimunition
thereof with respect to its mode or its rate, must
be strictly
Taxation Law I, 2004 ( 1 )
Digests (Berne Guerrero)

construed, and the same must be couched in dear

and unmistakable terms in order that it may be
applied. The
corporations tugboats do not fall under the
categories of passenger or cargo vessels to avail
of the exemption
from compensation tax in Section 190 of the Tax
Code. It may be further noted that the
amendment of Section
190 of Republic Act 3176 was intended to
provide incentives and inducements to bolster
the shipping industry
and not the business of stevedoring, in which the
corporation is engaged in.
Luzon Stevedoring Corp. is not exempt from
compensating tax under Section 190, and is thus
not entitled to
refund.
Lutz vs. Araneta
GR L-7859, 22 December 1955
First Division, Reyes JBL (J): 8 concur
Facts: AWalter Lutz, as Judicial Administrator
of the Intestate Estate of Antonio Jayme
Ledesma, sought to
recover the sum of P14,6666.40 paid by the
estate as taxes from the Commissioner under
Section e of
Commonwealth Act 567 (the Sugar Adjustment
Act), alleging that such tax is unconstitutional as
it levied for
the aid and support of the sugar industry
exclusively, which is in his opinion not a public
purpose.
Issue: Whether the tax is valid in supporting
an industry.

Held: The tax is levied with a regulatory

prupose, i.e. to provide means for the
rehabilitation and stabilization
of the threatened sugar industry. The act is
primarily an exercise of police power, and is not
a pure exercise of
taxing power. As sugar production is one of the
great industries of the Philippines; and that its
promotion,
protection and advancement redounds greatly to
the general welfare, the legislature found that the
general
welfare demanded that the industry should be
stabilized, and provided that the distribution of
benefits
therefrom be readjusted among its component to
enable it to resist the added strain of the increase
in tax that it
had to sustain. Further, it cannot be said that the
devotion of tax money to experimental stations
to seek
increase of efficiency in sugar production,
utilization of by-products, etc., as well as to the
improvement of
living and working conditions in sugar mills and
plantations, without any part of such money
being channeled
diectly to private persons, constitute expenditure
of tax money for private purposes.
The tax is valid.
Philex Mining Corporation v CIR GR No 125704,
August 28, 1998
FACTS:
BIR sent a letter to Philex asking it to settle its tax
liabilities amounting to P124 million. Philex protested
the demand for payment stating that it has pending
claims for VAT input credit/refund amounting to P120
million. Therefore, these claims for tax credit/refund
should be applied against the tax liabilities.
In reply the BIR found no merit in Philexs position. On
appeal, the CTA reduced the tax liability of Philex.
ISSUES:
1. Whether legal compensation can properly
take place between the VAT input
credit/refund and the excise tax liabilities of
Philex Mining Corp;
2. Whether the BIR has violated the NIRC
which requires the refund of input taxes
within 60 days
3. Whether the violation by BIR is sufficient to
justify non-payment by Philex
RULING:

1. No, legal compensation cannot take place.

The government and the taxpayer are not
creditors and debtors of each other.
2. Yes, the BIR has violated the NIRC. It took
five years for the BIR to grant its claim for
VAT input credit. Obviously, had the
BIR been more diligent and judicious with
their duty, it could have granted the refund
3. No, despite the lethargic manner by which
the BIR handled Philexs tax claim, it is a
settled rule that in the performance of
government function, the State is not bound
by the neglect of its agents and officers. It
must be stressed that the same is not a valid
reason for the non-payment of its tax
liabilities.
Maceda vs. Macaraig
GR 88291, 31 May 1991

4.

5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.

En Banc, Gancayco (J): 6 concur, 2 took

no part, 1 dissents
Facts: Commonwealth Act 120
created NAPOCOR as a public
corporation to undertake the
development of
hydraulic power and the production of
power from other sources. RA 358
(1949) granted NAPOCOR tax and
duty exemption privileges. RA 6395
(1971) revised the charter of the
NAPOCOR, tasking it to carry out the
policy of the national electrification, and
provided in detail NAPOCORs tax
exceptions. PD 380 (1974)
specified that NAPOCORs exemption
includes all taxes, etc. imposed directly
or indirectly. PD 938
integrated the exemptions in favor of
GOCCs including their subsidiaries;
however, empowering the President
or the Minister of Finance, upon
recommendation of the Fiscal Incentives
Review Board (FIRB) to restore,
partially or completely, the exemptions
withdrawn or revised. The FIRB issued
Resolution 10-85 (7 February
1985) restoring the duty and tax
exemptions privileges of NAPOCOR for
period 11 June 1984- 30 June 1985.
Resolution 1-86 (1January 1986)
restored such exemption indefinitely
effective 1 July 1985. EO 93 (1987)
again withdrew the exemption. FIRB
issued Resolution 17-87 (24 June 1987)
restoring NAPOCORs
exemption, which was approved by the
President on 5 October 1987.

16. Since 1976, oil firms never paid excise

or specific and ad valorem taxes for
petroleum products sold and
17. delivered to NAPOCOR. Oil companies
started to pay specific and ad valorem
taxes on their sales of oil
18. products to NAPOCOR only in 1984.
NAPOCOR claimed for a refund
(P468.58 million). Only portion
19. thereof, corresponding to Caltex, was
approved and released by way of a tax
credit memo. The claim for
20. refund of taxes paid by PetroPhil, Shell
and Caltex amounting to P410.58
million was denied. NAPOCOR
21. moved for reconsideration, starting that
all deliveries of petroleum products to
NAPOCOR are tax exempt,
22. regardless of the period of delivery.
23. Issue: Whether NAPOCOR cease to
enjoy exemption from indirect tax when
PD 938 stated the exemption in
24. general terms.
25. Held: NAPOCOR is a non-profit
public corporation created for the
general good and welfare, and wholly
26. owned by the government of the
Republic of the Philippines. From the
very beginning of the corporations
27. existence, NAPOCOR enjoyed
preferential tax treatment to enable the
corporation to pay the indebtness and
28. obligation and effective
implementation of the policy enunciated
in Section 1 of RA 6395. From the
29. preamble of PD 938, it is evident that
the provisions of PD 938 were not
intended to be strictly construed
30. against NAPOCOR. On the contrary, the
law mandates that it should be
interpreted liberally so as to enhance
31. the tax exempt status of NAPOCOR. It
is recognized principle that the rule on
strict interpretation does not
apply in the case of exemptions in favor of
government political subdivision or
instrumentality. In the case of
32. property owned by the state or a city or
other public corporations, the express
exception should not be
33. construed with the same degree of
strictness that applies to exemptions
contrary to the policy of the state,
34.since as to such property exception is
the rule and taxation the exception.

