G.R. No.

81311 June 30, 1988 is not alledgedly within the powers of the President; that the VAT is oppressive, discriminatory, regressive, and
violates the due process and equal protection clauses and other provisions of the 1987 Constitution.
KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN NG PILIPINAS, INC., HERMINIGILDO C. DUMLAO,
GERONIMO Q. QUADRA, and MARIO C. VILLANUEVA, petitioners, The Solicitor General prays for the dismissal of the petitions on the ground that the petitioners have failed to
vs. show justification for the exercise of its judicial powers, viz. (1) the existence of an appropriate case; (2) an
HON. BIENVENIDO TAN, as Commissioner of Internal Revenue, respondent. interest, personal and substantial, of the party raising the constitutional questions; (3) the constitutional
question should be raised at the earliest opportunity; and (4) the question of constitutionality is directly and
G.R. No. 81820 June 30, 1988 necessarily involved in a justiciable controversy and its resolution is essential to the protection of the rights of
the parties. According to the Solicitor General, only the third requisite — that the constitutional question should
be raised at the earliest opportunity — has been complied with. He also questions the legal standing of the
KILUSANG MAYO UNO LABOR CENTER (KMU), its officers and affiliated labor federations and
petitioners who, he contends, are merely asking for an advisory opinion from the Court, there being no
alliances, petitioners,
justiciable controversy for resolution.
vs.
THE EXECUTIVE SECRETARY, SECRETARY OF FINANCE, THE COMMISSIONER OF INTERNAL REVENUE, and
SECRETARY OF BUDGET, respondents. Objections to taxpayers' suit for lack of sufficient personality standing, or interest are, however, in the main
procedural matters. Considering the importance to the public of the cases at bar, and in keeping with the Court's
duty, under the 1987 Constitution, to determine wether or not the other branches of government have kept
G.R. No. 81921 June 30, 1988
themselves within the limits of the Constitution and the laws and that they have not abused the discretion given
to them, the Court has brushed aside technicalities of procedure and has taken cognizance of these petitions.
INTEGRATED CUSTOMS BROKERS ASSOCIATION OF THE PHILIPPINES and JESUS B. BANAL, petitioners,
vs.
But, before resolving the issues raised, a brief look into the tax law in question is in order.
The HON. COMMISSIONER, BUREAU OF INTERNAL REVENUE, respondent.

The VAT is a tax levied on a wide range of goods and services. It is a tax on the value, added by every seller, with
G.R. No. 82152 June 30, 1988
aggregate gross annual sales of articles and/or services, exceeding P200,00.00, to his purchase of goods and
services, unless exempt. VAT is computed at the rate of 0% or 10% of the gross selling price of goods or gross
RICARDO C. VALMONTE, petitioner, receipts realized from the sale of services.
vs.
THE EXECUTIVE SECRETARY, SECRETARY OF FINANCE, COMMISSIONER OF INTERNAL REVENUE and SECRETARY
The VAT is said to have eliminated privilege taxes, multiple rated sales tax on manufacturers and producers,
OF BUDGET, respondent.
advance sales tax, and compensating tax on importations. The framers of EO 273 that it is principally aimed to
rationalize the system of taxing goods and services; simplify tax administration; and make the tax system more
Franklin S. Farolan for petitioner Kapatiran in G.R. No. 81311. equitable, to enable the country to attain economic recovery.

Jaime C. Opinion for individual petitioners in G.R. No. 81311.
Banzuela, Flores, Miralles, Rañeses, Sy, Taquio and Associates for petitioners in G.R. No 81820.
Union of Lawyers and Advocates for Peoples Right collaborating counsel for petitioners in G.R. No 81820.
Jose C. Leabres and Joselito R. Enriquez for petitioners in G.R. No. 81921.
The VAT is not entirely new. It was already in force, in a modified form, before EO 273 was issued. As pointed out
by the Solicitor General, the Philippine sales tax system, prior to the issuance of EO 273, was essentially a single
stage value added tax system computed under the "cost subtraction method" or "cost deduction method" and
was imposed only on original sale, barter or exchange of articles by manufacturers, producers, or importers.
Subsequent sales of such articles were not subject to sales tax. However, with the issuance of PD 1991 on 31
October 1985, a 3% tax was imposed on a second sale, which was reduced to 1.5% upon the issuance of PD 2006
on 31 December 1985, to take effect 1 January 1986. Reduced sales taxes were imposed not only on the second
sale, but on every subsequent sale, as well. EO 273 merely increased the VAT on every sale to 10%, unless zero-
rated or exempt.

PADILLA, J.: Petitioners first contend that EO 273 is unconstitutional on the Ground that the President had no authority to
issue EO 273 on 25 July 1987.
These four (4) petitions, which have been consolidated because of the similarity of the main issues involved
therein, seek to nullify Executive Order No. 273 (EO 273, for short), issued by the President of the Philippines on The contention is without merit.
25 July 1987, to take effect on 1 January 1988, and which amended certain sections of the National Internal
Revenue Code and adopted the value-added tax (VAT, for short), for being unconstitutional in that its enactment
It should be recalled that under Proclamation No. 3, which decreed a Provisional Constitution, sole legislative
authority was vested upon the President. Art. II, sec. 1 of the Provisional Constitution states:
Sec. 1. Until a legislature is elected and convened under a new Constitution, the President
shall continue to exercise legislative powers.
On 15 October 1986, the Constitutional Commission of 1986 adopted a new Constitution for the Republic of the
Philippines which was ratified in a plebiscite conducted on 2 February 1987. Article XVIII, sec. 6 of said
Constitution, hereafter referred to as the 1987 Constitution, provides:
Sec. 6. The incumbent President shall continue to exercise legislative powers until the first
Congress is convened.
It should be noted that, under both the Provisional and the 1987 Constitutions, the President is vested with
legislative powers until a legislature under a new Constitution is convened. The first Congress, created and
elected under the 1987 Constitution, was convened on 27 July 1987. Hence, the enactment of EO 273 on 25 July
1987, two (2) days before Congress convened on 27 July 1987, was within the President's constitutional power
and authority to legislate.
Petitioner Valmonte claims, additionally, that Congress was really convened on 30 June 1987 (not 27 July 1987).
He contends that the word "convene" is synonymous with "the date when the elected members of Congress
assumed office."
The contention is without merit. The word "convene" which has been interpreted to mean "to call together,
cause to assemble, or convoke," 1 is clearly different from assumption of office by the individual members of
Congress or their taking the oath of office. As an example, we call to mind the interim National Assembly created
under the 1973 Constitution, which had not been "convened" but some members of the body, more particularly
the delegates to the 1971 Constitutional Convention who had opted to serve therein by voting affirmatively for
the approval of said Constitution, had taken their oath of office.
To uphold the submission of petitioner Valmonte would stretch the definition of the word "convene" a bit too
far. It would also defeat the purpose of the framers of the 1987 Constitutional and render meaningless some
other provisions of said Constitution. For example, the provisions of Art. VI, sec. 15, requiring Congress
to convene once every year on the fourth Monday of July for its regular session would be a contrariety, since
Congress would already be deemed to be in session after the individual members have taken their oath of office.
A portion of the provisions of Art. VII, sec. 10, requiring Congress to convene for the purpose of enacting a law
calling for a special election to elect a President and Vice-President in case a vacancy occurs in said offices, would
also be a surplusage. The portion of Art. VII, sec. 11, third paragraph, requiring Congress to convene, if not in
session, to decide a conflict between the President and the Cabinet as to whether or not the President and the
Cabinet as to whether or not the President can re-assume the powers and duties of his office, would also be
redundant. The same is true with the portion of Art. VII, sec. 18, which requires Congress to convene within
twenty-four (24) hours following the declaration of martial law or the suspension of the privilage of the writ of
habeas corpus.
The 1987 Constitution mentions a specific date when the President loses her power to legislate. If the framers of
said Constitution had intended to terminate the exercise of legislative powers by the President at the beginning
of the term of office of the members of Congress, they should have so stated (but did not) in clear and
unequivocal terms. The Court has not power to re-write the Constitution and give it a meaning different from
that intended.
The Court also finds no merit in the petitioners' claim that EO 273 was issued by the President in grave abuse of
discretion amounting to lack or excess of jurisdiction. "Grave abuse of discretion" has been defined, as follows:
Grave abuse of discretion" implies such capricious and whimsical exercise of judgment as is
equivalent to lack of jurisdiction (Abad Santos vs. Province of Tarlac, 38 Off. Gaz. 834), or, in
other words, where the power is exercised in an arbitrary or despotic manner by reason of
passion or personal hostility, and it must be so patent and gross as to amount to an evasion
of positive duty or to a virtual refusal to perform the duty enjoined or to act at all in
contemplation of law. (Tavera-Luna, Inc. vs. Nable, 38 Off. Gaz. 62). 2
Petitioners have failed to show that EO 273 was issued capriciously and whimsically or in an arbitrary or despotic
manner by reason of passion or personal hostility. It appears that a comprehensive study of the VAT had been
extensively discussed by this framers and other government agencies involved in its implementation, even under
the past administration. As the Solicitor General correctly sated. "The signing of E.O. 273 was merely the last
stage in the exercise of her legislative powers. The legislative process started long before the signing when the
data were gathered, proposals were weighed and the final wordings of the measure were drafted, revised and
finalized. Certainly, it cannot be said that the President made a jump, so to speak, on the Congress, two days
before it convened." 3
Next, the petitioners claim that EO 273 is oppressive, discriminatory, unjust and regressive, in violation of the
provisions of Art. VI, sec. 28(1) of the 1987 Constitution, which states:
Sec. 28 (1) The rule of taxation shall be uniform and equitable. The Congress shall evolve a
progressive system of taxation.
The petitioners" assertions in this regard are not supported by facts and circumstances to warrant their
conclusions. They have failed to adequately show that the VAT is oppressive, discriminatory or unjust. Petitioners
merely rely upon newspaper articles which are actually hearsay and have evidentiary value. To justify the
nullification of a law. there must be a clear and unequivocal breach of the Constitution, not a doubtful and
argumentative implication. 4
As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is uniform. The court, in City of Baguio
vs. De Leon, 5 said:
... In Philippine Trust Company v. Yatco (69 Phil. 420), Justice Laurel, speaking for the Court,
stated: "A tax is considered uniform when it operates with the same force and effect in every
place where the subject may be found."
There was no occasion in that case to consider the possible effect on such a constitutional
requirement where there is a classification. The opportunity came in Eastern Theatrical Co. v.
Alfonso (83 Phil. 852, 862). Thus: "Equality and uniformity in taxation means that all taxable
articles or kinds of property of the same class shall be taxed at the same rate. The taxing
 power has the authority to make reasonable and natural classifications for purposes of
taxation; . . ." About two years later, Justice Tuason, speaking for this Court in Manila Race
Horses Trainers Assn. v. de la Fuente (88 Phil. 60, 65) incorporated the above excerpt in his
opinion and continued; "Taking everything into account, the differentiation against which the
plaintiffs complain conforms to the practical dictates of justice and equity and is not
discriminatory within the meaning of the Constitution."
To satisfy this requirement then, all that is needed as held in another case decided two years
later, (Uy Matias v. City of Cebu, 93 Phil. 300) is that the statute or ordinance in question
"applies equally to all persons, firms and corporations placed in similar situation." This Court
is on record as accepting the view in a leading American case (Carmichael v. Southern Coal
and Coke Co., 301 US 495) that "inequalities which result from a singling out of one particular
class for taxation or exemption infringe no constitutional limitation." (Lutz v. Araneta, 98 Phil.
148, 153).
The sales tax adopted in EO 273 is applied similarly on all goods and services sold to the public, which are not
exempt, at the constant rate of 0% or 10%.
The disputed sales tax is also equitable. It is imposed only on sales of goods or services by persons engage in
business with an aggregate gross annual sales exceeding P200,000.00. Small corner sari-sari stores are
consequently exempt from its application. Likewise exempt from the tax are sales of farm and marine products,
spared as they are from the incidence of the VAT, are expected to be relatively lower and within the reach of the
general public. 6
The Court likewise finds no merit in the contention of the petitioner Integrated Customs Brokers Association of
the Philippines that EO 273, more particularly the new Sec. 103 (r) of the National Internal Revenue Code, unduly
discriminates against customs brokers. The contested provision states:
Sec. 103. Exempt transactions. — The following shall be exempt from the value-added tax:
xxx xxx xxx
(r) Service performed in the exercise of profession or calling (except customs brokers) subject
to the occupation tax under the Local Tax Code, and professional services performed by
registered general professional partnerships;
The phrase "except customs brokers" is not meant to discriminate against customs brokers. It was inserted in
Sec. 103(r) to complement the provisions of Sec. 102 of the Code, which makes the services of customs brokers
subject to the payment of the VAT and to distinguish customs brokers from other professionals who are subject
to the payment of an occupation tax under the Local Tax Code. Pertinent provisions of Sec. 102 read:
Sec. 102. Value-added tax on sale of services. — There shall be levied, assessed and collected,
a value-added tax equivalent to 10% percent of gross receipts derived by any person engaged
in the sale of services. The phrase sale of services" means the performance of all kinds of
services for others for a fee, remuneration or consideration, including those performed or
rendered by construction and service contractors; stock, real estate, commercial, customs
and immigration brokers; lessors of personal property; lessors or distributors of
cinematographic films; persons engaged in milling, processing, manufacturing or repacking
goods for others; and similar services regardless of whether or not the performance thereof
call for the exercise or use of the physical or mental faculties: ...
With the insertion of the clarificatory phrase "except customs brokers" in Sec. 103(r), a potential conflict
between the two sections, (Secs. 102 and 103), insofar as customs brokers are concerned, is averted.
At any rate, the distinction of the customs brokers from the other professionals who are subject to occupation
tax under the Local Tax Code is based upon material differences, in that the activities of customs brokers (like
those of stock, real estate and immigration brokers) partake more of a business, rather than a profession and
were thus subjected to the percentage tax under Sec. 174 of the National Internal Revenue Code prior to its
amendment by EO 273. EO 273 abolished the percentage tax and replaced it with the VAT. If the petitioner
Association did not protest the classification of customs brokers then, the Court sees no reason why it should
protest now.
The Court takes note that EO 273 has been in effect for more than five (5) months now, so that the fears
expressed by the petitioners that the adoption of the VAT will trigger skyrocketing of prices of basic commodities
and services, as well as mass actions and demonstrations against the VAT should by now be evident. The fact
that nothing of the sort has happened shows that the fears and apprehensions of the petitioners appear to be
more imagined than real. It would seem that the VAT is not as bad as we are made to believe.
In any event, if petitioners seriously believe that the adoption and continued application of the VAT are
prejudicial to the general welfare or the interests of the majority of the people, they should seek recourse and
relief from the political branches of the government. The Court, following the time-honored doctrine of
separation of powers, cannot substitute its judgment for that of the President as to the wisdom, justice and
advisability of the adoption of the VAT. The Court can only look into and determine whether or not EO 273 was
enacted and made effective as law, in the manner required by, and consistent with, the Constitution, and to
make sure that it was not issued in grave abuse of discretion amounting to lack or excess of jurisdiction; and, in
this regard, the Court finds no reason to impede its application or continued implementation.
WHEREFORE, the petitions are DISMISSED. Without pronouncement as to costs.
SO ORDERED.
G.R. No. 115455 October 30, 1995
ARTURO M. TOLENTINO, petitioner,
vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE, respondents.
G.R. No. 115525 October 30, 1995
JUAN T. DAVID, petitioner,
vs.
TEOFISTO T. GUINGONA, JR., as Executive Secretary; ROBERTO DE OCAMPO, as Secretary of Finance;
LIWAYWAY VINZONS-CHATO, as Commissioner of Internal Revenue; and their AUTHORIZED AGENTS OR COOPERATIVE UNION OF THE PHILIPPINES, petitioner,
REPRESENTATIVES, respondents. vs.
HON. LIWAYWAY V. CHATO, in her capacity as the Commissioner of Internal Revenue, HON. TEOFISTO T.
G.R. No. 115543 October 30, 1995 GUINGONA, JR., in his capacity as Executive Secretary, and HON. ROBERTO B. DE OCAMPO, in his capacity as
Secretary of Finance, respondents.
RAUL S. ROCO and the INTEGRATED BAR OF THE PHILIPPINES, petitioners,
vs. G.R. No. 115931 October 30, 1995
THE SECRETARY OF THE DEPARTMENT OF FINANCE; THE COMMISSIONERS OF THE BUREAU OF INTERNAL
REVENUE AND BUREAU OF CUSTOMS, respondents. PHILIPPINE EDUCATIONAL PUBLISHERS ASSOCIATION, INC. and ASSOCIATION OF PHILIPPINE BOOK
SELLERS, petitioners,
G.R. No. 115544 October 30, 1995 vs.
HON. ROBERTO B. DE OCAMPO, as the Secretary of Finance; HON. LIWAYWAY V. CHATO, as the Commissioner
of Internal Revenue; and HON. GUILLERMO PARAYNO, JR., in his capacity as the Commissioner of
PHILIPPINE PRESS INSTITUTE, INC.; EGP PUBLISHING CO., INC.; KAMAHALAN PUBLISHING CORPORATION;
Customs, respondents.
PHILIPPINE JOURNALISTS, INC.; JOSE L. PAVIA; and OFELIA L. DIMALANTA, petitioners,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as Commissioner of Internal Revenue; HON. TEOFISTO T. RESOLUTION
GUINGONA, JR., in his capacity as Executive Secretary; and HON. ROBERTO B. DE OCAMPO, in his capacity as
Secretary of Finance, respondents.
MENDOZA, J.:
G.R. No. 115754 October 30, 1995
These are motions seeking reconsideration of our decision dismissing the petitions filed in these cases for the
CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS, INC., (CREBA), petitioner, declaration of unconstitutionality of R.A. No. 7716, otherwise known as the Expanded Value-Added Tax Law. The
vs. motions, of which there are 10 in all, have been filed by the several petitioners in these cases, with the exception
THE COMMISSIONER OF INTERNAL REVENUE, respondent. of the Philippine Educational Publishers Association, Inc. and the Association of Philippine Booksellers,
petitioners in G.R. No. 115931.
G.R. No. 115781 October 30, 1995
The Solicitor General, representing the respondents, filed a consolidated comment, to which the Philippine
Airlines, Inc., petitioner in G.R. No. 115852, and the Philippine Press Institute, Inc., petitioner in G.R. No. 115544,
KILOSBAYAN, INC., JOVITO R. SALONGA, CIRILO A. RIGOS, ERME CAMBA, EMILIO C. CAPULONG, JR., JOSE T.
and Juan T. David, petitioner in G.R. No. 115525, each filed a reply. In turn the Solicitor General filed on June 1,
APOLO, EPHRAIM TENDERO, FERNANDO SANTIAGO, JOSE ABCEDE, CHRISTINE TAN, FELIPE L. GOZON, RAFAEL
1995 a rejoinder to the PPI's reply.
G. FERNANDO, RAOUL V. VICTORINO, JOSE CUNANAN, QUINTIN S. DOROMAL, MOVEMENT OF ATTORNEYS
FOR BROTHERHOOD, INTEGRITY AND NATIONALISM, INC. ("MABINI"), FREEDOM FROM DEBT COALITION,
INC., and PHILIPPINE BIBLE SOCIETY, INC. and WIGBERTO TAÑADA, petitioners, On June 27, 1995 the matter was submitted for resolution.
vs.
THE EXECUTIVE SECRETARY, THE SECRETARY OF FINANCE, THE COMMISSIONER OF INTERNAL REVENUE and I. Power of the Senate to propose amendments to revenue bills. Some of the petitioners (Tolentino, Kilosbayan,
THE COMMISSIONER OF CUSTOMS, respondents. Inc., Philippine Airlines (PAL), Roco, and Chamber of Real Estate and Builders Association (CREBA)) reiterate
previous claims made by them that R.A. No. 7716 did not "originate exclusively" in the House of Representatives
G.R. No. 115852 October 30, 1995 as required by Art. VI, §24 of the Constitution. Although they admit that H. No. 11197 was filed in the House of
Representatives where it passed three readings and that afterward it was sent to the Senate where after first
reading it was referred to the Senate Ways and Means Committee, they complain that the Senate did not pass it
PHILIPPINE AIRLINES, INC., petitioner,
on second and third readings. Instead what the Senate did was to pass its own version (S. No. 1630) which it
vs.
approved on May 24, 1994. Petitioner Tolentino adds that what the Senate committee should have done was to
THE SECRETARY OF FINANCE and COMMISSIONER OF INTERNAL REVENUE, respondents.
amend H. No. 11197 by striking out the text of the bill and substituting it with the text of S. No. 1630. That way,
it is said, "the bill remains a House bill and the Senate version just becomes the text (only the text) of the House
G.R. No. 115873 October 30, 1995 bill."

The contention has no merit.

The enactment of S. No. 1630 is not the only instance in which the Senate proposed an amendment to a House THIS PURPOSE CERTAIN PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS
revenue bill by enacting its own version of a revenue bill. On at least two occasions during the Eighth Congress, AMENDED (February 24, 1993)
the Senate passed its own version of revenue bills, which, in consolidation with House bills earlier passed,
became the enrolled bills. These were: House Bill No. 1470, October 20, 1992

R.A. No. 7369 (AN ACT TO AMEND THE OMNIBUS INVESTMENTS CODE OF 1987 BY EXTENDING FROM FIVE (5) Senate Bill No. 35, November 19, 1992
YEARS TO TEN YEARS THE PERIOD FOR TAX AND DUTY EXEMPTION AND TAX CREDIT ON CAPITAL EQUIPMENT)
which was approved by the President on April 10, 1992. This Act is actually a consolidation of H. No. 34254,
4. R.A. NO. 7649
which was approved by the House on January 29, 1992, and S. No. 1920, which was approved by the Senate on
February 3, 1992.
AN ACT REQUIRING THE GOVERNMENT OR ANY OF ITS POLITICAL SUBDIVISIONS,
INSTRUMENTALITIES OR AGENCIES INCLUDING GOVERNMENT-OWNED OR CONTROLLED
R.A. No. 7549 (AN ACT GRANTING TAX EXEMPTIONS TO WHOEVER SHALL GIVE REWARD TO ANY FILIPINO
CORPORATIONS (GOCCS) TO DEDUCT AND WITHHOLD THE VALUE-ADDED TAX DUE AT THE
ATHLETE WINNING A MEDAL IN OLYMPIC GAMES) which was approved by the President on May 22, 1992. This
RATE OF THREE PERCENT (3%) ON GROSS PAYMENT FOR THE PURCHASE OF GOODS AND SIX
Act is a consolidation of H. No. 22232, which was approved by the House of Representatives on August 2, 1989,
PERCENT (6%) ON GROSS RECEIPTS FOR SERVICES RENDERED BY CONTRACTORS (April 6,
and S. No. 807, which was approved by the Senate on October 21, 1991.
1993)

On the other hand, the Ninth Congress passed revenue laws which were also the result of the consolidation of
House Bill No. 5260, January 26, 1993
House and Senate bills. These are the following, with indications of the dates on which the laws were approved
by the President and dates the separate bills of the two chambers of Congress were respectively passed:
Senate Bill No. 1141, March 30, 1993
1. R.A. NO. 7642
5. R.A. NO. 7656
AN ACT INCREASING THE PENALTIES FOR TAX EVASION, AMENDING FOR THIS PURPOSE THE
PERTINENT SECTIONS OF THE NATIONAL INTERNAL REVENUE CODE (December 28, 1992). AN ACT REQUIRING GOVERNMENT-OWNED OR CONTROLLED CORPORATIONS TO DECLARE
DIVIDENDS UNDER CERTAIN CONDITIONS TO THE NATIONAL GOVERNMENT, AND FOR
OTHER PURPOSES (November 9, 1993)
House Bill No. 2165, October 5, 1992

House Bill No. 11024, November 3, 1993

Senate Bill No. 32, December 7, 1992

Senate Bill No. 1168, November 3, 1993

2. R.A. NO. 7643

6. R.A. NO. 7660

AN ACT TO EMPOWER THE COMMISSIONER OF INTERNAL REVENUE TO REQUIRE THE
PAYMENT OF THE VALUE-ADDED TAX EVERY MONTH AND TO ALLOW LOCAL GOVERNMENT
UNITS TO SHARE IN VAT REVENUE, AMENDING FOR THIS PURPOSE CERTAIN SECTIONS OF AN ACT RATIONALIZING FURTHER THE STRUCTURE AND ADMINISTRATION OF THE
THE NATIONAL INTERNAL REVENUE CODE (December 28, 1992) DOCUMENTARY STAMP TAX, AMENDING FOR THE PURPOSE CERTAIN PROVISIONS OF THE
NATIONAL INTERNAL REVENUE CODE, AS AMENDED, ALLOCATING FUNDS FOR SPECIFIC
PROGRAMS, AND FOR OTHER PURPOSES (December 23, 1993)
House Bill No. 1503, September 3, 1992

House Bill No. 7789, May 31, 1993

Senate Bill No. 968, December 7, 1992

Senate Bill No. 1330, November 18, 1993

3. R.A. NO. 7646

7. R.A. NO. 7717

AN ACT AUTHORIZING THE COMMISSIONER OF INTERNAL REVENUE TO PRESCRIBE THE
PLACE FOR PAYMENT OF INTERNAL REVENUE TAXES BY LARGE TAXPAYERS, AMENDING FOR
 AN ACT IMPOSING A TAX ON THE SALE, BARTER OR EXCHANGE OF SHARES OF STOCK LISTED
AND TRADED THROUGH THE LOCAL STOCK EXCHANGE OR THROUGH INITIAL PUBLIC
OFFERING, AMENDING FOR THE PURPOSE THE NATIONAL INTERNAL REVENUE CODE, AS
AMENDED, BY INSERTING A NEW SECTION AND REPEALING CERTAIN SUBSECTIONS THEREOF
(May 5, 1994)
House Bill No. 9187, November 3, 1993
Senate Bill No. 1127, March 23, 1994
Thus, the enactment of S. No. 1630 is not the only instance in which the Senate, in the exercise of its power to
propose amendments to bills required to originate in the House, passed its own version of a House revenue
measure. It is noteworthy that, in the particular case of S. No. 1630, petitioners Tolentino and Roco, as members
of the Senate, voted to approve it on second and third readings.
On the other hand, amendment by substitution, in the manner urged by petitioner Tolentino, concerns a mere
matter of form. Petitioner has not shown what substantial difference it would make if, as the Senate actually did
in this case, a separate bill like S. No. 1630 is instead enacted as a substitute measure, "taking into
Consideration . . . H.B. 11197."
Indeed, so far as pertinent, the Rules of the Senate only provide:
RULE XXIX
AMENDMENTS
xxx xxx xxx
§68. Not more than one amendment to the original amendment shall be considered.
No amendment by substitution shall be entertained unless the text thereof is submitted in
writing.
Any of said amendments may be withdrawn before a vote is taken thereon.
§69. No amendment which seeks the inclusion of a legislative provision foreign to the subject
matter of a bill (rider) shall be entertained.
xxx xxx xxx
§70-A. A bill or resolution shall not be amended by substituting it with another which covers
a subject distinct from that proposed in the original bill or resolution. (emphasis added).
Nor is there merit in petitioners' contention that, with regard to revenue bills, the Philippine Senate possesses
less power than the U.S. Senate because of textual differences between constitutional provisions giving them the
power to propose or concur with amendments.
Art. I, §7, cl. 1 of the U.S. Constitution reads:
All Bills for raising Revenue shall originate in the House of Representatives; but the Senate
may propose or concur with amendments as on other Bills.
Art. VI, §24 of our Constitution reads:
All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of
local application, and private bills shall originate exclusively in the House of Representatives,
but the Senate may propose or concur with amendments.
The addition of the word "exclusively" in the Philippine Constitution and the decision to drop the phrase "as on
other Bills" in the American version, according to petitioners, shows the intention of the framers of our
Constitution to restrict the Senate's power to propose amendments to revenue bills. Petitioner Tolentino
contends that the word "exclusively" was inserted to modify "originate" and "the words 'as in any other bills'
(sic) were eliminated so as to show that these bills were not to be like other bills but must be treated as a special
kind."
The history of this provision does not support this contention. The supposed indicia of constitutional intent are
nothing but the relics of an unsuccessful attempt to limit the power of the Senate. It will be recalled that the
1935 Constitution originally provided for a unicameral National Assembly. When it was decided in 1939 to
change to a bicameral legislature, it became necessary to provide for the procedure for lawmaking by the Senate
and the House of Representatives. The work of proposing amendments to the Constitution was done by the
National Assembly, acting as a constituent assembly, some of whose members, jealous of preserving the
Assembly's lawmaking powers, sought to curtail the powers of the proposed Senate. Accordingly they proposed
the following provision:
All bills appropriating public funds, revenue or tariff bills, bills of local application, and private
bills shall originate exclusively in the Assembly, but the Senate may propose or concur with
amendments. In case of disapproval by the Senate of any such bills, the Assembly may repass
the same by a two-thirds vote of all its members, and thereupon, the bill so repassed shall be
deemed enacted and may be submitted to the President for corresponding action. In the
event that the Senate should fail to finally act on any such bills, the Assembly may, after
thirty days from the opening of the next regular session of the same legislative term,
reapprove the same with a vote of two-thirds of all the members of the Assembly. And upon
such reapproval, the bill shall be deemed enacted and may be submitted to the President for
corresponding action.
The special committee on the revision of laws of the Second National Assembly vetoed the proposal. It deleted
everything after the first sentence. As rewritten, the proposal was approved by the National Assembly and
embodied in Resolution No. 38, as amended by Resolution No. 73. (J. ARUEGO, KNOW YOUR CONSTITUTION 65-
66 (1950)). The proposed amendment was submitted to the people and ratified by them in the elections held on
June 18, 1940.
This is the history of Art. VI, §18 (2) of the 1935 Constitution, from which Art. VI, §24 of the present Constitution
was derived. It explains why the word "exclusively" was added to the American text from which the framers of
the Philippine Constitution borrowed and why the phrase "as on other Bills" was not copied. Considering the
defeat of the proposal, the power of the Senate to propose amendments must be understood to be full, plenary
and complete "as on other Bills." Thus, because revenue bills are required to originate exclusively in the House of
Representatives, the Senate cannot enact revenue measures of its own without such bills. After a revenue bill is
passed and sent over to it by the House, however, the Senate certainly can pass its own version on the same
subject matter. This follows from the coequality of the two chambers of Congress.
That this is also the understanding of book authors of the scope of the Senate's power to concur is clear from the
following commentaries:
The power of the Senate to propose or concur with amendments is apparently without
restriction. It would seem that by virtue of this power, the Senate can practically re-write a
bill required to come from the House and leave only a trace of the original bill. For example, a
general revenue bill passed by the lower house of the United States Congress contained
provisions for the imposition of an inheritance tax . This was changed by the Senate into a
corporation tax. The amending authority of the Senate was declared by the United States
Supreme Court to be sufficiently broad to enable it to make the alteration. [Flint v. Stone
Tracy Company, 220 U.S. 107, 55 L. ed. 389].
(L. TAÑADA AND F. CARREON, POLITICAL LAW OF THE PHILIPPINES 247 (1961))
The above-mentioned bills are supposed to be initiated by the House of Representatives
because it is more numerous in membership and therefore also more representative of the
people. Moreover, its members are presumed to be more familiar with the needs of the
country in regard to the enactment of the legislation involved.
The Senate is, however, allowed much leeway in the exercise of its power to propose or
concur with amendments to the bills initiated by the House of Representatives. Thus, in one
case, a bill introduced in the U.S. House of Representatives was changed by the Senate to
make a proposed inheritance tax a corporation tax. It is also accepted practice for the Senate
to introduce what is known as an amendment by substitution, which may entirely replace the
bill initiated in the House of Representatives.
(I. CRUZ, PHILIPPINE POLITICAL LAW 144-145 (1993)).
In sum, while Art. VI, §24 provides that all appropriation, revenue or tariff bills, bills authorizing increase of the
public debt, bills of local application, and private bills must "originate exclusively in the House of
Representatives," it also adds, "but the Senate may propose or concur with amendments." In the exercise of this
power, the Senate may propose an entirely new bill as a substitute measure. As petitioner Tolentino states in a
high school text, a committee to which a bill is referred may do any of the following:
(1) to endorse the bill without changes; (2) to make changes in the bill omitting or adding
sections or altering its language; (3) to make and endorse an entirely new bill as a substitute,
in which case it will be known as a committee bill; or (4) to make no report at all.
(A. TOLENTINO, THE GOVERNMENT OF THE PHILIPPINES 258 (1950))
To except from this procedure the amendment of bills which are required to originate in the House by
prescribing that the number of the House bill and its other parts up to the enacting clause must be preserved
although the text of the Senate amendment may be incorporated in place of the original body of the bill is to
insist on a mere technicality. At any rate there is no rule prescribing this form. S. No. 1630, as a substitute
measure, is therefore as much an amendment of H. No. 11197 as any which the Senate could have made.
II. S. No. 1630 a mere amendment of H. No. 11197. Petitioners' basic error is that they assume that S. No. 1630 is
an independent and distinct bill. Hence their repeated references to its certification that it was passed by the
Senate "in substitution of S.B. No. 1129, taking into consideration P.S. Res. No. 734 and H.B. No. 11197," implying
that there is something substantially different between the reference to S. No. 1129 and the reference to H. No.
11197. From this premise, they conclude that R.A. No. 7716 originated both in the House and in the Senate and
that it is the product of two "half-baked bills because neither H. No. 11197 nor S. No. 1630 was passed by both
houses of Congress."
In point of fact, in several instances the provisions of S. No. 1630, clearly appear to be mere amendments of the
corresponding provisions of H. No. 11197. The very tabular comparison of the provisions of H. No. 11197 and S.
No. 1630 attached as Supplement A to the basic petition of petitioner Tolentino, while showing differences
between the two bills, at the same time indicates that the provisions of the Senate bill were precisely intended
to be amendments to the House bill.
Without H. No. 11197, the Senate could not have enacted S. No. 1630. Because the Senate bill was a mere
amendment of the House bill, H. No. 11197 in its original form did not have to pass the Senate on second and
three readings. It was enough that after it was passed on first reading it was referred to the Senate Committee
on Ways and Means. Neither was it required that S. No. 1630 be passed by the House of Representatives before
the two bills could be referred to the Conference Committee.
There is legislative precedent for what was done in the case of H. No. 11197 and S. No. 1630. When the House
bill and Senate bill, which became R.A. No. 1405 (Act prohibiting the disclosure of bank deposits), were referred
to a conference committee, the question was raised whether the two bills could be the subject of such
conference, considering that the bill from one house had not been passed by the other and vice versa. As
Congressman Duran put the question:
MR. DURAN. Therefore, I raise this question of order as to procedure: If a House bill is passed
by the House but not passed by the Senate, and a Senate bill of a similar nature is passed in
the Senate but never passed in the House, can the two bills be the subject of a conference,
and can a law be enacted from these two bills? I understand that the Senate bill in this
particular instance does not refer to investments in government securities, whereas the bill
in the House, which was introduced by the Speaker, covers two subject matters: not only
investigation of deposits in banks but also investigation of investments in government
securities. Now, since the two bills differ in their subject matter, I believe that no law can be
enacted.
Ruling on the point of order raised, the chair (Speaker Jose B. Laurel, Jr.) said:
THE SPEAKER. The report of the conference committee is in order. It is precisely in cases like
this where a conference should be had. If the House bill had been approved by the Senate,
there would have been no need of a conference; but precisely because the Senate passed
another bill on the same subject matter, the conference committee had to be created, and
we are now considering the report of that committee.
(2 CONG. REC. NO. 13, July 27, 1955, pp. 3841-42 (emphasis added))
III. The President's certification. The fallacy in thinking that H. No. 11197 and S. No. 1630 are distinct and
unrelated measures also accounts for the petitioners' (Kilosbayan's and PAL's) contention that because the
President separately certified to the need for the immediate enactment of these measures, his certification was
ineffectual and void. The certification had to be made of the version of the same revenue bill which at the
moment was being considered. Otherwise, to follow petitioners' theory, it would be necessary for the President
to certify as many bills as are presented in a house of Congress even though the bills are merely versions of the
bill he has already certified. It is enough that he certifies the bill which, at the time he makes the certification, is
under consideration. Since on March 22, 1994 the Senate was considering S. No. 1630, it was that bill which had
to be certified. For that matter on June 1, 1993 the President had earlier certified H. No. 9210 for immediate
enactment because it was the one which at that time was being considered by the House. This bill was later
substituted, together with other bills, by H. No. 11197.
As to what Presidential certification can accomplish, we have already explained in the main decision that the
phrase "except when the President certifies to the necessity of its immediate enactment, etc." in Art. VI, §26 (2)
qualifies not only the requirement that "printed copies [of a bill] in its final form [must be] distributed to the
members three days before its passage" but also the requirement that before a bill can become a law it must
have passed "three readings on separate days." There is not only textual support for such construction but
historical basis as well.
Art. VI, §21 (2) of the 1935 Constitution originally provided:
(2) No bill shall be passed by either House unless it shall have been printed and copies
thereof in its final form furnished its Members at least three calendar days prior to its
passage, except when the President shall have certified to the necessity of its immediate
enactment. Upon the last reading of a bill, no amendment thereof shall be allowed and the
question upon its passage shall be taken immediately thereafter, and
the yeas and nays entered on the Journal.
When the 1973 Constitution was adopted, it was provided in Art. VIII, §19 (2):
(2) No bill shall become a law unless it has passed three readings on separate days, and
printed copies thereof in its final form have been distributed to the Members three days
before its passage, except when the Prime Minister certifies to the necessity of its immediate
enactment to meet a public calamity or emergency. Upon the last reading of a bill, no
amendment thereto shall be allowed, and the vote thereon shall be taken immediately
thereafter, and the yeas and nays entered in the Journal.
This provision of the 1973 document, with slight modification, was adopted in Art. VI, §26 (2) of the present
Constitution, thus:
(2) No bill passed by either House shall become a law unless it has passed three readings on
separate days, and printed copies thereof in its final form have been distributed to its
Members three days before its passage, except when the President certifies to the necessity
of its immediate enactment to meet a public calamity or emergency. Upon the last reading of
a bill, no amendment thereto shall be allowed, and the vote thereon shall be taken
immediately thereafter, and the yeas and nays entered in the Journal.
The exception is based on the prudential consideration that if in all cases three readings on separate days are
required and a bill has to be printed in final form before it can be passed, the need for a law may be rendered
academic by the occurrence of the very emergency or public calamity which it is meant to address.
Petitioners further contend that a "growing budget deficit" is not an emergency, especially in a country like the
Philippines where budget deficit is a chronic condition. Even if this were the case, an enormous budget deficit
does not make the need for R.A. No. 7716 any less urgent or the situation calling for its enactment any less an
emergency.
Apparently, the members of the Senate (including some of the petitioners in these cases) believed that there
was an urgent need for consideration of S. No. 1630, because they responded to the call of the President by
voting on the bill on second and third readings on the same day. While the judicial department is not bound by
the Senate's acceptance of the President's certification, the respect due coequal departments of the government
in matters committed to them by the Constitution and the absence of a clear showing of grave abuse of
discretion caution a stay of the judicial hand.
At any rate, we are satisfied that S. No. 1630 received thorough consideration in the Senate where it was
discussed for six days. Only its distribution in advance in its final printed form was actually dispensed with by
holding the voting on second and third readings on the same day (March 24, 1994). Otherwise, sufficient time
between the submission of the bill on February 8, 1994 on second reading and its approval on March 24, 1994
elapsed before it was finally voted on by the Senate on third reading.
The purpose for which three readings on separate days is required is said to be two-fold: (1) to inform the
members of Congress of what they must vote on and (2) to give them notice that a measure is progressing
through the enacting process, thus enabling them and others interested in the measure to prepare their
positions with reference to it. (1 J. G. SUTHERLAND, STATUTES AND STATUTORY CONSTRUCTION §10.04, p. 282
(1972)). These purposes were substantially achieved in the case of R.A. No. 7716.
IV. Power of Conference Committee. It is contended (principally by Kilosbayan, Inc. and the Movement of
Attorneys for Brotherhood, Integrity and Nationalism, Inc. (MABINI)) that in violation of the constitutional policy
of full public disclosure and the people's right to know (Art. II, §28 and Art. III, §7) the Conference Committee
met for two days in executive session with only the conferees present.
As pointed out in our main decision, even in the United States it was customary to hold such sessions with only
the conferees and their staffs in attendance and it was only in 1975 when a new rule was adopted requiring open
sessions. Unlike its American counterpart, the Philippine Congress has not adopted a rule prescribing open
hearings for conference committees.
It is nevertheless claimed that in the United States, before the adoption of the rule in 1975, at least staff
members were present. These were staff members of the Senators and Congressmen, however, who may be
presumed to be their confidential men, not stenographers as in this case who on the last two days of the
conference were excluded. There is no showing that the conferees themselves did not take notes of their
proceedings so as to give petitioner Kilosbayan basis for claiming that even in secret diplomatic negotiations
involving state interests, conferees keep notes of their meetings. Above all, the public's right to know was fully
served because the Conference Committee in this case submitted a report showing the changes made on the
differing versions of the House and the Senate.
Petitioners cite the rules of both houses which provide that conference committee reports must contain "a
detailed, sufficiently explicit statement of the changes in or other amendments." These changes are shown in the
bill attached to the Conference Committee Report. The members of both houses could thus ascertain what
changes had been made in the original bills without the need of a statement detailing the changes.
The same question now presented was raised when the bill which became R.A. No. 1400 (Land Reform Act of
1955) was reported by the Conference Committee. Congressman Bengzon raised a point of order. He said:
MR. BENGZON. My point of order is that it is out of order to consider the report of the
conference committee regarding House Bill No. 2557 by reason of the provision of Section
11, Article XII, of the Rules of this House which provides specifically that the conference
report must be accompanied by a detailed statement of the effects of the amendment on the
bill of the House. This conference committee report is not accompanied by that detailed
statement, Mr. Speaker. Therefore it is out of order to consider it.
Petitioner Tolentino, then the Majority Floor Leader, answered:
MR. TOLENTINO. Mr. Speaker, I should just like to say a few words in connection with the
point of order raised by the gentleman from Pangasinan.
There is no question about the provision of the Rule cited by the gentleman from
Pangasinan, but this provision applies to those cases where only portions of the bill have been
amended. In this case before us an entire bill is presented; therefore, it can be easily seen
from the reading of the bill what the provisions are. Besides, this procedure has been an
established practice.
After some interruption, he continued:
MR. TOLENTINO. As I was saying, Mr. Speaker, we have to look into the reason for the
provisions of the Rules, and the reason for the requirement in the provision cited by the
gentleman from Pangasinan is when there are only certain words or phrases inserted in or
deleted from the provisions of the bill included in the conference report, and we cannot
understand what those words and phrases mean and their relation to the bill. In that case, it
is necessary to make a detailed statement on how those words and phrases will affect the bill
as a whole; but when the entire bill itself is copied verbatim in the conference report, that is
not necessary. So when the reason for the Rule does not exist, the Rule does not exist.
(2 CONG. REC. NO. 2, p. 4056. (emphasis added))
Congressman Tolentino was sustained by the chair. The record shows that when the ruling was appealed, it was
upheld by viva voce and when a division of the House was called, it was sustained by a vote of 48 to 5. (Id.,
p. 4058)
Nor is there any doubt about the power of a conference committee to insert new provisions as long as these are
germane to the subject of the conference. As this Court held in Philippine Judges Association v. Prado, 227 SCRA
703 (1993), in an opinion written by then Justice Cruz, the jurisdiction of the conference committee is not limited
to resolving differences between the Senate and the House. It may propose an entirely new provision. What is
important is that its report is subsequently approved by the respective houses of Congress. This Court ruled that
it would not entertain allegations that, because new provisions had been added by the conference committee,
there was thereby a violation of the constitutional injunction that "upon the last reading of a bill, no amendment
thereto shall be allowed."
Applying these principles, we shall decline to look into the petitioners' charges that an
amendment was made upon the last reading of the bill that eventually became R.A. No. 7354
and that copies thereof in its final form were not distributed among the members of each
House. Both the enrolled bill and the legislative journals certify that the measure was duly
enacted i.e., in accordance with Article VI, Sec. 26 (2) of the Constitution. We are bound by
such official assurances from a coordinate department of the government, to which we owe,
at the very least, a becoming courtesy.
(Id. at 710. (emphasis added))
It is interesting to note the following description of conference committees in the Philippines in a 1979 study:
Conference committees may be of two types: free or instructed. These committees may be
given instructions by their parent bodies or they may be left without instructions. Normally
the conference committees are without instructions, and this is why they are often critically
referred to as "the little legislatures." Once bills have been sent to them, the conferees have
almost unlimited authority to change the clauses of the bills and in fact sometimes introduce
new measures that were not in the original legislation. No minutes are kept, and members'
activities on conference committees are difficult to determine. One congressman known for
his idealism put it this way: "I killed a bill on export incentives for my interest group [copra] in
the conference committee but I could not have done so anywhere else." The conference
committee submits a report to both houses, and usually it is accepted. If the report is not
accepted, then the committee is discharged and new members are appointed.
(R. Jackson, Committees in the Philippine Congress, in COMMITTEES AND LEGISLATURES: A
COMPARATIVE ANALYSIS 163 (J. D. LEES AND M. SHAW, eds.)).
In citing this study, we pass no judgment on the methods of conference committees. We cite it only to say that
conference committees here are no different from their counterparts in the United States whose vast powers we
noted in Philippine Judges Association v. Prado, supra. At all events, under Art. VI, §16(3) each house has the
power "to determine the rules of its proceedings," including those of its committees. Any meaningful change in
the method and procedures of Congress or its committees must therefore be sought in that body itself.
V. The titles of S. No. 1630 and H. No. 11197. PAL maintains that R.A. No. 7716 violates Art. VI, §26 (1) of the
Constitution which provides that "Every bill passed by Congress shall embrace only one subject which shall be
expressed in the title thereof." PAL contends that the amendment of its franchise by the withdrawal of its
exemption from the VAT is not expressed in the title of the law.
Pursuant to §13 of P.D. No. 1590, PAL pays a franchise tax of 2% on its gross revenue "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."
PAL was exempted from the payment of the VAT along with other entities by §103 of the National Internal
Revenue Code, which provides as follows:
§103. Exempt transactions. — The following shall be exempt from the value-added tax:
xxx xxx xxx
(q) Transactions which are exempt under special laws or international agreements to which
the Philippines is a signatory.
R.A. No. 7716 seeks to withdraw certain exemptions, including that granted to PAL, by amending §103, as
follows:
§103. Exempt transactions. — The following shall be exempt from the value-added tax:
xxx xxx xxx
(q) Transactions which are exempt under special laws, except those granted under
Presidential Decree Nos. 66, 529, 972, 1491, 1590. . . .
The amendment of §103 is expressed in the title of R.A. No. 7716 which reads:
AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT) SYSTEM, WIDENING ITS TAX BASE
AND ENHANCING ITS ADMINISTRATION, AND FOR THESE PURPOSES AMENDING AND
REPEALING THE RELEVANT PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS
AMENDED, AND FOR OTHER PURPOSES.
By stating that R.A. No. 7716 seeks to "[RESTRUCTURE] THE VALUE-ADDED TAX (VAT) SYSTEM [BY] WIDENING ITS
TAX BASE AND ENHANCING ITS ADMINISTRATION, AND FOR THESE PURPOSES AMENDING AND REPEALING THE
RELEVANT PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED AND FOR OTHER
PURPOSES," Congress thereby clearly expresses its intention to amend any provision of the NIRC which stands in
the way of accomplishing the purpose of the law.
PAL asserts that the amendment of its franchise must be reflected in the title of the law by specific reference to
P.D. No. 1590. It is unnecessary to do this in order to comply with the constitutional requirement, since it is
already stated in the title that the law seeks to amend the pertinent provisions of the NIRC, among which is
§103(q), in order to widen the base of the VAT. Actually, it is the bill which becomes a law that is required to
express in its title the subject of legislation. The titles of H. No. 11197 and S. No. 1630 in fact specifically referred
to §103 of the NIRC as among the provisions sought to be amended. We are satisfied that sufficient notice had
been given of the pendency of these bills in Congress before they were enacted into what is now R.A.
No. 7716.
In Philippine Judges Association v. Prado, supra, a similar argument as that now made by PAL was rejected. R.A.
No. 7354 is entitled AN ACT CREATING THE PHILIPPINE POSTAL CORPORATION, DEFINING ITS POWERS,
FUNCTIONS AND RESPONSIBILITIES, PROVIDING FOR REGULATION OF THE INDUSTRY AND FOR OTHER PURPOSES
CONNECTED THEREWITH. It contained a provision repealing all franking privileges. It was contended that the
withdrawal of franking privileges was not expressed in the title of the law. In holding that there was sufficient
description of the subject of the law in its title, including the repeal of franking privileges, this Court held:
To require every end and means necessary for the accomplishment of the general objectives
of the statute to be expressed in its title would not only be unreasonable but would actually
render legislation impossible. [Cooley, Constitutional Limitations, 8th Ed., p. 297] As has been
correctly explained:
The details of a legislative act need not be specifically stated in its title,
but matter germane to the subject as expressed in the title, and adopted
to the accomplishment of the object in view, may properly be included in
the act. Thus, it is proper to create in the same act the machinery by
which the act is to be enforced, to prescribe the penalties for its
infraction, and to remove obstacles in the way of its execution. If such
matters are properly connected with the subject as expressed in the title,
it is unnecessary that they should also have special mention in the title.
(Southern Pac. Co. v. Bartine, 170 Fed. 725)
(227 SCRA at 707-708)
VI. Claims of press freedom and religious liberty. We have held that, as a general proposition, the press is not
exempt from the taxing power of the State and that what the constitutional guarantee of free press prohibits are
laws which single out the press or target a group belonging to the press for special treatment or which in any
way discriminate against the press on the basis of the content of the publication, and R.A. No. 7716 is none of
these.
Now it is contended by the PPI that by removing the exemption of the press from the VAT while maintaining
those granted to others, the law discriminates against the press. At any rate, it is averred, "even
nondiscriminatory taxation of constitutionally guaranteed freedom is unconstitutional."
With respect to the first contention, it would suffice to say that since the law granted the press a privilege, the
law could take back the privilege anytime without offense to the Constitution. The reason is simple: by granting
exemptions, the State does not forever waive the exercise of its sovereign prerogative.
Indeed, in withdrawing the exemption, the law merely subjects the press to the same tax burden to which other
businesses have long ago been subject. It is thus different from the tax involved in the cases invoked by the PPI.
The license tax in Grosjean v. American Press Co., 297 U.S. 233, 80 L. Ed. 660 (1936) was found to be
discriminatory because it was laid on the gross advertising receipts only of newspapers whose weekly circulation
was over 20,000, with the result that the tax applied only to 13 out of 124 publishers in Louisiana. These large
papers were critical of Senator Huey Long who controlled the state legislature which enacted the license tax. The
censorial motivation for the law was thus evident.
On the other hand, in Minneapolis Star & Tribune Co. v. Minnesota Comm'r of Revenue, 460 U.S. 575, 75 L. Ed. 2d
295 (1983), the tax was found to be discriminatory because although it could have been made liable for the sales
tax or, in lieu thereof, for the use tax on the privilege of using, storing or consuming tangible goods, the press
was not. Instead, the press was exempted from both taxes. It was, however, later made to pay a special use tax
on the cost of paper and ink which made these items "the only items subject to the use tax that were component
of goods to be sold at retail." The U.S. Supreme Court held that the differential treatment of the press "suggests
that the goal of regulation is not related to suppression of expression, and such goal is presumptively
unconstitutional." It would therefore appear that even a law that favors the press is constitutionally suspect.
(See the dissent of Rehnquist, J. in that case)
Nor is it true that only two exemptions previously granted by E.O. No. 273 are withdrawn "absolutely and
unqualifiedly" by R.A. No. 7716. Other exemptions from the VAT, such as those previously granted to PAL,
petroleum concessionaires, enterprises registered with the Export Processing Zone Authority, and many more
are likewise totally withdrawn, in addition to exemptions which are partially withdrawn, in an effort to broaden
the base of the tax.
The PPI says that the discriminatory treatment of the press is highlighted by the fact that transactions, which are
profit oriented, continue to enjoy exemption under R.A. No. 7716. An enumeration of some of these transactions
will suffice to show that by and large this is not so and that the exemptions are granted for a purpose. As the
Solicitor General says, such exemptions are granted, in some cases, to encourage agricultural production and, in
other cases, for the personal benefit of the end-user rather than for profit. The exempt transactions are:
(a) Goods for consumption or use which are in their original state (agricultural, marine and
forest products, cotton seeds in their original state, fertilizers, seeds, seedlings, fingerlings,
fish, prawn livestock and poultry feeds) and goods or services to enhance agriculture (milling
of palay, corn, sugar cane and raw sugar, livestock, poultry feeds, fertilizer, ingredients used
for the manufacture of feeds).
(b) Goods used for personal consumption or use (household and personal effects of citizens
returning to the Philippines) or for professional use, like professional instruments and
implements, by persons coming to the Philippines to settle here.
(c) Goods subject to excise tax such as petroleum products or to be used for manufacture of
petroleum products subject to excise tax and services subject to percentage tax.
(d) Educational services, medical, dental, hospital and veterinary services, and services
rendered under employer-employee relationship.
(e) Works of art and similar creations sold by the artist himself.
(f) Transactions exempted under special laws, or international agreements.
(g) Export-sales by persons not VAT-registered.
(h) Goods or services with gross annual sale or receipt not exceeding P500,000.00.
(Respondents' Consolidated Comment on the Motions for Reconsideration, pp. 58-60)
The PPI asserts that it does not really matter that the law does not discriminate against the press because "even
nondiscriminatory taxation on constitutionally guaranteed freedom is unconstitutional." PPI cites in support of
this assertion the following statement in Murdock v. Pennsylvania, 319 U.S. 105, 87 L. Ed. 1292 (1943):
The fact that the ordinance is "nondiscriminatory" is immaterial. The protection afforded by
the First Amendment is not so restricted. A license tax certainly does not acquire
constitutional validity because it classifies the privileges protected by the First Amendment
along with the wares and merchandise of hucksters and peddlers and treats them all alike.
Such equality in treatment does not save the ordinance. Freedom of press, freedom of
speech, freedom of religion are in preferred position.
The Court was speaking in that case of a license tax, which, unlike an ordinary tax, is mainly for regulation. Its
imposition on the press is unconstitutional because it lays a prior restraint on the exercise of its right. Hence,
although its application to others, such those selling goods, is valid, its application to the press or to religious
groups, such as the Jehovah's Witnesses, in connection with the latter's sale of religious books and pamphlets, is
unconstitutional. As the U.S. Supreme Court put it, "it is one thing to impose a tax on income or property of a
preacher. It is quite another thing to exact a tax on him for delivering a sermon."
A similar ruling was made by this Court in American Bible Society v. City of Manila, 101 Phil. 386 (1957) which
invalidated a city ordinance requiring a business license fee on those engaged in the sale of general merchandise.
It was held that the tax could not be imposed on the sale of bibles by the American Bible Society without
restraining the free exercise of its right to propagate.
The VAT is, however, different. It is not a license tax. It is not a tax on the exercise of a privilege, much less a
constitutional right. It is imposed on the sale, barter, lease or exchange of goods or properties or the sale or
exchange of services and the lease of properties purely for revenue purposes. To subject the press to its
payment is not to burden the exercise of its right any more than to make the press pay income tax or subject it
to general regulation is not to violate its freedom under the Constitution.
Additionally, the Philippine Bible Society, Inc. claims that although it sells bibles, the proceeds derived from the
sales are used to subsidize the cost of printing copies which are given free to those who cannot afford to pay so
that to tax the sales would be to increase the price, while reducing the volume of sale. Granting that to be the
case, the resulting burden on the exercise of religious freedom is so incidental as to make it difficult to
differentiate it from any other economic imposition that might make the right to disseminate religious doctrines
costly. Otherwise, to follow the petitioner's argument, to increase the tax on the sale of vestments would be to
lay an impermissible burden on the right of the preacher to make a sermon.
On the other hand the registration fee of P1,000.00 imposed by §107 of the NIRC, as amended by §7 of R.A. No.
7716, although fixed in amount, is really just to pay for the expenses of registration and enforcement of
provisions such as those relating to accounting in §108 of the NIRC. That the PBS distributes free bibles and
therefore is not liable to pay the VAT does not excuse it from the payment of this fee because it also sells some
copies. At any rate whether the PBS is liable for the VAT must be decided in concrete cases, in the event it is
assessed this tax by the Commissioner of Internal Revenue.
VII. Alleged violations of the due process, equal protection and contract clauses and the rule on taxation. CREBA
asserts that R.A. No. 7716 (1) impairs the obligations of contracts, (2) classifies transactions as covered or
exempt without reasonable basis and (3) violates the rule that taxes should be uniform and equitable and that
Congress shall "evolve a progressive system of taxation."
With respect to the first contention, it is claimed that the application of the tax to existing contracts of the sale
of real property by installment or on deferred payment basis would result in substantial increases in the monthly
amortizations to be paid because of the 10% VAT. The additional amount, it is pointed out, is something that the
buyer did not anticipate at the time he entered into the contract.
The short answer to this is the one given by this Court in an early case: "Authorities from numerous sources are
cited by the plaintiffs, but none of them show that a lawful tax on a new subject, or an increased tax on an old
one, interferes with a contract or impairs its obligation, within the meaning of the Constitution. Even though
such taxation may affect particular contracts, as it may increase the debt of one person and lessen the security of
another, or may impose additional burdens upon one class and release the burdens of another, still the tax must
be paid unless prohibited by the Constitution, nor can it be said that it impairs the obligation of any existing
contract in its true legal sense." (La Insular v. Machuca Go-Tauco and Nubla Co-Siong, 39 Phil. 567, 574 (1919)).
Indeed not only existing laws but also "the reservation of the essential attributes of sovereignty, is . . . read into
contracts as a postulate of the legal order." (Philippine-American Life Ins. Co. v. Auditor General, 22 SCRA 135,
147 (1968)) Contracts must be understood as having been made in reference to the possible exercise of the
rightful authority of the government and no obligation of contract can extend to the defeat of that authority.
(Norman v. Baltimore and Ohio R.R., 79 L. Ed. 885 (1935)).
It is next pointed out that while §4 of R.A. No. 7716 exempts such transactions as the sale of agricultural
products, food items, petroleum, and medical and veterinary services, it grants no exemption on the sale of real
property which is equally essential. The sale of real property for socialized and low-cost housing is exempted
from the tax, but CREBA claims that real estate transactions of "the less poor," i.e., the middle class, who are
equally homeless, should likewise be exempted.
The sale of food items, petroleum, medical and veterinary services, etc., which are essential goods and services
was already exempt under §103, pars. (b) (d) (1) of the NIRC before the enactment of R.A. No. 7716. Petitioner is
in error in claiming that R.A. No. 7716 granted exemption to these transactions, while subjecting those of
petitioner to the payment of the VAT. Moreover, there is a difference between the "homeless poor" and the
"homeless less poor" in the example given by petitioner, because the second group or middle class can afford to
rent houses in the meantime that they cannot yet buy their own homes. The two social classes are thus
differently situated in life. "It is inherent in the power to tax that the State be free to select the subjects of
taxation, and it has been repeatedly held that 'inequalities which result from a singling out of one particular class
for taxation, or exemption infringe no constitutional limitation.'" (Lutz v. Araneta, 98 Phil. 148, 153
(1955). Accord, City of Baguio v. De Leon, 134 Phil. 912 (1968); Sison, Jr. v. Ancheta, 130 SCRA 654, 663 (1984);
Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 371 (1988)).
Finally, it is contended, for the reasons already noted, that R.A. No. 7716 also violates Art. VI, §28(1) which
provides that "The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive
system of taxation."
Equality and uniformity of taxation means that all taxable articles or kinds of property of the same class be taxed
at the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes
of taxation. To satisfy this requirement it is enough that the statute or ordinance applies equally to all persons,
forms and corporations placed in similar situation. (City of Baguio v. De Leon, supra; Sison, Jr. v. Ancheta, supra)
Indeed, the VAT was already provided in E.O. No. 273 long before R.A. No. 7716 was enacted. R.A. No. 7716
merely expands the base of the tax. The validity of the original VAT Law was questioned in Kapatiran ng
Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 383 (1988) on grounds similar to those made in
these cases, namely, that the law was "oppressive, discriminatory, unjust and regressive in violation of Art. VI,
§28(1) of the Constitution." (At 382) Rejecting the challenge to the law, this Court held:
As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is uniform. . . .
The sales tax adopted in EO 273 is applied similarly on all goods and services sold to the
public, which are not exempt, at the constant rate of 0% or 10%.
The disputed sales tax is also equitable. It is imposed only on sales of goods or services by
persons engaged in business with an aggregate gross annual sales exceeding P200,000.00.
Small corner sari-sari stores are consequently exempt from its application. Likewise exempt
from the tax are sales of farm and marine products, so that the costs of basic food and other
necessities, spared as they are from the incidence of the VAT, are expected to be relatively
lower and within the reach of the general public.
(At 382-383)
The CREBA claims that the VAT is regressive. A similar claim is made by the Cooperative Union of the Philippines,
Inc. (CUP), while petitioner Juan T. David argues that the law contravenes the mandate of Congress to provide
for a progressive system of taxation because the law imposes a flat rate of 10% and thus places the tax burden
on all taxpayers without regard to their ability to pay.
The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are regressive.
What it simply provides is that Congress shall "evolve a progressive system of taxation." The constitutional
provision has been interpreted to mean simply that "direct taxes are . . . to be preferred [and] as much as
possible, indirect taxes should be minimized." (E. FERNANDO, THE CONSTITUTION OF THE PHILIPPINES 221
(Second ed. (1977)). Indeed, the mandate to Congress is not to prescribe, but to evolve, a progressive tax system.
Otherwise, sales taxes, which perhaps are the oldest form of indirect taxes, would have been prohibited with the
proclamation of Art. VIII, §17(1) of the 1973 Constitution from which the present Art. VI, §28(1) was taken. Sales
taxes are also regressive.
Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not impossible, to
avoid them by imposing such taxes according to the taxpayers' ability to pay. In the case of the VAT, the law
minimizes the regressive effects of this imposition by providing for zero rating of certain transactions (R.A. No.
7716, §3, amending §102 (b) of the NIRC), while granting exemptions to other transactions. (R.A. No. 7716, §4,
amending §103 of the NIRC).
Thus, the following transactions involving basic and essential goods and services are exempted from the VAT:
(a) Goods for consumption or use which are in their original state (agricultural, marine and
forest products, cotton seeds in their original state, fertilizers, seeds, seedlings, fingerlings,
fish, prawn livestock and poultry feeds) and goods or services to enhance agriculture (milling
of palay, corn sugar cane and raw sugar, livestock, poultry feeds, fertilizer, ingredients used
for the manufacture of feeds).
(b) Goods used for personal consumption or use (household and personal effects of citizens
returning to the Philippines) and or professional use, like professional instruments and
implements, by persons coming to the Philippines to settle here.
(c) Goods subject to excise tax such as petroleum products or to be used for manufacture of
petroleum products subject to excise tax and services subject to percentage tax.
(d) Educational services, medical, dental, hospital and veterinary services, and services
rendered under employer-employee relationship.
(e) Works of art and similar creations sold by the artist himself.
(f) Transactions exempted under special laws, or international agreements.
(g) Export-sales by persons not VAT-registered.
(h) Goods or services with gross annual sale or receipt not exceeding P500,000.00.
(Respondents' Consolidated Comment on the Motions for Reconsideration, pp. 58-60)
On the other hand, the transactions which are subject to the VAT are those which involve goods and services
which are used or availed of mainly by higher income groups. These include real properties held primarily for
sale to customers or for lease in the ordinary course of trade or business, the right or privilege to use patent,
copyright, and other similar property or right, the right or privilege to use industrial, commercial or scientific
equipment, motion picture films, tapes and discs, radio, television, satellite transmission and cable television
time, hotels, restaurants and similar places, securities, lending investments, taxicabs, utility cars for rent, tourist
buses, and other common carriers, services of franchise grantees of telephone and telegraph.
The problem with CREBA's petition is that it presents broad claims of constitutional violations by tendering issues
not at retail but at wholesale and in the abstract. There is no fully developed record which can impart to
adjudication the impact of actuality. There is no factual foundation to show in the concrete the application of the
law to actual contracts and exemplify its effect on property rights. For the fact is that petitioner's members have
not even been assessed the VAT. Petitioner's case is not made concrete by a series of hypothetical questions
asked which are no different from those dealt with in advisory opinions.
The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere
allegation, as here, does not suffice. There must be a factual foundation of such
unconstitutional taint. Considering that petitioner here would condemn such a provision as
void on its face, he has not made out a case. This is merely to adhere to the authoritative
doctrine that where the due process and equal protection clauses are invoked, considering
that they are not fixed rules but rather broad standards, there is a need for proof of such
persuasive character as would lead to such a conclusion. Absent such a showing, the
presumption of validity must prevail.
(Sison, Jr. v. Ancheta, 130 SCRA at 661)
Adjudication of these broad claims must await the development of a concrete case. It may be that
postponement of adjudication would result in a multiplicity of suits. This need not be the case, however.
Enforcement of the law may give rise to such a case. A test case, provided it is an actual case and not an abstract
or hypothetical one, may thus be presented.
Nor is hardship to taxpayers alone an adequate justification for adjudicating abstract issues. Otherwise,
adjudication would be no different from the giving of advisory opinion that does not really settle legal issues.
We are told that it is our duty under Art. VIII, §1, ¶2 to decide whenever a claim is made that "there has been a
grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality
of the government." This duty can only arise if an actual case or controversy is before us. Under Art . VIII, §5 our
jurisdiction is defined in terms of "cases" and all that Art. VIII, §1, ¶2 can plausibly mean is that in the exercise of
that jurisdiction we have the judicial power to determine questions of grave abuse of discretion by any branch or
instrumentality of the government.
Put in another way, what is granted in Art. VIII, §1, ¶2 is "judicial power," which is "the power of a court to hear
and decide cases pending between parties who have the right to sue and be sued in the courts of law and
equity" (Lamb v. Phipps, 22 Phil. 456, 559 (1912)), as distinguished from legislative and executive power. This
power cannot be directly appropriated until it is apportioned among several courts either by the Constitution, as
in the case of Art. VIII, §5, or by statute, as in the case of the Judiciary Act of 1948 (R.A. No. 296) and the
Judiciary Reorganization Act of 1980 (B.P. Blg. 129). The power thus apportioned constitutes the court's
"jurisdiction," defined as "the power conferred by law upon a court or judge to take cognizance of a case, to the
exclusion of all others." (United States v. Arceo, 6 Phil. 29 (1906)) Without an actual case coming within its
jurisdiction, this Court cannot inquire into any allegation of grave abuse of discretion by the other departments
of the government.
VIII. Alleged violation of policy towards cooperatives. On the other hand, the Cooperative Union of the
Philippines (CUP), after briefly surveying the course of legislation, argues that it was to adopt a definite policy of
granting tax exemption to cooperatives that the present Constitution embodies provisions on cooperatives. To
subject cooperatives to the VAT would therefore be to infringe a constitutional policy. Petitioner claims that in
1973, P.D. No. 175 was promulgated exempting cooperatives from the payment of income taxes and sales taxes
but in 1984, because of the crisis which menaced the national economy, this exemption was withdrawn by P.D.
No. 1955; that in 1986, P.D. No. 2008 again granted cooperatives exemption from income and sales taxes until
December 31, 1991, but, in the same year, E.O. No. 93 revoked the exemption; and that finally in 1987 the
framers of the Constitution "repudiated the previous actions of the government adverse to the interests of the
cooperatives, that is, the repeated revocation of the tax exemption to cooperatives and instead upheld the policy
of strengthening the cooperatives by way of the grant of tax exemptions," by providing the following in Art. XII:
§1. The goals of the national economy are a more equitable distribution of opportunities,
income, and wealth; a sustained increase in the amount of goods and services produced by
the nation for the benefit of the people; and an expanding productivity as the key to raising
the quality of life for all, especially the underprivileged.
The State shall promote industrialization and full employment based on sound agricultural
development and agrarian reform, through industries that make full and efficient use of
human and natural resources, and which are competitive in both domestic and foreign
markets. However, the State shall protect Filipino enterprises against unfair foreign
competition and trade practices.
In the pursuit of these goals, all sectors of the economy and all regions of the country shall be
given optimum opportunity to develop. Private enterprises, including corporations,
cooperatives, and similar collective organizations, shall be encouraged to broaden the base
of their ownership.
§15. The Congress shall create an agency to promote the viability and growth of cooperatives
as instruments for social justice and economic development.
Petitioner's contention has no merit. In the first place, it is not true that P.D. No. 1955 singled out cooperatives
by withdrawing their exemption from income and sales taxes under P.D. No. 175, §5. What P.D. No. 1955, §1 did
was to withdraw the exemptions and preferential treatments theretofore granted to private business enterprises
in general, in view of the economic crisis which then beset the nation. It is true that after P.D. No. 2008, §2 had
restored the tax exemptions of cooperatives in 1986, the exemption was again repealed by E.O. No. 93, §1, but
then again cooperatives were not the only ones whose exemptions were withdrawn. The withdrawal of tax
incentives applied to all, including government and private entities. In the second place, the Constitution does
not really require that cooperatives be granted tax exemptions in order to promote their growth and viability.
Hence, there is no basis for petitioner's assertion that the government's policy toward cooperatives had been
one of vacillation, as far as the grant of tax privileges was concerned, and that it was to put an end to this
indecision that the constitutional provisions cited were adopted. Perhaps as a matter of policy cooperatives
should be granted tax exemptions, but that is left to the discretion of Congress. If Congress does not grant
exemption and there is no discrimination to cooperatives, no violation of any constitutional policy can be
charged.
Indeed, petitioner's theory amounts to saying that under the Constitution cooperatives are exempt from
taxation. Such theory is contrary to the Constitution under which only the following are exempt from taxation:
charitable institutions, churches and parsonages, by reason of Art. VI, §28 (3), and non-stock, non-profit
educational institutions by reason of Art. XIV, §4 (3).
CUP's further ground for seeking the invalidation of R.A. No. 7716 is that it denies cooperatives the equal
protection of the law because electric cooperatives are exempted from the VAT. The classification between
electric and other cooperatives (farmers cooperatives, producers cooperatives, marketing cooperatives, etc.)
apparently rests on a congressional determination that there is greater need to provide cheaper electric power
to as many people as possible, especially those living in the rural areas, than there is to provide them with other
necessities in life. We cannot say that such classification is unreasonable.
We have carefully read the various arguments raised against the constitutional validity of R.A. No. 7716. We have
in fact taken the extraordinary step of enjoining its enforcement pending resolution of these cases. We have now
come to the conclusion that the law suffers from none of the infirmities attributed to it by petitioners and that
its enactment by the other branches of the government does not constitute a grave abuse of discretion. Any
question as to its necessity, desirability or expediency must be addressed to Congress as the body which is
electorally responsible, remembering that, as Justice Holmes has said, "legislators are the ultimate guardians of
the liberties and welfare of the people in quite as great a degree as are the courts." (Missouri, Kansas & Texas Ry.
Co. v. May, 194 U.S. 267, 270, 48 L. Ed. 971, 973 (1904)). It is not right, as petitioner in G.R. No. 115543 does in
arguing that we should enforce the public accountability of legislators, that those who took part in passing the
law in question by voting for it in Congress should later thrust to the courts the burden of reviewing measures in
the flush of enactment. This Court does not sit as a third branch of the legislature, much less exercise a veto
power over legislation.
WHEREFORE, the motions for reconsideration are denied with finality and the temporary restraining order
previously issued is hereby lifted.
SO ORDERED.
G.R. No. 168056 September 1, 2005
ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S. ALCANTARA and ED VINCENT S.
ALBANO, Petitioners,
vs.
THE HONORABLE EXECUTIVE SECRETARY EDUARDO ERMITA; HONORABLE SECRETARY OF THE DEPARTMENT
OF FINANCE CESAR PURISIMA; and HONORABLE COMMISSIONER OF INTERNAL REVENUE GUILLERMO
PARAYNO, JR., Respondent.
x-------------------------x
G.R. No. 168207
AQUILINO Q. PIMENTEL, JR., LUISA P. EJERCITO-ESTRADA, JINGGOY E. ESTRADA, PANFILO M. LACSON, ALFREDO
S. LIM, JAMBY A.S. MADRIGAL, AND SERGIO R. OSMEÑA III, Petitioners,
vs.
EXECUTIVE SECRETARY EDUARDO R. ERMITA, CESAR V. PURISIMA, SECRETARY OF FINANCE, GUILLERMO L.
PARAYNO, JR., COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE, Respondent.
x-------------------------x
G.R. No. 168461
ASSOCIATION OF PILIPINAS SHELL DEALERS, INC. represented by its President, ROSARIO ANTONIO; PETRON
DEALERS’ ASSOCIATION represented by its President, RUTH E. BARBIBI; ASSOCIATION OF CALTEX DEALERS’ OF
THE PHILIPPINES represented by its President, MERCEDITAS A. GARCIA; ROSARIO ANTONIO doing business under
the name and style of "ANB NORTH SHELL SERVICE STATION"; LOURDES MARTINEZ doing business under the
name and style of "SHELL GATE – N. DOMINGO"; BETHZAIDA TAN doing business under the name and style of
"ADVANCE SHELL STATION"; REYNALDO P. MONTOYA doing business under the name and style of "NEW
LAMUAN SHELL SERVICE STATION"; EFREN SOTTO doing business under the name and style of "RED FIELD SHELL
SERVICE STATION"; DONICA CORPORATION represented by its President, DESI TOMACRUZ; RUTH E. MARBIBI
doing business under the name and style of "R&R PETRON STATION"; PETER M. UNGSON doing business under
the name and style of "CLASSIC STAR GASOLINE SERVICE STATION"; MARIAN SHEILA A. LEE doing business under
the name and style of "NTE GASOLINE & SERVICE STATION"; JULIAN CESAR P. POSADAS doing business under the
name and style of "STARCARGA ENTERPRISES"; ADORACION MAÑEBO doing business under the name and style
of "CMA MOTORISTS CENTER"; SUSAN M. ENTRATA doing business under the name and style of "LEONA’S
GASOLINE STATION and SERVICE CENTER"; CARMELITA BALDONADO doing business under the name and style of
"FIRST CHOICE SERVICE CENTER"; MERCEDITAS A. GARCIA doing business under the name and style of "LORPED
SERVICE CENTER"; RHEAMAR A. RAMOS doing business under the name and style of "RJRAM PTT GAS STATION";
MA. ISABEL VIOLAGO doing business under the name and style of "VIOLAGO-PTT SERVICE CENTER"; MOTORISTS’
HEART CORPORATION represented by its Vice-President for Operations, JOSELITO F. FLORDELIZA; MOTORISTS’
HARVARD CORPORATION represented by its Vice-President for Operations, JOSELITO F. FLORDELIZA;
MOTORISTS’ HERITAGE CORPORATION represented by its Vice-President for Operations, JOSELITO F.
FLORDELIZA; PHILIPPINE STANDARD OIL CORPORATION represented by its Vice-President for Operations,
JOSELITO F. FLORDELIZA; ROMEO MANUEL doing business under the name and style of "ROMMAN GASOLINE
STATION"; ANTHONY ALBERT CRUZ III doing business under the name and style of "TRUE SERVICE STATION",
Petitioners,
vs.
CESAR V. PURISIMA, in his capacity as Secretary of the Department of Finance and GUILLERMO L. PARAYNO,
JR., in his capacity as Commissioner of Internal Revenue, Respondent.
x-------------------------x
G.R. No. 168463
FRANCIS JOSEPH G. ESCUDERO, VINCENT CRISOLOGO, EMMANUEL JOEL J. VILLANUEVA, RODOLFO G. PLAZA,
DARLENE ANTONINO-CUSTODIO, OSCAR G. MALAPITAN, BENJAMIN C. AGARAO, JR. JUAN EDGARDO M.
ANGARA, JUSTIN MARC SB. CHIPECO, FLORENCIO G. NOEL, MUJIV S. HATAMAN, RENATO B. MAGTUBO, JOSEPH
A. SANTIAGO, TEOFISTO DL. GUINGONA III, RUY ELIAS C. LOPEZ, RODOLFO Q. AGBAYANI and TEODORO A.
CASIÑO, Petitioners,
vs.
CESAR V. PURISIMA, in his capacity as Secretary of Finance, GUILLERMO L. PARAYNO, JR., in his capacity as
Commissioner of Internal Revenue, and EDUARDO R. ERMITA, in his capacity as Executive
Secretary,Respondent.
x-------------------------x
G.R. No. 168730
BATAAN GOVERNOR ENRIQUE T. GARCIA, JR. Petitioner,
vs.
HON. EDUARDO R. ERMITA, in his capacity as the Executive Secretary; HON. MARGARITO TEVES, in his capacity
as Secretary of Finance; HON. JOSE MARIO BUNAG, in his capacity as the OIC Commissioner of the Bureau of
Internal Revenue; and HON. ALEXANDER AREVALO, in his capacity as the OIC Commissioner of the Bureau of
Customs, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
The expenses of government, having for their object the interest of all, should be borne by everyone, and the
more man enjoys the advantages of society, the more he ought to hold himself honored in contributing to those
expenses.
-Anne Robert Jacques Turgot (1727-1781)
French statesman and economist
Mounting budget deficit, revenue generation, inadequate fiscal allocation for education, increased emoluments
for health workers, and wider coverage for full value-added tax benefits … these are the reasons why Republic
Act No. 9337 (R.A. No. 9337)1 was enacted. Reasons, the wisdom of which, the Court even with its extensive
constitutional power of review, cannot probe. The petitioners in these cases, however, question not only the
wisdom of the law, but also perceived constitutional infirmities in its passage.
Every law enjoys in its favor the presumption of constitutionality. Their arguments notwithstanding, petitioners
failed to justify their call for the invalidity of the law. Hence, R.A. No. 9337 is not unconstitutional.
LEGISLATIVE HISTORY
R.A. No. 9337 is a consolidation of three legislative bills namely, House Bill Nos. 3555 and 3705, and Senate Bill
No. 1950.
House Bill No. 35552 was introduced on first reading on January 7, 2005. The House Committee on Ways and
Means approved the bill, in substitution of House Bill No. 1468, which Representative (Rep.) Eric D. Singson
introduced on August 8, 2004. The President certified the bill on January 7, 2005 for immediate enactment. On
January 27, 2005, the House of Representatives approved the bill on second and third reading.
House Bill No. 37053 on the other hand, substituted House Bill No. 3105 introduced by Rep. Salacnib F. Baterina,
and House Bill No. 3381 introduced by Rep. Jacinto V. Paras. Its "mother bill" is House Bill No. 3555. The House
Committee on Ways and Means approved the bill on February 2, 2005. The President also certified it as urgent
on February 8, 2005. The House of Representatives approved the bill on second and third reading on February
28, 2005.
Meanwhile, the Senate Committee on Ways and Means approved Senate Bill No. 19504 on March 7, 2005, "in J. PANGANIBAN : . . . mitigating measures . . .
substitution of Senate Bill Nos. 1337, 1838 and 1873, taking into consideration House Bill Nos. 3555 and 3705."
Senator Ralph G. Recto sponsored Senate Bill No. 1337, while Senate Bill Nos. 1838 and 1873 were both ATTY. BANIQUED : Yes, Your Honor.
sponsored by Sens. Franklin M. Drilon, Juan M. Flavier and Francis N. Pangilinan. The President certified the bill
on March 11, 2005, and was approved by the Senate on second and third reading on April 13, 2005.
J. PANGANIBAN : As a matter of fact a part of the mitigating measures would be the elimination of the Excise Tax
and the import duties. That is why, it is not correct to say that the VAT as to petroleum dealers increased prices
On the same date, April 13, 2005, the Senate agreed to the request of the House of Representatives for a by 10%.
committee conference on the disagreeing provisions of the proposed bills.
ATTY. BANIQUED : Yes, Your Honor.
Before long, the Conference Committee on the Disagreeing Provisions of House Bill No. 3555, House Bill No.
3705, and Senate Bill No. 1950, "after having met and discussed in full free and conference," recommended the
J. PANGANIBAN : And therefore, there is no justification for increasing the retail price by 10% to cover the E-Vat
approval of its report, which the Senate did on May 10, 2005, and with the House of Representatives agreeing
tax. If you consider the excise tax and the import duties, the Net Tax would probably be in the neighborhood of
thereto the next day, May 11, 2005.
7%? We are not going into exact figures I am just trying to deliver a point that different industries, different
products, different services are hit differently. So it’s not correct to say that all prices must go up by 10%.
On May 23, 2005, the enrolled copy of the consolidated House and Senate version was transmitted to the
President, who signed the same into law on May 24, 2005. Thus, came R.A. No. 9337.
ATTY. BANIQUED : You’re right, Your Honor.

July 1, 2005 is the effectivity date of R.A. No. 9337.5 When said date came, the Court issued a temporary
J. PANGANIBAN : Now. For instance, Domestic Airline companies, Mr. Counsel, are at present imposed a Sales
restraining order, effective immediately and continuing until further orders, enjoining respondents from
Tax of 3%. When this E-Vat law took effect the Sales Tax was also removed as a mitigating measure. So,
enforcing and implementing the law.
therefore, there is no justification to increase the fares by 10% at best 7%, correct?

Oral arguments were held on July 14, 2005. Significantly, during the hearing, the Court speaking through Mr.
ATTY. BANIQUED : I guess so, Your Honor, yes.
Justice Artemio V. Panganiban, voiced the rationale for its issuance of the temporary restraining order on July 1,
2005, to wit:
J. PANGANIBAN : There are other products that the people were complaining on that first day, were being
increased arbitrarily by 10%. And that’s one reason among many others this Court had to issue TRO because of
J. PANGANIBAN : . . . But before I go into the details of your presentation, let me just tell you a little background.
the confusion in the implementation. That’s why we added as an issue in this case, even if it’s tangentially taken
You know when the law took effect on July 1, 2005, the Court issued a TRO at about 5 o’clock in the afternoon.
up by the pleadings of the parties, the confusion in the implementation of the E-vat. Our people were subjected
But before that, there was a lot of complaints aired on television and on radio. Some people in a gas station were
to the mercy of that confusion of an across the board increase of 10%, which you yourself now admit and I think
complaining that the gas prices went up by 10%. Some people were complaining that their electric bill will go up
even the Government will admit is incorrect. In some cases, it should be 3% only, in some cases it should be 6%
by 10%. Other times people riding in domestic air carrier were complaining that the prices that they’ll have to
depending on these mitigating measures and the location and situation of each product, of each service, of each
pay would have to go up by 10%. While all that was being aired, per your presentation and per our own
company, isn’t it?
understanding of the law, that’s not true. It’s not true that the e-vat law necessarily increased prices by 10%
uniformly isn’t it?
ATTY. BANIQUED : Yes, Your Honor.
ATTY. BANIQUED : No, Your Honor.
J. PANGANIBAN : Alright. So that’s one reason why we had to issue a TRO pending the clarification of all these
and we wish the government will take time to clarify all these by means of a more detailed implementing rules,
J. PANGANIBAN : It is not?
in case the law is upheld by this Court. . . .6

ATTY. BANIQUED : It’s not, because, Your Honor, there is an Executive Order that granted the Petroleum
The Court also directed the parties to file their respective Memoranda.
companies some subsidy . . . interrupted

G.R. No. 168056

J. PANGANIBAN : That’s correct . . .

Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al., filed a petition for prohibition on
ATTY. BANIQUED : . . . and therefore that was meant to temper the impact . . . interrupted
May 27, 2005. They question the constitutionality of Sections 4, 5 and 6 of R.A. No. 9337, amending Sections
106, 107 and 108, respectively, of the National Internal Revenue Code (NIRC). Section 4 imposes a 10% VAT on
sale of goods and properties, Section 5 imposes a 10% VAT on importation of goods, and Section 6 imposes a
10% VAT on sale of services and use or lease of properties. These questioned provisions contain a
uniform proviso authorizing the President, upon recommendation of the Secretary of Finance, to raise the VAT
rate to 12%, effective January 1, 2006, after any of the following conditions have been satisfied, to wit:
. . . That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006,
raise the rate of value-added tax to twelve percent (12%), after any of the following conditions has been
satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two
and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1
½%).
Petitioners argue that the law is unconstitutional, as it constitutes abandonment by Congress of its exclusive
authority to fix the rate of taxes under Article VI, Section 28(2) of the 1987 Philippine Constitution.
G.R. No. 168207
On June 9, 2005, Sen. Aquilino Q. Pimentel, Jr., et al., filed a petition for certiorari likewise assailing the
constitutionality of Sections 4, 5 and 6 of R.A. No. 9337.
Aside from questioning the so-called stand-by authority of the President to increase the VAT rate to 12%, on the
ground that it amounts to an undue delegation of legislative power, petitioners also contend that the increase in
the VAT rate to 12% contingent on any of the two conditions being satisfied violates the due process clause
embodied in Article III, Section 1 of the Constitution, as it imposes an unfair and additional tax burden on the
people, in that: (1) the 12% increase is ambiguous because it does not state if the rate would be returned to the
original 10% if the conditions are no longer satisfied; (2) the rate is unfair and unreasonable, as the people are
unsure of the applicable VAT rate from year to year; and (3) the increase in the VAT rate, which is supposed to be
an incentive to the President to raise the VAT collection to at least 2 4/5 of the GDP of the previous year, should
only be based on fiscal adequacy.
Petitioners further claim that the inclusion of a stand-by authority granted to the President by the Bicameral
Conference Committee is a violation of the "no-amendment rule" upon last reading of a bill laid down in Article
VI, Section 26(2) of the Constitution.
G.R. No. 168461
Thereafter, a petition for prohibition was filed on June 29, 2005, by the Association of Pilipinas Shell Dealers,
Inc., et al., assailing the following provisions of R.A. No. 9337:
1) Section 8, amending Section 110 (A)(2) of the NIRC, requiring that the input tax on depreciable goods shall be
amortized over a 60-month period, if the acquisition, excluding the VAT components, exceeds One Million Pesos
(₱1, 000,000.00);
2) Section 8, amending Section 110 (B) of the NIRC, imposing a 70% limit on the amount of input tax to be
credited against the output tax; and
3) Section 12, amending Section 114 (c) of the NIRC, authorizing the Government or any of its political
subdivisions, instrumentalities or agencies, including GOCCs, to deduct a 5% final withholding tax on gross
payments of goods and services, which are subject to 10% VAT under Sections 106 (sale of goods and properties)
and 108 (sale of services and use or lease of properties) of the NIRC.
Petitioners contend that these provisions are unconstitutional for being arbitrary, oppressive, excessive, and
confiscatory.
Petitioners’ argument is premised on the constitutional right of non-deprivation of life, liberty or property
without due process of law under Article III, Section 1 of the Constitution. According to petitioners, the contested
sections impose limitations on the amount of input tax that may be claimed. Petitioners also argue that the input
tax partakes the nature of a property that may not be confiscated, appropriated, or limited without due process
of law. Petitioners further contend that like any other property or property right, the input tax credit may be
transferred or disposed of, and that by limiting the same, the government gets to tax a profit or value-added
even if there is no profit or value-added.
Petitioners also believe that these provisions violate the constitutional guarantee of equal protection of the law
under Article III, Section 1 of the Constitution, as the limitation on the creditable input tax if: (1) the entity has a
high ratio of input tax; or (2) invests in capital equipment; or (3) has several transactions with the government, is
not based on real and substantial differences to meet a valid classification.
Lastly, petitioners contend that the 70% limit is anything but progressive, violative of Article VI, Section 28(1) of
the Constitution, and that it is the smaller businesses with higher input tax to output tax ratio that will suffer the
consequences thereof for it wipes out whatever meager margins the petitioners make.
G.R. No. 168463
Several members of the House of Representatives led by Rep. Francis Joseph G. Escudero filed this petition
for certiorari on June 30, 2005. They question the constitutionality of R.A. No. 9337 on the following grounds:
1) Sections 4, 5, and 6 of R.A. No. 9337 constitute an undue delegation of legislative power, in violation of Article
VI, Section 28(2) of the Constitution;
2) The Bicameral Conference Committee acted without jurisdiction in deleting the no pass on provisions present
in Senate Bill No. 1950 and House Bill No. 3705; and
3) Insertion by the Bicameral Conference Committee of Sections 27, 28, 34, 116, 117, 119, 121, 125, 7 148, 151,
236, 237 and 288, which were present in Senate Bill No. 1950, violates Article VI, Section 24(1) of the
Constitution, which provides that all appropriation, revenue or tariff bills shall originate exclusively in the House
of Representatives
G.R. No. 168730
On the eleventh hour, Governor Enrique T. Garcia filed a petition for certiorari and prohibition on July 20, 2005,
alleging unconstitutionality of the law on the ground that the limitation on the creditable input tax in effect
allows VAT-registered establishments to retain a portion of the taxes they collect, thus violating the principle
that tax collection and revenue should be solely allocated for public purposes and expenditures. Petitioner
Garcia further claims that allowing these establishments to pass on the tax to the consumers is inequitable, in
violation of Article VI, Section 28(1) of the Constitution.
RESPONDENTS’ COMMENT
The Office of the Solicitor General (OSG) filed a Comment in behalf of respondents. Preliminarily, respondents
contend that R.A. No. 9337 enjoys the presumption of constitutionality and petitioners failed to cast doubt on its
validity.
Relying on the case of Tolentino vs. Secretary of Finance, 235 SCRA
630 (1994), respondents argue that the procedural issues raised by petitioners, i.e., legality of the bicameral
proceedings, exclusive origination of revenue measures and the power of the Senate concomitant thereto, have
already been settled. With regard to the issue of undue delegation of legislative power to the President,
respondents contend that the law is complete and leaves no discretion to the President but to increase the rate
to 12% once any of the two conditions provided therein arise.
Respondents also refute petitioners’ argument that the increase to 12%, as well as the 70% limitation on the
creditable input tax, the 60-month amortization on the purchase or importation of capital goods exceeding
₱1,000,000.00, and the 5% final withholding tax by government agencies, is arbitrary, oppressive, and
confiscatory, and that it violates the constitutional principle on progressive taxation, among others.
Finally, respondents manifest that R.A. No. 9337 is the anchor of the government’s fiscal reform agenda. A
reform in the value-added system of taxation is the core revenue measure that will tilt the balance towards a
sustainable macroeconomic environment necessary for economic growth.
ISSUES
The Court defined the issues, as follows:
PROCEDURAL ISSUE
Whether R.A. No. 9337 violates the following provisions of the Constitution:
a. Article VI, Section 24, and
b. Article VI, Section 26(2)
SUBSTANTIVE ISSUES
1. Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of the NIRC, violate the
following provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article VI, Section 28(2)
2. Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the NIRC; and Section 12 of
R.A. No. 9337, amending Section 114(C) of the NIRC, violate the following provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article III, Section 1
RULING OF THE COURT
As a prelude, the Court deems it apt to restate the general principles and concepts of value-added tax (VAT), as
the confusion and inevitably, litigation, breeds from a fallacious notion of its nature.
The VAT is a tax on spending or consumption. It is levied on the sale, barter, exchange or lease of goods or
properties and services.8 Being an indirect tax on expenditure, the seller of goods or services may pass on the
amount of tax paid to the buyer,9 with the seller acting merely as a tax collector.10 The burden of VAT is intended
to fall on the immediate buyers and ultimately, the end-consumers.
In contrast, a direct tax is a tax for which a taxpayer is directly liable on the transaction or business it engages in,
without transferring the burden to someone else.11 Examples are individual and corporate income taxes, transfer
taxes, and residence taxes.12
In the Philippines, the value-added system of sales taxation has long been in existence, albeit in a different
mode. Prior to 1978, the system was a single-stage tax computed under the "cost deduction method" and was
payable only by the original sellers. The single-stage system was subsequently modified, and a mixture of the
"cost deduction method" and "tax credit method" was used to determine the value-added tax payable.13 Under
the "tax credit method," an entity can credit against or subtract from the VAT charged on its sales or outputs the
VAT paid on its purchases, inputs and imports.14
It was only in 1987, when President Corazon C. Aquino issued Executive Order No. 273, that the VAT system was
rationalized by imposing a multi-stage tax rate of 0% or 10% on all sales using the "tax credit method."15
E.O. No. 273 was followed by R.A. No. 7716 or the Expanded VAT Law, 16 R.A. No. 8241 or the Improved VAT
Law,17 R.A. No. 8424 or the Tax Reform Act of 1997,18 and finally, the presently beleaguered R.A. No. 9337, also
referred to by respondents as the VAT Reform Act.
The Court will now discuss the issues in logical sequence.
PROCEDURAL ISSUE
I.
Whether R.A. No. 9337 violates the following provisions of the Constitution:
a. Article VI, Section 24, and
b. Article VI, Section 26(2)
A. The Bicameral Conference Committee
Petitioners Escudero, et al., and Pimentel, et al., allege that the Bicameral Conference Committee exceeded its
authority by:
1) Inserting the stand-by authority in favor of the President in Sections 4, 5, and 6 of R.A. No. 9337;
2) Deleting entirely the no pass-on provisions found in both the House and Senate bills;
3) Inserting the provision imposing a 70% limit on the amount of input tax to be credited against the output tax;
and
4) Including the amendments introduced only by Senate Bill No. 1950 regarding other kinds of taxes in addition
to the value-added tax.
Petitioners now beseech the Court to define the powers of the Bicameral Conference Committee.
It should be borne in mind that the power of internal regulation and discipline are intrinsic in any legislative body
for, as unerringly elucidated by Justice Story, "[i]f the power did not exist, it would be utterly impracticable to
transact the business of the nation, either at all, or at least with decency, deliberation, and order."19 Thus,
Article VI, Section 16 (3) of the Constitution provides that "each House may determine the rules of its
proceedings." Pursuant to this inherent constitutional power to promulgate and implement its own rules of
procedure, the respective rules of each house of Congress provided for the creation of a Bicameral Conference
Committee.
Thus, Rule XIV, Sections 88 and 89 of the Rules of House of Representatives provides as follows:
Sec. 88. Conference Committee. – In the event that the House does not agree with the Senate on the amendment
to any bill or joint resolution, the differences may be settled by the conference committees of both chambers.
In resolving the differences with the Senate, the House panel shall, as much as possible, adhere to and support
the House Bill. If the differences with the Senate are so substantial that they materially impair the House Bill, the
panel shall report such fact to the House for the latter’s appropriate action.
Sec. 89. Conference Committee Reports. – . . . Each report shall contain a detailed, sufficiently explicit statement
of the changes in or amendments to the subject measure.
...
The Chairman of the House panel may be interpellated on the Conference Committee Report prior to the voting
thereon. The House shall vote on the Conference Committee Report in the same manner and procedure as it
votes on a bill on third and final reading.
Rule XII, Section 35 of the Rules of the Senate states:
Sec. 35. In the event that the Senate does not agree with the House of Representatives on the provision of any
bill or joint resolution, the differences shall be settled by a conference committee of both Houses which shall
meet within ten (10) days after their composition. The President shall designate the members of the Senate
Panel in the conference committee with the approval of the Senate.
Each Conference Committee Report shall contain a detailed and sufficiently explicit statement of the changes in,
or amendments to the subject measure, and shall be signed by a majority of the members of each House panel,
voting separately.
A comparative presentation of the conflicting House and Senate provisions and a reconciled version thereof with
the explanatory statement of the conference committee shall be attached to the report.
...
The creation of such conference committee was apparently in response to a problem, not addressed by any
constitutional provision, where the two houses of Congress find themselves in disagreement over changes or
amendments introduced by the other house in a legislative bill. Given that one of the most basic powers of the
legislative branch is to formulate and implement its own rules of proceedings and to discipline its members, may
the Court then delve into the details of how Congress complies with its internal rules or how it conducts its
business of passing legislation? Note that in the present petitions, the issue is not whether provisions of the rules
of both houses creating the bicameral conference committee are unconstitutional, but whether the bicameral
conference committee has strictly complied with the rules of both houses, thereby remaining within the
jurisdiction conferred upon it by Congress.
In the recent case of Fariñas vs. The Executive Secretary,20 the Court En Banc, unanimously reiterated and
emphasized its adherence to the "enrolled bill doctrine," thus, declining therein petitioners’ plea for the Court to
go behind the enrolled copy of the bill. Assailed in said case was Congress’s creation of two sets of bicameral
conference committees, the lack of records of said committees’ proceedings, the alleged violation of said
committees of the rules of both houses, and the disappearance or deletion of one of the provisions in the
compromise bill submitted by the bicameral conference committee. It was argued that such irregularities in the
passage of the law nullified R.A. No. 9006, or the Fair Election Act.
Striking down such argument, the Court held thus:
Under the "enrolled bill doctrine," the signing of a bill by the Speaker of the House and the Senate President and
the certification of the Secretaries of both Houses of Congress that it was passed are conclusive of its due
enactment. A review of cases reveals the Court’s consistent adherence to the rule. The Court finds no reason to
deviate from the salutary rule in this case where the irregularities alleged by the petitioners mostly involved
the internal rules of Congress, e.g., creation of the 2nd or 3rd Bicameral Conference Committee by the 12% VAT on importation of locally manufactured goods and NIRC), 10% VAT on sale of
House. This Court is not the proper forum for the enforcement of these internal rules of Congress, whether goods (amending Sec. 107 of petroleum products and raw services including sale of
House or Senate. Parliamentary rules are merely procedural and with their observance the courts have no NIRC); and 12% VAT on sale of materials to be used in the electricity by generation
concern. Whatever doubts there may be as to the formal validity of Rep. Act No. 9006 must be resolved in its services and use or lease of manufacture thereof (amending Sec. companies, transmission and
favor.The Court reiterates its ruling in Arroyo vs. De Venecia, viz.: properties (amending Sec. 108 106 of NIRC); 12% VAT on distribution companies, and use
of NIRC) importation of goods and reduced or lease of properties (amending
But the cases, both here and abroad, in varying forms of expression, all deny to the courts the power to rates for certain imported products Sec. 108 of NIRC)
inquire into allegations that, in enacting a law, a House of Congress failed to comply with its own rules, in the including petroleum products
absence of showing that there was a violation of a constitutional provision or the rights of private (amending Sec. 107 of NIRC); and
individuals. In Osmeña v. Pendatun, it was held: "At any rate, courts have declared that ‘the rules adopted by 12% VAT on sale of services and use
deliberative bodies are subject to revocation, modification or waiver at the pleasure of the body adopting or lease of properties and a reduced
them.’ And it has been said that "Parliamentary rules are merely procedural, and with their observance, the rate for certain services including
courts have no concern. They may be waived or disregarded by the legislative body." Consequently, "mere power generation (amending Sec.
failure to conform to parliamentary usage will not invalidate the action (taken by a deliberative body) when 108 of NIRC)
the requisite number of members have agreed to a particular measure."21 (Emphasis supplied) With regard to the "no pass-on" provision
No similar provision Provides that the VAT imposed on Provides that the VAT imposed
The foregoing declaration is exactly in point with the present cases, where petitioners allege irregularities power generation and on the sale of on sales of electricity by
committed by the conference committee in introducing changes or deleting provisions in the House and Senate petroleum products shall be generation companies and
bills. Akin to the Fariñas case,22 the present petitions also raise an issue regarding the actions taken by the absorbed by generation companies services of transmission
conference committee on matters regarding Congress’ compliance with its own internal rules. As stated earlier, or sellers, respectively, and shall not companies and distribution
one of the most basic and inherent power of the legislature is the power to formulate rules for its proceedings be passed on to consumers companies, as well as those of
and the discipline of its members. Congress is the best judge of how it should conduct its own business franchise grantees of electric
expeditiously and in the most orderly manner. It is also the sole utilities shall not apply to
residential
concern of Congress to instill discipline among the members of its conference committee if it believes that said
members violated any of its rules of proceedings. Even the expanded jurisdiction of this Court cannot apply to end-users. VAT shall be absorbed
questions regarding only the internal operation of Congress, thus, the Court is wont to deny a review of the by generation, transmission, and
internal proceedings of a co-equal branch of government. distribution companies.
With regard to 70% limit on input tax credit
Moreover, as far back as 1994 or more than ten years ago, in the case of Tolentino vs. Secretary of Finance,23 the Provides that the input tax No similar provision Provides that the input tax credit
Court already made the pronouncement that "[i]f a change is desired in the practice [of the Bicameral credit for capital goods on for capital goods on which a VAT
Conference Committee] it must be sought in Congress since this question is not covered by any constitutional which a VAT has been paid shall has been paid shall be equally
provision but is only an internal rule of each house." 24 To date, Congress has not seen it fit to make such be equally distributed over 5 distributed over 5 years or the
changes adverted to by the Court. It seems, therefore, that Congress finds the practices of the bicameral years or the depreciable life of depreciable life of such capital
conference committee to be very useful for purposes of prompt and efficient legislative action. such capital goods; the input tax goods; the input tax credit for
credit for goods and services goods and services other than
other than capital goods shall capital goods shall not exceed
Nevertheless, just to put minds at ease that no blatant irregularities tainted the proceedings of the bicameral
not exceed 5% of the total 90% of the output VAT.
conference committees, the Court deems it necessary to dwell on the issue. The Court observes that there was a
amount of such goods and
necessity for a conference committee because a comparison of the provisions of House Bill Nos. 3555 and 3705
services; and for persons
on one hand, and Senate Bill No. 1950 on the other, reveals that there were indeed disagreements. As pointed
engaged in retail trading of
out in the petitions, said disagreements were as follows:
goods, the allowable input tax
credit shall not exceed 11% of
House Bill No. 3555 House Bill No.3705 Senate Bill No. 1950 the total amount of goods
With regard to "Stand-By Authority" in favor of President purchased.
Provides for 12% VAT on every Provides for 12% VAT in general on Provides for a single rate of 10% With regard to amendments to be made to NIRC provisions regarding income and excise taxes
sale of goods or properties sales of goods or properties and VAT on sale of goods or No similar provision No similar provision Provided for amendments to sev
(amending Sec. 106 of NIRC); reduced rates for sale of certain properties (amending Sec. 106 of

