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RECENT CASES IN TAXATION | BAJAMUNDI-PURA

1. KEPCO ILIJAN CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE


GR. 205185, SEPT. 26, 2018

FACTS:
Kepco is an independent power producer selling electricity solely to National Power
Corporation. It filed its quarterly VAT return for 4 quarters of 2002. On April 13, 2004, it filed for
refund with the RDO of BIR. Nine days after, or April 22, 2004, it filed for petition for review with
CTA. The CTA approved the refund for the second, third and fourth quarter of 2002, but denied
the refund for the first quarter on the ground of prescription.

ISSUE:
Whether or not the two year period for filing a claim for refund should be reckoned from
the date of filing a return or paying taxes pursuant to the two year rule under Atlas vs CIR?

HELD:
No.
Under Sec. 112 of the NIRC, a Vat registered taxpayer claiming a refund must file
administrative claim within two years from the close of the taxable quarter when the sales were
made. In the San Roque case (2013), the Court clarified the effectivity of the pronouncements in
Atlas case and Mirant case on the reckoning two year period, elucidating that: a) the Atlas
pronouncement was effective only from its promulgation on June 8, 2007 until its abandonment
on September 12, 2008 through Mirant, and b) prior to the promulgation of the ruling in Atlas,
Sec. 112(a) should be applied following the verba legis rule adopted in Mirant.
Under the circumstances, the petitioner had belatedly filed its administrative claim
corresponding to the first quarter of taxable year 2002, which was thereby already barred. But
the claims for the refund of the input taxes corresponding to the second, third and fourth quarters
were timely and not barred.

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2. ASIAN TRANSMISSION CORP VS COMMISSIONER OF INTERNAL REVENUE


GR 230861, SEPT 19, 2018

FACTS:
ATC is a manufacturer of vehicle transmission parts for Mitsubishi in Laguna. It filed its
return in January and March 2003. The BIR thereafter examined its books of account for taxable
year 2002. ATC issued several “Waiver of Defense of Prescription Under the Statute of Limitations
of NIRC”. In 2008, ATC availed of the Tax Amnesty Program. It thereafter received a Formal Letter
of Demand from the CIR for deficiency. ATC filed its Protest Letter. In 2009, ATC received a Final
Decision on disputed assessment where the CIR found ATC liable to pay the deficiency tax. ATC
filed an appeal letter, which was denied. On appeal to CTA, it ruled that the waivers, being invalid,
did not operate to toll or extend the three-year period of prescription. However, CTA en banc
held the waivers as valid and that the CIR’s right to assess deficiency withholding taxes against
ATC had not yet prescribed.

ISSUE:
Whether or not CTA en banc acted in excess of jurisdiction or with grave abuse of
discretion amounting to lack or excess of jurisdiction in applying the ruling in CIR vs Next Mobile
as well as the equitable principles of in pari delicto, unclean hands, and estoppel?

HELD:
No.
In CIR vs. Next Mobile, the Court declared that as a general rule a waiver that did not
comply with the requisites for validity was invalid and ineffective to extend the prescriptive period
to assess the deficiency taxes. However, due to peculiar circumstances, the Court treated the
case as an exception to the rule and considered the waivers as valid.
We agree with the holding of CTA en banc that ATC’s case was similar to that of CIR vs
Next Mobile. The defects in the waivers were not solely attributable to the CIR. The proper
preparation of the waiver was primarily the responsibility of the taxpayer. Such responsibility did
not pertain to the BIR as the receiving party.
Although the parties are in pari delicto, the court may interfere and grant relief at the suit
where public policy requires its intervention.
To uphold the validity of the waivers would be consistent with the public policy embodied
with the principle that taxes are the lifeblood of the government, and their prompt and certain
availability is an imperious need. It would be more equitable if petitioner’s lapses were allowed
to pass and consequently uphold the waivers in order to support this principle and public policy.
Parties who do not come to court with clean hands cannot be allowed to benefit from
their own wrongdoing. One should not be allowed to benefit from its own waivers and
successfully insist on their invalidity in order to evade its responsibility to pay taxes.
The principle of estoppel was applicable. The execution of waivers was to the advantage
of ATC because it would provide to ATC the sufficient time to gather and produce voluminous
records for the audit. It would be unfair if ATC were to be permitted to assail the waivers only
after the final assessment proved to be adverse.

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3. ALLIANCE OF QUEZON CITY HOMEOWNERS’ ASSOCIATION VS. THE QUEZON CITY GOVERNMENT
GR. 230651, SEPT. 18, 2018

FACTS:
The Quezon City government approved an ordinance which increased the fair market
value of properties indicated in the 1995 ordinance to supposedly reflect the prevailing market
prices of real properties in QC. It set the new levels of assessment at 5% for residential and 14%
for commercial classifications. The Ordinance was approved on December 14, 2016, which shall
become demandable on January 1, 2017.
The petitioner Alliance prayed that the ordinance be declared unconstitutional for
violating substantive due process and invalid for violating Sec. 130 of the LGC. It claimed that the
increase in FMVs, which resulted in increase in the taxpayer’s base, and taxes to be paid, was
unjust, excessive, oppressive arbitrary and confiscatory as proscribed by the LGC.
Respondent claimed that the petitioners has no standing to file the case as it is not a
juridical person, and that it has failed to exhaust administrative remedies under the LGC. It also
maintained that the resultant tax was reasonable because the increase in FMVs was tempered by
the decrease in the assessment levels to minimize impact on the taxpayers.