SSS vs. Bacolod City

GR L-35726, 21 July 1982
Second Division, Escolin (J): 5 concur

Facts: The Social Security System (SSS) is a

government agency created under RA 1161. In
pursuance of its
operations, SSS maintains a number of regional
offices, one of which is a 5-storey building
occupying 4
parcels of land in Bacolod City. Said building
and lands were assessed for taxation. For failure
to pay the
realty taxes thereon, the city levid upon said
properties. SSS sought reconsideration on the
ground that SSS is
a government-owned and -controlled corporation
and is exempt from payment of real estate taxes.
Issue: Whether SSS property in Bacolod City
is tax-exempt.
Held: The distinction whether the governmentowned or controlled corporation exercises
ministrant or
proprietory function is of no relevance as the
exemption does not relate to legal fees but on
realty taxes. The
Charter of Bacolod City does not contain any
qualification whatsoever in providing fro the
exemption from
real estate taxes of lands and building owned by
the Government/ It is axiomatic that when public
property is
involved, exemption is the rule and taxation is
the exception. PD 24, amending the Social
Security Act of
1954, has already removed all doubts as to the
exemption of the SS from taxation (Section 16).
Villegas vs, Hiu Chiong Tsai Pao
Ho
GR L-29646, 10 November 1978
En Banc, Fernandez (J):
4 concur, 3 concur in result, 1 took no part
Facts: The Municipal Board of Manila
enacted Ordinance 6537 requiring aliens (except
those employed in
the diplomatic and consular missions of foreign
countries, in technical assistance programs of the
government
and another country, and members of religious
orders or congregations) to procure the requisite
mayors
permit so as to be employed or engage in trade
in the City of Manila. The permit fee is P50, and
the penalty
for the violation of the ordinance is 3 to 6
months imprisonment or a fine of P100 to P200,
or both.
Issue: Whether the ordinance imposes a
regulatory fee or a tax.
Held: The ordinances purpose is clearly to
raise money under the guise of regulation by
exacting P50 from
aliens who have been cleared for employment.
The amount is unreasonable and excessive
because it fails to

consider difference in situation among aliens

required to pay it, i.e. being casual, permanent,
part-time, rankandfile or executive.
[ The Ordinance was declared invalid as it is
arbitrary, oppressive and unreasonable, being
applied only to
aliens who are thus deprived of their rights to
life, liberty and property and therefore violates
the due process
and equal protection clauses of the Constitution.
Further, the ordinance does not lay down any
criterion or
standard to guide the Mayor in the exercise of
his discretion, thus conferring upon the mayor
arbitrary and
unrestricted powers. ]
Victorias Milling Co. vs.
Municipality of Victorias
GR L-21183, 27 September 1968
En Banc, Sanchez (J): 9 concur
Facts: Ordinance 1 (1956) was approved by
the municipal council of Victorias by way of an
amendment to 2
municipal ordinances separately imposing
license taxes on operators of sugar centrals and
sugar refineries.
The changes were: (1) with respect to sugar
centrals, by increasing the rates of license taxes;
and (2) as to
sugar refineries, by increasing the rates of
license taxes as well as teh range of graduated
schedule of annual
output capacity. Victorias Milling questioned the
validity of Ordinance 1 as it, among others,
allegedly singled
out Victorias Milling Co. since it is the only
operator of a sugar central and a sugar refinery
within the
jurisdiction of the municipality.
Taxation Law I, 2004 ( 20 )
Digests (Berne Guerrero)

Issue: Whether Ordinance 1 is discriminatory.

Held: The ordinance does not single out
Victorias as the only object of the ordinance but
is made to apply to
any sugar central or sugar refinery which may
happen to operate in the municipality. The fact
that Victorias
Milling is actually the sole operator of a sugar
central and a sugar refinery does not make the
ordinance
discriminatory. The ordinance is unlike that in
Ormoc Sugar Company vs. Municipal Board of
Ormoc City,
which specifically spelled out Ormoc Sugar as
the subject of the taxation, the name of the
company herein
was never mentioned in the ordinance.

PHILIPPINE RURAL ELECTRIC

COOPERATIVES ASSOCIATION, INC., et al. vs.
THE SECRETARY OF DEPARTMENT OF
INTERIOR AND LOCAL GOVERNMENT
GR. No. 143076. June 10, 2003
Facts: On May 23, 2003, a class suit was filed by
petitioners in their own behalf and in behalf of
other electric cooperatives organized and
existing under PD 269 which are members of
petitioner Philippine Rural Electric Cooperatives
Association, Inc. (PHILRECA). The other
petitioners, electric cooperatives of Agusan del
Norte (ANECO), Iloilo 1 (ILECO 1) and Isabela 1
(ISELCO 1) are non-stock, non-profit electric
cooperatives organized and existing under PD
269, as amended, and registered with the
National Electrification Administration (NEA).
Under Sec. 39 of PD 269 electric cooperatives
shall be exempt from the payment of all National
Government, local government, and municipal
taxes and fee, including franchise, fling
recordation, license or permit fees or taxes and
any fees, charges, or costs involved in any court
or administrative proceedings in which it may be
party.
From 1971to 1978, in order to finance the
electrification projects envisioned by PD 269, as
amended, the Philippine Government, acting
through the National Economic council (now
National Economic Development Authority) and
the NEA, entered into six loan agreements with
the government of the United States of America,
through the United States Agency for
International Development (USAID) with
electric cooperatives as beneficiaries. The loan
agreements contain similarly worded provisions
on the tax application of the loan and any
property or commodity acquired through the
proceeds of the loan.
Petitioners allege that with the passage of the
Local Government Code their tax exemptions
have been validly withdrawn. Particularly,
petitioners assail the validity of Sec. 193 and 234
of the said code. Sec. 193 provides for the
withdrawal of tax exemption privileges granted
to all persons, whether natural or juridical,
except cooperatives duly registered under RA
6938, while Sec. 234 exempts the same
cooperatives from payment of real property tax.
Issue: (1) Does the Local Government Code
(under Sec. 193 and 234) violate the equal
protection clause since the provisions unduly
discriminate against petitioners who are duly
registered cooperatives under PD 269, as
amended, and no under RA 6938 or the
Cooperatives Code of the Philippines?
(2) Is there an impairment of the obligations of
contract under the loan entered into between the

Philippine and the US Governments?