NIRC provisions regarding corporate
income, percentage, franchise excess
excise taxes
The disagreements between the provisions in the House bills and the Senate bill were with regard to (1) what
rate of VAT is to be imposed; (2) whether only the VAT imposed on electricity generation, transmission and
distribution companies should not be passed on to consumers, as proposed in the Senate bill, or both the VAT
imposed on electricity generation, transmission and distribution companies and the VAT imposed on sale of
petroleum products should not be passed on to consumers, as proposed in the House bill; (3) in what manner
input tax credits should be limited; (4) and whether the NIRC provisions on corporate income taxes, percentage,
franchise and excise taxes should be amended.
There being differences and/or disagreements on the foregoing provisions of the House and Senate bills, the
Bicameral Conference Committee was mandated by the rules of both houses of Congress to act on the same by
settling said differences and/or disagreements. The Bicameral Conference Committee acted on the disagreeing
provisions by making the following changes:
1. With regard to the disagreement on the rate of VAT to be imposed, it would appear from the Conference
Committee Report that the Bicameral Conference Committee tried to bridge the gap in the difference between
the 10% VAT rate proposed by the Senate, and the various rates with 12% as the highest VAT rate proposed by
the House, by striking a compromise whereby the present 10% VAT rate would be retained until certain
conditions arise, i.e., the value-added tax collection as a percentage of gross domestic product (GDP) of the
previous year exceeds 2 4/5%, or National Government deficit as a percentage of GDP of the previous year
exceeds 1½%, when the President, upon recommendation of the Secretary of Finance shall raise the rate of VAT
to 12% effective January 1, 2006.
2. With regard to the disagreement on whether only the VAT imposed on electricity generation, transmission
and distribution companies should not be passed on to consumers or whether both the VAT imposed on
electricity generation, transmission and distribution companies and the VAT imposed on sale of petroleum
products may be passed on to consumers, the Bicameral Conference Committee chose to settle such
disagreement by altogether deleting from its Report any no pass-on provision.
3. With regard to the disagreement on whether input tax credits should be limited or not, the Bicameral
Conference Committee decided to adopt the position of the House by putting a limitation on the amount of
input tax that may be credited against the output tax, although it crafted its own language as to the amount of
the limitation on input tax credits and the manner of computing the same by providing thus:
(A) Creditable Input Tax. – . . .
...
Provided, The input tax on goods purchased or imported in a calendar month for use in trade or business for
which deduction for depreciation is allowed under this Code, shall be spread evenly over the month of
acquisition and the fifty-nine (59) succeeding months if the aggregate acquisition cost for such goods, excluding
the VAT component thereof, exceeds one million Pesos (₱1,000,000.00): PROVIDED, however, that if the
estimated useful life of the capital good is less than five (5) years, as used for depreciation purposes, then the
input VAT shall be spread over such shorter period: . . .
(B) Excess Output or Input Tax. – If at the end of any taxable quarter the output tax exceeds the input tax, the
and shall be paid by the VAT-registered person. If the input tax exceeds the output tax, the excess shall be
carried over to the succeeding quarter or quarters: PROVIDED that the input tax inclusive of input VAT carried
over from the previous quarter that may be credited in every quarter shall not exceed seventy percent (70%) of
the output VAT: PROVIDED, HOWEVER, THAT any input tax attributable to zero-rated sales by a VAT-registered
person may at his option be refunded or credited against other internal revenue taxes, . . .
4. With regard to the amendments to other provisions of the NIRC on corporate income tax, franchise,
percentage and excise taxes, the conference committee decided to include such amendments and basically
adopted the provisions found in Senate Bill No. 1950, with some changes as to the rate of the tax to be imposed.
Under the provisions of both the Rules of the House of Representatives and Senate Rules, the Bicameral
Conference Committee is mandated to settle the differences between the disagreeing provisions in the House
bill and the Senate bill. The term "settle" is synonymous to "reconcile" and "harmonize." 25 To reconcile or
harmonize disagreeing provisions, the Bicameral Conference Committee may then (a) adopt the specific
provisions of either the House bill or Senate bill, (b) decide that neither provisions in the House bill or the
provisions in the Senate bill would
be carried into the final form of the bill, and/or (c) try to arrive at a compromise between the disagreeing
provisions.
In the present case, the changes introduced by the Bicameral Conference Committee on disagreeing provisions
were meant only to reconcile and harmonize the disagreeing provisions for it did not inject any idea or intent
that is wholly foreign to the subject embraced by the original provisions.
The so-called stand-by authority in favor of the President, whereby the rate of 10% VAT wanted by the Senate is
retained until such time that certain conditions arise when the 12% VAT wanted by the House shall be imposed,
appears to be a compromise to try to bridge the difference in the rate of VAT proposed by the two houses of
Congress. Nevertheless, such compromise is still totally within the subject of what rate of VAT should be
imposed on taxpayers.
The no pass-on provision was deleted altogether. In the transcripts of the proceedings of the Bicameral
Conference Committee held on May 10, 2005, Sen. Ralph Recto, Chairman of the Senate Panel, explained the
reason for deleting the no pass-on provision in this wise:
. . . the thinking was just to keep the VAT law or the VAT bill simple. And we were thinking that no sector should
be a beneficiary of legislative grace, neither should any sector be discriminated on. The VAT is an indirect tax. It
is a pass on-tax. And let’s keep it plain and simple. Let’s not confuse the bill and put a no pass-on provision. Two-
thirds of the world have a VAT system and in this two-thirds of the globe, I have yet to see a VAT with a no pass-
though provision. So, the thinking of the Senate is basically simple, let’s keep the VAT simple. 26 (Emphasis
supplied)
Rep. Teodoro Locsin further made the manifestation that the no pass-on provision "never really enjoyed the
support of either House."27
With regard to the amount of input tax to be credited against output tax, the Bicameral Conference Committee Nor is there any reason for requiring that the Committee’s Report in these cases must have undergone three
came to a compromise on the percentage rate of the limitation or cap on such input tax credit, but again, the readings in each of the two houses. If that be the case, there would be no end to negotiation since each house
change introduced by the Bicameral Conference Committee was totally within the intent of both houses to put a may seek modification of the compromise bill. . . .
cap on input tax that may be
Art. VI. § 26 (2) must, therefore, be construed as referring only to bills introduced for the first time in either
credited against the output tax. From the inception of the subject revenue bill in the House of Representatives, house of Congress, not to the conference committee report.32 (Emphasis supplied)
one of the major objectives was to "plug a glaring loophole in the tax policy and administration by creating vital
restrictions on the claiming of input VAT tax credits . . ." and "[b]y introducing limitations on the claiming of tax The Court reiterates here that the "no-amendment rule" refers only to the procedure to be followed by each
credit, we are capping a major leakage that has placed our collection efforts at an apparent disadvantage."28 house of Congress with regard to bills initiated in each of said respective houses, before said bill is transmitted
to the other house for its concurrence or amendment. Verily, to construe said provision in a way as to proscribe
As to the amendments to NIRC provisions on taxes other than the value-added tax proposed in Senate Bill No. any further changes to a bill after one house has voted on it would lead to absurdity as this would mean that the
1950, since said provisions were among those referred to it, the conference committee had to act on the same other house of Congress would be deprived of its constitutional power to amend or introduce changes to said
and it basically adopted the version of the Senate. bill. Thus, Art. VI, Sec. 26 (2) of the Constitution cannot be taken to mean that the introduction by the Bicameral
Conference Committee of amendments and modifications to disagreeing provisions in bills that have been acted
Thus, all the changes or modifications made by the Bicameral Conference Committee were germane to subjects upon by both houses of Congress is prohibited.
of the provisions referred
C. R.A. No. 9337 Does Not Violate Article VI, Section 24 of the Constitution on Exclusive Origination of Revenue
to it for reconciliation. Such being the case, the Court does not see any grave abuse of discretion amounting to Bills
lack or excess of jurisdiction committed by the Bicameral Conference Committee. In the earlier cases
of Philippine Judges Association vs. Prado29 and Tolentino vs. Secretary of Finance,30 the Court recognized the Coming to the issue of the validity of the amendments made regarding the NIRC provisions on corporate income
long-standing legislative practice of giving said conference committee ample latitude for compromising taxes and percentage, excise taxes. Petitioners refer to the following provisions, to wit:
differences between the Senate and the House. Thus, in the Tolentino case, it was held that:
Section 27 Rates of Income Tax on Domestic Corporation
. . . it is within the power of a conference committee to include in its report an entirely new provision that is not 28(A)(1) Tax on Resident Foreign Corporation
found either in the House bill or in the Senate bill. If the committee can propose an amendment consisting of 28(B)(1) Inter-corporate Dividends
one or two provisions, there is no reason why it cannot propose several provisions, collectively considered as an
34(B)(1) Inter-corporate Dividends
"amendment in the nature of a substitute," so long as such amendment is germane to the subject of the bills
before the committee. After all, its report was not final but needed the approval of both houses of Congress to 116 Tax on Persons Exempt from VAT
become valid as an act of the legislative department. The charge that in this case the Conference Committee 117 Percentage Tax on domestic carriers and keepers of Garage
acted as a third legislative chamber is thus without any basis.31 (Emphasis supplied) 119 Tax on franchises
121 Tax on banks and Non-Bank Financial Intermediaries
B. R.A. No. 9337 Does Not Violate Article VI, Section 26(2) of the Constitution on the "No-Amendment Rule" 148 Excise Tax on manufactured oils and other fuels
151 Excise Tax on mineral products
Article VI, Sec. 26 (2) of the Constitution, states: 236 Registration requirements
237 Issuance of receipts or sales or commercial invoices
No bill passed by either House shall become a law unless it has passed three readings on separate days, and 288 Disposition of Incremental Revenue
printed copies thereof in its final form have been distributed to its Members three days before its passage, Petitioners claim that the amendments to these provisions of the NIRC did not at all originate from the House.
except when the President certifies to the necessity of its immediate enactment to meet a public calamity or They aver that House Bill No. 3555 proposed amendments only regarding Sections 106, 107, 108, 110 and 114 of
emergency. Upon the last reading of a bill, no amendment thereto shall be allowed, and the vote thereon shall the NIRC, while House Bill No. 3705 proposed amendments only to Sections 106, 107,108, 109, 110 and 111 of
be taken immediately thereafter, and the yeas and nays entered in the Journal. the NIRC; thus, the other sections of the NIRC which the Senate amended but which amendments were not
found in the House bills are not intended to be amended by the House of Representatives. Hence, they argue
Petitioners’ argument that the practice where a bicameral conference committee is allowed to add or delete that since the proposed amendments did not originate from the House, such amendments are a violation of
provisions in the House bill and the Senate bill after these had passed three readings is in effect a circumvention Article VI, Section 24 of the Constitution.
of the "no amendment rule" (Sec. 26 (2), Art. VI of the 1987 Constitution), fails to convince the Court to deviate
from its ruling in the Tolentino case that: The argument does not hold water.
Article VI, Section 24 of the Constitution reads:
Sec. 24. All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local
application, and private bills shall originate exclusively in the House of Representatives but the Senate may
propose or concur with amendments.
In the present cases, petitioners admit that it was indeed House Bill Nos. 3555 and 3705 that initiated the move
for amending provisions of the NIRC dealing mainly with the value-added tax. Upon transmittal of said House
bills to the Senate, the Senate came out with Senate Bill No. 1950 proposing amendments not only to NIRC
provisions on the value-added tax but also amendments to NIRC provisions on other kinds of taxes. Is the
introduction by the Senate of provisions not dealing directly with the value- added tax, which is the only kind of
tax being amended in the House bills, still within the purview of the constitutional provision authorizing the
Senate to propose or concur with amendments to a revenue bill that originated from the House?
The foregoing question had been squarely answered in the Tolentino case, wherein the Court held, thus:
. . . To begin with, it is not the law – but the revenue bill – which is required by the Constitution to "originate
exclusively" in the House of Representatives. It is important to emphasize this, because a bill originating in the
House may undergo such extensive changes in the Senate that the result may be a rewriting of the whole. . . . At
this point, what is important to note is that, as a result of the Senate action, a distinct bill may be produced. To
insist that a revenue statute – and not only the bill which initiated the legislative process culminating in the
enactment of the law – must substantially be the same as the House bill would be to deny the Senate’s power
not only to "concur with amendments" but also to "propose amendments." It would be to violate the
coequality of legislative power of the two houses of Congress and in fact make the House superior to the Senate.
… sizeable revenues for the government
…Given, then, the power of the Senate to propose amendments, the Senate can propose its own version even
with respect to bills which are required by the Constitution to originate in the House.
...
Indeed, what the Constitution simply means is that the initiative for filing revenue, tariff or tax bills, bills
authorizing an increase of the public debt, private bills and bills of local application must come from the House of
Representatives on the theory that, elected as they are from the districts, the members of the House can be
expected to be more sensitive to the local needs and problems. On the other hand, the senators, who are
elected at large, are expected to approach the same problems from the national perspective. Both views are
thereby made to bear on the enactment of such laws.33 (Emphasis supplied)
Since there is no question that the revenue bill exclusively originated in the House of Representatives, the Senate
was acting within its
constitutional power to introduce amendments to the House bill when it included provisions in Senate Bill No.
1950 amending corporate income taxes, percentage, excise and franchise taxes. Verily, Article VI, Section 24 of
the Constitution does not contain any prohibition or limitation on the extent of the amendments that may be
introduced by the Senate to the House revenue bill.
Furthermore, the amendments introduced by the Senate to the NIRC provisions that had not been touched in
the House bills are still in furtherance of the intent of the House in initiating the subject revenue bills. The
Explanatory Note of House Bill No. 1468, the very first House bill introduced on the floor, which was later
substituted by House Bill No. 3555, stated:
One of the challenges faced by the present administration is the urgent and daunting task of solving the
country’s serious financial problems. To do this, government expenditures must be strictly monitored and
controlled and revenues must be significantly increased. This may be easier said than done, but our fiscal
authorities are still optimistic the government will be operating on a balanced budget by the year 2009. In fact,
several measures that will result to significant expenditure savings have been identified by the administration. It
is supported with a credible package of revenue measures that include measures to improve tax
administration and control the leakages in revenues from income taxes and the value-added tax (VAT).
(Emphasis supplied)
Rep. Eric D. Singson, in his sponsorship speech for House Bill No. 3555, declared that:
In the budget message of our President in the year 2005, she reiterated that we all acknowledged that on top of
our agenda must be the restoration of the health of our fiscal system.
In order to considerably lower the consolidated public sector deficit and eventually achieve a balanced budget by
the year 2009, we need to seize windows of opportunities which might seem poignant in the beginning, but in
the long run prove effective and beneficial to the overall status of our economy. One such opportunity is a
review of existing tax rates, evaluating the relevance given our present conditions.34 (Emphasis supplied)
Notably therefore, the main purpose of the bills emanating from the House of Representatives is to bring in
to supplement our country’s serious financial problems, and improve tax administration and control of the
leakages in revenues from income taxes and value-added taxes. As these house bills were transmitted to the
Senate, the latter, approaching the measures from the point of national perspective, can introduce amendments
within the purposes of those bills. It can provide for ways that would soften the impact of the VAT measure on
the consumer, i.e., by distributing the burden across all sectors instead of putting it entirely on the shoulders of
the consumers. The sponsorship speech of Sen. Ralph Recto on why the provisions on income tax on corporation
were included is worth quoting:
All in all, the proposal of the Senate Committee on Ways and Means will raise ₱64.3 billion in additional
revenues annually even while by mitigating prices of power, services and petroleum products.
However, not all of this will be wrung out of VAT. In fact, only ₱48.7 billion amount is from the VAT on twelve
goods and services. The rest of the tab – ₱10.5 billion- will be picked by corporations.
What we therefore prescribe is a burden sharing between corporate Philippines and the consumer. Why should
the latter bear all the pain? Why should the fiscal salvation be only on the burden of the consumer?
The corporate world’s equity is in form of the increase in the corporate income tax from 32 to 35 percent, but up
to 2008 only. This will raise ₱10.5 billion a year. After that, the rate will slide back, not to its old rate of 32
percent, but two notches lower, to 30 percent.
Clearly, we are telling those with the capacity to pay, corporations, to bear with this emergency provision that
will be in effect for 1,200 days, while we put our fiscal house in order. This fiscal medicine will have an expiry
date.
For their assistance, a reward of tax reduction awaits them. We intend to keep the length of their sacrifice brief.
We would like to assure them that not because there is a light at the end of the tunnel, this government will
keep on making the tunnel long.
The responsibility will not rest solely on the weary shoulders of the small man. Big business will be there to share
the burden.35
As the Court has said, the Senate can propose amendments and in fact, the amendments made on provisions in
the tax on income of corporations are germane to the purpose of the house bills which is to raise revenues for
the government.
Likewise, the Court finds the sections referring to other percentage and excise taxes germane to the reforms to
the VAT system, as these sections would cushion the effects of VAT on consumers. Considering that certain
goods and services which were subject to percentage tax and excise tax would no longer be VAT-exempt, the
consumer would be burdened more as they would be paying the VAT in addition to these taxes. Thus, there is a
need to amend these sections to soften the impact of VAT. Again, in his sponsorship speech, Sen. Recto said:
However, for power plants that run on oil, we will reduce to zero the present excise tax on bunker fuel, to lessen
the effect of a VAT on this product.
For electric utilities like Meralco, we will wipe out the franchise tax in exchange for a VAT.
And in the case of petroleum, while we will levy the VAT on oil products, so as not to destroy the VAT chain, we
will however bring down the excise tax on socially sensitive products such as diesel, bunker, fuel and kerosene.
...
What do all these exercises point to? These are not contortions of giving to the left hand what was taken from
the right. Rather, these sprang from our concern of softening the impact of VAT, so that the people can cushion
the blow of higher prices they will have to pay as a result of VAT.36
The other sections amended by the Senate pertained to matters of tax administration which are necessary for
the implementation of the changes in the VAT system.
To reiterate, the sections introduced by the Senate are germane to the subject matter and purposes of the house
bills, which is to supplement our country’s fiscal deficit, among others. Thus, the Senate acted within its power to
propose those amendments.
SUBSTANTIVE ISSUES
I.
Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of the NIRC, violate the
following provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article VI, Section 28(2)
A. No Undue Delegation of Legislative Power
Petitioners ABAKADA GURO Party List, et al., Pimentel, Jr., et al., and Escudero, et al. contend in common that
Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the NIRC giving the
President the stand-by authority to raise the VAT rate from 10% to 12% when a certain condition is met,
constitutes undue delegation of the legislative power to tax.
The assailed provisions read as follows:
SEC. 4. Sec. 106 of the same Code, as amended, is hereby further amended to read as follows:
SEC. 106. Value-Added Tax on Sale of Goods or Properties. –
(A) Rate and Base of Tax. – There shall be levied, assessed and collected on every sale, barter or exchange of
goods or properties, a value-added tax equivalent to ten percent (10%) of the gross selling price or gross value in
money of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or
transferor: provided, that the President, upon the recommendation of the Secretary of Finance, shall, effective
January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the following
conditions has been satisfied.
(i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds
two and four-fifth percent (2 4/5%) or
(ii) national government deficit as a percentage of GDP of the previous year exceeds one and one-half percent
(1 ½%).
SEC. 5. Section 107 of the same Code, as amended, is hereby further amended to read as follows:
SEC. 107. Value-Added Tax on Importation of Goods. –
(A) In General. – There shall be levied, assessed and collected on every importation of goods a value-added tax
equivalent to ten percent (10%) based on the total value used by the Bureau of Customs in determining tariff
and customs duties, plus customs duties, excise taxes, if any, and other charges, such tax to be paid by the
importer prior to the release of such goods from customs custody: Provided, That where the customs duties are
determined on the basis of the quantity or volume of the goods, the value-added tax shall be based on the
landed cost plus excise taxes, if any: provided, further, that the President, upon the recommendation of the
Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%)
after any of the following conditions has been satisfied.
(i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds
two and four-fifth percent (2 4/5%) or
(ii) national government deficit as a percentage of GDP of the previous year exceeds one and one-half percent
(1 ½%).
SEC. 6. Section 108 of the same Code, as amended, is hereby further amended to read as follows:
SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties –
(A) Rate and Base of Tax. – There shall be levied, assessed and collected, a value-added tax equivalent to ten
percent (10%) of gross receipts derived from the sale or exchange of services: provided, that the President,
upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-
added tax to twelve percent (12%), after any of the following conditions has been satisfied.
(i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds
two and four-fifth percent (2 4/5%) or
(ii) national government deficit as a percentage of GDP of the previous year exceeds one and one-half percent
(1 ½%). (Emphasis supplied)
Petitioners allege that the grant of the stand-by authority to the President to increase the VAT rate is a virtual
abdication by Congress of its exclusive power to tax because such delegation is not within the purview of Section
28 (2), Article VI of the Constitution, which provides:
The Congress may, by law, authorize the President to fix within specified limits, and may impose, tariff rates,
import and export quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the
national development program of the government.
They argue that the VAT is a tax levied on the sale, barter or exchange of goods and properties as well as on the
sale or exchange of services, which cannot be included within the purview of tariffs under the exempted
delegation as the latter refers to customs duties, tolls or tribute payable upon merchandise to the government
and usually imposed on goods or merchandise imported or exported.
Petitioners ABAKADA GURO Party List, et al., further contend that delegating to the President the legislative
power to tax is contrary to republicanism. They insist that accountability, responsibility and transparency should
dictate the actions of Congress and they should not pass to the President the decision to impose taxes. They also
argue that the law also effectively nullified the President’s power of control, which includes the authority to set
aside and nullify the acts of her subordinates like the Secretary of Finance, by mandating the fixing of the tax rate
by the President upon the recommendation of the Secretary of Finance.
Petitioners Pimentel, et al. aver that the President has ample powers to cause, influence or create the conditions
provided by the law to bring about either or both the conditions precedent.
On the other hand, petitioners Escudero, et al. find bizarre and revolting the situation that the imposition of the
12% rate would be subject to the whim of the Secretary of Finance, an unelected bureaucrat, contrary to the
principle of no taxation without representation. They submit that the Secretary of Finance is not mandated to
give a favorable recommendation and he may not even give his recommendation. Moreover, they allege that no
guiding standards are provided in the law on what basis and as to how he will make his recommendation. They
claim, nonetheless, that any recommendation of the Secretary of Finance can easily be brushed aside by the
President since the former is a mere alter ego of the latter, such that, ultimately, it is the President who decides
whether to impose the increased tax rate or not.
A brief discourse on the principle of non-delegation of powers is instructive.
The principle of separation of powers ordains that each of the three great branches of government has exclusive
cognizance of and is supreme in matters falling within its own constitutionally allocated sphere.37 A logical
corollary to the doctrine of separation of powers is the principle of non-delegation of powers, as expressed in the
Latin maxim: potestas delegata non delegari potest which means "what has been delegated, cannot be
delegated."38 This doctrine is based on the ethical principle that such as delegated power constitutes not only a
right but a duty to be performed by the delegate through the instrumentality of his own judgment and not
through the intervening mind of another.39
With respect to the Legislature, Section 1 of Article VI of the Constitution provides that "the Legislative power
shall be vested in the Congress of the Philippines which shall consist of a Senate and a House of Representatives."
The powers which Congress is prohibited from delegating are those which are strictly, or inherently and
exclusively, legislative. Purely legislative power, which can never be delegated, has been described as
the authority to make a complete law – complete as to the time when it shall take effect and as to whom it
shall be applicable – and to determine the expediency of its enactment.40 Thus, the rule is that in order that a
court may be justified in holding a statute unconstitutional as a delegation of legislative power, it must appear
that the power involved is purely legislative in nature – that is, one appertaining exclusively to the legislative
department. It is the nature of the power, and not the liability of its use or the manner of its exercise, which
determines the validity of its delegation.
Nonetheless, the general rule barring delegation of legislative powers is subject to the following recognized
limitations or exceptions:
(1) Delegation of tariff powers to the President under Section 28 (2) of Article VI of the Constitution;
(2) Delegation of emergency powers to the President under Section 23 (2) of Article VI of the Constitution;
(3) Delegation to the people at large;
(4) Delegation to local governments; and
(5) Delegation to administrative bodies.
In every case of permissible delegation, there must be a showing that the delegation itself is valid. It is valid only
if the law (a) is complete in itself, setting forth therein the policy to be executed, carried out, or implemented by
the delegate;41 and (b) fixes a standard — the limits of which are sufficiently determinate and determinable — to
which the delegate must conform in the performance of his functions.42 A sufficient standard is one which
defines legislative policy, marks its limits, maps out its boundaries and specifies the public agency to apply it. It
indicates the circumstances under which the legislative command is to be effected. 43 Both tests are intended to
prevent a total transference of legislative authority to the delegate, who is not allowed to step into the shoes of
the legislature and exercise a power essentially legislative.44
In People vs. Vera,45 the Court, through eminent Justice Jose P. Laurel, expounded on the concept and extent of
delegation of power in this wise:
In testing whether a statute constitutes an undue delegation of legislative power or not, it is usual to inquire
whether the statute was complete in all its terms and provisions when it left the hands of the legislature so that
nothing was left to the judgment of any other appointee or delegate of the legislature.
...
‘The true distinction’, says Judge Ranney, ‘is between the delegation of power to make the law, which
necessarily involves a discretion as to what it shall be, and conferring an authority or discretion as to its
execution, to be exercised under and in pursuance of the law. The first cannot be done; to the latter no valid
objection can be made.’
...
It is contended, however, that a legislative act may be made to the effect as law after it leaves the hands of the
legislature. It is true that laws may be made effective on certain contingencies, as by proclamation of the
executive or the adoption by the people of a particular community. In Wayman vs. Southard, the Supreme Court
of the United States ruled that the legislature may delegate a power not legislative which it may itself rightfully
exercise. The power to ascertain facts is such a power which may be delegated. There is nothing essentially
legislative in ascertaining the existence of facts or conditions as the basis of the taking into effect of a law.
That is a mental process common to all branches of the government. Notwithstanding the apparent tendency,
however, to relax the rule prohibiting delegation of legislative authority on account of the complexity arising
from social and economic forces at work in this modern industrial age, the orthodox pronouncement of Judge
Cooley in his work on Constitutional Limitations finds restatement in Prof. Willoughby's treatise on the
Constitution of the United States in the following language — speaking of declaration of legislative power to
administrative agencies: The principle which permits the legislature to provide that the administrative agent
may determine when the circumstances are such as require the application of a law is defended upon the
ground that at the time this authority is granted, the rule of public policy, which is the essence of the
legislative act, is determined by the legislature. In other words, the legislature, as it is its duty to do,
determines that, under given circumstances, certain executive or administrative action is to be taken, and
that, under other circumstances, different or no action at all is to be taken. What is thus left to the
administrative official is not the legislative determination of what public policy demands, but simply the
ascertainment of what the facts of the case require to be done according to the terms of the law by which he
is governed. The efficiency of an Act as a declaration of legislative will must, of course, come from Congress,
but the ascertainment of the contingency upon which the Act shall take effect may be left to such agencies as
it may designate. The legislature, then, may provide that a law shall take effect upon the happening of future
specified contingencies leaving to some other person or body the power to determine when the specified
contingency has arisen. (Emphasis supplied).46
In Edu vs. Ericta,47 the Court reiterated:
What cannot be delegated is the authority under the Constitution to make laws and to alter and repeal them;
the test is the completeness of the statute in all its terms and provisions when it leaves the hands of the
legislature. To determine whether or not there is an undue delegation of legislative power, the inquiry must be
directed to the scope and definiteness of the measure enacted. The legislative does not abdicate its functions
when it describes what job must be done, who is to do it, and what is the scope of his authority. For a complex
economy, that may be the only way in which the legislative process can go forward. A distinction has rightfully
been made between delegation of power to make the laws which necessarily involves a discretion as to what
it shall be, which constitutionally may not be done, and delegation of authority or discretion as to its
execution to be exercised under and in pursuance of the law, to which no valid objection can be made. The
Constitution is thus not to be regarded as denying the legislature the necessary resources of flexibility and
practicability. (Emphasis supplied).48
Clearly, the legislature may delegate to executive officers or bodies the power to determine certain facts or
conditions, or the happening of contingencies, on which the operation of a statute is, by its terms, made to
depend, but the legislature must prescribe sufficient standards, policies or limitations on their authority. 49 While
the power to tax cannot be delegated to executive agencies, details as to the enforcement and administration of
an exercise of such power may be left to them, including the power to determine the existence of facts on which
its operation depends.50
The rationale for this is that the preliminary ascertainment of facts as basis for the enactment of legislation is not
of itself a legislative function, but is simply ancillary to legislation. Thus, the duty of correlating information and
making recommendations is the kind of subsidiary activity which the legislature may perform through its
members, or which it may delegate to others to perform. Intelligent legislation on the complicated problems of
modern society is impossible in the absence of accurate information on the part of the legislators, and any
reasonable method of securing such information is proper.51 The Constitution as a continuously operative
charter of government does not require that Congress find for itself
every fact upon which it desires to base legislative action or that it make for itself detailed determinations which
it has declared to be prerequisite to application of legislative policy to particular facts and circumstances
impossible for Congress itself properly to investigate.52
In the present case, the challenged section of R.A. No. 9337 is the common proviso in Sections 4, 5 and 6 which
reads as follows:
That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise
the rate of value-added tax to twelve percent (12%), after any of the following conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two
and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1
½%).
The case before the Court is not a delegation of legislative power. It is simply a delegation of ascertainment of
facts upon which enforcement and administration of the increase rate under the law is contingent. The
legislature has made the operation of the 12% rate effective January 1, 2006, contingent upon a specified fact or
condition. It leaves the entire operation or non-operation of the 12% rate upon factual matters outside of the
control of the executive.
No discretion would be exercised by the President. Highlighting the absence of discretion is the fact that the
word shall is used in the common proviso. The use of the word shall connotes a mandatory order. Its use in a
statute denotes an imperative obligation and is inconsistent with the idea of discretion.53 Where the law is clear
and unambiguous, it must be taken to mean exactly what it says, and courts have no choice but to see to it that
the mandate is obeyed.54
Thus, it is the ministerial duty of the President to immediately impose the 12% rate upon the existence of any of
the conditions specified by Congress. This is a duty which cannot be evaded by the President. Inasmuch as the
law specifically uses the word shall, the exercise of discretion by the President does not come into play. It is a
clear directive to impose the 12% VAT rate when the specified conditions are present. The time of taking into
effect of the 12% VAT rate is based on the happening of a certain specified contingency, or upon the
ascertainment of certain facts or conditions by a person or body other than the legislature itself.
The Court finds no merit to the contention of petitioners ABAKADA GURO Party List, et al. that the law effectively
nullified the President’s power of control over the Secretary of Finance by mandating the fixing of the tax rate by
the President upon the recommendation of the Secretary of Finance. The Court cannot also subscribe to the
position of petitioners
Pimentel, et al. that the word shall should be interpreted to mean may in view of the phrase "upon the
recommendation of the Secretary of Finance." Neither does the Court find persuasive the submission of
petitioners Escudero, et al. that any recommendation by the Secretary of Finance can easily be brushed aside by
the President since the former is a mere alter ego of the latter.
When one speaks of the Secretary of Finance as the alter ego of the President, it simply means that as head of
the Department of Finance he is the assistant and agent of the Chief Executive. The multifarious executive and
administrative functions of the Chief Executive are performed by and through the executive departments, and
the acts of the secretaries of such departments, such as the Department of Finance, performed and promulgated
in the regular course of business, are, unless disapproved or reprobated by the Chief Executive, presumptively
the acts of the Chief Executive. The Secretary of Finance, as such, occupies a political position and holds office in
an advisory capacity, and, in the language of Thomas Jefferson, "should be of the President's bosom confidence"
and, in the language of Attorney-General Cushing, is "subject to the direction of the President."55
In the present case, in making his recommendation to the President on the existence of either of the two
conditions, the Secretary of Finance is not acting as the alter ego of the President or even her subordinate. In
such instance, he is not subject to the power of control and direction of the President. He is acting as the agent
of the legislative department, to determine and declare the event upon which its expressed will is to take
effect.56 The Secretary of Finance becomes the means or tool by which legislative policy is determined and
implemented, considering that he possesses all the facilities to gather data and information and has a much
broader perspective to properly evaluate them. His function is to gather and collate statistical data and other
pertinent information and verify if any of the two conditions laid out by Congress is present. His personality in
such instance is in reality but a projection of that of Congress. Thus, being the agent of Congress and not of the
President, the President cannot alter or modify or nullify, or set aside the findings of the Secretary of Finance and
to substitute the judgment of the former for that of the latter.
Congress simply granted the Secretary of Finance the authority to ascertain the existence of a fact, namely,
whether by December 31, 2005, the value-added tax collection as a percentage of Gross Domestic Product (GDP)
of the previous year exceeds two and four-fifth percent (24/5%) or the national government deficit as a
percentage of GDP of the previous year exceeds one and one-half percent (1½%). If either of these two instances
has occurred, the Secretary of Finance, by legislative mandate, must submit such information to the President.
Then the 12% VAT rate must be imposed by the President effective January 1, 2006. There is no undue
delegation of legislative power but only of the discretion as to the execution of a law. This is constitutionally
permissible.57 Congress does not abdicate its functions or unduly delegate power when it describes what job
must be done, who must do it, and what is the scope of his authority; in our complex economy that is frequently
the only way in which the legislative process can go forward.58
As to the argument of petitioners ABAKADA GURO Party List, et al. that delegating to the President the legislative
power to tax is contrary to the principle of republicanism, the same deserves scant consideration. Congress did
not delegate the power to tax but the mere implementation of the law. The intent and will to increase the VAT
rate to 12% came from Congress and the task of the President is to simply execute the legislative policy. That
Congress chose to do so in such a manner is not within the province of the Court to inquire into, its task being to
interpret the law.59
The insinuation by petitioners Pimentel, et al. that the President has ample powers to cause, influence or create
the conditions to bring about either or both the conditions precedent does not deserve any merit as this
argument is highly speculative. The Court does not rule on allegations which are manifestly conjectural, as these
may not exist at all. The Court deals with facts, not fancies; on realities, not appearances. When the Court acts
on appearances instead of realities, justice and law will be short-lived.
B. The 12% Increase VAT Rate Does Not Impose an Unfair and Unnecessary Additional Tax Burden
Petitioners Pimentel, et al. argue that the 12% increase in the VAT rate imposes an unfair and additional tax
burden on the people. Petitioners also argue that the 12% increase, dependent on any of the 2 conditions set
forth in the contested provisions, is ambiguous because it does not state if the VAT rate would be returned to
the original 10% if the rates are no longer satisfied. Petitioners also argue that such rate is unfair and
unreasonable, as the people are unsure of the applicable VAT rate from year to year.
Under the common provisos of Sections 4, 5 and 6 of R.A. No. 9337, if any of the two conditions set forth therein
are satisfied, the President shall increase the VAT rate to 12%. The provisions of the law are clear. It does not
provide for a return to the 10% rate nor does it empower the President to so revert if, after the rate is increased
to 12%, the VAT collection goes below the 24/5 of the GDP of the previous year or that the national government
deficit as a percentage of GDP of the previous year does not exceed 1½%.
Therefore, no statutory construction or interpretation is needed. Neither can conditions or limitations be
introduced where none is provided for. Rewriting the law is a forbidden ground that only Congress may tread
upon.60
Thus, in the absence of any provision providing for a return to the 10% rate, which in this case the Court finds
none, petitioners’ argument is, at best, purely speculative. There is no basis for petitioners’ fear of a fluctuating
VAT rate because the law itself does not provide that the rate should go back to 10% if the conditions provided in
Sections 4, 5 and 6 are no longer present. The rule is that where the provision of the law is clear and
unambiguous, so that there is no occasion for the court's seeking the legislative intent, the law must be taken as
it is, devoid of judicial addition or subtraction.61
Petitioners also contend that the increase in the VAT rate, which was allegedly an incentive to the President to
raise the VAT collection to at least 2 4/5 of the GDP of the previous year, should be based on fiscal adequacy.
Petitioners obviously overlooked that increase in VAT collection is not the only condition. There is another
condition, i.e., the national government deficit as a percentage of GDP of the previous year exceeds one and
one-half percent (1 ½%).
Respondents explained the philosophy behind these alternative conditions:
1. VAT/GDP Ratio > 2.8%
The condition set for increasing VAT rate to 12% have economic or fiscal meaning. If VAT/GDP is less than 2.8%,
it means that government has weak or no capability of implementing the VAT or that VAT is not effective in the
function of the tax collection. Therefore, there is no value to increase it to 12% because such action will also be
ineffectual.
2. Nat’l Gov’t Deficit/GDP >1.5%
The condition set for increasing VAT when deficit/GDP is 1.5% or less means the fiscal condition of government
has reached a relatively sound position or is towards the direction of a balanced budget position. Therefore,
there is no need to increase the VAT rate since the fiscal house is in a relatively healthy position. Otherwise
stated, if the ratio is more than 1.5%, there is indeed a need to increase the VAT rate.62
That the first condition amounts to an incentive to the President to increase the VAT collection does not render
it unconstitutional so long as there is a public purpose for which the law was passed, which in this case, is mainly
to raise revenue. In fact, fiscal adequacy dictated the need for a raise in revenue.
The principle of fiscal adequacy as a characteristic of a sound tax system was originally stated by Adam Smith in
his Canons of Taxation (1776), as:
IV. Every tax ought to be so contrived as both to take out and to keep out of the pockets of the people as little as
possible over and above what it brings into the public treasury of the state.63
It simply means that sources of revenues must be adequate to meet government expenditures and their
variations.64
The dire need for revenue cannot be ignored. Our country is in a quagmire of financial woe. During the Bicameral
Conference Committee hearing, then Finance Secretary Purisima bluntly depicted the country’s gloomy state of
economic affairs, thus:
First, let me explain the position that the Philippines finds itself in right now. We are in a position where 90
percent of our revenue is used for debt service. So, for every peso of revenue that we currently raise, 90 goes to
debt service. That’s interest plus amortization of our debt. So clearly, this is not a sustainable situation. That’s
the first fact.
The second fact is that our debt to GDP level is way out of line compared to other peer countries that borrow
money from that international financial markets. Our debt to GDP is approximately equal to our GDP. Again, that
shows you that this is not a sustainable situation.
The third thing that I’d like to point out is the environment that we are presently operating in is not as benign as
what it used to be the past five years.
What do I mean by that?
In the past five years, we’ve been lucky because we were operating in a period of basically global growth and low
interest rates. The past few months, we have seen an inching up, in fact, a rapid increase in the interest rates in
the leading economies of the world. And, therefore, our ability to borrow at reasonable prices is going to be
challenged. In fact, ultimately, the question is our ability to access the financial markets.
When the President made her speech in July last year, the environment was not as bad as it is now, at least
based on the forecast of most financial institutions. So, we were assuming that raising 80 billion would put us in
a position where we can then convince them to improve our ability to borrow at lower rates. But conditions have
changed on us because the interest rates have gone up. In fact, just within this room, we tried to access the
market for a billion dollars because for this year alone, the Philippines will have to borrow 4 billion dollars. Of
that amount, we have borrowed 1.5 billion. We issued last January a 25-year bond at 9.7 percent cost. We were
trying to access last week and the market was not as favorable and up to now we have not accessed and we
might pull back because the conditions are not very good.
So given this situation, we at the Department of Finance believe that we really need to front-end our deficit
reduction. Because it is deficit that is causing the increase of the debt and we are in what we call a debt spiral.
The more debt you have, the more deficit you have because interest and debt service eats and eats more of your
revenue. We need to get out of this debt spiral. And the only way, I think, we can get out of this debt spiral is
really have a front-end adjustment in our revenue base.65
The image portrayed is chilling. Congress passed the law hoping for rescue from an inevitable catastrophe.
Whether the law is indeed sufficient to answer the state’s economic dilemma is not for the Court to judge. In
the Fariñas case, the Court refused to consider the various arguments raised therein that dwelt on the wisdom of
Section 14 of R.A. No. 9006 (The Fair Election Act), pronouncing that:
. . . policy matters are not the concern of the Court. Government policy is within the exclusive dominion of the
political branches of the government. It is not for this Court to look into the wisdom or propriety of legislative
determination. Indeed, whether an enactment is wise or unwise, whether it is based on sound economic theory,
whether it is the best means to achieve the desired results, whether, in short, the legislative discretion within its
prescribed limits should be exercised in a particular manner are matters for the judgment of the legislature, and
the serious conflict of opinions does not suffice to bring them within the range of judicial cognizance.66
In the same vein, the Court in this case will not dawdle on the purpose of Congress or the executive policy, given
that it is not for the judiciary to "pass upon questions of wisdom, justice or expediency of legislation."67
II.
Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the NIRC; and Section 12 of R.A.
No. 9337, amending Section 114(C) of the NIRC, violate the following provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article III, Section 1
A. Due Process and Equal Protection Clauses
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. argue that Section 8 of R.A. No. 9337, amending
Sections 110 (A)(2), 110 (B), and Section 12 of R.A. No. 9337, amending Section 114 (C) of the NIRC are arbitrary,
oppressive, excessive and confiscatory. Their argument is premised on the constitutional right against
deprivation of life, liberty of property without due process of law, as embodied in Article III, Section 1 of the
Constitution.
Petitioners also contend that these provisions violate the constitutional guarantee of equal protection of the law.
The doctrine is that where the due process and equal protection clauses are invoked, considering that they are
not fixed rules but rather broad standards, there is a need for proof of such persuasive character as would lead
to such a conclusion. Absent such a showing, the presumption of validity must prevail.68
Section 8 of R.A. No. 9337, amending Section 110(B) of the NIRC imposes a limitation on the amount of input tax
that may be credited against the output tax. It states, in part: "[P]rovided, that the input tax inclusive of the input
VAT carried over from the previous quarter that may be credited in every quarter shall not exceed seventy
percent (70%) of the output VAT: …"
Input Tax is defined under Section 110(A) of the NIRC, as amended, as the value-added tax due from or paid by a
VAT-registered person on the importation of goods or local purchase of good and services, including lease or use
of property, in the course of trade or business, from a VAT-registered person, and Output Tax is the value-added
tax due on the sale or lease of taxable goods or properties or services by any person registered or required to
register under the law.
Petitioners claim that the contested sections impose limitations on the amount of input tax that may be claimed.
In effect, a portion of the input tax that has already been paid cannot now be credited against the output tax.
Petitioners’ argument is not absolute. It assumes that the input tax exceeds 70% of the output tax, and
therefore, the input tax in excess of 70% remains uncredited. However, to the extent that the input tax is less
than 70% of the output tax, then 100% of such input tax is still creditable.
More importantly, the excess input tax, if any, is retained in a business’s books of accounts and remains
creditable in the succeeding quarter/s. This is explicitly allowed by Section 110(B), which provides that "if the
input tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or quarters." In
addition, Section 112(B) allows a VAT-registered person to apply for the issuance of a tax credit certificate or
refund for any unused input taxes, to the extent that such input taxes have not been applied against the output
taxes. Such unused input tax may be used in payment of his other internal revenue taxes.
The non-application of the unutilized input tax in a given quarter is not ad infinitum, as petitioners exaggeratedly
contend. Their analysis of the effect of the 70% limitation is incomplete and one-sided. It ends at the net effect
that there will be unapplied/unutilized inputs VAT for a given quarter. It does not proceed further to the fact that
such unapplied/unutilized input tax may be credited in the subsequent periods as allowed by the carry-over
provision of Section 110(B) or that it may later on be refunded through a tax credit certificate under Section
112(B).
Therefore, petitioners’ argument must be rejected.
On the other hand, it appears that petitioner Garcia failed to comprehend the operation of the 70% limitation on
the input tax. According to petitioner, the limitation on the creditable input tax in effect allows VAT-registered
establishments to retain a portion of the taxes they collect, which violates the principle that tax collection and
revenue should be for public purposes and expenditures
As earlier stated, the input tax is the tax paid by a person, passed on to him by the seller, when he buys goods.
Output tax meanwhile is the tax due to the person when he sells goods. In computing the VAT payable, three
possible scenarios may arise:
First, if at the end of a taxable quarter the output taxes charged by the seller are equal to the input taxes that he
paid and passed on by the suppliers, then no payment is required;
Second, when the output taxes exceed the input taxes, the person shall be liable for the excess, which has to be
paid to the Bureau of Internal Revenue (BIR);69 and
Third, if the input taxes exceed the output taxes, the excess shall be carried over to the succeeding quarter or
quarters. Should the input taxes result from zero-rated or effectively zero-rated transactions, any excess over the
output taxes shall instead be refunded to the taxpayer or credited against other internal revenue taxes, at the
taxpayer’s option.70
Section 8 of R.A. No. 9337 however, imposed a 70% limitation on the input tax. Thus, a person can credit his
input tax only up to the extent of 70% of the output tax. In layman’s term, the value-added taxes that a
person/taxpayer paid and passed on to him by a seller can only be credited up to 70% of the value-added taxes
that is due to him on a taxable transaction. There is no retention of any tax collection because the
person/taxpayer has already previously paid the input tax to a seller, and the seller will subsequently remit such
input tax to the BIR. The party directly liable for the payment of the tax is the seller. 71 What only needs to be
done is for the person/taxpayer to apply or credit these input taxes, as evidenced by receipts, against his output
taxes.
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. also argue that the input tax partakes the nature of a
property that may not be confiscated, appropriated, or limited without due process of law.
The input tax is not a property or a property right within the constitutional purview of the due process clause. A
VAT-registered person’s entitlement to the creditable input tax is a mere statutory privilege.
The distinction between statutory privileges and vested rights must be borne in mind for persons have no vested
rights in statutory privileges. The state may change or take away rights, which were created by the law of the
state, although it may not take away property, which was vested by virtue of such rights.72
Under the previous system of single-stage taxation, taxes paid at every level of distribution are not recoverable
from the taxes payable, although it becomes part of the cost, which is deductible from the gross revenue. When
Pres. Aquino issued E.O. No. 273 imposing a 10% multi-stage tax on all sales, it was then that the crediting of the
input tax paid on purchase or importation of goods and services by VAT-registered persons against the output
tax was introduced.73 This was adopted by the Expanded VAT Law (R.A. No. 7716), 74 and The Tax Reform Act of
1997 (R.A. No. 8424).75 The right to credit input tax as against the output tax is clearly a privilege created by law,
a privilege that also the law can remove, or in this case, limit.
Petitioners also contest as arbitrary, oppressive, excessive and confiscatory, Section 8 of R.A. No. 9337,
amending Section 110(A) of the NIRC, which provides:
SEC. 110. Tax Credits. –
(A) Creditable Input Tax. – …
Provided, That the input tax on goods purchased or imported in a calendar month for use in trade or business for
which deduction for depreciation is allowed under this Code, shall be spread evenly over the month of
acquisition and the fifty-nine (59) succeeding months if the aggregate acquisition cost for such goods, excluding
the VAT component thereof, exceeds One million pesos (₱1,000,000.00): Provided, however, That if the
estimated useful life of the capital goods is less than five (5) years, as used for depreciation purposes, then the
input VAT shall be spread over such a shorter period: Provided, finally, That in the case of purchase of services,
lease or use of properties, the input tax shall be creditable to the purchaser, lessee or license upon payment of
the compensation, rental, royalty or fee.
The foregoing section imposes a 60-month period within which to amortize the creditable input tax on purchase
or importation of capital goods with acquisition cost of ₱1 Million pesos, exclusive of the VAT component. Such
spread out only poses a delay in the crediting of the input tax. Petitioners’ argument is without basis because the
taxpayer is not permanently deprived of his privilege to credit the input tax.
It is worth mentioning that Congress admitted that the spread-out of the creditable input tax in this case
amounts to a 4-year interest-free loan to the government.76 In the same breath, Congress also justified its move
by saying that the provision was designed to raise an annual revenue of 22.6 billion. 77 The legislature also
dispelled the fear that the provision will fend off foreign investments, saying that foreign investors have other
tax incentives provided by law, and citing the case of China, where despite a 17.5% non-creditable VAT, foreign
investments were not deterred.78 Again, for whatever is the purpose of the 60-month amortization, this involves
executive economic policy and legislative wisdom in which the Court cannot intervene.
With regard to the 5% creditable withholding tax imposed on payments made by the government for taxable
transactions, Section 12 of R.A. No. 9337, which amended Section 114 of the NIRC, reads:
SEC. 114. Return and Payment of Value-added Tax. –
(C) Withholding of Value-added Tax. – The Government or any of its political subdivisions, instrumentalities or
agencies, including government-owned or controlled corporations (GOCCs) shall, before making payment on
account of each purchase of goods and services which are subject to the value-added tax imposed in Sections
106 and 108 of this Code, deduct and withhold a final value-added tax at the rate of five percent (5%) of the
gross payment thereof: Provided, That the payment for lease or use of properties or property rights to
nonresident owners shall be subject to ten percent (10%) withholding tax at the time of payment. For purposes
of this Section, the payor or person in control of the payment shall be considered as the withholding agent.
The value-added tax withheld under this Section shall be remitted within ten (10) days following the end of the
month the withholding was made.
Section 114(C) merely provides a method of collection, or as stated by respondents, a more simplified VAT
withholding system. The government in this case is constituted as a withholding agent with respect to their
payments for goods and services.
Prior to its amendment, Section 114(C) provided for different rates of value-added taxes to be withheld -- 3% on
gross payments for purchases of goods; 6% on gross payments for services supplied by contractors other than by
public works contractors; 8.5% on gross payments for services supplied by public work contractors; or 10% on
payment for the lease or use of properties or property rights to nonresident owners. Under the present Section
114(C), these different rates, except for the 10% on lease or property rights payment to nonresidents, were
deleted, and a uniform rate of 5% is applied.
The Court observes, however, that the law the used the word final. In tax usage, final, as opposed to creditable,
means full. Thus, it is provided in Section 114(C): "final value-added tax at the rate of five percent (5%)."
In Revenue Regulations No. 02-98, implementing R.A. No. 8424 (The Tax Reform Act of 1997), the concept of
final withholding tax on income was explained, to wit:
SECTION 2.57. Withholding of Tax at Source
(A) Final Withholding Tax. – Under the final withholding tax system the amount of income tax withheld by the
withholding agent is constituted as full and final payment of the income tax due from the payee on the said
income. The liability for payment of the tax rests primarily on the payor as a withholding agent. Thus, in case of
his failure to withhold the tax or in case of underwithholding, the deficiency tax shall be collected from the
payor/withholding agent. …
(B) Creditable Withholding Tax. – Under the creditable withholding tax system, taxes withheld on certain income
payments are intended to equal or at least approximate the tax due of the payee on said income. … Taxes
withheld on income payments covered by the expanded withholding tax (referred to in Sec. 2.57.2 of these
regulations) and compensation income (referred to in Sec. 2.78 also of these regulations) are creditable in
nature.
As applied to value-added tax, this means that taxable transactions with the government are subject to a 5%
rate, which constitutes as full payment of the tax payable on the transaction. This represents the net VAT
payable of the seller. The other 5% effectively accounts for the standard input VAT (deemed input VAT), in lieu of
the actual input VAT directly or attributable to the taxable transaction.79
The Court need not explore the rationale behind the provision. It is clear that Congress intended to treat
differently taxable transactions with the government.80 This is supported by the fact that under the old provision,
the 5% tax withheld by the government remains creditable against the tax liability of the seller or contractor, to
wit:
SEC. 114. Return and Payment of Value-added Tax. –
(C) Withholding of Creditable Value-added Tax. – The Government or any of its political subdivisions,
instrumentalities or agencies, including government-owned or controlled corporations (GOCCs) shall, before
making payment on account of each purchase of goods from sellers and services rendered by contractors which
are subject to the value-added tax imposed in Sections 106 and 108 of this Code, deduct and withhold the value-
added tax due at the rate of three percent (3%) of the gross payment for the purchase of goods and six percent
(6%) on gross receipts for services rendered by contractors on every sale or installment payment which shall
be creditable against the value-added tax liability of the seller or contractor: Provided, however, That in the
case of government public works contractors, the withholding rate shall be eight and one-half percent (8.5%):
Provided, further, That the payment for lease or use of properties or property rights to nonresident owners shall
be subject to ten percent (10%) withholding tax at the time of payment. For this purpose, the payor or person in
control of the payment shall be considered as the withholding agent.
The valued-added tax withheld under this Section shall be remitted within ten (10) days following the end of the
month the withholding was made. (Emphasis supplied)
As amended, the use of the word final and the deletion of the word creditable exhibits Congress’s intention to
treat transactions with the government differently. Since it has not been shown that the class subject to the 5%
final withholding tax has been unreasonably narrowed, there is no reason to invalidate the provision. Petitioners,
as petroleum dealers, are not the only ones subjected to the 5% final withholding tax. It applies to all those who
deal with the government.
Moreover, the actual input tax is not totally lost or uncreditable, as petitioners believe. Revenue Regulations No.
14-2005 or the Consolidated Value-Added Tax Regulations 2005 issued by the BIR, provides that should the
actual input tax exceed 5% of gross payments, the excess may form part of the cost. Equally, should the actual
input tax be less than 5%, the difference is treated as income.81
Petitioners also argue that by imposing a limitation on the creditable input tax, the government gets to tax a
profit or value-added even if there is no profit or value-added.
Petitioners’ stance is purely hypothetical, argumentative, and again, one-sided. The Court will not engage in a
legal joust where premises are what ifs, arguments, theoretical and facts, uncertain. Any disquisition by the
Court on this point will only be, as Shakespeare describes life in Macbeth,82 "full of sound and fury, signifying
nothing."
What’s more, petitioners’ contention assumes the proposition that there is no profit or value-added. It need not
take an astute businessman to know that it is a matter of exception that a business will sell goods or services
without profit or value-added. It cannot be overstressed that a business is created precisely for profit.
The equal protection clause under the Constitution means that "no person or class of persons shall be deprived
of the same protection of laws which is enjoyed by other persons or other classes in the same place and in like
circumstances."83
The power of the State to make reasonable and natural classifications for the purposes of taxation has long been
established. Whether it relates to the subject of taxation, the kind of property, the rates to be levied, or the
amounts to be raised, the methods of assessment, valuation and collection, the State’s power is entitled to
presumption of validity. As a rule, the judiciary will not interfere with such power absent a clear showing of
unreasonableness, discrimination, or arbitrariness.84
Petitioners point out that the limitation on the creditable input tax if the entity has a high ratio of input tax, or
invests in capital equipment, or has several transactions with the government, is not based on real and
substantial differences to meet a valid classification.
The argument is pedantic, if not outright baseless. The law does not make any classification in the subject of
taxation, the kind of property, the rates to be levied or the amounts to be raised, the methods of assessment,
valuation and collection. Petitioners’ alleged distinctions are based on variables that bear different
consequences. While the implementation of the law may yield varying end results depending on one’s profit
margin and value-added, the Court cannot go beyond what the legislature has laid down and interfere with the
affairs of business.
The equal protection clause does not require the universal application of the laws on all persons or things
without distinction. This might in fact sometimes result in unequal protection. What the clause requires is
equality among equals as determined according to a valid classification. By classification is meant the grouping of
persons or things similar to each other in certain particulars and different from all others in these same
particulars.85
Petitioners brought to the Court’s attention the introduction of Senate Bill No. 2038 by Sens. S.R. Osmeña III and
Ma. Ana Consuelo A.S. – Madrigal on June 6, 2005, and House Bill No. 4493 by Rep. Eric D. Singson. The proposed
legislation seeks to amend the 70% limitation by increasing the same to 90%. This, according to petitioners,
supports their stance that the 70% limitation is arbitrary and confiscatory. On this score, suffice it to say that
these are still proposed legislations. Until Congress amends the law, and absent any unequivocal basis for its
unconstitutionality, the 70% limitation stays.
B. Uniformity and Equitability of Taxation
Article VI, Section 28(1) of the Constitution reads:
The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation.
Uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the
same rate. Different articles may be taxed at different amounts provided that the rate is uniform on the same
class everywhere with all people at all times.86
In this case, the tax law is uniform as it provides a standard rate of 0% or 10% (or 12%) on all goods and services.
Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the NIRC, provide for a
rate of 10% (or 12%) on sale of goods and properties, importation of goods, and sale of services and use or lease
of properties. These same sections also provide for a 0% rate on certain sales and transaction.
All these were designed to ease, as well as spread out, the burden of taxation, which would otherwise rest
largely on the consumers. It cannot therefore be gainsaid that R.A. No. 9337 is equitable.
C. Progressivity of Taxation
Lastly, petitioners contend that the limitation on the creditable input tax is anything but regressive. It is the
smaller business with higher input tax-output tax ratio that will suffer the consequences.
Progressive taxation is built on the principle of the taxpayer’s ability to pay. This principle was also lifted from
Adam Smith’s Canons of Taxation, and it states:

Neither does the law make any distinction as to the type of industry or trade that will bear the 70% limitation on I. The subjects of every state ought to contribute towards the support of the government, as nearly as possible,
the creditable input tax, 5-year amortization of input tax paid on purchase of capital goods or the 5% final in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy
withholding tax by the government. It must be stressed that the rule of uniform taxation does not deprive under the protection of the state.
Congress of the power to classify subjects of taxation, and only demands uniformity within the particular class.87
Taxation is progressive when its rate goes up depending on the resources of the person affected. 98
R.A. No. 9337 is also equitable. The law is equipped with a threshold margin. The VAT rate of 0% or 10% (or 12%)
does not apply to sales of goods or services with gross annual sales or receipts not exceeding
The VAT is an antithesis of progressive taxation. By its very nature, it is regressive. The principle of progressive
₱1,500,000.00.88Also, basic marine and agricultural food products in their original state are still not subject to
taxation has no relation with the VAT system inasmuch as the VAT paid by the consumer or business for every
the tax,89 thus ensuring that prices at the grassroots level will remain accessible. As was stated in Kapatiran ng
goods bought or services enjoyed is the same regardless of income. In
mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan:90

other words, the VAT paid eats the same portion of an income, whether big or small. The disparity lies in the
The disputed sales tax is also equitable. It is imposed only on sales of goods or services by persons engaged in
income earned by a person or profit margin marked by a business, such that the higher the income or profit
business with an aggregate gross annual sales exceeding ₱200,000.00. Small corner sari-sari stores are
margin, the smaller the portion of the income or profit that is eaten by VAT. A converso, the lower the income or
consequently exempt from its application. Likewise exempt from the tax are sales of farm and marine products,
profit margin, the bigger the part that the VAT eats away. At the end of the day, it is really the lower income
so that the costs of basic food and other necessities, spared as they are from the incidence of the VAT, are
group or businesses with low-profit margins that is always hardest hit.
expected to be relatively lower and within the reach of the general public.

Nevertheless, the Constitution does not really prohibit the imposition of indirect taxes, like the VAT. What it
It is admitted that R.A. No. 9337 puts a premium on businesses with low profit margins, and unduly favors those
simply provides is that Congress shall "evolve a progressive system of taxation." The Court stated in the Tolentino
with high profit margins. Congress was not oblivious to this. Thus, to equalize the weighty burden the law entails,
case, thus:
the law, under Section 116, imposed a 3% percentage tax on VAT-exempt persons under Section 109(v), i.e.,
transactions with gross annual sales and/or receipts not exceeding ₱1.5 Million. This acts as a equalizer because
in effect, bigger businesses that qualify for VAT coverage and VAT-exempt taxpayers stand on equal-footing. The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are regressive.
What it simply provides is that Congress shall ‘evolve a progressive system of taxation.’ The constitutional
provision has been interpreted to mean simply that ‘direct taxes are . . . to be preferred [and] as much as
Moreover, Congress provided mitigating measures to cushion the impact of the imposition of the tax on those
possible, indirect taxes should be minimized.’ (E. FERNANDO, THE CONSTITUTION OF THE PHILIPPINES 221
previously exempt. Excise taxes on petroleum products91 and natural gas92 were reduced. Percentage tax on
(Second ed. 1977)) Indeed, the mandate to Congress is not to prescribe, but to evolve, a progressive tax system.
domestic carriers was removed.93 Power producers are now exempt from paying franchise tax.94
Otherwise, sales taxes, which perhaps are the oldest form of indirect taxes, would have been prohibited with the
proclamation of Art. VIII, §17 (1) of the 1973 Constitution from which the present Art. VI, §28 (1) was taken.
Aside from these, Congress also increased the income tax rates of corporations, in order to distribute the burden Sales taxes are also regressive.
of taxation. Domestic, foreign, and non-resident corporations are now subject to a 35% income tax rate, from a
previous 32%.95 Intercorporate dividends of non-resident foreign corporations are still subject to 15% final
Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not impossible, to
withholding tax but the tax credit allowed on the corporation’s domicile was increased to 20%.96 The Philippine
avoid them by imposing such taxes according to the taxpayers' ability to pay. In the case of the VAT, the law
Amusement and Gaming Corporation (PAGCOR) is not exempt from income taxes anymore. 97 Even the sale by an
minimizes the regressive effects of this imposition by providing for zero rating of certain transactions (R.A. No.
artist of his works or services performed for the production of such works was not spared.
7716, §3, amending §102 (b) of the NIRC), while granting exemptions to other transactions. (R.A. No. 7716, §4
amending §103 of the NIRC)99
CONCLUSION
It has been said that taxes are the lifeblood of the government. In this case, it is just an enema, a first-aid
measure to resuscitate an economy in distress. The Court is neither blind nor is it turning a deaf ear on the plight
of the masses. But it does not have the panacea for the malady that the law seeks to remedy. As in other cases,
the Court cannot strike down a law as unconstitutional simply because of its yokes.
Let us not be overly influenced by the plea that for every wrong there is a remedy, and that the judiciary should
stand ready to afford relief. There are undoubtedly many wrongs the judicature may not correct, for instance,
those involving political questions. . . .
Let us likewise disabuse our minds from the notion that the judiciary is the repository of remedies for all political
or social ills; We should not forget that the Constitution has judiciously allocated the powers of government to
three distinct and separate compartments; and that judicial interpretation has tended to the preservation of the
independence of the three, and a zealous regard of the prerogatives of each, knowing full well that one is not the
guardian of the others and that, for official wrong-doing, each may be brought to account, either by
impeachment, trial or by the ballot box.100
The words of the Court in Vera vs. Avelino101 holds true then, as it still holds true now. All things considered,
there is no raison d'être for the unconstitutionality of R.A. No. 9337.
WHEREFORE, Republic Act No. 9337 not being unconstitutional, the petitions in G.R. Nos. 168056, 168207,
168461, 168463, and 168730, are hereby DISMISSED.
There being no constitutional impediment to the full enforcement and implementation of R.A. No. 9337, the
temporary restraining order issued by the Court on July 1, 2005 is LIFTED upon finality of herein decision.
SO ORDERED.
G.R. No. 146984 July 28, 2006
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
MAGSAYSAY LINES, INC., BALIWAG NAVIGATION, INC., FIM LIMITED OF THE MARDEN GROUP (HK) and
NATIONAL DEVELOPMENT COMPANY, respondents.
DECISION
TINGA, J.:
The issue in this present petition is whether the sale by the National Development Company (NDC) of five (5) of
its vessels to the private respondents is subject to value-added tax (VAT) under the National Internal Revenue
Code of 1986 (Tax Code) then prevailing at the time of the sale. The Court of Tax Appeals (CTA) and the Court of
Appeals commonly ruled that the sale is not subject to VAT. We affirm, though on a more unequivocal rationale
than that utilized by the rulings under review. The fact that the sale was not in the course of the trade or
business of NDC is sufficient in itself to declare the sale as outside the coverage of VAT.
The facts are culled primarily from the ruling of the CTA.
Pursuant to a government program of privatization, NDC decided to sell to private enterprise all of its shares in
its wholly-owned subsidiary the National Marine Corporation (NMC). The NDC decided to sell in one lot its NMC
shares and five (5) of its ships, which are 3,700 DWT Tween-Decker, "Kloeckner" type vessels.1 The vessels were
constructed for the NDC between 1981 and 1984, then initially leased to Luzon Stevedoring Company, also its
wholly-owned subsidiary. Subsequently, the vessels were transferred and leased, on a bareboat basis, to the
NMC.2
The NMC shares and the vessels were offered for public bidding. Among the stipulated terms and conditions for
the public auction was that the winning bidder was to pay "a value added tax of 10% on the value of the
vessels."3 On 3 June 1988, private respondent Magsaysay Lines, Inc. (Magsaysay Lines) offered to buy the shares
and the vessels for P168,000,000.00. The bid was made by Magsaysay Lines, purportedly for a new company still
to be formed composed of itself, Baliwag Navigation, Inc., and FIM Limited of the Marden Group based in
Hongkong (collectively, private respondents).4 The bid was approved by the Committee on Privatization, and a
Notice of Award dated 1 July 1988 was issued to Magsaysay Lines.
On 28 September 1988, the implementing Contract of Sale was executed between NDC, on one hand, and
Magsaysay Lines, Baliwag Navigation, and FIM Limited, on the other. Paragraph 11.02 of the contract stipulated
that "[v]alue-added tax, if any, shall be for the account of the PURCHASER." 5 Per arrangement, an irrevocable
confirmed Letter of Credit previously filed as bidders bond was accepted by NDC as security for the payment of
VAT, if any. By this time, a formal request for a ruling on whether or not the sale of the vessels was subject to
VAT had already been filed with the Bureau of Internal Revenue (BIR) by the law firm of Sycip Salazar Hernandez
& Gatmaitan, presumably in behalf of private respondents. Thus, the parties agreed that should no favorable
ruling be received from the BIR, NDC was authorized to draw on the Letter of Credit upon written demand the
amount needed for the payment of the VAT on the stipulated due date, 20 December 1988.6
In January of 1989, private respondents through counsel received VAT Ruling No. 568-88 dated 14 December
1988 from the BIR, holding that the sale of the vessels was subject to the 10% VAT. The ruling cited the fact that
NDC was a VAT-registered enterprise, and thus its "transactions incident to its normal VAT registered activity of
leasing out personal property including sale of its own assets that are movable, tangible objects which are
appropriable or transferable are subject to the 10% [VAT]."7
Private respondents moved for the reconsideration of VAT Ruling No. 568-88, as well as VAT Ruling No. 395-88
(dated 18 August 1988), which made a similar ruling on the sale of the same vessels in response to an inquiry
from the Chairman of the Senate Blue Ribbon Committee. Their motion was denied when the BIR issued VAT
Ruling Nos. 007-89 dated 24 February 1989, reiterating the earlier VAT rulings. At this point, NDC drew on the
Letter of Credit to pay for the VAT, and the amount of P15,120,000.00 in taxes was paid on 16 March 1989.
On 10 April 1989, private respondents filed an Appeal and Petition for Refund with the CTA, followed by a
Supplemental Petition for Review on 14 July 1989. They prayed for the reversal of VAT Rulings No. 395-88, 568-
88 and 007-89, as well as the refund of the VAT payment made amounting to P15,120,000.00.8 The
Commissioner of Internal Revenue (CIR) opposed the petition, first arguing that private respondents were not
the real parties in interest as they were not the transferors or sellers as contemplated in Sections 99 and 100 of
the then Tax Code. The CIR also squarely defended the VAT rulings holding the sale of the vessels liable for VAT,
especially citing Section 3 of Revenue Regulation No. 5-87 (R.R. No. 5-87), which provided that "[VAT] is imposed
on any sale or transactions ‘deemed sale’ of taxable goods (including capital goods, irrespective of the date of
acquisition)." The CIR argued that the sale of the vessels were among those transactions "deemed sale," as
enumerated in Section 4 of R.R. No. 5-87. It seems that the CIR particularly emphasized Section 4(E)(i) of the
Regulation, which classified "change of ownership of business" as a circumstance that gave rise to a transaction
"deemed sale."
In a Decision dated 27 April 1992, the CTA rejected the CIR’s arguments and granted the petition. 9 The CTA ruled
that the sale of a vessel was an "isolated transaction," not done in the ordinary course of NDC’s business, and
was thus not subject to VAT, which under Section 99 of the Tax Code, was applied only to sales in the course of
trade or business. The CTA further held that the sale of the vessels could not be "deemed sale," and thus subject
to VAT, as the transaction did not fall under the enumeration of transactions deemed sale as listed either in
Section 100(b) of the Tax Code, or Section 4 of R.R. No. 5-87. Finally, the CTA ruled that any case of doubt should
be resolved in favor of private respondents since Section 99 of the Tax Code which implemented VAT is not an
exemption provision, but a classification provision which warranted the resolution of doubts in favor of the
taxpayer.
The CIR appealed the CTA Decision to the Court of Appeals,10 which on 11 March 1997, rendered a Decision
reversing the CTA.11 While the appellate court agreed that the sale was an isolated transaction, not made in the
course of NDC’s regular trade or business, it nonetheless found that the transaction fell within the classification
of those "deemed sale" under R.R. No. 5-87, since the sale of the vessels together with the NMC shares brought
about a change of ownership in NMC. The Court of Appeals also applied the principle governing tax exemptions
that such should be strictly construed against the taxpayer, and liberally in favor of the government.12
However, the Court of Appeals reversed itself upon reconsidering the case, through a Resolution dated 5
February 2001.13 This time, the appellate court ruled that the "change of ownership of business" as
contemplated in R.R. No. 5-87 must be a consequence of the "retirement from or cessation of business" by the
owner of the goods, as provided for in Section 100 of the Tax Code. The Court of Appeals also agreed with the
CTA that the classification of transactions "deemed sale" was a classification statute, and not an exemption
statute, thus warranting the resolution of any doubt in favor of the taxpayer. 14
To the mind of the Court, the arguments raised in the present petition have already been adequately discussed
and refuted in the rulings assailed before us. Evidently, the petition should be denied. Yet the Court finds that
Section 99 of the Tax Code is sufficient reason for upholding the refund of VAT payments, and the subsequent
disquisitions by the lower courts on the applicability of Section 100 of the Tax Code and Section 4 of R.R. No. 5-
87 are ultimately irrelevant.
A brief reiteration of the basic principles governing VAT is in order. VAT is ultimately a tax on consumption, even
though it is assessed on many levels of transactions on the basis of a fixed percentage. 15 It is the end user of
consumer goods or services which ultimately shoulders the tax, as the liability therefrom is passed on to the end
users by the providers of these goods or services16 who in turn may credit their own VAT liability (or input VAT)
from the VAT payments they receive from the final consumer (or output VAT). 17 The final purchase by the end
consumer represents the final link in a production chain that itself involves several transactions and several acts
of consumption. The VAT system assures fiscal adequacy through the collection of taxes on every level of
consumption,18 yet assuages the manufacturers or providers of goods and services by enabling them to pass on
their respective VAT liabilities to the next link of the chain until finally the end consumer shoulders the entire tax
liability.
Yet VAT is not a singular-minded tax on every transactional level. Its assessment bears direct relevance to the
taxpayer’s role or link in the production chain. Hence, as affirmed by Section 99 of the Tax Code and its
subsequent incarnations,19 the tax is levied only on the sale, barter or exchange of goods or services by persons
who engage in such activities, in the course of trade or business. These transactions outside the course of trade
or business may invariably contribute to the production chain, but they do so only as a matter of accident or
incident. As the sales of goods or services do not occur within the course of trade or business, the providers of
such goods or services would hardly, if at all, have the opportunity to appropriately credit any VAT liability as
against their own accumulated VAT collections since the accumulation of output VAT arises in the first place only
through the ordinary course of trade or business.
That the sale of the vessels was not in the ordinary course of trade or business of NDC was appreciated by both
the CTA and the Court of Appeals, the latter doing so even in its first decision which it eventually
reconsidered.20 We cite with approval the CTA’s explanation on this point:
In Imperial v. Collector of Internal Revenue, G.R. No. L-7924, September 30, 1955 (97 Phil. 992), the
term "carrying on business" does not mean the performance of a single disconnected act, but means
conducting, prosecuting and continuing business by performing progressively all the acts normally
incident thereof; while "doing business" conveys the idea of business being done, not from time to
time, but all the time. [J. Aranas, UPDATED NATIONAL INTERNAL REVENUE CODE (WITH
ANNOTATIONS), p. 608-9 (1988)]. "Course of business" is what is usually done in the management of
trade or business. [Idmi v. Weeks & Russel, 99 So. 761, 764, 135 Miss. 65, cited in Words & Phrases,
Vol. 10, (1984)].
What is clear therefore, based on the aforecited jurisprudence, is that "course of business" or "doing
business" connotes regularity of activity. In the instant case, the sale was an isolated transaction. The
sale which was involuntary and made pursuant to the declared policy of Government for privatization
could no longer be repeated or carried on with regularity. It should be emphasized that the normal
VAT-registered activity of NDC is leasing personal property.21
This finding is confirmed by the Revised Charter22 of the NDC which bears no indication that the NDC was created
for the primary purpose of selling real property.23
The conclusion that the sale was not in the course of trade or business, which the CIR does not dispute before
this Court,24 should have definitively settled the matter. Any sale, barter or exchange of goods or services not in
the course of trade or business is not subject to VAT.
Section 100 of the Tax Code, which is implemented by Section 4(E)(i) of R.R. No. 5-87 now relied upon by the CIR,
is captioned "Value-added tax on sale of goods," and it expressly states that "[t]here shall be levied, assessed and
collected on every sale, barter or exchange of goods, a value added tax x x x." Section 100 should be read in light
of Section 99, which lays down the general rule on which persons are liable for VAT in the first place and on what
transaction if at all. It may even be noted that Section 99 is the very first provision in Title IV of the Tax Code, the
Title that covers VAT in the law. Before any portion of Section 100, or the rest of the law for that matter, may be
applied in order to subject a transaction to VAT, it must first be satisfied that the taxpayer and transaction
involved is liable for VAT in the first place under Section 99.
It would have been a different matter if Section 100 purported to define the phrase "in the course of trade or
business" as expressed in Section 99. If that were so, reference to Section 100 would have been necessary as a
means of ascertaining whether the sale of the vessels was "in the course of trade or business," and thus subject
to
VAT. But that is not the case. What Section 100 and Section 4(E)(i) of R.R. No. 5-87 elaborate on is not the
meaning of "in the course of trade or business," but instead the identification of the transactions which may be
deemed as sale. It would become necessary to ascertain whether under those two provisions the transaction
may be deemed a sale, only if it is settled that the transaction occurred in the course of trade or business in the
first place. If the transaction transpired outside the course of trade or business, it would be irrelevant for the
purpose of determining VAT liability whether the transaction may be deemed sale, since it anyway is not subject
to VAT.
Accordingly, the Court rules that given the undisputed finding that the transaction in question was not made in
the course of trade or business of the seller, NDC that is, the sale is not subject to VAT pursuant to Section 99 of
the Tax Code, no matter how the said sale may hew to those transactions deemed sale as defined under Section
100.
In any event, even if Section 100 or Section 4 of R.R. No. 5-87 were to find application in this case, the Court finds
the discussions offered on this point by the CTA and the Court of Appeals (in its subsequent Resolution)
essentially correct. Section 4 (E)(i) of R.R. No. 5-87 does classify as among the transactions deemed sale those
involving "change of ownership of business." However, Section 4(E) of R.R. No. 5-87, reflecting Section 100 of the
Tax Code, clarifies that such "change of ownership" is only an attending circumstance to "retirement from or
cessation of business[, ] with respect to all goods on hand [as] of the date of such retirement or
cessation."25 Indeed, Section 4(E) of R.R. No. 5-87 expressly characterizes the "change of ownership of business"
as only a "circumstance" that attends those transactions "deemed sale," which are otherwise stated in the same
section.26
WHEREFORE, the petition is DENIED. No costs.
DECISION
CARPIO, J.:
G.R. No. 193301 is a petition for review1 assailing the Decision2 promulgated on 10 March 2010 as well as the
Resolution3 promulgated on 28 July 2010 by the Court of Tax Appeals En Banc (CTA En Banc) in CTA EB No. 513.
The CTA En Banc affirmed the 22 September 2008 Decision4 as well as the 26 June 2009 Amended Decision5 of
the First Division of the Court of Tax Appeals (CTA First Division) in CTA Case Nos. 7227, 7287, and 7317. The CTA
First Division denied Mindanao II Geothermal Partnership’s (Mindanao II) claims for refund or tax credit for the
first and second quarters of taxable year 2003 for being filed out of time (CTA Case Nos. 7227 and 7287). The
CTA First Division, however, ordered the
Commissioner of Internal Revenue (CIR) to refund or credit to Mindanao II unutilized input value-added tax (VAT)
for the third and fourth quarters of taxable year 2003 (CTA Case No. 7317).
G.R. No. 194637 is a petition for review6 assailing the Decision7 promulgated on 31 May 2010 as well as the
Amended Decision8 promulgated on 24 November 2010 by the CTA En Banc in CTA EB Nos. 476 and 483. In its
Amended Decision, the CTA En Banc reversed its 31 May 2010 Decision and granted the CIR’s petition for review
in CTA Case No. 476. The CTA En Banc denied Mindanao I Geothermal Partnership’s (Mindanao I) claims for
refund or tax credit for the first (CTA Case No. 7228), second (CTA Case No. 7286), third, and fourth quarters
(CTA Case No. 7318) of 2003.
Both Mindanao I and II are partnerships registered with the Securities and Exchange Commission, value added
taxpayers registered with the Bureau of Internal Revenue (BIR), and Block Power Production Facilities accredited
by the Department of Energy. Republic Act No. 9136, or the Electric Power Industry Reform Act of 2000 (EPIRA),
effectively amended Republic Act No. 8424, or the Tax Reform Act of 1997 (1997 Tax Code), 9 when it decreed
that sales of power by generation companies shall be subjected to a zero rate of VAT.10 Pursuant to EPIRA,
Mindanao I and II filed with the CIR claims for refund or tax credit of accumulated unutilized and/or excess input
taxes due to VAT zero-rated sales in 2003. Mindanao I and II filed their claims in 2005.

SO ORDERED. G.R. No. 193301

Mindanao II v. CIR
G.R. No. 193301 March 11, 2013
The Facts
MINDANAO II GEOTHERMAL PARTNERSHIP, Petitioner,
vs. G.R. No. 193301 covers three CTA First Division cases, CTA Case Nos. 7227, 7287, and 7317, which were
COMMISSIONER OF INTERNAL REVENUE, Respondent. consolidated as CTA EB No. 513. CTA Case Nos. 7227, 7287, and 7317 claim a tax refund or credit of Mindanao
II’s alleged excess or unutilized input taxes due to VAT zero-rated sales. In CTA Case No. 7227, Mindanao II claims
x-----------------------x a tax refund or credit of ₱3,160,984.69 for the first quarter of 2003. In CTA Case No. 7287, Mindanao II claims a
tax refund or credit of ₱1,562,085.33 for the second quarter of 2003. In CTA Case No. 7317, Mindanao II claims a
G.R. No. 194637 tax refund or credit of ₱3,521,129.50 for the third and fourth quarters of 2003.

MINDANAO I GEOTHERMAL PARTNERSHIP, Petitioner, The CTA First Division’s narration of the pertinent facts is as follows:
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent. xxxx
On March 11, 1997, [Mindanao II] allegedly entered into a Built (sic)-Operate-Transfer (BOT) contract with the
Philippine National Oil Corporation – Energy Development Company (PNOC-EDC) for finance, engineering,
supply, installation, testing, commissioning, operation, and maintenance of a 48.25 megawatt geothermal power
plant, provided that PNOC-EDC shall supply and deliver steam to Mindanao II at no cost. In turn, Mindanao II
shall convert the steam into electric capacity and energy for PNOC-EDC and shall deliver the same to the
National Power Corporation (NPC) for and in behalf of PNOC-EDC. Mindanao II alleges that its sale of generated
power and delivery of electric capacity and energy of Mindanao II to NPC for and in behalf of PNOC-EDC is its
only revenue-generating activity which is in the ambit of VAT zero-rated sales under the EPIRA Law, x x x.
In its 22 September 2008 Decision,12 the CTA First Division found that Mindanao II satisfied the twin
requirements for VAT zero rating under EPIRA: (1) it is a generation company, and (2) it derived sales from power
generation. The CTA First Division also stated that Mindanao II complied with five requirements to be entitled to
a refund:
1. There must be zero-rated or effectively zero-rated sales;
2. That input taxes were incurred or paid;

xxxx
3. That such input VAT payments are directly attributable to zero-rated sales or effectively zero-rated
sales;
Hence, the amendment of the NIRC of 1997 modified the VAT rate applicable to sales of generated power by
generation companies from ten (10%) percent to zero (0%) percent.
4. That the input VAT payments were not applied against any output VAT liability; and

In the course of its operation, Mindanao II makes domestic purchases of goods and services and accumulates
5. That the claim for refund was filed within the two-year prescriptive period.13
therefrom creditable input taxes. Pursuant to the provisions of the National Internal Revenue Code (NIRC),
Mindanao II alleges that it can use its accumulated input tax credits to offset its output tax liability. Considering,
however that its only revenue-generating activity is VAT zero-rated under RA No. 9136, Mindanao II’s input tax With respect to the fifth requirement, the CTA First Division tabulated the dates of filing of Mindanao II’s return
credits remain unutilized. as well as its administrative and judicial claims, and concluded that Mindanao II’s administrative and judicial
claims were timely filed in compliance with this Court’s ruling in Atlas Consolidated Mining and Development
Corporation v. Commissioner of Internal Revenue (Atlas).14 The CTA First Division declared that the two-year
Thus, on the belief that its sales qualify for VAT zero-rating, Mindanao II adopted the VAT zero-rating of the
prescriptive period for filing a VAT refund claim should not be counted from the close of the quarter but from
EPIRA in computing for its VAT payable when it filed its Quarterly VAT Returns on the following dates:
the date of the filing of the VAT return. As ruled in Atlas, VAT liability or entitlement to a refund can only be
determined upon the filing of the quarterly VAT return.
CTA Case No. Period Covered Date of Filing
(2003)
Original Return Amended Return CTA Period Date Filing
Case No. Covered
7227 1st Quarter April 23, 2003 July 3, 2002 (sic), (2003) Original Amended Administrative Judicial Claim
April 1, 2004 & Return Return Return
October 22, 2004
7227 1st Quarter 23 April 2003 1 April 2004 13 April 2005 22 April 2005
7287 2nd Quarter July 22, 2003 April 1, 2004
7287 2nd Quarter 22 July 2003 1 April 2004 13 April 2005 7 July 2005
7317 3rd Quarter Oct. 27, 2003 April 1, 2004
7317 3rd Quarter 25 Oct. 2003 1 April 2004 13 April 2005 9 Sept. 2005
7317 4th Quarter Jan. 26, 2004 April 1, 2204
7317 4th Quarter 26 Jan. 2004 1 April 2004 13 April 2005 9 Sept. 200515
Considering that it has accumulated unutilized creditable input taxes from its only income-generating activity,
Thus, counting from 23 April 2003, 22 July 2003, 25 October 2003, and 26 January 2004, when Mindanao II filed
Mindanao II filed an application for refund and/or issuance of tax credit certificate with the BIR’s Revenue
its VAT returns, its administrative claim filed on 13 April 2005 and judicial claims filed on 22 April 2005, 7 July
District Office at Kidapawan City on April 13, 2005 for the four quarters of 2003.
2005, and 9 September 2005 were timely filed in accordance with Atlas.

To date (September 22, 2008), the application for refund by Mindanao II remains unacted upon by the CIR.
The CTA First Division found that Mindanao II is entitled to a refund in the modified amount of ₱7,703,957.79,
Hence, these three petitions filed on April 22, 2005 covering the 1st quarter of 2003; July 7, 2005 for the 2nd
after disallowing ₱522,059.91 from input VAT16 and deducting ₱18,181.82 from Mindanao II’s sale of a fully
quarter of 2003; and September 9, 2005 for the 3rd and 4th quarters of 2003. At the instance of Mindanao II,
depreciated ₱200,000.00 Nissan Patrol. The input taxes amounting to ₱522,059.91 were disallowed for failure to
these petitions were consolidated on March 15, 2006 as they involve the same parties and the same subject
meet invoicing requirements, while the input VAT on the sale of the Nissan Patrol was reduced by ₱18,181.82
matter. The only difference lies with the taxable periods involved in each petition.11
because the output VAT for the sale was not included in the VAT declarations.

The Court of Tax Appeals’ Ruling: Division

The dispositive portion of the CTA First Division’s 22 September 2008 Decision reads:
WHEREFORE, the Petition for Review is hereby PARTIALLY GRANTED. Accordingly, the CIR is hereby ORDERED to
REFUND or to ISSUE A TAX CREDIT CERTIFICATE in the modified amount of SEVEN MILLION SEVEN HUNDRED
THREE THOUSAND NINE HUNDRED FIFTY SEVEN AND 79/100 PESOS (₱7,703,957.79) representing its unutilized
input VAT for the four (4) quarters of the taxable year 2003.
SO ORDERED.17
Mindanao II filed a motion for partial reconsideration.18 It stated that the sale of the fully depreciated Nissan
Patrol is a one-time transaction and is not incidental to its VAT zero-rated operations. Moreover, the disallowed
input taxes substantially complied with the requirements for refund or tax credit.
The CIR also filed a motion for partial reconsideration. It argued that the judicial claims for the first and second
quarters of 2003 were filed beyond the period allowed by law, as stated in Section 112(A) of the 1997 Tax Code.
The CIR further stated that Section 229 is a general provision, and governs cases not covered by Section 112(A).
The CIR countered the CTA First Division’s 22 September 2008 decision by citing this Court’s ruling in
Commisioner of Internal Revenue v. Mirant Pagbilao Corporation (Mirant), 19 which stated that unutilized input
VAT payments must be claimed within two years reckoned from the close of the taxable quarter when the
relevant sales were made regardless of whether said tax was paid.
The CTA First Division denied Mindanao II’s motion for partial reconsideration, found the CIR’s motion for partial
reconsideration partly meritorious, and rendered an Amended Decision20 on 26 June 2009. The CTA First Division
stated that the claim for refund or credit with the BIR and the subsequent appeal to the CTA must be filed within
the two-year period prescribed under Section 229. The two-year prescriptive period in Section 229 was
denominated as a mandatory statute of limitations. Therefore, Mindanao II’s claims for refund for the first and
second quarters of 2003 had already prescribed.
The CTA First Division found that the records of Mindanao II’s case are bereft of evidence that the sale of the
Nissan Patrol is not incidental to Mindanao II’s VAT zero-rated operations. Moreover, Mindanao II’s submitted
documents failed to substantiate the requisites for the refund or credit claims.
The CTA First Division modified its 22 September 2008 Decision to read as follows:
WHEREFORE, the Petition for Review is hereby PARTIALLY GRANTED. Accordingly, the CIR is hereby ORDERED to
REFUND or to ISSUE A TAX CREDIT CERTIFICATE to Mindanao II Geothermal Partnership in the modified amount
of TWO MILLION NINE HUNDRED EIGHTY THOUSAND EIGHT HUNDRED EIGHTY SEVEN AND 77/100 PESOS
(₱2,980,887.77) representing its unutilized input VAT for the third and fourth quarters of the taxable year 2003.
SO ORDERED.21
Mindanao II filed a Petition for Review,22 docketed as CTA EB No. 513, before the CTA En Banc.
The Court of Tax Appeals’ Ruling: En Banc
On 10 March 2010, the CTA En Banc rendered its Decision23 in CTA EB No. 513 and denied Mindanao II’s petition.
The CTA En Banc ruled that (1) Section 112(A) clearly provides that the reckoning of the two-year prescriptive
period for filing the application for refund or credit of input VAT attributable to zero-rated sales or effectively
zero-rated sales shall be counted from the close of the taxable quarter when the sales were made; (2) the Atlas
and Mirant cases applied different tax codes: Atlas applied the 1977 Tax Code while Mirant applied the 1997 Tax
Code; (3) the sale of the fully-depreciated Nissan Patrol is incidental to Mindanao II’s VAT zero-rated transactions
pursuant to Section 105; (4) Mindanao II failed to comply with the substantiation requirements provided under
Section 113(A) in relation to Section 237 of the 1997 Tax Code as implemented by Section 4.104-1, 4.104-5, and
4.108-1 of Revenue Regulation No. 7-95; and (5) the doctrine of strictissimi juris on tax exemptions cannot be
relaxed in the present case.
The dispositive portion of the CTA En Banc’s 10 March 2010 Decision reads:
WHEREFORE, on the basis of the foregoing considerations, the Petition for Review en banc is DISMISSED for lack
of merit. Accordingly, the Decision dated September 22, 2008 and the Amended Decision dated June 26, 2009
issued by the First Division are AFFIRMED.
SO ORDERED.24
The CTA En Banc issued a Resolution25 on 28 July 2010 denying for lack of merit Mindanao II’s Motion for
Reconsideration.26 The CTA En Banc highlighted the following bases of their previous ruling:
1. The Supreme Court has long decided that the claim for refund of unutilized input VAT must be filed
within two (2) years after the close of the taxable quarter when such sales were made.
2. The Supreme Court is the ultimate arbiter whose decisions all other courts should take bearings.
3. The words of the law are clear, plain, and free from ambiguity; hence, it must be given its literal
meaning and applied without any interpretation.27
G.R. No. 194637
Mindanao I v. CIR
The Facts
G.R. No. 194637 covers two cases consolidated by the CTA EB: CTA EB Case Nos. 476 and 483. Both CTA EB cases
consolidate three cases from the CTA Second Division: CTA Case Nos. 7228, 7286, and 7318. CTA Case Nos. 7228,
7286, and 7318 claim a tax refund or credit of Mindanao I’s accumulated unutilized and/or excess input taxes
due to VAT zero-rated sales. In CTA Case No. 7228, Mindanao I claims a tax refund or credit of ₱3,893,566.14 for
the first quarter of 2003. In CTA Case No. 7286, Mindanao I claims a tax refund or credit of ₱2,351,000.83 for the
second quarter of 2003. In CTA Case No. 7318, Mindanao I claims a tax refund or credit of ₱7,940,727.83 for the
third and fourth quarters of 2003.
Mindanao I is similarly situated as Mindanao II. The CTA Second Division’s narration of the pertinent facts is as
follows:
xxxx
In December 1994, Mindanao I entered into a contract of Build-Operate-Transfer (BOT) with the Philippine
National Oil Corporation – Energy Development Corporation (PNOC-EDC) for the finance, design, construction,
testing, commissioning, operation, maintenance and repair of a 47-megawatt geothermal power plant. Under
the said BOT contract, PNOC-EDC shall supply and deliver steam to Mindanao I at no cost. In turn, Mindanao I
will convert the steam into electric capacity and energy for PNOC-EDC and shall subsequently supply and deliver
the same to the National Power Corporation (NPC), for and in behalf of PNOC-EDC.
Mindanao I’s 47-megawatt geothermal power plant project has been accredited by the Department of Energy
(DOE) as a Private Sector Generation Facility, pursuant to the provision of Executive Order No. 215, wherein
Certificate of Accreditation No. 95-037 was issued.
On June 26, 2001, Republic Act (R.A.) No. 9136 took effect, and the relevant provisions of the National Internal
Revenue Code (NIRC) of 1997 were deemed modified. R.A. No. 9136, also known as the "Electric Power Industry
Reform Act of 2001 (EPIRA), was enacted by Congress to ordain reforms in the electric power industry,
highlighting, among others, the importance of ensuring the reliability, security and affordability of the supply of
electric power to end users. Under the provisions of this Republic Act and its implementing rules and regulations,
the delivery and supply of electric energy by generation companies became VAT zero-rated, which previously
were subject to ten percent (10%) VAT.
xxxx
The amendment of the NIRC of 1997 modified the VAT rate applicable to sales of generated power by generation
companies from ten (10%) percent to zero percent (0%). Thus, Mindanao I adopted the VAT zero-rating of the
EPIRA in computing for its VAT payable when it filed its VAT Returns, on the belief that its sales qualify for VAT
zero-rating.
Mindanao I reported its unutilized or excess creditable input taxes in its Quarterly VAT Returns for the first,
second, third, and fourth quarters of taxable year 2003, which were subsequently amended and filed with the
BIR.
On April 4, 2005, Mindanao I filed with the BIR separate administrative claims for the issuance of tax credit
certificate on its alleged unutilized or excess input taxes for taxable year 2003, in the accumulated amount of
₱14,185, 294.80.
Alleging inaction on the part of CIR, Mindanao I elevated its claims before this Court on April 22, 2005, July 7,
2005, and September 9, 2005 docketed as CTA Case Nos. 7228, 7286, and 7318, respectively. However, on
October 10, 2005, Mindanao I received a copy of the letter dated September 30, 2003 (sic) of the BIR denying its
application for tax credit/refund.28
The Court of Tax Appeals’ Ruling: Division
On 24 October 2008, the CTA Second Division rendered its Decision29 in CTA Case Nos. 7228, 7286, and 7318. The
CTA Second Division found that (1) pursuant to Section 112(A), Mindanao I can only claim 90.27% of the amount
of substantiated excess input VAT because a portion was not reported in its quarterly VAT returns; (2) out of the
₱14,185,294.80 excess input VAT applied for refund, only ₱11,657,447.14 can be considered substantiated
excess input VAT due to disallowances by the Independent Certified Public Accountant, adjustment on the
disallowances per the CTA Second Division’s further verification, and additional disallowances per the CTA
Second Division’s further verification;
(3) Mindanao I’s accumulated excess input VAT for the second quarter of 2003 that was carried over to the third
quarter of 2003 is net of the claimed input VAT for the first quarter of 2003, and the same procedure was done
for the second, third, and fourth quarters of 2003; and (4) Mindanao I’s administrative claims were filed within
the two-year prescriptive period reckoned from the respective dates of filing of the quarterly VAT returns.
The dispositive portion of the CTA Second Division’s 24 October 2008 Decision reads:
WHEREFORE, premises considered, the consolidated Petitions for Review are hereby PARTIALLY GRANTED.
Accordingly, the CIR is hereby ORDERED TO ISSUE A TAX CREDIT CERTIFICATE in favor of Mindanao I in the
reduced amount of TEN MILLION FIVE HUNDRED TWENTY THREE THOUSAND ONE HUNDRED SEVENTY SEVEN
PESOS AND 53/100 (₱10,523,177.53) representing Mindanao I’s unutilized input VAT for the four quarters of the
taxable year 2003.
SO ORDERED.30
Mindanao I filed a motion for partial reconsideration with motion for Clarification31 on 11 November 2008. It
claimed that the CTA Second Division should not have allocated proportionately Mindanao I’s unutilized
creditable input taxes for the taxable year 2003, because the proportionate allocation of the amount of
creditable taxes in Section 112(A) applies only when the creditable input taxes due cannot be directly and
entirely attributed to any of the zero-rated or effectively zero-rated sales. Mindanao I claims that its unreported
collection is directly attributable to its VAT zero-rated sales. The CTA Second Division denied Mindanao I’s
motion and maintained the proportionate allocation because there was a portion of the gross receipts that was
undeclared in Mindanao I’s gross receipts.
The CIR also filed a motion for partial reconsideration32 on 11 November 2008. It claimed that Mindanao I failed
to exhaust administrative remedies before it filed its petition for review. The CTA Second Division denied the
CIR’s motion, and cited Atlas33 as the basis for ruling that it is more practical and reasonable to count the two-
year prescriptive period for filing a claim for refund or credit of input VAT on zero-rated sales from the date of
filing of the return and payment of the tax due.
The dispositive portion of the CTA Second Division’s 10 March 2009 Resolution reads:
WHEREFORE, premises considered, the CIR’s Motion for Partial Reconsideration and Mindanao I’s Motion for
Partial Reconsideration with Motion for Clarification are hereby DENIED for lack of merit.
SO ORDERED.34
The Ruling of the Court of Tax Appeals: En Banc
On 31 May 2010, the CTA En Banc rendered its Decision35 in CTA EB Case Nos. 476 and 483 and denied the
petitions filed by the CIR and Mindanao I. The CTA En Banc found no new matters which have not yet been
considered and passed upon by the CTA Second Division in its assailed decision and resolution.
The dispositive portion of the CTA En Banc’s 31 May 2010 Decision reads:
WHEREFORE, premises considered, the Petitions for Review are hereby DISMISSED for lack of merit. Accordingly,
the October 24, 2008 Decision and March 10, 2009 Resolution of the CTA Former Second Division in CTA Case
Nos. 7228, 7286, and 7318, entitled "Mindanao I Geothermal Partnership vs. Commissioner of Internal Revenue"
are hereby AFFIRMED in toto.
SO ORDERED.36
Both the CIR and Mindanao I filed Motions for Reconsideration of the CTA En Banc’s 31 May 2010 Decision. In an
Amended Decision promulgated on 24 November 2010, the CTA En Banc agreed with the CIR’s claim that Section
229 of the NIRC of 1997 is inapplicable in light of this Court’s ruling in Mirant. The CTA En Banc also ruled that
the procedure prescribed under Section 112(D) now 112(C) 37 of the 1997 Tax Code should be followed first
before the CTA En Banc can act on Mindanao I’s claim. The CTA En Banc reconsidered its 31 May 2010 Decision in
light of this Court’s ruling in Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc. (Aichi).38
The pertinent portions of the CTA En Banc’s 24 November 2010 Amended Decision read:
C.T.A. Case No. 7228:
(1) For calendar year 2003, Mindanao I filed with the BIR its Quarterly VAT Returns for the First Quarter
of 2003. Pursuant to Section 112(A) of the NIRC of 1997, as amended, Mindanao I has two years from
March 31, 2003 or until March 31, 2005 within which to file its administrative claim for refund;
(2) On April 4, 2005, Mindanao I applied for an administrative claim for refund of unutilized input VAT
for the first quarter of taxable year 2003 with the BIR, which is beyond the two-year prescriptive period
mentioned above.
C.T.A. Case No. 7286:
(1) For calendar year 2003, Mindanao I filed with the BIR its Quarterly VAT Returns for the second
quarter of 2003. Pursuant to
Section 112(A) of the NIRC of 1997, as amended, Mindanao I has two years from June 30, 2003, within
which to file its administrative claim for refund for the second quarter of 2003, or until June 30, 2005;
(2) On April 4, 2005, Mindanao I applied an administrative claim for refund of unutilized input VAT for
the second quarter of taxable year 2003 with the BIR, which is within the two-year prescriptive period,
provided under Section 112 (A) of the NIRC of 1997, as amended;
(3) The CIR has 120 days from April 4, 2005 (presumably the date Mindanao I submitted the supporting
documents together with the application for refund) or until August 2, 2005, to decide the
administrative claim for refund;
(4) Within 30 days from the lapse of the 120-day period or from August 3, 2005 to September 1, 2005,
Mindanao I should have elevated its claim for refund to the CTA in Division;
(5) However, on July 7, 2005, Mindanao I filed its Petition for Review with this Court, docketed as CTA
Case No. 7286, even before the 120-day period for the CIR to decide the claim for refund had lapsed on
August 2, 2005. The Petition for Review was, therefore, prematurely filed and there was failure to
exhaust administrative remedies;
xxxx
C.T.A. Case No. 7318:
(1) For calendar year 2003, Mindanao I filed with the BIR its Quarterly VAT Returns for the third and
fourth quarters of 2003. Pursuant to Section 112(A) of the NIRC of 1997, as amended, Mindanao I
therefore, has two years from September 30, 2003 and December 31, 2003, or until September 30,
2005 and December 31, 2005, respectively, within which to file its administrative claim for the third
and fourth quarters of 2003;
(2) On April 4, 2005, Mindanao I applied an administrative claim for refund of unutilized input VAT for
the third and fourth quarters of taxable year 2003 with the BIR, which is well within the two-year
prescriptive period, provided under Section 112(A) of the NIRC of 1997, as amended;
(3) From April 4, 2005, which is also presumably the date Mindanao I submitted supporting documents,
together with the aforesaid application for refund, the CIR has 120 days or until August 2, 2005, to
decide the claim;
(4) Within thirty (30) days from the lapse of the 120-day period or from August 3, 2005 until September
1, 2005 Mindanao I should have elevated its claim for refund to the CTA;
(5) However, Mindanao I filed its Petition for Review with the CTA in Division only on September 9,
2005, which is 8 days beyond the 30-day period to appeal to the CTA.
Evidently, the Petition for Review was filed way beyond the 30-day prescribed period. Thus, the Petition for
Review should have been dismissed for being filed late.
In recapitulation:
(1) C.T.A. Case No. 7228
Claim for the first quarter of 2003 had already prescribed for having been filed beyond the two-year
prescriptive period;
(2) C.T.A. Case No. 7286
 Claim for the second quarter of 2003 should be dismissed for Mindanao I’s failure to comply with a III. The Honorable Court of Tax Appeals erred in denying the amount disallowed by the Independent
condition precedent when it failed to exhaust administrative remedies by filing its Petition for Review Certified Public Accountant as Mindanao II substantially complied with the requisites of the 1997 Tax
even before the lapse of the 120-day period for the CIR to decide the administrative claim; Code, as amended, for refund/tax credit.