ISSUES:
1) Whether or not the petition is infirm for violations of the doctrines of exhaustion of
administrative remedies and hierarchy of courts, as well as Alliance’s lack of legal
capacity to sue?
2) Whether or not the 2016 ordinance is valid and constitutional?

HELD:

1) No.
The rule on administrative exhaustion admits of exceptions, one of which is when strong
public interest is involved. While taxation is an inherent power of the State, the exercise of
this power should not be unjust, excessive, oppressive or confiscatory as explicitly prohibited
under the LGC. Courts must therefore guard the public’s interest against such government
action. Accordingly, the Court exempts this case from the rule on administrative exhaustion.
In Ferrer, Jr. vs. Bautista, the Court allowed the direct resort to it, noting that the
challenged ordinances would adversely affect the property interests of all paying
constituents. It is in accordance with the well-entrenched principle that rules of procedure
are not inflexible tools designed to hinder or delay, but to facilitate and promote the
administration of justice.
The Rules of Court mandates that only natural or juridical persons, or entities authorized
by law may be parties in a civil action. Non-compliance with this requirement renders a case
dismissible on the ground of lack of legal capacity to sure, which refers to a plaintiff’s general
disability to sue, such as on account of minority, insanity, incompetence, lack of juridical
personality or any other general disqualifications of a party. Alliance admitted that it has no
juridical personality, considering the revocation of its SEC Certificate of Registration and its
failure to register with the HLURB.

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2) The Court is constrained to dismiss the petition due to Alliance’s lack of legal capacity to sue.
Thus, the resolution of the issues anent to the validity and constitutionality of the ordinance,
while indeed of great public interest and transcendental importance, must nonetheless await
the filing of the proper case by the proper party. The court co longer deems is necessary to
resolve the other issues raised in this case.

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4)HERARC REALTY CORP VS PROVINCIAL TREASURER OF BATANGAS, ET AL

GR. NO. 210736, SEPT. 5, 2018

FACTS:

13 parcels of land in Calatagan, Batangas were registered since 2006 in the name of petitioner
corporation, upon acquisition via execution sale in 2004. From March 2006 up to August 2009, the
property had been in actual possession of private respondents in their capacity as assignees in an
involuntary insolvency proceeding. It was only on August 2009 that petitioner was able to take full
possession and control of the property. On October 2012, the Provincial Treasurer of Batangas sent
petitioner a Statement of Real Property Tax Liabilities which included the unpaid taxes for 2007, 2008,
and 2009. The taxes were paid under protest.

Petitioner filed a petition for prohibition and mandamus with the RTC, which denied the petition
and held that the petitioner is liable to pay the tax. According to the RTC, an entity not exempt from
payment of taxes must be responsible for the payment of the deficiency taxes under the theory that
unpaid taxes attach to the land.

Petitioner thereafter filed directly with the Supreme Court a Rule 45 petition.

ISSUE:

1) Whether or not the Rule 45 petition with the Supreme Court is proper?
2) Whether or not the corporation is not liable to pay the taxes?

HELD:

1) NO.

As a taxpayer not satisfied with the RTC decision, it should have filed a petition for review before the
CTA. The decision, ruling or resolution of the CTA, sitting as a division, may further be reviewed by the
CTA En Banc. It is only after this procedure has been exhausted that the case may be elevated to the
Supreme Court.

The right to appeal is a statutory right, not a natural nor a constitutional right. The party who intends
to appeal must comply with the procedures and rules governing appeals; otherwise, the right of appeal
may be lost or squandered.

2) YES.

As the RTC correctly opined, in real estate taxation, the unpaid tax attaches to the property. The
personal liability for the tax delinquency is generally on whoever is the owner of the real property at the
time the tax accrues. This is a necessary consequence that proceeds from the fact of ownership.

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5) RHOMBUS ENERGY INC. VS COMMISSIONER OF INTERNAL REVENUE

GR. NO. 206362, AUGUST 1, 2018

FACTS:

Rhombus energy indicated in its Annual ITR for year 2005 that its excess creditable withholding
tax for year 2005 was “To be refunded”. On December 2007, pending petitioner’s action on respondent’s
claim for refund or issuance of a tax credit certificate of its excess/unutilized CWT for year 2005 and before
the lapse of the period for filing an appeal, respondent filed the instant petition for Review. The CIR held
that the taxes were not refundable. The CTA Division granted the petition. CTA en banc reversed and set
aside the decision.

ISSUE:

Whether or not Rhombus has proved its entitlement to the refund?

HELD:

YES.

The evidence shows that petitioner clearly signified its intention to be refunded of its excess
creditable tax withheld for calendar year 2005 in its annual ITR for the said year. Petitioner under Line 31
of the said ITR marked “x” on the box “To be refunded”. Moreover, petitioner’s 2006 and 2007 Annual
ITRs do not have any entries in Line 28A “Prior Year’s Excess Credits” which only prove that petitioner did
not carry-over its 2005 excess/unutilized creditable withholding tax to the succeeding taxable years or
quarters. The fact that the prior year’s excess credits were reported in its 2006 quarterly ITRs did not
reverse the option to be refunded exercised in its 2005 annual ITR. As such, the CTA en banc erred in
applying the irrevocability rule against Rhombus.

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