Held: (1) No. The guaranty of the equal
protection clause is not violated by a law based
on a reasonable classification. Classification, to
be reasonable must (a) rest on substantial
classifications; (b) germane to the purpose of the
law; (c) not limited to the existing conditions
only; and (d) apply equally to all members of the
same class. We hold that there is reasonable
classification under the Local Government Code
to justify the different tax treatment between
electric cooperatives covered by PD 269 and
electric cooperatives under RA 6938.
First, substantial distinctions exist between
cooperatives under PD 269 and those under RA
6938. In the former, the government is the one
that funds those so-called electric cooperatives,
while in the latter, the members make equitable
contribution as source of funds.
a. Capital Contributions by Members Nowhere
in PD 269 doe sit require cooperatives to make
equitable contributions to capital. Petitioners
themselves admit that to qualify as a member of
an electric cooperative under PD 269, only the
payment of a P5.00 membership fee is required
which is even refundable the moment the
member is no longer interested in getting
electric service from the cooperative or will
transfer to another place outside the area
covered by the cooperative. However, under the
Cooperative Code, the articles of cooperation of a
cooperative applying for registration must be
accompanied with the bonds of the accountable
officers and a sworn statement of the treasurer
elected by the subscribers showing that at least
25% of the authorized share capital has been
subscribed and at least 25% of the total
subscription has been paid and in no case shall
the paid-up share capital be less than
P2,000.00.
b. Extent of Government Control over
Cooperatives The extent of government control
over electric cooperatives covered by PD 269 is
largely a function of the role of the NEA as a
primary source of funds of these electric
cooperatives. It is crystal clear that NEA
incurred loans from various sources to finance
the development and operations of these electric
cooperatives. Consequently, amendments were
primarily geared to expand the powers of NEA
over the electric cooperatives o ensure that loans
granted to them would be repaid to the
government. In contrast, cooperatives under RA
6938 are envisioned to be self-sufficient and
independent organizations with minimal
government intervention or regulation.
Second, the classification of tax-exempt entities
in the Local Government Code is germane to the
purpose of the law. The Constitutional mandate

that every local government unit shall enjoy

local autonomy, does not mean that the exercise
of the power by the local governments is beyond
the regulation of Congress. Sec. 193 of the LGC is
indicative of the legislative intent to vet broad
taxing powers upon the local government units
and to limit exemptions from local taxation to
entities specifically provided therein.
Finally, Sec. 193 and 234 of the LGC permit
reasonable classification as these exemptions are
not limited to existing conditions and apply
equally to all members of the same class.
(2) No. It is ingrained in jurisprudence that the
constitutional prohibition on the impairment of
the obligations of contracts does not prohibit
every change in existing laws. To fall within the
prohibition, the change must not only impair the
obligation of the existing contract, but the
impairment must be substantial. Moreover, to
constitute impairment, the law must affect a
change in the rights of the parties with reference
to each other and not with respect to nonparties.
The quoted provision under the loan agreement
does not purport to grant any tax exemption in
favor of any party to the contract, including the
beneficiaries thereof. The provisions simply shift
the tax burden, if any, on the transactions under
the loan agreements to the borrower and/or
beneficiary of the loan. Thus, the withdrawal by
the Local Government Code under Sec. 193 and
234 of the tax exemptions previously enjoyed by
petitioners does not impair the obligation of the
borrower, the lender or the beneficiary under the
loan agreements as, in fact, no tax exemption is
granted therein.

Nitafan vs. Commissioner

GR L-78780, 23 July 1987
Resolution
En Banc, Melencio-Herrera (J): 12 concur, 1 on
leave
Facts: The Chief Justice has previously issued
a directive to the Fiscal Management and Budget
Office to
continue to deduct withholding taxes from the
salaries of the Justices of the Supreme Court and
other
members of the judiciary. This was affirmed by
the Supreme Court En Banc on 4 December
1987. RTC
judges seek to prohibit or enjoin the
Commissioner of the Internal Revenue and the
Financial Officer of the
Supreme Court from making any deduction of
withholding taxes from their salaries.
Issue: Whether the salaries of judges are
subject to tax.

Held: The salaries of members of the Judiciary

are subject to the general income tax applied to
all taxpayers.
Although such intent was somehoe and
inadvertently not clearly set forth in the final
text of the 1987
Constitution, the deliberations of the 1986
Constitutional Commission negate the
contention that the intent of
the framers is to revert to the original concept of
non-diminution of salaries of judicial officers.
Hence, the
doctrine in Perfecto v. Meere and Endencia vs.
David do not apply anymore. Justices and judges
are not only
the citizens whose income have been reduced in
accepting service in government and yet subjecte
to income
tax. Such is true also of Cabinet members and all
other employees.
CIR v. BPI
G.R. No. 178490 July 7, 2009
Chico-Nazario, J.
Doctrine:
1. The phrase for that taxable period merely
identifies the excess income tax, subject of the option,
by referring to the taxable period when it was
acquired by the taxpayer.
2. When circumstances show that a choice has been
made by the taxpayer to carry over the excess
income tax as credit, it should be respected; but when
indubitable circumstances clearly show that another
choice, a tax refund, is in order, it should be granted.
As to which option the taxpayer chose is generally a
matter of evidence.
Technicalities and legalisms, however exalted,
should not be misused by the government to keep
money not belonging to it and thereby enrich itself at
the expense of its law-abiding citizens.
Facts:
In filing its Corporate Income Tax Return for the
Calendar Year 2000, BPI carried over the excess tax
credits from the previous years of 1997, 1998 and
1999. However, BPI failed to indicate in its ITR its
choice of whether to carry over its excess tax credits

or to claim the refund of or issuance of a tax credit

1997 reads: Once the option to carry-over and apply

certificate.

the excess quarterly income tax against income tax

due for the taxable quarters of the succeeding taxable

BPI filed with the Commissioner of Internal Revenue

years has been made, such option shall be

(CIR) an administrative claim for refund. The CIR

considered irrevocable for that taxable period and

failed to act on the claim for tax refund of BPI. Hence,

no application for tax refund or issuance of a tax

BPI filed a Petition for Review before the CTA, whom

credit certificate shall be allowed therefor. The

denied the claim.

phrase for that taxable period merely identifies the

The CTA relied on the irrevocability rule laid down in

Section 76 of the National Internal Revenue Code
(NIRC) of 1997, which states that once the taxpayer

excess income tax, subject of the option, by referring

to the taxable period when it was acquired by the
taxpayer.

opts to carry over and apply its excess income tax to

In the present case, the excess income tax credit,

succeeding taxable years, its option shall be

which BPI opted to carry over, was acquired by the

irrevocable for that taxable period and no application

said bank during the taxable year 1998. The option of

for tax refund or issuance of a tax credit shall be

BPI to carry over its 1998 excess income tax credit is

allowed for the same.

irrevocable; it cannot later on opt to apply for a refund

The Court of Appeals reversed the CTA decision

of the very same 1998 excess income tax credit.

stating that there was no actual carrying over of the

2. No. Failure to signify ones intention in the FAR

excess tax credit, given that BPI suffered a net loss in

does not mean outright barring of a valid request for a

1999, and was not liable for any income tax for said

refund, should one still choose this option later on.

taxable period, against which the 1998 excess tax

The reason for requiring that a choice be made in the

credit could have been applied.

FAR upon its filing is to ease tax administration

The Court of Appeals further stated that even if

Section 76 was to be construed strictly and literally,
the irrevocability rule would still not bar BPI from
seeking a tax refund of its 1998 excess tax credit
despite previously opting to carry over the same. The
phrase for that taxable period qualified the
irrevocability of the option of BIR to carry over its 1998
excess tax credit to only the 1999 taxable period;
such that, when the 1999 taxable period expired, the

(Philam Asset Management, Inc. v. CIR G.R. No.