(3) C.T.A. Case No. 7318 A. The amount of ₱2,090.16 was brought about by the timing difference in the recording of
the foreign currency deposit transaction.
Petition for Review was filed beyond the 30-day prescribed period to appeal to the CTA.
B. The amount of ₱2,752.00 arose from the out-of-pocket expenses reimbursed to SGV &
xxxx Company which is substantially suppoerted [sic] by an official receipt.

IN VIEW OF THE FOREGOING, the Commissioner of Internal Revenue’s Motion for Reconsideration is hereby C. The amount of ₱487,355.93 was unapplied and/or was not included in Mindanao II’s claim
GRANTED; Mindanao I’s Motion for Partial Reconsideration is hereby DENIED for lack of merit. for refund or tax credit for the year 2004 subject matter of CTA Case No. 7507.

The May 31, 2010 Decision of this Court En Banc is hereby REVERSED. IV. The doctrine of strictissimi juris on tax exemptions should be relaxed in the present case.40

Accordingly, the Petition for Review of the Commissioner of Internal Revenue in CTA EB No. 476 is hereby G.R. No. 194637
GRANTED and the entire claim of Mindanao I Geothermal Partnership for the first, second, third and fourth Mindanao I v. CIR
quarters of 2003 is hereby DENIED.
Mindanao I raised the following grounds in its Petition for Review:
SO ORDERED.39
I. The administrative claim and judicial claim in CTA Case No. 7228 were timely filed pursuant to the
The Issues case of Atlas Consolidated Mining and Development Corporation vs. Commissioner of Internal
Revenue, which was then the controlling ruling at the time of filing.
G.R. No. 193301
Mindanao II v. CIR A. The recent ruling in the Commissioner of Internal Revenue vs. Mirant Pagbilao
Mindanao II raised the following grounds in its Petition for Review: Corporation, which uses the end of the taxable quarter when the sales were made as the
reckoning date in counting the two-year prescriptive period, cannot be applied retroactively
in the case of Mindanao I.
I. The Honorable Court of Tax Appeals erred in holding that the claim of Mindanao II for the 1st and
2nd quarters of year 2003 has already prescribed pursuant to the Mirant case.
B. The Atlas case promulgated by the Third Division of this Honorable Court on June 8, 2007
was not and cannot be superseded by the Mirant Pagbilao case promulgated by the Second
A. The Atlas case and Mirant case have conflicting interpretations of the law as to the
Division of this Honorable Court on September 12, 2008 in light of the explicit provision of
reckoning date of the two year prescriptive period for filing claims for VAT refund.
Section 4(3), Article VIII of the 1987 Constitution.

B. The Atlas case was not and cannot be superseded by the Mirant case in light of Section
II. Likewise, the recent ruling of this Honorable Court in Commissioner of Internal Revenue vs. Aichi
4(3), Article VIII of the 1987 Constitution.
Forging Company of Asia, Inc., cannot be applied retroactively to Mindanao I in the present case. 41

C. The ruling of the Mirant case, which uses the close of the taxable quarter when the sales
In a Resolution dated 14 December 2011,42 this Court resolved to consolidate G.R. Nos. 193301 and 194637 to
were made as the reckoning date in counting the two-year prescriptive period cannot be
avoid conflicting rulings in related cases.
applied retroactively in the case of Mindanao II.

The Court’s Ruling

II. The Honorable Court of Tax Appeals erred in interpreting Section 105 of the 1997 Tax Code, as
amended in that the sale of the fully depreciated Nissan Patrol is a one-time transaction and is not
incidental to the VAT zero-rated operation of Mindanao II. Determination of Prescriptive Period
 G.R. Nos. 193301 and 194637 both raise the question of the determination of the prescriptive period, or the amount made refund/tax credit with the claim)
interpretation of Section 112 of the 1997 Tax Code, in light of our rulings in Atlas and Mirant. credit CIR
certificate (administrative
Mindanao II’s unutilized input VAT tax credit for the first and second quarters of 2003, in the amounts of with the claim)44
₱3,160,984.69 and ₱1,562,085.33, respectively, are covered by G.R. No. 193301, while Mindanao I’s unutilized CIR
input VAT tax credit for the first, second, third, and fourth quarters of 2003, in the amounts of ₱3,893,566.14,
₱2,351,000.83, and ₱7,940,727.83, respectively, are covered by G.R. No. 194637. 7227 1st Quarter, 31 March 31 March 13 April 2005 12 September 22 April 2005
₱3,160,984.69 2003 2005 2005
Section 112 of the 1997 Tax Code 7287 2nd Quarter, 30 June 30 June 13 April 2005 12 September 7 July 2005
₱1,562,085.33 2003 2005 2005
The pertinent sections of the 1997 Tax Code, the law applicable at the time of Mindanao II’s and Mindanao I’s
7317 3rd and 4th 30 30 13 April 2005 12 September 9 September
administrative and judicial claims, provide:
Quarters, September September 2005 2005
₱3,521,129.50 2003 2005
SEC. 112. Refunds or Tax Credits of Input Tax. -(A) Zero-rated or Effectively Zero-rated Sales. - Any VAT-registered
person, whose sales are zero-rated or effectively zero-rated may, within two (2) years after the close of the 31 2 January
taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of December 2006
creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent that such 2003 (31
input tax has not been applied against output tax: Provided, however, That in the case of zero-rated sales under December
Section 106(A)(2)(a)(1), (2) and (B) and Section 108 (B)(1) and (2), the acceptable foreign currency exchange 2005 being
proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko a Saturday)
Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated or effectively zero- The relevant dates for G.R. No. 194637 (Minadanao I) are:
rated sale and also in taxable or exempt sale of goods or properties or services, and the amount of creditable
input tax due or paid cannot be directly and entirely attributed to any one of the transactions, it shall be
allocated proportionately on the basis of the volume of sales. CTA Period Close of Last day Actual date of Last day for Actual Date
Case covered by quarter for filing filing filing case of filing case
xxxx No. VAT Sales in when sales application application for with CTA47 with CTA
2003 and were of tax tax refund/ (judicial
amount made refund/tax credit with the claim)
(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In proper cases, the Commissioner credit CIR
shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) certificate (administrative
days from the date of submission of complete documents in support of the application filed in accordance with with the claim)46
Subsections (A) and (B) hereof. CIR

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the 7227 1st Quarter, 31 March 31 March 4 April 2005 1 September 22 April 2005
Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within ₱3,893,566.14 2003 2005 2005
thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred
7287 2nd Quarter, 30 June 30 June 4 April 2005 1 September 7 July 2005
twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals.
₱2,351,000.83 2003 2005 2005

x x x x 43 (Underscoring supplied) 7317 3rd 30 30 4 April 2005 1 September 9 September

and 4th September September 2005 2005
The relevant dates for G.R. No. 193301 (Mindanao II) are: Quarters, 2003 2005
₱7,940,727.83
31 2 January
CTA Period Close of Last day Actual date of Last day for Actual Date December 2006
Case No. covered by quarter for filing filing filing case of filing case 2003 (31
VAT Sales in when sales application application for with CTA45 with CTA December
2003 and were of tax tax refund/ (judicial 2005 being
a Saturday)
When Mindanao II and Mindanao I filed their respective administrative and judicial claims in 2005, neither Atlas
nor Mirant has been promulgated. Atlas was promulgated on 8 June 2007, while Mirant was promulgated on 12
September 2008. It is therefore misleading to state that Atlas was the controlling doctrine at the time of filing of
the claims. The 1997 Tax Code, which took effect on 1 January 1998, was the applicable law at the time of filing
of the claims in issue. As this Court explained in the recent consolidated cases of Commissioner of Internal
Revenue v. San Roque Power Corporation, Taganito Mining Corporation v. Commissioner of Internal Revenue,
and Philex Mining Corporation v. Commissioner of Internal Revenue (San Roque):48
Clearly, San Roque failed to comply with the 120-day waiting period, the time expressly given by law to the
Commissioner to decide whether to grant or deny San Roque’s application for tax refund or credit. It is
indisputable that compliance with the 120-day waiting period is mandatory and jurisdictional. The waiting
period, originally fixed at 60 days only, was part of the provisions of the first VAT law, Executive Order No. 273,
which took effect on 1 January 1988. The waiting period was extended to 120 days effective 1 January 1998
under RA 8424 or the Tax Reform Act of 1997. Thus, the waiting period has been in our statute books for more
than fifteen (15) years before San Roque filed its judicial claim.
Failure to comply with the 120-day waiting period violates a mandatory provision of law. It violates the doctrine
of exhaustion of administrative remedies and renders the petition premature and thus without a cause of action,
with the effect that the CTA does not acquire jurisdiction over the taxpayer’s petition. Philippine jurisprudence is
replete with cases upholding and reiterating these doctrinal principles.
The charter of the CTA expressly provides that its jurisdiction is to review on appeal "decisions of the
Commissioner of Internal Revenue in cases involving x x x refunds of internal revenue taxes." When a taxpayer
prematurely files a judicial claim for tax refund or credit with the CTA without waiting for the decision of the
Commissioner, there is no "decision" of the Commissioner to review and thus the CTA as a court of special
jurisdiction has no jurisdiction over the appeal. The charter of the CTA also expressly provides that if the
Commissioner fails to decide within "a specific period" required by law, such "inaction shall be deemed a denial"
of the application for tax refund or credit. It is the Commissioner’s decision, or inaction "deemed a denial," that
the taxpayer can take to the CTA for review. Without a decision or an "inaction x x x deemed a denial" of the
Commissioner, the CTA has no jurisdiction over a petition for review.
San Roque’s failure to comply with the 120-day mandatory period renders its petition for review with the CTA
void. Article 5 of the Civil Code provides, "Acts executed against provisions of mandatory or prohibitory laws
shall be void, except when the law itself authorizes their validity." San Roque’s void petition for review cannot be
legitimized by the CTA or this Court because Article 5 of the Civil Code states that such void petition cannot be
legitimized "except when the law itself authorizes its validity." There is no law authorizing the petition’s validity.
It is hornbook doctrine that a person committing a void act contrary to a mandatory provision of law cannot
claim or acquire any right from his void act. A right cannot spring in favor of a person from his own void or illegal
act. This doctrine is repeated in Article 2254 of the Civil Code, which states, "No vested or acquired right can
arise from acts or omissions which are against the law or which infringe upon the rights of others." For violating a
mandatory provision of law in filing its petition with the CTA, San Roque cannot claim any right arising from such
void petition. Thus, San Roque’s petition with the CTA is a mere scrap of paper.
This Court cannot brush aside the grave issue of the mandatory and jurisdictional nature of the 120-day period
just because the Commissioner merely asserts that the case was prematurely filed with the CTA and does not
question the entitlement of San Roque to the refund. The mere fact that a taxpayer has undisputed excess input
VAT, or that the tax was admittedly illegally, erroneously or excessively collected from him, does not entitle him
as a matter of right to a tax refund or credit. Strict compliance with the mandatory and jurisdictional conditions
prescribed by law to claim such tax refund or credit is essential and necessary for such claim to prosper. Well-
settled is the rule that tax refunds or credits, just like tax exemptions, are strictly construed against the taxpayer.
The burden is on the taxpayer to show that he has strictly complied with the conditions for the grant of the tax
refund or credit.
This Court cannot disregard mandatory and jurisdictional conditions mandated by law simply because the
Commissioner chose not to contest the numerical correctness of the claim for tax refund or credit of the
taxpayer. Non-compliance with mandatory periods, non-observance of prescriptive periods, and non-adherence
to exhaustion of administrative remedies bar a taxpayer’s claim for tax refund or credit, whether or not the
Commissioner questions the numerical correctness of the claim of the taxpayer. This Court should not establish
the precedent that non-compliance with mandatory and jurisdictional conditions can be excused if the claim is
otherwise meritorious, particularly in claims for tax refunds or credit. Such precedent will render meaningless
compliance with mandatory and jurisdictional requirements, for then every tax refund case will have to be
decided on the numerical correctness of the amounts claimed, regardless of non-compliance with mandatory
and jurisdictional conditions.
San Roque cannot also claim being misled, misguided or confused by the Atlas doctrine because San Roque filed
its petition for review with the CTA more than four years before Atlas was promulgated. The Atlas doctrine did
not exist at the time San Roque failed to comply with the 120-day period. Thus, San Roque cannot invoke the
Atlas doctrine as an excuse for its failure to wait for the 120-day period to lapse. In any event, the Atlas doctrine
merely stated that the two-year prescriptive period should be counted from the date of payment of the output
VAT, not from the close of the taxable quarter when the sales involving the input VAT were made. The Atlas
doctrine does not interpret, expressly or impliedly, the 120+30 day periods.49 (Emphases in the original; citations
omitted)
Prescriptive Period for
the Filing of Administrative Claims
In determining whether the administrative claims of Mindanao I and Mindanao II for 2003 have prescribed, we
see no need to rely on either Atlas or Mirant. Section 112(A) of the 1997 Tax Code is clear: "Any VAT-registered
person, whose sales are zero-rated or effectively zero-rated may, within two (2) years after the close of the
taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of
creditable input tax due or paid attributable to such sales x x x."
We rule on Mindanao I and II’s administrative claims for the first, second, third, and fourth quarters of 2003 as
follows:
(1) The last day for filing an application for tax refund or credit with the CIR for the first quarter of 2003
was on 31 March 2005. Mindanao II filed its administrative claim before the CIR on 13 April 2005, while
Mindanao I filed its administrative claim before the CIR on 4 April 2005. Both claims have prescribed,
pursuant to Section 112(A) of the 1997 Tax Code.
 (2) The last day for filing an application for tax refund or credit with the CIR for the second quarter of
2003 was on 30 June 2005. Mindanao II filed its administrative claim before the CIR on 13 April 2005,
while Mindanao I filed its administrative claim before the CIR on 4 April 2005. Both claims were filed on
time, pursuant to Section 112(A) of the 1997 Tax Code.
(3) The last day for filing an application for tax refund or credit with the CIR for the third quarter of
2003 was on 30 September 2005. Mindanao II filed its administrative claim before the CIR on 13 April
2005, while Mindanao I filed its administrative claim before the CIR on 4 April 2005. Both claims were
filed on time, pursuant to Section 112(A) of the 1997 Tax Code.
(4) The last day for filing an application for tax refund or credit with the CIR for the fourth quarter of
2003 was on 2 January 2006. Mindanao II filed its administrative claim before the CIR on 13 April 2005,
while Mindanao I filed its administrative claim before the CIR on 4 April 2005. Both claims were filed on
time, pursuant to Section 112(A) of the 1997 Tax Code.
Prescriptive Period for
the Filing of Judicial Claims
In determining whether the claims for the second, third and fourth quarters of 2003 have been properly
appealed, we still see no need to refer to either Atlas or Mirant, or even to Section 229 of the 1997 Tax Code.
The second paragraph of Section 112(C) of the 1997 Tax Code is clear: "In case of full or partial denial of the
claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application within
the period prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of the decision
denying the claim or after the expiration of the one hundred twenty day-period, appeal the decision or the
unacted claim with the Court of Tax Appeals."
The mandatory and jurisdictional nature of the 120+30 day periods was explained in San Roque:
At the time San Roque filed its petition for review with the CTA, the 120+30 day mandatory periods were already
in the law. Section 112(C) expressly grants the Commissioner 120 days within which to decide the taxpayer’s
claim. The law is clear, plain, and unequivocal: "x x x the Commissioner shall grant a refund or issue the tax credit
certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of
complete documents." Following the verba legis doctrine, this law must be applied exactly as worded since it is
clear, plain, and unequivocal. The taxpayer cannot simply file a petition with the CTA without waiting for the
Commissioner’s decision within the 120-day mandatory and jurisdictional period. The CTA will have no
jurisdiction because there will be no "decision" or "deemed a denial" decision of the Commissioner for the CTA
to review. In San Roque’s case, it filed its petition with the CTA a mere 13 days after it filed its administrative
claim with the Commissioner. Indisputably, San Roque knowingly violated the mandatory 120-day period, and it
cannot blame anyone but itself.
Section 112(C) also expressly grants the taxpayer a 30-day period to appeal to the CTA the decision or inaction of
the Commissioner, thus:
x x x the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after
the expiration of the one hundred twenty day-period, appeal the decision or the unacted claim with the Court of
Tax Appeals. (Emphasis supplied)
This law is clear, plain, and unequivocal. Following the well-settled verba legis doctrine, this law should be
applied exactly as worded since it is clear, plain, and unequivocal. As this law states, the taxpayer may, if he
wishes, appeal the decision of the Commissioner to the CTA within 30 days from receipt of the Commissioner’s
decision, or if the Commissioner does not act on the taxpayer’s claim within the 120-day period, the taxpayer
may appeal to the CTA within 30 days from the expiration of the 120-day period.
xxxx
There are three compelling reasons why the 30-day period need not necessarily fall within the two-year
prescriptive period, as long as the administrative claim is filed within the two-year prescriptive period.
First, Section 112(A) clearly, plainly, and unequivocally provides that the taxpayer "may, within two (2) years
after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate
or refund of the creditable input tax due or paid to such sales." In short, the law states that the taxpayer may
apply with the Commissioner for a refund or credit "within two (2) years," which means at anytime within two
years. Thus, the application for refund or credit may be filed by the taxpayer with the Commissioner on the last
day of the two-year prescriptive period and it will still strictly comply with the law. The two-year prescriptive
period is a grace period in favor of the taxpayer and he can avail of the full period before his right to apply for a
tax refund or credit is barred by prescription.
Second, Section 112(C) provides that the Commissioner shall decide the application for refund or credit "within
one hundred twenty (120) days from the date of submission of complete documents in support of the
application filed in accordance with Subsection (A)." The reference in Section 112(C) of the submission of
documents "in support of the application filed in accordance with Subsection A" means that the application in
Section 112(A) is the administrative claim that the Commissioner must decide within the 120-day period. In
short, the two-year prescriptive period in Section 112(A) refers to the period within which the taxpayer can file
an administrative claim for tax refund or credit. Stated otherwise, the two-year prescriptive period does not
refer to the filing of the judicial claim with the CTA but to the filing of the administrative claim with the
Commissioner. As held in Aichi, the "phrase ‘within two years x x x apply for the issuance of a tax credit or
refund’ refers to applications for refund/credit with the CIR and not to appeals made to the CTA."
Third, if the 30-day period, or any part of it, is required to fall within the two-year prescriptive period (equivalent
to 730 days), then the taxpayer must file his administrative claim for refund or credit within the first 610 days of
the two-year prescriptive period. Otherwise, the filing of the administrative claim beyond the first 610 days will
result in the appeal to the CTA being filed beyond the two-year prescriptive period. Thus, if the taxpayer files his
administrative claim on the 611th day, the Commissioner, with his 120-day period, will have until the 731st day
to decide the claim. If the Commissioner decides only on the 731st day, or does not decide at all, the taxpayer
can no longer file his judicial claim with the CTA because the two-year prescriptive period (equivalent to 730
days) has lapsed. The 30-day period granted by law to the taxpayer to file an appeal before the CTA becomes
utterly useless, even if the taxpayer complied with the law by filing his administrative claim within the two-year
prescriptive period.
The theory that the 30-day period must fall within the two-year prescriptive period adds a condition that is not
found in the law. It results in truncating 120 days from the 730 days that the law grants the taxpayer for filing his
administrative claim with the Commissioner. This Court cannot interpret a law to defeat, wholly or even partly, a
remedy that the law expressly grants in clear, plain, and unequivocal language.
Section 112(A) and (C) must be interpreted according to its clear, plain, and unequivocal language. The taxpayer
can file his administrative claim for refund or credit at anytime within the two-year prescriptive period. If he files
his claim on the last day of the two-year prescriptive
period, his claim is still filed on time. The Commissioner will have 120 days from such filing to decide the claim. If
the Commissioner decides the claim on the 120th day, or does not decide it on that day, the taxpayer still has 30
days to file his judicial claim with the CTA. This is not only the plain meaning but also the only logical
interpretation of Section 112(A) and (C).50 (Emphases in the original; citations omitted)
In San Roque, this Court ruled that "all taxpayers can rely on BIR Ruling No. DA-489-03 from the time of its
issuance on 10 December 2003 up to its reversal in Aichi on 6 October 2010, where this Court held that the
120+30 day periods are mandatory and jurisdictional."51 We shall discuss later the effect of San Roque’s
recognition of BIR Ruling No. DA-489-03 on claims filed between 10 December 2003 and 6 October 2010.
Mindanao I and II filed their claims within this period.
We rule on Mindanao I and II’s judicial claims for the second, third, and fourth quarters of 2003 as follows:
G.R. No. 193301
Mindanao II v. CIR
Mindanao II filed its administrative claims for the second, third, and fourth quarters of 2003 on 13 April 2005.
Counting 120 days after filing of the administrative claim with the CIR (11 August 2005) and 30 days after the
CIR’s denial by inaction, the last day for filing a judicial claim with the CTA for the second, third, and fourth
quarters of 2003 was on 12 September 2005. However, the judicial claim cannot be filed earlier than 11 August
2005, which is the expiration of the 120-day period for the Commissioner to act on the claim.
(1) Mindanao II filed its judicial claim for the second quarter of 2003 before the CTA on 7 July 2005,
before the expiration of the 120-day period. Pursuant to Section 112(C) of the 1997 Tax Code,
Mindanao II’s judicial claim for the second quarter of 2003 was prematurely filed.
However, pursuant to San Roque’s recognition of the effect of BIR Ruling No. DA-489-03, we rule that
Mindanao II’s judicial claim for the second quarter of 2003 qualifies under the exception to the strict
application of the 120+30 day periods.
(2) Mindanao II filed its judicial claim for the third quarter of 2003 before the CTA on 9 September
2005. Mindanao II’s judicial claim for the third quarter of 2003 was thus filed on time, pursuant to
Section 112(C) of the 1997 Tax Code.
(3) Mindanao II filed its judicial claim for the fourth quarter of 2003 before the CTA on 9 September
2005. Mindanao II’s judicial claim for the fourth quarter of 2003 was thus filed on time, pursuant to
Section 112(C) of the 1997 Tax Code.
G.R. No. 194637
Mindanao I v. CIR
Mindanao I filed its administrative claims for the second, third, and fourth quarters of 2003 on 4 April 2005.
Counting 120 days after filing of the administrative claim with the CIR (2 August 2005) and 30 days after the CIR’s
denial by inaction,52 the last day for filing a judicial claim with the CTA for the second, third, and fourth quarters
of 2003 was on 1 September 2005. However, the judicial claim cannot be filed earlier than 2 August 2005, which
is the expiration of the 120-day period for the Commissioner to act on the claim.
(1) Mindanao I filed its judicial claim for the second quarter of 2003 before the CTA on 7 July 2005,
before the expiration of the 120-day period. Pursuant to Section 112(C) of the 1997 Tax Code,
Mindanao I’s judicial claim for the second quarter of 2003 was prematurely filed. However, pursuant to
San Roque’s recognition of the effect of BIR Ruling No. DA-489-03, we rule that Mindanao I’s judicial
claim for the second quarter of 2003 qualifies under the exception to the strict application of the
120+30 day periods.
(2) Mindanao I filed its judicial claim for the third quarter of 2003 before the CTA on 9 September 2005.
Mindanao I’s judicial claim for the third quarter of 2003 was thus filed after the prescriptive period,
pursuant to Section 112(C) of the 1997 Tax Code.
(3) Mindanao I filed its judicial claim for the fourth quarter of 2003 before the CTA on 9 September
2005. Mindanao I’s judicial claim for the fourth quarter of 2003 was thus filed after the prescriptive
period, pursuant to Section 112(C) of the 1997 Tax Code.
San Roque: Recognition of BIR Ruling No. DA-489-03
In the consolidated cases of San Roque, the Court En Banc 53 examined and ruled on the different claims for tax
refund or credit of three different companies. In San Roque, we reiterated that "following the verba legis
doctrine, Section 112(C) must be applied exactly as worded since it is clear, plain, and unequivocal. The taxpayer
cannot simply file a petition with the CTA without waiting for the Commissioner’s decision within the 120-day
mandatory and jurisdictional period. The CTA will have no jurisdiction because there will be no ‘decision’ or
‘deemed a denial decision’ of the Commissioner for the CTA to review."
Notwithstanding a strict construction of any claim for tax exemption or refund, the Court in San Roque
recognized that BIR Ruling No. DA-489-03 constitutes equitable estoppel54 in favor of taxpayers. BIR Ruling No.
DA-489-03 expressly states that the "taxpayer-claimant need not wait for the lapse of the 120-day period before
it could seek judicial relief with the CTA by way of Petition for Review." This Court discussed BIR Ruling No. DA-
489-03 and its effect on taxpayers, thus:
Taxpayers should not be prejudiced by an erroneous interpretation by the Commissioner, particularly on a
difficult question of law. The abandonment of the Atlas doctrine by Mirant and Aichi is proof that the reckoning
of the prescriptive periods for input VAT tax refund or credit is a difficult question of law. The abandonment of
the Atlas doctrine did not result in Atlas, or other taxpayers similarly situated, being made to return the tax
refund or credit they received or could have received under Atlas prior to its abandonment. This Court is
applying Mirant and Aichi prospectively. Absent fraud, bad faith or misrepresentation, the reversal by this Court
of a general interpretative rule issued by the Commissioner, like the reversal of a specific BIR ruling under
Section 246, should also apply prospectively. x x x.
xxxx
 Thus, the only issue is whether BIR Ruling No. DA-489-03 is a general interpretative rule applicable to all Administrative Judicial Claim Action on Claim
taxpayers or a specific ruling applicable only to a particular taxpayer. Claim

BIR Ruling No. DA-489-03 is a general interpretative rule because it was a response to a query made, not by a 1st Quarter, 2003 Filed late -- Deny, pursuant to
particular taxpayer, but by a government agency tasked with processing tax refunds and credits, that is, the One Section 112(A) of the
Stop Shop Inter-Agency Tax Credit and Drawback Center of the Department of Finance. This government agency 1997 Tax Code
is also the addressee, or the entity responded to, in BIR Ruling No. DA-489-03. Thus, while this government
2nd Quarter, 2003 Filed on time Prematurely filed Grant, pursuant to
agency mentions in its query to the Commissioner the administrative claim of Lazi Bay Resources Development,
BIR Ruling No. DA-489-03
Inc., the agency was in fact asking the Commissioner what to do in cases like the tax claim of Lazi Bay Resources
Development, Inc., where the taxpayer did not wait for the lapse of the 120-day period. 3rd Quarter, 2003 Filed on time Filed late Grant, pursuant to
Section 112(C) of the
Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, all taxpayers can rely on BIR Ruling No. 1997 Tax Code
DA-489-03 from the time of its issuance on 10 December 2003 up to its reversal by this Court in Aichi on 6
4th Quarter, 2003 Filed on time Filed late Grant, pursuant to
October 2010, where this Court held that the 120+30 day periods are mandatory and jurisdictional.
Section 112(C) of the
1997 Tax Code
xxxx
Summary of Rules on Prescriptive Periods Involving VAT

Taganito, however, filed its judicial claim with the CTA on 14 February 2007, after the issuance of BIR Ruling No.
DA-489-03 on 10 December 2003. Truly, Taganito can claim that in filing its judicial claim prematurely without We summarize the rules on the determination of the prescriptive period for filing a tax refund or credit of
unutilized input VAT as provided in Section 112 of the 1997 Tax Code, as follows:
waiting for the 120-day period to expire, it was misled by BIR Ruling No. DA-489-03. Thus, Taganito can claim the
benefit of BIR Ruling No. DA-489-03, which shields the filing of its judicial claim from the vice of prematurity.
(Emphasis in the original) (1) An administrative claim must be filed with the CIR within two years after the close of the taxable
quarter when the zero-rated or effectively zero-rated sales were made.
Summary of Administrative and Judicial Claims
(2) The CIR has 120 days from the date of submission of complete documents in support of the
administrative claim within which to decide whether to grant a refund or issue a tax credit certificate.
G.R. No. 193301
Mindanao II v. CIR The 120-day period may extend beyond the two-year period from the filing of the administrative claim
if the claim is filed in the later part of the two-year period. If the 120-day period expires without any
decision from the CIR, then the administrative claim may be considered to be denied by inaction.
Administrative Judicial Claim Action on Claim
Claim (3) A judicial claim must be filed with the CTA within 30 days from the receipt of the CIR’s decision
denying the administrative claim or from the expiration of the 120-day period without any action from
1st Quarter, 2003 Filed late -- Deny, pursuant to
the CIR.
Section 112(A) of the
1997 Tax Code
(4) All taxpayers, however, can rely on BIR Ruling No. DA-489-03 from the time of its issuance on 10
2nd Quarter, 2003 Filed on time Prematurely filed Grant, pursuant to December 2003 up to its reversal by this Court in Aichi on 6 October 2010, as an exception to the
BIR Ruling No. DA-489-03 mandatory and jurisdictional 120+30 day periods.
3rd Quarter, 2003 Filed on time Filed on time Grant, pursuant to
Section 112(C) of the "Incidental" Transaction
1997 Tax Code
Mindanao II asserts that the sale of a fully depreciated Nissan Patrol is not an incidental transaction in the course
4th Quarter, 2003 Filed on time Filed on time Grant, pursuant to of its business; hence, it is an isolated transaction that should not have been subject to 10% VAT.
Section 112(C) of the
1997 Tax Code
Section 105 of the 1997 Tax Code does not support Mindanao II’s position:
G.R. No. 194637
Mindanao I v. CIR
SEC. 105. Persons Liable. - Any person who, in the course of trade or business, sells barters, exchanges, leases
goods or properties, renders services, and any person who imports goods shall be subject to the value-added tax
(VAT) imposed in Sections 106 to 108 of this Code.
The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer,
transferee or lessee of the goods, properties or services. This rule shall likewise apply to existing contracts of sale
or lease of goods, properties or services at the time of the effectivity of Republic Act No. 7716.
The phrase "in the course of trade or business" means the regular conduct or pursuit of a commercial or an
economic activity, including transactions incidental thereto, by any person regardless of whether or not the
person engaged therein is a nonstock, nonprofit private organization (irrespective of the disposition of its net
income and whether or not it sells exclusively to members or their guests), or government entity.
The rule of regularity, to the contrary notwithstanding, services as defined in this Code rendered in the
Philippines by nonresident foreign persons shall be considered as being rendered in the course of trade or
business. (Emphasis supplied)
Mindanao II relies on Commissioner of Internal Revenue v. Magsaysay Lines, Inc. (Magsaysay) 55 and Imperial v.
Collector of Internal Revenue (Imperial)56 to justify its position. Magsaysay, decided under the NIRC of 1986,
involved the sale of vessels of the National Development Company (NDC) to Magsaysay Lines, Inc. We ruled that
the sale of vessels was not in the course of NDC’s trade or business as it was involuntary and made pursuant to
the Government’s policy for privatization. Magsaysay, in quoting from the CTA’s decision, imputed upon Imperial
the definition of "carrying on business." Imperial, however, is an unreported case that merely stated that "‘to
engage’ is to embark in a business or to employ oneself therein."57
Mindanao II’s sale of the Nissan Patrol is said to be an isolated transaction.1âwphi1 However, it does not follow
that an isolated transaction cannot be an incidental transaction for purposes of VAT liability. Indeed, a reading of
Section 105 of the 1997 Tax Code would show that a transaction "in the course of trade or business" includes
"transactions incidental thereto."
Mindanao II’s business is to convert the steam supplied to it by PNOC-EDC into electricity and to deliver the
electricity to NPC. In the course of its business, Mindanao II bought and eventually sold a Nissan Patrol. Prior to
the sale, the Nissan Patrol was part of Mindanao II’s property, plant, and equipment. Therefore, the sale of the
Nissan Patrol is an incidental transaction made in the course of Mindanao II’s business which should be liable for
VAT.
Substantiation Requirements
Mindanao II claims that the CTA’s disallowance of a total amount of ₱492,198.09 is improper as it has
substantially complied with the substantiation requirements of Section 113(A)58 in relation to Section 23759 of
the 1997 Tax Code, as implemented by Section 4.104-1, 4.104-5 and 4.108-1 of Revenue Regulation No. 7-95.60
We are constrained to state that Mindanao II’s compliance with the substantiation requirements is a finding of
fact. The CTA En Banc evaluated the records of the case and found that the transactions in question are
purchases for services and that Mindanao II failed to comply with the substantiation requirements. We affirm
the CTA En Banc’s finding of fact, which in turn affirmed the finding of the CTA First Division. We see no reason
to overturn their findings.
WHEREFORE, we PARTIALLY GRANT the petitions. The Decision of the Court of Tax Appeals En Bane in CT A EB
No. 513 promulgated on 10 March 2010, as well as the Resolution promulgated on 28 July 2010, and the
Decision of the Court of Tax Appeals En Bane in CTA EB Nos. 476 and 483 promulgated on 31 May 2010, as well
as the Amended Decision promulgated on 24 November 2010, are AFFIRMED with MODIFICATION.
For G.R. No. 193301, the claim of Mindanao II Geothermal Partnership for the first quarter of 2003 is DENIED
while its claims for the second, third, and fourth quarters of 2003 are GRANTED. For G.R. No. 19463 7, the claims
of Mindanao I Geothermal Partnership for the first, third, and fourth quarters of 2003 are DENIED while its claim
for the second quarter of 2003 is GRANTED.
SO ORDERED.
G.R. No. L-19707 August 17, 1967
PHILIPPINE ACETYLENE CO., INC., petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS, respondents.
Ponce Enrile, Siguion Reyna, Montecillo and Belo, for petitioner.
Office of the Solicitor General for respondents.
CASTRO, J.:
The petitioner is a corporation engaged in the manufacture and sale of oxygen and acetylene gases. During the
period from June 2, 1953 to June 30, 1958, it made various sales of its products to the National Power
Corporation, an agency of the Philippine Government, and to the Voice of America an agency of the United
States Government. The sales to the NPC amounted to P145,866.70, while those to the VOA amounted to
P1,683, on account of which the respondent Commission of Internal Revenue assessed against, and demanded
from, the petitioner the payment of P12,910.60 as deficiency sales tax and surcharge, pursuant to the following-
provisions of the National Internal Revenue Code:
Sec. 186. Percentage tax on sales of other articles.—There shall be levied, assessed and collected once
only on every original sale, barter, exchange, and similar transaction either for nominal or valuable
considerations, intended to transfer ownership of, or title to, the articles not enumerated in sections
one hundred and eighty-four and one hundred and eighty-five a tax equivalent to seven per centum of
the gross selling price or gross value in money of the articles so sold, bartered exchanged, or
transferred, such tax to be paid by the manufacturer or producer: . . . .
Sec. 183. Payment of percentage taxes.—(a) In general.—It shall be the duty of every person
conducting business on which a percentage tax is imposed under this Title, to make a true and
complete return of the amount of his, her, or its gross monthly sales, receipts or earnings, or gross
value of output actually removed from the factory or mill warehouse and within twenty days after the
end of each month, pay the tax due thereon: Provided, That any person retiring from a business
 subject to the percentage tax shall notify the nearest internal revenue officer thereof, file his return or
declaration and pay the tax due thereon within twenty days after closing his business.
If the percentage tax on any business is not paid within the time specified above, the amount of the tax
shall be increased by twenty-five per centum, the increment to be a part of the tax.
The petitioner denied liability for the payment of the tax on the ground that both the NPC and the VOA are
exempt from taxation. It asked for a reconsideration of the assessment and, failing to secure one, appealed to
the Court of Tax Appeals.
The court ruled that the tax on the sale of articles or goods in section 186 of the Code is a tax on the
manufacturer and not on the buyer with the result that the "petitioner Philippine Acetylene Company, the
manufacturer or producer of oxygen and acetylene gases sold to the National Power Corporation, cannot claim
exemption from the payment of sales tax simply because its buyer — the National Power Corporation — is
exempt from the payment of all taxes." With respect to the sales made to the VOA, the court held that goods
purchased by the American Government or its agencies from manufacturers or producers are exempt from the
payment of the sales tax under the agreement between the Government of the Philippines and that of the
United States, provided the purchases are supported by certificates of exemption, and since purchases
amounting to only P558, out of a total of P1,683, were not covered by certificates of exemption, only the sales in
the sum of P558 were subject to the payment of tax. Accordingly, the assessment was revised and the
petitioner's liability was reduced from P12,910.60, as assessed by the respondent commission, to P12,812.16. 1
The petitioner appealed to this Court. Its position is that it is not liable for the payment of tax on the sales it
made to the NPC and the VOA because both entities are exempt from taxation.
I
The NPC enjoys tax exemption by virtue of an act2 of Congress which provides as follows:
Sec. 2. To facilitate the payment of its indebtedness, the National Power Corporation shall be exempt
from all taxes, except real property tax, and from all duties, fees, imposts, charges, and restrictions of
the Republic of the Philippines, its provinces, cities and municipalities.
It is contended that the immunity thus given to the NPC would be impaired by the imposition of a tax on sales
made to it because while the tax is paid by the manufacturer or producer, the tax is ultimately shifted by the
latter to the former. The petitioner invokes in support of its position a 1954 opinion of the Secretary of Justice
which ruled that the NPC is exempt from the payment of all taxes "whether direct or indirect."
We begin with an analysis of the nature of the percentage (sales) tax imposed by section 186 of the Code. Is it a
tax on the producer or on the purchaser? Statutes of the type under consideration, which impose a tax on sales,
have been described as "act[s] with schizophrenic symptoms,"3 as they apparently have two faces — one that of
a vendor tax, the other, a vendee tax. Fortunately for us the provisions of the Code throw some light on the
problem. The Code states that the sales tax "shall be paid by the manufacturer or producer," 4 who must "make a
true and complete return of the amount of his, her or its gross monthly sales, receipts or earnings or gross value
of output actually removed from the factory or mill warehouse and within twenty days after the end of each
month, pay the tax due thereon."5
But it is argued that a sales tax is ultimately passed on to the purchaser, and that, so far as the purchaser is an
entity like the NPC which is exempt from the payment of "all taxes, except real property tax," the tax cannot be
collected from sales.
Many years ago, Mr. Justice Oliver Wendell Holmes expressed dissatisfaction with the use of the phrase "pass
the tax on." Writing the opinion of the U.S. Supreme Court in Lash's Products v. United States,6 he said: "The
phrase 'passed the tax on' is inaccurate, as obviously the tax is laid and remains on the manufacturer and on him
alone. The purchaser does not really pay the tax. He pays or may pay the seller more for the goods because of
the seller's obligation, but that is all. . . . The price is the sum total paid for the goods. The amount added
because of the tax is paid to get the goods and for nothing else. Therefore it is part of the price . . .".
It may indeed be that the incidence of the tax ultimately settles on the purchaser, but it is not for that reason
alone that one may validly argue that it is a tax on the purchaser. The exemption granted to the NPC may be
likened to the immunity of the Federal Government from state taxation and vice versa in the federal system of
government of the United States. In the early case of Panhandle Oil Co. v. Mississippi7 the doctrine of
intergovernment mental tax immunity was held as prohibiting the imposition of a tax on sales of gasoline made
to the Federal Government. Said the Supreme court of the United States:
A charge at the prescribed. rate is made on account of every gallon acquired by the United States. It is
immaterial that the seller and not the purchaser is required to report and make payment to the state.
Sale and purchase constitute a transaction by which the tax is measured and on which the burden
rests. . . . The necessary operation of these enactments when so construed is directly to retard, impede
and burden the exertion by the United States, of its constitutional powers to operate the fleet and
hospital. . . . To use the number of gallons sold the United States as a measure of the privilege tax is in
substance and legal effect to tax the sale. . . . And that is to tax the United States — to exact tribute on
its transactions and apply the same to the support of the state.1äwphï1.ñët
Justice Holmes did not agree. In a powerful dissent joined by Justices Brandeis and Stone, he said:
If the plaintiff in error had paid the tax and added it to the price the government would have nothing
to say. It could take the gasoline or leave it but it could not require the seller to abate his charge even if
it had been arbitrarily increased in the hope of getting more from the government than could be got
from the public at large. . . . It does not appear that the government would have refused to pay a price
that included the tax if demanded, but if the government had refused it would not have exonerated
the seller. . . .
. . . I am not aware that the President, the Members of the Congress, the Judiciary or to come nearer to
the case at hand, the Coast Guard or the officials of the Veterans' Hospital [to which the sales were
made], because they are instrumentalities of government and cannot function naked and unfed,
hitherto have been held entitled to have their bills for food and clothing cut down so far as their
butchers and tailors have been taxed on their sales; and I had not supposed that the butchers and
tailors could omit from their tax returns all receipts from the large class of customers to which I have
referred. The question of interference with Government, I repeat, is one of reasonableness and degree
and it seems to me that the interference in this case is too remote.
But time was not long in coming to confirm the soundness of Holmes' position. Soon it became obvious that to
test the constitutionality of a statute by determining the party on which the legal incidence of the tax fell was an
unsatisfactory way of doing things. The fall of the bastion was signalled by Chief Justice Hughes' statement
in James v. Dravo Constructing Co.8 that "These cases [referring to Panhandle and Indian Motorcycle Co. v.
United States, 283 U.S. 570 (1931)] have been distinguished and must be deemed to be limited to their particular
facts."
In 1941, Alabama v. King & Boozer9 held that the constitutional immunity of the United States from state
taxation was not infringed by the imposition of a state sales tax with which the seller was chargeable but which
he was required to collect from the buyer, in respect of materials purchased by a contractor with the United
States on a cost-plus basis for use in carrying out its contract, despite the fact that the economic burden of the
tax was borne by the United States.
The asserted right of the one to be free of taxation by the other does not spell immunity from paying
the added costs, attributable to the taxation of those who furnish supplies to the Government and who
have been granted no tax immunity. So far as a different view has prevailed, see Panhandle Oil Co. v.
Mississippi and Graves v. Texas Co., supra, we think it no longer tenable.
Further inroads into the doctrine of Panhandle were made in 1943 when the U.S. Supreme Court held that
immunity from state regulation in the performance of governmental functions by Federal officers and agencies
did not extend to those who merely contracted to furnish supplies or render services to the government even
though as a result of an increase in the price of such supplies or services attributable to the state regulation, its
ultimate effect may be to impose an additional economic burden on the Government.10
But if a complete turnabout from the rule announced in Panhandle was yet to be made, it was so made in 1952
in Esso Standard Oil v. Evans11 which held that a contractor is not exempt from the payment of a state privilege
tax on the business of storing gasoline simply because the Federal Government with which it has a contract for
the storage of gasoline is immune from state taxation.
This tax was imposed because Esso stored gasoline. It is not . . . based on the worth of the government
property. Instead, the amount collected is graduated in accordance with the exercise of Esso's privilege
to engage in such operations; so it is not "on" the federal property. . . . Federal ownership of the fuel
will not immunize such a private contractor from the tax on storage. It may generally, as it did here,
burden the United States financially. But since James vs. Dravo Contracting Co., 302 U.S. 134, 151, 82 L.
ed. 155, 167, 58 S. Ct. 208, 114 ALR 318, this has been no fatal flaw. . . . 12
We have determined the current status of the doctrine of intergovernmental tax immunity in the United States,
by showing the drift of the decisions following announcement of the original rule, to point up the that fact that
even in those cases where exemption from tax was sought on the ground of state immunity, the attempt has not
met with success.
As Thomas Reed Powell noted in 1945 in reviewing the development of the doctrine:
Since the Dravo case settled that it does not matter that the economic burden of the gross receipts tax
may be shifted to the Government, it could hardly matter that the shift comes about by explicit
agreement covering taxes rather than by being absorbed in a higher contract price by bidders for a
contract. The situation differed from that in the Panhandle and similar cases in that they involved but
two parties whereas here the transaction was tripartite. These cases are condemned in so far as they
rested on the economic ground of the ultimate incidence of the burden being on the Government, but
this condemnation still leaves open the question whether either the state or the United States when
acting in governmental matters may be made legally liable to the other for a tax imposed on it as
vendee.
The carefully chosen language of the Chief Justice keeps these cases from foreclosing the issue. . . . Yet
at the time it would have been a rash man who would find in this a dictum that a sales tax clearly on
the Government as purchaser is invalid or a dictum that Congress may immunize its contractors.13
If a claim of exemption from sales tax based on state immunity cannot command assent, much less can a claim
resting on statutory grant.
It may indeed be that the economic burden of the tax finally falls on the purchaser; when it does the tax
becomes a part of the price which the purchaser must pay. It does not matter that an additional amount is billed
as tax to the purchaser. The method of listing the price and the tax separately and defining taxable gross receipts
as the amount received less the amount of the tax added, merely avoids payment by the seller of a tax on the
amount of the tax. The effect is still the same, namely, that the purchaser does not pay the tax. He pays or may
pay the seller more for the goods because of the seller's obligation, but that is all and the amount added because
of the tax is paid to get the goods and for nothing else.14
But the tax burden may not even be shifted to the purchaser at all. A decision to absorb the burden of the tax is
largely a matter of economics.15 Then it can no longer be contended that a sales tax is a tax on the purchaser.
We therefore hold that the tax imposed by section 186 of the National Internal Revenue Code is a tax on the
manufacturer or producer and not a tax on the purchaser except probably in a very remote and inconsequential
sense. Accordingly its levy on the sales made to tax-exempt entities like the NPC is permissible.
II
This conclusion should dispose of the same issue with respect to sales made to the VOA, except that a claim is
here made that the exemption of such sales from taxation rests on stronger grounds. Even the Court of Tax
Appeals appears to share this view as is evident from the following portion of its decision:
With regard to petitioner's sales to the Voice of America, it appears that the petitioner and the
respondent are in agreement that the Voice of America is an agency of the United States Government
and as such, all goods purchased locally by it directly from manufacturers or producers are exempt
from the payment of the sales tax under the provisions of the agreement between the Government of
the Philippines and the Government of the United States, (See Commonwealth Act No. 733) provided
such purchases are supported by serially numbered Certificates of Tax Exemption issued by the
vendee-agency, as required by General Circular No. V-41, dated October 16, 1947. . . .
The circular referred to reads:
Goods purchased locally by U.S. civilian agencies directly from manufacturers, producers or importers
shall be exempt from the sales tax.
It was issued purportedly to implement the Agreement between the Republic of the Philippines and the United
States of America Concerning Military Bases,16 but we find nothing in the language of the Agreement to warrant
the general exemption granted by that circular. 7% sales tax due thereon P 10,328.48

The pertinent provisions of the Agreement read: Add: 25% surcharge P 2,582.12

ARTICLE V. — Exemption from Customs and Other Duties Total amount due and collectible P 12,910.60

No import, excise, consumption or other tax, duty or impost shall be charged on material, equipment,
Accordingly, the decision a quo is modified by ordering the petitioner to pay to the respondent Commission the
supplies or goods, including food stores and clothing, for exclusive use in the construction,
amount of P12,910.60 as sales tax and surcharge, with costs against the petitioner.
maintenance, operation or defense of the bases, consigned to, or destined for, the United States
authorities and certified by them to be for such purposes.
G.R. No. L-19667 November 29, 1966
ARTICLE XVIII.—Sales and Services Within the Bases
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
1. It is mutually agreed that the United States Shall have the right to establish on bases, free of all
AMERICAN RUBBER COMPANY and COURT OF TAX APPEALS, respondents.
licenses; fees; sales, excise or other taxes, or imposts; Government agencies, including concessions,
such as sales commissaries and post exchanges, messes and social clubs, for the exclusive use of the
United States military forces and authorized civilian personnel and their families. The merchandise or G.R. No. L-19801-03 November 29, 1966
services sold or dispensed by such agencies shall be free of all taxes, duties and inspection by the
Philippine authorities. . . . AMERICAN RUBBER COMPANY, petitioner,
vs.
Thus only sales made "for exclusive use in the construction, maintenance, operation or defense of the bases," in THE COMMISSIONER OF INTERNAL REVENUE, ET AL., respondents.
a word, only sales to the quartermaster, are exempt under article V from taxation. Sales of goods to any other Nos. L-19667:
party even if it be an agency of the United States, such as the VOA, or even to the quartermaster but for a Office of the Solicitor General for petitioner.
different purpose, are not free from the payment of the tax. Ozaeta, Gibbs and Ozaeta for respondents.

On the other hand, article XVIII exempts from the payment of the tax sales made within the base by (not sales to) Nos. L-19801-03:
commissaries and the like in recognition of the principle that a sales tax is a tax on the seller and not on the Ozaeta, Gibbs and Ozaeta for petitioner.
purchaser. Office of the Solicitor General for respondents.

It is a familiar learning in the American law of taxation that tax exemption must be strictly construed and that the REYES, J.B.L., J.:
exemption will not be held to be conferred unless the terms under which it is granted clearly and distinctly show
that such was the intention of the parties. 17 Hence, in so far as the circular of the Bureau of Internal Revenue These cases are brought on appeal from the Court of Tax Appeals by the State (G.R. No. L-19667) as well as by
would give the tax exemptions in the Agreement an expansive construction it is void. the American Rubber Company (G.R. Nos. L-19801, 19802, 19803).

We hold, therefore, that sales to the VOA are subject to the payment of percentage taxes under section 186 of The factual background is the same in all four cases, and is not in controversy, having been stipulated between
the Code. The petitioner is thus liable for P12,910.60, computed as follows: the parties.

Sales to NPC P145,866.70 Petitioner, American Rubber Company, a domestic corporation, from January 1, 1955 to December 1, 1958, was
engaged in producing rubber from its approximately 900 hectare rubber tree plantation, which it owned and
Sales to VOA P 1,683.00 operated in Latuan, Isabela, City of Basilan. Its products, known in the market as Preserved Latex, Pale Crepe No.
1, Pale Crepe No. 2, Ribbed Smoked Sheets Nos. 1 and 2, Flat Bark Rubber, 2X Brown Crepe and 3X Brown Crepe,
are turned out in the following manner:
Total sales subject to tax
P147,549.70
The initial step common to the production of all the foregoing rubber products is tapping, i.e., the collection of
latex (rubber juice) from rubber trees. This is done by the daily cutting, early in the morning, of a spiral incision in
the bark of rubber trees and placing a cup below the lower end of the incision to receive the flow of latex. The
collecting cup is filled after two hours. The tapper then collects the latex into buckets and carries them to the
collecting shed. The tapper subsequently pours the latex collected into big milk cans. The filled milk cans are
then taken in motor vehicles to a coagulating shed, also within the premises of petitioner's plantation, where the
latex is strained into coagulating tanks to remove foreign matter such as leaves and dirt. After these initial steps,
the processes vary in the production of the various rubber products mentioned above. Said processes are
described hereunder.
Preserved Rubber Latex
Fresh latex is diluted with 5 to 5-1/4 ounces of ammonia per gallon of latex. The mixture is thoroughly stirred
and then poured into metal drums. The addition of ammonia preserves the latex in liquid form and prevents its
deterioration or its acquisition of a repulsive smell, and at the same time preserves its uniform color. Latex which
has been thus artificially preserved in its liquid form generally lasts for about a month without spoiling. On the
other hand, fresh latex in its original state lasts for only about two hours, after which it becomes spoiled.
Petitioner sells preserved latex only upon previous orders of customers who supply empty metal drum
containers.
Pale Crepe Nos. 1 and 2 and Ribbed Smoked Sheets Nos. 1 and 2
To produce Pale Crepe Nos. 1 and 2 and Ribbed Smoked Sheets Nos. 1 and 2, the petitioner adds to the latex in
the coagulating tank about 15 or 16 ounces of glacial acetic acid per gallon of latex. The mixture is stirred
thoroughly. Thereafter aluminum partitions are placed crosswise inside the tank so that the latex will coagulate
into uniform slabs. Acetic acid is added to the latex to hasten coagulation which otherwise takes place naturally,
and to preserve its fresh state and color. The similarity in the production of Pale Crepe Nos. 1 and 2 and Ribbed
Smoked Sheets Nos. 1 and 2 ends at the point of removing the coagulum (coagulated rubber sheets) from the
coagulating tanks.
To produce Pale Crepe No. 1, the coagulum is passed through a series of rollers until the desired thickness is
attained, whereupon it is removed to the air-drying house situated inside petitioner's plantation and hung for a
period of about twelve or thirteen days to dry. There are no mechanical driers used; the air-drying is done
naturally. As soon as the Pale Crepe is dried, the sheets are sorted; those which are of uniform pale color are
classified as Pale Crepe No. 2, whereupon they are baled and stored, ready for market.
Ribbed & Smoked Sheets Nos. 1 and 2 are produced practically in the same manner as Pale Crepe, except that
the coagulum is passed only once through a roller provided with ribs after which the flattened and ribbed
coagulum is removed to petitioner's smoke-house where it is hung and cured by exposure to heat and smoke
from wood fires for about six or seven days. The resulting smoked sheets are sorted and classified dependent
upon color and opaqueness into ribbed smoked sheets (RSS) No. 1 and No. 2, baled, and stored ready for the
market. No mechanical equipment is used in generating the smoke in the smoke-house.
The petitioner's rollers are powered by engines although they could be turned by hand as it is done in small
rubber plantations. If Pale Crepe Nos. 1 and 2 and Ribbed Smoked Sheets Nos. 1 and 2 are not air-dried and
smoked they deteriorate, get spoiled, and the color varies.
Flat Bark Rubber
Each morning after a tapper makes a fresh incision in the bark of a rubber tree, he gathers the latex dripping
from the ground around the tree, called "ground rubber", as well as the dried latex from the incisions made the
previous day, called "bark rubber". Ground and bark rubber are not intentionally produced. No chemicals are
added to the latex transformed into ground and bark rubber. This kind of dried latex is spoiled and has a bad
odor.
Ground and bark rubber when gathered in sufficient quantities are passed numerous times through the rollers or
mills until they form a uniform mass or sheet which, finally is called Flat Bark Rubber. No chemical is used to
coagulate the dried ground and bark rubber because they are already coagulated. They are formed into sheets
by means only of pressure of the mills or rollers through which they are passed. Flat Bark Rubber commands the
lowest prices in the rubber market.
3X Brown Crepe
Every morning, before a fresh incision is made in the bark of the rubber trees, the tapper collects not only
ground and bark rubber but removes and collects the latex in the cups, known as "cup rubber". The cup rubber
coagulates and dries through natural processes and, when gathered in sufficient quantities, is milled and rolled
through a series of rollers until by force of pressure it is formed into a mass of the desired thickness called "3X
Brown Crepe." Like ground and bark rubber, no chemicals are added to cup rubber to produce 3X Brown Crepe.
Cup rubber in its original form, like ground and bark rubber, is spoiled and has a bad odor.
2X Brown Crepe
2X Brown Crepe is obtained by milling or rolling the excess pieces of coagulated rubber latex which had been cut
or trimmed from the from the ribbed smoked sheets No. 2 into a uniform mass. 2X Brown Crepe is produced in
the same manner as the other sheets of crepe rubber, i.e., without the addition of any chemicals.
Petitioner during the said period sold its foregoing rubber products locally and as prescribed by the respondent's
regulations declared same for tax purposes which respondent accordingly assessed. Petitioner paid, under
protest, the corresponding sales taxes thereon claiming exemption therefrom under Section 188 (b) of the
National Internal Revenue Code.
The following sales taxes on the aforementioned rubber products were paid under protest —
From Jan. 1, 1955 to Dec. 31, 1956 P83,193.48
From Jan. 1, 1957 to June 30, 1957 P20,504.99
From July 1, 1957 to Dec. 31, 1958 P52,378.90
It is further stipulated that the sales tax collected from petitioner American Rubber Company on the local sales
of its rubber products, following Internal Revenue General Circulars Nos. 431 and 440, had been separately
itemized and billed by petitioner Company in the invoices issued to the customers, that paid both the value of
the rubber articles and the separately itemized sales tax, from January 1, 1955 to August 2, 1957.
After paying under protest, the petitioner claimed refund of the sales taxes paid by it on the ground that under
section 188, paragraph b, of the Internal Revenue Code, as amended, 1 its rubber products were agricultural
products exempt from sales tax, and upon refusal of the Commissioner of Internal Revenue, brought the case on
appeal to the Court of Tax Appeals (C.T.A. Nos. 356, 440,, 632). The respondent Commissioner interposed
defenses, denying that petitioner's products were agricultural ones within the exemption; claiming that there
had been no exhaustion of administrative remedies; and argued that the sales tax having been passed to the
buyers during the period that elapsed from January 1, 1955 to August 2, 1957, the petitioner did not have
personality to demand, sue for and recover the aforesaid sales taxes, plus interest.
In its decision, now under appeal, the Tax Court held Preserved Latex, Flat Bark Rubber, and 3X Brown Crepe to
be agricultural products, "because the labor employed in the processing thereof is agricultural labor", and hence,
the sales of such products were exempt from sales tax, but declared Pale Crepe No. 1, Ribbed Smoked Sheets
Nos. 1 and 3, as well as 2X Brown Crepe (which is obtained from rolling excess pieces of Smoked Sheets) to be
manufactured products, sales of which were subject to the tax. It overruled the defense of non-exhaustion of
administrative remedies and upheld the Revenue Commissioner's stand that petitioner Company was not
entitled to recover the sales tax that had been separately billed to its customers, and paid by the latter. Hence, it
dismissed the appeal in C.T.A. Nos. 356 and 440 and ordered respondent Commissioner to refund only P3,916.49
without interest, or costs.
Both parties then duly appealed to this.
The issues posed on these appeals are:
(1) Whether the plaintiff's rubber products above described should be considered agricultural or
manufactured for purposes of their subjection to the sales tax;
(2) Whether plaintiff is or is not entitled to recover the sales tax paid by it, but passed on to and paid
by the buyers of its products; and
(3) Whether plaintiff is or is not entitled to interest on the sales tax paid by it under protest, in case
recovery thereof is allowed.
The first issue, in our opinion, is governed by the principles laid down by this Court in Philippine Packing
Corporation vs. Collector of Internal Revenue, 100 Phil. 545 et seq. We there ruled that the exemption from sales
tax established in section 188 (b) of the Internal Revenue Tax Code in favor of sales of agricultural products,
whether in their original form or not, made by the producer or owner of the land where produced is not taken
away merely because the produce undergoes processing at the hand of said producer or owner for the purpose
of working his product into a more convenient and valuable form suited to meet the demand of an expanded
market; that the exemption was not designed in favor of the small agricultural producer, already exempted by
the subsequent paragraphs of the same section 188, but that said exemption is not incompatible with large scale
agricultural production that incidentally required resort to preservative processes designed to increase or
prolong marketability of the product.
In the case before us, the parties have stipulated that fresh latex directly obtained from the rubber tree, which is
clearly an agricultural product, becomes spoiled after only two hours. It has, therefore, a severely limited
marketability. The addition of ammonia prevents its deterioration for about a month, and we see no reason why
this preservative process should wrest away from the preserved latex the protective mantle of the tax
exemption.
Taking also into account the great distance that separates the plaintiff's plantation from the main rubber
processing centers in Japan, the United States and Europe, and the difficulty in handling products in liquid form,
it can be discerned without difficulty that preserved, latex, with its 30-day spoilage limit, is still severely
handicapped for export and dollar earning purposes.
To overcome these shortcomings, and extend its useful life almost indefinitely, it becomes necessary to separate
and solidify the rubber granules diffused in the latex, and hence, according to the stipulation of facts and the
evidence, acetic acid is added to hasten coagulation. There is nothing on record to show that the acetic acid in
way produces anything that was not originally in the source, the liquid latex. The coagulum is then rolled and
compacted and afterwards air dried to make Pale Crepe(1 and 2), or else cured and smoked to produce rubber
sheets. Once again we see nothing in this processing to alter the agricultural nature of the result; what takes
place is merely an accelerated coagulation and dessication that would naturally occur anyway, only within a
longer period of time, coupled with greater spoilage of the product.
Thus the operations carried out by plaintiff appear to be purely preservative in nature, made necessary, by its
production of fresh rubber latex in a large scale. they are purely incidental to the latter, just as the canning of
skinned and cored pineapples in syrup was held to be incidental to the large-scale cultivation of the fruit in the
Philippine Packing Corporation case (ante). Being necessary to suit the product to the demands of the market,
the operations in both cases should lead to the same result, non-taxability of the sales of the respective
agricultural products. In not so holding, the Tax Court was in error.
Even less justifiable is the position taken by the Revenue Commissioner in his appeal against the finding of the
Tax Court that Flat Bark 3X Brown Crepe rubber are agricultural products. According to the record, these sheets
result from the drippings and waste rubber that have dried naturally, that are rolled and compacted into the
desired thickness, without any other processing.
As to 2X Brown Crepe which is compacted out of the trimmings and waste left over from the production of
ribbed smoked sheets, no reason is seen why it should be treated differently from the ribbed smoked sheets
themselves.
In his appeal, the Revenue Commissioner contends that all of plaintiff's products should be deemed
manufactured articles, on the strength of section 194 (n) of the Revenue Code defining a "manufacturer" as
every person who by physical or chemical process alters the exterior texture or form or inner
substances of any raw material or manufactured or partially manufactured product in such manner as
to prepare it for a special use or uses to which it could not have been put to in its original condition, or
who . . . alters the quality of any such raw material . . . as to reduce it to marketable shape . . . .
But, as pointed out in the Philippine Packing Corporation case, this definition is not applicable to the exemption
of agricultural products, "whether in their original form or not". The use of this last phrase in the statute clearly
indicates that the agricultural product may be altered in texture or form without being divested of the
exemption (cas cit. 100 Phil., p. 548). The exception would be sales of agricultural products while Republic Act
No. 1612 was in effect because under this Act the freedom from sales tax became restricted to agricultural
products "in their original form" only. So that plaintiff's sales from August 24, 1956 (approval of Republic Act
1612) to June 22, 1957 (when Republic Act 1856 became effective and restored the exemption to agricultural
products "whether in their original form or not") became properly taxable. Under paragraphs (A)2 and B(4) of
the additional stipulation of facts (CTA Rec. pp. 261-262, G.R. L-19801), the sales tax properly collected during
this period of plaintiff's transactions amounted to P18,187.19 from August 24 to December 31, 1956; and
P18,888.28 from January 1 to June 21, 1957, or a total of P37,075.47. This last amount is, therefore non-
recoverable.2
The second issue in this appeal concerns the holding of the Court of Tax Appeals that the plaintiff Company is not
entitled to recover the sales tax paid by it from January, 1955 to August 2, 1957, because during that period the
plaintiff had separately invoiced and billed the corresponding sales tax to the buyers of its products. In so
holding, the Tax Court relied on our decisions in Medina vs. City of Baguio, 91 Phil. 854; Mendoza, Santos & Co.
vs. Municipality of Meycawayan, L-6069-6070, April 30, 1954 (94 Phil. 1047); and Zosimo Rojas & Bros. vs. City of
Cavite, L-10730, May 27, 1958.
The basic ruling is that of Medina vs. City of Baguio, supra, where this Court affirmed the ruling of the court of
First Instance to the effect that —
"The amount collected from the theatergoers as additional price of admission tickets is not the
property of plaintiffs or any of them. It is paid by the public. If anybody has the right to claim it, it is
those who paid it. Only owners of property has the right to claim said property. The cine owner acted
as mere agents of the city in collecting additional price charged in the sale of admission tickets."
(Medina vs. City of Baguio, 91 Phil. 854) (Emphasis supplied)
We agree with the plaintiff-appellant that the Medina ruling is not applicable to the present case, since the
municipal taxes therein imposed were taxes on the admission tickets sold, so that, in effect, they were levies
upon the theatergoers who bought them; so much so that (as the decision expressly ruled) the tax was collected
by the theater owners as agents of the respective municipal treasurers. This does not obtain in the case at bar.
The Medina ruling was merely followed in Rojas & Bros. vs. Cavite, supra; and in Mendoza, Santos & Co. vs.
Municipality of Meycawayan, 94 Phil. 1047.
By contrast with the municipal taxes involved in the preceding cases, the sales tax is by law imposed directly, not
on the thing sold, but on the act (sale) of the manufacturer, producer or importer (Op. of the Secretary of Justice,
June 15, 1946; 47 C.J.S., p. 1141), who is exclusively made liable for its timely payment. There is no proof that the
tax paid by plaintiff is the very money paid by its customers. Where the tax money paid by the plaintiff came
from is really no concern of the Government, but solely a matter between the plaintiff and its customers.
Anyway, once recovered, the plaintiff must hold the refund taxes in trust for the individual purchasers who
advanced payment thereof, and whose names must appear in plaintiff's records.
Moreover, the separate billing of the sales tax in appellant's invoices was a direct result of the respondent
Commissioner's General Circular No. 440, providing that —
if a manufacturer, producer, or importer, in fixing the gross selling price of an article sold by him, has
included an amount intended to cover the sales tax in the gross selling price of the article, the sales tax
shall be based on the gross selling price less the amount intended to cover the tax, if the same is billed
to the purchaser as a separate item in the invoice. . . . (Emphasis supplied)
In other words, the separate itemization of the sales tax in the invoices was permitted to avoid the taxpayer
being compelled to pay a sales tax on the tax itself. It does not seem either just or proper that a step suggested
by the Internal Revenue authorities themselves to protect the taxpayer from paying a double tax should now be
used to block his action to recover taxes collected without legal sanction.
Finally, a more important reason that militates against extensive and indiscriminate application of the Medina vs.
City of Baguio ruling is that it would tend to perpetuate illegal taxation; for the individual customers to whom the
tax is ultimately shifted will ordinarily not care to sue for its recovery, in view of the small amount paid by each
and the high cost of litigation for the reclaiming of an illegal tax. In so far, therefore, as it favors the imposition,
collection and retention of illegal taxes, and encourages a multiplicity of suits, the Tax Court's ruling under
appeal violates morals and public policy.
The plaintiff Company also urges that the refund of the taxes should include interest thereon. While this Court
has allowed recovery of interest in some cases, it has done so only in cases of patent arbitrariness on the part of
the Revenue authorities; and in this instance we agree with the Tax Court that no such patent arbitrariness has
been shown.
IN VIEW OF THE FOREGOING, the decision of the Court of Tax Appeals is affirmed in Case G.R. No. L-19667 and
modified in cases G.R. Nos. L-19801, L-19802 and L-19803, by declaring the sales taxes therein involved to have
been improperly denied levied and collected and ordering respondent Commissioner of Internal Revenue to
refund the same, except the taxes corresponding to the period from August 24, 1956 to June 22, 1957, during
which Republic Act No. 1612 was in force. The amount of P37,075.47 paid by the taxpayer for this period is
hereby declared properly collected and not refundable. Without special pronouncement as to costs.
G.R. No. L-31092 February 27, 1987
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
JOHN GOTAMCO & SONS, INC. and THE COURT OF TAX APPEALS, respondents.
YAP, J.:
The question involved in this petition is whether respondent John Gotamco & Sons, Inc. should pay the 3%
contractor's tax under Section 191 of the National Internal Revenue Code on the gross receipts it realized from
the construction of the World Health Organization office building in Manila.
The World Health Organization (WHO for short) is an international organization which has a regional office in
Manila. As an international organization, it enjoys privileges and immunities which are defined more specifically
in the Host Agreement entered into between the Republic of the Philippines and the said Organization on July
22, 1951. Section 11 of that Agreement provides, inter alia, that "the Organization, its assets, income and other
properties shall be: (a) exempt from all direct and indirect taxes. It is understood, however, that the Organization
will not claim exemption from taxes which are, in fact, no more than charges for public utility services; . . .
When the WHO decided to construct a building to house its own offices, as well as the other United Nations
offices stationed in Manila, it entered into a further agreement with the Govermment of the Republic of the
Philippines on November 26, 1957. This agreement contained the following provision (Article III, paragraph 2):
The Organization may import into the country materials and fixtures required for the
construction free from all duties and taxes and agrees not to utilize any portion of the
international reserves of the Government.
Article VIII of the above-mentioned agreement referred to the Host Agreement concluded on July 22, 1951 which
granted the Organization exemption from all direct and indirect taxes.
In inviting bids for the construction of the building, the WHO informed the bidders that the building to be
constructed belonged to an international organization with diplomatic status and thus exempt from the payment
of all fees, licenses, and taxes, and that therefore their bids "must take this into account and should not include
items for such taxes, licenses and other payments to Government agencies."
The construction contract was awarded to respondent John Gotamco & Sons, Inc. (Gotamco for short) on
February 10, 1958 for the stipulated price of P370,000.00, but when the building was completed the price
reached a total of P452,544.00.
Sometime in May 1958, the WHO received an opinion from the Commissioner of the Bureau of Internal Revenue
stating that "as the 3% contractor's tax is an indirect tax on the assets and income of the Organization, the gross
receipts derived by contractors from their contracts with the WHO for the construction of its new building, are
exempt from tax in accordance with . . . the Host Agreement." Subsequently, however, on June 3, 1958, the
Commissioner of Internal Revenue reversed his opinion and stated that "as the 3% contractor's tax is not a direct
nor an indirect tax on the WHO, but a tax that is primarily due from the contractor, the same is not covered by . .
. the Host Agreement."
On January 2, 1960, the WHO issued a certification state 91 inter alia,:
When the request for bids for the construction of the World Health Organization office
building was called for, contractors were informed that there would be no taxes or fees
levied upon them for their work in connection with the construction of the building as this
will be considered an indirect tax to the Organization caused by the increase of the
contractor's bid in order to cover these taxes. This was upheld by the Bureau of Internal
Revenue and it can be stated that the contractors submitted their bids in good faith with the
exemption in mind.
The undersigned, therefore, certifies that the bid of John Gotamco & Sons, made under the
condition stated above, should be exempted from any taxes in connection with the
construction of the World Health Organization office building.
On January 17, 1961, the Commissioner of Internal Revenue sent a letter of demand to Gotamco demanding
payment of P 16,970.40, representing the 3% contractor's tax plus surcharges on the gross receipts it received
from the WHO in the construction of the latter's building.
Respondent Gotamco appealed the Commissioner's decision to the Court of Tax Appeals, which after trial
rendered a decision, in favor of Gotamco and reversed the Commissioner's decision. The Court of Tax Appeal's
decision is now before us for review on certiorari.
In his first assignment of error, petitioner questions the entitlement of the WHO to tax exemption, contending
that the Host Agreement is null and void, not having been ratified by the Philippine Senate as required by the
Constitution. We find no merit in this contention. While treaties are required to be ratified by the Senate under
the Constitution, less formal types of international agreements may be entered into by the Chief Executive and
become binding without the concurrence of the legislative body. 1 The Host Agreement comes within the latter
category; it is a valid and binding international agreement even without the concurrence of the Philippine
Senate.
The privileges and immunities granted to the WHO under the Host Agreement have been recognized by this
Court as legally binding on Philippine authorities. 2
Petitioner maintains that even assuming that the Host Agreement granting tax exemption to the WHO is valid
and enforceable, the 3% contractor's tax assessed on Gotamco is not an "indirect tax" within its purview.
Petitioner's position is that the contractor's tax "is in the nature of an excise tax which is a charge imposed upon
the performance of an act, the enjoyment of a privilege or the engaging in an occupation. . . It is a tax due
primarily and directly on the contractor, not on the owner of the building. Since this tax has no bearing upon the
WHO, it cannot be deemed an indirect taxation upon it."
We agree with the Court of Tax Appeals in rejecting this contention of the petitioner. Said the respondent court:
In context, direct taxes are those that are demanded from the very person who, it is intended
or desired, should pay them; while indirect taxes are those that are demanded in the first
instance from one person in the expectation and intention that he can shift the burden to
someone else. (Pollock vs. Farmers, L & T Co., 1957 US 429, 15 S. Ct. 673, 39 Law. Ed. 759.)
The contractor's tax is of course payable by the contractor but in the last analysis it is the
owner of the building that shoulders the burden of the tax because the same is shifted by the
contractor to the owner as a matter of self-preservation. Thus, it is an indirect tax. And it is
an indirect tax on the WHO because, although it is payable by the petitioner, the latter can
shift its burden on the WHO. In the last analysis it is the WHO that will pay the tax indirectly
through the contractor and it certainly cannot be said that 'this tax has no bearing upon the
World Health Organization.
Petitioner claims that under the authority of the Philippine Acetylene Company versus Commissioner of Internal
Revenue, et al., 3 the 3% contractor's tax fans directly on Gotamco and cannot be shifted to the WHO. The Court
of Tax Appeals, however, held that the said case is not controlling in this case, since the Host Agreement
specifically exempts the WHO from "indirect taxes." We agree. The Philippine Acetylene case involved a tax on
sales of goods which under the law had to be paid by the manufacturer or producer; the fact that the
manufacturer or producer might have added the amount of the tax to the price of the goods did not make the
sales tax "a tax on the purchaser." The Court held that the sales tax must be paid by the manufacturer or
producer even if the sale is made to tax-exempt entities like the National Power Corporation, an agency of the
Philippine Government, and to the Voice of America, an agency of the United States Government.
The Host Agreement, in specifically exempting the WHO from "indirect taxes," contemplates taxes which,
although not imposed upon or paid by the Organization directly, form part of the price paid or to be paid by it.
This is made clear in Section 12 of the Host Agreement which provides:
While the Organization will not, as a general rule, in the case of minor purchases, claim
exemption from excise duties, and from taxes on the sale of movable and immovable
property which form part of the price to be paid, nevertheless, when the Organization is
making important purchases for official use of property on which such duties and taxes have
been charged or are chargeable the Government of the Republic of the Philippines shall
make appropriate administrative arrangements for the remission or return of the amount of
duty or tax. (Emphasis supplied).
THE FACTS:
On November 24, 1998, the CIR issued Letter of Authority No. 000019734 (LOA 19734) authorizing certain
revenue officers to examine Sony’s books of accounts and other accounting records regarding revenue taxes
for "the period 1997 and unverified prior years." On December 6, 1999, a preliminary assessment for 1997
deficiency taxes and penalties was issued by the CIR which Sony protested. Thereafter, acting on the protest, the
CIR issued final assessment notices, the formal letter of demand and the details of discrepancies. 4 Said details of
the deficiency taxes and penalties for late remittance of internal revenue taxes are as follows:
DEFICIENCY VALUE -ADDED TAX (VAT)
(Assessment No. ST-VAT-97-0124-2000)
Basic Tax Due P 7,958,700.00

Add: Penalties
The above-quoted provision, although referring only to purchases made by the WHO, elucidates the clear
intention of the Agreement to exempt the WHO from "indirect" taxation. Interest up to 3-31-2000 P 3,157,314.41

Compromise 25,000.00 3,182,314.41

The certification issued by the WHO, dated January 20, 1960, sought exemption of the contractor, Gotamco,
from any taxes in connection with the construction of the WHO office building. The 3% contractor's tax would be Deficiency VAT Due P 11,141,014.41
within this category and should be viewed as a form of an "indirect tax" On the Organization, as the payment
thereof or its inclusion in the bid price would have meant an increase in the construction cost of the building.
DEFICIENCY EXPANDED WITHHOLDING TAX (EWT)
Accordingly, finding no reversible error committed by the respondent Court of Tax Appeals, the appealed
decision is hereby affirmed. (Assessment No. ST-EWT-97-0125-2000)

Basic Tax Due P 1,416,976.90

SO ORDERED.
Add: Penalties
G.R. No. 178697 November 17, 2010 Interest up to 3-31-2000 P 550,485.82

Compromise 25,000.00 575,485.82

COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs. Deficiency EWT Due P 1,992,462.72
SONY PHILIPPINES, INC., Respondent.

DECISION DEFICIENCY OF VAT ON ROYALTY PAYMENTS

MENDOZA, J.: (Assessment No. ST-LR1-97-0126-2000)

Basic Tax Due P

This petition for review on certiorari seeks to set aside the May 17, 2007 Decision and the July 5, 2007 Resolution
of the Court of Tax Appeals – En Banc1 (CTA-EB), in C.T.A. EB No. 90, affirming the October 26, 2004 Decision of Add: Penalties
the CTA-First Division2 which, in turn, partially granted the petition for review of respondent Sony Philippines,
Surcharge P 359,177.80
Inc. (Sony). The CTA-First Division decision cancelled the deficiency assessment issued by petitioner
Commissioner of Internal Revenue (CIR) against Sony for Value Added Tax (VAT) but upheld the deficiency Interest up to 3-31-2000 87,580.34
assessment for expanded withholding tax (EWT) in the amount of ₱1,035,879.70 and the penalties for late
remittance of internal revenue taxes in the amount of ₱1,269, 593.90.3 Compromise 16,000.00 462,758.14
 Penalties Due P 462,758.14 professional fees paid to general professional partnerships. It also assessed the amounts paid to sales agents as
commissions with five percent (5%) EWT pursuant to Section 1(g) of Revenue Regulations No. 6-85. The CTA-First
Division, however, disallowed the EWT assessment on rental expense since it found that the total rental deposit
of ₱10,523,821.99 was incurred from January to March 1998 which was again beyond the coverage of LOA
LATE REMITTANCE OF FINAL WITHHOLDING TAX 19734. Except for the compromise penalties, the CTA-First Division also upheld the penalties for the late
(Assessment No. ST-LR2-97-0127-2000) payment of VAT on royalties, for late remittance of final withholding tax on royalty as of December 1997 and for
the late remittance of EWT by some of Sony’s branches.8 In sum, the CTA-First Division partly granted Sony’s
Basic Tax Due P petition by cancelling the deficiency VAT assessment but upheld a modified deficiency EWT assessment as well
as the penalties. Thus, the dispositive portion reads:
Add: Penalties

Surcharge P 1,729,690.71 WHEREFORE, the petition for review is hereby PARTIALLY GRANTED. Respondent is ORDERED to CANCEL and
WITHDRAW the deficiency assessment for value-added tax for 1997 for lack of merit. However, the deficiency
Interest up to 3-31-2000 508,783.07 assessments for expanded withholding tax and penalties for late remittance of internal revenue taxes are
UPHELD.
Compromise 50,000.00 2,288,473.78

Penalties Due P 2,288,473.78 Accordingly, petitioner is DIRECTED to PAY the respondent the deficiency expanded withholding tax in the
amount of ₱1,035,879.70 and the following penalties for late remittance of internal revenue taxes in the sum of
₱1,269,593.90:
LATE REMITTANCE OF INCOME PAYMENTS

(Assessment No. ST-LR3-97-0128-2000) 1. VAT on Royalty P 429,242.07

Basic Tax Due P 2. Withholding Tax on Royalty 831,428.20

Add: Penalties 3. EWT of Petitioner's Branches 8,923.63

25 % Surcharge P 8,865.34 Total P 1,269,593.90

Interest up to 3-31-2000 58.29 Plus 20% delinquency interest from January 17, 2000 until fully paid pursuant to Section 249(C)(3) of the 1997
Tax Code.
Compromise 2,000.00 10,923.60

Penalties Due P 10,923.60 SO ORDERED.9

The CIR sought a reconsideration of the above decision and submitted the following grounds in support thereof:

A. The Honorable Court committed reversible error in holding that petitioner is not liable for the
GRAND TOTAL P 15,895,632.655 deficiency VAT in the amount of ₱11,141,014.41;

Sony sought re-evaluation of the aforementioned assessment by filing a protest on February 2, 2000. Sony B. The Honorable court committed reversible error in holding that the commission expense in the
submitted relevant documents in support of its protest on the 16th of that same month.6 amount of P2,894,797.00 should be subjected to 5% withholding tax instead of the 10% tax rate;

On October 24, 2000, within 30 days after the lapse of 180 days from submission of the said supporting C. The Honorable Court committed a reversible error in holding that the withholding tax assessment
documents to the CIR, Sony filed a petition for review before the CTA.7 with respect to the 5% withholding tax on rental deposit in the amount of ₱10,523,821.99 should be
cancelled; and

After trial, the CTA-First Division disallowed the deficiency VAT assessment because the subsidized advertising
expense paid by Sony which was duly covered by a VAT invoice resulted in an input VAT credit. As regards the D. The Honorable Court committed reversible error in holding that the remittance of final withholding
EWT, the CTA-First Division maintained the deficiency EWT assessment on Sony’s motor vehicles and on tax on royalties covering the period January to March 1998 was filed on time.10
On April 28, 2005, the CTA-First Division denied the motion for reconsideration.1avvphi1 Unfazed, the CIR filed a
petition for review with the CTA-EB raising identical issues:
1. Whether or not respondent (Sony) is liable for the deficiency VAT in the amount of P11,141,014.41;
2. Whether or not the commission expense in the amount of ₱2,894,797.00 should be subjected to
10% withholding tax instead of the 5% tax rate;
3. Whether or not the withholding assessment with respect to the 5% withholding tax on rental
deposit in the amount of ₱10,523,821.99 is proper; and
4. Whether or not the remittance of final withholding tax on royalties covering the period January to
March 1998 was filed outside of time.11
Finding no cogent reason to reverse the decision of the CTA-First Division, the CTA-EB dismissed CIR’s petition on
May 17, 2007. CIR’s motion for reconsideration was denied by the CTA-EB on July 5, 2007.
The CIR is now before this Court via this petition for review relying on the very same grounds it raised before the
CTA-First Division and the CTA-EB. The said grounds are reproduced below:
GROUNDS FOR THE ALLOWANCE OF THE PETITION
I
THE CTA EN BANC ERRED IN RULING THAT RESPONDENT IS NOT LIABLE FOR DEFICIENCY VAT IN THE AMOUNT
OF PHP11,141,014.41.
II
AS TO RESPONDENT’S DEFICIENCY EXPANDED WITHHOLDING TAX IN THE AMOUNT OF PHP1,992,462.72:
A. THE CTA EN BANC ERRED IN RULING THAT THE COMMISSION EXPENSE IN THE AMOUNT
OF PHP2,894,797.00 SHOULD BE SUBJECTED TO A WITHHOLDING TAX OF 5% INSTEAD OF
THE 10% TAX RATE.
B. THE CTA EN BANC ERRED IN RULING THAT THE ASSESSMENT WITH RESPECT TO THE 5%
WITHHOLDING TAX ON RENTAL DEPOSIT IN THE AMOUNT OF PHP10,523,821.99 IS NOT
PROPER.
III
THE CTA EN BANC ERRED IN RULING THAT THE FINAL WITHHOLDING TAX ON ROYALTIES COVERING THE
PERIOD JANUARY TO MARCH 1998 WAS FILED ON TIME.12
Upon filing of Sony’s comment, the Court ordered the CIR to file its reply thereto. The CIR subsequently filed a
manifestation informing the Court that it would no longer file a reply. Thus, on December 3, 2008, the Court
resolved to give due course to the petition and to decide the case on the basis of the pleadings filed. 13
The Court finds no merit in the petition.
The CIR insists that LOA 19734, although it states "the period 1997 and unverified prior years," should be
understood to mean the fiscal year ending in March 31, 1998.14 The Court cannot agree.
Based on Section 13 of the Tax Code, a Letter of Authority or LOA is the authority given to the appropriate
revenue officer assigned to perform assessment functions. It empowers or enables said revenue officer to
examine the books of account and other accounting records of a taxpayer for the purpose of collecting the
correct amount of tax.15 The very provision of the Tax Code that the CIR relies on is unequivocal with regard to its
power to grant authority to examine and assess a taxpayer.
SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional Requirements for Tax
Administration and Enforcement. –
(A)Examination of Returns and Determination of tax Due. – After a return has been filed as required under the
provisions of this Code, the Commissioner or his duly authorized representative may authorize the examination
of any taxpayer and the assessment of the correct amount of tax: Provided, however, That failure to file a return
shall not prevent the Commissioner from authorizing the examination of any taxpayer. x x x [Emphases supplied]
Clearly, there must be a grant of authority before any revenue officer can conduct an examination or
assessment. Equally important is that the revenue officer so authorized must not go beyond the authority given.
In the absence of such an authority, the assessment or examination is a nullity.
As earlier stated, LOA 19734 covered "the period 1997 and unverified prior years." For said reason, the CIR acting
through its revenue officers went beyond the scope of their authority because the deficiency VAT assessment
they arrived at was based on records from January to March 1998 or using the fiscal year which ended in March
31, 1998. As pointed out by the CTA-First Division in its April 28, 2005 Resolution, the CIR knew which period
should be covered by the investigation. Thus, if CIR wanted or intended the investigation to include the year
1998, it should have done so by including it in the LOA or issuing another LOA.
Upon review, the CTA-EB even added that the coverage of LOA 19734, particularly the phrase "and unverified
prior years," violated Section C of Revenue Memorandum Order No. 43-90 dated September 20, 1990, the
pertinent portion of which reads:
3. A Letter of Authority should cover a taxable period not exceeding one taxable year. The practice of issuing
L/As covering audit of "unverified prior years is hereby prohibited. If the audit of a taxpayer shall include more
than one taxable period, the other periods or years shall be specifically indicated in the L/A. 16 [Emphasis
supplied]
On this point alone, the deficiency VAT assessment should have been disallowed. Be that as it may, the CIR’s
argument, that Sony’s advertising expense could not be considered as an input VAT credit because the same was
eventually reimbursed by Sony International Singapore (SIS), is also erroneous.
The CIR contends that since Sony’s advertising expense was reimbursed by SIS, the former never incurred any
advertising expense. As a result, Sony is not entitled to a tax credit. At most, the CIR continues, the said
advertising expense should be for the account of SIS, and not Sony.17
The Court is not persuaded. As aptly found by the CTA-First Division and later affirmed by the CTA-EB, Sony’s
deficiency VAT assessment stemmed from the CIR’s disallowance of the input VAT credits that should have been
realized from the advertising expense of the latter.18 It is evident under Section 11019 of the 1997 Tax Code that
an advertising expense duly covered by a VAT invoice is a legitimate business expense. This is confirmed by no
less than CIR’s own witness, Revenue Officer Antonio Aluquin.20 There is also no denying that Sony incurred
advertising expense. Aluquin testified that advertising companies issued invoices in the name of Sony and the
latter paid for the same.21 Indubitably, Sony incurred and paid for advertising expense/ services. Where the
money came from is another matter all together but will definitely not change said fact.
The CIR further argues that Sony itself admitted that the reimbursement from SIS was income and, thus, taxable.
In support of this, the CIR cited a portion of Sony’s protest filed before it:
The fact that due to adverse economic conditions, Sony-Singapore has granted to our client a subsidy equivalent
to the latter’s advertising expenses will not affect the validity of the input taxes from such expenses. Thus, at the
most, this is an additional income of our client subject to income tax. We submit further that our client is not
subject to VAT on the subsidy income as this was not derived from the sale of goods or services.22
Insofar as the above-mentioned subsidy may be considered as income and, therefore, subject to income tax, the
Court agrees. However, the Court does not agree that the same subsidy should be subject to the 10% VAT. To
begin with, the said subsidy termed by the CIR as reimbursement was not even exclusively earmarked for Sony’s
advertising expense for it was but an assistance or aid in view of Sony’s dire or adverse economic conditions, and
was only "equivalent to the latter’s (Sony’s) advertising expenses."
Section 106 of the Tax Code explains when VAT may be imposed or exacted. Thus:
SEC. 106. Value-added Tax on Sale of Goods or Properties. –
(A) Rate and Base of Tax. – There shall be levied, assessed and collected on every sale, barter or exchange of
goods or properties, value-added tax equivalent to ten percent (10%) of the gross selling price or gross value in
money of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor.
Thus, there must be a sale, barter or exchange of goods or properties before any VAT may be levied. Certainly,
there was no such sale, barter or exchange in the subsidy given by SIS to Sony. It was but a dole out by SIS and
not in payment for goods or properties sold, bartered or exchanged by Sony.
In the case of CIR v. Court of Appeals (CA),23 the Court had the occasion to rule that services rendered for a fee
even on reimbursement-on-cost basis only and without realizing profit are also subject to VAT. The case,
however, is not applicable to the present case. In that case, COMASERCO rendered service to its affiliates and, in
turn, the affiliates paid the former reimbursement-on-cost which means that it was paid the cost or expense that
it incurred although without profit. This is not true in the present case. Sony did not render any service to SIS at
all. The services rendered by the advertising companies, paid for by Sony using SIS dole-out, were for Sony and
not SIS. SIS just gave assistance to Sony in the amount equivalent to the latter’s advertising expense but never
received any goods, properties or service from Sony.
Regarding the deficiency EWT assessment, more particularly Sony’s commission expense, the CIR insists that said
deficiency EWT assessment is subject to the ten percent (10%) rate instead of the five percent (5%) citing
Revenue Regulation No. 2-98 dated April 17, 1998.24 The said revenue regulation provides that the 10% rate is
applied when the recipient of the commission income is a natural person. According to the CIR, Sony’s schedule
of Selling, General and Administrative expenses shows the commission expense as "commission/dealer salesman
incentive," emphasizing the word salesman.
On the other hand, the application of the five percent (5%) rate by the CTA-First Division is based on Section 1(g)
of Revenue Regulations No. 6-85 which provides:
(g) Amounts paid to certain Brokers and Agents. – On gross payments to customs, insurance, real estate and
commercial brokers and agents of professional entertainers – five per centum (5%).25
In denying the very same argument of the CIR in its motion for reconsideration, the CTA-First Division, held:
x x x, commission expense is indeed subject to 10% withholding tax but payments made to broker is subject to
5% withholding tax pursuant to Section 1(g) of Revenue Regulations No. 6-85. While the commission expense in
the schedule of Selling, General and Administrative expenses submitted by petitioner (SPI) to the BIR is
captioned as "commission/dealer salesman incentive" the same does not justify the automatic imposition of flat
10% rate. As itemized by petitioner, such expense is composed of "Commission Expense" in the amount of
P10,200.00 and ‘Broker Dealer’ of P2,894,797.00.26
The Court agrees with the CTA-EB when it affirmed the CTA-First Division decision. Indeed, the applicable rule is
Revenue Regulations No. 6-85, as amended by Revenue Regulations No. 12-94, which was the applicable rule
during the subject period of examination and assessment as specified in the LOA. Revenue Regulations No. 2-98,
cited by the CIR, was only adopted in April 1998 and, therefore, cannot be applied in the present case. Besides,
the withholding tax on brokers and agents was only increased to 10% much later or by the end of July 2001
under Revenue Regulations No. 6-2001.27 Until then, the rate was only 5%.
The Court also affirms the findings of both the CTA-First Division and the CTA-EB on the deficiency EWT
assessment on the rental deposit. According to their findings, Sony incurred the subject rental deposit in the
amount of ₱10,523,821.99 only from January to March 1998. As stated earlier, in the absence of the appropriate
LOA specifying the coverage, the CIR’s deficiency EWT assessment from January to March 1998, is not valid and
must be disallowed.
Finally, the Court now proceeds to the third ground relied upon by the CIR.
The CIR initially assessed Sony to be liable for penalties for belated remittance of its FWT on royalties (i) as of
December 1997; and (ii) for the period from January to March 1998. Again, the Court agrees with the CTA-First
Division when it upheld the CIR with respect to the royalties for December 1997 but cancelled that from January
to March 1998.
The CIR insists that under Section 328 of Revenue Regulations No. 5-82 and Sections 2.57.4 and 2.58(A)(2)(a)29 of
Revenue Regulations No. 2-98, Sony should also be made liable for the FWT on royalties from January to March
of 1998. At the same time, it downplays the relevance of the Manufacturing License Agreement (MLA) between
Sony and Sony-Japan, particularly in the payment of royalties.
The above revenue regulations provide the manner of withholding remittance as well as the payment of final tax
on royalty. Based on the same, Sony is required to deduct and withhold final taxes on royalty payments when
the royalty is paid or is payable. After which, the corresponding return and remittance must be made within 10
days after the end of each month. The question now is when does the royalty become payable?
Under Article X(5) of the MLA between Sony and Sony-Japan, the following terms of royalty payments were
agreed upon:
(5)Within two (2) months following each semi-annual period ending June 30 and December 31, the LICENSEE
shall furnish to the LICENSOR a statement, certified by an officer of the LICENSEE, showing quantities of the
MODELS sold, leased or otherwise disposed of by the LICENSEE during such respective semi-annual period and
amount of royalty due pursuant this ARTICLE X therefore, and the LICENSEE shall pay the royalty hereunder to
the LICENSOR concurrently with the furnishing of the above statement.30
Withal, Sony was to pay Sony-Japan royalty within two (2) months after every semi-annual period which ends in
June 30 and December 31. However, the CTA-First Division found that there was accrual of royalty by the end of
December 1997 as well as by the end of June 1998. Given this, the FWTs should have been paid or remitted by
Sony to the CIR on January 10, 1998 and July 10, 1998. Thus, it was correct for the CTA-First Division and the CTA-
EB in ruling that the FWT for the royalty from January to March 1998 was seasonably filed. Although the royalty
from January to March 1998 was well within the semi-annual period ending June 30, which meant that the
royalty may be payable until August 1998 pursuant to the MLA, the FWT for said royalty had to be paid on or
before July 10, 1998 or 10 days from its accrual at the end of June 1998. Thus, when Sony remitted the same on
July 8, 1998, it was not yet late.
In view of the foregoing, the Court finds no reason to disturb the findings of the CTA-EB.
WHEREFORE, the petition is DENIED.
SO ORDERED.
April 5, 2017
G.R. No. 222743
MEDICARD PHILIPPINES, INC., Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
REYES,, J.:
This appeal by Petition for Review1 seeks to reverse and set aside the Decision2 dated September 2, 2015 and
Resolution3 dated January 29, 2016 of the Court of Tax Appeals (CTA) en bane in CTA EB No. 1224, affirming with
modification the Decision4 dated June 5, 2014 and the Resolution5 dated September 15, 2014.in CTA Case No.
7948 of the CTA Third Division, ordering petitioner Medicard Philippines, Inc. (MEDICARD), to pay respondent
Commissioner of Internal Revenue (CIR) the deficiency
Value-Added Tax. (VAT) assessment in the aggregate amount of ₱220,234,609.48, plus 20% interest per
annum starting January 25, 2007, until fully paid, pursuant to Section 249(c)6 of the National Internal Revenue
Code (NIRC) of 1997.
The Facts
MEDICARD is a Health Maintenance Organization (HMO) that provides prepaid health and medical insurance
coverage to its clients. Individuals enrolled in its health care programs pay an annual membership fee and are
entitled to various preventive, diagnostic and curative medical services provided by duly licensed physicians,
specialists and other professional technical staff participating in the group practice health delivery system at a
hospital or clinic owned, operated or accredited by it.7
MEDICARD filed its First, Second, and Third Quarterly VAT Returns through Electronic Filing and Payment System
(EFPS) on April 20, 2006, July 25, 2006 and October 20, 2006, respectively, and its Fourth Quarterly VAT Return
on January 25, 2007.8
Upon finding some discrepancies between MEDICARD's Income Tax Returns (ITR) and VAT Returns, the CIR
informed MEDICARD and issued a Letter Notice (LN) No. 122-VT-06-00-00020 dated
September 20, 2007. Subsequently, the CIR also issued a Preliminary Assessment Notice (PAN) against
MEDICARD for deficiency VAT. A Memorandum dated December 10, 2007 was likewise issued recommending
the issuance of a Formal Assessment Notice (FAN) against MEDICARD.9 On. January 4, 2008, MEDICARD received
CIR's FAN dated December' 10, 2007 for alleged deficiency VAT for taxable year 2006 in the total amount of Pl
96,614,476.69,10 inclusive of penalties. 11
According to the CIR, the taxable base of HMOs for VAT purposes is its gross receipts without any deduction
under Section 4.108.3(k) of Revenue Regulation (RR) No. 16-2005. Citing Commissioner of Internal Revenue v.
Philippine Health Care Providers, Inc., 12 the CIR argued that since MEDICARD. does not actually provide medical
and/or hospital services, but merely arranges for the same, its services are not VAT exempt.13
MEDICARD argued that: (1) the services it render is not limited merely to arranging for the provision of medical
and/or hospital services by hospitals and/or clinics but include actual and direct rendition of medical and
laboratory services; in fact, its 2006 audited balance sheet shows that it owns x-ray and laboratory facilities
which it used in providing medical and laboratory services to its members; (2) out of the ₱l .9 Billion membership
fees, ₱319 Million was received from clients that are registered with the Philippine Export Zone Authority (PEZA)
and/or Bureau of Investments; (3) the processing fees amounting to ₱l 1.5 Million should be excluded from gross
receipts because P5.6 Million of which represent advances for professional fees due from clients which were
paid by MEDICARD while the remainder was already previously subjected to VAT; (4) the professional fees in the
amount of Pl 1 Million should also be excluded because it represents the amount of medical services actually and
directly rendered by MEDICARD and/or its subsidiary company; and (5) even assuming that it is liable to pay for
the VAT, the 12% VAT rate should not be applied on the entire amount but only for the period when the 12%
VAT rate was already in effect, i.e., on February 1, 2006. It should not also be held liable for surcharge and
deficiency interest because it did not pass on the VAT to its members.14
On February 14, 2008, the CIR issued a Tax Verification Notice authorizing Revenue Officer Romualdo Plocios to
verify the supporting documents of MEDICARD's Protest. MEDICARD also submitted additional supporting
documentary evidence in aid of its Protest thru a letter dated March 18, 2008.15
On June 19, 2009, MEDICARD received CIR's Final Decision on Disputed Assessment dated May 15, 2009, denying
MEDICARD's protest, to wit:
IN VIEW HEREOF, we deny your letter protest and hereby reiterate in toto assessment of deficiency [VAT] in
total sum of ₱196,614,476.99. It is requested that you pay said deficiency taxes immediately. Should payment be
made later, adjustment has to be made to impose interest until date of payment. This is olir final decision. If you
disagree, you may take an appeal to the [CTA] within the period provided by law, otherwise, said assessment
shall become final, executory and demandable. 16
On July 20, 2009, MEDICARD proceeded to file a petition for review before the CT A, reiterating its position
before the tax authorities. 17
On June 5, 2014, the CTA Division rendered a Decision18 affirming with modifications the CIR's deficiency VAT
assessment covering taxable year 2006, viz.:
WHEREFORE, premises considered, the deficiency VAT assessment issued by [CIR] against [MEDICARD] covering
taxable year 2006 ·is hereby AFFIRMED WITH MODIFICATIONS. Accordingly, [MEDICARD] is ordered to pay [CIR]
the amount of P223,l 73,208.35, inclusive of the twenty-five percent (25%) surcharge imposed under -Section
248(A)(3) of the NIRC of 1997, as amended, computed as follows:
Basic Deficiency VAT ₱l78,538,566.68
Add: 25% Surcharge 44,634,641.67
Total ₱223.173.208.35
In addition, [MEDICARD] is ordered to pay:
a. Deficiency interest at the rate of twenty percent (20%) per annum on the basis deficiency VAT of Pl
78,538,566.68 computed from January 25, 2007 until full payment thereof pursuant to Section 249(B)
of the NIRC of 1997, as amended; and
b. Delinquency interest at the rate of twenty percent (20%) per annum on the total amount of
₱223,173,208.35 representing basic deficiency VAT of ₱l78,538,566.68 and· 25% surcharge of
₱44,634,64 l .67 and on the 20% deficiency interest which have accrued as afore-stated in (a),
computed from June 19, 2009 until full payment thereof pursuant to Section 249(C) of the NIRC of
1997.
SO ORDERED.19
The CTA Division held that: (1) the determination of deficiency VAT is not limited to the issuance of Letter of
Authority (LOA) alone as the CIR is granted vast powers to perform examination and assessment functions; (2) in
lieu of an LOA, an LN was issued to MEDICARD informing it· of the discrepancies between its ITRs and VAT
Returns and this procedure is authorized under Revenue Memorandum Order (RMO) No. 30-2003 and 42-2003;
(3) MEDICARD is estopped from questioning the validity of the assessment on the ground of lack of LOA since the
assessment issued against MEDICARD contained the requisite legal and factual bases that put MEDICARD on
notice of the deficiencies and it in fact availed of the remedies provided by law without questioning the nullity of
the assessment; (4) the amounts that MEDICARD earmarked , and eventually paid to doctors, hospitals and
clinics cannot be excluded from · the computation of its gross receipts under the provisions of RR No. 4-2007
because the act of earmarking or allocation is by itself an act of ownership and management over the funds by
MEDICARD which is beyond the contemplation of RR No. 4-2007; (5) MEDICARD's earnings from its clinics and
laboratory facilities cannot be excluded from its gross receipts because the operation of these clinics and
laboratory is merely an incident to MEDICARD's main line of business as HMO and there is no evidence that
MEDICARD segregated the amounts pertaining to this at the time it received the premium from its members;
and (6) MEDICARD was not able to substantiate the amount pertaining to its January 2006 income and therefore
has no basis to impose a 10% VAT rate.20
Undaunted, MEDICARD filed a Motion for Reconsideration but it was denied. Hence, MEDICARD elevated the
matter to the CTA en banc.
In a Decision21 dated September 2, 2015, the CTA en banc partially granted the petition only insofar as the 10%
VAT rate for January 2006 is concerned but sustained the findings of the CTA Division in all other matters, thus:
WHEREFORE, in view thereof, the instant Petition for Review is hereby PARTIALLY GRANTED. Accordingly, the
Decision date June 5, 2014 is hereby MODIFIED, as follows:
"WHEREFORE, premises considered, the deficiency VAT assessment issued by [CIR] against
[MEDICARD] covering taxable year 2006 is hereby AFFIRMED WITH MODIFICATIONS. Accordingly, [MEDICARD]
is ordered to pay [CIR] the amount of ₱220,234,609.48, inclusive of the 25% surcharge imposed under Section
248(A)(3) of the NIRC of 1997, as amended, computed as follows:
Basic Deficiency VAT ₱76,187,687.58
Add: 25% Surcharge 44,046,921.90
Total ₱220,234.609.48
In addition, [MEDICARD] is ordered to pay:
 (a) Deficiency interest at the rate of 20% per annum on the basic deficiency VAT of ₱l 76,187,687.58
computed from January 25, 2007 until full payment thereof pursuant to Section 249(B) of the NIRC of
1997, as amended; and
(b) Delinquency interest at the rate of 20% per annum on the total amount of ₱220,234,609.48
(representing basic deficiency VAT of ₱l76,187,687.58 and 25% surcharge of ₱44,046,921.90) and on
the deficiency interest which have accrued as afore-stated in (a), computed from June 19, 2009 until
full payment thereof pursuant to Section 249(C) of the NIRC of 1997, as amended."
SO ORDERED.22
Disagreeing with the CTA en bane's decision, MEDICARD filed a motion for reconsideration but it was
denied.23Hence, MEDICARD now seeks recourse to this Court via a petition for review on certiorari.
The Issues
l. WHETHER THE ABSENCE OF THE LOA IS FATAL; and
2. WHETHER THE AMOUNTS THAT MEDICARD EARMARKED AND EVENTUALLY PAID TO THE MEDICAL
SERVICE PROVIDERS SHOULD STILL FORM PART OF ITS GROSS RECEIPTS FOR VAT PURPOSES. 24
Ruling of the Court
The petition is meritorious.
The absence of an LOA violated
MEDICARD's right to due process
An LOA is the authority given to the appropriate revenue officer assigned to perform assessment functions. It
empowers or enables said revenue officer to examine the books of account and other accounting records of a
taxpayer for the purpose of collecting the correct amount of tax. 25 An LOA is premised on the fact that the
examination of a taxpayer who has already filed his tax returns is a power that statutorily belongs only to the CIR
himself or his duly authorized representatives. Section 6 of the NIRC clearly provides as follows:
SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional Requirements for Tax
Administration and Enforcement. –
(A) Examination of Return and Determination of Tax Due.- After a return has been filed as required under the
provisions of this Code, the Commissioner or his duly authorized representative may authorize the
examinationof any taxpayer and the assessment of the correct amount of tax: Provided, however, That failure
to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer.
x x x x (Emphasis and underlining ours)
Based on the afore-quoted provision, it is clear that unless authorized by the CIR himself or by his duly
authorized representative, through an LOA, an examination of the taxpayer cannot ordinarily be undertaken. The
circumstances contemplated under Section 6 where the taxpayer may be assessed through best-evidence
obtainable, inventory-taking, or surveillance among others has nothing to do with the LOA. These are simply
methods of examining the taxpayer in order to arrive at .the correct amount of taxes. Hence, unless undertaken
by the CIR himself or his duly authorized representatives, other tax agents may not validly conduct any of these
kinds of examinations without prior authority.
With the advances in information and communication technology, the Bureau of Internal Revenue (BIR)
promulgated RMO No. 30-2003 to lay down the policies and guidelines once its then incipient centralized Data
Warehouse (DW) becomes fully operational in conjunction with its Reconciliation of Listing for Enforcement
System (RELIEF System).26 This system can detect tax leaks by matching the data available under the BIR's
Integrated Tax System (ITS) with data gathered from third-party sources. Through the consolidation and cross-
referencing of third-party information, discrepancy reports on sales and purchases can be generated to uncover
under declared income and over claimed purchases of Goods and services.
Under this RMO, several offices of the BIR are tasked with specific functions relative to the RELIEF System,
particularly with regard to LNs. Thus, the Systems Operations Division (SOD) under the Information Systems
Group (ISG) is responsible for: (1) coming up with the List of Taxpayers with discrepancies within the threshold
amount set by management for the issuance of LN and for the system-generated LNs; and (2) sending the same
to the taxpayer and to the Audit Information, Tax Exemption and Incentives Division (AITEID). After receiving the
LNs, the AITEID under the Assessment
Service (AS), in coordination with the concerned offices under the ISG, shall be responsible for transmitting the
LNs to the investigating offices [Revenue District Office (RDO)/Large Taxpayers District Office (LTDO)/Large
Taxpayers Audit and Investigation Division (LTAID)]. At the level of these investigating offices, the appropriate
action on the LN s issued to taxpayers with RELIEF data discrepancy would be determined.
RMO No. 30-2003 was supplemented by RMO No. 42-2003, which laid down the "no-contact-audit approach" in
the CIR's exercise of its ·power to authorize any examination of taxpayer arid the assessment of the correct
amount of tax. The no-contact-audit approach includes the process of computerized matching of sales and
purchases data contained in the Schedules of Sales and Domestic Purchases and Schedule of Importation
submitted by VAT taxpayers under the RELIEF System pursuant to RR No. 7-95, as amended by RR Nos. 13-97, 7-
99 and 8-2002. This may also include the matching of data from other information or returns filed by the
taxpayers with the BIR such as Alphalist of Payees subject to Final or Creditable Withholding Taxes.
Under this policy, even without conducting a detailed examination of taxpayer's books and records, if the
computerized/manual matching of sales and purchases/expenses appears to reveal discrepancies, the same shall
be communicated to the concerned taxpayer through the issuance of LN. The LN shall serve as a discrepancy
notice to taxpayer similar to a Notice for Informal Conference to the concerned taxpayer. Thus, under the RELIEF
System, a revenue officer may begin an examination of the taxpayer even prior to the issuance of an LN or even
in the absence of an LOA with the aid of a computerized/manual matching of taxpayers': documents/records.
Accordingly, under the RELIEF System, the presumption that the tax returns are in accordance with law and are
presumed correct since these are filed under the penalty of perjury27 are easily rebutted and the taxpayer
becomes instantly burdened to explain a purported discrepancy.
Noticeably, both RMO No. 30-2003 and RMO No. 42-2003 are silent on the statutory requirement of an LOA Decision 11 G.R. No. 222743
before any investigation or examination of the taxpayer may be conducted. As provided in the RMO No. 42-
2003, the LN is merely similar to a Notice for Informal Conference. However, for a Notice of Informal Conference, xxxx
which generally precedes the issuance of an assessment notice to be valid, the same presupposes that the
revenue officer who issued the same is properly authorized in the first place.
10. Transmit the approved/signed LAs, together with the duly accomplished/approved Summary List of LNs for
conversion to LAs, to the concerned investigating offices for the encoding of the required information x x x and
With this apparent lacuna in the RMOs, in November 2005, RMO No. 30-2003, as supplemented by RMO No. 42- for service to the concerned taxpayers.
2003, was amended by RMO No. 32-2005 to fine tune existing procedures in handing assessments against
taxpayers'· issued LNs by reconciling various revenue issuances which conflict with the NIRC. Among the
xxxx
objectives in the issuance of RMO No. 32-2005 is to prescribe procedure in the resolution of LN discrepancies,
conversion of LNs to LOAs and assessment and collection of deficiency taxes.
C. At the RDO x x x
IV. POLICIES AND GUIDELINES
xxxx
xxxx
11. If the LN discrepancies remained unresolved within One Hundred and Twenty (120) days from issuance
thereof, prepare a summary list of said LN s for conversion to LAs x x x.
8. In the event a taxpayer who has been issued an LN refutes the discrepancy shown in the LN, the concerned
taxpayer will be given an opportunity to reconcile its records with those of the BIR within
xxxx
One Hundred and Twenty (120) days from the date of the issuance of the LN. However, the subject taxpayer
shall no longer be entitled to the abatement of interest and penalties after the lapse of the sixty (60)-day period 16. Effect the service of the above LAs to the concerned taxpayers.28
from the LN issuance.
In this case, there is no dispute that no LOA was issued prior to the issuance of a PAN and FAN against MED
9. In case the above discrepancies remained unresolved at the end of the One Hundred and Twenty (120)-day ICARD. Therefore no LOA was also served on MEDICARD. The LN that was issued earlier was also not converted
period, the revenue officer (RO) assigned to handle the LN shall recommend the issuance of [LOA) to replace into an LOA contrary to the above quoted provision. Surprisingly, the CIR did not even dispute the applicability of
the LN. The head of the concerned investigating office shall submit a summary list of LNs for conversion to LAs the above provision of RMO 32-2005 in the present case which is clear and unequivocal on the necessity of an
(using the herein prescribed format in Annex "E" hereof) to the OACIR-LTS I ORD for the preparation of the LOA for the· assessment proceeding to be valid. Hence, the CTA's disregard of MEDICARD's right to due process
corresponding LAs with the notation "This LA cancels LN_________ No. " warrant the reversal of the assailed decision and resolution.

xxxx In the case of Commissioner of Internal Revenue v. Sony Philippines, Inc. ,29 the Court said that:

V. PROCEDURES Clearly, there must be a grant of authority before any revenue officer can conduct an examination or
assessment. Equally important is that the revenue officer so authorized must not go beyond the authority
given. In the absence of such an authority, the assessment or examination is a nullity.30 (Emphasis and
xxxx
underlining ours)

B. At the Regional Office/Large Taxpayers Service

The Court cannot convert the LN into the LOA required under the law even if the same was issued by the CIR
himself. Under RR No. 12-2002, LN is issued to a person found to have underreported sales/receipts per data
xxxx generated under the RELIEF system. Upon receipt of the LN, a taxpayer may avail of the BIR's Voluntary
Assessment and Abatement Program. If a taxpayer fails or refuses to avail of the said program, the BIR may avail
7. Evaluate the Summary List of LNs for Conversion to LAs submitted by the RDO x x x prior to approval. of administrative and criminal .remedies, particularly closure, criminal action, or audit and investigation. Since
the law specifically requires an LOA and RMO No. 32-2005 requires the conversion of the previously issued LN to
8. Upon approval of the above list, prepare/accomplish and sign the corresponding LAs. an LOA, the absence thereof cannot be simply swept under the rug, as the CIR would have it. In fact Revenue
Memorandum Circular No. 40-2003 considers an LN as a notice of audit or investigation only for the purpose of
disqualifying the taxpayer from amending his returns.
xxxx
The following differences between an LOA and LN are crucial. First, an LOA addressed to a revenue officer is
specifically required under the NIRC before an examination of a taxpayer may be had while an LN is not found in
the NIRC and is only for the purpose of notifying the taxpayer that a discrepancy is found based on the BIR's
RELIEF System. Second, an LOA is valid only for 30 days from date of issue while an LN has no such limitation.
Third, an LOA gives the revenue officer only a period of 10days from receipt of LOA to conduct his examination
of the taxpayer whereas an LN does not contain such a limitation.31 Simply put, LN is entirely different and serves
a different purpose than an LOA. Due process demands, as recognized under RMO No. 32-2005, that after an LN
has serve its purpose, the revenue officer should have properly secured an LOA before proceeding with the
further examination and assessment of the petitioner. Unfortunarely, this was not done in this case.
Contrary to the ruling of the CTA en banc, an LOA cannot be dispensed with just because none of the financial
books or records being physically kept by MEDICARD was examined. To begin with, Section 6 of the NIRC
requires an authority from the CIR or from his duly authorized representatives before an examination "of a
taxpayer" may be made. The requirement of authorization is therefore not dependent on whether the taxpayer
may be required to physically open his books and financial records but only on whether a taxpayer is being
subject to examination.
The BIR's RELIEF System has admittedly made the BIR's assessment and collection efforts much easier and faster.
The ease by which the BIR's revenue generating objectives is achieved is no excuse however for its non-
compliance with the statutory requirement under Section 6 and with its own administrative issuance. In fact,
apart from being a statutory requirement, an LOA is equally needed even under the BIR's RELIEF System because
the rationale of requirement is the same whether or not the CIR conducts a physical examination of the
taxpayer's records: to prevent undue harassment of a taxpayer and level the playing field between the
government' s vast resources for tax assessment, collection and enforcement, on one hand, and the solitary
taxpayer's dual need to prosecute its business while at the same time responding to the BIR exercise of its
statutory powers. The balance between these is achieved by ensuring that any examination of the taxpayer by
the BIR' s revenue officers is properly authorized in the first place by those to whom the discretion to exercise
the power of examination is given by the statute.
That the BIR officials herein were not shown to have acted unreasonably is beside the point because the issue of
their lack of authority was only brought up during the trial of the case. What is crucial is whether the proceedings
that led to the issuance of VAT deficiency assessment against MEDICARD had the prior approval and
authorization from the CIR or her duly authorized representatives. Not having authority to examine MEDICARD in
the first place, the assessment issued by the CIR is inescapably void.
At any rate, even if it is assumed that the absence of an LOA is not fatal, the Court still partially finds merit in
MEDICARD's substantive arguments.
The amounts earmarked and
eventually paid by MEDICARD to
the medical service providers do not
form part of gross receipts.for VAT
purposes
MEDICARD argues that the CTA en banc seriously erred in affirming the ruling of the CT A Division that the gross
receipts of an HMO for VAT purposes shall be the total amount of money or its equivalent actually received from
members undiminished by any amount paid or payable to the owners/operators of hospitals, clinics and medical
and dental practitioners. MEDICARD explains that its business as an HMO involves two different although
interrelated contracts. One is between a corporate client and MEDICARD, with the corporate client's employees
being considered as MEDICARD members; and the other is between the health care institutions/healthcare
professionals and MED ICARD.
Under the first, MEDICARD undertakes to make arrangements with healthcare institutions/healthcare
professionals for the coverage of MEDICARD members under specific health related services for a specified
period of time in exchange for payment of a more or less fixed membership fee. Under its contract with its
corporate clients, MEDICARD expressly provides that 20% of the membership fees per individual, regardless of
the amount involved, already includes the VAT of 10%/20% excluding the remaining 80o/o because MED ICARD
would earmark this latter portion for medical utilization of its members. Lastly, MEDICARD also assails CIR's
inclusion in its gross receipts of its earnings from medical services which it actually and directly rendered to its
members.
Since an HMO like MEDICARD is primarily engaged m arranging for coverage or designated managed care
services that are needed by plan holders/members for fixed prepaid membership fees and for a specified period
of time, then MEDICARD is principally engaged in the sale of services. Its VAT base and corresponding liability is,
thus, determined under Section 108(A)32 of the Tax Code, as amended by Republic Act No. 9337.
Prior to RR No. 16-2005, an HMO, like a pre-need company, is treated for VAT purposes as a dealer in securities
whose gross receipts is the amount actually received as contract price without allowing any deduction from the
gross receipts.33 This restrictive tenor changed under RR No. 16-2005. Under this RR, an HMO's gross receipts
and gross receipts in general were defined, thus:
Section 4.108-3. xxx
xxxx
HMO's gross receipts shall be the total amount of money or its equivalent representing the service fee actually
or constructively received during the taxable period for the services performed or to be performed for another
person, excluding the value-added tax. The compensation for their services representing their service fee, is
presumed to be the total amount received as enrollment fee from their members plus other charges received.
Section 4.108-4. x x x. "Gross receipts" refers to the total amount of money or its equivalent representing the
contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied
with the services and deposits applied as payments for services rendered, and advance payments actually or
constructively received during the taxable period for the services performed or to be performed for another
person, excluding the VAT. 34
In 2007, the BIR issued RR No. 4-2007 amending portions of RR No. 16-2005, including the definition of gross
receipts in general.35
According to the CTA en banc, the entire amount of membership fees should form part of MEDICARD's gross
receipts because the exclusions to the gross receipts under RR No. 4-2007 does not apply to MEDICARD. What
applies to MEDICARD is the definition of gross receipts of an HMO under RR No. 16-2005 and not the modified
definition of gross receipts in general under the RR No. 4-2007.
The CTA en banc overlooked that the definition of gross receipts under. RR No. 16-2005 merely presumed that
the amount received by an HMO as membership fee is the HMO's compensation for their services. As a mere
presumption, an HMO is, thus, allowed to establish that a portion of the amount it received as membership fee
does NOT actually compensate it but some other person, which in this case are the medical service providers
themselves. It is a well-settled principle of legal hermeneutics that words of a statute will be interpreted in their
natural, plain and ordinary acceptation and signification, unless it is evident that the legislature intended a
technical or special legal meaning to those words. The Court cannot read the word "presumed" in any other way.
It is notable in this regard that the term gross receipts as elsewhere mentioned as the tax base under the NIRC
does not contain any specific definition.36 Therefore, absent a statutory definition, this Court has construed the
term gross receipts in its plain and ordinary meaning, that is, gross receipts is understood as comprising the
entire receipts without any deduction.37 Congress, under Section 108, could have simply left the term gross
receipts similarly undefined and its interpretation subjected to ordinary acceptation,. Instead of doing so,
Congress limited the scope of the term gross receipts for VAT purposes only to the amount that the taxpayer
received for the services it performed or to the amount it received as advance payment for the services it will
render in the future for another person.
In the proceedings ·below, the nature of MEDICARD's business and the extent of the services it rendered are not
seriously disputed. As an HMO, MEDICARD primarily acts as an intermediary between the purchaser of
healthcare services (its members) and the healthcare providers (the doctors, hospitals and clinics) for a fee. By
enrolling membership with MED ICARD, its members will be able to avail of the pre-arranged medical services
from its accredited healthcare providers without the necessary protocol of posting cash bonds or deposits prior
to being attended to or admitted to hospitals or clinics, especially during emergencies, at any given time. Apart
from this, MEDICARD may also directly provide medical, hospital and laboratory services, which depends upon its
member's choice.
Thus, in the course of its business as such, MED ICARD members can either avail of medical services from
MEDICARD's accredited healthcare providers or directly from MEDICARD. In the former, MEDICARD members
obviously knew that beyond the agreement to pre-arrange the healthcare needs of its ·members, MEDICARD
would not actually be providing the actual healthcare service. Thus, based on industry practice, MEDICARD
informs its would-be member beforehand that 80% of the amount would be earmarked for medical utilization
and only the remaining 20% comprises its service fee. In the latter case, MEDICARD's sale of its services is
exempt from VAT under Section 109(G).
The CTA's ruling and CIR's Comment have not pointed to any portion of Section 108 of the NIRC that would
extend the definition of gross receipts even to amounts that do not only pertain to the services to be performed:
by another person, other than the taxpayer, but even to amounts that were indisputably utilized not by MED
ICARD itself but by the medical service providers.
It is a cardinal rule in statutory construction that no word, clause, sentence, provision or part of a statute shall be
considered surplusage or superfluous, meaningless, void and insignificant. To this end, a construction which
renders every word operative is preferred over that which makes some words idle and nugatory. This principle is
expressed in the maxim Ut magisvaleat quam pereat, that is, we choose the interpretation which gives effect to
the whole of the statute – it’s every word.
In Philippine Health Care Providers, Inc. v. Commissioner of Internal Revenue,38the Court adopted the principal
object and purpose object in determining whether the MEDICARD therein is engaged in the business of
insurance and therefore liable for documentary stamp tax. The Court held therein that an HMO engaged in
preventive, diagnostic and curative medical services is not engaged in the business of an insurance, thus:
To summarize, the distinctive features of the cooperative are the rendering of service, its extension, the bringing
of physician and patient together, the preventive features, the regularization of service as well as payment,
the substantial reduction in cost by quantity purchasing in short, getting the medical job done and paid for;
not, except incidentally to these features, the indemnification for cost after .the services is rendered. Except
the last, these are not distinctive or generally characteristic of the insurance arrangement. There is, therefore,
a substantial difference between contracting in this way for the rendering of service, even on the contingency
that it be needed, and contracting merely to stand its cost when or after it is rendered.39 (Emphasis ours)
In sum, the Court said that the main difference between an HMO arid an insurance company is that HMOs
undertake to provide or arrange for the provision of medical services through participating physicians while
insurance companies simply undertake to indemnify the insured for medical expenses incurred up to a pre-
agreed limit. In the present case, the VAT is a tax on the value added by the performance of the service by the
taxpayer. It is, thus, this service and the value charged thereof by the taxpayer that is taxable under the NIRC.
To be sure, there are pros and cons in subjecting the entire amount of membership fees to VAT. 40 But the Court's
task however is not to weigh these policy considerations but to determine if these considerations in favor of
taxation can even be implied from the statute where the CIR purports to derive her authority. This Court rules
that they cannot because the language of the NIRC is pretty straightforward and clear. As this Court previously
ruled:
What is controlling in this case is the well-settled doctrine of strict interpretation in the imposition of taxes, not
the similar doctrine as applied to tax exemptions. The rule in the interpretation of tax laws is that a statute will
not be construed as imposing a tax unless it does so clearly, expressly, and unambiguously. A tax cannot be
imposed without clear and express words for that purpose. Accordingly, the general rule of requiring
adherence to the letter in construing statutes applies with peculiar strictness to tax laws and the provisions of
a taxing act are not to be extended by implication. In answering the question of who is subject to tax statutes, it
is basic that in case of doubt, such statutes are to be construed most strongly against the government and in
favor of the subjects or citizens because burdens are not to be imposed nor presumed to be imposed beyond
what statutes expressly and clearly import. As burdens, taxes should not be unduly exacted nor assumed beyond
the plain meaning of the tax laws. 41 (Citation omitted and emphasis and underlining ours)
For this Court to subject the entire amount of MEDICARD's gross receipts without exclusion, the authority should
have been reasonably founded from the language of the statute. That language is wanting in this case. In the
scheme of judicial tax administration, the need for certainty and predictability in the implementation of tax laws
is crucial. Our tax authorities fill in the details that Congress may not have the opportunity or competence to
provide. The regulations these authorities issue are relied upon by taxpayers, who are certain that these will be
followed by the courts. Courts, however, will not uphold these authorities' interpretations when dearly absurd,
erroneous or improper.42 The CIR's interpretation of gross receipts in the present case is patently erroneous for
lack of both textual and non-textual support.
As to the CIR's argument that the act of earmarking or allocation is by itself an act of ownership and
management over the funds, the Court does not agree.1âwphi1 On the contrary, it is MEDICARD's act of
earmarking or allocating 80% of the amount it received as membership fee at the time of payment that weakens
the ownership imputed to it. By earmarking or allocating 80% of the amount, MEDICARD unequivocally
recognizes that its possession of the funds is not in the concept of owner but as a mere administrator of the
same. For this reason, at most, MEDICARD's right in relation to these amounts is a mere inchoate owner which
would ripen into actual ownership if, and only if, there is underutilization of the membership fees at the end of
the fiscal year. Prior to that, MEDI CARD is bound to pay from the amounts it had allocated as an administrator
once its members avail of the medical services of MEDICARD's healthcare providers.
Before the Court, the parties were one in submitting the legal issue of whether the amounts MEDICARD
earmarked, corresponding to 80% of its enrollment fees, and paid to the medical service providers should form
part of its gross receipt for VAT purposes, after having paid the VAT on the amount comprising the 20%. It is
significant to note in this regard that MEDICARD established that upon receipt of payment of membership fee it
actually issued two official receipts, one pertaining to the VAT able portion, representing compensation for its
services, and the other represents the non-vatable portion pertaining to the amount earmarked for medical
utilization.: Therefore, the absence of an actual and physical segregation of the amounts pertaining to two
different kinds · of fees cannot arbitrarily disqualify MEDICARD from rebutting the presumption under the law
and from proving that indeed services were rendered by its healthcare providers for which it paid the amount it
sought to be excluded from its gross receipts.
With the foregoing discussions on the nullity of the assessment on due process grounds and violation of the
NIRC, on one hand, and the utter lack of legal basis of the CIR's position on the computation of MEDICARD's
gross receipts, the Court finds it unnecessary, nay useless, to discuss the rest of the parties' arguments and
counter-arguments.
In fine, the foregoing discussion suffices for the reversal of the assailed decision and resolution of the CTA en
banc grounded as it is on due process violation. The Court likewise rules that for purposes of determining the
VAT liability of an HMO, the amounts earmarked and actually spent for medical utilization of its members should
not be included in the computation of its gross receipts.
WHEREFORE, in consideration of the foregoing disquisitions, the petition is hereby GRANTED. The Decision
dated September 2, 2015 and Resolution dated January 29, 2016 issued by the Court of Tax Appeals en bane in
CTA EB No. 1224 are REVERSED and SET ASIDE. The definition of gross receipts under Revenue Regulations Nos.
16-2005 and 4-2007, in relation to Section 108(A) of the National Internal Revenue Code, as amended by
Republic Act No. 9337, for purposes of determining its Value-Added Tax liability, is hereby declared
to EXCLUDE the eighty percent (80%) of the amount of the contract price earmarked as fiduciary funds for the
medical utilization of its members. Further, the Value-Added Tax deficiency assessment issued against Medicard
Philippines, Inc. is hereby declared unauthorized for having been issued without a Letter of Authority by the
Commissioner of Internal Revenue or his duly authorized representatives.
SO ORDERED.
EN BANC
[G.R. No. L-9040. December 26, 1956.]
PHILIPPINE PACKING CORPORATION, Petitioner-Appellant, vs. THE COLLECTOR OF INTERNAL
REVENUE, Respondent-Appellee.
DECISION
REYES, J. B. L., J.:
Appellant Philippine Packing Corporation is a domestic corporation engaged in the growing and canning of
pineapples in Mindanao for sale locally and abroad. Approximately 120,000 tons of pineapple every year are
produced by Appellant from its plantations, out of which it sells or gives away in fresh state 50,000 tons which
are not suitable for canning, for which it is not taxed, and the rest are canned into sliced pineapple, pineapple
chunks, crushed pineapple, and pineapple juice.
According to the decision of the Court of Tax Appeals, the Appellant subjects the fresh fruit to the following
process:chanroblesvirtuallawlibrary
“Pineapple fruits are harvested from the plants. After they are washed, peeled and sorted, then sliced, cubed, or
crushed, the raw materials are placed in cans. The residual air is removed and heavy syrup, made up from a
mixture of juice and sugar, is added. The cans are closed. Heat is applied to sterilize the contents, after which the
cans are cooled rapidly. With respect to the canned pineapple juice, no sugar is added. Unless preserved in tin
cans, fresh pineapple fruits are very perishable and will not keep longer than two days.” (Annex “A” p. 13)
On October 15, 1948, Appellant sent the then Collector of Internal Revenue Bibiano Meer a letter quoted as
follows:chanroblesvirtuallawlibrary
“We wish to refer to your letter dated July 20, 1948 in which you have requested that we file a bond to cover any
possible sales of our pineapple products in the Philippines.
We have recently taken some orders for canned pineapple here in Manila and we will be shipping the goods
from Bugo early next week.
According to your letter we have to pay 5% tax prior to shipping these goods, however, we are of the opinion it is
not necessary for us to pay this tax under Section 188 (b) of the Internal Revenue Code, since our operation is
entirely agricultural. We will appreciate receiving your decision on the above at your earliest convenience and
we would like to take this opportunity to thank you for your kind attention to our matters in the past.” (Exhibit
“A”)
to which Collector Meer replied:chanroblesvirtuallawlibrary
“In reply to your letter dated October 15, 1948, I have the honor to inform you that sales in this country of the
pineapple products which you produce herein are exempt from the sales tax imposed in section 186 of the
National Internal Revenue Code, in accordance with section 188 (b) of the same code.” (Exhibit “B”)
Six years later, on January 13, 1954, Appellant received a letter from the Appellee Collector of Internal Revenue
through Deputy Collector Silverio Blaquera, demanding payment of P196,060.69 as fixed and percentage taxes
and surcharges on its domestic sales of pineapple products since October, 1948 to September, 1953, plus the
additional sum of P1,000 as penalty for alleged violation of the Internal Revenue Law. From the decision of the
Collector, Appellant appealed to the defunct Board of Tax Appeals, which was succeeded by the Court of Tax
Appeals under Republic Act No. 1125. On January 31, 1955, the Court of Tax Appeals affirmed the decision of the
Collector of Internal Revenue and on April 11, 1955 denied Appellant’s motion for reconsideration.
Wherefore, Appellant filed before this Court a petition for review.
The main issue is whether the domestic sales of pineapples and pineapple products grown and canned
by Appellants are exempted from tax under Section 188 (b) of the Internal Revenue Code,
providing:chanroblesvirtuallawlibrary
“SEC. 188. Transactions and persons not subject to percentage tax. — In computing the tax imposed in sections
one hundred eighty- four, one hundred eighty-five, and one hundred eighty-six, transactions in the following
commodities shall be excluded:chanroblesvirtuallawlibrary
“(b) Agricultural products and the ordinary salt when sold, bartered, or exchanged in this country by the
producer or owner of the land where produced, as well as fish and its by-products when sold, bartered or
exchanged by the fisherman or fishing operator, whether in their original state or not.” (Emphasis supplied)
We find ourselves unable to agree with the Court of Tax Appeals that because the manipulations to
which Appellant subjects the fresh pineapple fruit grown by it amount to a manufacturing process, that the sale
of the canned products becomes a taxable sale of manufactured goods, and not an exempt sale of agricultural
products. The very text of the law, in exempting “agricultural products — whether in their original state or not,”
makes it clear that the exemption is not divested merely because the products themselves have undergone
processing of some kind. At what particular stage the extent of the manufacturing process extinguishes or
supersedes the agricultural character of the product cannot be predetermined in advance. But such uncertainties
are no obstacle to the application or refusal of the exemption in specific cases. We believe the case before us can
be determined following the test set by this Court in Central Azucarera de Bais vs. Trinidad, 46 Phil. 492,
499:chanroblesvirtuallawlibrary
“A planter who devotes himself to the production of sugar cane and as an incident to such production works his
product into a more convenient and valuable form is primarily a planter; chan roblesvirtualawlibraryhis
manufacturing is merely an incident to the management of his plantation. His case is manifestly different from
that of the Plaintiff corporation which, in effect, buys its raw materials and devotes itself exclusively to
converting it into finished merchandise. It may, perhaps, not always be easy to draw the line of demarcation
between one business and the other, but difficulties of that sort are frequently encountered in the interpretation
of the law.”
The facts on record in the case before us clearly indicate that the canning of Appellant’s products is a mere
incident and consequence of its large scale production of pineapples. Appellant perforce had to resort to a
preserving process, for the volume of its products (170,000 tons) made it impossible to dispose of the same in
the local market. The pineapples could not be sold in the open market unless properly ripened; chan
roblesvirtualawlibraryon the other hand, once ripened, the fruit would quickly deteriorate, and become
unsalable, unless the deterioration was arrested by some preservative process, which thus becomes an essential
part of the production and disposition of the fruit. We believe that the legislature, in providing a tax exemption
for agricultural products, “whether in their original state or not”, had precisely in mind that fruit crops could not
be raised and sold on a large scale without resort to some process to prevent their deterioration.
The state has not shown that the canned products of Appellant corporation have acquired, as a consequence of
the processing to which they are subjected, any use to which the original fruit was not suited, or could not be
devoted. It is practically admitted (and the Court may well take judicial cognizance thereof) that the nature,
qualities and texture of the product are in no way altered, and it distinctly remains an agricultural product.
Certainly the canned pineapples as compared to the original fruit have undergone much less change than that
found in the case of centrifugal sugar obtained from the sugar cane or of abaca-fiber when compared with the
raw plant stalks. And yet the state admits that the sugar from the cane is exempt from the tax under sec. 188(b)
of the Internal Revenue Code.
That the purpose of the tax exemption now in question was to foster agriculture and the utilization of idle lands
was recognized in Molina vs. Rafferty, 38 Phil. 167. Passing upon this very exemption, the Court said (p. 169-
170):chanroblesvirtuallawlibrary
“The first inquiry, therefore, must relate to the purpose of the Legislative had in mind in establishing the
exemption contained in the clause now under consideration. It seems reasonable to assume that it was due to
the belief on the part of the law making body that by exempting agricultural products from this tax the farming
industry would be favored and the development of the resources of the country encourage. It is a fact, of which
we take judicial cognizance, that there are immense tracts of public land in this country, at present wholly
unproductive, which might be made fruitful by cultivation, and that large sums of money go abroad every year
for the purchase of food substances which might be grown here. Every dollar’s worth of food which the farmer
process and sells in these Islands adds directly to the wealth of the country. On the other hand, in the process of
distribution of commodities to the ultimate consumer, no direct increase in value results solely from their
transfer from one person to another in the course of commercial transactions. It is fairly to be inferred from the
statute that the object and purpose of the Legislature was, in general terms, to levy the tax in question,
significantly termed the ‘merchant’s tax,’ upon all persons engaged in making a profit upon goods produced by
others, but to exempt from the tax all persons directly producing goods from the land. In order to accomplish
this purpose the Legislature, instead of attempting an enumeration of exempted products, has grouped them all
under the general designation of ‘agricultural products.’“
The position of Appellant corporation comes squarely under this ruling. It directly produces its goods from the
cultivation of land, merely engaging in the suitable preservative processes for the purpose of making the product
available at all times, without regard to seasons, and in markets that would not be accessible to the fresh
fruit. Appellants does not make its profit upon goods produced by others, and there is no reason why it should
not be given the protection that the law affords.
“Public policy has long favored the exemption of agricultural producers from the taxation of the methods
employed by them to put their products upon the market, for the preparation, transportation, and direct sale by
the farmer of produce raised by himself is not engagement in a trade, but incident to his business of production.
Thus, the exemption or especially favorable classification of farmers, their produce, or their vehicles hauling
agricultural products to markets in statutes imposing business occupational, and sales taxes, in statutory trade
license provisions, and in highway transportation tax or registration laws, has in a number of cases been held to
be based upon a reasonable classification.” (2 Am. Jur. pp. 399-400).
The interpretation adopted by the Court of Tax Appeals would limit the benefits of the tax exemption under
section 188 (b) of the Tax Code to small scale farmers and producers, who can dispose of their products within a
short time after the ripening of the fruit. Where this the legislative intent, the exemption for agricultural
products would have been unnecessary, since the same section already exempts, directly and expressly, —
“(a) Persons whose gross quarterly sales or receipts do not exceed four hundred fifty pesos.
(b) All persons engaged in public market places exclusively in the sale at retail of domestic meat, fruits,
vegetables, game, poultry, fish and other domestic food products.
(c) Peddlers and sellers at fixed stands and other similar selling places engaged exclusively in the sale at retail of
domestic meat, fruits, vegetables, game, poultry, fish, and similar domestic food products, whose total stock in
trade in any one day does not reach a retail value of fifty pesos.
(d) Producers of commodities of all classes working in their own homes, consisting of parents and children living
as one family, when the value of each day’s production by each person capable of working is not in excess of five
pesos.”
With the small producers and merchants already guarded and fostered by the provisions above quoted, we see
no reason why the further exemption of agricultural products “whether in their original state or not” should not
apply to large scale agricultural production and its incidental processes.
The decision in Bermejo vs. Collector of Internal Revenue, 47 Off. Gaz. (No. 12 Suppl.) p. 292, (upon which the
state relies as overruling Central Azucarera de Bais vs. Trinidad, 46 Phil. 492, and Pampanga Sugar Mills vs.
Trinidad, 53 Phil. 750), did not consider or discuss the tax exemption under section 188 (b) of the Internal
Revenue Code, and therefore is not controlling here. Similarly, the American authorities cited for the State refer
to manufacturers that are not the growers of the products processed by them, which is precisely the reason why
the sugar mills or centrals exclusively devoted to processing the planter’s sugar cane, are not exempted from the
tax, being, as they are, primarily manufacturers and not producers of agricultural crops. The Appellant’s situation
is just the contrary.
Wherefore, the decision of the Court of Tax Appeals is reversed, and the domestic sale of pineapple products
of Appellant, Philippine Packing Corporation, held exempt from sales tax. Without costs. SO ORDERED.
SECOND DIVISION
G.R. No. 209776, December 07, 2016
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. UNITED CADIZ SUGAR FARMERS ASSOCIATION MULTI-
PURPOSE COOPERATIVE, Respondent.
DECISION
BRION, J.:
Before us is the petition for review on certiorari1 (under Rule 45 of the Rules of Court) filed by the Commissioner
of Internal Revenue (CIR) to assail the June 5, 2013 decision2 and the October 30, 2013 resolution3 of the Court
of Tax Appeals (CTA) en banc in CTA EB No. 846 (CTA Case No. 7995).
In the assailed decision and resolution, the CTA en banc affirmed the decision4 and resolution5 of the CTA Second
Division (CTA division).
The Facts
By law, the CIR is empowered, among others, to act on and approve claims for tax refunds or credits.
The respondent United Cadiz Sugar Farmers Association Multi-purpose Cooperative (UCSFA-MPC) is a multi-
purpose cooperative with a Certificate of Registration issued by the Cooperative Development Authority (CDA)
dated January 14, 2004.6
In accordance with Revenue Regulations (RR) No. 20-2001, the Bureau of Internal Revenue (BIR) issued BIR
Ruling No. RR12-08-2004,7 otherwise known as the "Certificate of Tax Exemption" in favor of UCSFA-MPC.
In November 2007, BIR Regional Director Rodita B. Galanto of BIR Region 12 - Bacolod City required UCSFA-MPC
to pay in advance the value-added tax (VAT) before her office could issue the Authorization Allowing Release of
Refined Sugar (AARRS) from the sugar refinery/mill. This was the first instance that the Cooperative was required
to do so. This prompted the cooperative to confirm with the BIR 8 whether it is exempt from the payment of VAT
pursuant to Section 109(1) of the National Internal Revenue Code (NIRC).9
The BIR responded favorably to UCSFA-MPC's query. In BIR Ruling No. ECCP-015-08,10 the CIR11 ruled that the
cooperative "is considered as the actual producer of the members' sugarcane production, because it primarily
provided the various inputs (fertilizers), capital, technology transfer, and farm management." (emphasis
supplied) The CIR thus confirmed that UCSFA-MPC's sale of produce to members and non-members is exempt
from the payment of VAT.
As a result, Regional Director Galanto no longer required the advance payment of VAT from UCSFA-MPC and
began issuing AARRS in its favor, thereby allowing the cooperative to withdraw its refined sugar from the
refinery. But, in November 2008, the administrative legal opinion notwithstanding, Regional Director Galanto,
again demanded the payment of advance VAT from UCSFA-MPC. Unable to withdraw its refined sugar from the
refinery/mill for its operations, UCSFA-MPC was forced to pay advance VAT under protest.
On November 11, 2009, UCSFA-MPC filed an administrative claim for refund with the BIR, asserting that it had
been granted tax exemption under Article 61 of Republic Act No. (RA) 6938, otherwise known as the Cooperative
Code of the Philippines (Cooperative Code),12 and Section 109(1) of the NIRC.13
On November 16, 2009, it likewise filed a judicial claim for refund before the CTA division. During the trial,
UCSFA-MPC presented, among other documents, its Certificates of Registration14 and Good Standing15 issued by
the CDA; Certificate of Tax Exemption,16 and BIR Ruling No. ECCP-015-08 issued by the BIR,17 as well as its
Summary of VAT Payments Under Protest, Certificates of Advance Payment, official receipts, and payment forms
to substantiate its claim.
The CTA division ruled in UCSFA-MPC's favor,18 thus upholding the cooperative's exemption from the payment of
VAT; the division held that the amount of P3,469,734.00 representing advance VAT on 34,017 LKG bags of
refined sugar withdrawn from the refinery, was illegally or erroneously collected by the BIR. The CIR moved but
failed to obtain reconsideration of the CTA division ruling.
The CIR then sought recourse before the CTA en banc. In its assailed decision,19 the CTA en bancaffirmed the CTA
division's ruling and ruled that UCSFA-MPC successfully proved its entitlement to tax exemption through its
Certificate of Tax Exemption and BIR Ruling No. ECCP-015-08 (which confirmed its status as a tax-exempt
cooperative). The CTA en banc also held that both its administrative and judicial claims for refund were timely
filed, having been filed within the two-year prescriptive period,20 in accordance with the requirements of
Sections 204(C) and 229 of the NIRC.
In denying the CIR's motion for reconsideration,21 the CTA en banc further ruled that the payment of VAT on
sales necessarily includes the exemption from the payment of advance VAT. It also struck down the argument
questioning the validity of UCSFA-MPC's Certificate of Good Standing for having been raised belatedly and thus
considered waived.
Finally, it also held that as a tax-exempt cooperative, UCSFA-MPC is not required to file monthly VAT
declarations. The presentation of these documents is therefore not essential in proving its claim for refund.
These developments gave rise to the present petition.
The Court's Ruling
We find the petition unmeritorious.
We have consistently ruled that claims for tax refunds, when based on statutes granting tax exemption, partake
of the nature of an exemption.22 Tax refunds and exemptions are exceptions rather than the rule and for this
reason are highly disfavored.23 Hence, in evaluating a claim for refund, the rule of strict interpretation applies.
This rule requires the claimant to prove not only his entitlement to a refund, but also his due observance of the
reglementary periods within which he must file his administrative and judicial claims for refund. 24Non-
compliance with these substantive and procedural due process requirements results in the denial of the
claim.25cralawred It is then essential for us to discuss each requirement and evaluate whether these have been
duly complied with in the present case.
Procedural requirements: Present
claim for refund was timely filed.
UCSFA-MPC s claim for refund - grounded as it is on payments of advance VAT alleged to have beenillegally and
erroneously collected from November 15, 2007 to February 13, 2009 - is governed by Sections 204(C)26 and
22927 of the NIRC. These provisions are clear: within two years from the date of payment of tax, the claimant
must first file an administrative claim with the CIR28 before filing itsjudicial claim with the courts of law.29 Both
claims must be filed within a two-year reglementary period.30 Timeliness of the filing of the claim is mandatory
and jurisdictional. The court31 cannot take cognizance of a judicial claim for refund filed either prematurely or
out of time.
For internal revenue purposes, the sale of raw cane sugar is exempt from VAT40 because it is considered to be in
its original state.41 On the other hand, refined sugar is an agricultural product that can no longer be considered
to be in its original state because it has undergone the refining process; its sale is thus subject to VAT.
Although the sale of refined sugar is generally subject to VAT, such transaction may nevertheless qualify as a
VAT-exempt transaction if the sale is made by a cooperative. Under Section 109(1) of the NIRC,42sales by
agricultural cooperatives are exempt from VAT provided the following conditions concur, viz:
First, the seller must be an agricultural cooperative duly registered with the CDA. 43 An agricultural cooperative is
"duly registered" when it has been issued a certificate of registration by the CDA. This certificate is conclusive
evidence of its registration.44
Second, the cooperative must sell either:
1) exclusively to its members; or

2) to both members and non-members, its produce, whether in its original state or processed form.45
In the present case, the court a quo found that while the judicial claim was filed merely five days after filing the
administrative claim, both claims were filed within the two-year reglementary period. Thus, the CTA correctly
exercised jurisdiction over the judicial claim filed by UCSFA-MPC. The second requisite differentiates cooperatives according to its customers. If the cooperative transacts only
with members, all its sales are VAT-exempt, regardless of what it sells. On the other hand, if it transacts with
both members and non-members, the product sold must be the cooperative's own produce in order to be VAT-
Substantive requirements: UCSFA
exempt. Stated differently, if the cooperative only sells its produce or goods that it manufactures on its own, its
MPC proved its entitlement to refund
entire sales is VAT-exempt.46

As mentioned, the rule on strict interpretation requires the claimant to sufficiently establish his entitlement to a
A cooperative is the producer of the sugar if it owns or leases the land tilled, incurs the cost of agricultural
tax refund. If the claimant asserts that he should be refunded the amount of tax he has previously paid because
production of the sugar, and produces the sugar cane to be refined. 47 It should not have merely purchased the
he is exempted from paying the tax,32 he must point to the specific legal provision of law granting him the
sugar cane from its planters-members.48
exemption. His right cannot be based on mere implication.33

UCSFA-MPC satisfies these requisites in the present case.

In this case, the cooperative claims that it is exempted — based on Section 61 of R.A. 6938 and Section 109(1) of
the NIRC — from paying advance VAT when it withdraws refined sugar from the refinery/mill as required by RR.
No. 6-2007. UCSFA-MPC thus alleges that the amounts of advance VAT it paid under protest from November 15, First, UCSFA-MPC presented its Certificate of Registration issued by the CDA. It does not appear in the records
2007 to February 13, 2009, were illegally arid erroneously collected. that the CIR ever objected to the authenticity or validity of this certificate. Thus, the certificate is conclusive
proof that the cooperative is duly registered with the CDA.49
UCSFA-MPC 's sale of refined sugar
is VAT-exempt. While its certificate of registration is sufficient to establish the cooperative's due registration, we note that it also
presented the Certificate of Good Standing that the CDA issued. This further corroborates its claim that it is duly
registered with the CDA.
As a general rule under the NIRC, a seller shall be liable for VAT 34 on the sale of goods or properties based on the
gross selling price or gross value in money of the thing sold.35 However, certain transactions are exempted from
the imposition of VAT.36 One exempted transaction is the sale of agricultural food products in their original Second, the cooperative also presented BIR Ruling No. ECCP-015-08, which states that UCSFA-MPC "is considered
state.37 Agricultural food products that have undergone simple processes of preparation or preservation for the as the actual producer of the members' sugar cane production because it primarily provided the various
market are nevertheless considered to be in their original state.38 productions inputs (fertilizers), capital, technology transfer, and farm management." It concluded that the
cooperative "has direct participation in the sugar cane production of its farmers-members."
Sugar is an agricultural food product. Notably, tax regulations differentiate between raw sugar andrefined
sugar.39
Thus, the BIR itself acknowledged and confirmed that UCSFA-MPC is the producer of the refined sugar it sells.
Under the principle of equitable estoppel,50 the petitioner is now precluded from unilaterally revoking its own
pronouncement and unduly depriving the cooperative of an exemption clearly granted by law.
With the UCSFA-MPC established as a duly registered cooperative and the producer of sugar cane, its sale of
refined sugar is exempt from VAT, whether the sale is made to members or to non-members.
The VAT-exempt nature of the sales made by agricultural cooperatives under the NIRC is consistent with the tax
exemptions granted to qualified cooperatives under the Cooperative Code which grants cooperatives exemption
from sales tax51 on transactions with members and non-members.52
These conclusions reduce the issue in the case to whether the granted exemption also covers the payment of
advance VAT upon withdrawal of refined sugar from the refinery or mill.
Exemption from VAT on sale of
refined sugar by an agricultural
cooperative includes the exemption
from the requirement of advance
payment thereof.
The CTA en banc ruled that the cooperative is exempted from the payment of advance VAT.53 It also ruled that
the exemption from the payment of VAT on sales necessarily includes the exemption from the payment of
advance VAT.54
The CIR argues that the exemption granted by the Cooperative Code and NIRC, on which the Certificate of Tax
Exemption and BIR Ruling No. ECC-015-08 issued in favor of UCSFA-MPC were based, only covers VAT on
the sale of produced sugar. It does not include the exemption from the payment of advance VAT in
the withdrawal of refined sugar from the sugar mill.55
The CIR's argument fails to persuade us.
As we discussed above, the sale of refined sugar by an agricultural cooperative is exempt from VAT. To fully
understand the difference between VAT on the sale of refined sugar and the advance VAT upon withdrawal of
refined sugar, we distinguish between the tax liability that arises from the imposition of VAT and the obligation
of the taxpayer to pay the same.
Persons liable for VAT on the sale of goods shall pay the VAT due, in general, on a monthly basis. VAT accruing
from the sale of goods in the current month shall be payable the following month.56 However, there are
instances where VAT is required to be paid in advance,57 such as in the sale of refined sugar.58
To specifically address the policies and procedures governing the advance payment of VAT on the sale of refined
sugar, RR Nos. 6-2007 and 13-2008 were issued.
Under these regulations, VAT on the sale of refined sugar that, under regular circumstances, is payable within
the month following the actual sale of refined sugar, shall nonetheless be paid in advance before the refined
sugar can even be withdrawn from the sugar refinery/mill by the sugar owner. Any advance VAT paid by sellers
of refined sugar shall be allowed as credit against their output tax on the actual gross selling price of refined
sugar.59
Recall in this regard that VAT is a transaction tax imposed at every stage of the distribution process: on the sale,
barter, exchange, or lease of goods or services.60 Simply stated, VAT generally arises because an actual sale,
barter, or exchange has been consummated.
In the sugar industry, raw sugar is processed in a refinery/mill which thereafter transforms the raw sugar into
refined sugar. The refined sugar is then withdrawn or taken out of the refinery/mill and sold to
customers.61 Under this flow, the withdrawal of refined sugar evidently takes place prior to its sale.
The VAT implications of the withdrawal of refined sugar from the sugar refinery/mill and the actual sale of
refined sugar are different. While the sale is the actual transaction upon which VAT is imposed, the withdrawal
gives rise to the obligation to pay the VAT due, albeit in advance. Therefore, the requirement for the advance
payment of VAT for refined sugar creates a special situation: While the transaction giving rise to the imposition
of VAT — the actual sale of refined sugar — has not yet taken place, the VAT that would be due from the
subsequent sale is, nonetheless, already required to be paid earlier, which is before the withdrawal of the goods
from the sugar refinery/mill.
To be clear, the transaction subject to VAT is still the sale of refined sugar. The withdrawal of sugar is not a
separate transaction subject to VAT. It is only the payment thereof that is required to be made in advance.
While the payment of advance VAT on the sale of refined sugar is, in general, required before these goods may
be withdrawn from the refinery/mill, cooperatives are exempt from this requirement because they are
cooperatives.
Revenue regulations specifically provide that such withdrawal shall not be subject to the payment of advance
VAT if the following requisites are present, viz:
First, the withdrawal is made by a duly accredited and registered agricultural cooperative in good standing.62 It
was later clarified that a cooperative is in good standing if it is a holder of a certificate of good standing issued
by the CDA.63
Second, the cooperative should also the producer of the sugar being withdrawn.64
Third, the cooperative withdrawing the refined sugar should subsequently sell the same to either its members or
another agricultural cooperative.65
In sum, the sale of refined sugar by an agricultural cooperative duly registered with the CDA is exempt from VAT.
A qualified cooperative also enjoys exemption from the requirement of advance payment of VAT upon
withdrawal from the refinery/mill. The agricultural cooperative's exemption from the requirement of advance
payment is a logical consequence of the exemption from VAT of its sales of refined sugar. We elaborate on this
point as follows:
First, the VAT required to be paid in advance (upon withdrawal) is the same VAT to be imposed on the
subsequent sale of refined sugar. If the very transaction (sale of refined sugar) is VAT-exempt, there is no VAT to
be paid in advance because, simply, there is no transaction upon which VAT is to be imposed.
Second, any advance VAT paid upon withdrawal shall be allowed as credit against its output tax arising from its
sales of refined sugar. If all sales by a cooperative are VAT-exempt, no output tax shall materialize. It is simply
absurd to require a cooperative to make advance VAT payments if it will not have any output tax against which it
can use/credit its advance payments.
Thus, we sustain the CTA en banc's ruling that if the taxpayer is exempt from VAT on the sale of refined sugar,
necessarily, it is also exempt from the advance payment of such tax.
Tax regulations cannot impose
additional requirements other than
what is required under the law as a the NIRC must be read together, and read as well to be consistent with the laws from which they have been
condition for tax exemption.
Insisting that UCSFA-MPC does not enjoy exemption from the payment of advance VAT, the CIR questions the
cooperative's compliance with tax regulations that require cooperatives to make additional documentary
submissions to the BIR prior to the issuance of a certificate of tax exemption.
According to the CIR, RR No. 13-2008 requires an agricultural producer cooperative duly registered with the CDA
to be in good standing before it can avail of the exemption from the advance payment of VAT. It claims that the
cooperative failed to present any certificate of good standing. While it did present a certificate of good standing,
the cooperative only acquired this certificate on August 25, 2009. Hence, it was not exempt from advance
payment of VAT during the period subject of its refund, or between November 15, 2007 to February 15, 2009.66
We disagree with this CIR submission.
First, the CTA observed that the petitioner questioned the cooperative's certificate of good standing for the first
time in its motion for reconsideration filed before the CTA en banc. Thus, the CTA en banc was correct in ruling
that under the Rules of Court the argument is deemed waived, having been belatedly raised. No new issue in a
case can be raised in a pleading, which issue, by due diligence, could have been raised in previous pleadings. 67
Second, the certificate of good standing is one of the requirements for the issuance of a certificate of tax
exemption under RR No. 20-2001.
Article 2(d) of the Cooperative Code defines a certificate of tax exemption as "the ruling granting exemption to
the cooperative" issued by the BIR. In turn, under RR No. 20-2001, the cooperative shall file a letter-application
for the issuance of certificate of tax exemption, attaching thereto its certificates of registration and good
standing duly issued by the CDA.68 The certificate of tax exemption shall remain valid so long as the cooperative
is "in good standing" as ascertained by the CDA.69
In line with the presumption of regularity in the performance of duties of public officers, the issuance of the
certificate of tax exemption in favor of UCSFA-MPC presupposes that the cooperative submitted to the BIR the
complete documentary requirements for application, including its certificate of good standing. Simply stated,
when the cooperative's certificate of tax exemption was issued in 2004, it had already obtained its certificate of
good standing from the CDA.
The fact that its certificate of good standing was dated August 25, 2009, should not be detrimental to UCSFA-
MPC's case. As it correctly points out, a certificate of good standing is renewed and issued annually by the CDA.
Its renewal simply shows that it has remained to be in good standing with the CDA since its original registration.
More importantly, no evidence was presented to show that either the certificate of registration or certificate of
good standing had been previously revoked.
Third, as discussed earlier, the exemption from VAT on the sale of refined sugar carries with it the exemption
from the payment of advance VAT before the withdrawal of refined sugar from the refinery/mill.
Section 109(1) of the NIRC clearly sets forth only two requisites for the exemption of the sale of refined sugar
from VAT. Tax regulations implementing Sections 61 and 62 of the Cooperative Code as well as Section 109(1) of
derived. Thus, RR 20-2001 must be understood to implement the same principle as the Cooperative Code and
the NIRC and not add to the existing requirements provided by these laws.
We must remember that regulations may not enlarge, alter, or restrict the provisions of the law it administers; it
cannot engraft additional requirements not contemplated by the legislature. 70 A taxpayer-claimant should not be
required to submit additional documents beyond what is required by the law; the taxpayer-claimant should
enjoy the exemption it has, by law, always been entitled to.
Hence, once the cooperative has sufficiently shown that it has satisfied the requirements under Section 109(1) of
the NIRC for the exemption from VAT on its sale of refined sugar (i.e., that it is duly registered with the CDA and
it is the producer of the sugar cane from which refined sugar is derived), its exemption from the advance
payment of VAT should automatically be granted and recognized.
On these bases, we reject the CIR's insistence that RR No. 13-2008 requires the submission of a certificate of
good standing as a condition to a cooperative's exemption from the requirement of advance payment of VAT. In
the same vein, the petitioner's argument that the submission of monthly VAT declarations and quarterly VAT
returns is essential to a claim for tax refund must also fail.
The Certificate of Tax Exemption and
BIR Ruling No. ECCP-015-2008 have
not been revoked.
Finally, the CIR questions the validity of the certificate of exemption and BIR Ruling No. ECCP-015-08 used by
UCSFA-MPC to prove its exemption from tax. Citing Commissioner of Internal Revenue v. Burmeister and Wain
Scandinavian Contractor Mindanao, Inc.,71 the CIR insists that the BIR rulings on which the cooperative anchors
its exemption were, in the first place, deemed revoked when it filed an Answer to the cooperative's judicial claim
for refund before the CTA Division.72
On the other hand, UCSFA-MPC points out that, while the case cited held that the filing of an answer by the CIR
is a revocation of prior rulings issued in favor of the taxpayer-claimant, it has a recognized exception: the
principle of non-retroactivity of rulings under Section 246 of the NIRC.73
We agree with UCSFA-MPC.
The basic rule is that if any BIR ruling or issuance promulgated by the CIR is subsequently revoked or nullified by
the CIR herself or by the court, the revocation/nullification cannot be applied retroactively to the prejudice of
the taxpayers. Hence, even if we consider that the CIR had revoked the rulings previously issued in favor of
UCSFA-MPC upon the filing of her answer, it cannot effectively deprive UCSFA-MPC of its rights under the rulings
prior to their revocation.
We note that, as pointed out by UCSFA-MPC, this principle was recognized as an exception in the very case the
CIR cited, although the CIR opted to omit this portion of the cited case.
Being exempt from VAT on the sale of refined sugar and the requirement of advance payment of VAT, the
amounts that UCSFA-MPC had paid from November 15, 2007 to February 13, 2009, were illegally and
erroneously collected. Accordingly, a refund is in order.
WHEREFORE, we DENY the petition and accordingly AFFIRM the June 5, 2013 decision and the October 30, 2013
resolution of the CTA en banc in CTA EB No. 846.
SO ORDERED.
G.R. No. 181136 June 13, 2012
WESTERN MINDANAO POWER CORPORATION, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
SERENO, J.:
This is a Petition for Review under Rule 45 seeking the reversal of the 15 November 2007 Decision and 9 January
2008 Resolution of the Court of Tax Appeals (CTA) En Banc in C.T.A. EB No. 272, 1 which upheld the Court of Tax
Appeals Second Division’s denial of the Petition for refund of unutilized input Value Added Tax (VAT) on the
ground that the Official Receipts of petitioner Western Mindanao Power Corporation (WMPC) did not contain
the phrase "zero-rated," as required under Revenue Regulations No. 7-95 (RR 7-95).
Petitioner WMPC is a domestic corporation engaged in the production and sale of electricity. It is registered with
the Bureau of Internal Revenue (BIR) as a VAT taxpayer. Petitioner alleges that it sells electricity solely to the
National Power Corporation (NPC), which is in turn exempt from the payment of all forms of taxes, duties, fees
and imposts, pursuant to Section 132 of Republic Act (R.A.) No. 6395 (An Act Revising the Charter of the National
Power Corporation). In view thereof and pursuant to Section 108(B) (3) of the National Internal Revenue Code
(NIRC),3petitioner’s power generation services to NPC is zero-rated.
Under Section 112(A) of the NIRC,4 a VAT-registered taxpayer may, within two years after the close of the taxable
quarter, apply for the issuance of a tax credit or refund of creditable input tax due or paid and attributable to
zero-rated or effectively zero-rated sales. Hence, on 20 June 2000 and 13 June 2001, WMPC filed with the
Commissioner of Internal Revenue (CIR) applications for a tax credit certificate of its input VAT covering the
taxable
3rd and 4th quarters of 1999 (amounting to ₱ 3,675,026.67)5 and all the taxable quarters of 2000 (amounting to
₱ 5,649,256.81).6
Noting that the CIR was not acting on its application, and fearing that its claim would soon be barred by
prescription, WMPC on 28 September 2001 filed with the Court of Tax Appeals (CTA) in Division a Petition for
Review docketed as C.T.A. Case No. 6335, seeking refund/tax credit certificates for the total amount of ₱
9,324,283.30.
The CIR filed its Comment on the CTA Petition, arguing that WMPC was not entitled to the latter’s claim for a tax
refund in view of its failure to comply with the invoicing requirements under Section 113 of the NIRC in relation
to Section 4.108-1 of RR 7-95, which provides:
SECTION 4.108-1. Invoicing Requirements — All VAT-registered persons shall, for every sale or lease of goods or
properties or services, issue duly registered receipts or sales or commercial invoices which must show:
1. the name, TIN and address of seller;
2. date of transaction;
3. quantity, unit cost and description of merchandise or nature of service;
4. the name, TIN, business style, if any, and address of the VAT-registered purchaser, customer or
client;
5. the word "zero rated" imprinted on the invoice covering zero-rated sales; and
6. the invoice value or consideration.
In the case of sale of real property subject to VAT and where the zonal or market value is higher than the actual
consideration, the VAT shall be separately indicated in the invoice or receipt.
Only VAT-registered persons are required to print their TIN followed by the word "VAT" in their invoice or
receipts and this shall be considered as a "VAT Invoice." All purchases covered by invoices other than "VAT"
Invoice" shall not give rise to any input tax.
If the taxable person is also engaged in exempt operations, he should issue separate invoices or receipts for the
taxable and exempt operations. A "VAT Invoice" shall be issued only for sales of goods, properties or services
subject to VAT imposed in Sections 100 and 102 of the Code.
The invoice or receipt shall be prepared at least in duplicate, the original to be given to the buyer and the
duplicate to be retained by the seller as part of his accounting records. (Underscoring supplied.)
WMPC countered that the invoicing and accounting requirements laid down in RR 7-95 were merely "compliance
requirements," which were not indispensable to establish the claim for refund of excess and unutilized input
VAT. Also, Section 113 of the NIRC prevailing at the time the sales transactions were made did not expressly
state that failure to comply with all the invoicing requirements would result in the disallowance of a tax credit
refund. 7 The express requirement – that "the term ‘zero-rated sale’ shall be written or printed prominently" on
the VAT invoice or official receipt for sales subject to zero percent (0%) VAT – appeared in Section 113 of the
NIRC only after it was amended by Section 11 of R.A. 9337.8 This amendment cannot be applied retroactively,
considering that it took effect only on 1 July 2005, or long after petitioner filed its claim for a tax refund, and
considering further that the RR 7-95 is punitive in nature. Further, since there was no statutory requirement for
imprinting the phrase "zero-rated" on official receipts prior to 1 July 2005, the RR 7-95 constituted undue
expansion of the scope of the legislation it sought to implement.
CTA Second Division Decision
On 1 September 2006, the CTA Second Division dismissed9 the Petition. It held that while petitioner submitted in
evidence its Quarterly VAT Returns for the periods applied for, "the same do not reflect any zero-rated or
effectively zero-rated sales allegedly incurred during said periods. The spaces provided for such amounts were
left blank, which only shows that there existed no zero-rated or effectively zero-rated sales for the 3rd and 4th
quarters of 1999 and the four quarters of 2000." 10 Moreover, it found that petitioner’s VAT Invoices and Official
Receipts did not contain on their face the phrase "zero-rated," contrary to Section 4.108-1 of RR 7-95.
Petitioner moved for reconsideration, but the motion was denied by the CTA in Division in its Resolution dated
30 January 2007.11
CTA En Banc Decision
On 13 March 2007, WMPC appealed to the CTA En Banc, which on 15 November 2007 issued a Decision
dismissing the appeal and affirming the CTA ruling. The CTA En Banc held that the receipts and evidence
presented by petitioner failed to fully substantiate the existence of the latter’s effectively zero-rated sales to NPC
for the 3rd and 4th quarters of taxable year 1999 and the four quarters of taxable year 2000. The CTA En Banc
quoted the CTA Second Division finding that the Quarterly VAT Returns that petitioner adduced in evidence did
not reflect any zero-rated or effectively zero-rated sales allegedly incurred during the said period, to wit:
Petitioner submitted in evidence its Quarterly Value Added Tax Returns for the 3rd and 4th quarters of 1999 and
the four quarters of 2000 to prove that it had duly reported the input taxes paid on its domestic purchases of
goods and services (Exhibits ‘E’ to ‘J’). However, a closer examination of the returns clearly shows that the same
do not reflect any zero-rated or effectively zero-rated sales allegedly incurred during the said periods. The spaces
provided for such amounts were left blank, which only shows that there existed no zero-rated or effectively zero-
rated sales for the 3rd and 4th quarters of 1999 and the four quarters of 2000.
In addition, the CTA En Banc noted that petitioner’s Official Receipts and VAT Invoices did not have the word
"zero-rated" imprinted/stamped thereon, contrary to the clear mandate of Section 4.108-1 of RR 7-95.
CTA Presiding Justice Ernesto Acosta filed a Concurring and Dissenting Opinion. Justice Acosta disagreed with the
majority’s view regarding the supposed mandatory requirement of imprinting the term "zero-rated" on official
receipts or invoices. He opined that Section 113 in relation to Section 237 12 of the NIRC does not require the
imprinting of the phrase "zero-rated" on an invoice or official receipt for the document to be considered valid for
the purpose of claiming a refund or an issuance of a tax credit certificate. Hence, the absence of the term "zero-
rated" in an invoice or official receipt does not affect its admissibility or competency as evidence in support of a
refund claim. Also, assuming that stamping the term "zero-rated" on an invoice or official receipt is a
requirement of the current NIRC, the denial of a refund claim is not the imposable penalty for failure to comply
with that requirement.
Nevertheless, Justice Acosta agreed with the "decision to deny the claim due to petitioner’s failure to prove the
input taxes it paid on its domestic purchases of goods and services during the period involved."
WMPC filed a Motion for Reconsideration, which was denied by the CTA En Banc in a Resolution dated 9 January
2008.13
Hence, the present Petition.
Issue
Whether the CTA En Banc seriously erred in dismissing the claim of petitioner for a refund or tax credit on input
tax on the ground that the latter’s Official Receipts do not contain the phrase "zero-rated"
Our Ruling
We deny the Petition.
Being a derogation of the sovereign authority, a statute granting tax exemption is strictly construed against the
person or entity claiming the exemption. When based on such statute, a claim for tax refund partakes of the
nature of an exemption. Hence, the same rule of strict interpretation against the taxpayer-claimant applies to
the claim.14
In the present case, petitioner’s claim for a refund or tax credit of input VAT is anchored on Section 112(A) of the
NIRC, viz:
Section 112. Refunds or Tax Credits of Input Tax. -
(A) Zero-rated or Effectively Zero-rated Sales. - any VAT-registered person, whose sales are zero-rated or
effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made,
apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such
sales, except transitional input tax, to the extent that such input tax has not been applied against output tax:
Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B) and Section 108
(B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where
the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods of
properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely
attributed to any one of the transactions, it shall be allocated proportionately on the basis of the volume of
sales.
Thus, a taxpayer engaged in zero-rated or effectively zero-rated sale may apply for the issuance of a tax credit G.R. No. 172378 January 17, 2011
certificate, or refund of creditable input tax due or paid, attributable to the sale.
SILICON PHILIPPINES, INC., (Formerly INTEL PHILIPPINES MANUFACTURING, INC.), Petitioner,
In a claim for tax refund or tax credit, the applicant must prove not only entitlement to the grant of the claim vs.
under substantive law. It must also show satisfaction of all the documentary and evidentiary requirements for an COMMISSIONER OF INTERNAL REVENUE, Respondent.
administrative claim for a refund or tax credit.15 Hence, the mere fact that petitioner’s application for zero-rating
has been approved by the CIR does not, by itself, justify the grant of a refund or tax credit. The taxpayer claiming DECISION
the refund must further comply with the invoicing and accounting requirements mandated by the NIRC, as well
as by revenue regulations implementing them. 16
DEL CASTILLO, J.:

Under the NIRC, a creditable input tax should be evidenced by a VAT invoice or official receipt, 17 which may only
be considered as such when it complies with the requirements of RR 7-95, particularly Section 4.108-1. This
section requires, among others, that "(i)f the sale is subject to zero percent (0%) value-added tax, the term ‘zero-
rated sale’ shall be written or printed prominently on the invoice or receipt."
We are not persuaded by petitioner’s argument that RR 7-95 constitutes undue expansion of the scope of the
legislation it seeks to implement on the ground that the statutory requirement for imprinting the phrase "zero-
rated" on VAT official receipts appears only in Republic Act No. 9337. This law took effect on 1 July 2005, or long
after petitioner had filed its claim for a refund.1âwphi1
RR 7-95, which took effect on 1 January 1996, proceeds from the rule-making authority granted to the Secretary
of Finance by the NIRC for the efficient enforcement of the same Tax Code and its amendments. In Panasonic
Communications Imaging Corporation of the Philippines v. Commissioner of Internal Revenue, 18 we ruled that
this provision is "reasonable and is in accord with the efficient collection of VAT from the covered sales of goods
and services." Moreover, we have held in Kepco Philippines Corporation v. Commissioner of Internal
Revenue19 that the subsequent incorporation of Section 4.108-1 of RR 7-95 in Section 113 (B) (2) (c) of R.A. 9337
actually confirmed the validity of the imprinting requirement on VAT invoices or official receipts – a case falling
under the principle of legislative approval of administrative interpretation by reenactment.
The burden of proving entitlement to a refund lies with the claimant.
This Petition for Review on Certiorari under Rule 45 of the Rules of Court seeks to set aside the September 30,
2005 Decision1 and the April 20, 2006 Resolution2 of the Court of Tax Appeals (CTA) En Banc.
Factual Antecedents
Petitioner Silicon Philippines, Inc., a corporation duly organized and existing under and by virtue of the laws of
the Republic of the Philippines, is engaged in the business of designing, developing, manufacturing and exporting
advance and large-scale integrated circuit components or "IC’s."3 Petitioner is registered with the Bureau of
Internal Revenue (BIR) as a Value Added Tax (VAT) taxpayer 4 and with the Board of Investments (BOI) as a
preferred pioneer enterprise.5
On May 21, 1999, petitioner filed with the respondent Commissioner of Internal Revenue (CIR), through the One-
Stop Shop Inter-Agency Tax Credit and Duty Drawback Center of the Department of Finance (DOF), an
application for credit/refund of unutilized input VAT for the period October 1, 1998 to December 31, 1998 in the
amount of ₱31,902,507.50, broken down as follows:

In fact, this Court has consistently held as fatal the failure to print the word "zero-rated" on the VAT invoices or Amount
official receipts in claims for a refund or credit of input VAT on zero-rated sales, even if the claims were made Tax Paid on Imported/Locally Purchased ₱ 15,170,082.00
prior to the effectivity of R.A. 9337.20 Clearly then, the present Petition must be denied. Capital Equipment
Total VAT paid on Purchases per Invoices 16,732,425.50
In addition, it is notable that the CTA Second Division and the CTA En Banc, including Presiding Justice Acosta in Received During the Period for which
his Concurring and Dissenting Opinion, both found that petitioner failed to sufficiently substantiate the existence this Application is Filed
of its effectively zero-rated sales to NPC for the 3rd and 4th quarters of taxable year 1999, as well as all four Amount of Tax Credit/Refund Applied For ₱ 31,902,507.506
quarters of taxable year 2000. It must also be noted that the CTA is a highly specialized court dedicated Proceedings before the CTA Division
exclusively to the study and consideration of revenue-related problems, in which it has necessarily developed an
expertise.21 Hence, its factual findings, when supported by substantial evidence, will not be disturbed on
appeal.22 We find no sufficient reason to exempt the present case from this general rule. On December 27, 2000, due to the inaction of the respondent, petitioner filed a Petition for Review with the CTA
Division, docketed as CTA Case No. 6212. Petitioner alleged that for the 4th quarter of 1998, it generated and
recorded zero-rated export sales in the amount of ₱3,027,880,818.42, paid to petitioner in acceptable foreign
WHEREFORE, premises considered, we DENY the Petition and AFFIRM the Decision dated 15 November 2007 currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas; 7 and
and Resolution dated 9 January 2008 of the Court of Tax Appeals En Banc in CTA EB No. 272. that for the said period, petitioner paid input VAT in the total amount of ₱31,902,507.50, 8 which have not been
applied to any output VAT.9
SO ORDERED.
To this, respondent filed an Answer10 raising the following special and affirmative defenses, to wit:
 8. The petition states no cause of action as it does not allege the dates when the taxes sought to be
refunded/credited were actually paid;
9. It is incumbent upon herein petitioner to show that it complied with the provisions of Section 229 of
the Tax Code as amended;
10. Claims for refund are construed strictly against the claimant, the same being in the nature of
exemption from taxes (Commissioner of Internal Revenue vs. Ledesma, 31 SCRA 95; Manila Electric Co.
vs. Commissioner of Internal Revenue, 67 SCRA 35);
11. One who claims to be exempt from payment of a particular tax must do so under clear and
unmistakable terms found in the statute (Asiatic Petroleum vs. Llanes, 49 Phil. 466; Union Garment Co.
vs. Court of Tax Appeals, 4 SCRA 304);
12. In an action for refund, the burden is upon the taxpayer to prove that he is entitled thereto, and
failure to sustain the same is fatal to the action for refund. Furthermore, as pointed out in the case of
William Li Yao vs. Collector (L-11875, December 28, 1963), amounts sought to be recovered or credited
should be shown to be taxes which are erroneously or illegally collected; that is to say, their payment
was an independent single act of voluntary payment of a tax believed to be due and collectible and
accepted by the government, which had therefor become part of the State moneys subject to
expenditure and perhaps already spent or appropriated; and
13. Taxes paid and collected are presumed to have been made in accordance with the law and
regulations, hence not refundable.11
On November 18, 2003, the CTA Division rendered a Decision12 partially granting petitioner’s claim for refund of
unutilized input VAT on capital goods. Out of the amount of ₱15,170,082.00, only ₱9,898,867.00 was allowed to
be refunded because training materials, office supplies, posters, banners, T-shirts, books, and other similar items
purchased by petitioner were not considered capital goods under Section 4.106-1(b) of Revenue Regulations (RR)
No. 7-95 (Consolidated Value-Added Tax Regulations).13 With regard to petitioner’s claim for credit/refund of
input VAT attributable to its zero-rated export sales, the CTA Division denied the same because petitioner failed
to present an Authority to Print (ATP) from the BIR;14 neither did it print on its export sales invoices the ATP and
the word "zero-rated."15 Thus, the CTA Division disposed of the case in this wise:
WHEREFORE, in view of the foregoing the instant petition for review is hereby PARTIALLY GRANTED. Respondent
is ORDERED to ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner in the reduced amount of P9,898,867.00
representing input VAT on importation of capital goods. However, the claim for refund of input VAT attributable
to petitioner's alleged zero-rated sales in the amount of P16,732,425.50 is hereby DENIED for lack of merit.
SO ORDERED.16
Not satisfied with the Decision, petitioner moved for reconsideration. 17 It claimed that it is not required to
secure an ATP since it has a "Permit to Adopt Computerized Accounting Documents such as Sales Invoice and
Official Receipts" from the BIR.18 Petitioner further argued that because all its finished products are exported to
its mother company, Intel Corporation, a non-resident corporation and a non-VAT registered entity, the printing
of the word "zero-rated" on its export sales invoices is not necessary.19
On its part, respondent filed a Motion for Partial Reconsideration20 contending that petitioner is not entitled to a
credit/refund of unutilized input VAT on capital goods because it failed to show that the goods
imported/purchased are indeed capital goods as defined in Section 4.106-1 of RR No. 7-95.21
The CTA Division denied both motions in a Resolution22 dated August 10, 2004. It noted that:
[P]etitioner’s request for Permit to Adopt Computerized Accounting Documents such as Sales Invoice and Official
Receipt was approved on August 31, 2001 while the period involved in this case was October 31, 1998 to
December 31, 1998 x x x. While it appears that petitioner was previously issued a permit by the BIR Makati
Branch, such permit was only limited to the use of computerized books of account x x x. It was only on August
31, 2001 that petitioner was permitted to generate computerized sales invoices and official receipts [provided
that the BIR Permit Number is printed] in the header of the document x x x.
xxxx
Thus, petitioner’s contention that it is not required to show its BIR permit number on the sales invoices runs
counter to the requirements under the said "Permit." This court also wonders why petitioner was issuing
computer generated sales invoices during the period involved (October 1998 to December 1998) when it did not
have an authority or permit. Therefore, we are convinced that such documents lack probative value and should
be treated as inadmissible, incompetent and immaterial to prove petitioner’s export sales transaction.
xxxx
ACCORDINGLY, the Motion for Reconsideration and the Supplemental Motion for Reconsideration filed by
petitioner as well as the Motion for Partial Reconsideration of respondent are hereby DENIED for lack of merit.
The pronouncement in the assailed decision is REITERATED.
SO ORDERED 23
Ruling of the CTA En Banc
Undaunted, petitioner elevated the case to the CTA En Banc via a Petition for Review,24 docketed as EB Case No.
23.
On September 30, 2005, the CTA En Banc issued the assailed Decision25 denying the petition for lack of merit.
Pertinent portions of the Decision read:
This Court notes that petitioner raised the same issues which have already been thoroughly discussed in the
assailed Decision, as well as, in the Resolution denying petitioner's Motion for Partial Reconsideration.
With regard to the first assigned error, this Court reiterates that, the requirement of [printing] the BIR permit to
print on the face of the sales invoices and official receipts is a control mechanism adopted by the Bureau of
Internal Revenue to safeguard the interest of the government.
This requirement is clearly mandated under Section 238 of the 1997 National Internal Revenue Code, which
provides that:
SEC. 238. Printing of Receipts or Sales or Commercial Invoice. – All persons who are engaged in business shall
secure from the Bureau of Internal Revenue an authority to print receipts or sales or commercial invoices before
a printer can print the same.
The above mentioned provision seeks to eliminate the use of unregistered and double or multiple sets of
receipts by striking at the very root of the problem — the printer (H. S. de Leon, The National Internal Revenue
Code Annotated, 7th Ed., p. 901). And what better way to prove that the required permit to print was secured
from the Bureau of Internal Revenue than to show or print the same on the face of the invoices. There can be no
other valid proof of compliance with the above provision than to show the Authority to Print Permit number
[printed] on the sales invoices and official receipts.
With regard to petitioner’s failure to print the word "zero-rated" on the face of its export sales invoices, it must
be emphasized that Section 4.108-1 of Revenue Regulations No. 7-95 specifically requires that all value-added
tax registered persons shall, for every sale or lease of goods or properties or services, issue duly registered
invoices which must show the word "zero-rated" [printed] on the invoices covering zero-rated sales.
It is not enough that petitioner prove[s] that it is entitled to its claim for refund by way of substantial evidence.
Well settled in our jurisprudence [is] that tax refunds are in the nature of tax exemptions and as such, they are
regarded as in derogation of sovereign authority (Commissioner of Internal Revenue vs. Ledesma, 31 SCRA
95). Thus, tax refunds are construed in strictissimi juris against the person or entity claiming the
same (Commissioner of Internal Revenue vs. Procter & Gamble Philippines Manufacturing Corporation, 204 SCRA
377; Commissioner of Internal Revenue vs. Tokyo Shipping Co., Ltd., 244 SCRA 332).
In this case, not only should petitioner establish that it is entitled to the claim but it must most importantly show
proof of compliance with the substantiation requirements as mandated by law or regulations.
The rest of the assigned errors pertain to the alleged errors of the First Division: in finding that the petitioner
failed to comply with the substantiation requirements provided by law in proving its claim for refund; in reducing
the amount of petitioner’s tax credit for input vat on importation of capital goods; and in denying petitioner’s
claim for refund of input vat attributable to petitioner’s zero-rated sales.
It is petitioner’s contention that it has clearly established its right to the tax credit or refund by way of substantial
evidence in the form of material and documentary evidence and it would be improper to set aside with haste the
claimed input VAT on capital goods expended for training materials, office supplies, posters, banners, t-shirts,
books and the like because Revenue Regulations No. 7-95 defines capital goods as to include even those goods
which are indirectly used in the production or sale of taxable goods or services.
Capital goods or properties, as defined under Section 4.106-1(b) of Revenue Regulations No. 7-95, refer "to
goods or properties with estimated useful life greater than one year and which are treated as depreciable assets
under Section 29 (f), used directly or indirectly in the production or sale of taxable goods or services."
Considering that the items (training materials, office supplies, posters, banners, t-shirts, books and the like)
purchased by petitioner as reflected in the summary were not duly proven to have been used, directly or
indirectly[,] in the production or sale of taxable goods or services, the same cannot be considered as capital
goods as defined above[. Consequently,] the same may not x x x then [be] claimed as such.
WHEREFORE, in view of the foregoing, this instant Petition for Review is hereby DENIED DUE COURSE and hereby
DISMISSED for lack of merit. This Court's Decision of November 18, 2003 and Resolution of August 10, 2004 are
hereby AFFIRMED in all respects.
SO ORDERED.26
Petitioner sought reconsideration of the assailed Decision but the CTA En Banc denied the Motion27 in a
Resolution28 dated April 20, 2006.
Issues
Hence, the instant Petition raising the following issues for resolution:
(1) whether the CTA En Banc erred in denying petitioner’s claim for credit/ refund of input VAT
attributable to its zero-rated sales in the amount of ₱16,732,425.00 due to its failure:
(a) to show that it secured an ATP from the BIR and to indicate the same in its export sales
invoices; and
(b) to print the word "zero-rated" in its export sales invoices.29
(2) whether the CTA En Banc erred in ruling that only the amount of ₱9,898,867.00 can be classified as
input VAT paid on capital goods.30
Petitioner’s Arguments
Petitioner posits that the denial by the CTA En Banc of its claim for refund of input VAT attributable to its zero-
rated sales has no legal basis because the printing of the ATP and the word "zero-rated" on the export sales
invoices are not required under Sections 113 and 237 of the National Internal Revenue Code (NIRC). 31 And since
there is no law requiring the ATP and the word "zero-rated" to be indicated on the sales invoices,32 the absence
of such information in the sales invoices should not invalidate the petition33 nor result in the outright denial of a
claim for tax credit/refund.34 To support its position, petitioner cites Intel Technology Philippines, Inc. v.
Commissioner of Internal Revenue,35 where Intel’s failure to print the ATP on the sales invoices or receipts did
not result in the outright denial of its claim for tax credit/refund. 36 Although the cited case only dealt with the
printing of the ATP, petitioner submits that the reasoning in that case should also apply to the printing of the
word "zero-rated."37 Hence, failure to print of the word "zero-rated" on the sales invoices should not result in
the denial of a claim.
As to the claim for refund of input VAT on capital goods, petitioner insists that it has sufficiently proven through
testimonial and documentary evidence that all the goods purchased were used in the production and
manufacture of its finished products which were sold and exported.38
Respondent’s Arguments
To refute petitioner’s arguments, respondent asserts that the printing of the ATP on the export sales invoices,
which serves as a control mechanism for the BIR, is mandated by Section 238 of the NIRC;39 while the printing of
the word "zero-rated" on the export sales invoices, which seeks to prevent purchasers of zero-rated sales or
services from claiming non-existent input VAT credit/refund,40 is required under RR No. 7-95, promulgated
pursuant to Section 244 of the NIRC.41 With regard to the unutilized input VAT on capital goods, respondent
counters that petitioner failed to show that the goods it purchased/imported are capital goods as defined in
Section 4.106-1 of RR No. 7-95. 42
Our Ruling
The petition is bereft of merit.
Before us are two types of input VAT credits. One is a credit/refund of input VAT attributable to zero-rated sales
under Section 112 (A) of the NIRC, and the other is a credit/refund of input VAT on capital goods pursuant to
Section 112 (B) of the same Code.
Credit/refund of input VAT on zero-rated sales
In a claim for credit/refund of input VAT attributable to zero-rated sales, Section 112 (A)43 of the NIRC lays down
four requisites, to wit:
1) the taxpayer must be VAT-registered;
2) the taxpayer must be engaged in sales which are zero-rated or effectively zero-rated;
3) the claim must be filed within two years after the close of the taxable quarter when such sales were
made; and
4) the creditable input tax due or paid must be attributable to such sales, except the transitional input
tax, to the extent that such input tax has not been applied against the output tax.
To prove that it is engaged in zero-rated sales, petitioner presented export sales invoices, certifications of inward
remittance, export declarations, and airway bills of lading for the fourth quarter of 1998. The CTA Division,
however, found the export sales invoices of no probative value in establishing petitioner’s zero-rated sales for
the purpose of claiming credit/refund of input VAT because petitioner failed to show that it has an ATP from the
BIR and to indicate the ATP and the word "zero-rated" in its export sales invoices.44 The CTA Division cited as
basis Sections 113,4523746 and 23847 of the NIRC, in relation to Section 4.108-1 of RR No. 7-95.48
We partly agree with the CTA.
Printing the ATP on the invoices or receipts is not required
It has been settled in Intel Technology Philippines, Inc. v. Commissioner of Internal Revenue49 that the ATP need
not be reflected or indicated in the invoices or receipts because there is no law or regulation requiring it. 50 Thus,
in the absence of such law or regulation, failure to print the ATP on the invoices or receipts should not result in
the outright denial of a claim or the invalidation of the invoices or receipts for purposes of claiming a refund.51
ATP must be secured from the BIR
But while there is no law requiring the ATP to be printed on the invoices or receipts, Section 238 of the NIRC
expressly requires persons engaged in business to secure an ATP from the BIR prior to printing invoices or
receipts. Failure to do so makes the person liable under Section 26452 of the NIRC.
This brings us to the question of whether a claimant for unutilized input VAT on zero-rated sales is required to
present proof that it has secured an ATP from the BIR prior to the printing of its invoices or receipts.
We rule in the affirmative.
Under Section 112 (A) of the NIRC, a claimant must be engaged in sales which are zero-rated or effectively zero-
rated. To prove this, duly registered invoices or receipts evidencing zero-rated sales must be presented.
However, since the ATP is not indicated in the invoices or receipts, the only way to verify whether the invoices or
receipts are duly registered is by requiring the claimant to present its ATP from the BIR. Without this proof, the
invoices or receipts would have no probative value for the purpose of refund. In the case of Intel, we emphasized
that:
It bears reiterating that while the pertinent provisions of the Tax Code and the rules and regulations
implementing them require entities engaged in business to secure a BIR authority to print invoices or receipts
and to issue duly registered invoices or receipts, it is not specifically required that the BIR authority to print be
reflected or indicated therein. Indeed, what is important with respect to the BIR authority to print is that it has
been secured or obtained by the taxpayer, and that invoices or receipts are duly registered. 53 (Emphasis
supplied)
Failure to print the word "zero-rated" on the sales invoices is fatal to a claim for refund of input VAT1awphi1
Similarly, failure to print the word "zero-rated" on the sales invoices or receipts is fatal to a claim for
credit/refund of input VAT on zero-rated sales.
In Panasonic Communications Imaging Corporation of the Philippines (formerly Matsushita Business Machine
Corporation of the Philippines) v. Commissioner of Internal Revenue,54 we upheld the denial of Panasonic’s claim
for tax credit/refund due to the absence of the word "zero-rated" in its invoices. We explained that compliance
with Section 4.108-1 of RR 7-95, requiring the printing of the word "zero rated" on the invoice covering zero-
rated sales, is essential as this regulation proceeds from the rule-making authority of the Secretary of Finance
under Section 24455 of the NIRC.
All told, the non-presentation of the ATP and the failure to indicate the word "zero-rated" in the invoices or
receipts are fatal to a claim for credit/refund of input VAT on zero-rated sales. The failure to indicate the ATP in
the sales invoices or receipts, on the other hand, is not. In this case, petitioner failed to present its ATP and to
print the word "zero-rated" on its export sales invoices. Thus, we find no error on the part of the CTA in denying
outright petitioner’s claim for credit/refund of input VAT attributable to its zero-rated sales.
Credit/refund of input VAT on capital goods
Capital goods are defined under Section 4.106-1(b) of RR No. 7-95
To claim a refund of input VAT on capital goods, Section 112 (B)56 of the NIRC requires that:
Being assailed via petition for review on certiorari is the April 12, 2002 Decision 1 of the Court of Appeals
reversing that of the Court of Tax Appeals (CTA)2 which granted the claim of respondent, Manila Mining
Corporation, in consolidated CTA Case Nos. 4968 and 4991, for refund or issuance of tax credit certificates in the
amounts of ₱5,683,035.04 and ₱8,173,789.60 representing its input value added tax (VAT) payments for taxable
year 1991.
Respondent, a mining corporation duly organized and existing under Philippines laws, is registered with the
Bureau of Internal Revenue (BIR) as a VAT-registered enterprise under VAT Registration Certificate No. 32-6-
00632.3

1. the claimant must be a VAT registered person;

2. the input taxes claimed must have been paid on capital goods;
3. the input taxes must not have been applied against any output tax liability; and
4. the administrative claim for refund must have been filed within two (2) years after the close of the
taxable quarter when the importation or purchase was made.
Corollarily, Section 4.106-1 (b) of RR No. 7-95 defines capital goods as follows:
"Capital goods or properties" refer to goods or properties with estimated useful life greater that one year and
which are treated as depreciable assets under Section 29 (f),57 used directly or indirectly in the production or sale
of taxable goods or services.
Based on the foregoing definition, we find no reason to deviate from the findings of the CTA that training
materials, office supplies, posters, banners, T-shirts, books, and the other similar items reflected in petitioner’s
Summary of Importation of Goods are not capital goods. A reduction in the refundable input VAT on capital
goods from ₱15,170,082.00 to ₱9,898,867.00 is therefore in order.
WHEREFORE, the Petition is hereby DENIED. The assailed Decision dated September 30, 2005 and the Resolution
dated April 20, 2006 of the Court of Tax Appeals En Banc are hereby AFFIRMED.
SO ORDERED.
G.R. No. 153204 August 31, 2005
COMMISSIONER OF INTERNAL REVENUE, Petitioners,
vs.
MANILA MINING CORPORATION, Respondent.
DECISION
CARPIO MORALES, J.:
In 1991, respondent’s sales of gold to the Central Bank (now Bangko Sentral ng Pilipinas) amounted to
₱200,832,364.70.4 On April 22, 1991, July 23, 1991, October 21, 1991 and January 20, 1992, it filed its VAT
Returns for the 1st, 2nd, 3rd and 4th quarters of 1991, respectively, with the BIR through the VAT Unit at
Revenue District Office No. 47 in East Makati.5
Respondent, relying on a letter dated October 10, 1988 from then BIR Deputy Commissioner Victor Deoferio
that:
xxx under Sec. 2 of E.O. 581 as amended, gold sold to the Central Bank is considered an export sale which under
Section 100(a)(1) of the NIRC, as amended by E.O. 273, is subject to zero-rated if such sale is made by a VAT-
registered person[,]6 (Underscoring supplied)
filed on April 7, 1992 with the Commissioner of Internal Revenue (CIR), through the BIR-VAT Division (BIR-VAT),
an application for tax refund/credit of the input VAT it paid from July 1- December 31, 1999 in the amount of
₱8,173,789.60.
Petitioner subsequently filed on March 5, 1991 another application for tax refund/credit of input VAT it paid the
amount of ₱5,683,035.04 from January 1 – June 30, 1991. As the CIR failed to act upon respondent’s application
within sixty (60) days from the dates of filing,7 it filed on March 22, 1993 a Petition for Review against the CIR
before the CTA which docketed it as CTA Case No. 4968,8 seeking the issuance of tax credit certificate or refund
in the amount of ₱5,683,035.04 covering its input VAT payments for the 1st and 2nd quarters of 1991. And it
filed on May 24, 1993 another Petition for Review, docketed as CTA Case No. 4991, seeking the issuance of tax
credit certificates in the amount of ₱8,173,789.60 covering its input VAT payments for the 3rd and 4th quarters
of 1991.9
To the petition in CTA Case No. 4968 the CIR filed its Answer10 admitting that respondent filed its VAT returns for
the 1st and 2nd quarters of 1991 and an application for credit/refund of input VAT payment. It, however,
specifically denied the veracity of the amounts stated in respondent’s VAT returns and application for
credit/refund as the same continued to be under investigation.
On May 26, 1993, respondent filed in CTA Case No. 4968 a "Request for Admissions"11 of, among other facts, the
following:
xxx
5. That the original copies of the Official Receipts and Sales Invoices, reflected in Annex "C" ([Schedule of VAT b. VAT Registration Certificate;
INPUT on Domestic Purchase of Goods and Services for the quarter ending March 31, 1991] consisting of 24
pages) and Annex C-1 (Summary of Importation, 2 pages) were submitted to BIR-VAT, as required, for domestic c. VAT returns for the third and fourth quarters of 1990;
purchases of goods and services (1st semester, 1991) for a total net claimable of ₱5,268,401.90; while its VAT
input tax paid for importation was ₱679,853.00; (Emphasis and underscoring supplied)
d. Beginning and ending inventories of raw materials, work-in process, finished goods and materials and
supplies;
xxx
e. Zero-rated sales to Central Bank of the Philippines;
By Reply12 of August 11, 1993, the CIR specifically denied the veracity and accuracy of the amounts indicated in
respondent’s Request for Admissions,13 among other things.
f. Certification that the Company will not file any tax credit with the Board of Investments and Bureau of
Customs.
The CIR’s Reply, however, was not verified, prompting respondent to file on August 30, 1993 a "SUPPLEMENT (To
Annotation of Admission)" alleging that as the reply was not under oath, "an implied admission of [its requests]
which completely documented the petitioner’s claim for refund as required.
ar[ose]" as a consequence thereof.14

5. That the original copies of the Official Receipts and Sales Invoices, reflected in Annex "C" (consisting of 35
On September 27, 1993, the CIR filed a Motion to Admit Reply, which Reply was verified and attached to the
pages) and Annex C-1 (Summary of Importation, 2 pages) were submitted to BIR-VAT, as required, to show
motion, alleging that its Reply of August 11, 1993 was "submitted within the period for submission thereof, but,
domestic purchases of goods and services (2nd semester, 1991) which established that the total net claimable of
however, was incomplete [due to oversight] as to the signature of the administering officer in the verification."15
₱7,953,816.38; while its VAT input tax paid for importation was ₱563,503.00;

By Resolution16 of February 28, 1994, the CTA, finding that the matters subject of respondent’s Request for
x x x17
Admissions are "relevant to the facts stated in the petition for review" and there being an implied admission by
the CIR under Section 2 of Rule 26 of the then Revised Rules of Court reading:
To the Request for Admission the CIR filed a Manifestation and Motion alleging that as the issues had not yet
been joined, respondent’s request is baseless and premature18 under Section 1, Rule 26 of the Revised Rules of
Section 2. Implied Admission. – Each of the matters of which an admission is requested shall be deemed
Court.19
admittedunless xxx the party to whom the request is directed serves upon the party requesting the admission
a swornstatement either denying specifically the matters of which an admission is requested xxx. (Emphasis and
underscoring supplied), In the meantime, the CIR filed on August 16, 1993 its Answer,20 it averring that sales of gold to the Central Bank
may not be legally considered export sales for purposes of Section 100(a) in relation to Section 100(a)(1) 21 of the
Tax Code; and that assuming that a refund is proper, respondent must demonstrate that it complied with the
granted respondent’s Request for Admissions and denied the CIR’s Motion to Admit Reply.
provisions of Section 204(3) in relation to Section 230 of the Tax Code.22

With respect to CTA Case No. 4991, respondent also filed a "Request for Admissions" dated May 27, 1993 of the
following facts:
xxx
2. Petitioner’s 3rd and 4th Quarters 1991 VAT Returns were submitted and filed with the BIR-VAT Divisions on
October 21, 1991 and January 20, 1991, respectively and subsequently, on April 7, 1993 petitioner filed and
submitted its application for tax credit on VAT paid for the 2nd semester of 1990;
xxx
The CIR subsequently filed on March 25, 1992 its Reply to respondent’s Request for Admission in CTA No. 4991,
it admitting that respondent filed its VAT returns and VAT applications for tax credit for the 3rd and 4th quarters
of 1991, but specifically denying the correctness and veracity of the amounts indicated in the schedules and
summary of importations, VAT services and goods, the total input and output taxes, including the amount of
refund claimed.23
By Resolution24 of February 22, 1994, the CTA, in CTA Case No. 4991, admitted the matters covered by
respondent’s Request for Admission except those specifically denied by the CIR. In the same Resolution, the CTA
consolidated Case Nos. 4968 and 4991, they involving the same parties and substantially the same factual and
legal issues.