156637 and No. 162004, 14 December 2005). When
circumstances show that a choice has been made by
the taxpayer to carry over the excess income tax as
credit, it should be respected; but when indubitable
circumstances clearly show that another choice a
tax refund is in order, it should be granted.
Therefore, as to which option the taxpayer chose is
generally a matter of evidence.

irrevocability of the option of BPI to carry over its

Technicalities and legalisms, however exalted, should

excess tax credit from 1998 also expired.

not be misused by the government to keep money not

Issue:
1. What is the period captured by the irrevocability
rule?
2. Whether or not the taxpayers failure to mark the
option chosen is fatal to whatever claim
Held:
1. The last sentence of Section 76 of the NIRC of

belonging to it and thereby enrich itself at the expense

of its law-abiding citizens.

Pepsi-Cola Bottling Co. vs. City of

Butuan
GR L-22814, 28 August 1968
En Banc, Concepcion (J): 5 concur
Facts: Ordinance 110 was enacted by the City
of Butuan imposing a tax of P0.10 per case of 24
bottles of

softdrinks or carbonated drinks. The tax was

imposed upon dealers engeged in selling
softdrinks or
carbonated drinks. When Ordinance 110, the tax
was imposed upon an agent or consignee of any
person,
association, partnership, company or corporation
engaged in selling softdrinks or carbonated
drinks, with
agent or consignee being particularly defined
on the inserted provision Section 3-A. In effect,
merchants
engaged in the sale of softdrinks, etc. are not
subject to the tax unless they are agents or
consignees of another
dealer who must be one engaged in business
outside the City. Pepsi-Cola Bottling Co. filed
suit to recover
sums paid by it to the city pursuant to the
Ordinance, which it claims to be null and void.
Issue: Whether the Ordinance is
discriminatory.
Held: The Ordinance, as amended, is
discriminatory since only sales by agents or
consignees of outside
dealers would be subject to the tax. Sales by
local dealers, not acting for or on behalf of other
merchants,
regardless of the volume of their sales , and even
if the same exceeded those made by said agents
or
consignees of producers or merchants
established outside the city, would be exempt
from the tax. The
classification made in the exercise of the
authority to tax, to be valid must be reasonable,
which would be
satisfied if the classification is based upon
substantial distinctions which makes real
differences; these are
germane to the purpose of legislation or
ordinance; the classification applies not only to
present conditions but
also to future conditions substantially identical
to those of the present; and the classification
applies equally to
all those who belong to the same class. These
conditions are not fully met by the ordinance in
question.

penalties amounting to P40,058.55 by the Estate

of the late Walter Scott Price. The petition for
execution filed
by the fiscal, however, was denied by the lower
court. The Court held that the execution is
unjustified as the
Government itself is indebted to the Estate for
262,200; and ordered the amount of inheritance
taxes be
deducted from the Governments indebtedness to
the Estate.
Issue: Whether a tax and a debt may be
compensated.
Held: The court having jurisdiction of the
Estate had found that the claim of the Estate
against the
Government has been recognized and an amount
of P262,200 has already been appropriated by a
corresponding law (RA 2700). Under the
circumstances, both the claim of the
Government for inheritance
taxes and the claim of the intestate for services
rendered have already become overdue and
demandable as
well as fully liquidated. Compensation,
therefore, takes place by operation of law, in
accordance with Article
1279 and 1290 of the Civil Code, and both debts
are extinguished to the concurrent amount.

Domingo vs. Garlitos

GR L-18993, 29 June 1963
En Banc, Labrador (J): 8 concur,
1 concur in result, 1 took no part
Facts: InDomingo vs. Moscoso (106 PHIL
1138), the Supreme Court declared as final and
executory the
order of the Court of First Instance of Leyte for
the payment of estate and inheritance taxes,
charges and

Tiu v Ca G.R. No.

127410. January 20,
1999

Mamba v. LaraGr. 165109

Facts: The private respondent a governor of Cagaan e!
ec"ted contracts for thecreation of bonds #ith interest to
$nance the ne# to#n center. The petitioner a
congressman representing Cagaan
%"estioned the said contractsa&tho"gh he is not a
part thereof.'ss"e: ()* the petitioner ma %"estion
the contract+s e!ec"ted b the respondent.,e&d:
-es since an ordinar ta!paer is a&&o#ed to s"e provided
that1/"b&ic f"nds derived from ta!ation are to be
"sed b a po&itica&instr"menta&it and in doing so a
&a# is vio&ated or some irreg"&arit
iscommittedThe petitioner sha&&
be direct& a2ected b the a&&eged act.3nd
since the interest of the bonds sha&& be paid for b ta!ing
the peop&e ofCagaan inc&"ding the petitioner
the petitioner has &ega& standing to %"estion
theacts of the respondent

J. Panganiban
Facts:
On March 13, 1992, Congress, with the
approval of the President, passed into law RA
7227. This was for the conversion of former

military bases into industrial and commercial

uses. Subic was one of these areas. It was
made into a special economic zone.
In the zone, there were no exchange controls.
Such were liberalized. There was also tax
incentives and duty free importation policies
under this law.
On June 10, 1993, then President Fidel V.
Ramos issued Executive Order No. 97 (EO
97), clarifying the application of the tax and
duty incentives. It said that
On Import Taxes and Duties. Tax and dutyfree importations shall apply only to raw
materials, capital goods and equipment
brought in by business enterprises into the
SSEZ

The court a quo also explained that the

intention of Congress was to confine the
coverage of the SSEZ to the "secured area"
and not to include the "entire Olongapo City
and other areas mentioned in Section 12 of
the law.
Hence, this was a petition for review under
Rule 45 of the Rules of Court.
Issue:
Whether the provisions of Executive Order
No. 97-A confining the application of R.A.
7227 within the secured area and excluding
the residents of the zone outside of the
secured area is discriminatory or not owing to
a violation of the equal protection clause.
Held. No. Petition dismissed.

On All Other Taxes. In lieu of all local and

national taxes (except import taxes and
duties), all business enterprises in the SSEZ
shall be required to pay the tax specified in
Section 12(c) of R.A. No. 7227.
Nine days after, on June 19, 1993, the
President issued Executive Order No. 97-A
(EO 97-A), specifying the area within which
the tax-and-duty-free privilege was operative.
Section 1.1. The Secured Area consisting of
the presently fenced-in former Subic Naval
Base shall be the only completely tax and
duty-free area in the SSEFPZ. Business
enterprises and individuals (Filipinos and
foreigners) residing within the Secured Area
are free to import raw materials, capital goods,
equipment, and consumer items tax and dutyfree.
Petitioners challenged the constitutionality of
EO 97-A for allegedly being violative of their
right to equal protection of the laws. This was
due to the limitation of tax incentives to Subic
and not to the entire area of Olongapo. The
case was referred to the Court of Appeals.
The appellate court concluded that such being
the case, petitioners could not claim that EO
97-A is unconstitutional, while at the same
time maintaining the validity of RA 7227.

Ratio:
Citing Section 12 of RA 7227, petitioners
contend that the SSEZ encompasses (1) the
City of Olongapo, (2) the Municipality of Subic
in Zambales, and (3) the area formerly
occupied by the Subic Naval Base. However,
they claimed that the E.O. narrowed
the application to the naval base only.
OSG- The E.O. Was a valid classification.
Court- The fundamental right of equal
protection of the laws is not absolute, but is
subject to reasonable classification. If the
groupings are characterized by substantial
distinctions that make real differences,
one class may be treated and regulated
differently from another. The classification
must also be germane to the purpose of the
law and must apply to all those belonging to
the same class.
Inchong v Hernandez- Equal protection does
not demand absolute equality among
residents; it merely requires that all persons
shall be treated alike, under like
circumstances and conditions both as to
privileges conferred and liabilities enforced.
Classification, to be valid, must (1) rest on
substantial distinctions, (2) be germane to the
purpose of the law, (3) not be limited to

existing conditions only, and (4) apply equally

to all members of the same class.
RA 7227 aims primarily to accelerate the
conversion of military reservations into
productive uses. This was really limited to the
military bases as the law's intent provides.
Moreover, the law tasked the BCDA to
specifically develop the areas the bases
occupied.
Among such enticements are: (1) a separate
customs territory within the zone, (2) tax-andduty-free importations, (3) restructured income
tax rates on business enterprises within the
zone, (4) no foreign exchange control, (5)
liberalized regulations on banking and finance,
and (6) the grant of resident status to certain
investors and of working visas to certain
foreign executives and workers. The target of
the law was the big investor who can pour in
capital.
Even more important, at this time the business
activities outside the "secured area" are not
likely to have any impact in achieving the
purpose of the law, which is to turn the former
military base to productive use for the benefit
of the Philippine economy. Hence, there was
no reasonable basis to extend the tax
incentives in RA 7227.
It is well-settled that the equal-protection
guarantee does not require territorial
uniformity of laws. As long as there are
actual and material differences between
territories, there is no violation of the
constitutional clause.
Besides, the businessmen outside the zone
can always channel their capital into it.
RA 7227, the objective is to establish a "selfsustaining, industrial, commercial, financial
and investment center. There will really be
differences between it and the outside zone of
Olongapo.
The classification of the law also applies
equally to the residents and businesses in the
zone. They are similarly treated to contribute
to the end gaol of the law.

C h a m b e r o f R e a l E s t a
t e a n d B u i l d e r s Associ
ations, Inc., v. The Hon. Exec
u t i v e Secretary Alberto Romulo, et
alG.R. No. 160756. March 9, 2010Facts:
Petitioner Chamber of Real Estate an
d Builders Associations, Inc. (CREB
A ) , a n a s s o c i a t i o n o f r e a l e s t a t e devel
opers and builders in the Philippines,
questioned the validity of Section 27(E) of
the Tax Code which imposes the minimum
corporate income tax (MCIT) on
corporations.Under the Tax Code, a
corporation can become subject to
theMCIT at the rate of 2% of gross
income, beginning on the
4tht a x a b l e y e a r i m m e d i a t e l y f o l l o
w i n g t h e y e a r i n w h i c h i t commenc
ed its business operations, when suc
h M C I T i s greater than the normal
corporate income tax. If the
regularincome tax is higher than the
MCIT, the corporation does notpay the
MCIT.CREBA argued, among others, that the
use of gross income asMCIT base amounts to
a confiscation of capital because
grossincome, unlike net income, is not realized
gain.CREBA also sought to invalidate the
provisions of RR No. 298, as amended, otherwise know
n a s t h e C o n s o l i d a t e d Withholding
Tax Regulations, which prescribe the
rules andprocedures for the collection of CWT
on sales of real
propertiesc l a s s i f i e d a s o r d i n a r y a s s
e t s , o n t h e g r o u n d s t h a t t h e s e reg
ulations:

Use
gross selling price (GSP) or fair mar
k e t v a l u e (FMV) as basis for determiningthe
income tax on the sale of real estate
classified as ordinary assets, instead of
the entitys net taxable income as
providedfor under the Tax Code;

Mandate the collection of inc

o m e t a x o n a p e r transaction basis,
contrary to the Tax Code provision which
imposes income tax on net income at the end
of the taxable period;

Go against the due process cl

a u s e b e c a u s e t h e government
collects income tax even when
the netincome has not yet been
d e t e r m i n e d ; g a i n i s n e v e r assured by
mere receipt of the selling price; and

Contravene the equal

protection clause because theCWT is being
charged upon real estate enterprises, butnot on
other business enterprises, more
particularly,those in the manufacturing
sector, which do business similar to that of a
real estate enterprise.
Issues:
(1) Is the imposition of MCIT constitutional? (2)
Is theimposition of CWT on income from

sales of real properties classified as ordinary

assets constitutional?
Held: (
1) Yes. The imposition of the MCIT is
constitutional. An income tax is arbitrary
and confiscatory if it taxes
capital, b e c a u s e i t i s i n c o m e , a n d
n o t c a p i t a l , w h i c h i s s u b j e c t t o income
tax. However, MCIT is imposed on gross income
whichis computed by deducting from gross sales
the capital spent by a corporation in the sale of
its goods, i.e., the cost of goods andother direct
expenses from gross sales. Clearly, the
capital isnot being taxed. Various
safeguards were incorporated into the law
imposingMCIT
Firstly, recognizing the birth pangs
o f b u s i n e s s e s a n d t h e reality of the need to
recoup initial major capital expenditures,the
MCIT is imposed only on the 4th taxable year
immediately following the year in which the
corporation commenced
itsoperations.Secondly, the law allows the carryforward of any excess of theMCIT paid over the
normal income tax which shall be
crediteda g a i n s t t h e n o r m a l i n c o m e t a x
f o r t h e t h r e e i m m e d i a t e l y succeeding
years.Thirdly, since certain businesses
may be incurring genuinerepeated losses,
the law authorizes the Secretary of Finance
tosuspend the imposition of MCIT if a
corporation suffers lossesdue to prolonged
labor dispute, force majeure
and legitimate business reverses.(2) Yes.
Despite the imposition of CWT on GSP or
FMV, theincome tax base for sales of real
property classified as ordinary assets remains as
the entitys net taxable income as provided int h e
Tax Code, i.e., gross income less allo
w a b l e c o s t s a n d deductions. The seller shall
file its income tax return and creditthe taxes
withheld by the withholding agent-buyer
against itstax due. If the tax due is greater than
the tax withheld, then thetaxpayer shall pay the
difference. If, on the other hand, the taxdue
is less than the tax withheld, the taxpayer
will be entitledto a refund or tax credit.The
use of the GSP or FMV as basis to
determine the CWT isfor purposes of
practicality and convenience. The knowledge
of t h e w i t h h o l d i n g a g e n t - b u y e r i s
l i m i t e d t o t h e p a r t i c u l a r transaction in
which he is a party. Hence, his basis can only
bethe GSP or FMV which figures are reasonably
known to him. A l s o , t h e c o l l e c t i o n
of income tax via the CWT
o n a p e r transaction basis, i.e., upon
consummation of the sale, is not contrary to
the Tax Code which calls for the payment of the
netincome at the end of the taxable period. The
taxes withheld arein the nature of advance tax
payments by a taxpayer in order tocancel its
possible future tax obligation. They are
installmentson the annual tax which may be
due at the end of the taxable year. The
withholding agent-buyers act of collecting the
tax atthe time of the transaction, by
withholding the tax due from the income