4. That attached to the transmittal letter [forwarded petitioner’s application for tax refund credit] of March 31, Joint hearings of CTA Case Nos. 4968 and 4991 were thus conducted.
1992 (Annex "B") are the following documents:
Through its Chief Accountant Danilo Bautista, respondent claimed that in 1991, it sold a total of 20,288.676
a. Copies of invoices and other supporting documents; ounces of gold to the Central Bank valued at ₱200,832,364.70, as certified by the Director of the Mint and
Refinery Department of the Central Bank25 and that in support of its application for refund filed with the BIR, it
submitted copies of all invoices and official receipts covering its input VAT payments to the VAT Division of the
BIR, "the summary and schedules" of which were certified by its external auditor, the Joaquin Cunanan & Co.26
Senior Audit Manager of Joaquin Cunanan & Co., Irene Ballesteros, who was also presented by respondent,
declared that she conducted a special audit work for respondent for the purpose of determining its actual input
VAT payments for the second semester of 1991 and examined every original supplier’s invoice, official receipts,
and other documents supporting the payments;27 and that there were no discrepancies or errors between the
summaries and schedules of suppliers’ invoices prepared by respondent and the VAT invoices she examined. 28
Following the filing by respondent of its formal offer of evidence in both cases,29 the CTA, by Resolution30 of July
18, 1995, admitted the same.
Upon the issue of whether respondent’s sales of gold to the BSP during the four quarters of 1991 are subject to
10% VAT under Section 100 of the Tax Code or should be considered zero-rated under paragraph a(2) of said
Section 100, the CTA held that said sales are not subject to 10% output VAT, citing Atlas Consolidated Mining and
Development Corporation v. Court of Appeals,31 Manila Mining Corporation v. Commissioner of Internal
Revenue,32and Benguet Corporation v. Commissioner of Internal Revenue.33
Nonetheless, the CTA denied respondent’s claim for refund of input VAT for failure to prove that it paid the
amounts claimed as such for the year 1991, no sales invoices, receipts or other documents as required under
Section 2(c)(1) of Revenue Regulations No. 3-88 having been presented.34 The CTA explained that
a mere listing of VAT invoices and receipts, even if certified to have been previously examined by an independent
certified public accountant, would not suffice to establish the truthfulness and accuracy of the contents of such
invoices and receipts unlessoffered and actually verified by it (CTA) in accordance with CTA Circular No. 1-95, as
amended by CTA Circular No. 10-97, which requires that photocopies of invoices, receipts and other documents
covering said accounts of payments be pre-marked by the party concerned and submitted to the court.35
Respondent’s motion for reconsideration36 of the CTA decision having been denied by Resolution 37 of February
11, 1999, respondent brought the case to the Court of Appeals before which it contended that the CTA erred in
denying the refund for insufficiency of evidence, it arguing that in light of the admissions by the CIR of the
matters subject of it Requests for Admissions, it was relieved of the burden of submitting the purchase invoices
and/or receipts to support its claims.38
By Decision39 of April 12, 2002, the Court of Appeals reversed the decision of the CTA and granted respondent’s
claim for refund or issuance of tax credit certificates in the amounts of ₱5,683,035.04 for CTA Case No. 4968 and
₱8,173,789.60 for CTA Case No. 4991.
In granting the refund, the appellate court held that there was no need for respondent to present the
photocopies of the purchase invoices or receipts evidencing the VAT paid in view of Rule 26, Section 2 of the
Revised Rules of Court40 and the Resolutions of the CTA holding that the matters requested in respondent’s
Request for Admissions in CTA No. 4968 were deemed admitted by the CIR 41 in light of its failure to file a verified
reply thereto.
The appellate court further held that the CIR’s reliance on the best evidence rule is misplaced since this rule does
not apply to matters which have been judicially admitted.42
Hence, the present petition for review,43 the CIR arguing that respondent’s failure to submit documentary
evidence to confirm the veracity of its claims is fatal; and that the CTA, being a court of record, is not expected to
go out of its way and dig into the records of the BIR to supply the insufficient evidence presented by a party, and
in fact it may set a definite rule that only evidence formally presented will be considered in deciding cases before
it.44
Respondent, in its Comment,45 avers that it complied with the provisions of Section 2(c)(1) of Revenue
Regulation No. 3-88 when it submitted the original receipts and invoices to the BIR, which fact of submission had
been deemed admitted by petitioner, as confirmed by the CTA in its Resolutions in both cases granting
respondent’s Requests for Admissions therein.
To respondent’s Comment the Office of the Solicitor General (OSG), on behalf of petitioner, filed its
Reply,46 arguing that the documents required to be submitted to the BIR under Revenue Regulation No. 3-88
should likewise be presented to the CTA to prove entitlement to input tax credit.47 In addition, it argues that,
contrary to respondent’s position, a certification by an independent Certified Public Accountant (CPA) as
provided under CTA Circulars 1-95 and 10-97 does not relieve respondent of the onus of adducing in evidence
the invoices, receipts and other documents to show the input VAT paid on its purchase of goods and services.48
The pivotal issue then is whether respondent adduced sufficient evidence to prove its claim for refund of its
input VAT for taxable year 1991 in the amounts of ₱5,683,035.04 and ₱8,173,789.60.
The petition is impressed with merit.
In Commissioner of Internal Revenue v. Benguet Corporation,49 this Court had the occasion to note that as early
as 1988, the BIR issued several VAT rulings to the effect that sales of gold to the Central Bank by a VAT-registered
person or entity are considered export sales.
The transactions in question occurred during the period from 1988 and 1991. Under Sec. 99 of the National
Internal Revenue Code (NIRC), as amended by Executive Order (E.O.) No. 273 s. 1987, then in effect, any person
who, in the course of trade or business, sells, barters or exchanges goods, renders services, or engages in similar
transactions and any person who imports goods is liable for output VAT at rates of either 10% or 0% ("zero
rated") depending on the classification of the transaction under Sec. 100 of the NIRC. xxx
xxx
In January of 1988, respondent applied for and was granted by the BIR zero-rated status on its sale of gold to the
Central Bank. On 28 August 1988, Deputy Commissioner of Internal Revenue Eufracio D. Santos issued VAT
Ruling No. 3788-88, which declared that "[t]he sale of gold to Central Bank is considered as export sale subject to
zero-rate pursuant to Section 100 of the Tax Code, as amended by Executive Order No. 273." The BIR came out
with at least six (6) other issuances, reiterating the zero-rating of sale of gold to the Central Bank, the latest of
which is VAT Ruling No. 036-90 dated 14 February 1990.
x x x50 (Italics in the original; underscoring supplied)
As export sales, the sale of gold to the Central Bank is zero-rated, hence, no tax is chargeable to it as purchaser.
Zero rating is primarily intended to be enjoyed by the seller – respondent herein, which charges no output VAT
but can claim a refund of or a tax credit certificate for the input VAT previously charged to it by suppliers.51
For a judicial claim for refund to prosper, however, respondent must not only prove that it is a VAT registered
entity and that it filed its claims within the prescriptive period. It must substantiate the input VAT paid by
purchase invoices or official receipts.52
This respondent failed to do.
Revenue Regulation No. 3-88 amending Revenue Regulation No. 5-87 provides the requirements in claiming tax
credits/refunds.
Sec.2. Section 16 of Revenue Regulations 5-87 is hereby amended to read as follows:
Sec. 16. Refunds or tax credits of input tax. -
(a) Zero-rated sales of goods and services – Only a VAT-registered person may be granted a tax credit or refund
of value-added taxes paid corresponding to the zero-rated sales of goods and services, to the extent that such
taxes have not been applied against output taxes, upon showing of proof of compliance with the conditions
stated in Section 8 of these Regulations.
For export sales, the application should be filed with the Bureau of Internal Revenue within two years from the
date of exportation. For other zero-rated sales, the application should be filed within two years after the close of
the quarter when the transaction took place.
xxx
(c) Claims for tax credits/refunds. - Application for Tax Credit/Refund of Value-Added Tax Paid (BIR Form No.
2552) shall be filed with the Revenue District Office of the city or municipality where the principal place of
business of the applicant is located or directly with the Commissioner, Attention: VAT Division.
A photocopy of the purchase invoice or receipt evidencing the value added tax paid shall be submitted together
with the application. The original copy of the said invoice/receipt, however, shall be presented for cancellation
prior to the issuance of the Tax Credit Certificate or refund. xxx (Emphasis and underscoring supplied)
Under Section 8 of RA 1125,53 the CTA is described as a court of record. As cases filed before it are litigated de
novo, party litigants should prove every minute aspect of their cases. No evidentiary value can be given the
purchase invoices or receipts submitted to the BIR as the rules on documentary evidence require that these
documents must be formally offered before the CTA.54
This Court thus notes with approval the following findings of the CTA:
xxx [S]ale of gold to the Central Bank should not be subject to the 10% VAT-output tax but this does not ipso
factomean that [the seller] is entitled to the amount of refund sought as it is required by law to present evidence
showing the input taxes it paid during the year in question. What is being claimed in the instant petition is the
refund of the input taxes paid by the herein petitioner on its purchase of goods and services. Hence, it is
necessary for the Petitioner to show proof that it had indeed paid the said input taxes during the year 1991. In
the case at bar, Petitioner failed to discharge this duty. It did not adduce in evidence the sales invoice, receipts or
other documents showing the input value added tax on the purchase of goods and services. 55
xxx
Section 8 of Republic Act 1125 (An Act Creating the Court of Tax Appeals) provides categorically that the Court of
Tax Appeals shall be a court of record and as such it is required to conduct a formal trial (trial de novo) where
the parties must present their evidence accordingly if they desire the Court to take such evidence into
consideration.56 (Emphasis and underscoring supplied)
A "sales or commercial invoice" is a written account of goods sold or services rendered indicating the prices
charged therefor or a list by whatever name it is known which is used in the ordinary course of business
evidencing sale and transfer or agreement to sell or transfer goods and services.57
A "receipt" on the other hand is a written acknowledgment of the fact of payment in money or other
settlementbetween seller and buyer of goods, debtor or creditor, or person rendering services and client or
customer.58
These sales invoices or receipts issued by the supplier are necessary to substantiate the actual amount or
quantity of goods sold and their selling price,59 and taken collectively are the best means to prove the input VAT
payments.
Respondent contends, however, that the certification of the independent CPA attesting to the correctness of the
contents of the summary of suppliers’ invoices or receipts which were examined, evaluated and audited by said
CPA in accordance with CTA Circular No. 1-95 as amended by CTA Circular No. 10-97 should substantiate its
claims.
There is nothing, however, in CTA Circular No. 1-95, as amended by CTA Circular No. 10-97, which either
expressly or impliedly suggests that summaries and schedules of input VAT payments, even if certified by an
independent CPA, suffice as evidence of input VAT payments.
Thus CTA Circular No. 1-95 provides:
1. The party who desires to introduce as evidence such voluminous documents must present: (a) a Summary
containing the total amount/s of the tax account or tax paid for the period involved and a chronological or
numerical list of the numbers, dates and amounts covered by the invoices or receipts; and (b) a Certification of
an independent Certified Public Accountant attesting to the correctness of the contents of the summary after
making an examination and evaluation of the voluminous receipts and invoices. Such summary and certification
must properly be identified by a competent witness from the accounting firm.
2. The method of individual presentation of each and every receipt or invoice or other documents for marking,
identification and comparison with the originals thereof need not be done before the Court or the Commissioner
anymore after the introduction of the summary and CPA certification. It is enough that the receipts, invoices and
other documents covering the said accounts or payments must be pre-marked by the party concerned and
submitted to the Court in order to be made accessible to the adverse party whenever he/she desires to check
and verify the correctness of the summary and CPA certification. However, the originals of the said receipts,
invoices or documents should be ready for verification and comparison in case of doubt on the authenticity of
the particular documents presented is raised during the hearing of the case.60 (Underscoring supplied)
The circular, in the interest of speedy administration of justice, was promulgated to avoid the time-consuming
procedure of presenting, identifying and marking of documents before the Court. It does not relieve respondent
of its imperative task of pre-marking photocopies of sales receipts and invoices and submitting the same to the
court after the independent CPA shall have examined and compared them with the originals. Without presenting
these pre-marked documents as evidence – from which the summary and schedules were based, the court
cannot verify the authenticity and veracity of the independent auditor’s conclusions. 61
There is, moreover, a need to subject these invoices or receipts to examination by the CTA in order to confirm
whether they are VAT invoices. Under Section 21 of Revenue Regulation No. 5-87,62 all purchases covered by
invoices other than a VAT invoice shall not be entitled to a refund of input VAT.
The CTA disposition of the matter is thus in order.
Mere listing of VAT invoices and receipts, even if certified to have been previously examined by an independent
certified public accountant, would not suffice to establish the truthfulness and accuracy of the contents thereof
unless offered and actually verified by this Court. CTA Circular No. 1-95, as amended by CTA Circular No. 10-97,
requires that the photocopies of invoices, receipts and other documents covering said accounts or payments
must be pre-marked by the party and submitted to this Court.63 (Underscoring supplied)
There being then no showing of abuse or improvident exercise of the CTA’s authority, this Court is not inclined to
set aside the conclusions reached by it, which, by the very nature of its functions, is dedicated exclusively to the
study and consideration of tax problems and has necessarily developed an expertise on the subject.64
While the CTA is not governed strictly by technical rules of evidence, 65 as rules of procedure are not ends in
themselves but are primarily intended as tools in the administration of justice, the presentation of the purchase
receipts and/or invoices is not mere procedural technicality which may be disregarded considering that it is the
only means by which the CTA may ascertain and verify the truth of respondent’s claims.
The records further show that respondent miserably failed to substantiate its claim for input VAT refund for
the first semester of 1991. Except for the summary and schedules of input VAT payments prepared by
respondent itself, no other evidence was adduced in support of its claim.
As for respondent’s claim for input VAT refund for the second semester of 1991, it employed the services of
Joaquin Cunanan & Co. on account of which it (Joaquin Cunanan & Co.) executed a certification that:
We have examined the information shown below concerning the input tax payments made by the Makati Office
of Manila Mining Corporation for the period from July 1 to December 31, 1991. Our examination included
inspection of the pertinent suppliers’ invoices and official receipts and such other auditing procedures as we
considered necessary in the circumstances. xxx66
As the certification merely stated that it used "auditing procedures considered necessary" and not auditing
procedures which are in accordance with generally accepted auditing principles and standards, and that the
examination was made on "input tax payments by the Manila Mining Corporation," without specifying that the
said input tax payments are attributable to the sales of gold to the Central Bank, this Court cannot rely thereon
and regard it as sufficient proof of respondent’s input VAT payments for the second semester.
Finally, respecting respondent’s argument that it need not prove the amount of input VAT it paid for the first
semester of taxable year 1991 as the same was proven by the implied admission of the CIR, which was confirmed
by the CTA when it admitted its Request for Admission,67 the same does not lie.
Respondent’s Requests for Admission do not fall within Section 2 Rule 26 of the Revised Rules of Court. 68 What
respondent sought the CIR to admit are the total amount of input VAT payments it paid for the first and second
semesters of taxable year 1991, which matters have already been previously alleged in respondent’s petition and
specifically denied by the CIR in its Answers dated May 10, 1993 and August 16, 1993 filed in CTA Case Nos. 4869
and 4991, respectively.
As Concrete Aggregates Corporation v. Court of Appeals69 holds, admissions by an adverse party as a mode of
discovery contemplates of interrogatories that would clarify and tend to shed light on the truth or falsity of the
allegations in a pleading, and does not refer to a mere reiteration of what has already been alleged in the
pleadings; otherwise, it constitutes an utter redundancy and will be a useless, pointless process which petitioner
should not be subjected to.70
Petitioner controverted in its Answers the matters set forth in respondent’s Petitions for Review before the CTA
– the requests for admission being mere reproductions of the matters already stated in the petitions. Thus,
petitioner should not be required to make a second denial of those matters it already denied in its Answers. 71
As observed by the CTA, petitioner did in fact file its reply to the Request for Admissions in CTA Case No. 4869
and specifically denied the veracity and accuracy of the figures indicated in respondent’s summary. The Motion
to Admit Reply was, however, denied by the CTA as the original Reply was not made under oath.
That the Reply was not made under oath is merely a formal and not a substantive defect and may be dispensed
with.72 Although not under oath, petitioner’s reply to the request readily showed that its intent was to deny the
matters set forth in the Request for Admissions.
As for respondent’s Request for Admission in CTA Case No. 4991, petitioner timely filed its reply and specifically
denied the accuracy and veracity of the contents of the schedules and summaries which listed the input VAT
payments allegedly paid by respondent for the second semester of 1991.
For failure of respondent then not only to strictly comply with the rules of procedure but also to establish the
factual basis of its claim for refund, this Court has to deny its claim. A claim for refund is in the nature of a claim
for exemption and should be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing
authority.73
WHEREFORE, the petition is hereby GRANTED. The assailed Decision of the Court of Appeals dated April 12, 2002
is hereby REVERSED and SET ASIDE. The Court of Tax Appeals Decision dated November 24, 1998 is
hereby REINSTATED.
SO ORDERED.
G.R. No. 185115 February 18, 2015
NORTHERN MINDANAO POWER CORPORATION, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
SERENO, CJ:
This is a Petition for Review on Certiorari1 under Rule 45 of the 1997 Rules of Civil Procedure filed by Northern
Mindanao Power Corporation (petitioner). The Petition assails the Decision2 dated 18 July 2008 and
Resolution3dated 27 October 2008 issued by the Court of Tax Appeals En Banc (CTA En Banc) in C.T.A. EB No.
312.
THE FACTS
Petitioner is engaged in the production sale of electricity as an independent power producer and sells electricity
to National Power Corporation (NPC). It allegedly incurred input value-added tax (VAT) on its domestic purchases
of goods and services that were used in its production and sale of electricity to NPC. For the 3rd and the 4th
quarters of taxable year 1999, petitioner’s input VAT totaled to ₱2,490,960.29, while that incurred for all the
quarters of taxable year 2000 amounted to ₱3,920,932.55.4
Petitioner filed an administrative claim for a refund on 20 June 2000 for the 3rd and the 4th quarters of taxable
year 1999, and on 25 July 2001 for taxable year 2000 in the sum of ₱6,411,892.84.5
Thereafter, alleging inaction of respondent on these administrative claims, petitioner filed a Petition 6 with the
CTA on 28 September 2001.
The CTA First Division denied the Petition and the subsequent Motion for Reconsideration for lack of merit. The
Court in Division found that the term "zero-rated" was not imprinted on the receipts or invoices presented by
petitioner in violation of Section 4.108-1 of Revenue Regulations No. 7-95. Petitioner failed to substantiate its
claim for a refund and to strictly comply with the invoicing requirements of the law and tax regulations. 7 In his
Concurring and Dissenting Opinion, however, then Presiding Justice Ernesto D. Acosta opined that the Tax Code
does not require that the word "zero-rated" be imprinted on the face of the receipt or invoice. He further
pointed out that the absence of that term did not affect the admissibility and competence of the receipt or
invoice as evidence to support the claim for a refund. 8
On appeal to the CTA En Banc, the Petition was likewise denied. The court ruled that for every sale of services,
VAT shall be computed on the basis of gross receipts indicated on the official receipt. Official receipts are proofs
of sale of services and cannot be interchanged with sales invoices as the latter are used for the sale of goods.
Further, the requirement of issuing duly registered VAT official receipts with the term "zero-rated" imprinted is
mandatory under the law and cannot be substituted, especially for input VAT refund purposes. Then Presiding
Justice Acosta maintained his dissent.
Hence, this appeal before us.
ISSUES
Petitioner’s appeal is anchored on the following grounds:
Section 4.108-1 of Revenue Regulations (RR) No. 7-95 which expanded the statutory requirements for the
issuance of official receipts and invoices found in Section 113 of the 1997 Tax Code by providing for the
additional requirement of the imprinting of the terms "zero-rated" is unconstitutional.
Company invoices are sufficient to establish the actual amount of sale of electric power services to the National
Power Corporation and therefore sufficient to substantiate Petitioner’s claim for refund.9
THE COURT’S RULING
To start with, this Court finds it appropriate to first determine the timeliness of petitioner’s judicial claim in order
to determine whether the tax court properly acquired jurisdiction, although the matter was never raised as an
issue by the parties. Well-settled is the rule that the issue of jurisdiction over the subject matter may, at any
time, be raised by the parties or considered by the Court motu proprio. 10 Therefore, the jurisdiction of the CTA
over petitioner’s appeal may still be considered and determined by this Court.
Section 112 of the National Internal Revenue Code (NIRC) of 1997 laid down the manner in which the refund or
credit of input tax may be made. For a VAT-registered person whose sales are zero-rated or effectively zero-
rated, Section 112(A) specifically provides for a two-year prescriptive period after the close of the taxable
quarter when the sales were made within which such taxpayer may apply for the issuance of a tax credit
certificate or refund of creditable input tax. In the consolidated tax cases Commissioner of Internal Revenue v.
San Roque Power Corporation, Taganito Mining Corporation v. Commissioner of Internal Revenue, and Philex
Mining Corporation v. Commissioner of Internal Revenue11 (hereby collectively referred to as San Roque), the
Court clarified that the two-year period refers to the filing of an administrative claim with the BIR.
In this case, petitioner had until 30 September 2001 and 31 December 2001 for the claims covering the 3rd and
the 4th quarters of taxable year 1999; and 31 March, 30 June, 30 September and 31 December in 2002 for the
claims covering all four quarters of taxable year 2000 −or the close of the taxable quarter when the zero-rated
sales were made −within which to file its administrative claim for a refund. On this note, we find that petitioner
had sufficiently complied with the two-year prescriptive period when it filed its administrative claim for a refund
on 20 June 2000 covering the 3rd and the 4th quarters of taxable year 1999 and on 25 July 2001covering all the
quarters of taxable year 2000.
Pursuant to Section 112(D) of the NIRC of 1997, respondent had one hundred twenty (120) days from the date of
submission of complete documents in support of the application within which to decide on the administrative
claim. The burden of proving entitlement to a tax refund is on the taxpayer. Absent any evidence to the contrary,
it is presumed that in order to discharge its burden, petitioner attached to its applications complete supporting
documents necessary to prove its entitlement to a refund.12 Thus, the 120-day period for the CIR to act on the
administrative claim commenced on 20 June 2000 and 25 July 2001.
As laid down in San Roque, judicial claims filed from 1 January 1998 until the present should strictly adhere to
the 120+30-day period referred to in Section 112 of the NIRC of 1997.The only exception is the period 10
December 2003 until 6 October 2010. Within this period, BIR Ruling No. DA-489-03 is recognized as an equitable
estoppel, during which judicial claims may be filed even before the expiration of the 120-day period granted to
the CIR to decide on a claim for a refund.
For the claims covering the 3rd and the 4th quarters of taxable year 1999 and all the quarters of taxable
year2000, petitioner filed a Petition with the CTA on 28 September 2001.
Both judicial claims must be disallowed.
a) Claim for a refund of input VAT
covering the 3rd and the 4th
quarters of taxable year 1999
Counting 120 days from 20 June 2000, the CIR had until 18 October 2000 within which to decide on the claim of
petitioner for an input VAT refund attributable to its zero-rated sales for the period covering the 3rd and the 4th
quarters of taxable year 1999. If after the expiration of that period respondent still failed to act on the
administrative claim, petitioner could elevate the matter to the court within 30 days or until 17 November 2000.
Petitioner belatedly filed its judicial claim with the CTA on 28 September 2001. Just like in Philex, this was a case
of late filing. The Court explained thus:
Unlike San Roque and Taganito, Philex’s case is not one of premature filing but of late filing. Philex did not file
any petition with the CTA within the 120-day period. Philex did not also file any petition with the CTA within 30
days after the expiration of the 120-day period. Philex filed its judicial claim long after the expiration of the 120-
day period, in fact 426 days after the lapse of the 120-day period. In any event, whether governed by
jurisprudence before, during, or after the Atlas case, Philex’s judicial claim will have to be rejected because of
late filing. Whether the two-year prescriptive period is counted from the date of payment of the output VAT
following the Atlas doctrine, or from the close of the taxable quarter when the sales attributable to the input
VAT were made following the Mirant and Aichi doctrines, Philex’s judicial claim was indisputably filed late.
The Atlas doctrine cannot save Philex from the late filing of its judicial claim. The inaction of the Commissioner
on Philex’s claim during the 120-day period is, by express provision of law, "deemed a denial" of Philex’s claim.
Philex had 30 days from the expiration of the 120-day period to file its judicial claim with the CTA. Philex’s failure
to do so rendered the "deemed a denial" decision of the Commissioner final and inappealable. The right to
appeal to the CTA from a decision or "deemed a denial" decision of the Commissioner is merely a statutory
privilege, not a constitutional right. The exercise of such statutory privilege requires strict compliance with the
conditions attached by the statute for its exercise. Philex failed to comply with the statutory conditions and must
thus bear the consequences.
xxxx
Philex’s situation is not a case of premature filing of its judicial claim but of late filing, indeed very late filing. BIR
Ruling No. DA-489-03 allowed premature filing of a judicial claim, which means non-exhaustion of the 120-day
period for the Commissioner to act on an administrative claim. Philex cannot claim the benefit of BIR Ruling No.
DA-489-03 because Philex did not file its judicial claim prematurely but filed it long after the lapse of the 30-day
period following the expiration of the 120-day period. In fact, Philex filed its judicial claim 426 days after the
lapse of the 30-day period.13 (Emphasis in the original)
Petitioner’s claim for the 3rd and the 4th quarters of taxable year 1999 was filed 319 days after the expiration of
the 30-day period. To reiterate, the right to appeal is a mere statutory privilege that requires strict compliance
with the conditions attached by the statute for its exercise. Like Philex, petitioner failed to comply with the
statutory conditions and must therefore bear the consequences. It already lost its right to claim a refund or
credit of its alleged excess input VAT attributable to zero-rated or effectively zero-rated sales for the 3rd and the
4th quarters of taxable year 1999 by virtue of its own failure to observe the prescriptive periods.
b) Claim for the refund of input
VAT covering all quarters of
taxable year 2000
For the year 2000, petitioner timely filed its administrative claim on 25 July 2001within the two-year period from
the close of the taxable quarter when the zero-rated sales were made. Pursuant to Section 112(D) of the NIRC of
1997, respondent had 120 days or until 22 November 2001 within which to act on petitioner’s claim. It is only
when respondent failed to act on the claim after the expiration of that period that petitioner could elevate the
matter to the tax court. Records show, however, that petitioner filed its Petition with the CTA on 28 September
2001 without waiting for the expiration of the 120-day period. Barely 64 days had lapsed when the judicial claim
was filed with the CTA. The Court in San Roquehas already settled that failure of the petitioner to observe the
mandatory 120-day period is fatal to its judicial claim and renders the CTA devoid of jurisdiction over that claim.
On 28 September 2001 – the date on which petitioner filed its judicial claim for the period covering taxable year
2000 −the 120+30 day mandatory period was already in the law and BIR Ruling No. DA-489-03 had not yet been
issued. Considering this fact, petitioner did not have an excuse for not observing the 120+30 day period. Again, as
enunciated in San Roque, it is only the period between 10 December 2003 and 6 October 2010 that the 120-day
period may not be observed. While the ponente had disagreed with the majority ruling in San Roque, the latter is
now the judicial doctrine that will govern like cases.
The judicial claim was thus prematurely filed for failure of petitioner to observe the 120-day waiting
period.1âwphi1 The CTA therefore did not acquire jurisdiction over the claim for a refund of input VAT for all the
quarters of taxable year 2000.
In addition, the issue of the requirement of imprinting the word "zero-rated" has already been settled by this
Court in a number of cases. In Western Mindanao Power Corporation v. CIR,14 we ruled:
RR 7-95, which took effect on 1 January 1996, proceeds from the rule-making authority granted to the Secretary
of Finance by the NIRC for the efficient enforcement of the same Tax Code and its amendments. In Panasonic
Communications Imaging Corporation of the Philippines v. Commissioner of Internal Revenue, we ruled that this
provision is "reasonable and is in accord with the efficient collection of VAT from the covered sales of goods and
services." Moreover, we have held in Kepco Philippines Corporation v. Commissioner of Internal Revenue that the
subsequent incorporation of Section 4.108-1 of RR 7-95 in Section 113 (B) (2) (c) of R.A. 9337 actually confirmed
the validity of the imprinting requirement on VAT invoices or official receipts – a case falling under the principle of
legislative approval of administrative interpretation by reenactment.
In fact, this Court has consistently held as fatal the failure to print the word "zero-rated" on the VAT invoices or
official receipts in claims for a refund or credit of input VAT on zero-rated sales, even if the claims were made
prior to the effectivity of R.A. 9337. Clearly then, the present Petition must be denied.
Finally, as regards the sufficiency of a company invoice to prove the sales of services to NPC, we find this claim is
without sufficient legal basis. Section 113 of the NIRC of 1997 provides that a VAT invoice is necessary for every
sale, barter or exchange of goods or properties, while a VAT official receipt properly pertains to every lease of
goods or properties; as well as to every sale, barter or exchange of services.
The Court has in fact distinguished an invoice from a receipt m Commissioner of Internal Revenue v. Manila
Mining Corporation:15
A "sales or commercial invoice" is a written account of goods sold or services rendered indicating the prices
charged therefor or a list by whatever name it is known which is used in the ordinary course of business
evidencing sale and transfer or agreement to sell or transfer goods and services.
A "receipt" on the other hand is a written acknowledgment of the fact of payment in money or other settlement
between seller and buyer of goods, debtor or creditor, or person rendering services and client or customer.
A VAT invoice is the seller's best proof of the sale of goods or services to the buyer, while a VAT receipt is the
buyer's best evidence of the payment of goods or services received from the seller. A VAT invoice and a VAT
receipt should not be confused and made to refer to one and the same thing. Certainly, neither does the law
intend the two to be used alternatively.16 WHEREFORE, premises considered, the instant Petition is DENIED.
SO ORDERED.
G.R. No. 151135 July 2, 2004
CONTEX CORPORATION, petitioner,
vs.
HON. COMMISSIONER OF INTERNAL REVENUE, respondent.
DECISION
QUISUMBING, J.:
For review is the Decision1 dated September 3, 2001, of the Court of Appeals, in CA-G.R. SP No. 62823, which
reversed and set aside the decision2 dated October 13, 2000, of the Court of Tax Appeals (CTA). The CTA had
ordered the Commissioner of Internal Revenue (CIR) to refund the sum of P683,061.90 to petitioner as
erroneously paid input value-added tax (VAT) or in the alternative, to issue a tax credit certificate for said
amount. Petitioner also assails the appellate court’s Resolution,3 dated December 19, 2001, denying the motion
for reconsideration.
Petitioner is a domestic corporation engaged in the business of manufacturing hospital textiles and garments
and other hospital supplies for export. Petitioner’s place of business is at the Subic Bay Freeport Zone (SBFZ). It is
duly registered with the Subic Bay Metropolitan Authority (SBMA) as a Subic Bay Freeport Enterprise, pursuant
to the provisions of Republic Act No. 7227.4 As an SBMA-registered firm, petitioner is exempt from all local and
national internal revenue taxes except for the preferential tax provided for in Section 12 (c)5 of Rep. Act No.
7227. Petitioner also registered with the Bureau of Internal Revenue (BIR) as a non-VAT taxpayer under
Certificate of Registration RDO Control No. 95-180-000133.
From January 1, 1997 to December 31, 1998, petitioner purchased various supplies and materials necessary in
the conduct of its manufacturing business. The suppliers of these goods shifted unto petitioner the 10% VAT on
the purchased items, which led the petitioner to pay input taxes in the amounts of P539,411.88 and P504,057.49
for 1997 and 1998, respectively.6
Acting on the belief that it was exempt from all national and local taxes, including VAT, pursuant to Rep. Act No.
7227, petitioner filed two applications for tax refund or tax credit of the VAT it paid. Mr. Edilberto Carlos,
revenue district officer of BIR RDO No. 19, denied the first application letter, dated December 29, 1998.
Unfazed by the denial, petitioner on May 4, 1999, filed another application for tax refund/credit, this time
directly with Atty. Alberto Pagabao, the regional director of BIR Revenue Region No. 4. The second letter sought
a refund or issuance of a tax credit certificate in the amount of P1,108,307.72, representing erroneously paid
input VAT for the period January 1, 1997 to November 30, 1998.
When no response was forthcoming from the BIR Regional Director, petitioner then elevated the matter to the
Court of Tax Appeals, in a petition for review docketed as CTA Case No. 5895. Petitioner stressed that Section
112(A)7 if read in relation to Section 106(A)(2)(a)8 of the National Internal Revenue Code, as amended and
Section 12(b)9 and (c) of Rep. Act No. 7227 would show that it was not liable in any way for any value-added tax.
In opposing the claim for tax refund or tax credit, the BIR asked the CTA to apply the rule that claims for refund
are strictly construed against the taxpayer. Since petitioner failed to establish both its right to a tax refund or tax
credit and its compliance with the rules on tax refund as provided for in Sections 20410 and 22911 of the Tax Code,
its claim should be denied, according to the BIR.
On October 13, 2000, the CTA decided CTA Case No. 5895 as follows:
WHEREFORE, in view of the foregoing, the Petition for Review is hereby PARTIALLY GRANTED.
Respondent is hereby ORDERED to REFUND or in the alternative to ISSUE A TAX CREDIT CERTIFICATE in
favor of Petitioner the sum of P683,061.90, representing erroneously paid input VAT.
SO ORDERED.12
In granting a partial refund, the CTA ruled that petitioner misread Sections 106(A)(2)(a) and 112(A) of the Tax
Code. The tax court stressed that these provisions apply only to those entities registered as VAT taxpayers whose
sales are zero-rated. Petitioner does not fall under this category, since it is a non-VAT taxpayer as evidenced by
the Certificate of Registration RDO Control No. 95-180-000133 issued by RDO Rosemarie Ragasa of BIR RDO No.
18 of the Subic Bay Freeport Zone and thus it is exempt from VAT, pursuant to Rep. Act No. 7227, said the CTA.
Nonetheless, the CTA held that the petitioner is exempt from the imposition of input VAT on its purchases of
supplies and materials. It pointed out that under Section 12(c) of Rep. Act No. 7227 and the Implementing Rules
and Regulations of the Bases Conversion and Development Act of 1992, all that petitioner is required to pay as a
SBFZ-registered enterprise is a 5% preferential tax.
The CTA also disallowed all refunds of input VAT paid by the petitioner prior to June 29, 1997 for being barred by
the two-year prescriptive period under Section 229 of the Tax Code. The tax court also limited the refund only to
the input VAT paid by the petitioner on the supplies and materials directly used by the petitioner in the
manufacture of its goods. It struck down all claims for input VAT paid on maintenance, office supplies, freight
charges, and all materials and supplies shipped or delivered to the petitioner’s Makati and Pasay City offices.
Respondent CIR then filed a petition, docketed as CA-G.R. SP No. 62823, for review of the CTA decision by the
Court of Appeals. Respondent maintained that the exemption of Contex Corp. under Rep. Act No. 7227 was
limited only to direct taxes and not to indirect taxes such as the input component of the VAT. The Commissioner
pointed out that from its very nature, the value-added tax is a burden passed on by a VAT registered person to
the end users; hence, the direct liability for the tax lies with the suppliers and not Contex.
Finding merit in the CIR’s arguments, the appellate court decided CA-G.R. SP No. 62823 in his favor, thus:
WHEREFORE, premises considered, the appealed decision is hereby REVERSED AND SET ASIDE.
Contex’s claim for refund of erroneously paid taxes is DENIED accordingly.
SO ORDERED.13
In reversing the CTA, the Court of Appeals held that the exemption from duties and taxes on the importation of
raw materials, capital, and equipment of SBFZ-registered enterprises under Rep. Act No. 7227 and its
implementing rules covers only "the VAT imposable under Section 107 of the [Tax Code], which is a direct liability
of the importer, and in no way includes the value-added tax of the seller-exporter the burden of which was
passed on to the importer as an additional costs of the goods." 14 This was because the exemption granted by
Rep. Act No. 7227 relates to the act of importation and Section 10715 of the Tax Code specifically imposes the
VAT on importations. The appellate court applied the principle that tax exemptions are strictly construed against
the taxpayer. The Court of Appeals pointed out that under the implementing rules of Rep. Act No. 7227, the
exemption of SBFZ-registered enterprises from internal revenue taxes is qualified as pertaining only to those for
which they may be directly liable. It then stated that apparently, the legislative intent behind Rep. Act No. 7227
was to grant exemptions only to direct taxes, which SBFZ-registered enterprise may be liable for and only in
connection with their importation of raw materials, capital, and equipment as well as the sale of their goods and
services.
Petitioner timely moved for reconsideration of the Court of Appeals decision, but the motion was denied.
Hence, the instant petition raising as issues for our resolution the following:
A. WHETHER OR NOT THE EXEMPTION FROM ALL LOCAL AND NATIONAL INTERNAL REVENUE TAXES
PROVIDED IN REPUBLIC ACT NO. 7227 COVERS THE VALUE ADDED TAX PAID BY PETITIONER, A SUBIC
BAY FREEPORT ENTERPRISE ON ITS PURCHASES OF SUPPLIES AND MATERIALS.
B. WHETHER OR NOT THE COURT OF TAX APPEALS CORRECTLY HELD THAT PETITIONER IS ENTITLED TO
A TAX CREDIT OR REFUND OF THE VAT PAID ON ITS PURCHASES OF SUPPLIES AND RAW MATERIALS
FOR THE YEARS 1997 AND 1998.16
Simply stated, we shall resolve now the issues concerning: (1) the correctness of the finding of the Court of
Appeals that the VAT exemption embodied in Rep. Act No. 7227 does not apply to petitioner as a purchaser; and
(2) the entitlement of the petitioner to a tax refund on its purchases of supplies and raw materials for 1997 and
1998.
On the first issue, petitioner argues that the appellate court’s restrictive interpretation of petitioner’s VAT
exemption as limited to those covered by Section 107 of the Tax Code is erroneous and devoid of legal basis. It
contends that the provisions of Rep. Act No. 7227 clearly and unambiguously mandate that no local and national
taxes shall be imposed upon SBFZ-registered firms and hence, said law should govern the case. Petitioner calls
our attention to regulations issued by both the SBMA and BIR clearly and categorically providing that the tax
exemption provided for by Rep. Act No. 7227 includes exemption from the imposition of VAT on purchases of
supplies and materials.
The respondent takes the diametrically opposite view that while Rep. Act No. 7227 does grant tax exemptions,
such grant is not all-encompassing but is limited only to those taxes for which a SBFZ-registered business may be
directly liable. Hence, SBFZ locators are not relieved from the indirect taxes that may be shifted to them by a
VAT-registered seller.
At this juncture, it must be stressed that the VAT is an indirect tax. As such, the amount of tax paid on the goods,
properties or services bought, transferred, or leased may be shifted or passed on by the seller, transferor, or
lessor to the buyer, transferee or lessee.17 Unlike a direct tax, such as the income tax, which primarily taxes an
individual’s ability to pay based on his income or net wealth, an indirect tax, such as the VAT, is a tax on
consumption of goods, services, or certain transactions involving the same. The VAT, thus, forms a substantial
portion of consumer expenditures.
Further, in indirect taxation, there is a need to distinguish between the liability for the tax and the burden of the
tax. As earlier pointed out, the amount of tax paid may be shifted or passed on by the seller to the buyer. What is
transferred in such instances is not the liability for the tax, but the tax burden. In adding or including the VAT due
to the selling price, the seller remains the person primarily and legally liable for the payment of the tax. What is
shifted only to the intermediate buyer and ultimately to the final purchaser is the burden of the tax. 18 Stated
differently, a seller who is directly and legally liable for payment of an indirect tax, such as the VAT on goods or
services is not necessarily the person who ultimately bears the burden of the same tax. It is the final purchaser or
consumer of such goods or services who, although not directly and legally liable for the payment thereof,
ultimately bears the burden of the tax.19
Exemptions from VAT are granted by express provision of the Tax Code or special laws. Under VAT, the
transaction can have preferential treatment in the following ways:
(a) VAT Exemption. An exemption means that the sale of goods or properties and/or services and the
use or lease of properties is not subject to VAT (output tax) and the seller is not allowed any tax credit
on VAT (input tax) previously paid.20 This is a case wherein the VAT is removed at the exempt stage
(i.e., at the point of the sale, barter or exchange of the goods or properties).
 The person making the exempt sale of goods, properties or services shall not bill any output tax to his (a) Export Sales
customers because the said transaction is not subject to VAT. On the other hand, a VAT-registered
purchaser of VAT-exempt goods/properties or services which are exempt from VAT is not entitled to "Export Sales" shall mean
any input tax on such purchase despite the issuance of a VAT invoice or receipt.21
...
(b) Zero-rated Sales. These are sales by VAT-registered persons which are subject to 0% rate, meaning
the tax burden is not passed on to the purchaser. A zero-rated sale by a VAT-registered person, which
(5) Those considered export sales under Articles 23 and 77 of Executive Order No. 226,
is a taxable transaction for VAT purposes, shall not result in any output tax. However, the input tax on
otherwise known as the Omnibus Investments Code of 1987, and other special laws, e.g.
his purchases of goods, properties or services related to such zero-rated sale shall be available as tax
Republic Act No. 7227, otherwise known as the Bases Conversion and Development Act of
credit or refund in accordance with these regulations.22
1992.

Under Zero-rating, all VAT is removed from the zero-rated goods, activity or firm. In contrast, exemption only
...
removes the VAT at the exempt stage, and it will actually increase, rather than reduce the total taxes paid by the
exempt firm’s business or non-retail customers. It is for this reason that a sharp distinction must be made
between zero-rating and exemption in designating a value-added tax.23 (c) Sales to persons or entities whose exemption under special laws, e.g. R.A. No. 7227 duly registered
and accredited enterprises with Subic Bay Metropolitan Authority (SBMA) and Clark Development
Authority (CDA), R. A. No. 7916, Philippine Economic Zone Authority (PEZA), or international
Apropos, the petitioner’s claim to VAT exemption in the instant case for its purchases of supplies and raw
agreements, e.g. Asian Development Bank (ADB), International Rice Research Institute (IRRI), etc. to
materials is founded mainly on Section 12 (b) and (c) of Rep. Act No. 7227, which basically exempts them from all
which the Philippines is a signatory effectively subject such sales to zero-rate."
national and local internal revenue taxes, including VAT and Section 4 (A)(a) of BIR Revenue Regulations No. 1-
95.24
Since the transaction is deemed a zero-rated sale, petitioner’s supplier may claim an Input VAT credit with no
corresponding Output VAT liability. Congruently, no Output VAT may be passed on to the petitioner.
On this point, petitioner rightly claims that it is indeed VAT-Exempt and this fact is not controverted by the
respondent. In fact, petitioner is registered as a NON-VAT taxpayer per Certificate of Registration25 issued by the
BIR. As such, it is exempt from VAT on all its sales and importations of goods and services. On the second issue, it may not be amiss to re-emphasize that the petitioner is registered as a NON-VAT taxpayer
and thus, is exempt from VAT. As an exempt VAT taxpayer, it is not allowed any tax credit on VAT (input tax)
previously paid. In fine, even if we are to assume that exemption from the burden of VAT on petitioner’s
Petitioner’s claim, however, for exemption from VAT for its purchases of supplies and raw materials is
purchases did exist, petitioner is still not entitled to any tax credit or refund on the input tax previously paid as
incongruous with its claim that it is VAT-Exempt, for only VAT-Registered entities can claim Input VAT
petitioner is an exempt VAT taxpayer.
Credit/Refund.

Rather, it is the petitioner’s suppliers who are the proper parties to claim the tax credit and accordingly refund
The point of contention here is whether or not the petitioner may claim a refund on the Input VAT erroneously
the petitioner of the VAT erroneously passed on to the latter.
passed on to it by its suppliers.

Accordingly, we find that the Court of Appeals did not commit any reversible error of law in holding that
While it is true that the petitioner should not have been liable for the VAT inadvertently passed on to it by its
petitioner’s VAT exemption under Rep. Act No. 7227 is limited to the VAT on which it is directly liable as a seller
supplier since such is a zero-rated sale on the part of the supplier, the petitioner is not the proper party to claim
and hence, it cannot claim any refund or exemption for any input VAT it paid, if any, on its purchases of raw
such VAT refund.
materials and supplies.

Section 4.100-2 of BIR’s Revenue Regulations 7-95, as amended, or the "Consolidated Value-Added Tax
WHEREFORE, the petition is DENIED for lack of merit. The Decision dated September 3, 2001, of the Court of
Regulations" provide:
Appeals in CA-G.R. SP No. 62823, as well as its Resolution of December 19, 2001 are AFFIRMED. No
pronouncement as to costs.
Sec. 4.100-2. Zero-rated Sales. A zero-rated sale by a VAT-registered person, which is a taxable
transaction for VAT purposes, shall not result in any output tax. However, the input tax on his
SO ORDERED.
purchases of goods, properties or services related to such zero-rated sale shall be available as tax
credit or refund in accordance with these regulations.
G.R. No. 153866 February 11, 2005
The following sales by VAT-registered persons shall be subject to 0%:
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
SEAGATE TECHNOLOGY (PHILIPPINES), respondent.
DECISION
PANGANIBAN, J.:
Business companies registered in and operating from the Special Economic Zone in Naga, Cebu -- like herein
respondent -- are entities exempt from all internal revenue taxes and the implementing rules relevant thereto,
including the value-added taxes or VAT. Although export sales are not deemed exempt transactions, they are
nonetheless zero-rated. Hence, in the present case, the distinction between exempt entities and
exempt transactions has little significance, because the net result is that the taxpayer is not liable for the VAT.
Respondent, a VAT-registered enterprise, has complied with all requisites for claiming a tax refund of or credit
for the input VAT it paid on capital goods it purchased. Thus, the Court of Tax Appeals and the Court of Appeals
did not err in ruling that it is entitled to such refund or credit.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to set aside the May 27, 2002
Decision2 of the Court of Appeals (CA) in CA-GR SP No. 66093. The decretal portion of the Decision reads as
follows:
"WHEREFORE, foregoing premises considered, the petition for review is DENIED for lack of merit."3
The Facts
The CA quoted the facts narrated by the Court of Tax Appeals (CTA), as follows:
"As jointly stipulated by the parties, the pertinent facts x x x involved in this case are as follows:
1. [Respondent] is a resident foreign corporation duly registered with the Securities and Exchange Commission to
do business in the Philippines, with principal office address at the new Cebu Township One, Special Economic
Zone, Barangay Cantao-an, Naga, Cebu;
2. [Petitioner] is sued in his official capacity, having been duly appointed and empowered to perform the duties
of his office, including, among others, the duty to act and approve claims for refund or tax credit;
3. [Respondent] is registered with the Philippine Export Zone Authority (PEZA) and has been issued PEZA
Certificate No. 97-044 pursuant to Presidential Decree No. 66, as amended, to engage in the manufacture of
recording components primarily used in computers for export. Such registration was made on 6 June 1997;
4. [Respondent] is VAT [(Value Added Tax)]-registered entity as evidenced by VAT Registration Certification No.
97-083-000600-V issued on 2 April 1997;
5. VAT returns for the period 1 April 1998 to 30 June 1999 have been filed by [respondent];
6. An administrative claim for refund of VAT input taxes in the amount of P28,369,226.38 with supporting
documents (inclusive of the P12,267,981.04 VAT input taxes subject of this Petition for Review), was filed on 4
October 1999 with Revenue District Office No. 83, Talisay Cebu;
7. No final action has been received by [respondent] from [petitioner] on [respondent’s] claim for VAT refund.
"The administrative claim for refund by the [respondent] on October 4, 1999 was not acted upon by the
[petitioner] prompting the [respondent] to elevate the case to [the CTA] on July 21, 2000 by way of Petition for
Review in order to toll the running of the two-year prescriptive period.
"For his part, [petitioner] x x x raised the following Special and Affirmative Defenses, to wit:
1. [Respondent’s] alleged claim for tax refund/credit is subject to administrative routinary
investigation/examination by [petitioner’s] Bureau;
2. Since ‘taxes are presumed to have been collected in accordance with laws and regulations,’ the [respondent]
has the burden of proof that the taxes sought to be refunded were erroneously or illegally collected x x x;
3. In Citibank, N.A. vs. Court of Appeals, 280 SCRA 459 (1997), the Supreme Court ruled that:
"A claimant has the burden of proof to establish the factual basis of his or her claim for tax credit/refund."
4. Claims for tax refund/tax credit are construed in ‘strictissimi juris’ against the taxpayer. This is due to the fact
that claims for refund/credit [partake of] the nature of an exemption from tax. Thus, it is incumbent upon the
[respondent] to prove that it is indeed entitled to the refund/credit sought. Failure on the part of the
[respondent] to prove the same is fatal to its claim for tax credit. He who claims exemption must be able to
justify his claim by the clearest grant of organic or statutory law. An exemption from the common burden cannot
be permitted to exist upon vague implications;
5. Granting, without admitting, that [respondent] is a Philippine Economic Zone Authority (PEZA) registered
Ecozone Enterprise, then its business is not subject to VAT pursuant to Section 24 of Republic Act No. ([RA]) 7916
in relation to Section 103 of the Tax Code, as amended. As [respondent’s] business is not subject to VAT, the
capital goods and services it alleged to have purchased are considered not used in VAT taxable business. As such,
[respondent] is not entitled to refund of input taxes on such capital goods pursuant to Section 4.106.1 of
Revenue Regulations No. ([RR])7-95, and of input taxes on services pursuant to Section 4.103 of said regulations.
6. [Respondent] must show compliance with the provisions of Section 204 (C) and 229 of the 1997 Tax Code on
filing of a written claim for refund within two (2) years from the date of payment of tax.’
"On July 19, 2001, the Tax Court rendered a decision granting the claim for refund."4
Ruling of the Court of Appeals
The CA affirmed the Decision of the CTA granting the claim for refund or issuance of a tax credit certificate (TCC)
in favor of respondent in the reduced amount of P12,122,922.66. This sum represented the unutilized but
substantiated input VAT paid on capital goods purchased for the period covering April 1, 1998 to June 30, 1999.
The appellate court reasoned that respondent had availed itself only of the fiscal incentives under Executive
Order No. (EO) 226 (otherwise known as the Omnibus Investment Code of 1987), not of those under both
Presidential Decree No. (PD) 66, as amended, and Section 24 of RA 7916. Respondent was, therefore, considered
exempt only from the payment of income tax when it opted for the income tax holiday in lieu of the 5 percent
preferential tax on gross income earned. As a VAT-registered entity, though, it was still subject to the payment of
other national internal revenue taxes, like the VAT.
Moreover, the CA held that neither Section 109 of the Tax Code nor Sections 4.106-1 and 4.103-1 of RR 7-95
were applicable. Having paid the input VAT on the capital goods it purchased, respondent correctly filed the
administrative and judicial claims for its refund within the two-year prescriptive period. Such payments were --
to the extent of the refundable value -- duly supported by VAT invoices or official receipts, and were not yet
offset against any output VAT liability.
Hence this Petition.5
Sole Issue
Petitioner submits this sole issue for our consideration:
"Whether or not respondent is entitled to the refund or issuance of Tax Credit Certificate in the amount
of P12,122,922.66 representing alleged unutilized input VAT paid on capital goods purchased for the period April
1, 1998 to June 30, 1999."6
The Court’s Ruling
The Petition is unmeritorious.
Sole Issue:
Entitlement of a VAT-Registered PEZA Enterprise to a Refund of or Credit for Input VAT
No doubt, as a PEZA-registered enterprise within a special economic zone,7 respondent is entitled to the fiscal
incentives and benefits8 provided for in either PD 669 or EO 226.10 It shall, moreover, enjoy all privileges, benefits,
advantages or exemptions under both Republic Act Nos. (RA) 722711 and 7844.12
Preferential Tax Treatment Under Special Laws
If it avails itself of PD 66, notwithstanding the provisions of other laws to the contrary, respondent shall not be
subject to internal revenue laws and regulations for raw materials, supplies, articles, equipment, machineries,
spare parts and wares, except those prohibited by law, brought into the zone to be stored, broken up, repacked,
assembled, installed, sorted, cleaned, graded or otherwise processed, manipulated, manufactured, mixed or
used directly or indirectly in such activities.13 Even so, respondent would enjoy a net-operating loss carry over;
accelerated depreciation; foreign exchange and financial assistance; and exemption from export taxes, local
taxes and licenses.14
Comparatively, the same exemption from internal revenue laws and regulations applies if EO 226 15 is chosen.
Under this law, respondent shall further be entitled to an income tax holiday; additional deduction for labor
expense; simplification of customs procedure; unrestricted use of consigned equipment; access to a bonded
manufacturing warehouse system; privileges for foreign nationals employed; tax credits on domestic capital
equipment, as well as for taxes and duties on raw materials; and exemption from contractors’ taxes, wharfage
dues, taxes and duties on imported capital equipment and spare parts, export taxes, duties, imposts and
fees,16 local taxes and licenses, and real property taxes.17
A privilege available to respondent under the provision in RA 7227 on tax and duty-free importation of raw
materials, capital and equipment18 -- is, ipso facto, also accorded to the zone19 under RA 7916. Furthermore, the
latter law -- notwithstanding other existing laws, rules and regulations to the contrary -- extends20 to that zone
the provision stating that no local or national taxes shall be imposed therein.21 No exchange control policy shall
be applied; and free markets for foreign exchange, gold, securities and future shall be allowed and
maintained.22 Banking and finance shall also be liberalized under minimum Bangko Sentral regulation with the
establishment of foreign currency depository units of local commercial banks and offshore banking units of
foreign banks.23
In the same vein, respondent benefits under RA 7844 from negotiable tax credits24 for locally-produced materials
used as inputs. Aside from the other incentives possibly already granted to it by the Board of Investments, it also
enjoys preferential credit facilities25 and exemption from PD 1853.26
From the above-cited laws, it is immediately clear that petitioner enjoys preferential tax treatment.27 It is not
subject to internal revenue laws and regulations and is even entitled to tax credits. The VAT on capital goods is
an internal revenue tax from which petitioner as an entity is exempt. Although the transactions involving such
tax are not exempt, petitioner as a VAT-registered person,28 however, is entitled to their credits.
Nature of the VAT and the Tax Credit Method
Viewed broadly, the VAT is a uniform tax ranging, at present, from 0 percent to 10 percent levied on every
importation of goods, whether or not in the course of trade or business, or imposed on each sale, barter,
exchange or lease of goods or properties or on each rendition of services in the course of trade or business 29 as
they pass along the production and distribution chain, the tax being limited only to the value added 30 to such
goods, properties or services by the seller, transferor or lessor. 31 It is an indirect tax that may be shifted or
passed on to the buyer, transferee or lessee of the goods, properties or services. 32 As such, it should be
understood not in the context of the person or entity that is primarily, directly and legally liable for its payment,
but in terms of its nature as a tax on consumption.33 In either case, though, the same conclusion is arrived at.
The law34 that originally imposed the VAT in the country, as well as the subsequent amendments of that law, has
been drawn from the tax credit method.35 Such method adopted the mechanics and self-enforcement features of
the VAT as first implemented and practiced in Europe and subsequently adopted in New Zealand and
Canada.36 Under the present method that relies on invoices, an entity can credit against or subtract from the VAT
charged on its sales or outputs the VAT paid on its purchases, inputs and imports.37
If at the end of a taxable quarter the output taxes38 charged by a seller39 are equal to the input taxes40 passed on
by the suppliers, no payment is required. It is when the output taxes exceed the input taxes that the excess has
to be paid.41 If, however, the input taxes exceed the output taxes, the excess shall be carried over to the
succeeding quarter or quarters.42 Should the input taxes result from zero-rated or effectively zero-rated
transactions or from the acquisition of capital goods,43 any excess over the output taxes shall instead be
refunded44 to the taxpayer or credited45 against other internal revenue taxes.46
Zero-Rated and Effectively Zero-Rated Transactions
Although both are taxable and similar in effect, zero-rated transactions differ from effectively zero-rated
transactions as to their source.
Zero-rated transactions generally refer to the export sale of goods and supply of services. 47 The tax rate is set at
zero.48 When applied to the tax base, such rate obviously results in no tax chargeable against the purchaser. The
seller of such transactions charges no output tax,49 but can claim a refund of or a tax credit certificate for the VAT
previously charged by suppliers.
Effectively zero-rated transactions, however, refer to the sale of goods50 or supply of services51 to persons or
entities whose exemption under special laws or international agreements to which the Philippines is a signatory
effectively subjects such transactions to a zero rate.52 Again, as applied to the tax base, such rate does not yield
any tax chargeable against the purchaser. The seller who charges zero output tax on such transactions can also
claim a refund of or a tax credit certificate for the VAT previously charged by suppliers.
Zero Rating and Exemption
In terms of the VAT computation, zero rating and exemption are the same, but the extent of relief that results
from either one of them is not.
Applying the destination principle53 to the exportation of goods, automatic zero rating54 is primarily intended to
be enjoyed by the seller who is directly and legally liable for the VAT, making such seller internationally
competitive by allowing the refund or credit of input taxes that are attributable to export sales. 55 Effective zero
rating, on the contrary, is intended to benefit the purchaser who, not being directly and legally liable for the
payment of the VAT, will ultimately bear the burden of the tax shifted by the suppliers.
In both instances of zero rating, there is total relief for the purchaser from the burden of the tax.56 But in an
exemption there is only partial relief,57 because the purchaser is not allowed any tax refund of or credit for input
taxes paid.58
Exempt Transaction >and Exempt Party
The object of exemption from the VAT may either be the transaction itself or any of the parties to the
transaction.59
An exempt transaction, on the one hand, involves goods or services which, by their nature, are specifically listed
in and expressly exempted from the VAT under the Tax Code, without regard to the tax status -- VAT-exempt or
not -- of the party to the transaction.60 Indeed, such transaction is not subject to the VAT, but the seller is not
allowed any tax refund of or credit for any input taxes paid.
An exempt party, on the other hand, is a person or entity granted VAT exemption under the Tax Code, a special
law or an international agreement to which the Philippines is a signatory, and by virtue of which its taxable
transactions become exempt from the VAT.61 Such party is also not subject to the VAT, but may be allowed a tax
refund of or credit for input taxes paid, depending on its registration as a VAT or non-VAT taxpayer.
As mentioned earlier, the VAT is a tax on consumption, the amount of which may be shifted or passed on by the
seller to the purchaser of the goods, properties or services.62 While the liability is imposed on one person,
the burden may be passed on to another. Therefore, if a special law merely exempts a party as a seller from its
direct liability for payment of the VAT, but does not relieve the same party as a purchaser from its indirect
burden of the VAT shifted to it by its VAT-registered suppliers, the purchase transaction is not exempt. Applying
this principle to the case at bar, the purchase transactions entered into by respondent are not VAT-exempt.
Special laws may certainly exempt transactions from the VAT.63 However, the Tax Code provides that those
falling under PD 66 are not. PD 66 is the precursor of RA 7916 -- the special law under which respondent was
registered. The purchase transactions it entered into are, therefore, not VAT-exempt. These are subject to the
VAT; respondent is required to register.
Its sales transactions, however, will either be zero-rated or taxed at the standard rate of 10 percent,64 depending
again on the application of the destination principle.65
If respondent enters into such sales transactions with a purchaser -- usually in a foreign country -- for use or
consumption outside the Philippines, these shall be subject to 0 percent.66 If entered into with a purchaser for
use or consumption in the Philippines, then these shall be subject to 10 percent,67 unless the purchaser is exempt
from the indirect burden of the VAT, in which case it shall also be zero-rated.
Since the purchases of respondent are not exempt from the VAT, the rate to be applied is zero. Its exemption
under both PD 66 and RA 7916 effectively subjects such transactions to a zero rate,68 because the ecozone within
which it is registered is managed and operated by the PEZA as a separate customs territory.69 This means that in
such zone is created the legal fiction of foreign territory.70 Under the cross-border principle71 of the VAT system
being enforced by the Bureau of Internal Revenue (BIR),72 no VAT shall be imposed to form part of the cost of
goods destined for consumption outside of the territorial border of the taxing authority. If exports of goods and
services from the Philippines to a foreign country are free of the VAT,73 then the same rule holds for such exports
from the national territory -- except specifically declared areas -- to an ecozone.
Sales made by a VAT-registered person in the customs territory to a PEZA-registered entity are considered
exports to a foreign country; conversely, sales by a PEZA-registered entity to a VAT-registered person in the
customs territory are deemed imports from a foreign country.74 An ecozone -- indubitably a geographical
territory of the Philippines -- is, however, regarded in law as foreign soil.75 This legal fiction is necessary to give
meaningful effect to the policies of the special law creating the zone. 76 If respondent is located in an export
processing zone77 within that ecozone, sales to the export processing zone, even without being actually
exported, shall in fact be viewed as constructively exported under EO 226.78 Considered as export sales,79 such
purchase transactions by respondent would indeed be subject to a zero rate.80
Tax Exemptions Broad and Express
Applying the special laws we have earlier discussed, respondent as an entity is exempt from internal revenue
laws and regulations.
This exemption covers both direct and indirect taxes, stemming from the very nature of the VAT as a tax on
consumption, for which the direct liability is imposed on one person but the indirect burden is passed on to
another. Respondent, as an exempt entity, can neither be directly charged for the VAT on its sales nor indirectly
made to bear, as added cost to such sales, the equivalent VAT on its purchases. Ubi lex non distinguit, nec nos
distinguere debemus. Where the law does not distinguish, we ought not to distinguish.
Moreover, the exemption is both express and pervasive for the following reasons:
First, RA 7916 states that "no taxes, local and national, shall be imposed on business establishments operating
within the ecozone."81 Since this law does not exclude the VAT from the prohibition, it is deemed
included. Exceptio firmat regulam in casibus non exceptis. An exception confirms the rule in cases not excepted;
that is, a thing not being excepted must be regarded as coming within the purview of the general rule.
Moreover, even though the VAT is not imposed on the entity but on the transaction, it may still be passed on
and, therefore, indirectly imposed on the same entity -- a patent circumvention of the law. That no VAT shall be
imposed directly upon business establishments operating within the ecozone under RA 7916 also means that no
VAT may be passed on and imposed indirectly. Quando aliquid prohibetur ex directo prohibetur et per obliquum.
When anything is prohibited directly, it is also prohibited indirectly.
Second, when RA 8748 was enacted to amend RA 7916, the same prohibition applied, except for real property
taxes that presently are imposed on land owned by developers. 82 This similar and repeated prohibition is an
unambiguous ratification of the law’s intent in not imposing local or national taxes on business enterprises
within the ecozone.
Third, foreign and domestic merchandise, raw materials, equipment and the like "shall not be subject to x x x
internal revenue laws and regulations" under PD 6683 -- the original charter of PEZA (then EPZA) that was later
amended by RA 7916.84 No provisions in the latter law modify such exemption.
Although this exemption puts the government at an initial disadvantage, the reduced tax collection ultimately
redounds to the benefit of the national economy by enticing more business investments and creating more
employment opportunities.85
Fourth, even the rules implementing the PEZA law clearly reiterate that merchandise -- except those prohibited
by law -- "shall not be subject to x x x internal revenue laws and regulations x x x" 86 if brought to the ecozone’s
restricted area87 for manufacturing by registered export enterprises,88 of which respondent is one. These rules
also apply to all enterprises registered with the EPZA prior to the effectivity of such rules.89
Fifth, export processing zone enterprises registered90 with the Board of Investments (BOI) under EO 226 patently
enjoy exemption from national internal revenue taxes on imported capital equipment reasonably needed and
exclusively used for the manufacture of their products; 91 on required supplies and spare part for consigned
equipment;92 and on foreign and domestic merchandise, raw materials, equipment and the like -- except those
prohibited by law -- brought into the zone for manufacturing.93 In addition, they are given credits for the value of
the national internal revenue taxes imposed on domestic capital equipment also reasonably needed and
exclusively used for the manufacture of their products,94 as well as for the value of such taxes imposed on
domestic raw materials and supplies that are used in the manufacture of their export products and that form
part thereof.95
Sixth, the exemption from local and national taxes granted under RA 722796 are ipso facto accorded to
ecozones.97In case of doubt, conflicts with respect to such tax exemption privilege shall be resolved in favor of
the ecozone.98
And seventh, the tax credits under RA 7844 -- given for imported raw materials primarily used in the production
of export goods,99 and for locally produced raw materials, capital equipment and spare parts used by exporters
of non-traditional products100 -- shall also be continuously enjoyed by similar exporters within the
ecozone.101 Indeed, the latter exporters are likewise entitled to such tax exemptions and credits.
Tax Refund as Tax Exemption
To be sure, statutes that grant tax exemptions are construed strictissimi juris102 against the taxpayer103 and
liberally in favor of the taxing authority.104
Tax refunds are in the nature of such exemptions.105 Accordingly, the claimants of those refunds bear the burden
of proving the factual basis of their claims;106 and of showing, by words too plain to be mistaken, that the
legislature intended to exempt them.107 In the present case, all the cited legal provisions are teeming with life
with respect to the grant of tax exemptions too vivid to pass unnoticed. In addition, respondent easily meets the
challenge.
Respondent, which as an entity is exempt, is different from its transactions which are not exempt. The end
result, however, is that it is not subject to the VAT. The non-taxability of transactions that are otherwise taxable
is merely a necessary incident to the tax exemption conferred by law upon it as an entity, not upon the
transactions themselves.108 Nonetheless, its exemption as an entity and the non-exemption of its transactions
lead to the same result for the following considerations:
First, the contemporaneous construction of our tax laws by BIR authorities who are called upon to execute or
administer such laws109 will have to be adopted. Their prior tax issuances have held inconsistent positions
brought about by their probable failure to comprehend and fully appreciate the nature of the VAT as a tax on
consumption and the application of the destination principle.110 Revenue Memorandum Circular No. (RMC) 74-
99, however, now clearly and correctly provides that any VAT-registered supplier’s sale of goods, property or
services from the customs territory to any registered enterprise operating in the ecozone -- regardless of the
class or type of the latter’s PEZA registration -- is legally entitled to a zero rate.111
Second, the policies of the law should prevail. Ratio legis est anima. The reason for the law is its very soul.
In PD 66, the urgent creation of the EPZA which preceded the PEZA, as well as the establishment of export
processing zones, seeks "to encourage and promote foreign commerce as a means of x x x strengthening our
export trade and foreign exchange position, of hastening industrialization, of reducing domestic unemployment,
and of accelerating the development of the country."112
RA 7916, as amended by RA 8748, declared that by creating the PEZA and integrating the special economic
zones, "the government shall actively encourage, promote, induce and accelerate a sound and balanced
industrial, economic and social development of the country x x x through the establishment, among others, of
special economic zones x x x that shall effectively attract legitimate and productive foreign investments."113
Under EO 226, the "State shall encourage x x x foreign investments in industry x x x which shall x x x meet the
tests of international competitiveness[,] accelerate development of less developed regions of the country[,] and
result in increased volume and value of exports for the economy." 114 Fiscal incentives that are cost-efficient and
simple to administer shall be devised and extended to significant projects "to compensate for market
imperfections, to reward performance contributing to economic development," 115 and "to stimulate the
establishment and assist initial operations of the enterprise."116
Wisely accorded to ecozones created under RA 7916117 was the government’s policy -- spelled out earlier in RA
7227 -- of converting into alternative productive uses118 the former military reservations and their
extensions,119 as well as of providing them incentives120 to enhance the benefits that would be derived from
them121 in promoting economic and social development.122
Finally, under RA 7844, the State declares the need "to evolve export development into a national effort" 123 in
order to win international markets. By providing many export and tax incentives, 124 the State is able to drive
home the point that exporting is indeed "the key to national survival and the means through which the economic
goals of increased employment and enhanced incomes can most expeditiously be achieved." 125
The Tax Code itself seeks to "promote sustainable economic growth x x x; x x x increase economic activity; and x
x x create a robust environment for business to enable firms to compete better in the regional as well as the
global market."126 After all, international competitiveness requires economic and tax incentives to lower the cost
of goods produced for export. State actions that affect global competition need to be specific and selective in the
pricing of particular goods or services.127
All these statutory policies are congruent to the constitutional mandates of providing incentives to needed
investments,128 as well as of promoting the preferential use of domestic materials and locally produced goods
and adopting measures to help make these competitive.129 Tax credits for domestic inputs strengthen backward
linkages. Rightly so, "the rule of law and the existence of credible and efficient public institutions are essential
prerequisites for sustainable economic development."130
VAT Registration, Not Application for Effective Zero Rating, Indispensable to VAT Refund
Registration is an indispensable requirement under our VAT law. 131 Petitioner alleges that respondent did
register for VAT purposes with the appropriate Revenue District Office. However, it is now too late in the day for
petitioner to challenge the VAT-registered status of respondent, given the latter’s prior representation before
the lower courts and the mode of appeal taken by petitioner before this Court.
The PEZA law, which carried over the provisions of the EPZA law, is clear in exempting from internal revenue
laws and regulations the equipment -- including capital goods -- that registered enterprises will use, directly or
indirectly, in manufacturing.132 EO 226 even reiterates this privilege among the incentives it gives to such
enterprises.133Petitioner merely asserts that by virtue of the PEZA registration alone of respondent, the latter is
not subject to the VAT. Consequently, the capital goods and services respondent has purchased are not
considered used in the VAT business, and no VAT refund or credit is due. 134 This is a non sequitur. By the VAT’s
very nature as a tax on consumption, the capital goods and services respondent has purchased are subject to the
VAT, although at zero rate. Registration does not determine taxability under the VAT law.
Moreover, the facts have already been determined by the lower courts. Having failed to present evidence to
support its contentions against the income tax holiday privilege of respondent,135 petitioner is deemed to have
conceded. It is a cardinal rule that "issues and arguments not adequately and seriously brought below cannot be
raised for the first time on appeal."136 This is a "matter of procedure"137 and a "question of fairness."138 Failure to
assert "within a reasonable time warrants a presumption that the party entitled to assert it either has
abandoned or declined to assert it."139
The BIR regulations additionally requiring an approved prior application for effective zero rating 140 cannot prevail
over the clear VAT nature of respondent’s transactions. The scope of such regulations is not "within the statutory
authority x x x granted by the legislature.141
First, a mere administrative issuance, like a BIR regulation, cannot amend the law; the former cannot purport to
do any more than interpret the latter.142 The courts will not countenance one that overrides the statute it seeks
to apply and implement.143
Other than the general registration of a taxpayer the VAT status of which is aptly determined, no provision under
our VAT law requires an additional application to be made for such taxpayer’s transactions to be considered
effectively zero-rated. An effectively zero-rated transaction does not and cannot become exempt simply because
an application therefor was not made or, if made, was denied. To allow the additional requirement is to give
unfettered discretion to those officials or agents who, without fluid consideration, are bent on denying a valid
application. Moreover, the State can never be estopped by the omissions, mistakes or errors of its officials or
agents.144
Second, grantia argumenti that such an application is required by law, there is still the presumption of regularity
in the performance of official duty.145 Respondent’s registration carries with it the presumption that, in the
absence of contradictory evidence, an application for effective zero rating was also filed and approval thereof
given. Besides, it is also presumed that the law has been obeyed146 by both the administrative officials and the
applicant.
Third, even though such an application was not made, all the special laws we have tackled exempt respondent
not only from internal revenue laws but also from the regulations issued pursuant thereto. Leniency in the
implementation of the VAT in ecozones is an imperative, precisely to spur economic growth in the country and
attain global competitiveness as envisioned in those laws.
A VAT-registered status, as well as compliance with the invoicing requirements,147 is sufficient for the effective
zero rating of the transactions of a taxpayer. The nature of its business and transactions can easily be perused
from, as already clearly indicated in, its VAT registration papers and photocopied documents attached thereto.
Hence, its transactions cannot be exempted by its mere failure to apply for their effective zero rating. Otherwise,
their VAT exemption would be determined, not by their nature, but by the taxpayer’s negligence -- a result not at
all contemplated. Administrative convenience cannot thwart legislative mandate.
Tax Refund or Credit in Order
Having determined that respondent’s purchase transactions are subject to a zero VAT rate, the tax refund or
credit is in order.
As correctly held by both the CA and the Tax Court, respondent had chosen the fiscal incentives in EO 226 over
those in RA 7916 and PD 66. It opted for the income tax holiday regime instead of the 5 percent preferential tax
regime.
The latter scheme is not a perfunctory aftermath of a simple registration under the PEZA law, 148 for EO
226149 also has provisions to contend with. These two regimes are in fact incompatible and cannot be availed of
simultaneously by the same entity. While EO 226 merely exempts it from income taxes, the PEZA law exempts it
from all taxes.
Therefore, respondent can be considered exempt, not from the VAT, but only from the payment of income tax
for a certain number of years, depending on its registration as a pioneer or a non-pioneer enterprise. Besides,
the remittance of the aforesaid 5 percent of gross income earned in lieu of local and national taxes imposable
upon business establishments within the ecozone cannot outrightly determine a VAT exemption. Being subject
to VAT, payments erroneously collected thereon may then be refunded or credited.
Even if it is argued that respondent is subject to the 5 percent preferential tax regime in RA 7916, Section 24
thereof does not preclude the VAT. One can, therefore, counterargue that such provision merely exempts
respondent from taxes imposed on business. To repeat, the VAT is a tax imposed on consumption, not on
business. Although respondent as an entity is exempt, the transactions it enters into are not necessarily so. The
VAT payments made in excess of the zero rate that is imposable may certainly be refunded or credited.
Compliance with All Requisites for VAT Refund or Credit
As further enunciated by the Tax Court, respondent complied with all the requisites for claiming a VAT refund or
credit.150
First, respondent is a VAT-registered entity. This fact alone distinguishes the present case from Contex, in which
this Court held that the petitioner therein was registered as a non-VAT taxpayer.151 Hence, for being merely VAT-
exempt, the petitioner in that case cannot claim any VAT refund or credit.
Second, the input taxes paid on the capital goods of respondent are duly supported by VAT invoices and have not
been offset against any output taxes. Although enterprises registered with the BOI after December 31, 1994
would no longer enjoy the tax credit incentives on domestic capital equipment -- as provided for under Article
39(d), Title III, Book I of EO 226152 -- starting January 1, 1996, respondent would still have the same benefit under
a general and express exemption contained in both Article 77(1), Book VI of EO 226; and Section 12, paragraph 2
(c) of RA 7227, extended to the ecozones by RA 7916.
There was a very clear intent on the part of our legislators, not only to exempt investors in ecozones from
national and local taxes, but also to grant them tax credits. This fact was revealed by the sponsorship speeches in
Congress during the second reading of House Bill No. 14295, which later became RA 7916, as shown below:
"MR. RECTO. x x x Some of the incentives that this bill provides are exemption from national and local taxes; x x x
tax credit for locally-sourced inputs x x x."
xxxxxxxxx
"MR. DEL MAR. x x x To advance its cause in encouraging investments and creating an environment conducive
for investors, the bill offers incentives such as the exemption from local and national taxes, x x x tax credits for
locally sourced inputs x x x."153
And third, no question as to either the filing of such claims within the prescriptive period or the validity of the
VAT returns has been raised. Even if such a question were raised, the tax exemption under all the special laws
cited above is broad enough to cover even the enforcement of internal revenue laws, including prescription. 154
Summary
To summarize, special laws expressly grant preferential tax treatment to business establishments registered and
operating within an ecozone, which by law is considered as a separate customs territory. As such, respondent is
exempt from all internal revenue taxes, including the VAT, and regulations pertaining thereto. It has opted for
the income tax holiday regime, instead of the 5 percent preferential tax regime. As a matter of law and
procedure, its registration status entitling it to such tax holiday can no longer be questioned. Its sales
transactions intended for export may not be exempt, but like its purchase transactions, they are zero-rated. No
prior application for the effective zero rating of its transactions is necessary. Being VAT-registered and having
satisfactorily complied with all the requisites for claiming a tax refund of or credit for the input VAT paid on
capital goods purchased, respondent is entitled to such VAT refund or credit.
WHEREFORE, the Petition is DENIED and the Decision AFFIRMED. No pronouncement as to costs.
SO ORDERED.
G.R. No. 147295 February 16, 2007
THE COMMISIONER OF INTERNAL REVENUE, Petitioner,
vs.
ACESITE (PHILIPPINES) HOTEL CORPORATION, Respondent.
DECISION
VELASCO, JR., J.:
The Case
Before us is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court, assailing the November 17,
2000 Decision2 of the Court of Appeals (CA) in CA-G.R. SP No. 56816, which affirmed the January 3, 2000
Decision3 of the Court of Tax Appeals (CTA) in CTA Case No. 5645 entitled Acesite (Philippines) Hotel Corporation
v. The Commissioner of Internal Revenue for Refund of VAT Payments.
The Facts
The facts as found by the appellate court are undisputed, thus:
Acesite is the owner and operator of the Holiday Inn Manila Pavilion Hotel along United Nations Avenue in
Manila. It leases 6,768.53 square meters of the hotel’s premises to the Philippine Amusement and Gaming
Corporation [hereafter, PAGCOR] for casino operations. It also caters food and beverages to PAGCOR’s casino
patrons through the hotel’s restaurant outlets. For the period January (sic) 96 to April 1997, Acesite incurred VAT
amounting to P30,152,892.02 from its rental income and sale of food and beverages to PAGCOR during said
period. Acesite tried to shift the said taxes to PAGCOR by incorporating it in the amount assessed to PAGCOR but
the latter refused to pay the taxes on account of its tax exempt status.1awphi1.net
Thus, PAGCOR paid the amount due to Acesite minus the P30,152,892.02 VAT while the latter paid the VAT to
the Commissioner of Internal Revenue [hereafter, CIR] as it feared the legal consequences of non-payment of the
tax. However, Acesite belatedly arrived at the conclusion that its transaction with PAGCOR was subject to zero
rate as it was rendered to a tax-exempt entity. On 21 May 1998, Acesite filed an administrative claim for refund
with the CIR but the latter failed to resolve the same. Thus on 29 May 1998, Acesite filed a petition with the
Court of Tax Appeals [hereafter, CTA] which was decided in this wise:
As earlier stated, Petitioner is subject to zero percent tax pursuant to Section 102 (b)(3) [now 106(A)(C)] insofar
as its gross income from rentals and sales to PAGCOR, a tax exempt entity by virtue of a special law. Accordingly,
the amounts of P21,413,026.78 and P8,739,865.24, representing the 10% EVAT on its sales of food and services
and gross rentals, respectively from PAGCOR shall, as a matter of course, be refunded to the petitioner for
having been inadvertently remitted to the respondent.
Thus, taking into consideration the prescribed portion of Petitioner’s claim for refund of P98,743.40, and
considering further the principle of ‘solutio indebiti’ which requires the return of what has been delivered
through mistake, Respondent must refund to the Petitioner the amount of P30,054,148.64 computed as follows:
Total amount per claim 30,152,892.02
Less Prescribed amount (Exhs A, X, & X-20)
January 1996 P 2,199.94
February 1996 26,205.04
March 1996 70,338.42 98,743.40
P30,054,148.64
vvvvvvvvvvvvvv
WHEREFORE, in view of all the foregoing, the instant Petition for Review is partially GRANTED. The Respondent is
hereby ORDERED to REFUND to the petitioner the amount of THIRTY MILLION FIFTY FOUR THOUSAND ONE
HUNDRED FORTY EIGHT PESOS AND SIXTY FOUR CENTAVOS (P30,054,148.64) immediately.
SO ORDERED.4
The Ruling of the Court of Appeals
Upon appeal by petitioner, the CA affirmed in toto the decision of the CTA holding that PAGCOR was not only
exempt from direct taxes but was also exempt from indirect taxes like the VAT and consequently, the
transactions between respondent Acesite and PAGCOR were "effectively zero-rated" because they involved the
rendition of services to an entity exempt from indirect taxes. Thus, the CA affirmed the CTA’s determination by
ruling that respondent Acesite was entitled to a refund of PhP 30,054,148.64 from petitioner.
The Issues
Hence, we have the instant petition with the following issues: (1) whether PAGCOR’s tax exemption privilege
includes the indirect tax of VAT to entitle Acesite to zero percent (0%) VAT rate; and (2) whether the zero
percent (0%) VAT rate under then Section 102 (b)(3) of the Tax Code (now Section 108 (B)(3) of the Tax Code of
1997) legally applies to Acesite.
The petition is devoid of merit.
In resolving the first issue on whether PAGCOR’s tax exemption privilege includes the indirect tax of VAT to
entitle Acesite to zero percent (0%) VAT rate, we answer in the affirmative. We will however discuss both issues
together.
PAGCOR is exempt from payment of indirect taxes
It is undisputed that P.D. 1869, the charter creating PAGCOR, grants the latter an exemption from the payment
of taxes. Section 13 of P.D. 1869 pertinently provides:
Sec. 13. Exemptions. –
xxxx
(2) Income and other taxes. – (a) Franchise Holder: No tax of any kind or form, income or otherwise, as well as
fees, charges or levies of whatever nature, whether National or Local, shall be assessed and collected under
this Franchise from the Corporation; nor shall any form of tax or charge attach in any way to the earnings of
the Corporation, except a Franchise Tax of five (5%) percent of the gross revenue or earnings derived by the
Corporation from its operation under this Franchise. Such tax shall be due and payable quarterly to the National
Government and shall be in lieu of all kinds of taxes, levies, fees or assessments of any kind, nature or
description, levied, established or collected by any municipal, provincial, or national government authority.
xxxx
(b) Others: The exemptions herein granted for earnings derived from the operations conducted under the
franchise specifically from the payment of any tax, income or otherwise, as well as any form of charges, fees
or levies, shall inure to the benefit of and extend to corporation(s), association(s), agency(ies), or individual(s)
with whom the Corporation or operator has any contractual relationship in connection with the operations of
the casino(s) authorized to be conducted under this Franchise and to those receiving compensation or other
remuneration from the Corporation or operator as a result of essential facilities furnished and/or technical
services rendered to the Corporation or operator. (Emphasis supplied.)
Petitioner contends that the above tax exemption refers only to PAGCOR’s direct tax liability and not to indirect
taxes, like the VAT.
We disagree.
A close scrutiny of the above provisos clearly gives PAGCOR a blanket exemption to taxes with no distinction on
whether the taxes are direct or indirect. We are one with the CA ruling that PAGCOR is also exempt from indirect
taxes, like VAT, as follows:
Under the above provision [Section 13 (2) (b) of P.D. 1869], the term "Corporation" or operator refers to
PAGCOR. Although the law does not specifically mention PAGCOR’s exemption from indirect taxes, PAGCOR is
undoubtedly exempt from such taxes because the law exempts from taxes persons or entities contracting with
PAGCOR in casino operations. Although, differently worded, the provision clearly exempts PAGCOR from
indirect taxes. In fact, it goes one step further by granting tax exempt status to persons dealing with PAGCOR
in casino operations. The unmistakable conclusion is that PAGCOR is not liable for the P30,152,892.02 VAT and
neither is Acesite as the latter is effectively subject to zero percent rate under Sec. 108 B (3). R.A. 8424.
(Emphasis supplied.)
Indeed, by extending the exemption to entities or individuals dealing with PAGCOR, the legislature clearly
granted exemption also from indirect taxes. It must be noted that the indirect tax of VAT, as in the instant case,
can be shifted or passed to the buyer, transferee, or lessee of the goods, properties, or services subject to VAT.
Thus, by extending the tax exemption to entities or individuals dealing with PAGCOR in casino operations, it is
exempting PAGCOR from being liable to indirect taxes.
The manner of charging VAT does not make PAGCOR liable to said tax
It is true that VAT can either be incorporated in the value of the goods, properties, or services sold or leased, in
which case it is computed as 1/11 of such value, or charged as an additional 10% to the value. Verily, the seller or
lessor has the option to follow either way in charging its clients and customer. In the instant case, Acesite
followed the latter method, that is, charging an additional 10% of the gross sales and rentals. Be that as it may,
the use of either method, and in particular, the first method, does not denigrate the fact that PAGCOR is exempt
from an indirect tax, like VAT.
VAT exemption extends to Acesite
Thus, while it was proper for PAGCOR not to pay the 10% VAT charged by Acesite, the latter is not liable for the
payment of it as it is exempt in this particular transaction by operation of law to pay the indirect tax. Such
exemption falls within the former Section 102 (b) (3) of the 1977 Tax Code, as amended (now Sec. 108 [b] [3] of
R.A. 8424), which provides:
Section 102. Value-added tax on sale of services – (a) Rate and base of tax – There shall be levied, assessed and
collected, a value-added tax equivalent to 10% of gross receipts derived by any person engaged in the sale of
services x x x; Provided, that the following services performed in the Philippines by VAT-registered persons shall
be subject to 0%.
xxxx
(b) Transactions subject to zero percent (0%) rated.—
xxxx
(3) Services rendered to persons or entities whose exemption under special laws or international agreements
to which the Philippines is a signatory effectively subjects the supply of such services to zero (0%) rate (emphasis
supplied).
The rationale for the exemption from indirect taxes provided for in P.D. 1869 and the extension of such
exemption to entities or individuals dealing with PAGCOR in casino operations are best elucidated from the 1987
case of Commissioner of Internal Revenue v. John Gotamco & Sons, Inc.,5 where the absolute tax exemption of
the World Health Organization (WHO) upon an international agreement was upheld. We held in said case that
the exemption of contractee WHO should be implemented to mean that the entity or person exempt is the
contractor itself who constructed the building owned by contractee WHO, and such does not violate the rule
that tax exemptions are personal because the manifest intention of the agreement is to exempt the contractor
so that no contractor’s tax may be shifted to the contractee WHO. Thus, the proviso in P.D. 1869, extending the
exemption to entities or individuals dealing with PAGCOR in casino operations, is clearly to proscribe any indirect
tax, like VAT, that may be shifted to PAGCOR.
Acesite paid VAT by mistake
Considering the foregoing discussion, there are undoubtedly erroneous payments of the VAT pertaining to the
effectively zero-rate transactions between Acesite and PAGCOR. Verily, Acesite has clearly shown that it paid the
subject taxes under a mistake of fact, that is, when it was not aware that the transactions it had with PAGCOR
were zero-rated at the time it made the payments. In UST Cooperative Store v. City of Manila,6 we explained that
"there is erroneous payment of taxes when a taxpayer pays under a mistake of fact, as for the instance in a case
where he is not aware of an existing exemption in his favor at the time the payment was made."7 Such payment
is held to be not voluntary and, therefore, can be recovered or refunded.8
Moreover, it must be noted that aside from not raising the issue of Acesite’s compliance with pertinent Revenue
Regulations on exemptions during the proceedings in the CTA, it cannot be gainsaid that Acesite should have
done so as it paid the VAT under a mistake of fact. Hence, petitioner’s argument on this point is utterly tenuous.
Solutio indebiti applies to the Government
Tax refunds are based on the principle of quasi-contract or solutio indebiti and the pertinent laws governing this
principle are found in Arts. 2142 and 2154 of the Civil Code, which provide, thus:
Art. 2142. Certain lawful, voluntary, and unilateral acts give rise to the juridical relation of quasi-contract to the
end that no one shall be unjustly enriched or benefited at the expense of another.
Art. 2154. If something is received when there is no right to demand it, and it was unduly delivered through
mistake, the obligation to return it arises.
When money is paid to another under the influence of a mistake of fact, that is to say, on the mistaken
supposition of the existence of a specific fact, where it would not have been known that the fact was otherwise,
it may be recovered. The ground upon which the right of recovery rests is that money paid through
misapprehension of facts belongs in equity and in good conscience to the person who paid it. 9
The Government comes within the scope of solutio indebiti principle as elucidated in Commissioner of Internal
Revenue v. Fireman’s Fund Insurance Company, where we held that: "Enshrined in the basic legal principles is the
time-honored doctrine that no person shall unjustly enrich himself at the expense of another. It goes without
saying that the Government is not exempted from the application of this doctrine." 10
Action for refund strictly construed; Acesite discharged the burden of proof
Since an action for a tax refund partakes of the nature of an exemption, which cannot be allowed unless granted
in the most explicit and categorical language, it is strictly construed against the claimant who must discharge
such burden convincingly.11 In the instant case, respondent Acesite had discharged this burden as found by the
CTA and the CA. Indeed, the records show that Acesite proved its actual VAT payments subject to refund, as
attested to by an independent Certified Public Accountant who was duly commissioned by the CTA. On the other
hand, petitioner never disputed nor contested respondent’s testimonial and documentary evidence. In fact,
petitioner never presented any evidence on its behalf.
One final word. The BIR must release the refund to respondent without any unreasonable delay. Indeed, fair
dealing is expected by our taxpayers from the BIR and this duty demands that the BIR should refund without any
unreasonable delay what it has erroneously collected.12
WHEREFORE, the petition is DENIED for lack of merit and the November 17, 2000 Decision of the CA is hereby
AFFIRMED. No costs.
SO ORDERED.
G.R. No. 172087 March 15, 2011
PHILIPPINE AMUSEMENT AND GAMING CORPORATION (PAGCOR), Petitioner,
vs.
THE BUREAU OF INTERNAL REVENUE (BIR), represented herein by HON. JOSE MARIO BUÑAG, in his official
capacity as COMMISSIONER OF INTERNAL REVENUE, Public Respondent,
JOHN DOE and JANE DOE, who are persons acting for, in behalf, or under the authority of Respondent.Public
and Private Respondents.
DECISION
PERALTA, J.:
For resolution of this Court is the Petition for Certiorari and Prohibition1 with prayer for the issuance of a
Temporary Restraining Order and/or Preliminary Injunction, dated April 17, 2006, of petitioner Philippine
Amusement and Gaming Corporation (PAGCOR), seeking the declaration of nullity of Section 1 of Republic Act
(R.A.) No. 9337 insofar as it amends Section 27 (c) of the National Internal Revenue Code of 1997, by excluding
petitioner from exemption from corporate income tax for being repugnant to Sections 1 and 10 of Article III of
the Constitution. Petitioner further seeks to prohibit the implementation of Bureau of Internal Revenue (BIR)
Revenue Regulations No. 16-2005 for being contrary to law.
The undisputed facts follow.
PAGCOR was created pursuant to Presidential Decree (P.D.) No. 1067-A2 on January 1, 1977. Simultaneous to its
creation, P.D. No. 1067-B3 (supplementing P.D. No. 1067-A) was issued exempting PAGCOR from the payment of
any type of tax, except a franchise tax of five percent (5%) of the gross revenue. 4 Thereafter, on June 2, 1978,
P.D. No. 1399 was issued expanding the scope of PAGCOR's exemption.5
To consolidate the laws pertaining to the franchise and powers of PAGCOR, P.D. No. 18696 was issued. Section 13
thereof reads as follows:
Sec. 13. Exemptions. — x x x
(1) Customs Duties, taxes and other imposts on importations. - All importations of equipment, vehicles,
automobiles, boats, ships, barges, aircraft and such other gambling paraphernalia, including
accessories or related facilities, for the sole and exclusive use of the casinos, the proper and efficient
management and administration thereof and such other clubs, recreation or amusement places to be
established under and by virtue of this Franchise shall be exempt from the payment of duties, taxes
and other imposts, including all kinds of fees, levies, or charges of any kind or nature.
Vessels and/or accessory ferry boats imported or to be imported by any corporation having existing
contractual arrangements with the Corporation, for the sole and exclusive use of the casino or to be
used to service the operations and requirements of the casino, shall likewise be totally exempt from
the payment of all customs duties, taxes and other imposts, including all kinds of fees, levies,
assessments or charges of any kind or nature, whether National or Local.
(2) Income and other taxes. - (a) Franchise Holder: No tax of any kind or form, income or otherwise, as
well as fees, charges, or levies of whatever nature, whether National or Local, shall be assessed and
collected under this Franchise from the Corporation; nor shall any form of tax or charge attach in any
way to the earnings of the Corporation, except a Franchise Tax of five percent (5%)of the gross revenue
or earnings derived by the Corporation from its operation under this Franchise. Such tax shall be due
and payable quarterly to the National Government and shall be in lieu of all kinds of taxes, levies, fees
or assessments of any kind, nature or description, levied, established, or collected by any municipal,
provincial or national government authority.
(b) Others: The exemption herein granted for earnings derived from the operations
conducted under the franchise, specifically from the payment of any tax, income or
otherwise, as well as any form of charges, fees or levies, shall inure to the benefit of and
extend to corporation(s), association(s), agency(ies), or individual(s) with whom the
Corporation or operator has any contractual relationship in connection with the operations
of the casino(s) authorized to be conducted under this Franchise and to those receiving
compensation or other remuneration from the Corporation as a result of essential facilities
furnished and/or technical services rendered to the Corporation or operator.
 The fee or remuneration of foreign entertainers contracted by the Corporation or operator in
pursuance of this provision shall be free of any tax.
(3) Dividend Income. − Notwithstanding any provision of law to the contrary, in the event the
Corporation should declare a cash dividend income corresponding to the participation of the private
sector shall, as an incentive to the beneficiaries, be subject only to a final flat income rate of ten
percent (10%) of the regular income tax rates. The dividend income shall not in such case be
considered as part of the beneficiaries' taxable income; provided, however, that such dividend income
shall be totally exempted from income or other form of taxes if invested within six (6) months from the
date the dividend income is received in the following:
(a) operation of the casino(s) or investments in any affiliate activity that will ultimately
redound to the benefit of the Corporation; or any other corporation with whom the
Corporation has any existing arrangements in connection with or related to the operations of
the casino(s);
(b) Government bonds, securities, treasury notes, or government debentures; or
(c) BOI-registered or export-oriented corporation(s).7
PAGCOR's tax exemption was removed in June 1984 through P.D. No. 1931, but it was later restored by Letter of
Instruction No. 1430, which was issued in September 1984.
On January 1, 1998, R.A. No. 8424,8 otherwise known as the National Internal Revenue Code of 1997, took effect.
Section 27 (c) of R.A. No. 8424 provides that government-owned and controlled corporations (GOCCs) shall pay
corporate income tax, except petitioner PAGCOR, the Government Service and Insurance Corporation, the Social
Security System, the Philippine Health Insurance Corporation, and the Philippine Charity Sweepstakes Office,
thus:
(c) Government-owned or Controlled Corporations, Agencies or Instrumentalities. - The provisions of existing
special general laws to the contrary notwithstanding, all corporations, agencies or instrumentalities owned and
controlled by the Government, except the Government Service and Insurance Corporation (GSIS), the Social
Security System (SSS), the Philippine Health Insurance Corporation (PHIC), the Philippine Charity Sweepstakes
Office (PCSO), and the Philippine Amusement and Gaming Corporation (PAGCOR), shall pay such rate of tax upon
their taxable income as are imposed by this Section upon corporations or associations engaged in similar
business, industry, or activity.9
With the enactment of R.A. No. 933710 on May 24, 2005, certain sections of the National Internal Revenue Code
of 1997 were amended. The particular amendment that is at issue in this case is Section 1 of R.A. No. 9337,
which amended Section 27 (c) of the National Internal Revenue Code of 1997 by excluding PAGCOR from the
enumeration of GOCCs that are exempt from payment of corporate income tax, thus:
(c) Government-owned or Controlled Corporations, Agencies or Instrumentalities. - The provisions of existing
special general laws to the contrary notwithstanding, all corporations, agencies, or instrumentalities owned and
controlled by the Government, except the Government Service and Insurance Corporation (GSIS), the Social
Security System (SSS), the Philippine Health Insurance Corporation (PHIC), and the Philippine Charity
Sweepstakes Office (PCSO), shall pay such rate of tax upon their taxable income as are imposed by this Section
upon corporations or associations engaged in similar business, industry, or activity.
Different groups came to this Court via petitions for certiorari and prohibition11 assailing the validity and
constitutionality of R.A. No. 9337, in particular:
1) Section 4, which imposes a 10% Value Added Tax (VAT) on sale of goods and properties; Section 5,
which imposes a 10% VAT on importation of goods; and Section 6, which imposes a 10% VAT on sale of
services and use or lease of properties, all contain a uniform proviso authorizing the President, upon
the recommendation of the Secretary of Finance, to raise the VAT rate to 12%. The said provisions
were alleged to be violative of Section 28 (2), Article VI of the Constitution, which section vests in
Congress the exclusive authority to fix the rate of taxes, and of Section 1, Article III of the Constitution
on due process, as well as of Section 26 (2), Article VI of the Constitution, which section provides for
the "no amendment rule" upon the last reading of a bill;
2) Sections 8 and 12 were alleged to be violative of Section 1, Article III of the Constitution, or the
guarantee of equal protection of the laws, and Section 28 (1), Article VI of the Constitution; and
3) other technical aspects of the passage of the law, questioning the manner it was passed.
On September 1, 2005, the Court dismissed all the petitions and upheld the constitutionality of R.A. No. 9337. 12
On the same date, respondent BIR issued Revenue Regulations (RR) No. 16-2005,13 specifically identifying
PAGCOR as one of the franchisees subject to 10% VAT imposed under Section 108 of the National Internal
Revenue Code of 1997, as amended by R.A. No. 9337. The said revenue regulation, in part, reads:
Sec. 4. 108-3. Definitions and Specific Rules on Selected Services. —
xxxx
(h) x x x
Gross Receipts of all other franchisees, other than those covered by Sec. 119 of the Tax Code, regardless of how
their franchisees may have been granted, shall be subject to the 10% VAT imposed under Sec.108 of the Tax
Code. This includes, among others, the Philippine Amusement and Gaming Corporation (PAGCOR), and its
licensees or franchisees.
Hence, the present petition for certiorari.
PAGCOR raises the following issues:
I
WHETHER OR NOT RA 9337, SECTION 1 (C) IS NULL AND VOID AB INITIO FOR BEING REPUGNANT TO THE EQUAL
PROTECTION [CLAUSE] EMBODIED IN SECTION 1, ARTICLE III OF THE 1987 CONSTITUTION.
II
WHETHER OR NOT RA 9337, SECTION 1 (C) IS NULL AND VOID AB INITIO FOR BEING REPUGNANT TO THE NON-
IMPAIRMENT [CLAUSE] EMBODIED IN SECTION 10, ARTICLE III OF THE 1987 CONSTITUTION.
III
WHETHER OR NOT RR 16-2005, SECTION 4.108-3, PARAGRAPH (H) IS NULL AND VOID AB INITIO FOR BEING
BEYOND THE SCOPE OF THE BASIC LAW, RA 8424, SECTION 108, INSOFAR AS THE SAID REGULATION IMPOSED
VAT ON THE SERVICES OF THE PETITIONER AS WELL AS PETITIONER’S LICENSEES OR FRANCHISEES WHEN THE
BASIC LAW, AS INTERPRETED BY APPLICABLE JURISPRUDENCE, DOES NOT IMPOSE VAT ON PETITIONER OR ON
PETITIONER’S LICENSEES OR FRANCHISEES.14
The BIR, in its Comment15 dated December 29, 2006, counters:
I
SECTION 1 OF R.A. NO. 9337 AND SECTION 13 (2) OF P.D. 1869 ARE BOTH VALID AND CONSTITUTIONAL
PROVISIONS OF LAWS THAT SHOULD BE HARMONIOUSLY CONSTRUED TOGETHER SO AS TO GIVE EFFECT TO ALL
OF THEIR PROVISIONS WHENEVER POSSIBLE.
II
SECTION 1 OF R.A. NO. 9337 IS NOT VIOLATIVE OF SECTION 1 AND SECTION 10, ARTICLE III OF THE 1987
CONSTITUTION.
III
BIR REVENUE REGULATIONS ARE PRESUMED VALID AND CONSTITUTIONAL UNTIL STRICKEN DOWN BY LAWFUL
AUTHORITIES.
The Office of the Solicitor General (OSG), by way of Manifestation In Lieu of Comment,16 concurred with the
arguments of the petitioner. It added that although the State is free to select the subjects of taxation and that
the inequity resulting from singling out a particular class for taxation or exemption is not an infringement of the
constitutional limitation, a tax law must operate with the same force and effect to all persons, firms and
corporations placed in a similar situation. Furthermore, according to the OSG, public respondent BIR exceeded
its statutory authority when it enacted RR No. 16-2005, because the latter's provisions are contrary to the
mandates of P.D. No. 1869 in relation to R.A. No. 9337.
The main issue is whether or not PAGCOR is still exempt from corporate income tax and VAT with the enactment
of R.A. No. 9337.
After a careful study of the positions presented by the parties, this Court finds the petition partly meritorious.
Under Section 1 of R.A. No. 9337, amending Section 27 (c) of the National Internal Revenue Code of 1977,
petitioner is no longer exempt from corporate income tax as it has been effectively omitted from the list of
GOCCs that are exempt from it. Petitioner argues that such omission is unconstitutional, as it is violative of its
right to equal protection of the laws under Section 1, Article III of the Constitution:
Sec. 1. No person shall be deprived of life, liberty, or property without due process of law, nor shall any person
be denied the equal protection of the laws.
In City of Manila v. Laguio, Jr.,17 this Court expounded the meaning and scope of equal protection, thus:
Equal protection requires that all persons or things similarly situated should be treated alike, both as to rights
conferred and responsibilities imposed. Similar subjects, in other words, should not be treated differently, so as
to give undue favor to some and unjustly discriminate against others. The guarantee means that no person or
class of persons shall be denied the same protection of laws which is enjoyed by other persons or other classes in
like circumstances. The "equal protection of the laws is a pledge of the protection of equal laws." It limits
governmental discrimination. The equal protection clause extends to artificial persons but only insofar as their
property is concerned.
xxxx
Legislative bodies are allowed to classify the subjects of legislation. If the classification is reasonable, the law may
operate only on some and not all of the people without violating the equal protection clause. The classification
must, as an indispensable requisite, not be arbitrary. To be valid, it must conform to the following requirements:
1) It must be based on substantial distinctions.
2) It must be germane to the purposes of the law.
3) It must not be limited to existing conditions only.
4) It must apply equally to all members of the class.18
It is not contested that before the enactment of R.A. No. 9337, petitioner was one of the five GOCCs exempted
from payment of corporate income tax as shown in R.A. No. 8424, Section 27 (c) of which, reads:
(c) Government-owned or Controlled Corporations, Agencies or Instrumentalities. - The provisions of existing
special or general laws to the contrary notwithstanding, all corporations, agencies or instrumentalities owned
and controlled by the Government, except the Government Service and Insurance Corporation (GSIS), the Social
Security System (SSS), the Philippine Health Insurance Corporation (PHIC), the Philippine Charity Sweepstakes
Office (PCSO), and the Philippine Amusement and Gaming Corporation (PAGCOR), shall pay such rate of tax upon
their taxable income as are imposed by this Section upon corporations or associations engaged in similar
business, industry, or activity.19
A perusal of the legislative records of the Bicameral Conference Meeting of the Committee on Ways on Means
dated October 27, 1997 would show that the exemption of PAGCOR from the payment of corporate income tax
was due to the acquiescence of the Committee on Ways on Means to the request of PAGCOR that it be exempt CHAIRMAN ENRILE. It does, it does, because this is taken and spent by government, somebody receives it in the
from such tax.20 The records of the Bicameral Conference Meeting reveal: form of wages and supplies and other services and other goods. They are not being taken from the public and
stored in a vault.
HON. R. DIAZ. The other thing, sir, is we --- I noticed we imposed a tax on lotto winnings.
CHAIRMAN JAVIER. That 7.7 loss because of tax exemption. That will be extra income for the taxpayers.
CHAIRMAN ENRILE. Wala na, tinanggal na namin yon.
HON. ROXAS. Precisely, so they will be spending it.21
HON. R. DIAZ. Tinanggal na ba natin yon?
The discussion above bears out that under R.A. No. 8424, the exemption of PAGCOR from paying corporate
CHAIRMAN ENRILE. Oo. income tax was not based on a classification showing substantial distinctions which make for real differences,
but to reiterate, the exemption was granted upon the request of PAGCOR that it be exempt from the payment of
corporate income tax.
HON. R. DIAZ. Because I was wondering whether we covered the tax on --- Whether on a universal basis, we
included a tax on cockfighting winnings.
With the subsequent enactment of R.A. No. 9337, amending R.A. No. 8424, PAGCOR has been excluded from the
enumeration of GOCCs that are exempt from paying corporate income tax. The records of the Bicameral
CHAIRMAN ENRILE. No, we removed the ---
Conference Meeting dated April 18, 2005, of the Committee on the Disagreeing Provisions of Senate Bill No.
1950 and House Bill No. 3555, show that it is the legislative intent that PAGCOR be subject to the payment of
HON. R. DIAZ. I . . . (inaudible) natin yong lotto? corporate income tax, thus:

CHAIRMAN ENRILE. Pati PAGCOR tinanggal upon request. THE CHAIRMAN (SEN. RECTO). Yes, Osmeña, the proponent of the amendment.