payable, is the very essence of the withholding

taxmethod of tax collection.On the alleged
violation of the equal protection clause,
thet a x i n g p o w e r h a s t h e a u t h o
r i t y t o m a k e r e a s o n a b l e classific
ations for purposes of taxation.
Inequalities whichr e s u l t f r o m s i n g l i n g
out
a particular class for taxation, orexe
mption, infringe no constitutional li
m i t a t i o n . T h e r e a l estate industry is, by
itself, a class and can be validly
treateddifferently from other business
enterprises. W h a t d i s t i n g u i s h e s t h e r
e a l e s t a t e b u s i n e s s f r o m o t h e r ma
nufacturing enterprises, for purposes of
the imposition of the CWT, is not their
production processes but the prices
of their goods sold and the number of
transactions involved. Thei n c o m e f r o m
the sale of a real property is bigger
a n d i t s frequency of transaction limited,
making it less cumbersome for the parties to
comply with the withholding tax scheme. Onthe
other hand, each manufacturing enterprise may
have tensof thousands of transactions with
several thousand customersevery month
involving both minimal and substantial amounts

CIR v. Toda, Jr.

GR No. 147188; 14 September
2004
F A C T S: On 2 March 1989, CIC
authorized Benigno P. Toda, Jr., President
and owner of 99.991% of its outstanding
capital stock, to sell the Cibeles Building. On
30 August 1989, Toda purportedly sold the
property for P100 million to Rafael A.
Altonaga, who, in turn, sold the same
property on the same day to Royal Match
Inc. (RMI) for P200 million. Three and a
half years later Toda died. On 29 March
1994, the BIR sent an assessment notice and
demand letter to the CIC for deficiency
income tax for the year 1989. On 27 January
1995, the Estate of Benigno P. Toda, Jr.,
represented by special co-administrators
Lorna Kapunan and Mario Luza Bautista,
received a Notice of Assessment from the
CIR for deficiency income tax for the year
1989. The Estate thereafter filed a letter of
protest. The Commissioner dismissed the
protest. On 15 February 1996, the Estate
filed a petition for review with the CTA. In
its decision the CTA held that the

Commissioner failed to prove that CIC

committed fraud to deprive the government
of the taxes due it. It ruled that even
assuming that a pre-conceived scheme was
adopted by CIC, the same constituted mere
tax avoidance, and not tax evasion. Hence,
the CTA declared that the Estate is not liable
for deficiency of income tax. The
Commissioner filed a petition for review
with the Court of Appeals. The Court of
Appeals affirmed the decision of the CTA,
hence, this recourse.
I S S U E: Whether or not this is a case of
tax evasion or tax avoidance.
H E L D: Tax evasion connotes the
integration of three factors: (1) the end to be
achieved, i.e. the payment of less than that
known by the taxpayer to be legally due, or
the non-payment of tax when it is shown
that a tax is due; (2) an accompanying state
of mind which is described as being evil,
in bad faith, willfull, or deliberate and
not accidental; and (3) a course of action or
failure of action which is unlawful. All these
factors are present in the instant case. The
scheme resorted to by CIC in making it
appear that there were two sales of the
subject properties, i.e. from CIC to
Altonaga, and then from Altonaga to RMI
cannot be considered a legitimate tax
planning. Such scheme is tainted with fraud.
Altonagas sole purpose of acquiring and
transferring title of the subject properties on
the same day was to create a tax shelter. The
sale to him was merely a tax ploy, a sham,
and without business purpose and economic
substance. Doubtless, the execution of the
two sales was calculated to mislead the BIR
with the end in view of reducing the
consequent income tax liability.
SMART COMMUNICATIONS, INC.
vs.
THE CITY OF DAVAO,
represented Mayor DUTERTE, and
the SANGGUNIANG PANLUNGSOD

NACHURA, J.:

On March 27, 1992, Smart obtained its

legislative franchise under R.A. No.
7294. Sec. 9 of said law provides that
The grantee, its successors or assigns
shall be liable to pay the same taxes
on their real estate buildings and
personal property, exclusive of' this
franchise, as other persons or
corporations which are now or
hereafter may be required by law to
pay. In addition thereto, the grantee,
its successors or assigns shall pay a
franchise tax equivalent to three
percent (3%) of all gross receipts of
the business transacted under this
franchise
by
the
grantee,
its
successors or assigns and the said
percentage shall be in lieu of all
taxes on this franchise or earnings
thereof: Provided, That the grantee, its
successors or assigns shall continue to
be liable for income taxes payable
under Title II of the National Internal
Revenue Code pursuant to Section 2 of
Executive Order No. 72 unless the
latter enactment is amended or
repealed,
in
which
case
the
amendment or repeal shall be
applicable thereto.

The grantee shall file the return with

and pay the tax due thereon to the
Commissioner of Internal Revenue or
his duly authorized representative in
accordance with the National Internal
Revenue Code and the return shall be
subject to audit by the Bureau of
Internal
Revenue. (Emphasis
supplied.)
On January 1, 1992, the Local
Government Code (R.A. No. 7160) took
effect. Section 137, in relation to
Section 151 of R.A. No. 7160, allowed
the imposition of franchise tax by the
local government units.

R.A. No. 7716 or the VAT Law was

enacted which specifically expressed
under Section 20, repealing provisions
of all special laws (that includes the
legislative franchise R.A. No. 7294, a
special law) relative to the rate of
franchise taxes. It also repealed,
amended, or modified all other laws,
orders,
issuances,
rules
and
regulations, or parts thereof which are
inconsistent with it. It is in effect,
rendered ineffective the in lieu of all
taxes clause in R.A. No. 7294.

Tax Code of the City of Davao, Section

1, Article 10 thereof, provides:
Notwithstanding
any
exemption
granted by any law or other special
law, there is hereby imposed a tax on
businesses enjoying a franchise, at a
rate of seventy-five percent (75%) of
one percent (1%) of the gross annual
receipts for the preceding calendar
year based on the income or receipts
realized
within
the
territorial
jurisdiction of Davao City.