CHAIRMAN JAVIER. Yeah, Philippine Insurance Commission.
CHAIRMAN ENRILE. Philippine Insurance --- Health, health ba. Yon ang request ng Chairman, I will accept.
(laughter) Pag-Pag-ibig yon, maliliit na sa tao yon.
HON. ROXAS. Mr. Chairman, I wonder if in the revenue gainers if we factored in an amount that would reflect the
VAT and other sales taxes---
CHAIRMAN ENRILE. No, we’re talking of this measure only. We will not --- (discontinued)
HON. ROXAS. No, no, no, no, from the --- arising from the exemption. Assuming that when we release the money
into the hands of the public, they will not use that to --- for wallpaper. They will spend that eh, Mr. Chairman. So
when they spend that---
SEN. OSMEÑA. Yeah. Mr. Chairman, one of the reasons why we're even considering this VAT bill is we want to
show the world who our creditors, that we are increasing official revenues that go to the national budget.
Unfortunately today, Pagcor is unofficial.
Now, in 2003, I took a quick look this morning, Pagcor had a net income of 9.7 billion after paying some small
taxes that they are subjected to. Of the 9.7 billion, they claim they remitted to national government seven
billion. Pagkatapos, there are other specific remittances like to the Philippine Sports Commission, etc., as
mandated by various laws, and then about 400 million to the President's Social Fund. But all in all, their net profit
today should be about 12 billion. That's why I am questioning this two billion. Because while essentially they
claim that the money goes to government, and I will accept that just for the sake of argument. It does not pass
through the appropriation process. And I think that at least if we can capture 35 percent or 32 percent through
the budgetary process, first, it is reflected in our official income of government which is applied to the national
budget, and secondly, it goes through what is constitutionally mandated as Congress appropriating and
defining where the money is spent and not through a board of directors that has absolutely no accountability.

CHAIRMAN ENRILE. There’s a VAT. REP. PUENTEBELLA. Well, with all due respect, Mr. Chairman, follow up lang.

HON. ROXAS. There will be a VAT and there will be other sales taxes no. Is there a quantification? Is there an There is wisdom in the comments of my good friend from Cebu, Senator Osmeña.
approximation?
SEN. OSMEÑA. And Negros.
CHAIRMAN JAVIER. Not anything.
REP. PUENTEBELLA. And Negros at the same time ay Kasimanwa. But I would not want to put my friends from
HON. ROXAS. So, in effect, we have sterilized that entire seven billion. In effect, it is not circulating in the the Department of Finance in a difficult position, but may we know your comments on this knowing that as
economy which is unrealistic. Senator Osmeña just mentioned, he said, "I accept that that a lot of it is going to spending for basic services,"
you know, going to most, I think, supposedly a lot or most of it should go to government spending, social services
and the like. What is your comment on this? This is going to affect a lot of services on the government side.
THE CHAIRMAN (REP. LAPUS). Mr. Chair, Mr. Chair.
SEN. OSMEÑA. It goes from pocket to the other, Monico.
REP. PUENTEBELLA. I know that. But I wanted to ask them, Mr. Senator, because you may have your own pre-
judgment on this and I don't blame you. I don't blame you. And I know you have your own research. But will this
not affect a lot, the disbursements on social services and other?
REP. LOCSIN. Mr. Chairman. Mr. Chairman, if I can add to that question also. Wouldn't it be easier for you to
explain to, say, foreign creditors, how do you explain to them that if there is a fiscal gap some of our richest
corporations has [been] spared [from] taxation by the government which is one rich source of revenues. Now,
why do you save, why do you spare certain government corporations on that, like Pagcor? So, would it be easier
for you to make an argument if everything was exposed to taxation?
REP. TEVES. Mr. Chair, please.
THE CHAIRMAN (REP. LAPUS). Can we ask the DOF to respond to those before we call Congressman Teves?
MR. PURISIMA. Thank you, Mr. Chair.
Yes, from definitely improving the collection, it will help us because it will then enter as an official revenue
although when dividends declare it also goes in as other income. (sic)
xxxx
REP. TEVES. Mr. Chairman.
xxxx
THE CHAIRMAN (REP. LAPUS). Congressman Teves.
REP. TEVES. Yeah. Pagcor is controlled under Section 27, that is on income tax. Now, we are talking here on
value-added tax. Do you mean to say we are going to amend it from income tax to value-added tax, as far as
Pagcor is concerned?
THE CHAIRMAN (SEN. RECTO). No. We are just amending that section with regard to the exemption from
income tax of Pagcor.
xxxx
REP. NOGRALES. Mr. Chairman, Mr. Chairman. Mr. Chairman.
THE CHAIRMAN (REP. LAPUS). Congressman Nograles.
REP. NOGRALES. Just a point of inquiry from the Chair. What exactly are the functions of Pagcor that are
VATable? What will we VAT in Pagcor?
THE CHAIRMAN (REP. LAPUS). This is on own income tax. This is Pagcor income tax.
REP. NOGRALES. No, that's why. Anong i-va-Vat natin sa kanya. Sale of what?
xxxx
REP. VILLAFUERTE. Mr. Chairman, my question is, what are we VATing Pagcor with, is it the . . .
REP. NOGRALES. Mr. Chairman, this is a secret agreement or the way they craft their contract, which basis?
THE CHAIRMAN (SEN. RECTO). Congressman Nograles, the Senate version does not discuss a VAT on Pagcor but
it just takes away their exemption from non-payment of income tax.22
Taxation is the rule and exemption is the exception.23 The burden of proof rests upon the party claiming
exemption to prove that it is, in fact, covered by the exemption so claimed.24 As a rule, tax exemptions are
construed strongly against the claimant.25 Exemptions must be shown to exist clearly and categorically, and
supported by clear legal provision.26
In this case, PAGCOR failed to prove that it is still exempt from the payment of corporate income tax, considering
that Section 1 of R.A. No. 9337 amended Section 27 (c) of the National Internal Revenue Code of 1997 by
omitting PAGCOR from the exemption. The legislative intent, as shown by the discussions in the Bicameral
Conference Meeting, is to require PAGCOR to pay corporate income tax; hence, the omission or removal of
PAGCOR from exemption from the payment of corporate income tax. It is a basic precept of statutory
construction that the express mention of one person, thing, act, or consequence excludes all others as expressed
in the familiar maxim expressio unius est exclusio alterius.27 Thus, the express mention of the GOCCs exempted
from payment of corporate income tax excludes all others. Not being excepted, petitioner PAGCOR must be
regarded as coming within the purview of the general rule that GOCCs shall pay corporate income tax, expressed
in the maxim: exceptio firmat regulam in casibus non exceptis.28
PAGCOR cannot find support in the equal protection clause of the Constitution, as the legislative records of the
Bicameral Conference Meeting dated October 27, 1997, of the Committee on Ways and Means, show that
PAGCOR’s exemption from payment of corporate income tax, as provided in Section 27 (c) of R.A. No. 8424, or
the National Internal Revenue Code of 1997, was not made pursuant to a valid classification based on substantial
distinctions and the other requirements of a reasonable classification by legislative bodies, so that the law may
operate only on some, and not all, without violating the equal protection clause. The legislative records show
that the basis of the grant of exemption to PAGCOR from corporate income tax was PAGCOR’s own request to be
exempted.
Petitioner further contends that Section 1 (c) of R.A. No. 9337 is null and void ab initio for violating the non-
impairment clause of the Constitution. Petitioner avers that laws form part of, and is read into, the contract even
without the parties expressly saying so. Petitioner states that the private parties/investors transacting with it
considered the tax exemptions, which inure to their benefit, as the main consideration and inducement for their
decision to transact/invest with it. Petitioner argues that the withdrawal of its exemption from corporate income
tax by R.A. No. 9337 has the effect of changing the main consideration and inducement for the transactions of
private parties with it; thus, the amendatory provision is violative of the non-impairment clause of the
Constitution.
Petitioner’s contention lacks merit.
The non-impairment clause is contained in Section 10, Article III of the Constitution, which provides that no law
impairing the obligation of contracts shall be passed. The non-impairment clause is limited in application to laws
that derogate from prior acts or contracts by enlarging, abridging or in any manner changing the intention of the
parties.29 There is impairment if a subsequent law changes the terms of a contract between the parties, imposes
new conditions, dispenses with those agreed upon or withdraws remedies for the enforcement of the rights of
the parties.30
As regards franchises, Section 11, Article XII of the Constitution 31 provides that no franchise or right shall be
granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress
when the common good so requires.32
In Manila Electric Company v. Province of Laguna,33 the Court held that a franchise partakes the nature of a
grant, which is beyond the purview of the non-impairment clause of the Constitution.34 The pertinent portion of
the case states:
While the Court has, not too infrequently, referred to tax exemptions contained in special franchises as being in
the nature of contracts and a part of the inducement for carrying on the franchise, these exemptions,
nevertheless, are far from being strictly contractual in nature. Contractual tax exemptions, in the real sense of
the term and where the non-impairment clause of the Constitution can rightly be invoked, are those agreed to
by the taxing authority in contracts, such as those contained in government bonds or debentures, lawfully
entered into by them under enabling laws in which the government, acting in its private capacity, sheds its cloak
of authority and waives its governmental immunity. Truly, tax exemptions of this kind may not be revoked
without impairing the obligations of contracts. These contractual tax exemptions, however, are not to be
confused with tax exemptions granted under franchises. A franchise partakes the nature of a grant which is
beyond the purview of the non-impairment clause of the Constitution. Indeed, Article XII, Section 11, of the 1987
Constitution, like its precursor provisions in the 1935 and the 1973 Constitutions, is explicit that no franchise for
the operation of a public utility shall be granted except under the condition that such privilege shall be subject to
amendment, alteration or repeal by Congress as and when the common good so requires.35
In this case, PAGCOR was granted a franchise to operate and maintain gambling casinos, clubs and other
recreation or amusement places, sports, gaming pools, i.e., basketball, football, lotteries, etc., whether on land
or sea, within the territorial jurisdiction of the Republic of the Philippines. 36 Under Section 11, Article XII of the
Constitution, PAGCOR’s franchise is subject to amendment, alteration or repeal by Congress such as the
amendment under Section 1 of R.A. No. 9377. Hence, the provision in Section 1 of R.A. No. 9337, amending
Section 27 (c) of R.A. No. 8424 by withdrawing the exemption of PAGCOR from corporate income tax, which may
affect any benefits to PAGCOR’s transactions with private parties, is not violative of the non-impairment clause
of the Constitution.
Anent the validity of RR No. 16-2005, the Court holds that the provision subjecting PAGCOR to 10% VAT is invalid
for being contrary to R.A. No. 9337. Nowhere in R.A. No. 9337 is it provided that petitioner can be subjected to
VAT. R.A. No. 9337 is clear only as to the removal of petitioner's exemption from the payment of corporate
income tax, which was already addressed above by this Court.
As pointed out by the OSG, R.A. No. 9337 itself exempts petitioner from VAT pursuant to Section 7 (k) thereof,
which reads:
Sec. 7. Section 109 of the same Code, as amended, is hereby further amended to read as follows:
Section 109. Exempt Transactions. - (1) Subject to the provisions of Subsection (2) hereof, the following
transactions shall be exempt from the value-added tax:
xxxx
(k) Transactions which are exempt under international agreements to which the Philippines is a signatory
or under special laws, except Presidential Decree No. 529.37
Petitioner is exempt from the payment of VAT, because PAGCOR’s charter, P.D. No. 1869, is a special law that
grants petitioner exemption from taxes.
Moreover, the exemption of PAGCOR from VAT is supported by Section 6 of R.A. No. 9337, which retained
Section 108 (B) (3) of R.A. No. 8424, thus:
[R.A. No. 9337], SEC. 6. Section 108 of the same Code (R.A. No. 8424), as amended, is hereby further amended to
read as follows:
SEC. 108. Value-Added Tax on Sale of Services and Use or Lease of Properties. —
(A) Rate and Base of Tax. — There shall be levied, assessed and collected, a value-added tax equivalent to ten
percent (10%) of gross receipts derived from the sale or exchange of services, including the use or lease of
properties: x x x
xxxx
(B) Transactions Subject to Zero Percent (0%) Rate. — The following services performed in the Philippines by
VAT-registered persons shall be subject to zero percent (0%) rate;
xxxx
(3) Services rendered to persons or entities whose exemption under special laws or international agreements to
which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate;
x x x x38
As pointed out by petitioner, although R.A. No. 9337 introduced amendments to Section 108 of R.A. No. 8424 by
imposing VAT on other services not previously covered, it did not amend the portion of Section 108 (B) (3) that
subjects to zero percent rate services performed by VAT-registered persons to persons or entities whose
exemption under special laws or international agreements to which the Philippines is a signatory effectively
subjects the supply of such services to 0% rate.
Petitioner's exemption from VAT under Section 108 (B) (3) of R.A. No. 8424 has been thoroughly and extensively
discussed in Commissioner of Internal Revenue v. Acesite (Philippines) Hotel Corporation.39 Acesite was the
owner and operator of the Holiday Inn Manila Pavilion Hotel. It leased a portion of the hotel’s premises to
PAGCOR. It incurred VAT amounting to ₱30,152,892.02 from its rental income and sale of food and beverages to
PAGCOR from January 1996 to April 1997. Acesite tried to shift the said taxes to PAGCOR by incorporating it in
the amount assessed to PAGCOR. However, PAGCOR refused to pay the taxes because of its tax-exempt status.
PAGCOR paid only the amount due to Acesite minus VAT in the sum of ₱30,152,892.02. Acesite paid VAT in the
amount of ₱30,152,892.02 to the Commissioner of Internal Revenue, fearing the legal consequences of its non-
payment. In May 1998, Acesite sought the refund of the amount it paid as VAT on the ground that its transaction
with PAGCOR was subject to zero rate as it was rendered to a tax-exempt entity. The Court ruled that PAGCOR
and Acesite were both exempt from paying VAT, thus:
xxxx
PAGCOR is exempt from payment of indirect taxes
It is undisputed that P.D. 1869, the charter creating PAGCOR, grants the latter an exemption from the
payment of taxes. Section 13 of P.D. 1869 pertinently provides:
Sec. 13. Exemptions. —
xxxx
(2) Income and other taxes. - (a) Franchise Holder: No tax of any kind or form, income or otherwise, as well as
fees, charges or levies of whatever nature, whether National or Local, shall be assessed and collected under this
Franchise from the Corporation; nor shall any form of tax or charge attach in any way to the earnings of the
Corporation, except a Franchise Tax of five (5%) percent of the gross revenue or earnings derived by the
Corporation from its operation under this Franchise. Such tax shall be due and payable quarterly to the National
Government and shall be in lieu of all kinds of taxes, levies, fees or assessments of any kind, nature or
description, levied, established or collected by any municipal, provincial, or national government authority.
(b) Others: The exemptions herein granted for earnings derived from the operations conducted under the
franchise specifically from the payment of any tax, income or otherwise, as well as any form of charges, fees or
levies, shall inure to the benefit of and extend to corporation(s), association(s), agency(ies), or individual(s) with
whom the Corporation or operator has any contractual relationship in connection with the operations of the
casino(s) authorized to be conducted under this Franchise and to those receiving compensation or other
remuneration from the Corporation or operator as a result of essential facilities furnished and/or technical
services rendered to the Corporation or operator.
Petitioner contends that the above tax exemption refers only to PAGCOR's direct tax liability and not to indirect
taxes, like the VAT.
We disagree.
A close scrutiny of the above provisos clearly gives PAGCOR a blanket exemption to taxes with no distinction on
whether the taxes are direct or indirect. We are one with the CA ruling that PAGCOR is also exempt from indirect
taxes, like VAT, as follows:
Under the above provision [Section 13 (2) (b) of P.D. 1869], the term "Corporation" or operator refers to
PAGCOR. Although the law does not specifically mention PAGCOR's exemption from indirect taxes, PAGCOR is
undoubtedly exempt from such taxes because the law exempts from taxes persons or entities contracting with
PAGCOR in casino operations. Although, differently worded, the provision clearly exempts PAGCOR from indirect
taxes. In fact, it goes one step further by granting tax exempt status to persons dealing with PAGCOR in casino
operations. The unmistakable conclusion is that PAGCOR is not liable for the P30, 152,892.02 VAT and neither is
Acesite as the latter is effectively subject to zero percent rate under Sec. 108 B (3), R.A. 8424. (Emphasis
supplied.)
Indeed, by extending the exemption to entities or individuals dealing with PAGCOR, the legislature clearly
granted exemption also from indirect taxes. It must be noted that the indirect tax of VAT, as in the instant case,
can be shifted or passed to the buyer, transferee, or lessee of the goods, properties, or services subject to VAT.
Thus, by extending the tax exemption to entities or individuals dealing with PAGCOR in casino operations, it is
exempting PAGCOR from being liable to indirect taxes.
The manner of charging VAT does not make PAGCOR liable to said tax.
It is true that VAT can either be incorporated in the value of the goods, properties, or services sold or leased, in
which case it is computed as 1/11 of such value, or charged as an additional 10% to the value. Verily, the seller or
lessor has the option to follow either way in charging its clients and customer. In the instant case, Acesite
followed the latter method, that is, charging an additional 10% of the gross sales and rentals. Be that as it may,
the use of either method, and in particular, the first method, does not denigrate the fact that PAGCOR is exempt
from an indirect tax, like VAT.
VAT exemption extends to Acesite
Thus, while it was proper for PAGCOR not to pay the 10% VAT charged by Acesite, the latter is not liable for the
payment of it as it is exempt in this particular transaction by operation of law to pay the indirect tax. Such
exemption falls within the former Section 102 (b) (3) of the 1977 Tax Code, as amended (now Sec. 108 [b] [3] of
R.A. 8424), which provides:
Section 102. Value-added tax on sale of services.- (a) Rate and base of tax - There shall be levied, assessed and
collected, a value-added tax equivalent to 10% of gross receipts derived by any person engaged in the sale of
services x x x; Provided, that the following services performed in the Philippines by VAT registered persons shall
be subject to 0%.
xxxx
(3) Services rendered to persons or entities whose exemption under special laws or international agreements to
which the Philippines is a signatory effectively subjects the supply of such services to zero (0%) rate (emphasis
supplied).
The rationale for the exemption from indirect taxes provided for in P.D. 1869 and the extension of such
exemption to entities or individuals dealing with PAGCOR in casino operations are best elucidated from the 1987
case of Commissioner of Internal Revenue v. John Gotamco & Sons, Inc., where the absolute tax exemption of the
World Health Organization (WHO) upon an international agreement was upheld. We held in said case that the
exemption of contractee WHO should be implemented to mean that the entity or person exempt is the
contractor itself who constructed the building owned by contractee WHO, and such does not violate the rule
that tax exemptions are personal because the manifest intention of the agreement is to exempt the contractor
so that no contractor's tax may be shifted to the contractee WHO. Thus, the proviso in P.D. 1869, extending the
exemption to entities or individuals dealing with PAGCOR in casino operations, is clearly to proscribe any indirect
tax, like VAT, that may be shifted to PAGCOR.40
Although the basis of the exemption of PAGCOR and Acesite from VAT in the case of The Commissioner of
Internal Revenue v. Acesite (Philippines) Hotel Corporation was Section 102 (b) of the 1977 Tax Code, as
amended, which section was retained as Section 108 (B) (3) in R.A. No. 8424, 41 it is still applicable to this case,
since the provision relied upon has been retained in R.A. No. 9337.421avvphi1
It is settled rule that in case of discrepancy between the basic law and a rule or regulation issued to implement
said law, the basic law prevails, because the said rule or regulation cannot go beyond the terms and provisions of
the basic law.43 RR No. 16-2005, therefore, cannot go beyond the provisions of R.A. No. 9337. Since PAGCOR is
exempt from VAT under R.A. No. 9337, the BIR exceeded its authority in subjecting PAGCOR to 10% VAT under
RR No. 16-2005; hence, the said regulatory provision is hereby nullified.
WHEREFORE, the petition is PARTLY GRANTED. Section 1 of Republic Act No. 9337, amending Section 27 (c) of
the National Internal Revenue Code of 1997, by excluding petitioner Philippine Amusement and Gaming
Corporation from the enumeration of government-owned and controlled corporations exempted from corporate
income tax is valid and constitutional, while BIR Revenue Regulations No. 16-2005 insofar as it subjects PAGCOR
to 10% VAT is null and void for being contrary to the National Internal Revenue Code of 1997, as amended by
Republic Act No. 9337.
No costs.
SO ORDERED.
G.R. No. 164365 June 8, 2007
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
PLACER DOME TECHNICAL SERVICES (PHILS.), INC., respondent.
DECISION
TINGA, J.:
Two years ago, the Court in Commissioner of Internal Revenue v. American Express International, Inc. (Philippine
Branch)1 definitively ruled that under the National Internal Revenue Code of 1986, as amended, 2 "services
performed by VAT-registered persons in the Philippines (other than the processing, manufacturing or repacking
of goods for persons doing business outside the Philippines), when paid in acceptable foreign currency and
accounted for in accordance with the rules and regulations of the [Bangko Sentral ng Pilipinas], are zero-
rated."3 The grant of the present petition entails the extreme step of rejecting American Express as precedent, a
recourse which the Court is unwilling to take.
The facts, as culled from the recital in the assailed Decision4 dated 30 June 2004 of the Court of Appeals, follow.
On 24 March 1996, at the San Antonio Mines in Marinduque owned by Marcopper Mining Corporation
(Marcopper), mine tailings from the Taipan Pit started to escape through the Makulapnit Tunnel and Boac Rivers,
causing the cessation of mining and milling operations, and causing potential environmental damage to the
rivers and the immediate area. To contain the damage and prevent the further spread of the tailing leak, Placer
Dome, Inc. (PDI), the owner of 39.9% of Marcopper, undertook to perform the clean-up and rehabilitation of the
Makalupnit and Boac Rivers, through a subsidiary. To accomplish this, PDI engaged Placer Dome Technical
Services Limited (PDTSL), a non-resident foreign corporation with office in Canada, to carry out the project. In
turn, PDTSL engaged the services of Placer Dome Technical Services (Philippines), Inc. (respondent), a domestic
corporation and registered Value-Added Tax (VAT) entity, to implement the project in the Philippines.
PDTSL and respondent thus entered into an Implementation Agreement signed on 15 November 1996. Due to
the urgency and potentially significant damage to the environment, respondent had agreed to immediately
implement the project, and the Implementation Agreement stipulated that all implementation services rendered
by respondent even prior to the agreement’s signing shall be deemed to have been provided pursuant to the
said Agreement. The Agreement further stipulated that PDTSL was to pay respondent "an amount of money, in
U.S. funds, equal to all Costs incurred for Implementation Services performed under the Agreement,"5 as well as
"a fee agreed to one percent (1%) of such Costs."6
In August of 1998, respondent amended its quarterly VAT returns for the last two quarters of 1996, and for the
four quarters of 1997. In the amended returns, respondent declared a total input VAT payment
of P43,015,461.98 for the said quarters, and P42,837,933.60 as its total excess input VAT for the same period.
Then on 11 September 1998, respondent filed an administrative claim for the refund of its reported total input
VAT payments in relation to the project it had contracted from PDTSL, amounting to P43,015,461.98. In support
of this claim for refund, respondent argued that the revenues it derived from services rendered to PDTSL,
pursuant to the Agreement, qualified as zero-rated sales under Section 102(b)(2) of the then Tax Code, since it
was paid in foreign currency inwardly remitted to the Philippines. When the Commissioner of Internal Revenue
(CIR) did not act on this claim, respondent duly filed a Petition for Review with the Court of Tax Appeals (CTA),
praying for the refund of its total reported excess input VAT totaling P42,837,933.60. In its Answer to the
Petition, the CIR merely invoked the presumption that taxes are collected in accordance with law, and that
claims for refund of taxes are construed strictly against claimants, as the same was in the nature of an exemption
from taxation.7
In its Decision dated 19 March 2002,8 the CTA supported respondent’s legal position that its sale of services to
PDTSL constituted a zero-rated transaction under the Tax Code, as these services were paid for in acceptable
foreign currency which had been inwardly remitted to the Philippines in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP). At the same time, the CTA pointed out that of the
US$27,544,707.00 paid by PDTSL to respondent, only US$14,750,473.00 was inwardly remitted and accounted
for in accordance with the BSP.9 The CTA also noted that not all the reported total input VAT payments of
respondent were properly supported by VAT invoices and/or official receipts,10 and that not all of the allowable
input VAT of the respondent could be directly attributed to its zero-rated sales.11 In the end, the CTA found that
only the resulting input VAT of P17,178,373.12 could be refunded the respondent.12
The CIR filed a Motion for Reconsideration where he invoked Section 4.102-2(b)(2) of Revenue Regulation No. 5-
96,13 and especially VAT Ruling No. 040-98 dated 23 November 1998, which had interpreted the aforecited
provision.
The CTA remained unpersuaded despite the cited issuances. In fact, the CTA Resolution 14 dated 20 June 2002,
denying the CIR’s motion for reconsideration, noted that petitioner’s argument was not novel as it had debunked
the same when first raised before it, referring to its decision dated 19 April 2002 in CTA Case No. 6099, American
Express International, Inc. – Philippine Branch v. Commissioner of Internal Revenue.15 The CTA reiterated its
pronouncement in said case, thus: "x x x it is very clear that VAT Ruling No. 040-98 not only expands the
language of Section (108)(B)(2) but also of Revenue Regulation No. 5-96 which interprets the said statute. The
same cannot be countenanced. It is a settled rule of legal hermeneutics that the implementing rules and
regulations cannot amend the act of Congress x x x for administrative rules and regulations are intended to carry
out, not supplant or modify, the law."16
The rulings of the CTA were elevated by petitioner to the Court of Appeals on Petition for Review. In a
Decision17dated 30 June 2004, the appellate court affirmed the CTA rulings. As a consequence, the present
petition is now before us.
Our evaluation of the petition must begin with the statutory scope of the "services performed in the Philippines
by VAT-registered persons,"18 referred to in the law applicable at the time of the subject incidents, the National
Internal Revenue Code of 1986, as amended19 (1986 NIRC). Section 102(b) of the 1986 NIRC reads:
Section 102. Value-Added Tax on Sale of Services and Use or Lease of Properties.
(a) x x x
(b) Transactions Subject to Zero Percent (0%) Rate. ─ The following services performed in the
Philippines by VAT-registered persons shall be subject to zero percent (0%) rate:
(1) Processing, manufacturing or repacking goods for other persons doing business outside
the Philippines which goods are subsequently exported, where the services are paid for in
acceptable foreign currency and accounted for in accordance with the rules and regulations
of the Bangko Sentral ng Pilipinas (BSP);
(2) Services other than those mentioned in the preceding subparagraph, the consideration
for which is paid for in acceptable foreign currency and accounted for in accordance with the
rules and regulations of the [BSP].
x x x 20
It is Section 102(b)(2) which finds special relevance to this case. As explicitly provided in the law, a zero-rated
VAT transaction includes services by VAT-registered persons other than processing, manufacturing or repacking
goods for other persons doing business outside the Philippines, which goods are subsequently exported, the
consideration for which is paid in foreign currency and accounted for in accordance with the rules and
regulations of the BSP.
Still, this provision was interpreted by the Bureau of Internal Revenue through Revenue Regulation No. 5-96,
Section 4.102-2(b)(2) of which states:
Section 4.102(b)(2)- Services other than processing, manufacturing or repacking for other persons
doing business outside the Philippines for goods which are subsequently exported, as well as services
by a resident to a non-resident foreign client such as project studies, information services, engineering
and architectural designs and other similar services, the consideration for which is paid for in
acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP.
Although there is nothing in Section 4.102-2(b)(2) that is expressly fatal to respondent’s claim, VAT Ruling No.
040-98 interpreted the provision in such fashion. The relevant portion of the ruling reads:
The sales of services subject to zero percent (0%) VAT under Section 108(B)(2), of the Tax Code of
1997, are limited to such sales which are destined for consumption outside of the Philippines in that
such services are tacked-in as part of the cost of goods exported. The zero-rating also extends to
project studies, information services, engineering and architectural designs and other similar services
sold by a resident of the Philippines to a non-resident foreign client because these services are likewise
destined to be consumed abroad. The phrase ‘project studies, information services, engineering and
architectural designs and other similar services’ does not include services rendered by travel agents to
foreign tourists in the Philippines following the doctrine of ejusdem generis, since such services by
travel agents are not of the same class or of the same nature as those enumerated under the aforesaid
section.
Considering that the services by your client to foreign tourists are basically and substantially rendered
within the Philippines, it follows that the onus of taxation of the revenue arising therefrom, for VAT
purposes, is also within the Philippines. For this reason, it is our considered opinion that the tour
package services of your client to foreign tourists in the Philippines cannot legally qualify for zero-rated
(0%) VAT but rather subject to the regular VAT rate of 10%.
Petitioner argues that following Section 4.102-2(b)(2) of Revenue Regulation No. 5-96, there are only two
categories of services that are subject to zero percent VAT, namely: services other than processing,
manufacturing or repacking for other persons doing business outside the Philippines for goods which are
subsequently exported; and services by a resident to a non-resident foreign client, such as project studies,
information services, engineering and architectural designs and other similar services. 21 Petitioner explains that
the services rendered by respondent were not for goods which were subsequently exported. Likewise, it is
argued that the services rendered by respondent were not similar to "project studies, information services,
engineering and architectural designs" which were destined to be consumed abroad by non-resident foreign
clients.
These views, petitioner points out, were reiterated in VAT Ruling No. 040-98. It is clear from that issuance that
the location or "destination" where the services were destined for consumption was determinative of whether
the zero-rating availed when such services were sold by a resident of the Philippines to a non-resident foreign
client. VAT Ruling No. 040-98 expresses that the zero-rating may apply only when the services are destined for
consumption abroad. This view aligns with the theoretical principle that the VAT is ultimately levied on
consumption.22 If the service were destined for consumption in the Philippines, the service provider would have
the faculty to pass on its VAT liability to the end-user, thus avoiding having to shoulder the tax itself.
Unfortunately for petitioner, his arguments are no longer fresh. The Court spurned them in Commissioner of
Internal Revenue v. American Express.23
American Express involved transactions invoked as "zero-rated" by a "VAT-registered person that facilitates the
collection and payment of receivables belonging to its non-resident foreign client, for which it gets paid in
acceptable foreign currency inwardly remitted and accounted for in conformity with BSP rules and
regulations."24 The CIR in that case relied extensively on the same VAT Ruling No. 040-98 now cited before us.
However, the Court would conclude in American Express that the opinion therein that the service must be
destined for consumption outside of the Philippines was "clearly ultra vires and invalid."25
The discussion of the issues in American Express was comprehensive enough as to address each issue now
presently raised before us.
American Express explained the nature of VAT imposed on services in this manner:
The VAT is a tax on consumption "expressed as a percentage of the value added to goods or services"
purchased by the producer or taxpayer. As an indirect tax on services, its main object is the transaction
itself or, more concretely, the performance of all kinds of services conducted in the course of trade or
business in the Philippines. These services must be regularly conducted in this country; undertaken in
"pursuit of a commercial or an economic activity;" for a valuable consideration; and not exempt under
the Tax Code, other special laws, or any international agreement.26
Yet even as services may be subject to VAT, our tax laws extend the benefit of zero-rating the VAT due on certain
services. The aforementioned Section 102(b) of the 1986 NIRC activates such zero-rating on two categories of
transactions: (1) Processing, manufacturing or repacking goods for other persons doing business outside the
Philippines which goods are subsequently exported, where the services are paid for in acceptable foreign
currency and accounted for in accordance with the rules and regulations of the BSP; and (2) services other than
those mentioned in the preceding subparagraph, the consideration for which is paid for in acceptable foreign
currency and accounted for in accordance with the rules and regulations of the BSP.27
Obviously, it is the second category that begs for further explication, owing to its apparently broad scope,
covering as it does "services other than those mentioned in the preceding subparagraph." Yet, as found by the
Court in American Express, such broad scope did not mean that Section 102(b) is vague, thus:
The law is very clear. Under the last paragraph [of Section 102(b)], services performed by VAT-
registered persons in the Philippines (other than the processing, manufacturing or repacking of goods
for persons doing business outside the Philippines), when paid in acceptable foreign currency and
accounted for in accordance with the rules and regulations of the BSP, are zero-rated.28
Since Section 102(b) is, in fact, "very clear," the Court declared that any resort to statutory construction or
interpretation was unnecessary.
As mentioned at the outset, Section 102(b)(2) of the Tax Code is very clear. Therefore, no statutory
construction or interpretation is needed. Neither can conditions or limitations be introduced where
none is provided for. Rewriting the law is a forbidden ground that only Congress may tread upon.
The Court may not construe a statute that is free from doubt. "[W]here the law speaks in clear and
categorical language, there is no room for interpretation. There is only room for application." The
Court has no choice but to "see to it that its mandate is obeyed."29
It was from the awareness that Section 102(b) is free from ambiguity in providing so broad an extension of the
zero-rated benefit on VAT-registered persons performing services that the Court in American Express proceeded
to consider the same Section 4.102-2(b)(2) of Revenue Regulation No. 5-96 now cited by petitioner. The Court
in American Express explained that Revenue Regulation No. 5-96 had amended Revenue Regulation No. 7-95,
Section 4.102-2 of which had retained the broad language of Section 102(b) in defining "transactions subject to
zero-rate," adding only, by way of specific example, the phrase "those [services] rendered by hotels and other
service establishments."30 However, the amendatory Revenue Regulation No. 5-96 opted for a more specific
approach, providing, by way of example, an enumeration of those services contemplated as zero-rated.31 In the
present case, it is because of such enumeration that petitioner now argues that "respondent’s services likewise
do not fall under the second category mentioned in Section 4.102-2(b)(2) [as amended by Revenue Regulation
No. 5-96], because they are not similar to ‘project studies, information services, engineering and architectural
designs’ which are destined to be consumed abroad by non-resident foreign clients."32
However, the Court in American Express clearly rebuffed a similar contention.
Aside from the already scopious coverage of services in Section 4.102-2(b)(2) of RR 7-95, the
amendment introduced by RR 5-96 further enumerates specific services entitled to zero rating.
Although superfluous, these sample services are meant to be merely illustrative. In this provision, the
use of the term "as well as" is not restrictive. As a prepositional phrase with an adverbial relation to
some other word, it simply means "in addition to, besides, also or too."
Neither the law nor any of the implementing revenue regulations aforequoted categorically defines
or limits the services that may be sold or exchanged for a fee, remuneration or consideration. Rather,
both merely enumerate the items of service that fall under the term "sale or exchange of services."
xxxx
The canon of statutory construction known as ejusdem generis or "of the same kind or specie" does
not apply to Section 4.102-2(b)(2) of RR 7-95 as amended by RR 5-96.
First, although the regulatory provision contains an enumeration of particular or specific words,
followed by the general phrase "and other similar services," such words do not constitute a readily
discernible class and are patently not of the same kind. Project studies involve investments or
marketing; information services focus on data technology; engineering and architectural designs
require creativity. Aside from calling for the exercise or use of mental faculties or perhaps producing
 written technical outputs, no common denominator to the exclusion of all others characterizes these
three services. Nothing sets them apart from other and similar general services that may involve
advertising, computers, consultancy, health care, management, messengerial work — to name only a
few.
Second, there is the regulatory intent to give the general phrase "and other similar services" a broader
meaning. Clearly, the preceding phrase "as well as" is not meant to limit the effect of "and other
similar services."
Third, and most important, the statutory provision upon which this regulation is based is by itself not
restrictive. The scope of the word "services" in Section 102(b)(2) of the [1986 NIRC] is broad; it is not
susceptible of narrow interpretation. (Emphasis supplied)33
The Court in American Express recognized the existence of the contrary holding in VAT Ruling No. 040-98, now
relied upon by petitioner especially as he states that the zero-rating applied only when the services are destined
for consumption abroad. American Express minced no words in criticizing said ruling.
VAT Ruling No. 040-98 relied upon by petitioner is a less general interpretation at the administrative
level, rendered by the BIR commissioner upon request of a taxpayer to clarify certain provisions of the
VAT law. As correctly held by the CA, when this ruling states that the service must be "destined for
consumption outside of the Philippines" in order to qualify for zero rating, it contravenes both the
law and the regulations issued pursuant to it. This portion of VAT Ruling No. 040-98 is clearly ultra
vires and invalid.
Although "[i]t 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," this interpretation is
not conclusive and will have to be "ignored if judicially found to be erroneous" and "clearly absurd x
x x or improper." An administrative issuance that overrides the law it merely seeks to interpret,
instead of remaining consistent and in harmony with it, will not be countenanced by this
Court.(Emphasis supplied)34
Petitioner presently invokes the "destination principle," citing that [r]espondent’s services, while rendered to a
non-resident foreign corporation, are not destined to be consumed abroad. Hence, the onus of taxation of the
revenue arising therefrom, for VAT purposes, is also within the Philippines. Yet the Court in American
Express debunked this argument when it rebutted the theoretical underpinnings of VAT Ruling No. 040-98,
particularly its reliance on the "destination principle" in taxation:
As a general rule, the VAT system uses the destination principle as a basis for the jurisdictional reach
of the tax. Goods and services are taxed only in the country where they are consumed. Thus, exports
are zero-rated, while imports are taxed.
Confusion in zero rating arises because petitioner equates the performance of a particular type of
service with the consumption of its output abroad. In the present case, the facilitation of the
collection of receivables is different from the utilization or consumption of the outcome of such
service. While the facilitation is done in the Philippines, the consumption is not. Respondent renders
assistance to its foreign clients — the ROCs outside the country — by receiving the bills of service
establishments located here in the country and forwarding them to the ROCs abroad. The
consumption contemplated by law, contrary to petitioner's administrative interpretation, does not
imply that the service be done abroad in order to be zero-rated.
Consumption is "the use of a thing in a way that thereby exhausts it." Applied to services, the term
means the performance or "successful completion of a contractual duty, usually resulting in the
performer's release from any past or future liability x x x" The services rendered by respondent are
performed or successfully completed upon its sending to its foreign client the drafts and bills it has
gathered from service establishments here. Its services, having been performed in the Philippines, are
therefore also consumed in the Philippines.
Unlike goods, services cannot be physically used in or bound for a specific place when their
destination is determined. Instead, there can only be a "predetermined end of a course" when
determining the service "location or position x x x for legal purposes." Respondent's facilitation
service has no physical existence, yet takes place upon rendition, and therefore upon consumption, in
the Philippines. Under the destination principle, as petitioner asserts, such service is subject to VAT at
the rate of 10 percent.
xxxx
However, the law clearly provides for an exception to the destination principle; that is, for a zero
percent VAT rate for services that are performed in the Philippines, "paid for in acceptable foreign
currency and accounted for in accordance with the rules and regulations of the [BSP]." Thus, for the
supply of service to be zero-rated as an exception, the law merely requires that first, the service be
performed in the Philippines; second, the service fall under any of the categories in Section 102(b) of
the Tax Code; and, third, it be paid in acceptable foreign currency accounted for in accordance with
BSP rules and regulations. (Emphasis supplied)35
xxxx
Again, contrary to petitioner's stand, for the cost of respondent's service to be zero-rated, it need not
be tacked in as part of the cost of goods exported. The law neither imposes such requirement nor
associates services with exported goods. It simply states that the services performed by VAT-
registered persons in the Philippines — services other than the processing, manufacturing or
repacking of goods for persons doing business outside this country — if paid in acceptable foreign
currency and accounted for in accordance with the rules and regulations of the BSP, are zero-rated.
The service rendered by respondent is clearly different from the product that arises from the
rendition of such service. The activity that creates the income must not be confused with the main
business in the course of which that income is realized. (Emphasis supplied)36
xxxx
The law neither makes a qualification nor adds a condition in determining the tax situs of a zero-rated
service. Under this criterion, the place where the service is rendered determines the jurisdiction to
impose the VAT. Performed in the Philippines, such service is necessarily subject to its jurisdiction,
for the State necessarily has to have "a substantial connection" to it, in order to enforce a zero rate.
 The place of payment is immaterial; much less is the place where the output of the service will be
further or ultimately used.37
Finally, the Court in American Express found support from the legislative record that revealed that consumption
abroad is not a pertinent factor to imbue the zero-rating on services by VAT-registered persons performed in the
Philippines.
Interpellations on the subject in the halls of the Senate also reveal a clear intent on the part of the
legislators not to impose the condition of being "consumed abroad" in order for services performed in
the Philippines by a VAT-registered person to be zero-rated. We quote the relevant portions of the
proceedings:
"Senator Maceda: Going back to Section 102 just for the moment. Will the Gentleman kindly
explain to me — I am referring to the lower part of the first paragraph with the 'Provided'.
Section 102. 'Provided that the following services performed in the Philippines by VAT
registered persons shall be subject to zero percent.' There are three here. What is the
difference between the three here which is subject to zero percent and Section 103 which is
exempt transactions, to being with?
"Senator Herrera: Mr. President, in the case of processing and manufacturing or repacking
goods for persons doing business outside the Philippines which are subsequently exported,
and where the services are paid for in acceptable foreign currencies inwardly remitted, this is
considered as subject to 0%. But if these conditions are not complied with, they are subject
to the VAT.
"In the case of No. 2, again, as the Gentleman pointed out, these three are zero-rated and
the other one that he indicated are exempted from the very beginning. These three
enumerations under Section 102 are zero-rated provided that these conditions indicated in
these three paragraphs are also complied with. If they are not complied with, then they are
not entitled to the zero ratings. Just like in the export of minerals, if these are not exported,
then they cannot qualify under this provision of zero rating.
"Senator Maceda: Mr. President, just one small item so we can leave this. Under the proviso,
it is required that the following services be performed in the Philippines.
"Under No. 2, services other than those mentioned above includes, let us say, manufacturing
computers and computer chips or repacking goods for persons doing business outside the
Philippines. Meaning to say, we ship the goods to them in Chicago or Washington and they
send the payment inwardly to the Philippines in foreign currency, and that is, of course, zero-
rated.
"Now, when we say 'services other than those mentioned in the preceding subsection[,'] may
I have some examples of these?
"Senator Herrera: Which portion is the Gentleman referring to?
"Senator Maceda: I am referring to the second paragraph, in the same Section 102. The first
paragraph is when one manufactures or packages something here and he sends it abroad
and they pay him, that is covered. That is clear to me. The second paragraph says 'Services
other than those mentioned in the preceding subparagraph, the consideration of which is
paid for in acceptable foreign currency. . . .'
"One example I could immediately think of—I do not know why this comes to my mind
tonight—is for tourism or escort services. For example, the services of the tour operator or
tour escort—just a good name for all kinds of activities—is made here at the Midtown
Ramada Hotel or at the Philippine Plaza, but the payment is made from outside and remitted
into the country.
"Senator Herrera: What is important here is that these services are paid in acceptable foreign
currency remitted inwardly to the Philippines.
"Senator Maceda: Yes, Mr. President. Like those Japanese tours which include $50 for the
services of a woman or a tourist guide, it is zero-rated when it is remitted here.
"Senator Herrera: I guess it can be interpreted that way, although this tourist guide should
also be considered as among the professionals. If they earn more than P200,000, they should
be covered.
xxxx
Senator Maceda: So, the services by Filipino citizens outside the Philippines are subject to
VAT, and I am talking of all services. Do big contractual engineers in Saudi Arabia pay VAT?
"Senator Herrera: This provision applies to a VAT-registered person. When he performs
services in the Philippines, that is zero-rated.
"Senator Maceda: That is right."38
It is indubitable that petitioner’s arguments cannot withstand the Court’s ruling in American Express, a precedent
warranting stare decisis application and one which, in any event, we are disinclined to revisit at this juncture.
WHEREFORE, the petition is DENIED. No pronouncement as to costs.
SO ORDERED.
G.R. No. 152609 June 29, 2005
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
AMERICAN EXPRESS INTERNATIONAL, INC. (PHILIPPINE BRANCH), Respondent.
DECISION Exh 1997 Taxable Sales Output Zero-rated Domestic Input
VAT Sales Purchases VAT
PANGANIBAN, J.:
I 1st qtr ₱59,597.20 ₱5,959.72 ₱17,513,801.11 ₱6,778,182.30 ₱677,818.23
As a general rule, the value-added tax (VAT) system uses the destination principle. However, our VAT law itself J 2nd qtr 67,517.20 6,751.72 17,937,361.51 9,333,242.90 933,324.29
provides for a clear exception, under which the supply of service shall be zero-rated when the following
requirements are met: (1) the service is performed in the Philippines; (2) the service falls under any of the K 3rd qtr 51,936.60 5,193.66 19,627,245.36 8,438,357.00 843,835.70
categories provided in Section 102(b) of the Tax Code; and (3) it is paid for in acceptable foreign currency that is
L 4th qtr 67,994.30 6,799.43 25,231,225.22 13,080,822.10 1,308,082.21
accounted for in accordance with the regulations of the Bangko Sentral ng Pilipinas. Since respondent’s services
meet these requirements, they are zero-rated. Petitioner’s Revenue Regulations that alter or revoke the above
requirements are ultra vires and invalid. Total ₱247,045.30 ₱24,704.53 ₱80,309,633.20 ₱37,630,604.30 ₱3,763,060.4

The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the February 28, 2002
Decision2of the Court of Appeals (CA) in CA-GR SP No. 62727. The assailed Decision disposed as follows:
"WHEREFORE, premises considered, the petition is hereby DISMISSED for lack of merit. The assailed decision of
the Court of Tax Appeals (CTA) is AFFIRMED in toto."3
"On April 13, 1999, [respondent] filed with the BIR a letter-request for the refund of its 1997 excess input taxes
in the amount of ₱3,751,067.04, which amount was arrived at after deducting from its total input VAT paid of
₱3,763,060.43 its applied output VAT liabilities only for the third and fourth quarters of 1997 amounting to
₱5,193.66 and ₱6,799.43, respectively. [Respondent] cites as basis therefor, Section 110 (B) of the 1997 Tax
Code, to state:
‘Section 110. Tax Credits. -

The Facts xxxxxxxxx

Quoting the CTA, the CA narrated the undisputed facts as follows:
"[Respondent] is a Philippine branch of American Express International, Inc., a corporation duly organized and
existing under and by virtue of the laws of the State of Delaware, U.S.A., with office in the Philippines at the
Ground Floor, ACE Building, corner Rada and de la Rosa Streets, Legaspi Village, Makati City. It is a servicing unit
of American Express International, Inc. - Hongkong Branch (Amex-HK) and is engaged primarily to facilitate the
collections of Amex-HK receivables from card members situated in the Philippines and payment to service
establishments in the Philippines.
‘(B) Excess Output or Input Tax. - If at the end of any taxable quarter the output tax exceeds the input tax, the
excess shall be paid by the VAT-registered person. If the input tax exceeds the output tax, the excess shall be
carried over to the succeeding quarter or quarters. Any input tax attributable to the purchase of capital goods or
to zero-rated sales by a VAT-registered person may at his option be refunded or credited against other internal
revenue taxes, subject to the provisions of Section 112.’
"There being no immediate action on the part of the [petitioner], [respondent’s] petition was filed on April 15,
1999.

"Amex Philippines registered itself with the Bureau of Internal Revenue (BIR), Revenue District Office No. 47
(East Makati) as a value-added tax (VAT) taxpayer effective March 1988 and was issued VAT Registration
Certificate No. 088445 bearing VAT Registration No. 32A-3-004868. For the period January 1, 1997 to December
31, 1997, [respondent] filed with the BIR its quarterly VAT returns as follows:
Exhibit Period Covered Date Filed
"In support of its Petition for Review, the following arguments were raised by [respondent]:
A. Export sales by a VAT-registered person, the consideration for which is paid for in acceptable foreign currency
inwardly remitted to the Philippines and accounted for in accordance with existing regulations of the Bangko
Sentral ng Pilipinas, are subject to [VAT] at zero percent (0%). According to [respondent], being a VAT-registered
entity, it is subject to the VAT imposed under Title IV of the Tax Code, to wit:

D 1997 1st Qtr. April 18, 1997 ‘Section 102.(sic) Value-added tax on sale of services.- (a) Rate and base of tax. - There shall be levied, assessed
and collected, a value-added tax equivalent to 10% percent of gross receipts derived by any person engaged in
F 2nd Qtr. July 21, 1997
the sale of services. The phrase "sale of services" means the performance of all kinds of services for others for a
G 3rd Qtr. October 2, 1997 fee, remuneration or consideration, including those performed or rendered by construction and service
contractors: stock, real estate, commercial, customs and immigration brokers; lessors of personal property;
H 4th Qtr. January 20, 1998 lessors or distributors of cinematographic films; persons engaged in milling, processing, manufacturing or
"On March 23, 1999, however, [respondent] amended the aforesaid returns and declared the following: repacking goods for others; and similar services regardless of whether o[r] not the performance thereof calls for
the exercise or use of the physical or mental faculties: Provided That the following services performed in the
Philippines by VAT-registered persons shall be subject to 0%:
(1) x x x
(2) Services other than those mentioned in the preceding subparagraph, the consideration is paid for in
acceptable foreign currency which is remitted inwardly to the Philippines and accounted for in
accordance with the rules and regulations of the BSP. x x x.’
In addition, [respondent] relied on VAT Ruling No. 080-89, dated April 3, 1989, the pertinent portion of which
reads as follows:
‘In Reply, please be informed that, as a VAT registered entity whose service is paid for in acceptable foreign
currency which is remitted inwardly to the Philippines and accounted for in accordance with the rules and
regulations of the Central [B]ank of the Philippines, your service income is automatically zero rated effective
January 1, 1998. [Section 102(a)(2) of the Tax Code as amended].4 For this, there is no need to file an application
for zero-rate.’
B. Input taxes on domestic purchases of taxable goods and services related to zero-rated revenues are available
as tax refund in accordance with Section 106 (now Section 112) of the [Tax Code] and Section 8(a) of [Revenue]
Regulations [(RR)] No. 5-87, to state:
‘Section 106. Refunds or tax credits of input tax. -
(A) Zero-rated or effectively Zero-rated Sales. - Any VAT-registered person, except those covered by paragraph (a)
above, whose sales are zero-rated or are effectively zero-rated, may, within two (2) years after the close of the
taxable quarter when such sales were made, apply for the issuance of tax credit certificate or refund of the input
taxes due or attributable to such sales, to the extent that such input tax has not been applied against output tax.
x x x. [Section 106(a) of the Tax Code]’5
‘Section 8. Zero-rating. - (a) In general. - A zero-rated sale is a taxable transaction for value-added tax purposes.
A sale by a VAT-registered person of goods and/or services taxed at zero rate shall not result in any output tax.
The input tax on his purchases of goods or services related to such zero-rated sale shall be available as tax credit
or refundable in accordance with Section 16 of these Regulations. x x x.’ [Section 8(a), [RR] 5-87].’6
"[Petitioner], in his Answer filed on May 6, 1999, claimed by way of Special and Affirmative Defenses that:
7. The claim for refund is subject to investigation by the Bureau of Internal Revenue;
8. Taxes paid and collected are presumed to have been made in accordance with laws and regulations, hence,
not refundable. Claims for tax refund are construed strictly against the claimant as they partake of the nature of
tax exemption from tax and it is incumbent upon the [respondent] to prove that it is entitled thereto under the
law and he who claims exemption must be able to justify his claim by the clearest grant of organic or statu[t]e
law. An exemption from the common burden [cannot] be permitted to exist upon vague implications;
9. Moreover, [respondent] must prove that it has complied with the governing rules with reference to tax
recovery or refund, which are found in Sections 204(c) and 229 of the Tax Code, as amended, which are quoted
as follows:
‘Section 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. - The
Commissioner may - x x x.
(C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the
value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his
discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon
proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing
with the Commissioner a claim for credit or refund within two (2) years after payment of the tax or
penalty: Provided, however, That a return filed with an overpayment shall be considered a written claim for
credit or refund.’
‘Section 229. Recovery of tax erroneously or illegally collected.- No suit or proceeding shall be maintained in any
court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally
assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged
to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly
filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty or
sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be begun (sic) after the expiration of two (2) years from the date of
payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided,
however, That the Commissioner may, even without written claim therefor, refund or credit any tax, where on
the face of the return upon which payment was made, such payment appears clearly to have been erroneously
paid.’
"From the foregoing, the [CTA], through the Presiding Judge Ernesto D. Acosta rendered a decision 7 in favor of
the herein respondent holding that its services are subject to zero-rate pursuant to Section 108(b) of the Tax
Reform Act of 1997 and Section 4.102-2 (b)(2) of Revenue Regulations 5-96, the decretal portion of which reads
as follows:
‘WHEREFORE, in view of all the foregoing, this Court finds the [petition] meritorious and in accordance with law.
Accordingly, [petitioner] is hereby ORDERED to REFUND to [respondent] the amount of ₱3,352,406.59
representing the latter’s excess input VAT paid for the year 1997.’"8
Ruling of the Court of Appeals
In affirming the CTA, the CA held that respondent’s services fell under the first type enumerated in Section
4.102-2(b)(2) of RR 7-95, as amended by RR 5-96. More particularly, its "services were not of the same class or of
the same nature as project studies, information, or engineering and architectural designs" for non-resident
foreign clients; rather, they were "services other than the processing, manufacturing or repacking of goods for
persons doing business outside the Philippines." The consideration in both types of service, however, was paid
for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas.
Furthermore, the CA reasoned that reliance on VAT Ruling No. 040-98 was unwarranted. By requiring that
respondent’s services be consumed abroad in order to be zero-rated, petitioner went beyond the sphere of
interpretation and into that of legislation. Even granting that it is valid, the ruling cannot be given retroactive
effect, for it will be harsh and oppressive to respondent, which has already relied upon VAT Ruling No. 080-89 for
zero rating.
Hence, this Petition.9
The Issue
Petitioner raises this sole issue for our consideration:
"Whether or not the Court of Appeals committed reversible error in holding that respondent is entitled to the
refund of the amount of ₱3,352,406.59 allegedly representing excess input VAT for the year 1997." 10
The Court’s Ruling
The Petition is unmeritorious.
Sole Issue:
Entitlement to Tax Refund
Section 102 of the Tax Code11 provides:
"Sec. 102. Value-added tax on sale of services and use or lease of properties. -- (a) Rate and base of tax. -- There
shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10%) of gross receipts
derived from the sale or exchange of services x x x.
"The phrase 'sale or exchange of services' means the performance of all kinds of services in the Philippines for
others for a fee, remuneration or consideration, including those performed or rendered by x x x persons engaged
in milling, processing, manufacturing or repacking goods for others; x x x services of banks, non-bank financial
intermediaries and finance companies; x x x and similar services regardless of whether or not the performance
thereof calls for the exercise or use of the physical or mental faculties. The phrase 'sale or exchange of services'
shall likewise include:
xxxxxxxxx
‘(3) The supply of x x x commercial knowledge or information;
‘(4) The supply of any assistance that is ancillary and subsidiary to and is furnished as a means of enabling the
application or enjoyment of x x x any such knowledge or information as is mentioned in subparagraph (3);
xxxxxxxxx
‘(6) The supply of technical advice, assistance or services rendered in connection with technical management or
administration of any x x x commercial undertaking, venture, project or scheme;
xxxxxxxxx
"The term 'gross receipts’ means the total amount of money or its equivalent representing the contract price,
compensation, service fee, rental or royalty, including the amount charged for materials supplied with the
services and deposits and advanced payments actually or constructively received during the taxable quarter for
the services performed or to be performed for another person, excluding value-added tax.
"(b) Transactions subject to zero percent (0%) rate. -- The following services performed in the Philippines by VAT-
registered persons shall be subject to zero percent (0%) rate[:]
‘(1) Processing, manufacturing or repacking goods for other persons doing business outside the Philippines which
goods are subsequently exported, where the services are paid for in acceptable foreign currency and accounted
for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
‘(2) Services other than those mentioned in the preceding subparagraph, the consideration for which is paid for
in acceptable foreign currency and accounted for in accordance with the rules and regulations of the [BSP];’"
xxxxxxxxx
Zero Rating of "Other" Services
The law is very clear. Under the last paragraph quoted above, services performed by VAT-registered persons in
the Philippines (other than the processing, manufacturing or repacking of goods for persons doing business
outside the Philippines), when paid in acceptable foreign currency and accounted for in accordance with the
rules and regulations of the BSP, are zero-rated.
Respondent is a VAT-registered person that facilitates the collection and payment of receivables belonging to its
non-resident foreign client, for which it gets paid in acceptable foreign currency inwardly remitted and
accounted for in conformity with BSP rules and regulations. Certainly, the service it renders in the Philippines is
not in the same category as "processing, manufacturing or repacking of goods" and should, therefore, be zero-
rated. In reply to a query of respondent, the BIR opined in VAT Ruling No. 080-89 that the income respondent
earned from its parent company’s regional operating centers (ROCs) was automatically zero-rated effective
January 1, 1988.12
Service has been defined as "the art of doing something useful for a person or company for a fee" 13 or "useful
labor or work rendered or to be rendered by one person to another." 14 For facilitating in the Philippines the
collection and payment of receivables belonging to its Hong Kong-based foreign client, and getting paid for it in
duly accounted acceptable foreign currency, respondent renders service falling under the category of zero rating.
Pursuant to the Tax Code, a VAT of zero percent should, therefore, be levied upon the supply of that service.15
The Credit Card System and Its Components
For sure, the ancillary business of facilitating the said collection is different from the main business of issuing
credit cards.16 Under the credit card system, the credit card company extends credit accommodations to its card
holders for the purchase of goods and services from its member establishments, to be reimbursed by them later
on upon proper billing. Given the complexities of present-day business transactions, the components of this
system can certainly function as separate billable services.
Under RA 8484,17 the credit card that is issued by banks18 in general, or by non-banks in particular, refers to "any
card x x x or other credit device existing for the purpose of obtaining x x x goods x x x or services x x x on
credit;"19and is being used "usually on a revolving basis."20 This means that the consumer-credit arrangement
that exists between the issuer and the holder of the credit card enables the latter to procure goods or services
"on a continuing basis as long as the outstanding balance does not exceed a specified limit." 21 The card holder is,
therefore, given "the power to obtain present control of goods or service on a promise to pay for them in the
future."22
Business establishments may extend credit sales through the use of the credit card facilities of a non-bank credit
card company to avoid the risk of uncollectible accounts from their customers. Under this system, the
establishments do not deposit in their bank accounts the credit card drafts23 that arise from the credit sales.
Instead, they merely record their receivables from the credit card company and periodically send the drafts
evidencing those receivables to the latter.
The credit card company, in turn, sends checks as payment to these business establishments, but it does not
redeem the drafts at full price. The agreement between them usually provides for discounts to be taken by the
company upon its redemption of the drafts.24 At the end of each month, it then bills its credit card holders for
their respective drafts redeemed during the previous month. If the holders fail to pay the amounts owed, the
company sustains the loss.25
In the present case, respondent’s role in the consumer credit26 process described above primarily consists of
gathering the bills and credit card drafts of different service establishments located in the Philippines and
forwarding them to the ROCs outside the country. Servicing the bill is not the same as billing. For the former type
of service alone, respondent already gets paid.
The parent company -- to which the ROCs and respondent belong -- takes charge not only of redeeming the
drafts from the ROCs and sending the checks to the service establishments, but also of billing the credit card
holders for their respective drafts that it has redeemed. While it usually imposes finance charges27 upon the
holders, none may be exacted by respondent upon either the ROCs or the card holders.
Branch and Home Office
By designation alone, respondent and the ROCs are operated as branches. This means that each of them is a
unit, "an offshoot, lateral extension, or division"28 located at some distance from the home office29 of the parent
company; carrying separate inventories; incurring their own expenses; and generating their respective incomes.
Each may conduct sales operations in any locality as an extension of the principal office.30
The extent of accounting activity at any of these branches depends upon company policy,31 but the financial
reports of the entire business enterprise -- the credit card company to which they all belong -- must always show
its financial position, results of operation, and changes in its financial position as a single unit. 32 Reciprocal
accounts are reconciled or eliminated, because they lose all significance when the branches and home office are
viewed as a single entity.33 In like manner, intra-company profits or losses must be offset against each other for
accounting purposes.
Contrary to petitioner’s assertion,34 respondent can sell its services to another branch of the same parent
company.35 In fact, the business concept of a transfer price allows goods and services to be sold between and
among intra-company units at cost or above cost.36 A branch may be operated as a revenue center, cost center,
profit center or investment center, depending upon the policies and accounting system of its parent
company.37Furthermore, the latter may choose not to make any sale itself, but merely to function as a control
center, where most or all of its expenses are allocated to any of its branches.38
Gratia argumenti that the sending of drafts and bills by service establishments to respondent is equivalent to the
act of sending them directly to its parent company abroad, and that the parent company’s subsequent
redemption of these drafts and billings of credit card holders is also attributable to respondent, then with
greater reason should the service rendered by respondent be zero-rated under our VAT system. The service
partakes of the nature of export sales as applied to goods,39 especially when rendered in the Philippines by a
VAT-registered person40 that gets paid in acceptable foreign currency accounted for in accordance with BSP rules
and regulations.
VAT Requirements for the Supply of Service
The VAT is a tax on consumption41 "expressed as a percentage of the value added to goods or
services"42purchased by the producer or taxpayer.43 As an indirect tax44 on services,45 its main object is the
transaction46itself or, more concretely, the performance of all kinds of services47 conducted in the course of
trade or business in the Philippines.48 These services must be regularly conducted in this country; undertaken in
"pursuit of a commercial or an economic activity;"49 for a valuable consideration; and not exempt under the Tax
Code, other special laws, or any international agreement.50
Without doubt, the transactions respondent entered into with its Hong Kong-based client meet all these
requirements.
First, respondent regularly renders in the Philippines the service of facilitating the collection and
payment of receivables belonging to a foreign company that is a clearly separate and distinct entity.
Second, such service is commercial in nature; carried on over a sustained period of time; on a
significant scale; with a reasonable degree of frequency; and not at random, fortuitous or attenuated.
Third, for this service, respondent definitely receives consideration in foreign currency that is
accounted for in conformity with law.
Finally, respondent is not an entity exempt under any of our laws or international agreements.
Services Subject to Zero VAT
As a general rule, the VAT system uses the destination principle as a basis for the jurisdictional reach of the
tax.51Goods and services are taxed only in the country where they are consumed. Thus, exports are zero-rated,
while imports are taxed.
Confusion in zero rating arises because petitioner equates the performance of a particular type of service with
the consumption of its output abroad. In the present case, the facilitation of the collection of receivables is
different from the utilization or consumption of the outcome of such service. While the facilitation is done in the
Philippines, the consumption is not. Respondent renders assistance to its foreign clients -- the ROCs outside the
country -- by receiving the bills of service establishments located here in the country and forwarding them to the
ROCs abroad. The consumption contemplated by law, contrary to petitioner’s administrative
interpretation,52 does not imply that the service be done abroad in order to be zero-rated.
Consumption is "the use of a thing in a way that thereby exhausts it."53 Applied to services, the term means the
performance or "successful completion of a contractual duty, usually resulting in the performer’s release from
any past or future liability x x x."54 The services rendered by respondent are performed or successfully completed
upon its sending to its foreign client the drafts and bills it has gathered from service establishments here. Its
services, having been performed in the Philippines, are therefore also consumed in the Philippines.
Unlike goods, services cannot be physically used in or bound for a specific place when their destination is
determined. Instead, there can only be a "predetermined end of a course"55 when determining the service
"location or position x x x for legal purposes."56 Respondent’s facilitation service has no physical existence, yet
takes place upon rendition, and therefore upon consumption, in the Philippines. Under the destination principle,
as petitioner asserts, such service is subject to VAT at the rate of 10 percent.
Respondent’s Services Exempt from the Destination Principle
However, the law clearly provides for an exception to the destination principle; that is, for a zero percent VAT
rate for services that are performed in the Philippines, "paid for in acceptable foreign currency and accounted for
in accordance with the rules and regulations of the [BSP]."57 Thus, for the supply of service to be zero-rated as an
exception, the law merely requires that first, the service be performed in the Philippines; second, the service fall
under any of the categories in Section 102(b) of the Tax Code; and, third, it be paid in acceptable foreign
currency accounted for in accordance with BSP rules and regulations.
Indeed, these three requirements for exemption from the destination principle are met by respondent. Its
facilitation service is performed in the Philippines. It falls under the second category found in Section 102(b) of
the Tax Code, because it is a service other than "processing, manufacturing or repacking of goods" as mentioned
in the provision. Undisputed is the fact that such service meets the statutory condition that it be paid in
acceptable foreign currency duly accounted for in accordance with BSP rules. Thus, it should be zero-rated.
Performance of Service versus Product Arising from Performance
Again, contrary to petitioner’s stand, for the cost of respondent’s service to be zero-rated, it need not be tacked
in as part of the cost of goods exported.58 The law neither imposes such requirement nor associates services with
exported goods. It simply states that the services performed by VAT-registered persons in the Philippines --
services other than the processing, manufacturing or repacking of goods for persons doing business outside this
country -- if paid in acceptable foreign currency and accounted for in accordance with the rules and regulations
of the BSP, are zero-rated. The service rendered by respondent is clearly different from the product that arises
from the rendition of such service. The activity that creates the income must not be confused with the main
business in the course of which that income is realized.59
Tax Situs of a Zero-Rated Service
The law neither makes a qualification nor adds a condition in determining the tax situs of a zero-rated service.
Under this criterion, the place where the service is rendered determines the jurisdiction 60 to impose the
VAT.61 Performed in the Philippines, such service is necessarily subject to its jurisdiction,62 for the State
necessarily has to have "a substantial connection" 63 to it, in order to enforce a zero rate.64 The place of payment
is immaterial;65 much less is the place where the output of the service will be further or ultimately used.
Statutory Construction or Interpretation Unnecessary
As mentioned at the outset, Section 102(b)(2) of the Tax Code is very clear. Therefore, no statutory construction
or interpretation is needed. Neither can conditions or limitations be introduced where none is provided for.
Rewriting the law is a forbidden ground that only Congress may tread upon.
The Court may not construe a statute that is free from doubt.66 "[W]here the law speaks in clear and categorical
language, there is no room for interpretation. There is only room for application."67 The Court has no choice but
to "see to it that its mandate is obeyed."68
No Qualifications Under RR 5-87
In implementing the VAT provisions of the Tax Code, RR 5-87 provides for the zero rating of services other than
the processing, manufacturing or repacking of goods -- in general and without qualifications -- when paid for by
the person to whom such services are rendered in acceptable foreign currency inwardly remitted and duly
accounted for in accordance with the BSP (then Central Bank) regulations. Section 8 of RR 5-87 states:
"SECTION 8. Zero-rating. -- (a) In general. -- A zero-rated sale is a taxable transaction for value-added tax
purposes. A sale by a VAT-registered person of goods and/or services taxed at zero rate shall not result in any
output tax. The input tax on his purchases of goods or services related to such zero-rated sale shall be available
as tax credit or refundable in accordance with Section 16 of these Regulations.
xxxxxxxxx
" (c) Zero-rated sales of services. -- The following services rendered by VAT-registered persons are zero-rated:
‘(1) Services in connection with the processing, manufacturing or repacking of goods for persons doing business
outside the Philippines, where such goods are actually shipped out of the Philippines to said persons or their
assignees and the services are paid for in acceptable foreign currency inwardly remitted and duly accounted for
under the regulations of the Central Bank of the Philippines.
xxxxxxxxx
‘(3) Services performed in the Philippines other than those mentioned in subparagraph (1) above which are paid
for by the person or entity to whom the service is rendered in acceptable foreign currency inwardly remitted and
duly accounted for in accordance with Central Bank regulations. Where the contract involves payment in both
foreign and local currency, only the service corresponding to that paid in foreign currency shall enjoy zero-rating.
The portion paid for in local currency shall be subject to VAT at the rate of 10%.’"
RR 7-95 Broad Enough
RR 7-95, otherwise known as the "Consolidated VAT Regulations,"69 reiterates the above-quoted provision and
further presents as examples only the services performed in the Philippines by VAT-registered hotels and other
service establishments. Again, the condition remains that these services must be paid in acceptable foreign
currency inwardly remitted and accounted for in accordance with the rules and regulations of the BSP. The term
"other service establishments" is obviously broad enough to cover respondent’s facilitation service. Section
4.102-2 of RR 7-95 provides thus:
"SECTION 4.102-2. Zero-Rating. -- (a) In general. -- A zero-rated sale by a VAT registered person, which is a
taxable transaction for VAT purposes, shall not result in any output tax. However, the input tax on his purchases
of goods, properties or services related to such zero-rated sale shall be available as tax credit or refund in
accordance with these regulations.
"(b) Transaction subject to zero-rate. -- The following services performed in the Philippines by VAT-registered
persons shall be subject to 0%:
‘(1) Processing, manufacturing or repacking goods for other persons doing business outside the
Philippines which goods are subsequently exported, where the services are paid for in acceptable
foreign currency and accounted for in accordance with the rules and regulations of the BSP;
‘(2) Services other than those mentioned in the preceding subparagraph, e.g. those rendered by hotels
and other service establishments, the consideration for which is paid for in acceptable foreign currency
and accounted for in accordance with the rules and regulations of the BSP;’"
xxxxxxxxx
Meaning of "as well as" in RR 5-96
Section 4.102-2(b)(2) of RR 7-95 was subsequently amended by RR 5-96 to read as follows:
"Section 4.102-2(b)(2) -- ‘Services other than processing, manufacturing or repacking for other persons doing
business outside the Philippines for goods which are subsequently exported, as well as services by a resident to a
non-resident foreign client such as project studies, information services, engineering and architectural designs
and other similar services, the consideration for which is paid for in acceptable foreign currency and accounted
for in accordance with the rules and regulations of the BSP.’"
Aside from the already scopious coverage of services in Section 4.102-2(b)(2) of RR 7-95, the amendment
introduced by RR 5-96 further enumerates specific services entitled to zero rating. Although superfluous, these
sample services are meant to be merely illustrative. In this provision, the use of the term "as well as" is not
restrictive. As a prepositional phrase with an adverbial relation to some other word, it simply means "in addition
to, besides, also or too."70
Neither the law nor any of the implementing revenue regulations aforequoted categorically defines or limits the
services that may be sold or exchanged for a fee, remuneration or consideration. Rather, both merely enumerate
the items of service that fall under the term "sale or exchange of services."71
Ejusdem Generis
Inapplicable
The canon of statutory construction known as ejusdem generis or "of the same kind or specie" does not apply to
Section 4.102-2(b)(2) of RR 7-95 as amended by RR 5-96.
First, although the regulatory provision contains an enumeration of particular or specific words,
followed by the general phrase "and other similar services," such words do not constitute a readily
discernible class and are patently not of the same kind.72 Project studies involve investments or
marketing; information services focus on data technology; engineering and architectural designs
require creativity. Aside from calling for the exercise or use of mental faculties or perhaps producing
written technical outputs, no common denominator to the exclusion of all others characterizes these
three services. Nothing sets them apart from other and similar general services that may involve
advertising, computers, consultancy, health care, management, messengerial work -- to name only a
few.
Second, there is the regulatory intent to give the general phrase "and other similar services" a broader
meaning.73 Clearly, the preceding phrase "as well as" is not meant to limit the effect of "and other
similar services."
Third, and most important, the statutory provision upon which this regulation is based is by itself not
restrictive. The scope of the word "services" in Section 102(b)(2) of the Tax Code is broad; it is not
susceptible of narrow interpretation.741avvphi1.zw+
VAT Ruling Nos. 040-98 and 080-89
VAT Ruling No. 040-98 relied upon by petitioner is a less general interpretation at the administrative
level,75rendered by the BIR commissioner upon request of a taxpayer to clarify certain provisions of the VAT law.
As correctly held by the CA, when this ruling states that the service must be "destined for consumption outside
of the Philippines"76 in order to qualify for zero rating, it contravenes both the law and the regulations issued
pursuant to it.77 This portion of VAT Ruling No. 040-98 is clearly ultra vires and invalid.78
Although "[i]t 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,"79 this interpretation is not conclusive and will
have to be "ignored if judicially found to be erroneous"80 and "clearly absurd x x x or improper."81 An
administrative issuance that overrides the law it merely seeks to interpret, instead of remaining consistent and in
harmony with it, will not be countenanced by this Court.82
In the present case, respondent has relied upon VAT Ruling No. 080-89, which clearly recognizes its zero rating.
Changing this status will certainly deprive respondent of a refund of the substantial amount of excess input taxes
to which it is entitled.
Again, assuming arguendo that VAT Ruling No. 040-98 revoked VAT Ruling No. 080-89, such revocation could not
be given retroactive effect if the application of the latter ruling would only be prejudicial to
respondent.83 Section 246 of the Tax Code categorically declares that "[a]ny revocation x x x of x x x any of the
rulings x x x promulgated by the Commissioner shall not be given retroactive application if the revocation x x x
will be prejudicial to the taxpayers."84
It is also basic in law that "no x x x rule x x x shall be given retrospective effect85 unless explicitly stated."86 No
indication of such retroactive application to respondent does the Court find in VAT Ruling No. 040-98. Neither do
the exceptions enumerated in Section 24687 of the Tax Code apply.
Though vested with the power to interpret the provisions of the Tax Code88 and not bound by predecessors’ acts
or rulings, the BIR commissioner may render a different construction to a statute89 only if the new interpretation
is in congruence with the law. Otherwise, no amount of interpretation can ever revoke, repeal or modify what
the law says.
"Consumed Abroad" Not Required by Legislature
Interpellations on the subject in the halls of the Senate also reveal a clear intent on the part of the legislators not
to impose the condition of being "consumed abroad" in order for services performed in the Philippines by a VAT-
registered person to be zero-rated. We quote the relevant portions of the proceedings:
"Senator Maceda: Going back to Section 102 just for the moment. Will the Gentleman kindly explain to me - I am
referring to the lower part of the first paragraph with the ‘Provided’. Section 102. ‘Provided that the following
services performed in the Philippines by VAT registered persons shall be subject to zero percent.’ There are three
here. What is the difference between the three here which is subject to zero percent and Section 103 which is
exempt transactions, to being with?
"Senator Herrera: Mr. President, in the case of processing and manufacturing or repacking goods for persons
doing business outside the Philippines which are subsequently exported, and where the services are paid for in
acceptable foreign currencies inwardly remitted, this is considered as subject to 0%. But if these conditions are
not complied with, they are subject to the VAT.
"In the case of No. 2, again, as the Gentleman pointed out, these three are zero-rated and the other one that he
indicated are exempted from the very beginning. These three enumerations under Section 102 are zero-rated
provided that these conditions indicated in these three paragraphs are also complied with. If they are not
complied with, then they are not entitled to the zero ratings. Just like in the export of minerals, if these are not
exported, then they cannot qualify under this provision of zero rating.
"Senator Maceda: Mr. President, just one small item so we can leave this. Under the proviso, it is required that
the following services be performed in the Philippines.
"Under No. 2, services other than those mentioned above includes, let us say, manufacturing computers and
computer chips or repacking goods for persons doing business outside the Philippines. Meaning to say, we ship
the goods to them in Chicago or Washington and they send the payment inwardly to the Philippines in foreign
currency, and that is, of course, zero-rated.lawphil.net
"Now, when we say ‘services other than those mentioned in the preceding subsection[,’] may I have some
examples of these?
"Senator Herrera: Which portion is the Gentleman referring to?
"Senator Maceda: I am referring to the second paragraph, in the same Section 102. The first paragraph is when
one manufactures or packages something here and he sends it abroad and they pay him, that is covered. That is
clear to me. The second paragraph says ‘Services other than those mentioned in the preceding subparagraph,
the consideration of which is paid for in acceptable foreign currency…’
"One example I could immediately think of -- I do not know why this comes to my mind tonight -- is for tourism
or escort services. For example, the services of the tour operator or tour escort -- just a good name for all kinds
of activities -- is made here at the Midtown Ramada Hotel or at the Philippine Plaza, but the payment is made
from outside and remitted into the country.
"Senator Herrera: What is important here is that these services are paid in acceptable foreign currency remitted
inwardly to the Philippines.
"Senator Maceda: Yes, Mr. President. Like those Japanese tours which include $50 for the services of a woman
or a tourist guide, it is zero-rated when it is remitted here.
"Senator Herrera: I guess it can be interpreted that way, although this tourist guide should also be considered as
among the professionals. If they earn more than ₱200,000, they should be covered.
xxxxxxxxx
Senator Maceda: So, the services by Filipino citizens outside the Philippines are subject to VAT, and I am talking
of all services. Do big contractual engineers in Saudi Arabia pay VAT?
"Senator Herrera: This provision applies to a VAT-registered person. When he performs services in the
Philippines, that is zero-rated.
"Senator Maceda: That is right."90
Legislative Approval By Reenactment
Finally, upon the enactment of RA 8424, which substantially carries over the particular provisions on zero rating
of services under Section 102(b) of the Tax Code, the principle of legislative approval of administrative
interpretation by reenactment clearly obtains. This principle means that "the reenactment of a statute
substantially unchanged is persuasive indication of the adoption by Congress of a prior executive construction." 91
The legislature is presumed to have reenacted the law with full knowledge of the contents of the revenue
regulations then in force regarding the VAT, and to have approved or confirmed them because they would carry
out the legislative purpose. The particular provisions of the regulations we have mentioned earlier are,
therefore, re-enforced. "When a statute is susceptible of the meaning placed upon it by a ruling of the
government agency charged with its enforcement and the [l]egislature thereafter [reenacts] the provisions
[without] substantial change, such action is to some extent confirmatory that the ruling carries out the legislative
purpose."92
Sitel, a corporation organized and existing under the laws of the Philippines, is engaged in the business of
providing call center services from the Philippines to domestic and offshore businesses. It is registered with the
Bureau of Internal Revenue (BIR) as a VAT taxpayer, as well as with the Board of Investments on pioneer status
as a new information technology service firm 'in the field of call center.[[4]]
For the period from January 1, 2004 to December 31, 2004, Sitel filed with the BIR its Quarterly VAT Returns as
follows:

In sum, having resolved that transactions of respondent are zero-rated, the Court upholds the former’s
entitlement to the refund as determined by the appellate court. Moreover, there is no conflict between the Period Covered Date Filed
decisions of the CTA and CA. This Court respects the findings and conclusions of a specialized court like the CTA 1st Quarter 2004 26 April 2004
"which, by the nature of its functions, is dedicated exclusively to the study and consideration of tax cases and has
necessarily developed an expertise on the subject."93 2nd Quarter 2004 26 July 2004

3rd Quarter 2004 25 October 2004

Furthermore, under a zero-rating scheme, the sale or exchange of a particular service is completely freed from
the VAT, because the seller is entitled to recover, by way of a refund or as an input tax credit, the tax that is 4th Quarter 2004 25 January 20055
included in the cost of purchases attributable to the sale or exchange. 94 "[T]he tax paid or withheld is not
Sitel's Amended Quarterly VAT Returns for the first to fourth quarters of 2004 declared as follows:
deducted from the tax base."95 Having been applied for within the reglementary period,96 respondent’s refund is
in order.
Taxable Sales Zero-Rated Total Sales Input Tax for the Input Tax from Input Tax Input Tax In
WHEREFORE, the Petition is hereby DENIED, and the assailed Decision AFFIRMED. No pronouncement as to (A) Sales (C=A+B) [Quarter] Capital Goods from Regular Allocated A
costs. (B) (D) (E) Transactions to Taxable R
(F+D-E) Sales [H
SO ORDERED. [G=(A/C) x
(F)]

February 8, 2017 509,799.74 180,450,030.29 180,957,830.03 3,842,714.21 2,422,090.40 1,400,623.81 3,930.40 1

G.R. No. 201326 0 142,664,271.00 142,664,271.00 3,554,922.94 2,846,225.66 708,696.58 - 7

517,736.36 205,021,590.46 205,539,326.82 9,568,047.25 7,629, 734.40 1,938,312.85 4,882.45 1

SITEL PHILIPPINES CORPORATION (FORMERLY CLIENTLOGIC PHILS., INC.), Petitioner
vs. 0 334,384,766.48 334,384,766.48 6,137,028.74 3,005,573.11 3,313,455.63 - 3
COMMISSIONER OF INTERNAL REVENUE, Respondent
1,025,536.10 862,520,658.23 863,546,194.33 23,102,712.44 15,923,623.57 7,179,088.87 8,812.85 7
DECISION On March 28, 2006, Sitel filed separate formal claims for refund or issuance of tax credit with the One-Stop Shop
Inter-Agency Tax Credit and Duty Drawback Center of the Department of Finance for its unutilized input VAT
CAGUIOA, J.: arising from domestic purchases of goods and services attributed to zero-rated transactions and
purchases/importations of capital goods for the 1st, 2nd, 3rd and 4th quarters of 2004 in the aggregate amount
of ₱23,093,899.59.7
This Petition for Review on Certiorari1 under Rule 45 of the Rules of Court filed by petitioner Sitel Philippines
Corporation (Sitel) against the Commissioner of Internal Revenue (CIR) seeks to reverse and set aside the
Decision dated November 11, 2011[[2]] and Resolution dated March 28, 2012[[3]] of the Court of Tax Appeals On March 30, 2006, Sitel filed a judicial claim for refund or tax credit via a petition for review before the CTA,
(CTA) En Banc in CTA EB No. 644, which denied Sitel' s claim for refund of unutilized input value-added tax (VAT) docketed as CTA Case No. 7423.
for the first to fourth quarters of taxable year 2004 for being prematurely filed.
Ruling of the CTA Division
Facts
On October 21, 2009, the CTA Division rendered a Decision8 partially granting Sitel' s claim for VAT refund or tax
credit, the dispositive portion of which reads as follows:
In view of the foregoing, the instant Petition for Review is hereby PARTIALLY GRANTED. Petitioner is entitled to
the instant claim in the reduced amount of ₱11,155,276.59 computed as follows:
Amount of Input VAT Claim ₱ 23,093,899.59
Less: Input VAT Claim on Zero-Rated Sales 7,170,276.02
Input VAT Claim on Capital Goods Purchases ₱ 15,923,623.57
Not Properly Substantiated Input VAT Claim on Capital Goods
Less:
Purchases
Per ICPA Report (₱15,923,623.57 less ₱13,824,129.14) 2,099,494.43
Per this Court's further verification 2,668,852.55
Refundable Input VAT on Capital Goods Purchases ₱ 11,155,276.59
Accordingly, respondent is ORDERED to REFUND OR ISSUE A TAX CREDIT CERTIFICATE in the reduced amount
of ₱11,155,276.59 representing unutilized input VAT arising from petitioner's domestic purchases of goods and
services which are attributable to zero-rated transactions and purchases/importations of capital goods for the
taxable year 2004.
SO ORDERED.9
The CTA Division denied Sitel's ₱7,170,276.02 claim for unutilized input VAT attributable to its zero-rated sales
for the four quarters of 2004. Relying upon the rulings of this Court in Commissioner of Internal Revenue
v.Burmeister and Wain Scandinavian Contractor Mindanao, Inc.10 (Burmeister), the CTA Division found that Sitel
failed to prove that the recipients of its services are doing business outside the Philippines, as required under
Section 108(B)(2) of the National Internal Revenue Code of 1997 (NIRC), as amended.11
The CTA Division also disallowed the amount of ₱2,668,852.55 representing input VAT paid on capital goods
purchased for taxable year 2004 for failure to comply with the invoicing requirements under Sections 113, 237,
and 238 of the NIRC of 1997, as amended, and Section 4.108-1 of Revenue Regulations No. 7-95 (RR 7-95).12
Aggrieved, Sitel filed a motion for partial reconsideration13 and Supplement (To Motion for Reconsideration [of
Decision dated October 21, 2009]),14 on November 11, 2009 and March 26, 2010, respectively.
Prior thereto, or on January 8, 2010, Sitel filed a Motion for Partial Execution of Judgment15 seeking the
execution pending appeal of the portion of the Decision dated October 21, 2009 granting refund in the amount
of ₱11,155,276.59, which portion was not made part of its motion for partial reconsideration.
On May 31, 2010, the CTA Division denied Sitel's Motion for Reconsideration and Supplement (To Motion for
Reconsideration [of Decision dated October 21, 2009]) for lack of merit.16
Undaunted, Sitel filed a Petition for Review17 with the CTA En Banc claiming that it is entitled to the amount
denied by the CTA Division.
Ruling of the CTA En Banc
In the assailed Decision, the CTA En Banc reversed and set aside the ruling of the CTA Division. Citing the case
of Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc. 18 (Aichi), the CTA En Banc ruled that
the 120-day period for the CIR to act on the administrative claim for refund or tax credit, under Section 112(D) of
the NIRC of 1997, as amended, is mandatory and jurisdictional. Considering that Sitel filed its judicial claim for
VAT refund or credit without waiting for the lapse of the 120-day period for the CIR to act on its administrative
claim, the CTA did not acquire jurisdiction as there was no decision or inaction to speak of.19 Thus, the CTA En
Banc denied Sitel' s entire refund claim on the ground of prematurity. The dispositive portion of the CTA En
Banc's Decision reads as follows:
WHEREFORE, on the basis of the foregoing considerations, the Petition for Review En Banc is DISMISSED.
Accordingly, the Decision of the CTA First Division dated October 21, 2009 and the Resolution issued by the
Special First Division dated May 31, 2010, are hereby reversed and set aside. Petitioner's refund claim of
₱19,702,880.80 is DENIED on the ground that the judicial claim for the first to fourth quarters of taxable year
2004 was prematurely filed.
SO ORDERED.20
Aggrieved, Sitel moved for reconsideration,21 but the same was denied by the Court En Banc for lack of merit.22
Hence, the instant petition raising the following issues:
x x x WHETHER OR NOT THE AICHI RULING PROMULGATED ON OCTOBER 6, 2010 MAY BE APPLIED
RETROACTIVELY TO THE INST ANT CLAIM FOR REFUND OF INPUT VAT INCURRED IN 2004.
x x x WHETHER OR NOT THE CTA EN BANC CAN VALIDLY WITHDRAW AND REVOKE THE PORTION OF THE REFUND
CLAIM ALREADY GRANTED TO PETITIONER IN THE AMOUNT OF ₱11,155,276.59 AFTER TRIAL ON THE MERITS,
NOTWITHSTANDING THAT SUCH PORTION OF THE DECISION HAD NOT BEEN APPEALED.
x x x WHETHER OR NOT PETITIONER IS ENTITLED TO A REFUND OR TAX CREDIT OF ITS UNUTILIZED INPUT VAT
ARISING FROM PURCHASES OF GOODS AND SERVICES ATTRIBUTABLE TO ZERO-RATED SALES AND
PURCHASES/IMPORTATIONS OF CAPITAL GOODS FOR THE 1sT, 2ND, 3RD, [AND] 4TH QUARTERS OF TAXABLE
YEAR 2004 IN THE AGGREGATE AMOUNT OF ₱20,994,405.16.23
In the Resolution24 dated July 4, 2012, the CIR was required to comment on the instant petition. In compliance
thereto, the CIR filed its Comment25 on November 14, 2012.
On January 16, 2013, the Court issued a Resolution26 denying Sitel's petition for failure to sufficiently show that
the CTA En Banc committed reversible error in denying its refund claim on the ground of prematurity based on
prevailing jurisprudence.
Soon thereafter, however, or on February 12, 2013, the Court En Banc decided the consolidated cases
of Commissioner of Internal Revenue v. San Roque Power Corporation, Taganito Mining Corporation v.
Commissioner of Internal Revenue, and Phi/ex Mining Corporation v. Commissioner of Internal Revenue27 (San
Roque). In that case, the Court recognized BIR Ruling No. DA-489-03 as an exception to the mandatory and 120-day period without action from the CIR, the taxpayer has thirty (30) days within which to file a petition for
jurisdictional nature of the 120-day waiting period. review with the CTA.

Invoking San Roque, Sitel filed a Motion for Reconsideration.28
In the Resolution29 dated June 17, 2013, the Court granted Sitel's motion and reinstated the instant petition.
In the instant petition, Sitel claims that its judicial claim for refund was timely filed following the Court's
pronouncements in San Roque; thus, it was erroneous for the CTA En Banc to reverse the ruling of the CTA
Division and to dismiss its petition on the ground of prematurity. Sitel further argues that the previously granted
amount for refund of ₱11,155,276.59 should be reinstated and declared final and executory, the same not being
the subject of Sitel's partial appeal before the CTA En Banc,nor of any appeal from the CIR.
Finally, Sitel contends that insofar as the denied portion of the claim is concerned, which the CTA En Banc failed
to pass upon with the dismissal of its appeal, speedy justice demands that the Court resolved the same on the
merits and Sitel be declared entitled to an additional refund in the amount of ₱9,839, 128.57.
The Court's Ruling
In Aichi, the Court ruled that the 120-day period granted to the CIR was mandatory and jurisdictional, the non-
observance of which was fatal to the filing of a judicia1 claim with the CTA. The Court further explained that the
two (2)-year prescriptive period under Section 112(A) of the NIRC pertained only to the filing of the
administrative claim with the BIR; while the judicial claim may be filed with the CTA within thirty (30) days from
the receipt of the decision of the CIR or the expiration of the 120-day period of the CIR to act on the claim. Thus:
Section 112 (D) of the NIRC clearly provides that the CIR has "120 days, from the date of the submission of the
complete documents in support of the application [for tax refund/credit]," within which to grant or deny the
claim. In case of full or partial denial by the CIR, the taxpayer's recourse is to file an appeal before the CTA within
30 days from receipt of the decision of the CIR. However, if after the 120-day period the CIR fails to act on the
application for tax refund/credit, the remedy of the taxpayer is to appeal the inaction of the CIR to CTA within 30
days.
In this case, the administrative and the judicial claims were simultaneously filed on September 30, 2004.
Obviously, respondent did not wait for the decision of the CIR or the lapse of the 120-day period. For this reason,
we find the filing of the judicial claim with the CTA premature.

The Court finds the petition partly meritorious.

Respondent's assertion that the non-observance of the 120-day period is not fatal to the filing of a judicial claim
as long as both the administrative and the judicial claims are filed within the two-year prescriptive period has no
Sitel's Judicial Claim/or VAT Refund legal basis.
was deemed timely filed pursuant to
the Court's pronouncement in San
There is nothing in Section 112 of the NIRC to support respondent's view. Subsection (A) of the said provision
Roque.
states that "any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two
years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit
Section 112(C) of the NIRC, as amended, provides: certificate or refund of creditable input tax due or paid attributable to such sales." The phrase "within two (2)
years x x x apply for the issuance of a tax credit certificate or refund" refers to applications for refund/credit filed
SEC. 112. Refunds or Tax Credits of Input Tax. – with the CIR and not to appeals made to the CT A. This is apparent in the first paragraph of subsection (D) of the
same provision, which states that the CIR has "120 days from the submission of complete documents in support
xxxx of the application filed in accordance with Subsections (A) and (B)" within which to decide on the claim.

(C) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In proper cases, the Commissioner
shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120)
days from the date of submission of complete documents in support of the application filed in accordance
with Subsection (A) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within
thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred
twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals. (Emphasis supplied)
Based on the plain language of the foregoing provision, the CIR is given 120 days within which to grant or deny a
claim for refund. Upon receipt of CIR' s decision or ruling denying the said claim, or upon the expiration of the
In fact, applying the two-year period to judicial claims would render nugatory Section 112(D) of the NIRC, which
already provides for a specific period within which a taxpayer should appeal the decision or inaction of the CIR.
The second paragraph of Section 112(D) of the NIRC envisions two scenarios: (1) when a decision is issued by the
CIR before the lapse of the 120-day period; and (2) when no decision is made after the 120-day period. In both
instances, the taxpayer has 30 days within which to file an appeal with the CTA. As we see it then, the 120-day
period is crucial in filing an appeal with the CTA.
xxxx
In fine, the premature filing of respondent's claim for refund/credit of input VAT before the CTA warrants a
dismissal inasmuch as no jurisdiction was acquired by the CTA.30
However, in San Roque, the Court clarified that the 120-day period does not apply to claims for refund that were
prematurely filed during the period from the issuance of BIR Ruling No. DA-489-03, on December 10, 2003, until
October 6, 2010, when Aichi was promulgated. The Court explained that BIR Ruling No. DA-489-03, which
expressly allowed the filing of judicial claims with the CTA even before the lapse of the 120-day period, provided
for a valid claim of equitable estoppel because the CIR had misled taxpayers into prematurely filing their judicial
claims before the CTA:
There is no dispute that the 120-day period is mandatory and jurisdictional, and that the CTA does not acquire
jurisdiction over a judicial claim that is filed before the expiration of the 120-day period. There are, however, two
exceptions to this rule. The first exception is if the Commissioner, through a specific ruling, misleads a particular
taxpayer to prematurely file a judicial claim with the CTA. Such specific ruling is applicable only to such particular
taxpayer. The second exception is where the Commissioner, through a general interpretative rule issued under
Section 4 of the Tax Code, misleads all taxpayers into filing prematurely judicial claims with the CTA. In these
cases, the Commissioner cannot be allowed to later on question the CTA's assumption of jurisdiction over such
claim since equitable estoppel has set in as expressly authorized under Section 246 of the Tax Code.
xxxx
BIR Ruling No. DA-489-03 is a general interpretative rule because it was a response to a query made, not by a
particular taxpayer, but by a government agency tasked with processing tax refunds and credits, that is, the One
Stop Shop Inter-Agency Tax Credit and Drawback Center of the Department of Finance. This government agency
is also the addressee, or the entity responded to, in BIR Ruling No. DA-489-03. Thus, while this government
agency mentions in its query to the Commissioner the administrative claim of Lazi Bay Resources Development,
Inc., the agency was in fact asking the Commissioner what to do in cases like the tax claim of Lazi Bay Resources
Development, Inc., where the taxpayer did not wait for the lapse of the 120-day period.
Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, all taxpayers can rely on BIR Ruling No.
DA-489-03 from the time of its issuance on 10 December 2003 up to its reversal by this Court in Aichi on 6
October 2010, where this Court held that the 120+30 day periods are mandatory and
jurisdictional.31 (Emphasis supplied).
In Visayas Geothermal Power Company v. Commissioner of Internal Revenue,32 the Court came up with an outline
summarizing the pronouncements in San Roque, to wit:
For clarity and guidance, the Court deems it proper to outline the rules laid down in San Roque with regard to
claims for refund or tax credit of unutilized creditable input VAT. They are as follows:
1. When to file an administrative claim with the CIR:
a. General rule - Section 112(A) and Mirant
Within 2 years from the close of the taxable quarter when the sales were
made.
b. Exception – Atlas
Within 2 years from the date of payment of the output VAT, if the
administrative claim was filed from June 8, 2007 (promulgation
of Atlas) to September 12, 2008 (promulgation of Mirant).
2. When to file a judicial claim with the CT A:
a. General rule - Section 112(D); not Section 229
i. Within 30 days from the full or partial denial of the administrative
claim by the CIR; or
ii. Within 30 days from the expiration of the 120-day period provided to
the CIR to decide on the claim. This is mandatory and jurisdictional
beginning January 1, 1998 (effectivity of 1997 NIRC).
b. Exception-BIR Ruling No. DA-489-03
The judicial claim need not await the expiration of the 120-day period, if such was filed from December 10,
2003 (issuance of BIR Ruling No. DA-489-03) to October 6, 2010 (promulgation of Aichi).33 (Emphasis and
underscoring supplied).
In this case, records show that Sitel filed its administrative and judicial claim for refund on March 28, 2006 and
March 30, 2006, respectively, or after the issuance of BIR Ruling No. DA-489-03, but before the date
when Aichi was promulgated. Thus, even though Sitel filed its judicial claim prematurely, i.e., without waiting for
the expiration of the 120-day mandatory period, the CTA may still take cognizance of the case because the claim
was filed within the excepted period stated in San Roque. In other words, Sitel' s judicial claim was deemed
timely filed and should have not been dismissed by the CTA En Banc.Consequently, the October 21, 2009
Decision34 of the CTA Division partially granting Sitel' s judicial claim for refund in the reduced amount of
₱11,155,276.59, which is not subject of the instant appeal, should be reinstated. In this regard, since the CIR did
not appeal said decision to the CTA En Banc, the same is now considered final and beyond this Court's review.
Sitel now questions the following portions of its refund claim which the CTA Division denied: (1) ₱7,l 70,276.02,
representing unutilized input VAT on purchases of goods and services attributable to zero-rated sales, which was
denied because Sitel failed to prove that the call services it rendered for the year 2004 were made to non-
resident foreign clients doing business outside the Philippines; and (2) ₱2,668,852.55 representing input VAT on
purchases of capital goods, because these are supported by invoices and official receipts with pre-printed TIN-V
instead of TIN-VAT, as required under Section 4.108-1 of RR 7-95.
Sitel claims that testimonial and documentary evidence sufficiently established that its clients were non-resident
foreign corporations not doing business in Philippines. It also asserts that the input VAT on its purchases of
capital goods were duly substantiated because the supporting official receipts substantially complied with the
invoicing requirements provided by the rules.
In other words, Sitel wants the Court to review factual findings of the CTA Division, reexamine the evidence and
determine on the basis thereof whether it should be refunded the additional amount of ₱9,839,128.57. This,
however, cannot be done in the instant case for settled is the rule that this Court is not a trier of facts and does
not normally embark in the evaluation of evidence adduced during trial.35 It is not this Court's function to analyze
or weigh all over again the evidence already considered in the proceedings below, the Court's jurisdiction being
limited to reviewing only errors of law that may have been committed by the lower court.36
Furthermore, the Court accords findings and conclusions of the CTA with the highest respect. 37 As a specialized
court dedicated exclusively to the resolution of tax problems, the CTA has accordingly developed an expertise on
the subject of taxation.38 Thus, its decisions are presumed valid in every aspect and will not be overturned on
appeal, unless the Court finds that the questioned decision is not supported by substantial evidence or there has
been an abuse or improvident exercise of authority on the part of the tax court.39
Upon careful review of the instant case, and directly addressing the issues raised by Sitel, the Court finds no
cogent reason to reverse or modify the findings of the CTA Division.
The Court expounds.
Sitel failed to prove that the
recipients of its call services are
foreign corporations doing business
outside the Philippines.
Sitel's claim for refund is anchored on Section 112(A)40 of the NIRC, which allows the refund or credit of input
VAT attributable to zero-rated or effectively zero-rated sales. In relation thereto, Sitel points to Section 108(B)(2)
of the NIRC [formerly Section 102(b)(2) of the NIRC of 1977, as amended] as legal basis for treating its sale of
services as zero-rated or effectively zero-rated. Section 108(B)(2) reads:
SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. -
xxxx
(B) Transactions Subject to Zero Percent (0%) Rate. - The following services performed in the Philippines by VAT-
registered persons shall be subject to zero percent (0%) rate:
xxxx
(2) Services other than those mentioned in the preceding paragraph rendered to a person engaged in business
conducted outside the Philippines or to a nonresident person not engaged in business who is outside the
Philippines when the services are performed, the consideration for which is paid for in acceptable foreign
currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
(Emphasis supplied)
In Burmeister, the Court clarified that an essential condition to qualify for zero-rating under the aforequoted
provision is that the service-recipient must be doing business outside the Philippines, to wit:
The Tax Code not only requires that the services be other than "processing, manufacturing or repacking of
goods" and that payment for such services be in acceptable foreign currency accounted for in accordance with
BSP rules. Another essential condition for qualification to zero-rating under Section 102(b)(2) is that the recipient
of such services is doing business outside the Philippines. x x x
This can only be the logical interpretation of Section 102(b)(2). If the provider and recipient of the "other
services" are both doing business in the Philippines, the payment of foreign currency is irrelevant. Otherwise,
those subject to the regular VAT under Section 102(a) can avoid paying the VAT by simply stipulating payment in
foreign currency inwardly remitted by the recipient of services. To interpret Section 102(b)(2) to apply to a
payer-recipient of services doing business in the Philippines is to make the payment of the regular VAT under
Section 102(a) dependent on the generosity of the taxpayer. The provider of services can choose to pay the
regular VAT or avoid it by stipulating payment in foreign currency inwardly remitted by the payer-recipient. Such
interpretation removes Section 102(a) as a tax measure in the Tax Code, an interpretation this Court cannot
sanction. A tax is a mandatory exaction, not a voluntary contribution.
xxxx
Thus, when Section 102(b)(2) speaks of "[s]ervices other than those mentioned in the preceding
subparagraph," the legislative intent is that only the services are different between subparagraphs 1 and 2. The
requirements for zero-rating, including the essential condition that the recipient of services is doing business
outside the Philippines, remain the same under both subparagraphs.
Significantly, the amended Section 108(b) [previously Section 102 (b)] of the present Tax Code clarifies this
legislative intent. Expressly included among the transactions subject to 0% VAT are "[s]ervices other than those
mentioned in the [first] paragraph [of Section 108(b)] rendered to a person engaged in business conducted
outside the Philippines or to a nonresident person not engaged in business who is outside the
Philippines when the services are performed, the consideration for which is paid for in acceptable foreign
currency and accounted for in accordance with the rules and regulations of the BSP."41
Following Burmeister, the Court, in Accenture, Inc. v. Commissioner of Internal
Revenue,42 (Accenture), emphasized that a taxpayer claiming for a VAT refund or credit under Section 108(B) has
the burden to prove not only that the recipient of the service is a foreign corporation, but also that said
corporation is doing business outside the Philippines. For failure to discharge this burden, the Court
denied Accenture's claim for refund.
We rule that the recipient of the service must be doing business outside the Philippines for the transaction to
qualify for zero-rating under Section 108(B) of the Tax Code.
xxxx
The evidence presented by Accenture may have established that its clients are foreign. This fact does not
automatically mean, however, that these clients were doing business outside the Philippines. After all, the Tax
Code itself has provisions for a foreign corporation engaged in business within the Philippines and vice versa, to
wit:
SEC. 22. Definitions. - When used in this Title:
xxxx
(H) The term "resident foreign corporation" applies to a foreign corporation engaged in trade or business within
the Philippines.
(I) The term 'nonresident foreign corporation' applies to a foreign corporation not engaged in trade or business
within the Philippines. (Emphasis in the original)
Consequently, to come within the purview of Section 108(B)(2), it is not enough that the recipient of the
service be proven to be a foreign corporation; rather, it must be specifically proven to be a nonresident
foreign corporation.
There is no specific criterion as to what constitutes "doing" or "engaging in" or "transacting" business. We ruled
thus in Commissioner of Internal Revenue v. British Overseas Airways Corporation:
x x x. There is no specific criterion as to what constitutes "doing" or "engaging in" or "transacting" business. Each
case must be judged in the light of its peculiar environmental circumstances. The term implies a continuity of
commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or
the exercise of some of the functions normally incident to, and in progressive prosecution of commercial gain or
for the purpose and object of the business organization. "In order that a foreign corporation may be regarded
as doing business within a State, there must be continuity of conduct and intention to establish a continuous
business, such as the appointment of a local agent, and not one of a temporary character."
A taxpayer claiming a tax credit or refund has the burden of proof to establish the factual basis of that claim. Tax
refunds, like tax exemptions, are construed strictly against the taxpayer.
Accenture failed to discharge this burden. It alleged and presented evidence to prove only that its clients were
foreign entities. However, as found by both the CTA Division and the CTA En Banc, no evidence was presented
by Accenture to prove the fact that the foreign clients to whom petitioner rendered its services were clients
doing business outside the Philippines.
As ruled by the CTA En Banc, the Official Receipts, Intercompany Payment Requests, Billing Statements, Memo
Invoices-Receivable, Memo Invoices-Payable, and Bank Statements presented by Accenture merely
substantiated the existence of sales, receipt of foreign currency payments, and inward remittance of the
proceeds of such sales duly accounted for in accordance with BSP rules, all of these were devoid of any evidence
that the clients were doing business outside of the Philippines. 43 (Emphasis supplied; citations omitted)
In the same vein, Sitel fell short of proving that the recipients of its call services were foreign corporations doing
business outside the Philippines. As correctly pointed out by the CTA Division, while Sitel' s documentary
evidence, which includes Certifications issued by the Securities and Exchange Commission and Agreements
between Sitel and its foreign clients, may have established that Sitel rendered services to foreign corporations in
2004 and received payments therefor through inward remittances, said documents failed to specifically prove
that such foreign clients were doing business outside the Philippines or have a continuity of commercial dealings
outside the Philippines.
Thus, the Court finds no reason to reverse the ruling of the CTA Division denying the refund of ₱7,170,276.02,
allegedly representing Sitel's input VAT attributable to zero-rated sales.
Sitel failed to strictly comply with
invoicing requirements for VAT
refund.
The CTA Division also did not err when it denied the amount of ₱2,668,852.55, allegedly representing input taxes
claimed on Sitel's domestic purchases of goods and services which are supported by invoices/receipts with pre-
printed TIN-V. In Western Mindanao Power Corp. v. Commissioner of Internal Revenue,44 the Court ruled that in a
claim for tax refund or tax credit, the applicant must prove not only entitlement to the grant of the claim under
substantive law, he must also show satisfaction of all the documentary and evidentiary requirements for an
administrative claim for a refund or tax credit and compliance with the invoicing and accounting requirements
mandated by the NIRC, as well as by revenue regulations implementing them. The NIRC requires that the
creditable input VAT should be evidenced by a VAT invoice or official receipt, 45 which may only be considered as
such when the TIN-VAT is printed thereon, as required by Section 4.108-1 of RR 7-95.
The Court's pronouncement in Kepco Philippines Corp. v. Commissioner of Internal Revenue46 is instructive:
Furthermore, Kepco insists that Section 4.108-1 of Revenue Regulation 07-95 does not require the word "TIN-
VAT" to be imprinted on a VAT-registered person's supporting invoices and official receipts and so there is no
reason for the denial of its ₱4,720,725.63 claim of input tax.
In this regard, Internal Revenue Regulation 7-95 (Consolidated Value-Added Tax Regulations) is
clear.1âwphi1 Section 4.108-1 thereof reads:
Only VAT registered persons are required to print their TIN followed by the word "VAT" in their invoice or
receipts and this shall be considered as a "VAT" Invoice. All purchases covered by invoices other than 'VAT
Invoice' shall not give rise to any input tax.
Contrary to Kepco's allegation, the regulation specifically requires the VAT registered person to imprint TIN-VAT
on its invoices or receipts. Thus, the Court agrees with the CTA when it wrote: "[T]o be considered a 'VAT
invoice,' the TIN-VAT must be printed, and not merely stamped. Consequently, purchases supported by invoices
or official receipts, wherein the TIN-VAT is not printed thereon, shall not give rise to any input VAT. Likewise,
input VAT on purchases supported by invoices or official receipts which are NON-VAT are disallowed because
these invoices or official receipts are not considered as 'VAT Invoices."'47
In the same vein, considering that the subject invoice/official receipts are not imprinted with the taxpayer's TIN
followed by the word VAT, these would not be considered as VAT invoices/official receipts and would not give
rise to any creditable input VAT in favor of Sitel.
At this juncture, it bears to emphasize that "[t]ax refunds or tax credits - just like tax exemptions - are strictly
construed against taxpayers, the latter having the burden to prove strict compliance with the conditions for the
grant of the tax refund or credit."48
WHEREFORE, premises considered, the instant petition for review is GRANTED IN PART. The Decision dated
November 11, 2011 and Resolution dated March 28, 2012 of the CTA En Banc in CTA EB No. 644 are
hereby REVERSED and SET ASIDE.Accordingly, the October 21, 2009 Decision of the CTA First Division in CTA
Case No. 7423 is hereby REINSTATED.
Respondent is hereby ORDERED TO REFUND or, in the alternative, TO ISSUE A TAX CREDIT CERTIFICATE, in favor
of the petitioner in the amount of ₱11,155,276.59, representing unutilized input VAT arising from
purchases/importations of capital goods for taxable year 2004.
SO ORDERED.
April 5, 2017
G.R. No. 222743
MEDICARD PHILIPPINES, INC., Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
REYES,, J.:
This appeal by Petition for Review1 seeks to reverse and set aside the Decision2 dated September 2, 2015 and
Resolution3 dated January 29, 2016 of the Court of Tax Appeals (CTA) en bane in CTA EB No. 1224, affirming with
modification the Decision4 dated June 5, 2014 and the Resolution5 dated September 15, 2014.in CTA Case No.
7948 of the CTA Third Division, ordering petitioner Medicard Philippines, Inc. (MEDICARD), to pay respondent
Commissioner of Internal Revenue (CIR) the deficiency
Value-Added Tax. (VAT) assessment in the aggregate amount of ₱220,234,609.48, plus 20% interest per
annum starting January 25, 2007, until fully paid, pursuant to Section 249(c) 6 of the National Internal Revenue
Code (NIRC) of 1997.
The Facts
MEDICARD is a Health Maintenance Organization (HMO) that provides prepaid health and medical insurance
coverage to its clients. Individuals enrolled in its health care programs pay an annual membership fee and are
entitled to various preventive, diagnostic and curative medical services provided by duly licensed physicians,
specialists and other professional technical staff participating in the group practice health delivery system at a
hospital or clinic owned, operated or accredited by it.7
MEDICARD filed its First, Second, and Third Quarterly VAT Returns through Electronic Filing and Payment System
(EFPS) on April 20, 2006, July 25, 2006 and October 20, 2006, respectively, and its Fourth Quarterly VAT Return
on January 25, 2007.8
Upon finding some discrepancies between MEDICARD's Income Tax Returns (ITR) and VAT Returns, the CIR
informed MEDICARD and issued a Letter Notice (LN) No. 122-VT-06-00-00020 dated
September 20, 2007. Subsequently, the CIR also issued a Preliminary Assessment Notice (PAN) against
MEDICARD for deficiency VAT. A Memorandum dated December 10, 2007 was likewise issued recommending
the issuance of a Formal Assessment Notice (FAN) against MEDICARD.9 On. January 4, 2008, MEDICARD received
CIR's FAN dated December' 10, 2007 for alleged deficiency VAT for taxable year 2006 in the total amount of Pl
96,614,476.69,10 inclusive of penalties. 11
According to the CIR, the taxable base of HMOs for VAT purposes is its gross receipts without any deduction
under Section 4.108.3(k) of Revenue Regulation (RR) No. 16-2005. Citing Commissioner of Internal Revenue v.
Philippine Health Care Providers, Inc., 12 the CIR argued that since MEDICARD. does not actually provide medical
and/or hospital services, but merely arranges for the same, its services are not VAT exempt.13
MEDICARD argued that: (1) the services it render is not limited merely to arranging for the provision of medical
and/or hospital services by hospitals and/or clinics but include actual and direct rendition of medical and
laboratory services; in fact, its 2006 audited balance sheet shows that it owns x-ray and laboratory facilities
which it used in providing medical and laboratory services to its members; (2) out of the ₱l .9 Billion membership
fees, ₱319 Million was received from clients that are registered with the Philippine Export Zone Authority (PEZA)
and/or Bureau of Investments; (3) the processing fees amounting to ₱l 1.5 Million should be excluded from gross
receipts because P5.6 Million of which represent advances for professional fees due from clients which were
paid by MEDICARD while the remainder was already previously subjected to VAT; (4) the professional fees in the
amount of Pl 1 Million should also be excluded because it represents the amount of medical services actually and
directly rendered by MEDICARD and/or its subsidiary company; and (5) even assuming that it is liable to pay for
the VAT, the 12% VAT rate should not be applied on the entire amount but only for the period when the 12%
VAT rate was already in effect, i.e., on February 1, 2006. It should not also be held liable for surcharge and
deficiency interest because it did not pass on the VAT to its members.14
On February 14, 2008, the CIR issued a Tax Verification Notice authorizing Revenue Officer Romualdo Plocios to
verify the supporting documents of MEDICARD's Protest. MEDICARD also submitted additional supporting
documentary evidence in aid of its Protest thru a letter dated March 18, 2008.15
On June 19, 2009, MEDICARD received CIR's Final Decision on Disputed Assessment dated May 15, 2009, denying
MEDICARD's protest, to wit:
IN VIEW HEREOF, we deny your letter protest and hereby reiterate in toto assessment of deficiency [VAT] in
total sum of ₱196,614,476.99. It is requested that you pay said deficiency taxes immediately. Should payment be
made later, adjustment has to be made to impose interest until date of payment. This is olir final decision. If you
disagree, you may take an appeal to the [CTA] within the period provided by law, otherwise, said assessment
shall become final, executory and demandable. 16
On July 20, 2009, MEDICARD proceeded to file a petition for review before the CT A, reiterating its position
before the tax authorities. 17
On June 5, 2014, the CTA Division rendered a Decision18 affirming with modifications the CIR's deficiency VAT
assessment covering taxable year 2006, viz.:
WHEREFORE, premises considered, the deficiency VAT assessment issued by [CIR] against [MEDICARD] covering
taxable year 2006 ·is hereby AFFIRMED WITH MODIFICATIONS. Accordingly, [MEDICARD] is ordered to pay [CIR]
the amount of P223,l 73,208.35, inclusive of the twenty-five percent (25%) surcharge imposed under -Section
248(A)(3) of the NIRC of 1997, as amended, computed as follows:
 "WHEREFORE, premises considered, the deficiency VAT assessment issued by [CIR] against
Basic Deficiency VAT ₱l78,538,566.68

Add: 25% Surcharge 44,634,641.67 [MEDICARD] covering taxable year 2006 is hereby AFFIRMED WITH MODIFICATIONS. Accordingly, [MEDICARD]
is ordered to pay [CIR] the amount of ₱220,234,609.48, inclusive of the 25% surcharge imposed under Section
Total ₱223.173.208.35 248(A)(3) of the NIRC of 1997, as amended, computed as follows:

In addition, [MEDICARD] is ordered to pay:

Basic Deficiency VAT ₱76,187,687.58

a. Deficiency interest at the rate of twenty percent (20%) per annum on the basis deficiency VAT of Pl Add: 25% Surcharge 44,046,921.90
78,538,566.68 computed from January 25, 2007 until full payment thereof pursuant to Section 249(B)
of the NIRC of 1997, as amended; and Total ₱220,234.609.48
In addition, [MEDICARD] is ordered to pay:
b. Delinquency interest at the rate of twenty percent (20%) per annum on the total amount of
₱223,173,208.35 representing basic deficiency VAT of ₱l78,538,566.68 and· 25% surcharge of (a) Deficiency interest at the rate of 20% per annum on the basic deficiency VAT of ₱l 76,187,687.58
₱44,634,64 l .67 and on the 20% deficiency interest which have accrued as afore-stated in (a), computed from January 25, 2007 until full payment thereof pursuant to Section 249(B) of the NIRC of
computed from June 19, 2009 until full payment thereof pursuant to Section 249(C) of the NIRC of 1997, as amended; and
1997.
(b) Delinquency interest at the rate of 20% per annum on the total amount of ₱220,234,609.48
SO ORDERED.19 (representing basic deficiency VAT of ₱l76,187,687.58 and 25% surcharge of ₱44,046,921.90) and on
the deficiency interest which have accrued as afore-stated in (a), computed from June 19, 2009 until
The CTA Division held that: (1) the determination of deficiency VAT is not limited to the issuance of Letter of full payment thereof pursuant to Section 249(C) of the NIRC of 1997, as amended."
Authority (LOA) alone as the CIR is granted vast powers to perform examination and assessment functions; (2) in
lieu of an LOA, an LN was issued to MEDICARD informing it· of the discrepancies between its ITRs and VAT SO ORDERED.22
Returns and this procedure is authorized under Revenue Memorandum Order (RMO) No. 30-2003 and 42-2003;
(3) MEDICARD is estopped from questioning the validity of the assessment on the ground of lack of LOA since the
Disagreeing with the CTA en bane's decision, MEDICARD filed a motion for reconsideration but it was
assessment issued against MEDICARD contained the requisite legal and factual bases that put MEDICARD on
denied.23Hence, MEDICARD now seeks recourse to this Court via a petition for review on certiorari.
notice of the deficiencies and it in fact availed of the remedies provided by law without questioning the nullity of
the assessment; (4) the amounts that MEDICARD earmarked , and eventually paid to doctors, hospitals and
clinics cannot be excluded from · the computation of its gross receipts under the provisions of RR No. 4-2007 The Issues
because the act of earmarking or allocation is by itself an act of ownership and management over the funds by
MEDICARD which is beyond the contemplation of RR No. 4-2007; (5) MEDICARD's earnings from its clinics and l. WHETHER THE ABSENCE OF THE LOA IS FATAL; and
laboratory facilities cannot be excluded from its gross receipts because the operation of these clinics and
laboratory is merely an incident to MEDICARD's main line of business as HMO and there is no evidence that 2. WHETHER THE AMOUNTS THAT MEDICARD EARMARKED AND EVENTUALLY PAID TO THE MEDICAL
MEDICARD segregated the amounts pertaining to this at the time it received the premium from its members; SERVICE PROVIDERS SHOULD STILL FORM PART OF ITS GROSS RECEIPTS FOR VAT PURPOSES. 24
and (6) MEDICARD was not able to substantiate the amount pertaining to its January 2006 income and therefore
has no basis to impose a 10% VAT rate.20
Ruling of the Court
Undaunted, MEDICARD filed a Motion for Reconsideration but it was denied. Hence, MEDICARD elevated the
matter to the CTA en banc. The petition is meritorious.

In a Decision21 dated September 2, 2015, the CTA en banc partially granted the petition only insofar as the 10% The absence of an LOA violated
VAT rate for January 2006 is concerned but sustained the findings of the CTA Division in all other matters, thus: MEDICARD's right to due process

WHEREFORE, in view thereof, the instant Petition for Review is hereby PARTIALLY GRANTED. Accordingly, the An LOA is the authority given to the appropriate revenue officer assigned to perform assessment functions. It
Decision date June 5, 2014 is hereby MODIFIED, as follows: empowers or enables said revenue officer to examine the books of account and other accounting records of a
taxpayer for the purpose of collecting the correct amount of tax. 25 An LOA is premised on the fact that the
examination of a taxpayer who has already filed his tax returns is a power that statutorily belongs only to the CIR
himself or his duly authorized representatives. Section 6 of the NIRC clearly provides as follows:
SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional Requirements for Tax
Administration and Enforcement. –
(A) Examination of Return and Determination of Tax Due.- After a return has been filed as required under the
provisions of this Code, the Commissioner or his duly authorized representative may authorize the
examinationof any taxpayer and the assessment of the correct amount of tax: Provided, however, That failure
to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer.
x x x x (Emphasis and underlining ours)
Based on the afore-quoted provision, it is clear that unless authorized by the CIR himself or by his duly
authorized representative, through an LOA, an examination of the taxpayer cannot ordinarily be undertaken. The
circumstances contemplated under Section 6 where the taxpayer may be assessed through best-evidence
obtainable, inventory-taking, or surveillance among others has nothing to do with the LOA. These are simply
methods of examining the taxpayer in order to arrive at .the correct amount of taxes. Hence, unless undertaken
by the CIR himself or his duly authorized representatives, other tax agents may not validly conduct any of these
kinds of examinations without prior authority.
With the advances in information and communication technology, the Bureau of Internal Revenue (BIR)
promulgated RMO No. 30-2003 to lay down the policies and guidelines once its then incipient centralized Data
Warehouse (DW) becomes fully operational in conjunction with its Reconciliation of Listing for Enforcement
System (RELIEF System).26 This system can detect tax leaks by matching the data available under the BIR's
Integrated Tax System (ITS) with data gathered from third-party sources. Through the consolidation and cross-
referencing of third-party information, discrepancy reports on sales and purchases can be generated to uncover
under declared income and over claimed purchases of Goods and services.
Under this RMO, several offices of the BIR are tasked with specific functions relative to the RELIEF System,
particularly with regard to LNs. Thus, the Systems Operations Division (SOD) under the Information Systems
Group (ISG) is responsible for: (1) coming up with the List of Taxpayers with discrepancies within the threshold
amount set by management for the issuance of LN and for the system-generated LNs; and (2) sending the same
to the taxpayer and to the Audit Information, Tax Exemption and Incentives Division (AITEID). After receiving the
LNs, the AITEID under the Assessment
Service (AS), in coordination with the concerned offices under the ISG, shall be responsible for transmitting the
LNs to the investigating offices [Revenue District Office (RDO)/Large Taxpayers District Office (LTDO)/Large
Taxpayers Audit and Investigation Division (LTAID)]. At the level of these investigating offices, the appropriate
action on the LN s issued to taxpayers with RELIEF data discrepancy would be determined.
RMO No. 30-2003 was supplemented by RMO No. 42-2003, which laid down the "no-contact-audit approach" in
the CIR's exercise of its ·power to authorize any examination of taxpayer arid the assessment of the correct
amount of tax. The no-contact-audit approach includes the process of computerized matching of sales and
purchases data contained in the Schedules of Sales and Domestic Purchases and Schedule of Importation
submitted by VAT taxpayers under the RELIEF System pursuant to RR No. 7-95, as amended by RR Nos. 13-97, 7-
99 and 8-2002. This may also include the matching of data from other information or returns filed by the
taxpayers with the BIR such as Alphalist of Payees subject to Final or Creditable Withholding Taxes.
Under this policy, even without conducting a detailed examination of taxpayer's books and records, if the
computerized/manual matching of sales and purchases/expenses appears to reveal discrepancies, the same shall
be communicated to the concerned taxpayer through the issuance of LN. The LN shall serve as a discrepancy
notice to taxpayer similar to a Notice for Informal Conference to the concerned taxpayer. Thus, under the RELIEF
System, a revenue officer may begin an examination of the taxpayer even prior to the issuance of an LN or even
in the absence of an LOA with the aid of a computerized/manual matching of taxpayers': documents/records.
Accordingly, under the RELIEF System, the presumption that the tax returns are in accordance with law and are
presumed correct since these are filed under the penalty of perjury27 are easily rebutted and the taxpayer
becomes instantly burdened to explain a purported discrepancy.
Noticeably, both RMO No. 30-2003 and RMO No. 42-2003 are silent on the statutory requirement of an LOA
before any investigation or examination of the taxpayer may be conducted. As provided in the RMO No. 42-
2003, the LN is merely similar to a Notice for Informal Conference. However, for a Notice of Informal Conference,
which generally precedes the issuance of an assessment notice to be valid, the same presupposes that the
revenue officer who issued the same is properly authorized in the first place.
With this apparent lacuna in the RMOs, in November 2005, RMO No. 30-2003, as supplemented by RMO No. 42-
2003, was amended by RMO No. 32-2005 to fine tune existing procedures in handing assessments against
taxpayers'· issued LNs by reconciling various revenue issuances which conflict with the NIRC. Among the
objectives in the issuance of RMO No. 32-2005 is to prescribe procedure in the resolution of LN discrepancies,
conversion of LNs to LOAs and assessment and collection of deficiency taxes.
IV. POLICIES AND GUIDELINES
xxxx
8. In the event a taxpayer who has been issued an LN refutes the discrepancy shown in the LN, the concerned
taxpayer will be given an opportunity to reconcile its records with those of the BIR within
One Hundred and Twenty (120) days from the date of the issuance of the LN. However, the subject taxpayer
shall no longer be entitled to the abatement of interest and penalties after the lapse of the sixty (60)-day period
from the LN issuance.
9. In case the above discrepancies remained unresolved at the end of the One Hundred and Twenty (120)-day
period, the revenue officer (RO) assigned to handle the LN shall recommend the issuance of [LOA) to replace
the LN. The head of the concerned investigating office shall submit a summary list of LNs for conversion to LAs
(using the herein prescribed format in Annex "E" hereof) to the OACIR-LTS I ORD for the preparation of the
corresponding LAs with the notation "This LA cancels LN_________ No. "
xxxx
V. PROCEDURES
xxxx
B. At the Regional Office/Large Taxpayers Service
xxxx
7. Evaluate the Summary List of LNs for Conversion to LAs submitted by the RDO x x x prior to approval.
8. Upon approval of the above list, prepare/accomplish and sign the corresponding LAs.
xxxx
Decision 11 G.R. No. 222743
xxxx
10. Transmit the approved/signed LAs, together with the duly accomplished/approved Summary List of LNs for
conversion to LAs, to the concerned investigating offices for the encoding of the required information x x x and
for service to the concerned taxpayers.
xxxx
C. At the RDO x x x
xxxx
11. If the LN discrepancies remained unresolved within One Hundred and Twenty (120) days from issuance
thereof, prepare a summary list of said LN s for conversion to LAs x x x.
xxxx
16. Effect the service of the above LAs to the concerned taxpayers.28
In this case, there is no dispute that no LOA was issued prior to the issuance of a PAN and FAN against MED
ICARD. Therefore no LOA was also served on MEDICARD. The LN that was issued earlier was also not converted
into an LOA contrary to the above quoted provision. Surprisingly, the CIR did not even dispute the applicability of
the above provision of RMO 32-2005 in the present case which is clear and unequivocal on the necessity of an
LOA for the· assessment proceeding to be valid. Hence, the CTA's disregard of MEDICARD's right to due process
warrant the reversal of the assailed decision and resolution.
In the case of Commissioner of Internal Revenue v. Sony Philippines, Inc. ,29 the Court said that:
Clearly, there must be a grant of authority before any revenue officer can conduct an examination or
assessment. Equally important is that the revenue officer so authorized must not go beyond the authority
given. In the absence of such an authority, the assessment or examination is a nullity.30 (Emphasis and
underlining ours)
The Court cannot convert the LN into the LOA required under the law even if the same was issued by the CIR
himself. Under RR No. 12-2002, LN is issued to a person found to have underreported sales/receipts per data
generated under the RELIEF system. Upon receipt of the LN, a taxpayer may avail of the BIR's Voluntary
Assessment and Abatement Program. If a taxpayer fails or refuses to avail of the said program, the BIR may avail
of administrative and criminal .remedies, particularly closure, criminal action, or audit and investigation. Since
the law specifically requires an LOA and RMO No. 32-2005 requires the conversion of the previously issued LN to
an LOA, the absence thereof cannot be simply swept under the rug, as the CIR would have it. In fact Revenue
Memorandum Circular No. 40-2003 considers an LN as a notice of audit or investigation only for the purpose of
disqualifying the taxpayer from amending his returns.
The following differences between an LOA and LN are crucial. First, an LOA addressed to a revenue officer is
specifically required under the NIRC before an examination of a taxpayer may be had while an LN is not found in
the NIRC and is only for the purpose of notifying the taxpayer that a discrepancy is found based on the BIR's
RELIEF System. Second, an LOA is valid only for 30 days from date of issue while an LN has no such limitation.
Third, an LOA gives the revenue officer only a period of 10days from receipt of LOA to conduct his examination
of the taxpayer whereas an LN does not contain such a limitation.31 Simply put, LN is entirely different and serves
a different purpose than an LOA. Due process demands, as recognized under RMO No. 32-2005, that after an LN
has serve its purpose, the revenue officer should have properly secured an LOA before proceeding with the
further examination and assessment of the petitioner. Unfortunarely, this was not done in this case.
Contrary to the ruling of the CTA en banc, an LOA cannot be dispensed with just because none of the financial
books or records being physically kept by MEDICARD was examined. To begin with, Section 6 of the NIRC
requires an authority from the CIR or from his duly authorized representatives before an examination "of a
taxpayer" may be made. The requirement of authorization is therefore not dependent on whether the taxpayer
may be required to physically open his books and financial records but only on whether a taxpayer is being
subject to examination.
The BIR's RELIEF System has admittedly made the BIR's assessment and collection efforts much easier and faster.
The ease by which the BIR's revenue generating objectives is achieved is no excuse however for its non-
compliance with the statutory requirement under Section 6 and with its own administrative issuance. In fact,
apart from being a statutory requirement, an LOA is equally needed even under the BIR's RELIEF System because
the rationale of requirement is the same whether or not the CIR conducts a physical examination of the
taxpayer's records: to prevent undue harassment of a taxpayer and level the playing field between the
government' s vast resources for tax assessment, collection and enforcement, on one hand, and the solitary
taxpayer's dual need to prosecute its business while at the same time responding to the BIR exercise of its
statutory powers. The balance between these is achieved by ensuring that any examination of the taxpayer by
the BIR' s revenue officers is properly authorized in the first place by those to whom the discretion to exercise
the power of examination is given by the statute.
That the BIR officials herein were not shown to have acted unreasonably is beside the point because the issue of
their lack of authority was only brought up during the trial of the case. What is crucial is whether the proceedings
that led to the issuance of VAT deficiency assessment against MEDICARD had the prior approval and
authorization from the CIR or her duly authorized representatives. Not having authority to examine MEDICARD in
the first place, the assessment issued by the CIR is inescapably void.
At any rate, even if it is assumed that the absence of an LOA is not fatal, the Court still partially finds merit in Section 4.108-4. x x x. "Gross receipts" refers to the total amount of money or its equivalent representing the
MEDICARD's substantive arguments. contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied
with the services and deposits applied as payments for services rendered, and advance payments actually or
The amounts earmarked and constructively received during the taxable period for the services performed or to be performed for another
eventually paid by MEDICARD to person, excluding the VAT. 34
the medical service providers do not
form part of gross receipts.for VAT In 2007, the BIR issued RR No. 4-2007 amending portions of RR No. 16-2005, including the definition of gross
purposes receipts in general.35

MEDICARD argues that the CTA en banc seriously erred in affirming the ruling of the CT A Division that the gross
receipts of an HMO for VAT purposes shall be the total amount of money or its equivalent actually received from
members undiminished by any amount paid or payable to the owners/operators of hospitals, clinics and medical
and dental practitioners. MEDICARD explains that its business as an HMO involves two different although
interrelated contracts. One is between a corporate client and MEDICARD, with the corporate client's employees
being considered as MEDICARD members; and the other is between the health care institutions/healthcare
professionals and MED ICARD.
Under the first, MEDICARD undertakes to make arrangements with healthcare institutions/healthcare
professionals for the coverage of MEDICARD members under specific health related services for a specified
period of time in exchange for payment of a more or less fixed membership fee. Under its contract with its
corporate clients, MEDICARD expressly provides that 20% of the membership fees per individual, regardless of
the amount involved, already includes the VAT of 10%/20% excluding the remaining 80o/o because MED ICARD
would earmark this latter portion for medical utilization of its members. Lastly, MEDICARD also assails CIR's
inclusion in its gross receipts of its earnings from medical services which it actually and directly rendered to its
members.
Since an HMO like MEDICARD is primarily engaged m arranging for coverage or designated managed care
services that are needed by plan holders/members for fixed prepaid membership fees and for a specified period
of time, then MEDICARD is principally engaged in the sale of services. Its VAT base and corresponding liability is,
thus, determined under Section 108(A)32 of the Tax Code, as amended by Republic Act No. 9337.
According to the CTA en banc, the entire amount of membership fees should form part of MEDICARD's gross
receipts because the exclusions to the gross receipts under RR No. 4-2007 does not apply to MEDICARD. What
applies to MEDICARD is the definition of gross receipts of an HMO under RR No. 16-2005 and not the modified
definition of gross receipts in general under the RR No. 4-2007.
The CTA en banc overlooked that the definition of gross receipts under. RR No. 16-2005 merely presumed that
the amount received by an HMO as membership fee is the HMO's compensation for their services. As a mere
presumption, an HMO is, thus, allowed to establish that a portion of the amount it received as membership fee
does NOT actually compensate it but some other person, which in this case are the medical service providers
themselves. It is a well-settled principle of legal hermeneutics that words of a statute will be interpreted in their
natural, plain and ordinary acceptation and signification, unless it is evident that the legislature intended a
technical or special legal meaning to those words. The Court cannot read the word "presumed" in any other way.
It is notable in this regard that the term gross receipts as elsewhere mentioned as the tax base under the NIRC
does not contain any specific definition.36 Therefore, absent a statutory definition, this Court has construed the
term gross receipts in its plain and ordinary meaning, that is, gross receipts is understood as comprising the
entire receipts without any deduction.37 Congress, under Section 108, could have simply left the term gross
receipts similarly undefined and its interpretation subjected to ordinary acceptation,. Instead of doing so,
Congress limited the scope of the term gross receipts for VAT purposes only to the amount that the taxpayer
received for the services it performed or to the amount it received as advance payment for the services it will
render in the future for another person.

Prior to RR No. 16-2005, an HMO, like a pre-need company, is treated for VAT purposes as a dealer in securities
whose gross receipts is the amount actually received as contract price without allowing any deduction from the
gross receipts.33 This restrictive tenor changed under RR No. 16-2005. Under this RR, an HMO's gross receipts
and gross receipts in general were defined, thus:
Section 4.108-3. xxx
xxxx
In the proceedings ·below, the nature of MEDICARD's business and the extent of the services it rendered are not
seriously disputed. As an HMO, MEDICARD primarily acts as an intermediary between the purchaser of
healthcare services (its members) and the healthcare providers (the doctors, hospitals and clinics) for a fee. By
enrolling membership with MED ICARD, its members will be able to avail of the pre-arranged medical services
from its accredited healthcare providers without the necessary protocol of posting cash bonds or deposits prior
to being attended to or admitted to hospitals or clinics, especially during emergencies, at any given time. Apart
from this, MEDICARD may also directly provide medical, hospital and laboratory services, which depends upon its
member's choice.

Thus, in the course of its business as such, MED ICARD members can either avail of medical services from
HMO's gross receipts shall be the total amount of money or its equivalent representing the service fee actually
MEDICARD's accredited healthcare providers or directly from MEDICARD. In the former, MEDICARD members
or constructively received during the taxable period for the services performed or to be performed for another
obviously knew that beyond the agreement to pre-arrange the healthcare needs of its ·members, MEDICARD
person, excluding the value-added tax. The compensation for their services representing their service fee, is
would not actually be providing the actual healthcare service. Thus, based on industry practice, MEDICARD
presumed to be the total amount received as enrollment fee from their members plus other charges received.
informs its would-be member beforehand that 80% of the amount would be earmarked for medical utilization
and only the remaining 20% comprises its service fee. In the latter case, MEDICARD's sale of its services is
exempt from VAT under Section 109(G).
The CTA's ruling and CIR's Comment have not pointed to any portion of Section 108 of the NIRC that would
extend the definition of gross receipts even to amounts that do not only pertain to the services to be performed:
by another person, other than the taxpayer, but even to amounts that were indisputably utilized not by MED
ICARD itself but by the medical service providers.
It is a cardinal rule in statutory construction that no word, clause, sentence, provision or part of a statute shall be
considered surplusage or superfluous, meaningless, void and insignificant. To this end, a construction which
renders every word operative is preferred over that which makes some words idle and nugatory. This principle is
expressed in the maxim Ut magisvaleat quam pereat, that is, we choose the interpretation which gives effect to
the whole of the statute – it’s every word.
In Philippine Health Care Providers, Inc. v. Commissioner of Internal Revenue,38the Court adopted the principal
object and purpose object in determining whether the MEDICARD therein is engaged in the business of
insurance and therefore liable for documentary stamp tax. The Court held therein that an HMO engaged in
preventive, diagnostic and curative medical services is not engaged in the business of an insurance, thus:
To summarize, the distinctive features of the cooperative are the rendering of service, its extension, the bringing
of physician and patient together, the preventive features, the regularization of service as well as payment,
the substantial reduction in cost by quantity purchasing in short, getting the medical job done and paid for;
not, except incidentally to these features, the indemnification for cost after .the services is rendered. Except
the last, these are not distinctive or generally characteristic of the insurance arrangement. There is, therefore,
a substantial difference between contracting in this way for the rendering of service, even on the contingency
that it be needed, and contracting merely to stand its cost when or after it is rendered.39 (Emphasis ours)
In sum, the Court said that the main difference between an HMO arid an insurance company is that HMOs
undertake to provide or arrange for the provision of medical services through participating physicians while
insurance companies simply undertake to indemnify the insured for medical expenses incurred up to a pre-
agreed limit. In the present case, the VAT is a tax on the value added by the performance of the service by the
taxpayer. It is, thus, this service and the value charged thereof by the taxpayer that is taxable under the NIRC.
To be sure, there are pros and cons in subjecting the entire amount of membership fees to VAT. 40 But the Court's
task however is not to weigh these policy considerations but to determine if these considerations in favor of
taxation can even be implied from the statute where the CIR purports to derive her authority. This Court rules
that they cannot because the language of the NIRC is pretty straightforward and clear. As this Court previously
ruled:
What is controlling in this case is the well-settled doctrine of strict interpretation in the imposition of taxes, not
the similar doctrine as applied to tax exemptions. The rule in the interpretation of tax laws is that a statute will
not be construed as imposing a tax unless it does so clearly, expressly, and unambiguously. A tax cannot be
imposed without clear and express words for that purpose. Accordingly, the general rule of requiring
adherence to the letter in construing statutes applies with peculiar strictness to tax laws and the provisions of
a taxing act are not to be extended by implication. In answering the question of who is subject to tax statutes, it
is basic that in case of doubt, such statutes are to be construed most strongly against the government and in
favor of the subjects or citizens because burdens are not to be imposed nor presumed to be imposed beyond
what statutes expressly and clearly import. As burdens, taxes should not be unduly exacted nor assumed beyond
the plain meaning of the tax laws. 41 (Citation omitted and emphasis and underlining ours)
For this Court to subject the entire amount of MEDICARD's gross receipts without exclusion, the authority should
have been reasonably founded from the language of the statute. That language is wanting in this case. In the
scheme of judicial tax administration, the need for certainty and predictability in the implementation of tax laws
is crucial. Our tax authorities fill in the details that Congress may not have the opportunity or competence to
provide. The regulations these authorities issue are relied upon by taxpayers, who are certain that these will be
followed by the courts. Courts, however, will not uphold these authorities' interpretations when dearly absurd,
erroneous or improper.42 The CIR's interpretation of gross receipts in the present case is patently erroneous for
lack of both textual and non-textual support.
As to the CIR's argument that the act of earmarking or allocation is by itself an act of ownership and
management over the funds, the Court does not agree.1âwphi1 On the contrary, it is MEDICARD's act of
earmarking or allocating 80% of the amount it received as membership fee at the time of payment that weakens
the ownership imputed to it. By earmarking or allocating 80% of the amount, MEDICARD unequivocally
recognizes that its possession of the funds is not in the concept of owner but as a mere administrator of the
same. For this reason, at most, MEDICARD's right in relation to these amounts is a mere inchoate owner which
would ripen into actual ownership if, and only if, there is underutilization of the membership fees at the end of
the fiscal year. Prior to that, MEDI CARD is bound to pay from the amounts it had allocated as an administrator
once its members avail of the medical services of MEDICARD's healthcare providers.
Before the Court, the parties were one in submitting the legal issue of whether the amounts MEDICARD
earmarked, corresponding to 80% of its enrollment fees, and paid to the medical service providers should form
part of its gross receipt for VAT purposes, after having paid the VAT on the amount comprising the 20%. It is
significant to note in this regard that MEDICARD established that upon receipt of payment of membership fee it
actually issued two official receipts, one pertaining to the VAT able portion, representing compensation for its
services, and the other represents the non-vatable portion pertaining to the amount earmarked for medical
utilization.: Therefore, the absence of an actual and physical segregation of the amounts pertaining to two
different kinds · of fees cannot arbitrarily disqualify MEDICARD from rebutting the presumption under the law
and from proving that indeed services were rendered by its healthcare providers for which it paid the amount it
sought to be excluded from its gross receipts.
With the foregoing discussions on the nullity of the assessment on due process grounds and violation of the
NIRC, on one hand, and the utter lack of legal basis of the CIR's position on the computation of MEDICARD's
gross receipts, the Court finds it unnecessary, nay useless, to discuss the rest of the parties' arguments and
counter-arguments.
In fine, the foregoing discussion suffices for the reversal of the assailed decision and resolution of the CTA en
banc grounded as it is on due process violation. The Court likewise rules that for purposes of determining the
VAT liability of an HMO, the amounts earmarked and actually spent for medical utilization of its members should
not be included in the computation of its gross receipts.
WHEREFORE, in consideration of the foregoing disquisitions, the petition is hereby GRANTED. The Decision
dated September 2, 2015 and Resolution dated January 29, 2016 issued by the Court of Tax Appeals en bane in
CTA EB No. 1224 are REVERSED and SET ASIDE. The definition of gross receipts under Revenue Regulations Nos.
16-2005 and 4-2007, in relation to Section 108(A) of the National Internal Revenue Code, as amended by
Republic Act No. 9337, for purposes of determining its Value-Added Tax liability, is hereby declared
to EXCLUDE the eighty percent (80%) of the amount of the contract price earmarked as fiduciary funds for the
medical utilization of its members. Further, the Value-Added Tax deficiency assessment issued against Medicard
Philippines, Inc. is hereby declared unauthorized for having been issued without a Letter of Authority by the
Commissioner of Internal Revenue or his duly authorized representatives.
SO ORDERED.
G.R. No. 146984 July 28, 2006
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
MAGSAYSAY LINES, INC., BALIWAG NAVIGATION, INC., FIM LIMITED OF THE MARDEN GROUP (HK) and
NATIONAL DEVELOPMENT COMPANY, respondents.
DECISION
TINGA, J.:
The issue in this present petition is whether the sale by the National Development Company (NDC) of five (5) of
its vessels to the private respondents is subject to value-added tax (VAT) under the National Internal Revenue
Code of 1986 (Tax Code) then prevailing at the time of the sale. The Court of Tax Appeals (CTA) and the Court of
Appeals commonly ruled that the sale is not subject to VAT. We affirm, though on a more unequivocal rationale
than that utilized by the rulings under review. The fact that the sale was not in the course of the trade or
business of NDC is sufficient in itself to declare the sale as outside the coverage of VAT.
The facts are culled primarily from the ruling of the CTA.
Pursuant to a government program of privatization, NDC decided to sell to private enterprise all of its shares in
its wholly-owned subsidiary the National Marine Corporation (NMC). The NDC decided to sell in one lot its NMC
shares and five (5) of its ships, which are 3,700 DWT Tween-Decker, "Kloeckner" type vessels.1 The vessels were
constructed for the NDC between 1981 and 1984, then initially leased to Luzon Stevedoring Company, also its
wholly-owned subsidiary. Subsequently, the vessels were transferred and leased, on a bareboat basis, to the
NMC.2
The NMC shares and the vessels were offered for public bidding. Among the stipulated terms and conditions for
the public auction was that the winning bidder was to pay "a value added tax of 10% on the value of the
vessels."3 On 3 June 1988, private respondent Magsaysay Lines, Inc. (Magsaysay Lines) offered to buy the shares
and the vessels for P168,000,000.00. The bid was made by Magsaysay Lines, purportedly for a new company still
to be formed composed of itself, Baliwag Navigation, Inc., and FIM Limited of the Marden Group based in
Hongkong (collectively, private respondents).4 The bid was approved by the Committee on Privatization, and a
Notice of Award dated 1 July 1988 was issued to Magsaysay Lines.
On 28 September 1988, the implementing Contract of Sale was executed between NDC, on one hand, and
Magsaysay Lines, Baliwag Navigation, and FIM Limited, on the other. Paragraph 11.02 of the contract stipulated
that "[v]alue-added tax, if any, shall be for the account of the PURCHASER." 5 Per arrangement, an irrevocable
confirmed Letter of Credit previously filed as bidders bond was accepted by NDC as security for the payment of
VAT, if any. By this time, a formal request for a ruling on whether or not the sale of the vessels was subject to
VAT had already been filed with the Bureau of Internal Revenue (BIR) by the law firm of Sycip Salazar Hernandez
& Gatmaitan, presumably in behalf of private respondents. Thus, the parties agreed that should no favorable
ruling be received from the BIR, NDC was authorized to draw on the Letter of Credit upon written demand the
amount needed for the payment of the VAT on the stipulated due date, 20 December 1988.6
In January of 1989, private respondents through counsel received VAT Ruling No. 568-88 dated 14 December
1988 from the BIR, holding that the sale of the vessels was subject to the 10% VAT. The ruling cited the fact that
NDC was a VAT-registered enterprise, and thus its "transactions incident to its normal VAT registered activity of
leasing out personal property including sale of its own assets that are movable, tangible objects which are
appropriable or transferable are subject to the 10% [VAT]."7
Private respondents moved for the reconsideration of VAT Ruling No. 568-88, as well as VAT Ruling No. 395-88
(dated 18 August 1988), which made a similar ruling on the sale of the same vessels in response to an inquiry
from the Chairman of the Senate Blue Ribbon Committee. Their motion was denied when the BIR issued VAT
Ruling Nos. 007-89 dated 24 February 1989, reiterating the earlier VAT rulings. At this point, NDC drew on the
Letter of Credit to pay for the VAT, and the amount of P15,120,000.00 in taxes was paid on 16 March 1989.
On 10 April 1989, private respondents filed an Appeal and Petition for Refund with the CTA, followed by a
Supplemental Petition for Review on 14 July 1989. They prayed for the reversal of VAT Rulings No. 395-88, 568-
88 and 007-89, as well as the refund of the VAT payment made amounting to P15,120,000.00.8 The
Commissioner of Internal Revenue (CIR) opposed the petition, first arguing that private respondents were not
the real parties in interest as they were not the transferors or sellers as contemplated in Sections 99 and 100 of
the then Tax Code. The CIR also squarely defended the VAT rulings holding the sale of the vessels liable for VAT,
especially citing Section 3 of Revenue Regulation No. 5-87 (R.R. No. 5-87), which provided that "[VAT] is imposed
on any sale or transactions ‘deemed sale’ of taxable goods (including capital goods, irrespective of the date of
acquisition)." The CIR argued that the sale of the vessels were among those transactions "deemed sale," as
enumerated in Section 4 of R.R. No. 5-87. It seems that the CIR particularly emphasized Section 4(E)(i) of the
Regulation, which classified "change of ownership of business" as a circumstance that gave rise to a transaction
"deemed sale."
In a Decision dated 27 April 1992, the CTA rejected the CIR’s arguments and granted the petition. 9 The CTA ruled
that the sale of a vessel was an "isolated transaction," not done in the ordinary course of NDC’s business, and
was thus not subject to VAT, which under Section 99 of the Tax Code, was applied only to sales in the course of
trade or business. The CTA further held that the sale of the vessels could not be "deemed sale," and thus subject
to VAT, as the transaction did not fall under the enumeration of transactions deemed sale as listed either in
Section 100(b) of the Tax Code, or Section 4 of R.R. No. 5-87. Finally, the CTA ruled that any case of doubt should
be resolved in favor of private respondents since Section 99 of the Tax Code which implemented VAT is not an
exemption provision, but a classification provision which warranted the resolution of doubts in favor of the
taxpayer.
The CIR appealed the CTA Decision to the Court of Appeals, 10 which on 11 March 1997, rendered a Decision
reversing the CTA.11 While the appellate court agreed that the sale was an isolated transaction, not made in the
course of NDC’s regular trade or business, it nonetheless found that the transaction fell within the classification
of those "deemed sale" under R.R. No. 5-87, since the sale of the vessels together with the NMC shares brought
about a change of ownership in NMC. The Court of Appeals also applied the principle governing tax exemptions
that such should be strictly construed against the taxpayer, and liberally in favor of the government.12
However, the Court of Appeals reversed itself upon reconsidering the case, through a Resolution dated 5
February 2001.13 This time, the appellate court ruled that the "change of ownership of business" as
contemplated in R.R. No. 5-87 must be a consequence of the "retirement from or cessation of business" by the
owner of the goods, as provided for in Section 100 of the Tax Code. The Court of Appeals also agreed with the
CTA that the classification of transactions "deemed sale" was a classification statute, and not an exemption
statute, thus warranting the resolution of any doubt in favor of the taxpayer. 14
To the mind of the Court, the arguments raised in the present petition have already been adequately discussed
and refuted in the rulings assailed before us. Evidently, the petition should be denied. Yet the Court finds that
Section 99 of the Tax Code is sufficient reason for upholding the refund of VAT payments, and the subsequent
disquisitions by the lower courts on the applicability of Section 100 of the Tax Code and Section 4 of R.R. No. 5-
87 are ultimately irrelevant.
A brief reiteration of the basic principles governing VAT is in order. VAT is ultimately a tax on consumption, even
though it is assessed on many levels of transactions on the basis of a fixed percentage. 15 It is the end user of
consumer goods or services which ultimately shoulders the tax, as the liability therefrom is passed on to the end
users by the providers of these goods or services16 who in turn may credit their own VAT liability (or input VAT)
from the VAT payments they receive from the final consumer (or output VAT). 17 The final purchase by the end
consumer represents the final link in a production chain that itself involves several transactions and several acts
of consumption. The VAT system assures fiscal adequacy through the collection of taxes on every level of
consumption,18 yet assuages the manufacturers or providers of goods and services by enabling them to pass on
their respective VAT liabilities to the next link of the chain until finally the end consumer shoulders the entire tax
liability.
Yet VAT is not a singular-minded tax on every transactional level. Its assessment bears direct relevance to the
taxpayer’s role or link in the production chain. Hence, as affirmed by Section 99 of the Tax Code and its
subsequent incarnations,19 the tax is levied only on the sale, barter or exchange of goods or services by persons
who engage in such activities, in the course of trade or business. These transactions outside the course of trade
or business may invariably contribute to the production chain, but they do so only as a matter of accident or
incident. As the sales of goods or services do not occur within the course of trade or business, the providers of
such goods or services would hardly, if at all, have the opportunity to appropriately credit any VAT liability as
against their own accumulated VAT collections since the accumulation of output VAT arises in the first place only
through the ordinary course of trade or business.
That the sale of the vessels was not in the ordinary course of trade or business of NDC was appreciated by both
the CTA and the Court of Appeals, the latter doing so even in its first decision which it eventually
reconsidered.20 We cite with approval the CTA’s explanation on this point:
In Imperial v. Collector of Internal Revenue, G.R. No. L-7924, September 30, 1955 (97 Phil. 992), the
term "carrying on business" does not mean the performance of a single disconnected act, but means
conducting, prosecuting and continuing business by performing progressively all the acts normally
incident thereof; while "doing business" conveys the idea of business being done, not from time to
time, but all the time. [J. Aranas, UPDATED NATIONAL INTERNAL REVENUE CODE (WITH
ANNOTATIONS), p. 608-9 (1988)]. "Course of business" is what is usually done in the management of
trade or business. [Idmi v. Weeks & Russel, 99 So. 761, 764, 135 Miss. 65, cited in Words & Phrases,
Vol. 10, (1984)].
What is clear therefore, based on the aforecited jurisprudence, is that "course of business" or "doing
business" connotes regularity of activity. In the instant case, the sale was an isolated transaction. The
sale which was involuntary and made pursuant to the declared policy of Government for privatization
could no longer be repeated or carried on with regularity. It should be emphasized that the normal
VAT-registered activity of NDC is leasing personal property.21
This finding is confirmed by the Revised Charter22 of the NDC which bears no indication that the NDC was created
for the primary purpose of selling real property.23
The conclusion that the sale was not in the course of trade or business, which the CIR does not dispute before
this Court,24 should have definitively settled the matter. Any sale, barter or exchange of goods or services not in
the course of trade or business is not subject to VAT.
Section 100 of the Tax Code, which is implemented by Section 4(E)(i) of R.R. No. 5-87 now relied upon by the CIR,
is captioned "Value-added tax on sale of goods," and it expressly states that "[t]here shall be levied, assessed and
collected on every sale, barter or exchange of goods, a value added tax x x x." Section 100 should be read in light
of Section 99, which lays down the general rule on which persons are liable for VAT in the first place and on what
transaction if at all. It may even be noted that Section 99 is the very first provision in Title IV of the Tax Code, the
Title that covers VAT in the law. Before any portion of Section 100, or the rest of the law for that matter, may be
applied in order to subject a transaction to VAT, it must first be satisfied that the taxpayer and transaction
involved is liable for VAT in the first place under Section 99.
It would have been a different matter if Section 100 purported to define the phrase "in the course of trade or
business" as expressed in Section 99. If that were so, reference to Section 100 would have been necessary as a
means of ascertaining whether the sale of the vessels was "in the course of trade or business," and thus subject
to
VAT. But that is not the case. What Section 100 and Section 4(E)(i) of R.R. No. 5-87 elaborate on is not the
meaning of "in the course of trade or business," but instead the identification of the transactions which may be
deemed as sale. It would become necessary to ascertain whether under those two provisions the transaction
may be deemed a sale, only if it is settled that the transaction occurred in the course of trade or business in the
first place. If the transaction transpired outside the course of trade or business, it would be irrelevant for the
purpose of determining VAT liability whether the transaction may be deemed sale, since it anyway is not subject
to VAT.
Accordingly, the Court rules that given the undisputed finding that the transaction in question was not made in
the course of trade or business of the seller, NDC that is, the sale is not subject to VAT pursuant to Section 99 of
the Tax Code, no matter how the said sale may hew to those transactions deemed sale as defined under Section
100.
In any event, even if Section 100 or Section 4 of R.R. No. 5-87 were to find application in this case, the Court finds
the discussions offered on this point by the CTA and the Court of Appeals (in its subsequent Resolution)
essentially correct. Section 4 (E)(i) of R.R. No. 5-87 does classify as among the transactions deemed sale those
involving "change of ownership of business." However, Section 4(E) of R.R. No. 5-87, reflecting Section 100 of the
Tax Code, clarifies that such "change of ownership" is only an attending circumstance to "retirement from or
cessation of business[, ] with respect to all goods on hand [as] of the date of such retirement or
cessation."25 Indeed, Section 4(E) of R.R. No. 5-87 expressly characterizes the "change of ownership of business"
as only a "circumstance" that attends those transactions "deemed sale," which are otherwise stated in the same COMMERCIAL GOODS ON THE OTHER HAND, AS SAID DISTINCTION IS FOUND IN SECTION 105 AND,
section.26 SUBSEQUENTLY, REVENUE REGULATIONS NO. 7-95 WHICH DEFINES THE INPUT TAX CREDITABLE TO A REAL
ESTATE DEALER WHO BECOMES SUBJECT TO VAT FOR THE FIRST TIME.
WHEREFORE, the petition is DENIED. No costs.
II
SO ORDERED.
SECTION 4.105.1 AND PARAGRAPH (A) (III) OF THE TRANSITORY PROVISIONS OF REVENUE REGULATIONS NO. 7-
G.R. No. 158885 October 2, 2009 95 VALIDLY LIMIT THE 8% TRANSITIONAL INPUT TAX TO THE IMPROVEMENTS ON REAL PROPERTIES.

FORT BONIFACIO DEVELOPMENT CORPORATION Petitioner, III

vs.
COMMISSIONER OF INTERNAL REVENUE, REGIONAL DIRECTOR, REVENUE REGION NO. 8, and CHIEF, REVENUE REGULATIONS NO. 6-97 DID NOT REPEAL REVENUE REGULATIONS NO. 7-95.
ASSESSMENT DIVISION, REVENUE REGION NO. 8, BIR, Respondents.
The instant motion for reconsideration lacks merit.
x - - - - - - - - - - - - - - - - - - - - - - -x
The first VAT law, found in Executive Order (EO) No. 273 [1987], took effect on January 1, 1988. It amended
G.R. No. 170680 several provisions of the National Internal Revenue Code of 1986 (Old NIRC). EO 273 likewise accommodated the
potential burdens of the shift to the VAT system by allowing newly VAT-registered persons to avail of a
FORT BONIFACIO DEVELOPMENT CORPORATION Petitioner, transitional input tax credit as provided for in Section 105 of the Old NIRC. Section 105 as amended by EO 273
vs. reads:
COMMISSIONER OF INTERNAL REVENUE, REVENUE DISTRICT OFFICER, REVENUE DISTRICT NO. 44, TAGUIG and
PATEROS, BUREAU OF INTERNAL REVENUE. Respondents. Sec. 105. Transitional Input Tax Credits. — A person who becomes liable to value-added tax or any person who
elects to be a VAT-registered person shall, subject to the filing of an inventory as prescribed by regulations, be
RESOLUTION allowed input tax on his beginning inventory of goods, materials and supplies equivalent to 8% of the value of
such inventory or the actual value-added tax paid on such goods, materials and supplies, whichever is higher,
which shall be creditable against the output tax.
LEONARDO-DE CASTRO, J.:

RA 7716 took effect on January 1, 1996. It amended Section 100 of the Old NIRC by imposing for the first time
Before us is respondents’ Motion for Reconsideration of our Decision dated April 2, 2009 which granted the
value-added-tax on sale of real properties. The amendment reads:
consolidated petitions of petitioner Fort Bonifacio Development Corporation, the dispositive portion of which
reads:
Sec. 100. Value-added-tax on sale of goods or properties. — (a) Rate and base of tax. — There shall be levied,
assessed and collected on every sale, barter or exchange of goods or properties, a value-added tax equivalent to
WHEREFORE, the petitions are GRANTED. The assailed decisions of the Court of Tax Appeals and the Court of
10% of the gross selling price or gross value in money of the goods, or properties sold, bartered or exchanged,
Appeals are REVERSED and SET ASIDE. Respondents are hereby (1) restrained from collecting from petitioner the
such tax to be paid by the seller or transferor.1avvph!1
amount of ₱28,413,783.00 representing the transitional input tax credit due it for the fourth quarter of 1996;
and (2) directed to refund to petitioner the amount of ₱347,741,695.74 paid as output VAT for the third quarter
of 1997 in light of the persisting transitional input tax credit available to petitioner for the said quarter, or to (1) The term 'goods or properties' shall mean all tangible and intangible objects which are capable of pecuniary
issue a tax credit corresponding to such amount. No pronouncement as to costs. estimation and shall include:

The Motion for Reconsideration raises the following arguments:
I
SECTION 100 OF THE OLD NATIONAL INTERNAL REVENUE CODE (OLD NIRC), AS AMENDED BY REPUBLIC ACT
(R.A.) NO. 7716, COULD NOT HAVE SUPPLIED THE DISTINCTION BETWEEN THE TREATMENT OF REAL PROPERTIES
OR REAL ESTATE DEALERS ON THE ONE HAND, AND THE TREATMENT OF TRANSACTIONS INVOLVING OTHER
(A) Real properties held primarily for sale to customers or held for lease in the ordinary course of trade or
business; xxx
The provisions of Section 105 of the NIRC, on the transitional input tax credit, remain intact despite the
enactment of RA 7716. Section 105 however was amended with the passage of the new National Internal
Revenue Code of 1997 (New NIRC), also officially known as Republic Act (RA) 8424. The provisions on the
transitional input tax credit are now embodied in Section 111(A) of the New NIRC, which reads:
Section 111. Transitional/Presumptive Input Tax Credits. – The statutory definition of the term "goods or properties" leaves no room for doubt. It states:

(A) Transitional Input Tax Credits. - A person who becomes liable to value-added tax or any person who elects to Sec. 100. Value-added tax on sale of goods or properties. – (a) Rate and base of tax. – xxx.
be a VAT-registered person shall, subject to the filing of an inventory according to rules and regulations
prescribed by the Secretary of finance, upon recommendation of the Commissioner, be allowed input tax on his (1) The term ‘goods or properties’ shall mean all tangible and intangible objects which are capable of pecuniary
beginning inventory of goods, materials and supplies equivalent for 8% of the value of such inventory or the estimation and shall include:
actual value-added tax paid on such goods, materials and supplies, whichever is higher, which shall be creditable
against the output tax. [Emphasis ours.]
(A) Real properties held primarily for sale to customers or held for lease in the ordinary course of trade or
business; xxx.
The Commissioner of Internal Revenue (CIR) disallowed Fort Bonifacio Development Corporation’s (FBDC)
presumptive input tax credit arising from the land inventory on the basis of Revenue Regulation 7-95 (RR 7-95)
The amendatory provision of Section 105 of the NIRC, as introduced by RA 7716, states:
and Revenue Memorandum Circular 3-96 (RMC 3-96). Specifically, Section 4.105-1 of RR 7-95 provides:

Sec. 105. Transitional Input tax Credits. – A person who becomes liable to value-added tax or any person who
Sec. 4.105-1. Transitional input tax on beginning inventories. – Taxpayers who became VAT-registered persons
elects to be a VAT-registered person shall, subject to the filing of an inventory as prescribed by regulations, be
upon effectivity of RA No. 7716 who have exceeded the minimum turnover of ₱500,000.00 or who voluntarily
allowed input tax on his beginning inventory of goods, materials and supplies equivalent to 8% of the value of
register even if their turnover does not exceed ₱500,000.00 shall be entitled to a presumptive input tax on the
such inventory or the actual value-added tax paid on such goods, materials and supplies, whichever is higher,
inventory on hand as of December 31, 1995 on the following: (a) goods purchased for resale in their present
which shall be creditable against the output tax.
condition; (b) materials purchased for further processing, but which have not yet undergone processing; (c)
goods which have been manufactured by the taxpayer; (d) goods in process and supplies, all of which are for sale
or for use in the course of the taxpayer’s trade or business as a VAT-registered person. The term "goods or properties" by the unambiguous terms of Section 100 includes "real properties held primarily
for sale to costumers or held for lease in the ordinary course of business." Having been defined in Section 100 of
the NIRC, the term "goods" as used in Section 105 of the same code could not have a different meaning. This has
However, in the case of real estate dealers, the basis of the presumptive input tax shall be the improvements,
been explained in the Decision dated April 2, 2009, thus:
such as buildings, roads, drainage systems, and other similar structures, constructed on or after the effectivity of
EO 273 (January 1, 1988).
Under Section 105, the beginning inventory of "goods" forms part of the valuation of the transitional input tax
credit. Goods, as commonly understood in the business sense, refers to the product which the VAT-registered
The transitional input tax shall be 8% of the value of the inventory or actual VAT paid, whichever is higher, which
person offers for sale to the public. With respect to real estate dealers, it is the real properties themselves which
amount may be allowed as tax credit against the output tax of the VAT-registered person.
constitute their "goods." Such real properties are the operating assets of the real estate dealer.

In the April 2, 2009 Decision sought to be reconsidered, the Court struck down Section 4.105-1 of RR 7-95 for
Section 4.100-1 of RR No. 7-95 itself includes in its enumeration of "goods or properties" such "real properties
being in conflict with the law. It held that the CIR had no power to limit the meaning and coverage of the term
held primarily for sale to customers or held for lease in the ordinary course of trade or business." Said definition
"goods" in Section 105 of the Old NIRC sans statutory authority or basis and justification to make such limitation.
was taken from the very statutory language of Section 100 of the Old NIRC. By limiting the definition of goods to
This it did when it restricted the application of Section 105 in the case of real estate dealers only to
"improvements" in Section 4.105-1, the BIR not only contravened the definition of "goods" as provided in the
improvements on the real property belonging to their beginning inventory.
Old NIRC, but also the definition which the same revenue regulation itself has provided.

A law must not be read in truncated parts; its provisions must be read in relation to the whole law. It is the
Section 4.105-1 of RR 7-95 restricted the definition of "goods", viz:
cardinal rule in statutory construction that a statute’s clauses and phrases must not be taken as detached and
isolated expressions, but the whole and every part thereof must be considered in fixing the meaning of any of its
parts in order to produce a harmonious whole. Every part of the statute must be interpreted with reference to However, in the case of real estate dealers, the basis of the presumptive input tax shall be the
the context, i.e., that every part of the statute must be considered together with other parts of the statute and improvements, such as buildings, roads, drainage systems, and other similar structures, constructed on or after
kept subservient to the general intent of the whole enactment.1 the effectivity of EO 273 (January 1, 1988).

In construing a statute, courts have to take the thought conveyed by the statute as a whole; construe the
constituent parts together; ascertain the legislative intent from the whole act; consider each and every provision
thereof in the light of the general purpose of the statute; and endeavor to make every part effective,
harmonious and sensible.2
As mandated by Article 7 of the Civil Code,3 an administrative rule or regulation cannot contravene the law on
which it is based. RR 7-95 is inconsistent with Section 105 insofar as the definition of the term "goods" is
concerned. This is a legislative act beyond the authority of the CIR and the Secretary of Finance. The rules and
regulations that administrative agencies promulgate, which are the product of a delegated legislative power to
create new and additional legal provisions that have the effect of law, should be within the scope of the
statutory authority granted by the legislature to the objects and purposes of the law, and should not be in
contradiction to, but in conformity with, the standards prescribed by law.
To be valid, an administrative rule or regulation must conform, not contradict, the provisions of the enabling law.
An implementing rule or regulation cannot modify, expand, or subtract from the law it is intended to implement.
Any rule that is not consistent with the statute itself is null and void. 4
While administrative agencies, such as the Bureau of Internal Revenue, may issue regulations to implement
statutes, they are without authority to limit the scope of the statute to less than what it provides, or extend or
expand the statute beyond its terms, or in any way modify explicit provisions of the law. Indeed, a quasi-judicial
body or an administrative agency for that matter cannot amend an act of Congress. Hence, in case of a
discrepancy between the basic law and an interpretative or administrative ruling, the basic law prevails.5
To recapitulate, RR 7-95, insofar as it restricts the definition of "goods" as basis of transitional input tax credit
under Section 105 is a nullity.
On January 1, 1997, RR 6-97 was issued by the Commissioner of Internal Revenue. RR 6-97 was basically a
reiteration of the same Section 4.105-1 of RR 7-95, except that the RR 6-97 deleted the following paragraph:
However, in the case of real estate dealers, the basis of the presumptive input tax shall be the improvements,
such as buildings, roads, drainage systems, and other similar structures, constructed on or after the effectivity of
E.O. 273 (January 1, 1988).
It is clear, therefore, that under RR 6-97, the allowable transitional input tax credit is not limited to
improvements on real properties. The particular provision of RR 7-95 has effectively been repealed by RR 6-97
which is now in consonance with Section 100 of the NIRC, insofar as the definition of real properties as goods is
concerned. The failure to add a specific repealing clause would not necessarily indicate that there was no intent
to repeal RR 7-95. The fact that the aforequoted paragraph was deleted created an irreconcilable inconsistency
and repugnancy between the provisions of RR 6-97 and RR 7-95.
We now address the points raised in the dissenting opinion of the Honorable Justice Antonio T. Carpio.
At the outset, it must be stressed that FBDC sought the refund of the total amount of ₱347,741,695.74 which it
had itself paid in cash to the BIR. It is argued that the transitional input tax credit applies only when taxes were
previously paid on the properties in the beginning inventory and that there should be a law imposing the tax
presumed to have been paid. The thesis is anchored on the argument that without any VAT or other input
business tax imposed by law on the real properties at the time of the sale, the 8% transitional input tax cannot
be presumed to have been paid.
The language of Section 105 is explicit. It precludes reading into the law that the transitional input tax credit is
limited to the amount of VAT previously paid. When the aforesaid section speaks of "eight percent (8%) of the
value of such inventory" followed by the clause "or the actual value-added tax paid on such goods, materials and
supplies," the implication is clear that under the first clause, "eight percent (8%) of the value of such inventory,"
the law does not contemplate the payment of any prior tax on such inventory. This is distinguished from the
second clause, "the actual value-added tax paid on the goods, materials and supplies" where actual payment of
VAT on the goods, materials and supplies is assumed. Had the intention of the law been to limit the amount to
the actual VAT paid, there would have been no need to explicitly allow a claim based on 8% of the value of such
inventory.
The contention that the 8% transitional input tax credit in Section 105 presumes that a previous tax was paid,
whether or not it was actually paid, requires a transaction where a tax has been imposed by law, is utterly
without basis in law. The rationale behind the provisions of Section 105 was aptly elucidated in the Decision
sought to be reconsidered, thus:
It is apparent that the transitional input tax credit operates to benefit newly VAT-registered persons, whether or
not they previously paid taxes in the acquisition of their beginning inventory of goods, materials and supplies.
During that period of transition from non-VAT to VAT status, the transitional input tax credit serves to alleviate
the impact of the VAT on the taxpayer. At the very beginning, the VAT-registered taxpayer is obliged to remit a
significant portion of the income it derived from its sales as output VAT. The transitional input tax credit
mitigates this initial diminution of the taxpayer’s income by affording the opportunity to offset the losses
incurred through the remittance of the output VAT at a stage when the person is yet unable to credit input VAT
payments.
As pointed out in Our Decision of April 2, 2009, to give Section 105 a restrictive construction that transitional
input tax credit applies only when taxes were previously paid on the properties in the beginning inventory and
there is a law imposing the tax which is presumed to have been paid, is to impose conditions or requisites to the
application of the transitional tax input credit which are not found in the law. The courts must not read into the
law what is not there. To do so will violate the principle of separation of powers which prohibits this Court from
engaging in judicial legislation.6
WHEREFORE, premises considered, the Motion for Reconsideration is DENIED WITH FINALITY for lack of merit.
SO ORDERED.
G.R. No. 179632 October 19, 2011
SOUTHERN PHILIPPINES POWER CORPORATION, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
ABAD, J.:
The case is about the sufficiency of sales invoices and receipts, which do not have the words "zero-rated"
imprinted on them, to evidence zero-rated transactions, a requirement in taxpayer’s claim for tax credit or
refund.
The Facts and the Case
Petitioner Southern Philippines Power Corporation (SPP), a power company that generates and sells electricity to
the National Power Corporation (NPC), applied with the Bureau of Internal Revenue (BIR) for zero-rating of its
transactions under Section 108(B)(3) of the National Internal Revenue Code (NIRC). The BIR approved the
application for taxable years 1999 and 2000.
On June 20, 2000 SPP filed a claim with respondent Commissioner of Internal Revenue (CIR) for a ₱5,083,371.57
tax credit or refund for 1999. On July 13, 2001 SPP filed a second claim of ₱6,221,078.44 in tax credit or refund
for 2000. The amounts represented unutilized input VAT attributable to SPP’s zero-rated sale of electricity to
NPC.
On September 29, 2001, before the lapse of the two-year prescriptive period for such actions, SPP filed with the
Court of Tax Appeals (CTA) Second Division a petition for review covering its claims for refund or tax credit. The
petition claimed only the aggregate amount of ₱8,636,126.75 which covered the last two quarters of 1999 and
the four quarters in 2000.
In his Comment on the petition, the CIR maintained that SPP is not entitled to tax credit or refund since (a) the
BIR was still examining SPP’s claims for the same; (b) SPP failed to substantiate its payment of input VAT; (c) its
right to claim refund already prescribed, and (d) SPP has not shown compliance with Section 204(c) in relation to
Section 229 of the NIRC as amended and Revenue Regulation (RR) 5-87 as amended by RR 3-88.
In a Decision dated April 26, 2006, the Second Division1 denied SPP’s claims, holding that its zero-rated official
receipts did not correspond to the quarterly VAT returns, bearing a difference of ₱800,107,956.61. Those
receipts only support the amount of ₱118,945,643.88. Further, these receipts do not bear the words "zero-
rated" in violation of RR 7-95. The Second Division denied SPP’s motion for reconsideration on August 15, 2006.
On appeal, the CTA En Banc affirmed the Second Division’s decision dated July 31, 2007. 2 The CTA En Banc
rejected SPP’s contention that its sales invoices reflected the words "zero-rated," pointing out that it is on the
official receipts that the law requires the printing of such words. Moreover, SPP did not report in the
corresponding quarterly VAT return the sales subject of its zero-rated receipts. The CTA En Banc denied SPP’s
motion for reconsideration on September 19, 2007.
The Issues Presented
The case presents the following issues:
1. Whether or not the CTA En Banc correctly rejected the invoices that SPP presented and, thus, ruled
that it failed to prove the zero-rated or effectively zero-rated sales that it made;
2. Whether or not the CTA En Banc correctly ruled that the words "BIR-VAT Zero Rate Application
Number 419.2000" imprinted on SPP’s invoices did not comply with RR 7-95;
3. Whether or not the CTA En Banc correctly held that SPP should have declared its zero-rated sales in
its VAT returns for the subject period of the claim; and
4. Whether or not the CTA En Banc correctly ruled that SPP was not entitled to a tax refund or credit.
The Court’s Rulings
One and Two. The Court reiterated in San Roque Power Corporation v. Commissioner of Internal Revenue 3 the
following criteria governing claims for refund or tax credit under Section 112(A) of the NIRC:
(1) The taxpayer is VAT-registered;
(2) The taxpayer is engaged in zero-rated or effectively zero-rated sales;
(3) The input taxes are due or paid;
(4) The input taxes are not transitional input taxes;
(5) The input taxes have not been applied against output taxes during and in the succeeding quarters;
(6) The input taxes claimed are attributable to zero-rated or effectively zero-rated sales;
(7) For zero-rated sales under Section 106(A)(2)(1) and (2); 106(B); and 108(B)(1) and (2), the
acceptable foreign currency exchange proceeds have been duly accounted for in accordance with BSP
rules and regulations;
(8) Where there are both zero-rated or effectively zero-rated sales and taxable or exempt sales, and
the input taxes cannot be directly and entirely attributable to any of these sales, the input taxes shall
be proportionately allocated on the basis of sales volume; and
(9) The claim is filed within two years after the close of the taxable quarter when such sales were
made.
While acknowledging that SPP’s sale of electricity to NPC is a zero-rated transaction,4 the CTA En Banc ruled that
SPP failed to establish that it made zero-rated sales. True, SPP submitted official receipts and sales invoices
stamped with the words "BIR VAT Zero-Rate Application Number 419.2000" but the CTA En Banc held that these
were not sufficient to prove the fact of sale.
But NIRC Section 110 (A.1) provides that the input tax subject of tax refund is to be evidenced by a VAT invoice
"or" official receipt issued in accordance with Section 113. Section 113 has been amended by Republic Act (R.A.)
9337 but it is the unamended version that covers the period when the transactions in this case took place. It
reads:
Section 113. Invoicing and Accounting Requirements for VAT-Registered Persons. –
A. Invoicing Requirements. – A VAT-registered person shall, for every sale, issue an invoice or receipt. In addition
to the information required under Section 237, the following information shall be indicated in the invoice or
receipt:
 (1) A statement that the seller is a VAT-registered person, followed by his taxpayer’s identification
number (TIN); and
(2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication
that such amount includes the value-added tax. (Emphasis supplied)
The above does not distinguish between an invoice and a receipt when used as evidence of a zero-rated
transaction. Consequently, the CTA should have accepted either or both of these documents as evidence of SPP’s
zero-rated transactions.
Section 237 of the NIRC also makes no distinction between receipts and invoices as evidence of a commercial
transaction:
SEC. 237. Issuance of Receipts or Sales or Commercial Invoices.– All persons subject to an internal revenue tax
shall, for each sale or transfer of merchandise or for services rendered valued at Twenty-five pesos (₱25.00) or
more, issue duly registered receipts or sales or commercial invoices, prepared at least in duplicate, showing the
date of transaction, quantity, unit cost and description of merchandise or nature of service: Provided, however,
That in the case of sales, receipts or transfers in the amount of One hundred pesos (₱100.00) or more, or
regardless of the amount, where the sale or transfer is made by a person liable to value-added tax to another
person also liable to value-added tax; or where the receipt is issued to cover payment made as rentals,
commissions, compensations or fees, receipts or invoices shall be issued which shall show the name, business
style, if any, and address of the purchaser, customer or client: Provided, further, That where the purchaser is a
VAT-registered person, in addition to the information herein required, the invoice or receipt shall further show
the Taxpayer Identification Number (TIN) of the purchaser.
The original of each receipt or invoice shall be issued to the purchaser, customer or client at the time the
transaction is effected, who, if engaged in business or in the exercise of profession, shall keep and preserve the
same in his place of business for a period of three (3) years from the close of the taxable year in which such
invoice or receipt was issued, while the duplicate shall be kept and preserved by the issuer, also in his place of
business, for a like period.
The Commissioner may, in meritorious cases, exempt any person subject to internal revenue tax from
compliance with the provisions of this Section. (Emphasis supplied)
The Court held in Seaoil Petroleum Corporation v. Autocorp Group5 that business forms like sales invoices are
recognized in the commercial world as valid between the parties and serve as memorials of their business
transactions. And such documents have probative value.
Three. The CTA also did not accept SPP’s official receipts due to the absence of the words "zero-rated" on it. The
omission, said that court, made the receipts non-compliant with RR 7-95, specifically Section 4.108.1. But Section
4.108.1 requires the printing of the words "zero-rated" only on invoices, not on official receipts:
Section 4.108-1. Invoicing Requirements. — All VAT-registered persons shall, for every sale or lease of goods or
properties or services, issue duly registered receipts or sales or commercial invoices which must show:
1. The name, TIN and address of seller;
2. Date of transaction;
3. Quantity, unit cost and description of merchandise or nature of service;
4. The name, TIN, business style, if any, and address of the VAT-registered purchaser, customer or
client;
5. The word "zero-rated" imprinted on the invoice covering zero-rated sales; and
6. The invoice value or consideration.
x x x x (Emphasis supplied)
Actually, it is R.A. 9337 that in 2005 required the printing of the words "zero-rated" on receipts. But, since the
receipts and invoices in this case cover sales made from 1999 to 2000, what applies is Section 4.108.1 above
which refers only to invoices.
A claim for tax credit or refund, arising out of zero-rated transactions, is essentially based on excess payment. In
zero-rating a transaction, the purpose is not to benefit the person legally liable to pay the tax, like SPP, but to
relieve exempt entities like NPC which supplies electricity to factories, offices, and homes, from having to
shoulder the tax burden that ultimately would be passed to the public.
The principle of solutio indebiti should govern this case since the BIR received something that it was not entitled
to. Thus, it has to return the same. The government should not use technicalities to hold on to money that does
not belong to it.6 Only a preponderance of evidence is needed to grant a claim for tax refund based on excess
payment.7
Notably, SPP does no other business except sell the power it produces to NPC, a fact that the CIR did not contest
in the parties’ joint stipulation of facts.8 Consequently, the likelihood that SPP would claim input taxes paid on
purchases attributed to sales that are not zero-rated is close to nil.
Four. The Court finds that SPP failed to indicate its zero-rated sales in its VAT returns. But this is not sufficient
reason to deny it its claim for tax credit or refund when there are other documents from which the CTA can
determine the veracity of SPP’s claim.1avvphi1
Of course, such failure if partaking of a criminal act under Section 255 of the NIRC could warrant the criminal
prosecution of the responsible person or persons. But the omission does not furnish ground for the outright
denial of the claim for tax credit or refund if such claim is in fact justified.
Five. The CTA denied SPP’s claim outright for failure to establish the existence of zero-rated sales, disregarding
SPP’s sales invoices and receipts which evidence them. That court did not delve into the question of SPP’s
compliance with the other requisites provided under Section 112 of the NIRC.
Consequently, even as the Court holds that SPP’s sales invoices and receipts would be sufficient to prove its zero-
rated transactions, the case has to be remanded to the CTA for determination of whether or not SPP has
complied with the other requisites mentioned. Such matter involves questions of fact and entails the need to
DDD 3rd 480,168,744.90 55,234,736.15 55,234,736.15
examine the records. The Court is not a trier of facts and the competence needed for examining the relevant
accounting books or records is undoubtedly with the CTA.
VVV 4th 304,283,730.15 30,494,993.51 30,494,993.51

WHEREFORE, the Court GRANTS the petition, SETS ASIDE the Court of Tax Appeals En Banc decision dated July TOTAL P2.23 P5,292,340.00 P529,234.00 P198,363,133.80 P197,833,899.80
31, 2007 and resolution dated September 19, 2007, and REMANDS the case to the Court of Tax Appeals Second 8,071,899.37
Division for further hearing as stated above.

SO ORDERED.
On January 13, 2003, the BIR issued VAT Ruling No. 011-03 which states that the sales of goods and services
rendered by respondent Takenaka to PIATCO are subject to zero-percent (0%) VAT and requires no prior
G.R. No. 193321, October 19, 2016 approval for zero rating based on Revenue Memorandum Circular 74-99.

TAKENAKA CORPORATION-PHILIPPINE BRANCH, Petitioner, v. COMMISSIONER OF INTERNAL On April 11, 2003, respondent Takenaka filed its claim for tax refund covering the aforesaid period before the BIR
REVENUE, Respondent. Revenue District Office No. 51, Pasay City Branch.

DECISION For failure of the BIR to act on its claim, respondent Takenaka filed a Petition for Review with this Court,
docketed as C.T.A. Case No. 6886.
BERSAMIN, J.:
After trial on the merits, on November 4, 2008, the Former First Division rendered a Decision partly granting the
Petition for Review and ordering herein petitioner CIR to refund to respondent Takenaka the reduced amount of
The petitioner as taxpayer appeals before the Court the adverse decision entered on March 29, 20101 and the P53,374,366.52, with a Concurring and Dissenting Opinion from Presiding Justice Ernesto D. Acosta.
resolution issued on August 12, 20102 in C.T.A. EB No. 514, whereby the Court of Tax Appeals (CTA) En
Banc respectively denied its claim for refund of excess input value-added tax (VAT) arising from its zero-rated Not satisfied, on November 26, 2008, respondent Takenaka filed a "Motion for Reconsideration".
sales of services for taxable year 2002, and denied its ensuing motion for reconsideration.
During the deliberation of respondent Takenaka's "Motion for Reconsideration", Associate Justice Caesar A.
The factual and procedural antecedents, as narrated by the CTA En Banc, are quoted Casanova changed his stand and concurred with Presiding Justice Ernesto D. Acosta, while the original Ponente,
below:chanRoblesvirtualLawlibrary Associate Justice Lovell R. Bautista, maintained his stand. Thus, respondent Takenaka's "Motion for
Reconsideration" was granted by the Former First Division in its Amended Decision dated March 16, 2009, with a
Respondent Takenaka, as a subcontractor, entered into an On-Shore Construction Contract with Philippine Air Dissenting Opinion from Associate Justice Lovell R. Bautista.
Terminal Co., Inc. (PIATCO) for the purpose of constructing the Ninoy Aquino Terminal III (NAIA-IPT3).
On April 7, 2009, petitioner CIR filed a "Motion for Reconsideration" of the Amended Decision, which the Former
PIATCO is a corporation duly organized and existing under the laws of the Philippines and was duly registered First Division denied in a Resolution dated June 29, 2009, with Associate Justice Lovell R. Bautista reiterating his
with the Philippine Economic Zone Authority (PEZA), as an Ecozone Developer/Operator under RA 7916. Dissenting Opinion.3
chanrobleslaw
Respondent Takenaka filed its Quarterly VAT Returns for the four quarters of taxable year 2002 on April 24,
Consequently, the respondent filed a petition for review in the CTA En Banc to seek the reversal of the March 16,
2002, July 22, 2002, October 22, 2002 and January 22, 2003, respectively. Subsequently, respondent Takenaka
2009 decision and the June 29, 2009 resolution of the CTA Former First Division.4
amended its quarterly VAT returns several times. In its final amended Quarterly VAT Returns, the following were
indicated thereon:cralawlawlibrary
On March 29, 2010, the CTA En Banc promulgated its decision disposing thusly:chanRoblesvirtualLawlibrary
WHEREFORE, premises considered, the present Petition for Review is hereby GRANTED. Accordingly, the
Exh. Year Input VAT Amended Decision dated March 16, 2009 and Resolution dated June 29, 2009 rendered by the Former First
Zero-rate Division are hereby REVERSED and SET ASIDE, and another one is hereby entered DENYING respondent
Taxable Sales Output VAT
Sales/Receipts Takenaka's claimed input tax attributable to its zero rated sales of services for taxable year 2002 in the amount
2002 This Quarter Excess
of P143,997,333.40.
Q 1st P854,160,170.42 P5,292,340.00 P529,234.00 P52,044,766.05 P51,515,532.05
SO ORDERED.5
II 2nd 599,459,273.90 60,588,638.09 60,588,638.09 chanrobleslaw
Later on, through the resolution dated August 12, 2010,6 the CTA En Banc denied the petitioner's motion for
reconsideration. wit:cralawlawlibrary

Hence, this petition for review on certiorari.

Amount Close Last day for Actual date Last day for Actual filing
Issue
Claimed and of quarter wh filing administra t of filing filing judicial cla of judicial cla
Taxable en sales were ive claim for of administra t im im with CTA
Period cover made refund (2 years) ive claim for with CTA (120+
The lone issue is whether or not the sales invoices presented by the petitioner were sufficient as evidence to
ed refund 30)
prove its zero-rated sale of services to Philippine Air Terminal Co., Inc. (PIATCO), thereby entitling it to claim the
refund of its excess input VAT for taxable year 2002.chanroblesvirtuallawlibrary
P51,515,532. March 31, March 31, 2004 April 11, 2003 September 8, March
05, 1stquarter 2002 2003 10, 2004
Ruling of the Court
of 2002

P60,588,638. June 30, 2002 June 30, 2004

We deny the appeal
09,
2ndquarter of
First of all, the Court deems it appropriate to determine the timeliness of the petitioner's judicial claim for refund
2002
in order to ascertain whether or not the CTA properly acquired jurisdiction thereof. Well-settled is the rule that
the issue of jurisdiction over the subject matter may at any time either be raised by the parties or considered by
P55,234,736. September 30, September 30,
the Court motu proprio. As such, the jurisdiction of the CTA over the appeal could still be determined by this
15, 3rdquarter 2002 2004
Court despite its not being raised as an issue by the parties.7
of 2002
In Mindanao II Geothermal Partnership v. Commissioner of Internal Revenue,8 the Court has underscored
P30,494,993. December 31, December 31,
that:chanRoblesvirtualLawlibrary
51, 4thquarter 2002 2004
(1) An administrative claim must be filed with the CIR within two years after the close of the taxable quarter of 2002
when the zero-rated or effectively zero-rated sales were made.

Based on the foregoing, the petitioner's situation is actually a case of late filing and is similar with the case of
Philex Mining Corporation in Commissioner of Internal Revenue v. San Roque Power Corporation.9
(2) The CIR has 120 days from the date of submission of complete documents in support of the administrative
claim within which to decide whether to grant a refund or issue a tax credit certificate. The 120-day period
The petitioner timely filed its administrative claim on April 11, 2003, within the two-year prescriptive period after
may extend beyond the two-year period from the filing of the administrative claim if the claim is filed in
the close of the taxable quarter when the zero-rated sales were made. The respondent had 120 days, or until
the later part of the two-year period. If the 120-day period expires without any decision from the CIR,
August 9, 2003, to decide the petitioner's claim. Considering that the respondent did not act on the petitioner's
then the administrative claim may be considered to be denied by inaction.
claim on or before August 9, 2003, the latter had until September 8, 2003, the last day of the 30-day period,
within which to file its judicial claim. However, it brought its petition for review in the CTA only on March 10,
2004, or 184 days after the last day for the filing. Clearly, the petitioner belatedly brought its judicial claim for
refund, and the CTA did not acquire jurisdiction over the petitioner's appeal.
(3) A judicial claim must be filed with the CTA within 30 days from the receipt of the CIR's decision denying
the administrative claim or from the expiration of the 120-day period without any action from the CIR.
We note, however, that the petitioner's judicial claim was brought well within the two-year prescriptive period.
Be that as it may, it must be stressed that the two-year prescriptive period refers to the period within which the
taxpayer can file an administrative claim, not the judicial claim with the CTA.10 Accordingly, the CTA should have
denied petitioner's claim for tax refund or credit for lack of jurisdiction.
(4) All taxpayers, however, can rely on BIR Ruling No. DA-489-03 from the time of its issuance on 10
December 2003 up to its reversal by this Court in Aichi on 6 October 2010, as an exception to the
Nonetheless, the CTA did not err in denying the claim for refund on the ground that the petitioner had not
mandatory andjurisdictional 120+30 day periods.
established its zero-rated sales of services to PIATCO through the presentation of official receipts. In this regard,
chanrobleslaw as evidence of an administrative claim for tax refund or tax credit, there is a certain distinction between
In this case, the following dates are relevant to determine the timeliness of the petitioner's claim for refund, to
a receipt and an invoice. The Court has reiterated the distinction in Northern Mindanao Power Corporation v. COMMISSIONER OF INTERNAL REVENUE, G.R. No. 172129
Commissioner of Internal Revenue11 in this wise:chanRoblesvirtualLawlibrary
Section 113 of the NIRC of 1997 provides that a VAT invoice is necessary for every sale, barter or exchange of
Petitioner, Present:
goods or properties, while a VAT official receipt properly pertains to every lease of goods or properties; as well
as to every sale, barter or exchange of services.
- versus - QUISUMBING, J., Chairperson,
The Court has in fact distinguished an invoice from a receipt in Commissioner of Internal Revenue v. Manila
Mining Corporation: MIRANT PAGBILAO CORPORATION (Formerly SOUTHERN CARPIO MORALES,
chanrobleslaw ENERGY QUEZON, INC.),
A "sales or commercial invoice" is a written account of goods sold or services rendered indicating the prices TINGA,
charged therefor or a list by whatever name it is known which is used in the ordinary course of business Respondent.
evidencing sale and transfer or agreement to sell or transfer goods and services.
VELASCO, JR., and
A "receipt" oh the other hand is a written acknowledgment of the fact of payment in money or other
settlement between seller and buyer of goods, debtor or creditor, or person rendering services and client or BRION, JJ.
customer.
chanrobleslaw Promulgated:
A VAT invoice is the seller's best proof of the sale of goods or services to the buyer, while a VAT receipt is the
buyer's best evidence of the payment of goods or services received from the seller. A VAT invoice and a VAT September 12, 2008
receipt should not be confused and made to refer to one and the same thing. Certainly, neither does the law x-----------------------------------------------------------------------------------------x
intend the two to be used alternatively. (Bold underscoring supplied for emphasis)
chanrobleslaw DECISION
The petitioner submitted sales invoices, not official receipts, to support its claim for refund. In light of the
aforestated distinction between a receipt and an invoice, the submissions were inadequate for the purpose
thereby intended. The Court concurs with the conclusion of the CTA En Banc, therefore, that "[w]ithout proper VELASCO, JR., J.:
VAT official receipts issued to its clients, the payments received by respondent Takenaka for providing services to
PEZA-registered entities cannot qualify for VAT zero-rating. Hence, it cannot claim such sales as zero-rated VAT Before us is a Petition for Review on Certiorari under Rule 45 assailing and seeking to set aside the
not subject to output tax."12 Decision1 dated December 22, 2005 of the Court of Appeals (CA) in CA-G.R. SP No. 78280 which modified the
March 18, 2003 Decision2 of the Court of Tax Appeals (CTA) in CTA Case No. 6133 entitled Mirant Pagbilao
Under VAT Ruling No. 011-03, the sales of goods and services rendered by the petitioner to PIATCO were subject Corporation (Formerly Southern Energy Quezon, Inc.) v. Commissioner of Internal Revenue and ordered the
to zero-percent (0%) VAT, and required no prior approval for zero rating based on Revenue Memorandum Bureau of Internal Revenue (BIR) to refund or issue a tax credit certificate (TCC) in favor of respondent Mirant
Circular 74-99.13 This notwithstanding, the petitioner's claim for refund must still be denied for its failure as the Pagbilao Corporation (MPC) in the amount representing its unutilized input value added tax (VAT) for the second
taxpayer to comply with the substantiation requirements for administrative claims for tax refund or tax credit. quarter of 1998. Also assailed is the CA’s Resolution3 of March 31, 2006 denying petitioner’s motion for
The Court explains why in Western Mindanao Power Corporation v. Commissioner of Internal reconsideration.
Revenue:14chanroblesvirtuallawlibrary
In a claim for tax refund or tax credit, the applicant must prove not only entitlement to the grant of the claim The Facts
under substantive law. It must also show satisfaction of all the documentary and evidentiary requirements for an
administrative claim for a refund or tax credit. Hence, the mere fact that petitioner's application for zero-rating
MPC, formerly Southern Energy Quezon, Inc., and also formerly known as Hopewell (Phil.) Corporation, is a
has been approved by the CIR does not, by itself, justify the grant of a refund or tax credit. The taxpayer
domestic firm engaged in the generation of power which it sells to the National Power Corporation (NPC). For
claiming the refund must further comply with the invoicing and accounting requirements mandated by the
the construction of the electrical and mechanical equipment portion of its Pagbilao, Quezon plant, which
NIRC, as well as by revenue regulations implementing them. (Bold underscoring supplied for emphasis)
appears to have been undertaken from 1993 to 1996, MPC secured the services of Mitsubishi Corporation
chanrobleslaw
(Mitsubishi) of Japan.
WHEREFORE, the Court DENIES the petition for review on certiorari; AFFIRMS the decision promulgated on
March 29, 2010 in C.T.A. EB No. 514; and DIRECTS the petitioner to pay the costs of suit.
Under Section 134 of Republic Act No. (RA) 6395, the NPC’s revised charter, NPC is exempt from all taxes.
SO ORDERED.ChanRoblesVirtualawlibrary In Maceda v. Macaraig,5 the Court construed the exemption as covering both direct and indirect taxes.