Smart filed a special civil action for

declaratory
relief
for
the
ascertainment of its rights and
obligations under the Tax Code of the
City of Davao and contends that its
telecenter in Davao City is exempt
from payment of franchise tax to the
City, on the following grounds:

the issuance of its franchise

under Republic Act (R.A.) No.
7294, subsequent to R.A. No.
7160 shows the clear legislative
intent to exempt it from the
provisions of R.A. 7160
that the in lieu of all
taxes
clause
in
Section
9
of
its
franchise exempts it
from all taxes, both
local and national,
except the national
franchise tax (now
VAT), income tax, and
real property tax
Section 137 of R.A. No. 7160

can only apply to exemptions

already existing at the time of
its effectivity and not to future
exemptions;
not covered bec. The franchise
was granted after the effectivity
of the LGC
the power of the City of Davao
to impose a franchise tax is
subject to statutory limitations
such as the in lieu of all
taxes clause found in Section
9 of R.A. No. 7294; and
only taxes it may be
made to bear under
its franchise are the
national franchise tax
(now VAT), income
tax, and real property
tax
exempt from the local
franchise tax because
the in lieu of taxes
clause in its franchise
does not distinguish
between national and
local taxes.
the imposition of franchise tax
by the City of Davao would
amount to a violation of the
constitutional provision against
impairment of contracts.
franchise is in the
nature of a contract
between
the
government
and
Smart.

Respondent invoked its power granted

by
the
Constitution
to
local
government units to create their own
sources of revenue.

RTC denied the petition on the ground

that petitioner failed to prove that it is
exempt from tax applying strictissimi
juris against the taxpayer and liberally
in favor of the taxing authority. On the
issue of violation of the nonimpairment clause of the Constitution,
it cited Mactan Cebu International
Airport Authority v. Marcos and
declared that the citys power to tax is
based not merely on a valid delegation
of legislative power but on the direct
authority granted to it by the

fundamental law. That while such

power may be subject to restrictions
or conditions imposed by Congress,
any such legislated limitation must be
consistent with the basic policy of local
autonomy.

ISSUES:

Exemption from Franchise Tax

under Section 9, RA 7294 which
contains in lieu of taxes clause
In lieu of taxes clause applies to
national taxes or local taxes or
both?
Violation to the Constitutional
prohibition against impairment of
contracts

HELD:

In this case, the doubt must be

resolved in favor of the City of Davao.
The in lieu of all taxes clause applies
only to national internal revenue taxes
and not to local taxes. It is clear that
the in lieu of all taxes clause apply
only to taxes under the NIRC and not
to local taxes. It is not even applied to
income tax, as shown in the provision
itself, to wit:

Petition is denied.

On In lieu of all taxes Clause in RA

7294:
R.A. No. 7294 is not definite in
granting exemption to Smart from
local taxation. Section 9 of R.A. No.
7294 imposes on Smart a franchise
tax equivalent to three percent (3%) of
all gross receipts of the business
transacted under the franchise and
the said percentage shall be in lieu of
all taxes on the franchise or earnings
thereof. R.A. No 7294 does not
expressly provide what kind of taxes
Smart is exempted from. It is not clear
whether the in lieu of all taxes
provision in the franchise of Smart
would include exemption from local or
national taxation. What is clear is that
Smart
shall
pay
franchise
tax
equivalent to three percent (3%) of all
gross
receipts
of
the
business
transacted under its franchise. But
whether the franchise tax exemption
would
include
exemption
from
exactions by both the local and the
national
government
is
not
unequivocal.

proviso in the first paragraph

of
Section
9,
Smart's
franchise states that the
grantee shall "continue to be
liable for income taxes
payable under Title II of the
National Internal Revenue
Code."
second paragraph of Section
9, speaks of tax returns filed
and taxes paid to the
"Commissioner of Internal
Revenue
or
his
duly
authorized representative in
accordance with the National
Internal Revenue Code."
same paragraph, declares
that the tax returns "shall be
subject to audit by the
Bureau of Internal Revenue."

If Congress intended the "in lieu of all

taxes" clause in Smart's franchise to
also apply to local taxes, Congress
would have expressly mentioned the
exemption
from
municipal
and
provincial taxes.

It should be noted that the in lieu of

all taxes clause in R.A. No. 7294 has
become functus
officio with
the
abolition of the franchise tax on
telecommunications
companies.
Currently, Smart along with other
telecommunications companies pays
the uniform 10% value-added tax. The
VAT on sale of services of telephone
franchise grantees is equivalent to
10% of gross receipts derived from the
sale or exchange of services, as
provided in R.A. No. 7716, as amended

by the Expanded Value Added Tax

Law (R.A. No. 8241).

On the burden
exemptions:

of

grant

to

Tax

Tax
exemptions
are
never
presumed and are strictly construed
against the taxpayer and liberally in
favor of the taxing authority. They can
only be given force when the grant is
clear and categorical. If the intention
of the legislature is open to doubt,
then the intention of the legislature
must be resolved in favor of the State.

On impairment of contracts:
There is no violation of Article III,
Section 10 of the 1987 Philippine
Constitution. The franchise of Smart
does not expressly provide for
exemption from local taxes. Absent
the
express
provision
on
such
exemption under the franchise, we are
constrained to rule against it. Due to
this ambiguity in the law, the doubt
must be resolved against the grant of
tax exemption.

Contract Clause has never been

thought as a limitation on the exercise
of the States power of taxation save
only where a tax exemption has been
granted for a valid consideration.
PBCom. vs. CIR(GR 112024. Jan. 28,
1999)
Posted by taxcasesdigest on Tuesday, July 7, 2009
Labels: 2-year, administrative
issuance, reglementary period, tax credit, tax refund

FACTS:

Petitioner, Philippine Bank of

Communications (PBCom), a commercial
banking corporation duly organized under
Philippine laws, filed its quarterly income

tax returns for the first and second

quarters of 1985, reported profits, and
paid the total income tax of
P5,016,954.00 by applying PBCom's tax
credit memos for P3,401,701.00 and
P1,615,253.00,
respectively. Subsequently, however,
PBCom suffered net loss of
P25,317,228.00, thereby showing no
income tax liability in its Annual Income
Tax Returns for the year-ended December
31, 1985. For the succeeding year, ending
December 31, 1986, the petitioner
likewise reported a net loss of
P14,129,602.00, and thus declared no tax
payable for the year.
But during these two years, PBCom
earned rental income from leased
properties. The lessees withheld and
remitted to the BIR withholding creditable
taxes of P282,795.50 in 1985 and
P234,077.69 in 1986. On August 7, 1987,
petitioner requested the Commissioner of
Internal Revenue, among others, for a tax
credit of P5,016,954.00 representing the
overpayment of taxes in the first and
second quarters of 1985.

Thereafter, on July 25, 1988, petitioner

filed a claim for refund of creditable taxes
withheld by their lessees from property
rentals in 1985 for P282,795.50 and in
1986 for P234,077.69.

Pending the investigation of the

respondent Commissioner of Internal
Revenue, petitioner instituted a Petition
for Review on November 18, 1988 before
the Court of Tax Appeals (CTA). The
petition was docketed as CTA Case No.
4309 entitled: "Philippine Bank of
Communications vs. Commissioner of
Internal Revenue."
The CTA decided in favor of the BIR on the
ground that the Petition was filed out of
time as the same was filed beyond the
two-year reglementary period. A motion
for Reconsideration was denied and the
appeal to Court of Appeals was likewise
denied. Thus, this appeal to Supreme
Court.

Issues:

a) Whether or not Revenue Regulations

No. 7-85 which alters the reglementary
period from two (2) years to ten (10)
years is valid.
b) Whether or not the petition for tax
refund had already prescribed.

Ruling:

RR 7-85 altering the 2-year prescriptive period

imposed by law to 10-year prescriptive period is
invalid.

Administrative issuances are merely

interpretations and not expansions of the
provisions of law, thus, in case of
inconsistency, the law prevails over them.
Administrative agencies have no
legislative power.

When the Acting Commissioner of

Internal Revenue issued RMC 7-85,
changing the prescriptive period of two
years to ten years on claims of excess
quarterly income tax payments, such
circular created a clear inconsistency with
the provision of Sec. 230 of 1977 NIRC. In
so doing, the BIR did not simply interpret
the law; rather it legislated guidelines
contrary to the statute passed by
Congress.

It bears repeating that Revenue

memorandum-circulars are considered
administrative rulings (in the sense of
more specific and less general
interpretations of tax laws) which are
issued from time to time by the
Commissioner of Internal Revenue. It is
widely accepted that the interpretation
placed upon a statute by the executive
officers, whose duty is to enforce it, is
entitled to great respect by the courts.

Nevertheless, such interpretation is not

conclusive and will be ignored if judicially
found to be erroneous. Thus, courts will
not countenance administrative issuances
that override, instead of remaining
consistent and in harmony with, the law
they seek to apply and implement.

Further, fundamental is the rule that the

State cannot be put in estoppel by the
mistakes or errors of its officials or
agents. As pointed out by the respondent
courts, the nullification of RMC No. 7-85
issued by the Acting Commissioner of
Internal Revenue is an administrative
interpretation which is not in harmony
with Sec. 230 of 1977 NIRC, for being
contrary to the express provision of a
statute. Hence, his interpretation could
not be given weight for to do so would, in
effect, amend the statute.

By implication of the above, claim for refund had

already prescribed.

Since the petition had been filed beyond

the prescriptive period, the same has
already prescribed. The fact that the final
adjusted return show an excess tax credit
does not automatically entitle taxpayer
claim for refund without any express
intent.

WHEREFORE, the petition is hereby

DENIED. The decision of the Court of
Appeals appealed from is AFFIRMED, with
COSTS against the petitioner.
COMMISSION OF INTERNAL REVENUE vs.
HANTEX TRADING CO., INC
G.R. No. 136975. March 31, 2005
Facts:

Hantex Trading Co is a company organized

under the Philippines. It is engaged in the
sale of plastic products, it imports
synthetic resin and other chemicals for the
manufacture of its products. For this

purpose, it is required to file an Import

Entry and Internal Revenue Declaration
(Consumption Entry) with the Bureau of
Customs under Section 1301 of the Tariff
and Customs Code. Sometime in October
1989, Lt. Vicente Amoto, Acting Chief of
Counter-Intelligence
Division
of
the
Economic Intelligence and Investigation
Bureau
(EIIB),
received
confidential
information that the respondent had
imported synthetic resin amounting to
P115,599,018.00
but
only
declared
P45,538,694.57. Thus, Hantex receive a
subpoena to present its books of account
which it failed to do. The bureau cannot
find any original copies of the products
Hantex imported since the originals were
eaten by termites. Thus, the Bureau relied
on the certified copies of the respondents
Profit and Loss Statement for 1987 and
1988 on file with the SEC, the machine
copies of the Consumption Entries, Series
of 1987, submitted by the informer, as
well as excerpts from the entries certified
by Tomas and Danganan. The case was
submitted to the CTA which ruled that
Hantex have tax deficiency and is ordered
to pay, per investigation of the Bureau.
The CA ruled that the income and sales
tax deficiency assessments issued by the
petitioner were unlawful and baseless
since the copies of the import entries
relied upon in computing the deficiency
tax of the respondent were not duly
authenticated by the public officer
charged with their custody, nor verified
under oath by the EIIB and the BIR
investigators.
Issue:

Whether or not the final assessment of the

petitioner against the respondent for
deficiency income tax and sales tax for the
latters 1987 importation of resins and
calcium
bicarbonate
is
based
on
competent
evidence
and
the
law.
Held:

Section 16 of the NIRC of 1977, as

amended, provides that the Commissioner
of Internal Revenue has the power to
make
assessments
and
prescribe

additional
requirements
for
tax
administration and enforcement. Among
such powers are those provided in
paragraph (b), which provides that Failure
to submit required returns, statements,
reports and other documents. When a
report required by law as a basis for the
assessment of any national internal
revenue tax shall not be forthcoming
within the time fixed by law or regulation
or when there is reason to believe that any
such report is false, incomplete or
erroneous, the Commissioner shall assess
the proper tax on the best evidence
obtainable. This provision applies when
the Commissioner of Internal Revenue
undertakes to perform her administrative
duty of assessing the proper tax against a
taxpayer, to make a return in case of a
taxpayers failure to file one, or to amend
a return already filed in the BIR. The best
evidence envisaged in Section 16 of the
1977 NIRC, as amended, includes the
corporate and accounting records of the
taxpayer who is the subject of the
assessment process, the accounting
records of other taxpayers engaged in the
same line of business, including their
gross profit and net profit sales. Such
evidence also includes data, record, paper,
document or any evidence gathered by
internal revenue officers from other
taxpayers who had personal transactions
or from whom the subject taxpayer
received any income; and record, data,
document and information secured from
government offices or agencies, such as
the SEC, the Central Bank of the
Philippines, the Bureau of Customs, and
the Tariff and Customs Commission.
However, the best evidence obtainable
under Section 16 of the 1977 NIRC, as
amended,
does
not
include
mere
photocopies of records/documents. The
petitioner, in making a preliminary and
final tax deficiency assessment against a
taxpayer,
cannot
anchor
the
said
assessment on mere machine copies of
records/documents. Mere photocopies of
the
Consumption
Entries
have
no
probative weight if offered as proof of the
contents thereof. The reason for this is
that such copies are mere scraps of paper
and are of no probative value as basis for
any deficiency income or business taxes
against a taxpayer.