In the light of the NPC’s tax exempt status, MPC, on the belief that its sale of power generation services to NPC
is, pursuant to Sec. 108(B)(3) of the Tax Code,6 zero-rated for VAT purposes, filed on December 1, 1997 with the Sycip Gorres & Velayo (SGV), an independent auditing firm, was commissioned.
Revenue District Office (RDO) No. 60 in Lucena City an Application for Effective Zero Rating. The application
covered the construction and operation of its Pagbilao power station under a Build, Operate, and Transfer The Ruling of the CTA
scheme.
On the basis of its affirmative resolution of the first issue, the CTA, by its Decision dated March 18, 2003, granted
Not getting any response from the BIR district office, MPC refiled its application in the form of a "request for MPC’s claim for input VAT refund or credit, but only for the amount of PhP 10,766,939.48. The fallo of the CTA’s
ruling" with the VAT Review Committee at the BIR national office on January 28, 1999. On May 13, 1999, the decision reads:
Commissioner of Internal Revenue issued VAT Ruling No. 052-99, stating that "the supply of electricity by
Hopewell Phil. to the NPC, shall be subject to the zero percent (0%) VAT, pursuant to Section 108 (B) (3) of the
In view of all the foregoing, the instant petition is PARTIALLY GRANTED. Accordingly, respondent is hereby
National Internal Revenue Code of 1997."
ORDERED to REFUND or in the alternative, ISSUE A TAX CREDIT CERTIFICATE in favor of the petitioner its
unutilized input VAT payments directly attributable to its effectively zero-rated sales for the second quarter of
It must be noted at this juncture that consistent with its belief to be zero-rated, MPC opted not to pay the VAT 1998 in the reduced amount of P10,766,939.48, computed as follows:
component of the progress billings from Mitsubishi for the period covering April 1993 to September 1996—for
the E & M Equipment Erection Portion of MPC’s contract with Mitsubishi. This prompted Mitsubishi to advance
Claimed Input VAT P148,003,047.62
the VAT component as this serves as its output VAT which is essential for the determination of its VAT payment.
Apparently, it was only on April 14, 1998 that MPC paid Mitsubishi the VAT component for the progress billings
from April 1993 to September 1996, and for which Mitsubishi issued Official Receipt (OR) No. 0189 in the Less: Disallowances
aggregate amount of PhP 135,993,570.
a.) As summarized by SGV & Co. in its initial report (Exh. P)
On August 25, 1998, MPC, while awaiting approval of its application aforestated, filed its quarterly VAT return for
the second quarter of 1998 where it reflected an input VAT of PhP 148,003,047.62, which included PhP I. Input Taxes on Purchases of Services:
135,993,570 supported by OR No. 0189. Pursuant to the procedure prescribed in Revenue Regulations No. 7-95,
MPC filed on December 20, 1999 an administrative claim for refund of unutilized input VAT in the amount of PhP 1. Supported by documents
148,003,047.62.

other than VAT Ors P 10,629.46

Since the BIR Commissioner failed to act on its claim for refund and obviously to forestall the running of the two-
year prescriptive period under Sec. 229 of the National Internal Revenue Code (NIRC), MPC went to the CTA via a
petition for review, docketed as CTA Case No. 6133. 2. Supported by photocopied VAT OR 879.09

Answering the petition, the BIR Commissioner, citing Kumagai-Gumi Co. Ltd. v. CIR,7 asserted that MPC’s claim II. Input Taxes on Purchases of Goods:
for refund cannot be granted for this main reason: MPC’s sale of electricity to NPC is not zero-rated for its failure
to secure an approved application for zero-rating. 1. Supported by documents other than

Before the CTA, among the issues stipulated by the parties for resolution were, in gist, the following: VAT invoices 165,795.70

1. Whether or not [MPC] has unapplied or unutilized creditable input VAT for the 2nd quarter of 1998 2. Supported by Invoices with TIN only 1,781.82
attributable to zero-rated sales to NPC which are proper subject for refund pursuant to relevant provisions of the
NIRC; 3. Supported by photocopied VAT

2. Whether the creditable input VAT of MPC for said period, if any, is substantiated by documents; and invoices 3,153.62

3. Whether the unutilized creditable input VAT for said quarter, if any, was applied against any of the VAT output III. Input Taxes on Importation of Goods:
tax of MPC in the subsequent quarter.
1. Supported by photocopied documents
To provide support to the CTA in verifying and analyzing documents and figures and entries contained therein,
[IEDs and/or Bureau of Customs
(BOC) Ors] 716,250.00
2. Supported by broker’s computations 91,601.00 990,090.69
b.) Input taxes without supporting documents as
summarized in Annex A of SGV & Co.’s
supplementary report (CTA records, page 134) 252,447.45
c.) Claimed input taxes on purchases of services from
Mitsubishi Corp. for being substantiated by dubious OR 135,996,570.008
Refundable Input P10,766,939.48
SO ORDERED.9
Explaining the disallowance of over PhP 137 million claimed input VAT, the CTA stated that most of MPC’s
purchases upon which it anchored its claims for refund or tax credit have not been amply substantiated by
pertinent documents, such as but not limited to VAT ORs, invoices, and other supporting documents. Wrote the
CTA:
We agree with the above SGV findings that out of the remaining taxes of P136,246,017.45, the amount of
P252,477.45 was not supported by any document and should therefore be outrightly disallowed.
As to the claimed input tax of P135,993,570.00 (P136,246,017.45 less P252,477.45 ) on purchases of services
from Mitsubishi Corporation, Japan, the same is found to be of doubtful veracity. While it is true that said
amount is substantiated by a VAT official receipt with Serial No. 0189 dated April 14, 1998 x x x, it must be
observed, however, that said VAT allegedly paid pertains to the services which were rendered for the period
1993 to 1996. x x x
The Ruling of the CA
Aggrieved, MPC appealed the CTA’s Decision to the CA via a petition for review under Rule 43, docketed as CA-
G.R. SP No. 78280. On December 22, 2005, the CA rendered its assailed decision modifying that of the CTA
decision by granting most of MPC’s claims for tax refund or credit. And in a Resolution of March 31, 2006, the CA
denied the BIR Commissioner’s motion for reconsideration. The decretal portion of the CA decision reads:
WHEREFORE, premises considered, the instant petition is GRANTED. The assailed Decision of the Court of Tax
Appeals dated March 18, 2003 is hereby MODIFIED. Accordingly, respondent Commissioner of Internal Revenue
is ordered to refund or issue a tax credit certificate in favor of petitioner Mirant Pagbilao Corporation its
unutilized input VAT payments directly attributable to its effectively zero-rated sales for the second quarter of
1998 in the total amount of P146,760,509.48.
SO ORDERED.10
The CA agreed with the CTA on MPC’s entitlement to (1) a zero-rating for VAT purposes for its sales and services
to tax-exempt NPC; and (2) a refund or tax credit for its unutilized input VAT for the second quarter of 1998.
Their disagreement, however, centered on the issue of proper documentation, particularly the evidentiary value
of OR No. 0189.
The CA upheld the disallowance of PhP 1,242,538.14 representing zero-rated input VAT claims supported only by
photocopies of VAT OR/Invoice, documents other than VAT Invoice/OR, and mere broker’s computations. But
the CA allowed MPC’s refund claim of PhP 135,993,570 representing input VAT payments for purchases of goods
and/or services from Mitsubishi supported by OR No. 0189. The appellate court ratiocinated that the CTA erred
in disallowing said claim since the OR from Mitsubishi was the best evidence for the payment of input VAT by
MPC to Mitsubishi as required under Sec. 110(A)(1)(b) of the NIRC. The CA ruled that the legal requirement of a
VAT Invoice/OR to substantiate creditable input VAT was complied with through OR No. 0189 which must be
viewed as conclusive proof of the payment of input VAT. To the CA, OR No. 0189 represented an undisputable
acknowledgment and receipt by Mitsubishi of the input VAT payment of MPC.
The CA brushed aside the CTA’s ruling and disquisition casting doubt on the veracity and genuineness of the
Mitsubishi-issued OR No. 0189. It reasoned that the issuance date of the said receipt, April 14, 1998, must be
taken conclusively to represent the input VAT payments made by MPC to Mitsubishi as MPC had no real control
on the issuance of the OR. The CA held that the use of a different exchange rate reflected in the OR is of no
consequence as what the OR undeniably attests and acknowledges was Mitsubishi’s receipt of MPC’s input VAT
payment.
The Issue
Hence, the instant petition on the sole issue of "whether or not respondent [MPC] is entitled to the refund of its
input VAT payments made from 1993 to 1996 amounting to [PhP] 146,760,509.48."11
The Court’s Ruling
As a preliminary matter, it should be stressed that the BIR Commissioner, while making reference to the figure
PhP 146,760,509.48, joins the CA and the CTA on their disposition on the propriety of the refund of or the
issuance of a TCC for the amount of PhP 10,766,939.48. In fine, the BIR Commissioner trains his sight and focuses
his arguments on the core issue of whether or not MPC is entitled to a refund for PhP 135,993,570 (PhP
146,760,509.48 - PhP 10,766,939.48 = PhP 135,993,570) it allegedly paid as creditable input VAT for services and
goods purchased from Mitsubishi during the 1993 to 1996 stretch.
The divergent factual findings and rulings of the CTA and CA impel us to evaluate the evidence adduced below,
particularly the April 14, 1998 OR 0189 in the amount of PhP 135,996,570 [for US$ 5,190,000 at US$1: PhP
26.203 rate of exchange]. Verily, a claim for tax refund may be based on a statute granting tax exemption, or, as
Commissioner of Internal Revenue v. Fortune Tobacco Corporation12 would have it, the result of legislative grace.
In such case, the claim is to be construed strictissimi juris against the taxpayer,13 meaning that the claim cannot
be made to rest on vague inference. Where the rule of strict interpretation against the taxpayer is applicable as
the claim for refund partakes of the nature of an exemption, the claimant must show that he clearly falls under
the exempting statute. On the other hand, a tax refund may be, as usually it is, predicated on tax refund
provisions allowing a refund of erroneous or excess payment of tax. The return of what was erroneously paid is
founded on the principle of solutio indebiti, a basic postulate that no one should unjustly enrich himself at the
expense of another. The caveat against unjust enrichment covers the government. 14 And as decisional law
teaches, a claim for tax refund proper, as here, necessitates only the preponderance-of-evidence threshold like
in any ordinary civil case.15
We apply the foregoing elementary principles in our evaluation on whether OR 0189, in the backdrop of the
factual antecedents surrounding its issuance, sufficiently proves the alleged unutilized input VAT claimed by
MPC.
The Court can review issues of fact where there are
divergent findings by the trial and appellate courts
As a matter of sound practice, the Court refrains from reviewing the factual determinations of the CA or
reevaluate the evidence upon which its decision is founded. One exception to this rule is when the CA and the
trial court diametrically differ in their findings,16 as here. In such a case, it is incumbent upon the Court to review
and determine if the CA might have overlooked, misunderstood, or misinterpreted certain facts or circumstances
of weight, which, if properly considered, would justify a different conclusion. 17 In the instant case, the CTA,
unlike the CA, doubted the veracity of OR No. 0189 and did not appreciate the same to support MPC’s claim for
tax refund or credit.
Petitioner BIR Commissioner, echoing the CTA’s stand, argues against the sufficiency of OR No. 0189 to prove
unutilized input VAT payment by MPC. He states in this regard that the BIR can require additional evidence to
prove and ascertain payment of creditable input VAT, or that the claim for refund or tax credit was filed within
the prescriptive period, or had not previously been refunded to the taxpayer.
To bolster his position on the dubious character of OR No. 0189, or its insufficiency to prove input VAT payment
by MPC, petitioner proffers the following arguments:
(1) The input tax covered by OR No. 0189 pertains to purchases by MPC from Mitsubishi covering the period
from 1993 to 1996; however, MPC’s claim for tax refund or credit was filed on December 20, 1999, clearly way
beyond the two-year prescriptive period set in Sec. 112 of the NIRC;
(2) MPC failed to explain why OR No. 0189 was issued by Mitsubishi (Manila) when the invoices which the VAT
were originally billed came from the Mitsubishi’s head office in Japan;
(3) The exchange rate used in OR No. 0189 was pegged at PhP 26.203: USD 1 or the exchange rate prevailing in
1993 to 1996, when, on April 14, 1998, the date OR No. 0189 was issued, the exchange rate was already PhP
38.01 to a US dollar;
(4) OR No. 0189 does not show or include payment of accrued interest which Mitsubishi was charging and
demanded from MPC for having advanced a considerable amount of VAT. The demand, per records, is embodied
in the May 12, 1995 letter of Mitsubishi to MPC;
(5) MPC failed to present to the CTA its VAT returns for the second and third quarters of 1995, when the bulk of
the VAT payment covered by OR No. 0189—specifically PhP 109,329,135.17 of the total amount of PhP
135,993,570—was billed by Mitsubishi, when such return is necessary to ascertain that the total amount covered
by the receipt or a large portion thereof was not previously refunded or credited; and
(6) No other documents proving said input VAT payment were presented except OR No. 0189 which, considering
the fact that OR No. 0188 was likewise issued by Mitsubishi and presented before the CTA but admittedly for
payments made by MPC on progress billings covering service purchases from 1993 to 1996, does not clearly
show if such input VAT payment was also paid for the period 1993 to 1996 and would be beyond the two-year
prescriptive period.
The petition is partly meritorious.
Belated payment by MPC of its obligation for creditable input VAT
As no less found by the CTA, citing the SGV’s report, the payments covered by OR No. 0189 were for goods and
service purchases made by MPC through the progress billings from Mitsubishi for the period covering April 1993
to September 1996—for the E & M Equipment Erection Portion of MPC’s contract with Mitsubishi. 18 It is likewise
undisputed that said payments did not include payments for the creditable input VAT of MPC. This fact is shown
by the May 12, 1995 letter19 from Mitsubishi where, as earlier indicated, it apprised MPC of the advances
Mitsubishi made for the VAT payments, i.e., MPC’s creditable input VAT, and for which it was holding MPC
accountable for interest therefor.
In net effect, MPC did not, for the VATable MPC-Mitsubishi 1993 to 1996 transactions adverted to, immediately
pay the corresponding input VAT. OR No. 0189 issued on April 14, 1998 clearly reflects the belated payment of
input VAT corresponding to the payment of the progress billings from Mitsubishi for the period covering April 7,
1993 to September 6, 1996. SGV found that OR No. 0189 in the amount of PhP 135,993,570 (USD 5,190,000) was
duly supported by bank statement evidencing payment to Mitsubishi (Japan).20 Undoubtedly, OR No. 0189
proves payment by MPC of its creditable input VAT relative to its purchases from Mitsubishi.
OR No. 0189 by itself sufficiently proves payment of VAT
The CA, citing Sec. 110(A)(1)(B) of the NIRC, held that OR No. 0189 constituted sufficient proof of payment of
creditable input VAT for the progress billings from Mitsubishi for the period covering April 7, 1993 to September
6, 1996. Sec. 110(A)(1)(B) of the NIRC pertinently provides:
Section 110. Tax Credits. –
A. Creditable Input Tax. –
(1) Any input tax evidenced by a VAT invoice or official receipt issued in accordance with Section 113 hereof on
the following transactions shall be creditable against the output tax:
(a) Purchase or importation of goods:
xxxx
(b) Purchase of services on which a value-added tax has been actually paid. (Emphasis ours.)
Without necessarily saying that the BIR is precluded from requiring additional evidence to prove that input tax
had indeed paid or, in fine, that the taxpayer is indeed entitled to a tax refund or credit for input VAT, we agree
with the CA’s above disposition. As the Court distinctly notes, the law considers a duly-executed VAT invoice or
OR referred to in the above provision as sufficient evidence to support a claim for input tax credit. And any doubt
as to what OR No. 0189 was for or tended to prove should reasonably be put to rest by the SGV report on which
the CTA notably placed much reliance. The SGV report stated that "[OR] No. 0189 dated April 14, 1998 is for the
payment of the VAT on the progress billings" from Mitsubishi Japan "for the period April 7, 1993 to September 6,
1996 for the E & M Equipment Erection Portion of the Company’s contract with Mitsubishi Corporation
(Japan)."21
VAT presumably paid on April 14, 1998
While available records do not clearly indicate when MPC actually paid the creditable input VAT amounting to
PhP 135,993,570 (USD 5,190,000) for the aforesaid 1993 to 1996 service purchases, the presumption is that
payment was made on the date appearing on OR No. 0189, i.e., April 14, 1998. In fact, said creditable input VAT
was reflected in MPC’s VAT return for the second quarter of 1998.
The aforementioned May 12, 1995 letter from Mitsubishi to MPC provides collaborating proof of the belated
payment of the creditable input VAT angle. To reiterate, Mitsubishi, via said letter, apprised MPC of the VAT
component of the service purchases MPC made and reminded MPC that Mitsubishi had advanced VAT payments
to which Mitsubishi was entitled and from which it was demanding interest payment. Given the scenario
depicted in said letter, it is understandable why Mitsubishi, in its effort to recover the amount it advanced, used
the PhP 26.203: USD 1 exchange formula in OR No. 0189 for USD 5,190,000.
No showing of interest payment not fatal to claim for refund
Contrary to petitioner’s posture, the matter of nonpayment by MPC of the interests demanded by Mitsubishi is
not an argument against the fact of payment by MPC of its creditable input VAT or of the authenticity or
genuineness of OR No. 0189; for at the end of the day, the matter of interest payment was between Mitsubishi
and MPC and may very well be covered by another receipt. But the more important consideration is the fact that
MPC, as confirmed by the SGV, paid its obligation to Mitsubishi, and the latter issued to MPC OR No. 0189, for
the VAT component of its 1993 to 1996 service purchases.
The next question is, whether or not MPC is entitled to a refund or a TCC for the alleged unutilized input VAT of
PhP 135,993,570 covered by OR No. 0189 which sufficiently proves payment of the input VAT.
We answer the query in the negative.
Claim for refund or tax credit filed out of time
The claim for refund or tax credit for the creditable input VAT payment made by MPC embodied in OR No. 0189
was filed beyond the period provided by law for such claim. Sec. 112(A) of the NIRC pertinently reads:
(A) Zero-rated or Effectively Zero-rated Sales. – Any VAT-registered person, whose sales are zero-rated or
effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were
made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or
paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been
applied against output tax: x x x. (Emphasis ours.)
The above proviso clearly provides in no uncertain terms that unutilized input VAT payments not otherwise used
for any internal revenue tax due the taxpayer must be claimed within two years reckoned from the close of the
taxable quarter when the relevant sales were made pertaining to the input VAT regardless of whether said tax
was paid or not. As the CA aptly puts it, albeit it erroneously applied the aforequoted Sec. 112(A), "[P]rescriptive
period commences from the close of the taxable quarter when the sales were made and not from the time the
input VAT was paid nor from the time the official receipt was issued." 22 Thus, when a zero-rated VAT taxpayer
pays its input VAT a year after the pertinent transaction, said taxpayer only has a year to file a claim for refund or
tax credit of the unutilized creditable input VAT. The reckoning frame would always be the end of the quarter
when the pertinent sales or transaction was made, regardless when the input VAT was paid. Be that as it may,
and given that the last creditable input VAT due for the period covering the progress billing of September 6, 1996
is the third quarter of 1996 ending on September 30, 1996, any claim for unutilized creditable input VAT refund
or tax credit for said quarter prescribed two years after September 30, 1996 or, to be precise, on September 30,
1998. Consequently, MPC’s claim for refund or tax credit filed on December 10, 1999 had already prescribed.
Reckoning for prescriptive period under
Secs. 204(C) and 229 of the NIRC inapplicable
To be sure, MPC cannot avail itself of the provisions of either Sec. 204(C) or 229 of the NIRC which, for the
purpose of refund, prescribes a different starting point for the two-year prescriptive limit for the filing of a claim
therefor. Secs. 204(C) and 229 respectively provide:
Sec. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes.— The Commissioner
may –
xxxx
(c) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the
value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his
discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon
proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in
writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or
penalty: Provided, however, That a return filed showing an overpayment shall be considered as a written claim
for credit or refund.
xxxx
Sec. 229. Recovery of Tax Erroneously or Illegally Collected.— No suit or proceeding shall be maintained in any
court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally
assessed or collected, or of any penalty claimed to have been collected without authority, of any sum alleged to
have been excessively or in any manner wrongfully collected without authority, or of any sum alleged to have
been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with
the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has
been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of
payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided,
however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on
the face of the return upon which payment was made, such payment appears clearly to have been erroneously
paid. (Emphasis ours.)
Notably, the above provisions also set a two-year prescriptive period, reckoned from date of payment of the tax
or penalty, for the filing of a claim of refund or tax credit. Notably too, both provisions apply only to instances of
erroneous payment or illegal collection of internal revenue taxes.
MPC’s creditable input VAT not erroneously paid
For perspective, under Sec. 105 of the NIRC, creditable input VAT is an indirect tax which can be shifted or
passed on to the buyer, transferee, or lessee of the goods, properties, or services of the taxpayer. The fact that
the subsequent sale or transaction involves a wholly-tax exempt client, resulting in a zero-rated or effectively
zero-rated transaction, does not, standing alone, deprive the taxpayer of its right to a refund for any unutilized
creditable input VAT, albeit the erroneous, illegal, or wrongful payment angle does not enter the equation.
In Commissioner of Internal Revenue v. Seagate Technology (Philippines), the Court explained the nature of the
VAT and the entitlement to tax refund or credit of a zero-rated taxpayer:
Viewed broadly, the VAT is a uniform tax x x x levied on every importation of goods, whether or not in the course
of trade or business, or imposed on each sale, barter, exchange or lease of goods or properties or on each
rendition of services in the course of trade or business as they pass along the production and distribution chain,
the tax being limited only to the value added to such goods, properties or services by the seller, transferor or
lessor. It is an indirect tax that may be shifted or passed on to the buyer, transferee or lessee of the goods,
properties or services. As such, it should be understood not in the context of the person or entity that is
primarily, directly and legally liable for its payment, but in terms of its nature as a tax on consumption. In either
case, though, the same conclusion is arrived at.
The law that originally imposed the VAT in the country, as well as the subsequent amendments of that law, has
been drawn from the tax credit method. Such method adopted the mechanics and self-enforcement features of
the VAT as first implemented and practiced in Europe x x x. Under the present method that relies on invoices, an
entity can credit against or subtract from the VAT charged on its sales or outputs the VAT paid on its purchases,
inputs and imports.
If at the end of a taxable quarter the output taxes charged by a seller are equal to the input taxes passed on by
the suppliers, no payment is required. It is when the output taxes exceed the input taxes that the excess has to
be paid. If, however, the input taxes exceed the output taxes, the excess shall be carried over to the succeeding
quarter or quarters. Should the input taxes result from zero-rated or effectively zero-rated transactions or from
the acquisition of capital goods, any excess over the output taxes shall instead be refunded to the taxpayer or
credited against other internal revenue taxes.
xxxx
Zero-rated transactions generally refer to the export sale of goods and supply of services. The tax rate is set at
zero. When applied to the tax base, such rate obviously results in no tax chargeable against the purchaser. The
seller of such transactions charges no output tax, but can claim a refund of or a tax credit certificate for the VAT
previously charged by suppliers.23 (Emphasis added.)
Considering the foregoing discussion, it is clear that Sec. 112(A) of the NIRC, providing a two-year prescriptive
period reckoned from the close of the taxable quarter when the relevant sales or transactions were made
pertaining to the creditable input VAT, applies to the instant case, and not to the other actions which refer to
erroneous payment of taxes.
As a final consideration, the Court wishes to remind the BIR and other tax agencies of their duty to treat claims
for refunds and tax credits with proper attention and urgency. Had RDO No. 60 and, later, the BIR proper acted,
instead of sitting, on MPC’s underlying application for effective zero rating, the matter of addressing MPC’s right,
or lack of it, to tax credit or refund could have plausibly been addressed at their level and perchance freed the
taxpayer and the government from the rigors of a tedious litigation.
The all too familiar complaint is that the government acts with dispatch when it comes to tax collection, but pays
little, if any, attention to tax claims for refund or exemption. It is high time our tax collectors prove the cynics
wrong.
WHEREFORE, the petition is PARTLY GRANTED. The Decision dated December 22, 2005 and the Resolution dated
March 31, 2006 of the CA in CA-G.R. SP No. 78280 are AFFIRMED with the MODIFICATION that the claim of
respondent MPC for tax refund or credit to the extent of PhP 135,993,570, representing its input VAT payments
for service purchases from Mitsubishi Corporation of Japan for the construction of a portion of its Pagbilao,
Quezon power station, is DENIED on the ground that the claim had prescribed. Accordingly, petitioner
Commissioner of Internal Revenue is ordered to refund or, in the alternative, issue a tax credit certificate in favor
of MPC, its unutilized input VAT payments directly attributable to its effectively zero-rated sales for the second
quarter in the total amount of PhP 10,766,939.48.
No pronouncement as to costs.
SO ORDERED.
G.R. No. 184823 October 6, 2010
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
AICHI FORGING COMPANY OF ASIA, INC., Respondent.
DECISION
DEL CASTILLO, J.:
A taxpayer is entitled to a refund either by authority of a statute expressly granting such right, privilege, or
incentive in his favor, or under the principle of solutio indebiti requiring the return of taxes erroneously or
illegally collected. In both cases, a taxpayer must prove not only his entitlement to a refund but also his
compliance with the procedural due process as non-observance of the prescriptive periods within which to file
the administrative and the judicial claims would result in the denial of his claim.
This Petition for Review on Certiorari under Rule 45 of the Rules of Court seeks to set aside the July 30, 2008
Decision1 and the October 6, 2008 Resolution2 of the Court of Tax Appeals (CTA) En Banc.
Factual Antecedents
Respondent Aichi Forging Company of Asia, Inc., a corporation duly organized and existing under the laws of the
Republic of the Philippines, is engaged in the manufacturing, producing, and processing of steel and its by-
products.3 It is registered with the Bureau of Internal Revenue (BIR) as a Value-Added Tax (VAT) entity4 and its
products, "close impression die steel forgings" and "tool and dies," are registered with the Board of Investments
(BOI) as a pioneer status.5
On September 30, 2004, respondent filed a claim for refund/credit of input VAT for the period July 1, 2002 to
September 30, 2002 in the total amount of ₱3,891,123.82 with the petitioner Commissioner of Internal Revenue
(CIR), through the Department of Finance (DOF) One-Stop Shop Inter-Agency Tax Credit and Duty Drawback
Center.6
Proceedings before the Second Division of the CTA
On even date, respondent filed a Petition for Review7 with the CTA for the refund/credit of the same input VAT.
The case was docketed as CTA Case No. 7065 and was raffled to the Second Division of the CTA.
In the Petition for Review, respondent alleged that for the period July 1, 2002 to September 30, 2002, it
generated and recorded zero-rated sales in the amount of ₱131,791,399.00,8 which was paid pursuant to Section
106(A) (2) (a) (1), (2) and (3) of the National Internal Revenue Code of 1997 (NIRC); 9 that for the said period, it
incurred and paid input VAT amounting to ₱3,912,088.14 from purchases and importation attributable to its
zero-rated sales;10and that in its application for refund/credit filed with the DOF One-Stop Shop Inter-Agency Tax
Credit and Duty Drawback Center, it only claimed the amount of ₱3,891,123.82.11
In response, petitioner filed his Answer12 raising the following special and affirmative defenses, to wit:
4. Petitioner’s alleged claim for refund is subject to administrative investigation by the Bureau;
5. Petitioner must prove that it paid VAT input taxes for the period in question;
6. Petitioner must prove that its sales are export sales contemplated under Sections 106(A) (2) (a), and
108(B) (1) of the Tax Code of 1997;
7. Petitioner must prove that the claim was filed within the two (2) year period prescribed in Section
229 of the Tax Code;
8. In an action for refund, the burden of proof is on the taxpayer to establish its right to refund, and
failure to sustain the burden is fatal to the claim for refund; and
9. Claims for refund are construed strictly against the claimant for the same partake of the nature of
exemption from taxation.13
Trial ensued, after which, on January 4, 2008, the Second Division of the CTA rendered a Decision partially
granting respondent’s claim for refund/credit. Pertinent portions of the Decision read:
For a VAT registered entity whose sales are zero-rated, to validly claim a refund, Section 112 (A) of the NIRC of
1997, as amended, provides:
SEC. 112. Refunds or Tax Credits of Input Tax. –
(A) Zero-rated or Effectively Zero-rated Sales. – Any VAT-registered person, whose sales are zero-rated or
effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made,
apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such
sales, except transitional input tax, to the extent that such input tax has not been applied against output tax: x x
x
Pursuant to the above provision, petitioner must comply with the following requisites: (1) the taxpayer is
engaged in sales which are zero-rated or effectively zero-rated; (2) the taxpayer is VAT-registered; (3) the claim
must be filed within two years after the close of the taxable quarter when such sales were made; and (4) the
creditable input tax due or paid must be attributable to such sales, except the transitional input tax, to the
extent that such input tax has not been applied against the output tax.
The Court finds that the first three requirements have been complied [with] by petitioner.
With regard to the first requisite, the evidence presented by petitioner, such as the Sales Invoices (Exhibits "II" to
"II-262," "JJ" to "JJ-431," "KK" to "KK-394" and "LL") shows that it is engaged in sales which are zero-rated.
The second requisite has likewise been complied with. The Certificate of Registration with OCN 1RC0000148499
(Exhibit "C") with the BIR proves that petitioner is a registered VAT taxpayer.
In compliance with the third requisite, petitioner filed its administrative claim for refund on September 30, 2004
(Exhibit "N") and the present Petition for Review on September 30, 2004, both within the two (2) year
prescriptive period from the close of the taxable quarter when the sales were made, which is from September
30, 2002.
As regards, the fourth requirement, the Court finds that there are some documents and claims of petitioner that
are baseless and have not been satisfactorily substantiated.
xxxx
In sum, petitioner has sufficiently proved that it is entitled to a refund or issuance of a tax credit certificate
representing unutilized excess input VAT payments for the period July 1, 2002 to September 30, 2002, which are
attributable to its zero-rated sales for the same period, but in the reduced amount of ₱3,239,119.25, computed
as follows:
Amount of Claimed Input VAT ₱ 3,891,123.82
Less:
Exceptions as found by the ICPA 41,020.37
Net Creditable Input VAT ₱ 3,850,103.45
Less:
Output VAT Due 610,984.20
Excess Creditable Input VAT ₱ 3,239,119.25
WHEREFORE, premises considered, the present Petition for Review is PARTIALLY GRANTED. Accordingly,
respondent is hereby ORDERED TO REFUND OR ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner [in] the
reduced amount of THREE MILLION TWO HUNDRED THIRTY NINE THOUSAND ONE HUNDRED NINETEEN AND
25/100 PESOS (₱3,239,119.25), representing the unutilized input VAT incurred for the months of July to
September 2002.
SO ORDERED.14
Dissatisfied with the above-quoted Decision, petitioner filed a Motion for Partial Reconsideration, 15 insisting that
the administrative and the judicial claims were filed beyond the two-year period to claim a tax refund/credit
provided for under Sections 112(A) and 229 of the NIRC. He reasoned that since the year 2004 was a leap year,
the filing of the claim for tax refund/credit on September 30, 2004 was beyond the two-year period, which
expired on September 29, 2004.16 He cited as basis Article 13 of the Civil Code,17 which provides that when the
law speaks of a year, it is equivalent to 365 days. In addition, petitioner argued that the simultaneous filing of the
administrative and the judicial claims contravenes Sections 112 and 229 of the NIRC. 18 According to the
petitioner, a prior filing of an administrative claim is a "condition precedent" 19 before a judicial claim can be filed.
He explained that the rationale of such requirement rests not only on the doctrine of exhaustion of
administrative remedies but also on the fact that the CTA is an appellate body which exercises the power of
judicial review over administrative actions of the BIR. 20
The Second Division of the CTA, however, denied petitioner’s Motion for Partial Reconsideration for lack of
merit. Petitioner thus elevated the matter to the CTA En Banc via a Petition for Review.21
Ruling of the CTA En Banc
On July 30, 2008, the CTA En Banc affirmed the Second Division’s Decision allowing the partial tax refund/credit
in favor of respondent. However, as to the reckoning point for counting the two-year period, the CTA En Banc
ruled:
Petitioner argues that the administrative and judicial claims were filed beyond the period allowed by law and
hence, the honorable Court has no jurisdiction over the same. In addition, petitioner further contends that
respondent's filing of the administrative and judicial [claims] effectively eliminates the authority of the
honorable Court to exercise jurisdiction over the judicial claim.
We are not persuaded.
Section 114 of the 1997 NIRC, and We quote, to wit:
SEC. 114. Return and Payment of Value-added Tax. –
(A) In General. – Every person liable to pay the value-added tax imposed under this Title shall file a quarterly
return of the amount of his gross sales or receipts within twenty-five (25) days following the close of each
taxable quarter prescribed for each taxpayer: Provided, however, That VAT-registered persons shall pay the
value-added tax on a monthly basis.
[x x x x ]
Based on the above-stated provision, a taxpayer has twenty five (25) days from the close of each taxable quarter
within which to file a quarterly return of the amount of his gross sales or receipts. In the case at bar, the taxable
quarter involved was for the period of July 1, 2002 to September 30, 2002. Applying Section 114 of the 1997
NIRC, respondent has until October 25, 2002 within which to file its quarterly return for its gross sales or receipts
[with] which it complied when it filed its VAT Quarterly Return on October 20, 2002.
In relation to this, the reckoning of the two-year period provided under Section 229 of the 1997 NIRC should
start from the payment of tax subject claim for refund. As stated above, respondent filed its VAT Return for the
taxable third quarter of 2002 on October 20, 2002. Thus, respondent's administrative and judicial claims for
refund filed on September 30, 2004 were filed on time because AICHI has until October 20, 2004 within which to
file its claim for refund.
In addition, We do not agree with the petitioner's contention that the 1997 NIRC requires the previous filing of
an administrative claim for refund prior to the judicial claim. This should not be the case as the law does not
prohibit the simultaneous filing of the administrative and judicial claims for refund. What is controlling is that
both claims for refund must be filed within the two-year prescriptive period.
In sum, the Court En Banc finds no cogent justification to disturb the findings and conclusion spelled out in the
assailed January 4, 2008 Decision and March 13, 2008 Resolution of the CTA Second Division. What the instant
petition seeks is for the Court En Banc to view and appreciate the evidence in their own perspective of things,
which unfortunately had already been considered and passed upon.
WHEREFORE, the instant Petition for Review is hereby DENIED DUE COURSE and DISMISSED for lack of merit.
Accordingly, the January 4, 2008 Decision and March 13, 2008 Resolution of the CTA Second Division in CTA Case
No. 7065 entitled, "AICHI Forging Company of Asia, Inc. petitioner vs. Commissioner of Internal Revenue,
respondent" are hereby AFFIRMED in toto.
SO ORDERED.22
Petitioner sought reconsideration but the CTA En Banc denied23 his Motion for Reconsideration.
Issue
Hence, the present recourse where petitioner interposes the issue of whether respondent’s judicial and
administrative claims for tax refund/credit were filed within the two-year prescriptive period provided in
Sections 112(A) and 229 of
the NIRC.24
Petitioner’s Arguments
Petitioner maintains that respondent’s administrative and judicial claims for tax refund/credit were filed in
violation of Sections 112(A) and 229 of the NIRC.25 He posits that pursuant to Article 13 of the Civil Code,26 since
the year 2004 was a leap year, the filing of the claim for tax refund/credit on September 30, 2004 was beyond
the two-year period, which expired on September 29, 2004.27
Petitioner further argues that the CTA En Banc erred in applying Section 114(A) of the NIRC in determining the
start of the two-year period as the said provision pertains to the compliance requirements in the payment of
VAT.28 He asserts that it is Section 112, paragraph (A), of the same Code that should apply because it specifically
provides for the period within which a claim for tax refund/ credit should be made.29
Petitioner likewise puts in issue the fact that the administrative claim with the BIR and the judicial claim with the
CTA were filed on the same day.30 He opines that the simultaneous filing of the administrative and the judicial
claims contravenes Section 229 of the NIRC, which requires the prior filing of an administrative claim.31 He insists
that such procedural requirement is based on the doctrine of exhaustion of administrative remedies and the fact
that the CTA is an appellate body exercising judicial review over administrative actions of the CIR.32
Respondent’s Arguments
For its part, respondent claims that it is entitled to a refund/credit of its unutilized input VAT for the period July
1, 2002 to September 30, 2002 as a matter of right because it has substantially complied with all the
requirements provided by law.33 Respondent likewise defends the CTA En Banc in applying Section 114(A) of the
NIRC in computing the prescriptive period for the claim for tax refund/credit. Respondent believes that Section
112(A) of the NIRC must be read together with Section 114(A) of the same Code.34
As to the alleged simultaneous filing of its administrative and judicial claims, respondent contends that it first
filed an administrative claim with the One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center of the
DOF before it filed a judicial claim with the CTA.35 To prove this, respondent points out that its Claimant
Information Sheet No. 4970236 and BIR Form No. 1914 for the third quarter of 2002,37 which were filed with the
DOF, were attached as Annexes "M" and "N," respectively, to the Petition for Review filed with the
CTA.38 Respondent further contends that the non-observance of the 120-day period given to the CIR to act on
the claim for tax refund/credit in Section 112(D) is not fatal because what is important is that both claims are
filed within the two-year prescriptive period.39 In support thereof, respondent cites Commissioner of Internal
Revenue v. Victorias Milling Co., Inc.40 where it was ruled that "[i]f, however, the [CIR] takes time in deciding the
claim, and the period of two years is about to end, the suit or proceeding must be started in the [CTA] before the
end of the two-year period without awaiting the decision of the [CIR]."41 Lastly, respondent argues that even if
the period had already lapsed, it may be suspended for reasons of equity considering that it is not a jurisdictional
requirement.42
Our Ruling
The petition has merit.
Unutilized input VAT must be claimed within two years after the close of the taxable quarter when the sales
were made
In computing the two-year prescriptive period for claiming a refund/credit of unutilized input VAT, the Second
Division of the CTA applied Section 112(A) of the NIRC, which states:
SEC. 112. Refunds or Tax Credits of Input Tax. –
(A) Zero-rated or Effectively Zero-rated Sales – Any VAT-registered person, whose sales are zero-rated or
effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made,
apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such
sales, except transitional input tax, to the extent that such input tax has not been applied against output tax:
Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B) and Section 108
(B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where
the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods or
properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely
attributed to any one of the transactions, it shall be allocated proportionately on the basis of the volume of
sales. (Emphasis supplied.)
The CTA En Banc, on the other hand, took into consideration Sections 114 and 229 of the NIRC, which read:
SEC. 114. Return and Payment of Value-Added Tax. –
(A) In General. – Every person liable to pay the value-added tax imposed under this Title shall file a quarterly
return of the amount of his gross sales or receipts within twenty-five (25) days following the close of each
taxable quarter prescribed for each taxpayer: Provided, however, That VAT-registered persons shall pay the
value-added tax on a monthly basis.
Any person, whose registration has been cancelled in accordance with Section 236, shall file a return and pay the
tax due thereon within twenty-five (25) days from the date of cancellation of registration: Provided, That only
one consolidated return shall be filed by the taxpayer for his principal place of business or head office and all
branches.
xxxx
SEC. 229. Recovery of tax erroneously or illegally collected. –
No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax
hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have
been collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully
collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or
proceeding may be maintained, whether or not such tax, penalty or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of
payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided,
however, That the Commissioner may, even without written claim therefor, refund or credit any tax, where on
the face of the return upon which payment was made, such payment appears clearly to have been erroneously
paid. (Emphasis supplied.)
Hence, the CTA En Banc ruled that the reckoning of the two-year period for filing a claim for refund/credit of
unutilized input VAT should start from the date of payment of tax and not from the close of the taxable quarter
when the sales were made.43
The pivotal question of when to reckon the running of the two-year prescriptive period, however, has already
been resolved in Commissioner of Internal Revenue v. Mirant Pagbilao Corporation, 44 where we ruled that
Section 112(A) of the NIRC is the applicable provision in determining the start of the two-year period for claiming
a refund/credit of unutilized input VAT, and that Sections 204(C) and 229 of the NIRC are inapplicable as "both
provisions apply only to instances of erroneous payment or illegal collection of internal revenue taxes." 45 We
explained that:
The above proviso [Section 112 (A) of the NIRC] clearly provides in no uncertain terms that unutilized input VAT
payments not otherwise used for any internal revenue tax due the taxpayer must be claimed within two years
reckoned from the close of the taxable quarter when the relevant sales were made pertaining to the input
VAT regardless of whether said tax was paid or not. As the CA aptly puts it, albeit it erroneously applied the
aforequoted Sec. 112 (A), "[P]rescriptive period commences from the close of the taxable quarter when the sales
were made and not from the time the input VAT was paid nor from the time the official receipt was issued."
Thus, when a zero-rated VAT taxpayer pays its input VAT a year after the pertinent transaction, said taxpayer
only has a year to file a claim for refund or tax credit of the unutilized creditable input VAT. The reckoning frame
would always be the end of the quarter when the pertinent sales or transaction was made, regardless when the
input VAT was paid. Be that as it may, and given that the last creditable input VAT due for the period covering
the progress billing of September 6, 1996 is the third quarter of 1996 ending on September 30, 1996, any claim
for unutilized creditable input VAT refund or tax credit for said quarter prescribed two years after September 30,
1996 or, to be precise, on September 30, 1998. Consequently, MPC’s claim for refund or tax credit filed on
December 10, 1999 had already prescribed.
Reckoning for prescriptive period under
Secs. 204(C) and 229 of the NIRC inapplicable
To be sure, MPC cannot avail itself of the provisions of either Sec. 204(C) or 229 of the NIRC which, for the
purpose of refund, prescribes a different starting point for the two-year prescriptive limit for the filing of a claim
therefor. Secs. 204(C) and 229 respectively provide:
Sec. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. – The Commissioner
may –
xxxx
(c) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the
value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his
discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon
proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing
with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty:
Provided, however, That a return filed showing an overpayment shall be considered as a written claim for credit
or refund.
xxxx
Sec. 229. Recovery of Tax Erroneously or Illegally Collected. – No suit or proceeding shall be maintained in any
court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally
assessed or collected, or of any penalty claimed to have been collected without authority, of any sum alleged to
have been excessively or in any manner wrongfully collected without authority, or of any sum alleged to have
been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with
the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has
been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of
payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided,
however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on
the face of the return upon which payment was made, such payment appears clearly to have been erroneously
paid.
Notably, the above provisions also set a two-year prescriptive period, reckoned from date of payment of the tax
or penalty, for the filing of a claim of refund or tax credit. Notably too, both provisions apply only to instances of
erroneous payment or illegal collection of internal revenue taxes.
MPC’s creditable input VAT not erroneously paid
For perspective, under Sec. 105 of the NIRC, creditable input VAT is an indirect tax which can be shifted or
passed on to the buyer, transferee, or lessee of the goods, properties, or services of the taxpayer. The fact that
the subsequent sale or transaction involves a wholly-tax exempt client, resulting in a zero-rated or effectively
zero-rated transaction, does not, standing alone, deprive the taxpayer of its right to a refund for any unutilized Year 1 1st calendar month April 15, 1998 to May 14, 1998
creditable input VAT, albeit the erroneous, illegal, or wrongful payment angle does not enter the equation.
2nd calendar month May 15, 1998 to June 14, 1998
xxxx
3rd calendar month June 15, 1998 to July 14, 1998

Considering the foregoing discussion, it is clear that Sec. 112 (A) of the NIRC, providing a two-year prescriptive 4th calendar month July 15, 1998 to August 14, 1998
period reckoned from the close of the taxable quarter when the relevant sales or transactions were made
5th calendar month August 15, 1998 to September 14, 1998
pertaining to the creditable input VAT, applies to the instant case, and not to the other actions which refer to
erroneous payment of taxes.46 (Emphasis supplied.) 6th calendar month September 15, 1998 to October 14, 1998

In view of the foregoing, we find that the CTA En Banc erroneously applied Sections 114(A) and 229 of the NIRC 7th calendar month October 15, 1998 to November 14, 1998
in computing the two-year prescriptive period for claiming refund/credit of unutilized input VAT. To be clear, 8th calendar month November 15, 1998 to December 14, 1998
Section 112 of the NIRC is the pertinent provision for the refund/credit of input VAT. Thus, the two-year period
should be reckoned from the close of the taxable quarter when the sales were made. 9th calendar month December 15, 1998 to January 14, 1999

10th calendar month January 15, 1999 to February 14, 1999

The administrative claim was timely filed
11th calendar month February 15, 1999 to March 14, 1999
Bearing this in mind, we shall now proceed to determine whether the administrative claim was timely filed.
12th calendar month March 15, 1999 to April 14, 1999

Relying on Article 13 of the Civil Code,47 which provides that a year is equivalent to 365 days, and taking into Year 2 13th calendar month April 15, 1999 to May 14, 1999
account the fact that the year 2004 was a leap year, petitioner submits that the two-year period to file a claim
14th calendar month May 15, 1999 to June 14, 1999
for tax refund/ credit for the period July 1, 2002 to September 30, 2002 expired on September 29, 2004.48
15th calendar month June 15, 1999 to July 14, 1999
We do not agree.
16th calendar month July 15, 1999 to August 14, 1999
In Commissioner of Internal Revenue v. Primetown Property Group, Inc.,49 we said that as between the Civil 17th calendar month August 15, 1999 to September 14, 1999
Code, which provides that a year is equivalent to 365 days, and the Administrative Code of 1987, which states
that a year is composed of 12 calendar months, it is the latter that must prevail following the legal maxim, Lex 18th calendar month September 15, 1999 to October 14, 1999
posteriori derogat priori.50 Thus:
19th calendar month October 15, 1999 to November 14, 1999

Both Article 13 of the Civil Code and Section 31, Chapter VIII, Book I of the Administrative Code of 1987 deal with 20th calendar month November 15, 1999 to December 14, 1999
the same subject matter – the computation of legal periods. Under the Civil Code, a year is equivalent to 365
21st calendar month December 15, 1999 to January 14, 2000
days whether it be a regular year or a leap year. Under the Administrative Code of 1987, however, a year is
composed of 12 calendar months. Needless to state, under the Administrative Code of 1987, the number of days 22nd calendar month January 15, 2000 to February 14, 2000
is irrelevant.
23rd calendar month February 15, 2000 to March 14, 2000
There obviously exists a manifest incompatibility in the manner of 24th calendar month March 15, 2000 to April 14, 2000
We therefore hold that respondent's petition (filed on April 14, 2000) was filed on the last day of the 24th
computing legal periods under the Civil Code and the Administrative Code of 1987. For this reason, we hold that calendar month from the day respondent filed its final adjusted return. Hence, it was filed within the
Section 31, Chapter VIII, Book I of the Administrative Code of 1987, being the more recent law, governs the reglementary period.51
computation of legal periods. Lex posteriori derogat priori.

Applying this to the present case, the two-year period to file a claim for tax refund/credit for the period July 1,
Applying Section 31, Chapter VIII, Book I of the Administrative Code of 1987 to this case, the two-year 2002 to September 30, 2002 expired on September 30, 2004. Hence, respondent’s administrative claim was
prescriptive period (reckoned from the time respondent filed its final adjusted return on April 14, 1998) timely filed.
consisted of 24 calendar months, computed as follows:
The filing of the judicial claim was premature In fact, applying the two-year period to judicial claims would render nugatory Section 112(D) of the NIRC, which
already provides for a specific period within which a taxpayer should appeal the decision or inaction of the CIR.
However, notwithstanding the timely filing of the administrative claim, we The second paragraph of Section 112(D) of the NIRC envisions two scenarios: (1) when a decision is issued by the
CIR before the lapse of the 120-day period; and (2) when no decision is made after the 120-day period. In both
instances, the taxpayer has 30 days within which to file an appeal with the CTA. As we see it then, the 120-day
are constrained to deny respondent’s claim for tax refund/credit for having been filed in violation of Section
period is crucial in filing an appeal with the CTA.
112(D) of the NIRC, which provides that:

With regard to Commissioner of Internal Revenue v. Victorias Milling, Co., Inc.53 relied upon by respondent, we
SEC. 112. Refunds or Tax Credits of Input Tax. –
find the same inapplicable as the tax provision involved in that case is Section 306, now Section 229 of the NIRC.
And as already discussed, Section 229 does not apply to refunds/credits of input VAT, such as the instant case.
xxxx
In fine, the premature filing of respondent’s claim for refund/credit of input VAT before the CTA warrants a
(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. – In proper cases, the Commissioner dismissal inasmuch as no jurisdiction was acquired by the CTA.
shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120)
days from the date of submission of complete documents in support of the application filed in accordance with
WHEREFORE, the Petition is hereby GRANTED. The assailed July 30, 2008 Decision and the October 6, 2008
Subsections (A) and (B) hereof.
Resolution of the Court of Tax Appeals are hereby REVERSED and SET ASIDE. The Court of Tax Appeals Second
Division is DIRECTED to dismiss CTA Case No. 7065 for having been prematurely filed.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within
SO ORDERED.
thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred
twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals. (Emphasis supplied.)
G.R. No. 187485 February 12, 2013
Section 112(D) of the NIRC clearly provides that the CIR has "120 days, from the date of the submission of the
complete documents in support of the application [for tax refund/credit]," within which to grant or deny the COMMISSIONER OF INTERNAL REVENUE, Petitioner,
claim. In case of full or partial denial by the CIR, the taxpayer’s recourse is to file an appeal before the CTA within vs.
30 days from receipt of the decision of the CIR. However, if after the 120-day period the CIR fails to act on the SAN ROQUE POWER CORPORATION, Respondent.
application for tax refund/credit, the remedy of the taxpayer is to appeal the inaction of the CIR to CTA within 30
days. X----------------------------X

In this case, the administrative and the judicial claims were simultaneously filed on September 30, 2004. G.R. No. 196113
Obviously, respondent did not wait for the decision of the CIR or the lapse of the 120-day period. For this reason,
we find the filing of the judicial claim with the CTA premature. TAGANITO MINING CORPORATION, Petitioner,
vs.
Respondent’s assertion that the non-observance of the 120-day period is not fatal to the filing of a judicial claim COMMISSIONER OF INTERNAL REVENUE, Respondent.
as long as both the administrative and the judicial claims are filed within the two-year prescriptive period52 has
no legal basis. x----------------------------x

There is nothing in Section 112 of the NIRC to support respondent’s view. Subsection (A) of the said provision G.R. No. 197156
states that "any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two
years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit
PHILEX MINING CORPORATION, Petitioner,
certificate or refund of creditable input tax due or paid attributable to such sales." The phrase "within two (2)
vs.
years x x x apply for the issuance of a tax credit certificate or refund" refers to applications for refund/credit filed
COMMISSIONER OF INTERNAL REVENUE, Respondent.
with the CIR and not to appeals made to the CTA. This is apparent in the first paragraph of subsection (D) of the
same provision, which states that the CIR has "120 days from the submission of complete documents in support
of the application filed in accordance with Subsections (A) and (B)" within which to decide on the claim. DECISION

CARPIO, J.:
The Cases
G.R. No. 187485 is a petitiOn for review1 assailing the Decision2 promulgated on 25 March 2009 as well as the
Resolution3 promulgated on 24 April 2009 by the Court of Tax Appeals En Banc (CTA EB) in CTA EB No. 408. The
CTA EB affirmed the 29 November 2007 Amended Decision4 as well as the 11 July 2008 Resolution5 of the Second
Division of the Court of Tax Appeals (CTA Second Division) in CTA Case No. 6647. The CTA Second Division
ordered the Commissioner of Internal Revenue (Commissioner) to refund or issue a tax credit for
P483,797,599.65 to San Roque Power Corporation (San Roque) for unutilized input value-added tax (VAT) on
purchases of capital goods and services for the taxable year 2001.
G.R. No. 196113 is a petition for review6 assailing the Decision7 promulgated on 8 December 2010 as well as the
Resolution8 promulgated on 14 March 2011 by the CTA EB in CTA EB No. 624. In its Decision, the CTA EB reversed
the 8 January 2010 Decision9 as well as the 7 April 2010 Resolution10of the CTA Second Division and granted the
CIR’s petition for review in CTA Case No. 7574. The CTA EB dismissed, for having been prematurely filed,
Taganito Mining Corporation’s (Taganito) judicial claim for P8,365,664.38 tax refund or credit.
G.R. No. 197156 is a petition for review11 assailing the Decision12promulgated on 3 December 2010 as well as the
Resolution13 promulgated on 17 May 2011 by the CTA EB in CTA EB No. 569. The CTA EB affirmed the 20 July
2009 Decision as well as the 10 November 2009 Resolution of the CTA Second Division in CTA Case No. 7687. The
CTA Second Division denied, due to prescription, Philex Mining Corporation’s (Philex) judicial claim for
P23,956,732.44 tax refund or credit.
On 3 August 2011, the Second Division of this Court resolved14 to consolidate G.R. No. 197156 with G.R. No.
196113, which were pending in the same Division, and with G.R. No. 187485, which was assigned to the Court En
Banc. The Second Division also resolved to refer G.R. Nos. 197156 and 196113 to the Court En Banc, where G.R.
No. 187485, the lower-numbered case, was assigned.
G.R. No. 187485
CIR v. San Roque Power Corporation
The Facts
The CTA EB’s narration of the pertinent facts is as follows:
[CIR] is the duly appointed Commissioner of Internal Revenue, empowered, among others, to act upon and
approve claims for refund or tax credit, with office at the Bureau of Internal Revenue ("BIR") National Office
Building, Diliman, Quezon City.
[San Roque] is a domestic corporation duly organized and existing under and by virtue of the laws of the
Philippines with principal office at Barangay San Roque, San Manuel, Pangasinan. It was incorporated in October
1997 to design, construct, erect, assemble, own, commission and operate power-generating plants and related
facilities pursuant to and under contract with the Government of the Republic of the Philippines, or any
subdivision, instrumentality or agency thereof, or any governmentowned or controlled corporation, or other
entity engaged in the development, supply, or distribution of energy.
As a seller of services, [San Roque] is duly registered with the BIR with TIN/VAT No. 005-017-501. It is likewise
registered with the Board of Investments ("BOI") on a preferred pioneer status, to engage in the design,
construction, erection, assembly, as well as to own, commission, and operate electric power-generating plants
and related activities, for which it was issued Certificate of Registration No. 97-356 on February 11, 1998.
On October 11, 1997, [San Roque] entered into a Power Purchase Agreement ("PPA") with the National Power
Corporation ("NPC") to develop hydro-potential of the Lower Agno River and generate additional power and
energy for the Luzon Power Grid, by building the San Roque Multi-Purpose Project located in San Manuel,
Pangasinan. The PPA provides, among others, that [San Roque] shall be responsible for the design, construction,
installation, completion, testing and commissioning of the Power Station and shall operate and maintain the
same, subject to NPC instructions. During the cooperation period of twenty-five (25) years commencing from the
completion date of the Power Station, NPC will take and pay for all electricity available from the Power Station.
On the construction and development of the San Roque Multi- Purpose Project which comprises of the dam,
spillway and power plant, [San Roque] allegedly incurred, excess input VAT in the amount of ₱559,709,337.54 for
taxable year 2001 which it declared in its Quarterly VAT Returns filed for the same year. [San Roque] duly filed
with the BIR separate claims for refund, in the total amount of ₱559,709,337.54, representing unutilized input
taxes as declared in its VAT returns for taxable year 2001.
However, on March 28, 2003, [San Roque] filed amended Quarterly VAT Returns for the year 2001 since it
increased its unutilized input VAT to the amount of ₱560,200,283.14. Consequently, [San Roque] filed with the
BIR on even date, separate amended claims for refund in the aggregate amount of ₱560,200,283.14.
[CIR’s] inaction on the subject claims led to the filing by [San Roque] of the Petition for Review with the Court [of
Tax Appeals] in Division on April 10, 2003.
Trial of the case ensued and on July 20, 2005, the case was submitted for decision.15
The Court of Tax Appeals’ Ruling: Division
The CTA Second Division initially denied San Roque’s claim. In its Decision16 dated 8 March 2006, it cited the
following as bases for the denial of San Roque’s claim: lack of recorded zero-rated or effectively zero-rated sales;
failure to submit documents specifically identifying the purchased goods/services related to the claimed input
VAT which were included in its Property, Plant and Equipment account; and failure to prove that the related
construction costs were capitalized in its books of account and subjected to depreciation.
The CTA Second Division required San Roque to show that it complied with the following requirements of Section
112(B) of Republic Act No. 8424 (RA 8424)17 to be entitled to a tax refund or credit of input VAT attributable to
capital goods imported or locally purchased: (1) it is a VAT-registered entity; (2) its input taxes claimed were paid
on capital goods duly supported by VAT invoices and/or official receipts; (3) it did not offset or apply the claimed
input VAT payments on capital goods against any output VAT liability; and (4) its claim for refund was filed within
the two-year prescriptive period both in the administrative and judicial levels.
The CTA Second Division found that San Roque complied with the first, third, and fourth requirements, thus:
The fact that [San Roque] is a VAT registered entity is admitted (par. 4, Facts Admitted, Joint Stipulation of Facts,
Records, p. 157). It was also established that the instant claim of ₱560,200,823.14 is already net of the
₱11,509.09 output tax declared by [San Roque] in its amended VAT return for the first quarter of 2001.
Moreover, the entire amount of ₱560,200,823.14 was deducted by [San Roque] from the total available input tax
reflected in its amended VAT returns for the last two quarters of 2001 and first two quarters of 2002 (Exhibits M-
6, O-6, OO-1 & QQ-1). This means that the claimed input taxes of ₱560,200,823.14 did not form part of the
excess input taxes of ₱83,692,257.83, as of the second quarter of 2002 that was to be carried-over to the
succeeding quarters. Further, [San Roque’s] claim for refund/tax credit certificate of excess input VAT was filed
within the two-year prescriptive period reckoned from the dates of filing of the corresponding quarterly VAT
returns.
For the first, second, third, and fourth quarters of 2001, [San Roque] filed its VAT returns on April 25, 2001, July
25, 2001, October 23, 2001 and January 24, 2002, respectively (Exhibits "H, J, L, and N"). These returns were all
subsequently amended on March 28, 2003 (Exhibits "I, K, M, and O"). On the other hand, [San Roque] originally
filed its separate claims for refund on July 10, 2001, October 10, 2001, February 21, 2002, and May 9, 2002 for
the first, second, third, and fourth quarters of 2001, respectively, (Exhibits "EE, FF, GG, and HH") and
subsequently filed amended claims for all quarters on March 28, 2003 (Exhibits "II, JJ, KK, and LL"). Moreover, the
Petition for Review was filed on April 10, 2003. Counting from the respective dates when [San Roque] originally
filed its VAT returns for the first, second, third and fourth quarters of 2001, the administrative claims for refund
(original and amended) and the Petition for Review fall within the two-year prescriptive period.18
San Roque filed a Motion for New Trial and/or Reconsideration on 7 April 2006. In its 29 November 2007
Amended Decision,19 the CTA Second Division found legal basis to partially grant San Roque’s claim. The CTA
Second Division ordered the Commissioner to refund or issue a tax credit in favor of San Roque in the amount of
₱483,797,599.65, which represents San Roque’s unutilized input VAT on its purchases of capital goods and
services for the taxable year 2001. The CTA based the adjustment in the amount on the findings of the
independent certified public accountant. The following reasons were cited for the disallowed claims: erroneous
computation; failure to ascertain whether the related purchases are in the nature of capital goods; and the
purchases pertain to capital goods. Moreover, the reduction of claims was based on the following: the difference
between San Roque’s claim and that appearing on its books; the official receipts covering the claimed input VAT
on purchases of local services are not within the period of the claim; and the amount of VAT cannot be
determined from the submitted official receipts and invoices. The CTA Second Division denied San Roque’s claim
for refund or tax credit of its unutilized input VAT attributable to its zero-rated or effectively zero-rated sales
because San Roque had no record of such sales for the four quarters of 2001.
The dispositive portion of the CTA Second Division’s 29 November 2007 Amended Decision reads:
WHEREFORE, [San Roque’s] "Motion for New Trial and/or Reconsideration" is hereby PARTIALLY GRANTED and
this Court’s Decision promulgated on March 8, 2006 in the instant case is hereby MODIFIED.
Accordingly, [the CIR] is hereby ORDERED to REFUND or in the alternative, to ISSUE A TAX CREDIT CERTIFICATE in
favor of [San Roque] in the reduced amount of Four Hundred Eighty Three Million Seven Hundred Ninety Seven
Thousand Five Hundred Ninety Nine Pesos and Sixty Five Centavos (₱483,797,599.65) representing unutilized
input VAT on purchases of capital goods and services for the taxable year 2001.
SO ORDERED.20
The Commissioner filed a Motion for Partial Reconsideration on 20 December 2007. The CTA Second Division
issued a Resolution dated 11 July 2008 which denied the CIR’s motion for lack of merit.
The Court of Tax Appeals’ Ruling: En Banc
The Commissioner filed a Petition for Review before the CTA EB praying for the denial of San Roque’s claim for
refund or tax credit in its entirety as well as for the setting aside of the 29 November 2007 Amended Decision
and the 11 July 2008 Resolution in CTA Case No. 6647.
The CTA EB dismissed the CIR’s petition for review and affirmed the challenged decision and resolution.
The CTA EB cited Commissioner of Internal Revenue v. Toledo Power, Inc.21 and Revenue Memorandum Circular
No. 49-03,22 as its bases for ruling that San Roque’s judicial claim was not prematurely filed. The pertinent
portions of the Decision state:
More importantly, the Court En Banc has squarely and exhaustively ruled on this issue in this wise:
It is true that Section 112(D) of the abovementioned provision applies to the present case. However, what the
petitioner failed to consider is Section 112(A) of the same provision. The respondent is also covered by the two
(2) year prescriptive period. We have repeatedly held that the claim for refund with the BIR and the subsequent
appeal to the Court of Tax Appeals must be filed within the two-year period.
Accordingly, the Supreme Court held in the case of Atlas Consolidated Mining and Development Corporation vs.
Commissioner of Internal Revenue that the two-year prescriptive period for filing a claim for input tax is reckoned
from the date of the filing of the quarterly VAT return and payment of the tax due. If the said period is about to
expire but the BIR has not yet acted on the application for refund, the taxpayer may interpose a petition for
review with this Court within the two year period.
In the case of Gibbs vs. Collector, the Supreme Court held that if, however, the Collector (now Commissioner)
takes time in deciding the claim, and the period of two years is about to end, the suit or proceeding must be
started in the Court of Tax Appeals before the end of the two-year period without awaiting the decision of the
Collector.
Furthermore, in the case of Commissioner of Customs and Commissioner of Internal Revenue vs. The Honorable
Court of Tax Appeals and Planters Products, Inc., the Supreme Court held that the taxpayer need not wait
indefinitely for a decision or ruling which may or may not be forthcoming and which he has no legal right to
expect. It is disheartening enough to a taxpayer to keep him waiting for an indefinite period of time for a ruling
or decision of the Collector (now Commissioner) of Internal Revenue on his claim for refund. It would make
matters more exasperating for the taxpayer if we were to close the doors of the courts of justice for such a relief
until after the Collector (now Commissioner) of Internal Revenue, would have, at his personal convenience, given
his go signal.
This Court ruled in several cases that once the petition is filed, the Court has already acquired jurisdiction over
the claims and the Court is not bound to wait indefinitely for no reason for whatever action respondent (herein
petitioner) may take. At stake are claims for refund and unlike disputed assessments, no decision of
respondent (herein petitioner) is required before one can go to this Court. (Emphasis supplied and citations
omitted)
Lastly, it is apparent from the following provisions of Revenue Memorandum Circular No. 49-03 dated August 18,
2003, that [the CIR] knows that claims for VAT refund or tax credit filed with the Court [of Tax Appeals] can
proceed simultaneously with the ones filed with the BIR and that taxpayers need not wait for the lapse of the
subject 120-day period, to wit:
In response to [the] request of selected taxpayers for adoption of procedures in handling refund cases that are
aligned to the statutory requirements that refund cases should be elevated to the Court of Tax Appeals before
the lapse of the period prescribed by law, certain provisions of RMC No. 42-2003 are hereby amended and new
provisions are added thereto.
In consonance therewith, the following amendments are being introduced to RMC No. 42-2003, to wit:
I.) A-17 of Revenue Memorandum Circular No. 42-2003 is hereby revised to read as follows:
In cases where the taxpayer has filed a "Petition for Review" with the Court of Tax Appeals involving a claim
for refund/TCC that is pending at the administrative agency (Bureau of Internal Revenue or OSS-DOF), the
administrative agency and the tax court may act on the case separately. While the case is pending in the tax
court and at the same time is still under process by the administrative agency, the litigation lawyer of the BIR,
upon receipt of the summons from the tax court, shall request from the head of the investigating/processing
office for the docket containing certified true copies of all the documents pertinent to the claim. The docket shall
be presented to the court as evidence for the BIR in its defense on the tax credit/refund case filed by the
taxpayer. In the meantime, the investigating/processing office of the administrative agency shall continue
processing the refund/TCC case until such time that a final decision has been reached by either the CTA or the
administrative agency.
If the CTA is able to release its decision ahead of the evaluation of the administrative agency, the latter shall
cease from processing the claim. On the other hand, if the administrative agency is able to process the claim of
the taxpayer ahead of the CTA and the taxpayer is amenable to the findings thereof, the concerned taxpayer
must file a motion to withdraw the claim with the CTA.23 (Emphasis supplied)
G.R. No. 196113
Taganito Mining Corporation v. CIR
The Facts
The CTA Second Division’s narration of the pertinent facts is as follows:
Petitioner, Taganito Mining Corporation, is a corporation duly organized and existing under and by virtue of the
laws of the Philippines, with principal office at 4th Floor, Solid Mills Building, De La Rosa St., Lega[s]pi Village,
Makati City. It is duly registered with the Securities and Exchange Commission with Certificate of Registration No.
138682 issued on March 4, 1987 with the following primary purpose:
To carry on the business, for itself and for others, of mining lode and/or placer mining, developing, exploiting,
extracting, milling, concentrating, converting, smelting, treating, refining, preparing for market, manufacturing,
buying, selling, exchanging, shipping, transporting, and otherwise producing and dealing in nickel, chromite,
cobalt, gold, silver, copper, lead, zinc, brass, iron, steel, limestone, and all kinds of ores, metals and their by-
products and which by-products thereof of every kind and description and by whatsoever process the same can
be or may hereafter be produced, and generally and without limit as to amount, to buy, sell, locate, exchange,
lease, acquire and deal in lands, mines, and mineral rights and claims and to conduct all business appertaining
thereto, to purchase, locate, lease or otherwise acquire, mining claims and rights, timber rights, water rights,
concessions and mines, buildings, dwellings, plants machinery, spare parts, tools and other properties
whatsoever which this corporation may from time to time find to be to its advantage to mine lands, and to
explore, work, exercise, develop or turn to account the same, and to acquire, develop and utilize water rights in
such manner as may be authorized or permitted by law; to purchase, hire, make, construct or otherwise, acquire,
provide, maintain, equip, alter, erect, improve, repair, manage, work and operate private roads, barges, vessels,
aircraft and vehicles, private telegraph and telephone lines, and other communication media, as may be needed
by the corporation for its own purpose, and to purchase, import, construct, machine, fabricate, or otherwise
acquire, and maintain and operate bridges, piers, wharves, wells, reservoirs, plumes, watercourses, waterworks,
aqueducts, shafts, tunnels, furnaces, cook ovens, crushing works, gasworks, electric lights and power plants and
compressed air plants, chemical works of all kinds, concentrators, smelters, smelting plants, and refineries,
matting plants, warehouses, workshops, factories, dwelling houses, stores, hotels or other buildings, engines,
machinery, spare parts, tools, implements and other works, conveniences and properties of any description in
connection with or which may be directly or indirectly conducive to any of the objects of the corporation, and to
contribute to, subsidize or otherwise aid or take part in any operations;
and is a VAT-registered entity, with Certificate of Registration (BIR Form No. 2303) No. OCN 8RC0000017494.
Likewise, [Taganito] is registered with the Board of Investments (BOI) as an exporter of beneficiated nickel
silicate and chromite ores, with BOI Certificate of Registration No. EP-88-306.
Respondent, on the other hand, is the duly appointed Commissioner of Internal Revenue vested with authority
to exercise the functions of the said office, including inter alia, the power to decide refunds of internal revenue
taxes, fees and other charges, penalties imposed in relation thereto, or other matters arising under the National
Internal Revenue Code (NIRC) or other laws administered by Bureau of Internal Revenue (BIR) under Section 4 of
the NIRC. He holds office at the BIR National Office Building, Diliman, Quezon City.
[Taganito] filed all its Monthly VAT Declarations and Quarterly Vat Returns for the period January 1, 2005 to
December 31, 2005. For easy reference, a summary of the filing dates of the original and amended Quarterly VAT
Returns for taxable year 2005 of [Taganito] is as follows:
Exhibit(s) Quarter Nature of Mode of filing Filing Date
the Return
L to L-4 1st Original Electronic April 15, 2005
M to M-3 Amended Electronic July 20, 2005
N to N-4 Amended Electronic October 18, 2006
Q to Q-3 2nd Original Electronic July 20, 2005
R to R-4 Amended Electronic October 18, 2006 4. [Taganito’s] alleged claim for refund is subject to administrative investigation/examination by the
Bureau of Internal Revenue (BIR);
U to U-4 3rd Original Electronic October 19, 2005
5. The amount of ₱8,365,664.38 being claimed by [Taganito] as alleged unutilized input VAT on
V to V-4 Amended Electronic October 18, 2006
domestic purchases of goods and services and on importation of capital goods for the period January 1,
Y to Y-4 4th Original Electronic January 20, 2006 2005 to December 31, 2005 is not properly documented;

Z to Z-4 Amended Electronic October 18, 2006

6. [Taganito] must prove that it has complied with the provisions of Sections 112 (A) and (D) and 229 of
As can be gleaned from its amended Quarterly VAT Returns, [Taganito] reported zero-rated sales amounting to the National Internal Revenue Code of 1997 (1997 Tax Code) on the prescriptive period for claiming tax
P1,446,854,034.68; input VAT on its domestic purchases and importations of goods (other than capital goods) refund/credit;
and services amounting to P2,314,730.43; and input VAT on its domestic purchases and importations of capital
goods amounting to P6,050,933.95, the details of which are summarized as follows: 7. Proof of compliance with the prescribed checklist of requirements to be submitted involving claim
for VAT refund pursuant to Revenue Memorandum Order No. 53-98, otherwise there would be no
Period Zero-Rated Sales Input VAT on Input VAT on Total Input VAT sufficient compliance with the filing of administrative claim for refund, the administrative claim
Covered Domestic Domestic thereof being mere proforma, which is a condition sine qua non prior to the filing of judicial claim in
Purchases and Purchases and accordance with the provision of Section 229 of the 1997 Tax Code. Further, Section 112 (D) of the Tax
Importations Importations Code, as amended, requires the submission of complete documents in support of the application
of Goods and of Capital filed with the BIR before the 120-day audit period shall apply, and before the taxpayer could avail of
Services Goods judicial remedies as provided for in the law. Hence, [Taganito’s] failure to submit proof of compliance
with the above-stated requirements warrants immediate dismissal of the petition for review.
01/01/05 - P551,179,871.58 P1,491,880.56 P239,803.22 P1,731,683.78
03/31/05 8. [Taganito] must prove that it has complied with the invoicing requirements mentioned in Sections
04/01/05 - 64,677,530.78 204,364.17 5,811,130.73 6,015,494.90 110 and 113 of the 1997 Tax Code, as amended, in relation to provisions of Revenue Regulations No. 7-
06/30/05 95.

07/01/05 - 480,784,287.30 144,887.67 - 144,887.67 9. In an action for refund/credit, the burden of proof is on the taxpayer to establish its right to refund,
09/30/05 and failure to sustain the burden is fatal to the claim for refund/credit (Asiatic Petroleum Co. vs.
10/01/05 - 350,212,345.02 473,598.03 - 473,598.03 Llanes, 49 Phil. 466 cited in Collector of Internal Revenue vs. Manila Jockey Club, Inc., 98 Phil. 670);
12/31/05
10. Claims for refund are construed strictly against the claimant for the same partake the nature of
TOTAL P1,446,854,034.68 P2,314,730.43 P6,050,933.95 P8,365,664.38 exemption from taxation (Commissioner of Internal Revenue vs. Ledesma, 31 SCRA 95) and as such,
On November 14, 2006, [Taganito] filed with [the CIR], through BIR’s Large Taxpayers Audit and Investigation they are looked upon with disfavor (Western Minolco Corp. vs. Commissioner of Internal Revenue,
Division II (LTAID II), a letter dated November 13, 2006 claiming a tax credit/refund of its supposed input VAT 124 SCRA 1211).
amounting to ₱8,365,664.38 for the period covering January 1, 2004 to December 31, 2004. On the same date,
[Taganito] likewise filed an Application for Tax Credits/Refunds for the period covering January 1, 2005 to SPECIAL AND AFFIRMATIVE DEFENSES
December 31, 2005 for the same amount.
11. The Court of Tax Appeals has no jurisdiction to entertain the instant petition for review for failure on the part
On November 29, 2006, [Taganito] sent again another letter dated November 29, 2004 to [the CIR], to correct of [Taganito] to comply with the provision of Section 112 (D) of the 1997 Tax Code which provides, thus:
the period of the above claim for tax credit/refund in the said amount of ₱8,365,664.38 as actually referring to
the period covering January 1, 2005 to December 31, 2005.
Section 112. Refunds or Tax Credits of Input Tax. –

As the statutory period within which to file a claim for refund for said input VAT is about to lapse without action
xxx xxx xxx
on the part of the [CIR], [Taganito] filed the instant Petition for Review on February 17, 2007.

(D) Period within which refund or Tax Credit of Input Taxes shall be Made. – In proper cases, the Commissioner
In his Answer filed on March 28, 2007, [the CIR] interposes the following defenses:
shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred (120) days
from the date of submission of complete documents in support of the application filed in accordance with
Subsections (A) and (B) hereof.
In cases of full or partial denial for tax refund or tax credit, or the failure on the part of the Commissioner to act
on the application within the period prescribed above, the taxpayer affected may, within thirty (30) days from
the receipt of the decision denying the claim or after the expiration of the one hundred twenty dayperiod,
appeal the decision or the unacted claim with the Court of Tax Appeals. (Emphasis supplied.)
12. As stated, [Taganito] filed the administrative claim for refund with the Bureau of Internal Revenue on
November 14, 2006. Subsequently on February 14, 2007, the instant petition was filed. Obviously the 120 days
given to the Commissioner to decide on the claim has not yet lapsed when the petition was filed. The petition
was prematurely filed, hence it must be dismissed for lack of jurisdiction.
During trial, [Taganito] presented testimonial and documentary evidence primarily aimed at proving its supposed
entitlement to the refund in the amount of ₱8,365,664.38, representing input taxes for the period covering
January 1, 2005 to December 31, 2005. [The CIR], on the other hand, opted not to present evidence. Thus, in the
Resolution promulgated on January 22, 2009, this case was submitted for decision as of such date, considering
[Taganito’s] "Memorandum" filed on January 19, 2009 and [the CIR’s] "Memorandum" filed on December 19,
2008.24
The Court of Tax Appeals’ Ruling: Division
The CTA Second Division partially granted Taganito’s claim. In its Decision25 dated 8 January 2010, the CTA
Second Division found that Taganito complied with the requirements of Section 112(A) of RA 8424, as amended,
to be entitled to a tax refund or credit of input VAT attributable to zero-rated or effectively zero-rated sales.26
The pertinent portions of the CTA Second Division’s Decision read:
Finally, records show that [Taganito’s] administrative claim filed on November 14, 2006, which was amended on
November 29, 2006, and the Petition for Review filed with this Court on February 14, 2007 are well within the
two-year prescriptive period, reckoned from March 31, 2005, June 30, 2005, September 30, 2005, and December
31, 2005, respectively, the close of each taxable quarter covering the period January 1, 2005 to December 31,
2005.
In fine, [Taganito] sufficiently proved that it is entitled to a tax credit certificate in the amount of ₱8,249,883.33
representing unutilized input VAT for the four taxable quarters of 2005.
WHEREFORE, premises considered, the instant Petition for Review is hereby PARTIALLY GRANTED. Accordingly,
[the CIR] is hereby ORDERED to REFUND to [Taganito] the amount of EIGHT MILLION TWO HUNDRED FORTY
NINE THOUSAND EIGHT HUNDRED EIGHTY THREE PESOS AND THIRTY THREE CENTAVOS (P8,249,883.33)
representing its unutilized input taxes attributable to zero-rated sales from January 1, 2005 to December 31,
2005.
SO ORDERED.27
The Commissioner filed a Motion for Partial Reconsideration on 29 January 2010. Taganito, in turn, filed a
Comment/Opposition on the Motion for Partial Reconsideration on 15 February 2010.
In a Resolution28 dated 7 April 2010, the CTA Second Division denied the CIR’s motion. The CTA Second Division
ruled that the legislature did not intend that Section 112 (Refunds or Tax Credits of Input Tax) should be read in
isolation from Section 229 (Recovery of Tax Erroneously or Illegally Collected) or vice versa. The CTA Second
Division applied the mandatory statute of limitations in seeking judicial recourse prescribed under Section 229 to
claims for refund or tax credit under Section 112.
The Court of Tax Appeals’ Ruling: En Banc
On 29 April 2010, the Commissioner filed a Petition for Review before the CTA EB assailing the 8 January 2010
Decision and the 7 April 2010 Resolution in CTA Case No. 7574 and praying that Taganito’s entire claim for
refund be denied.
In its 8 December 2010 Decision,29 the CTA EB granted the CIR’s petition for review and reversed and set aside
the challenged decision and resolution.
The CTA EB declared that Section 112(A) and (B) of the 1997 Tax Code both set forth the reckoning of the two-
year prescriptive period for filing a claim for tax refund or credit over input VAT to be the close of the taxable
quarter when the sales were made. The CTA EB also relied on this Court’s rulings in the cases of Commissioner of
Internal Revenue v. Aichi Forging Company of Asia, Inc. (Aichi) 30 and Commisioner of Internal Revenue v. Mirant
Pagbilao Corporation (Mirant).31 Both Aichi and Mirant ruled that the two-year prescriptive period to file a
refund for input VAT arising from zero-rated sales should be reckoned from the close of the taxable quarter
when the sales were made. Aichi further emphasized that the failure to await the decision of the Commissioner
or the lapse of 120-day period prescribed in Section 112(D) amounts to a premature filing.
The CTA EB found that Taganito filed its administrative claim on 14 November 2006, which was well within the
period prescribed under Section 112(A) and (B) of the 1997 Tax Code. However, the CTA EB found that Taganito’s
judicial claim was prematurely filed. Taganito filed its Petition for Review before the CTA Second Division on 14
February 2007. The judicial claim was filed after the lapse of only 92 days from the filing of its administrative
claim before the CIR, in violation of the 120-day period prescribed in Section 112(D) of the 1997 Tax Code.
The dispositive portion of the Decision states:
WHEREFORE, the instant Petition for Review is hereby GRANTED. The assailed Decision dated January 8, 2010
and Resolution dated April 7, 2010 of the Special Second Division of this Court are hereby REVERSED and SET
ASIDE. Another one is hereby entered DISMISSING the Petition for Review filed in CTA Case No. 7574 for having
been prematurely filed.
SO ORDERED.32
In his dissent,33 Associate Justice Lovell R. Bautista insisted that Taganito timely filed its claim before the CTA.
Justice Bautista read Section 112(C) of the 1997 Tax Code (Period within which Refund or Tax Credit of Input
Taxes shall be Made) in conjunction with Section 229 (Recovery of Tax Erroneously or Illegally Collected). Justice
Bautista also relied on this Court’s ruling in Atlas Consolidated Mining and Development Corporation v.
Commissioner of Internal Revenue (Atlas),34 which stated that refundable or creditable input VAT and illegally or
erroneously collected national internal revenue tax are the same, insofar as both are monetary amounts which
are currently in the hands of the government but must rightfully be returned to the taxpayer. Justice Bautista
concluded:
Being merely permissive, a taxpayer claimant has the option of seeking judicial redress for refund or tax credit of
excess or unutilized input tax with this Court, either within 30 days from receipt of the denial of its claim, or after
the lapse of the 120-day period in the event of inaction by the Commissioner, provided that both administrative
and judicial remedies must be undertaken within the 2-year period.35
Taganito filed its Motion for Reconsideration on 29 December 2010. The Commissioner filed an Opposition on 26
January 2011. The CTA EB denied for lack of merit Taganito’s motion in a Resolution 36 dated 14 March 2011. The
CTA EB did not see any justifiable reason to depart from this Court’s rulings in Aichi and Mirant.
G.R. No. 197156
Philex Mining Corporation v. CIR
The Facts
The CTA EB’s narration of the pertinent facts is as follows:
[Philex] is a corporation duly organized and existing under the laws of the Republic of the Philippines, which is
principally engaged in the mining business, which includes the exploration and operation of mine properties and
commercial production and marketing of mine products, with office address at 27 Philex Building, Fairlaine St.,
Kapitolyo, Pasig City.
[The CIR], on the other hand, is the head of the Bureau of Internal Revenue ("BIR"), the government entity
tasked with the duties/functions of assessing and collecting all national internal revenue taxes, fees, and charges,
and enforcement of all forfeitures, penalties and fines connected therewith, including the execution of
judgments in all cases decided in its favor by [the Court of Tax Appeals] and the ordinary courts, where she can
be served with court processes at the BIR Head Office, BIR Road, Quezon City.
On October 21, 2005, [Philex] filed its Original VAT Return for the third quarter of taxable year 2005 and
Amended VAT Return for the same quarter on December 1, 2005.
On March 20, 2006, [Philex] filed its claim for refund/tax credit of the amount of ₱23,956,732.44 with the One
Stop Shop Center of the Department of Finance. However, due to [the CIR’s] failure to act on such claim, on
October 17, 2007, pursuant to Sections 112 and 229 of the NIRC of 1997, as amended, [Philex] filed a Petition for
Review, docketed as C.T.A. Case No. 7687.
In [her] Answer, respondent CIR alleged the following special and affirmative defenses:
4. Claims for refund are strictly construed against the taxpayer as the same partake the nature of an
exemption;
5. The taxpayer has the burden to show that the taxes were erroneously or illegally paid. Failure on the
part of [Philex] to prove the same is fatal to its cause of action;
6. [Philex] should prove its legal basis for claiming for the amount being refunded.37
The Court of Tax Appeals’ Ruling: Division
The CTA Second Division, in its Decision dated 20 July 2009, denied Philex’s claim due to prescription. The CTA
Second Division ruled that the two-year prescriptive period specified in Section 112(A) of RA 8424, as amended,
applies not only to the filing of the administrative claim with the BIR, but also to the filing of the judicial claim
with the CTA. Since Philex’s claim covered the 3rd quarter of 2005, its administrative claim filed on 20 March
2006 was timely filed, while its judicial claim filed on 17 October 2007 was filed late and therefore barred by
prescription.
On 10 November 2009, the CTA Second Division denied Philex’s Motion for Reconsideration.
The Court of Tax Appeals’ Ruling: En Banc
Philex filed a Petition for Review before the CTA EB praying for a reversal of the 20 July 2009 Decision and the 10
November 2009 Resolution of the CTA Second Division in CTA Case No. 7687.
The CTA EB, in its Decision38 dated 3 December 2010, denied Philex’s petition and affirmed the CTA Second
Division’s Decision and Resolution.
The pertinent portions of the Decision read:
In this case, while there is no dispute that [Philex’s] administrative claim for refund was filed within the two-year
prescriptive period; however, as to its judicial claim for refund/credit, records show that on March 20, 2006,
[Philex] applied the administrative claim for refund of unutilized input VAT in the amount of ₱23,956,732.44 with
the One Stop Shop Center of the Department of Finance, per Application No. 52490. From March 20, 2006,
which is also presumably the date [Philex] submitted supporting documents, together with the aforesaid
application for refund, the CIR has 120 days, or until July 18, 2006, within which to decide the claim. Within 30
days from the lapse of the 120-day period, or from July 19, 2006 until August 17, 2006, [Philex] should have
elevated its claim for refund to the CTA. However, [Philex] filed its Petition for Review only on October 17, 2007,
which is 426 days way beyond the 30- day period prescribed by law.
Evidently, the Petition for Review in CTA Case No. 7687 was filed 426 days late. Thus, the Petition for Review in
CTA Case No. 7687 should have been dismissed on the ground that the Petition for Review was filed way beyond
the 30-day prescribed period; thus, no jurisdiction was acquired by the CTA in Division; and not due to
prescription.
WHEREFORE, premises considered, the instant Petition for Review is hereby DENIED DUE COURSE, and
accordingly, DISMISSED. The assailed Decision dated July 20, 2009, dismissing the Petition for Review in CTA Case
No. 7687 due to prescription, and Resolution dated November 10, 2009 denying [Philex’s] Motion for
Reconsideration are hereby AFFIRMED, with modification that the dismissal is based on the ground that the
Petition for Review in CTA Case No. 7687 was filed way beyond the 30-day prescribed period to appeal.
SO ORDERED.39 Persons Liable. — Any person who, in the course of trade or business, sells, barters, exchanges, leases goods or
properties, renders services, and any person who imports goods shall be subject to the value-added tax
G.R. No. 187485 (VAT) imposed in Sections 106 to 108 of this Code.
CIR v. San Roque Power Corporation
The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer,
The Commissioner raised the following grounds in the Petition for Review: transferee or lessee of the goods, properties or services. This rule shall likewise apply to existing contracts of
sale or lease of goods, properties or services at the time of the effectivity of Republic Act No. 7716.
I. The Court of Tax Appeals En Banc erred in holding that [San Roque’s] claim for refund was not
prematurely filed. xxxx

II. The Court of Tax Appeals En Banc erred in affirming the amended decision of the Court of Tax Section 110(B):
Appeals (Second Division) granting [San Roque’s] claim for refund of alleged unutilized input VAT on its
purchases of capital goods and services for the taxable year 2001 in the amount of P483,797,599.65. 40 Sec. 110. Tax Credits. —

G.R. No. 196113 (B) Excess Output or Input Tax. — If at the end of any taxable quarter the output tax exceeds the input tax, the
Taganito Mining Corporation v. CIR excess shall be paid by the VAT-registered person. If the input tax exceeds the output tax, the excess shall be
carried over to the succeeding quarter or quarters: [Provided, That the input tax inclusive of input VAT carried
Taganito raised the following grounds in its Petition for Review: over from the previous quarter that may be credited in every quarter shall not exceed seventy percent (70%) of
the output VAT:]43 Provided, however, That any input tax attributable to zero-rated sales by a VAT-registered
person may at his option be refunded or credited against other internal revenue taxes, subject to the
I. The Court of Tax Appeals En Banc committed serious error and acted with grave abuse of discretion
provisions of Section 112.
tantamount to lack or excess of jurisdiction in erroneously applying the Aichi doctrine in violation of
[Taganito’s] right to due process.
Section 112:44
II. The Court of Tax Appeals committed serious error and acted with grave abuse of discretion
amounting to lack or excess of jurisdiction in erroneously interpreting the provisions of Section 112 Sec. 112. Refunds or Tax Credits of Input Tax. —
(D).41
(A) Zero-Rated or Effectively Zero-Rated Sales.— Any VAT-registered person, whose sales are zero-
G.R. No. 197156 rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter when
Philex Mining Corporation v. CIR the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input
tax due or paid attributable to such sales, except transitional input tax, to the extent that such input
tax has not been applied against output tax: Provided, however, That in the case of zero-rated sales
Philex raised the following grounds in its Petition for Review:
under Section 106(A)(2) (a)(1), (2) and (B) and Section 108(B)(1) and (2), the acceptable foreign
currency exchange proceeds thereof had been duly accounted for in accordance with the rules and
I. The CTA En Banc erred in denying the petition due to alleged prescription. The fact is that the regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is
petition was filed with the CTA within the period set by prevailing court rulings at the time it was filed. engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods or
properties or services, and the amount of creditable input tax due or paid cannot be directly and
II. The CTA En Banc erred in retroactively applying the Aichi ruling in denying the petition in this instant entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis of
case.42 the volume of sales.

The Court’s Ruling (B) Capital Goods.- A VAT — registered person may apply for the issuance of a tax credit certificate or
refund of input taxes paid on capital goods imported or locally purchased, to the extent that such input
For ready reference, the following are the provisions of the Tax Code applicable to the present cases: taxes have not been applied against output taxes. The application may be made only within two (2)
years after the close of the taxable quarter when the importation or purchase was made.

Section 105:
(C) Cancellation of VAT Registration. — A person whose registration has been cancelled due to
retirement from or cessation of business, or due to changes in or cessation of status under Section
 106(C) of this Code may, within two (2) years from the date of cancellation, apply for the issuance of a
tax credit certificate for any unused input tax which may be used in payment of his other internal
revenue taxes
(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. — In proper cases, the
Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within
one hundred twenty (120) days from the date of submission of complete documents in support of
the application filed in accordance with Subsection (A) and (B) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer affected
may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration
of the one hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax
Appeals.
(E) Manner of Giving Refund. — Refunds shall be made upon warrants drawn by the Commissioner or
by his duly authorized representative without the necessity of being countersigned by the Chairman,
Commission on Audit, the provisions of the Administrative Code of 1987 to the contrary
notwithstanding: Provided, that refunds under this paragraph shall be subject to post audit by the
Commission on Audit.
Section 229:
Recovery of Tax Erroneously or Illegally Collected. — No suit or proceeding shall be maintained in any court for
the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed
or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have
been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed
with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or
sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of
payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided,
however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on
the face of the return upon which payment was made, such payment appears clearly to have been erroneously
paid.
(All emphases supplied)
I. Application of the 120+30 Day Periods
a. G.R. No. 187485 - CIR v. San Roque Power Corporation
On 10 April 2003, a mere 13 days after it filed its amended administrative claim with the Commissioner on 28
March 2003, San Roque filed a Petition for Review with the CTA docketed as CTA Case No. 6647. From this we
gather two crucial facts: first, San Roque did not wait for the 120-day period to lapse before filing its judicial
claim; second, San Roque filed its judicial claim more than four (4) years before the Atlas45 doctrine, which was
promulgated by the Court on 8 June 2007.
Clearly, San Roque failed to comply with the 120-day waiting period, the time expressly given by law to the
Commissioner to decide whether to grant or deny San Roque’s application for tax refund or credit. It is
indisputable that compliance with the 120-day waiting period is mandatory and jurisdictional. The waiting
period, originally fixed at 60 days only, was part of the provisions of the first VAT law, Executive Order No. 273,
which took effect on 1 January 1988. The waiting period was extended to 120 days effective 1 January 1998
under RA 8424 or the Tax Reform Act of 1997. Thus, the waiting period has been in our statute books for more
than fifteen (15) years before San Roque filed its judicial claim.
Failure to comply with the 120-day waiting period violates a mandatory provision of law. It violates the doctrine
of exhaustion of administrative remedies and renders the petition premature and thus without a cause of action,
with the effect that the CTA does not acquire jurisdiction over the taxpayer’s petition. Philippine jurisprudence is
replete with cases upholding and reiterating these doctrinal principles. 46
The charter of the CTA expressly provides that its jurisdiction is to review on appeal "decisions of the
Commissioner of Internal Revenue in cases involving x x x refunds of internal revenue taxes." 47 When a taxpayer
prematurely files a judicial claim for tax refund or credit with the CTA without waiting for the decision of the
Commissioner, there is no "decision" of the Commissioner to review and thus the CTA as a court of special
jurisdiction has no jurisdiction over the appeal. The charter of the CTA also expressly provides that if the
Commissioner fails to decide within "a specific period" required by law, such "inaction shall be deemed a
denial"48 of the application for tax refund or credit. It is the Commissioner’s decision, or inaction "deemed a
denial," that the taxpayer can take to the CTA for review. Without a decision or an "inaction x x x deemed a
denial" of the Commissioner, the CTA has no jurisdiction over a petition for review.49
San Roque’s failure to comply with the 120-day mandatory period renders its petition for review with the CTA
void. Article 5 of the Civil Code provides, "Acts executed against provisions of mandatory or prohibitory laws
shall be void, except when the law itself authorizes their validity." San Roque’s void petition for review cannot be
legitimized by the CTA or this Court because Article 5 of the Civil Code states that such void petition cannot be
legitimized "except when the law itself authorizes [its] validity." There is no law authorizing the petition’s
validity.
It is hornbook doctrine that a person committing a void act contrary to a mandatory provision of law cannot
claim or acquire any right from his void act. A right cannot spring in favor of a person from his own void or illegal
act. This doctrine is repeated in Article 2254 of the Civil Code, which states, "No vested or acquired right can
arise from acts or omissions which are against the law or which infringe upon the rights of others."50 For violating
a mandatory provision of law in filing its petition with the CTA, San Roque cannot claim any right arising from
such void petition. Thus, San Roque’s petition with the CTA is a mere scrap of paper.
This Court cannot brush aside the grave issue of the mandatory and jurisdictional nature of the 120-day period
just because the Commissioner merely asserts that the case was prematurely filed with the CTA and does not
question the entitlement of San Roque to the refund. The mere fact that a taxpayer has undisputed excess input
VAT, or that the tax was admittedly illegally, erroneously or excessively collected from him, does not entitle him
as a matter of right to a tax refund or credit. Strict compliance with the mandatory and jurisdictional conditions
prescribed by law to claim such tax refund or credit is essential and necessary for such claim to prosper. Well-
settled is the rule that tax refunds or credits, just like tax exemptions, are strictly construed against the
 taxpayer.51 The burden is on the taxpayer to show that he has strictly complied with the conditions for the grant
of the tax refund or credit.
This Court cannot disregard mandatory and jurisdictional conditions mandated by law simply because the
Commissioner chose not to contest the numerical correctness of the claim for tax refund or credit of the
taxpayer. Non-compliance with mandatory periods, non-observance of prescriptive periods, and non-adherence
to exhaustion of administrative remedies bar a taxpayer’s claim for tax refund or credit, whether or not the
Commissioner questions the numerical correctness of the claim of the taxpayer. This Court should not establish
the precedent that non-compliance with mandatory and jurisdictional conditions can be excused if the claim is
otherwise meritorious, particularly in claims for tax refunds or credit. Such precedent will render meaningless
compliance with mandatory and jurisdictional requirements, for then every tax refund case will have to be
decided on the numerical correctness of the amounts claimed, regardless of non-compliance with mandatory
and jurisdictional conditions.
San Roque cannot also claim being misled, misguided or confused by the Atlas doctrine because San Roque filed
its petition for review with the CTA more than four years before Atlas was promulgated. The Atlas doctrine did
not exist at the time San Roque failed to comply with the 120- day period. Thus, San Roque cannot invoke
the Atlas doctrine as an excuse for its failure to wait for the 120-day period to lapse. In any event,
the Atlas doctrine merely stated that the two-year prescriptive period should be counted from the date of
payment of the output VAT, not from the close of the taxable quarter when the sales involving the input VAT
were made. The Atlas doctrine does not interpret, expressly or impliedly, the 120+3052 day periods.
In fact, Section 106(b) and (e) of the Tax Code of 1977 as amended, which was the law cited by the Court
in Atlas as the applicable provision of the law did not yet provide for the 30-day period for the taxpayer to
appeal to the CTA from the decision or inaction of the Commissioner.53 Thus, the Atlas doctrine cannot be
invoked by anyone to disregard compliance with the 30-day mandatory and jurisdictional period. Also, the
difference between the Atlas doctrine on one hand, and the Mirant54 doctrine on the other hand, is a mere 20
days. The Atlas doctrine counts the two-year prescriptive period from the date of payment of the output VAT,
which means within 20 days after the close of the taxable quarter. The output VAT at that time must be paid at
the time of filing of the quarterly tax returns, which were to be filed "within 20 days following the end of each
quarter."
Thus, in Atlas, the three tax refund claims listed below were deemed timely filed because the administrative
claims filed with the Commissioner, and the petitions for review filed with the CTA, were all filed within two
years from the date of payment of the output VAT, following Section 229:
Close of Quarter
31 December 1990
Atlas paid the output VAT at the time it filed the quarterly tax returns on the 20th, 18th, and 20th day after the
close of the taxable quarter. Had the twoyear prescriptive period been counted from the "close of the taxable
quarter" as expressly stated in the law, the tax refund claims of Atlas would have already prescribed. In contrast,
the Mirant doctrine counts the two-year prescriptive period from the "close of the taxable quarter when the
sales were made" as expressly stated in the law, which means the last day of the taxable quarter. The 20-day
difference55 between the Atlas doctrine and the later Mirant doctrine is not material to San Roque’s claim for
tax refund.
Whether the Atlas doctrine or the Mirant doctrine is applied to San Roque is immaterial because what is at issue
in the present case is San Roque’s non-compliance with the 120-day mandatory and jurisdictional period, which
is counted from the date it filed its administrative claim with the Commissioner. The 120-day period may extend
beyond the two-year prescriptive period, as long as the administrative claim is filed within the two-year
prescriptive period. However, San Roque’s fatal mistake is that it did not wait for the Commissioner to decide
within the 120-day period, a mandatory period whether the Atlas or the Mirant doctrine is applied.
At the time San Roque filed its petition for review with the CTA, the 120+30 day mandatory periods were already
in the law. Section 112(C)56 expressly grants the Commissioner 120 days within which to decide the taxpayer’s
claim. The law is clear, plain, and unequivocal: "x x x the Commissioner shall grant a refund or issue the tax credit
certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of
complete documents." Following the verba legis doctrine, this law must be applied exactly as worded since it is
clear, plain, and unequivocal. The taxpayer cannot simply file a petition with the CTA without waiting for the
Commissioner’s decision within the 120-day mandatory and jurisdictional period. The CTA will have no
jurisdiction because there will be no "decision" or "deemed a denial" decision of the Commissioner for the CTA
to review. In San Roque’s case, it filed its petition with the CTA a mere 13 days after it filed its administrative
claim with the Commissioner. Indisputably, San Roque knowingly violated the mandatory 120-day period, and it
cannot blame anyone but itself.
Section 112(C) also expressly grants the taxpayer a 30-day period to appeal to the CTA the decision or inaction of
the Commissioner, thus:
x x x the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or
after the expiration of the one hundred twenty day-period, appeal the decision or the unacted claim with the
Court of Tax Appeals. (Emphasis supplied)

Date of Filing Return Date of Filing Date of Filing This law is clear, plain, and unequivocal. Following the well-settled verba legis doctrine, this law should be
Period Covered
& Payment of Tax Administrative Claim Petition With CTA applied exactly as worded since it is clear, plain, and unequivocal. As this law states, the taxpayer may, if he
2nd Quarter, 1990 20 July 1990 21 August 1990 20 July 1992 wishes, appeal the decision of the Commissioner to the CTA within 30 days from receipt of the Commissioner’s
Close of Quarter decision, or if the Commissioner does not act on the taxpayer’s claim within the 120-day period, the taxpayer
30 June 1990 may appeal to the CTA within 30 days from the expiration of the 120-day period.

3rd Quarter, 1990 18 October 1990 21 November 1990 9 October 1992 b. G.R. No. 196113 - Taganito Mining Corporation v. CIR
Close of Quarter
30 September 1990
Like San Roque, Taganito also filed its petition for review with the CTA without waiting for the 120-day period to
4th Quarter, 1990 20 January 1991 19 February 1991 14 January 1993 lapse. Also, like San Roque, Taganito filed its judicial claim before the promulgation of the Atlas doctrine.
Taganito filed a Petition for Review on 14 February 2007 with the CTA. This is almost four months before the
adoption of the Atlas doctrine on 8 June 2007. Taganito is similarly situated as San Roque - both cannot claim
being misled, misguided, or confused by the Atlas doctrine.
However, Taganito can invoke BIR Ruling No. DA-489-0357 dated 10 December 2003, which expressly ruled that
the "taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek judicial relief
with the CTA by way of Petition for Review." Taganito filed its judicial claim after the issuance of BIR Ruling No.
DA-489-03 but before the adoption of the Aichi doctrine. Thus, as will be explained later, Taganito is deemed to
have filed its judicial claim with the CTA on time.
c. G.R. No. 197156 – Philex Mining Corporation v. CIR
Philex (1) filed on 21 October 2005 its original VAT Return for the third quarter of taxable year 2005; (2) filed on
20 March 2006 its administrative claim for refund or credit; (3) filed on 17 October 2007 its Petition for Review
with the CTA. The close of the third taxable quarter in 2005 is 30 September 2005, which is the reckoning date in
computing the two-year prescriptive period under Section 112(A).
Philex timely filed its administrative claim on 20 March 2006, within the two-year prescriptive period. Even if the
two-year prescriptive period is computed from the date of payment of the output VAT under Section 229, Philex
still filed its administrative claim on time. Thus, the Atlas doctrine is immaterial in this case. The Commissioner
had until 17 July 2006, the last day of the 120-day period, to decide Philex’s claim. Since the Commissioner did
not act on Philex’s claim on or before 17 July 2006, Philex had until 17 August 2006, the last day of the 30-day
period, to file its judicial claim. The CTA EB held that 17 August 2006 was indeed the last day for Philex to file its
judicial claim. However, Philex filed its Petition for Review with the CTA only on 17 October 2007, or four
hundred twenty-six (426) days after the last day of filing. In short, Philex was late by one year and 61 days in
filing its judicial claim. As the CTA EB correctly found:
Evidently, the Petition for Review in C.T.A. Case No. 7687 was filed 426 days late. Thus, the Petition for Review
in C.T.A. Case No. 7687 should have been dismissed on the ground that the Petition for Review was filed way
beyond the 30-day prescribed period; thus, no jurisdiction was acquired by the CTA Division; x x x58 (Emphasis
supplied)
Unlike San Roque and Taganito, Philex’s case is not one of premature filing but of late filing. Philex did not file
any petition with the CTA within the 120-day period. Philex did not also file any petition with the CTA within 30
days after the expiration of the 120-day period. Philex filed its judicial claim long after the expiration of the 120-
day period, in fact 426 days after the lapse of the 120-day period. In any event, whether governed by
jurisprudence before, during, or after the Atlas case, Philex’s judicial claim will have to be rejected because of
late filing. Whether the two-year prescriptive period is counted from the date of payment of the output VAT
following the Atlas doctrine, or from the close of the taxable quarter when the sales attributable to the input
VAT were made following the Mirant and Aichi doctrines, Philex’s judicial claim was indisputably filed late.
The Atlas doctrine cannot save Philex from the late filing of its judicial claim. The inaction of the Commissioner
on Philex’s claim during the 120-day period is, by express provision of law, "deemed a denial" of Philex’s claim.
Philex had 30 days from the expiration of the 120-day period to file its judicial claim with the CTA. Philex’s failure
to do so rendered the "deemed a denial" decision of the Commissioner final and inappealable. The right to
appeal to the CTA from a decision or "deemed a denial" decision of the Commissioner is merely a statutory
privilege, not a constitutional right. The exercise of such statutory privilege requires strict compliance with the
conditions attached by the statute for its exercise.59 Philex failed to comply with the statutory conditions and
must thus bear the consequences.
II. Prescriptive Periods under Section 112(A) and (C)
There are three compelling reasons why the 30-day period need not necessarily fall within the two-year
prescriptive period, as long as the administrative claim is filed within the two-year prescriptive period.
First, Section 112(A) clearly, plainly, and unequivocally provides that the taxpayer "may, within two (2)
years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax
credit certificate or refund of the creditable input tax due or paid to such sales." In short, the law
states that the taxpayer may apply with the Commissioner for a refund or credit "within two (2)
years," which means at anytime within two years. Thus, the application for refund or credit may be
filed by the taxpayer with the Commissioner on the last day of the two-year prescriptive period and it
will still strictly comply with the law. The twoyear prescriptive period is a grace period in favor of the
taxpayer and he can avail of the full period before his right to apply for a tax refund or credit is barred
by prescription.
Second, Section 112(C) provides that the Commissioner shall decide the application for refund or credit
"within one hundred twenty (120) days from the date of submission of complete documents in support
of the application filed in accordance with Subsection (A)." The reference in Section 112(C) of the
submission of documents "in support of the application filed in accordance with Subsection A" means
that the application in Section 112(A) is the administrative claim that the Commissioner must decide
within the 120-day period. In short, the two-year prescriptive period in Section 112(A) refers to the
period within which the taxpayer can file an administrative claim for tax refund or credit. Stated
otherwise, the two-year prescriptive period does not refer to the filing of the judicial claim with the
CTA but to the filing of the administrative claim with the Commissioner. As held in Aichi, the "phrase
‘within two years x x x apply for the issuance of a tax credit or refund’ refers to applications for
refund/credit with the CIR and not to appeals made to the CTA."
Third, if the 30-day period, or any part of it, is required to fall within the two-year prescriptive period
(equivalent to 730 days60), then the taxpayer must file his administrative claim for refund or credit
within the first 610 days of the two-year prescriptive period. Otherwise, the filing of the
administrative claim beyond the first 610 days will result in the appeal to the CTA being filed beyond
the two-year prescriptive period. Thus, if the taxpayer files his administrative claim on the 611th day,
the Commissioner, with his 120-day period, will have until the 731st day to decide the claim. If the
Commissioner decides only on the 731st day, or does not decide at all, the taxpayer can no longer file
his judicial claim with the CTA because the two-year prescriptive period (equivalent to 730 days) has
lapsed. The 30-day period granted by law to the taxpayer to file an appeal before the CTA becomes
utterly useless, even if the taxpayer complied with the law by filing his administrative claim within the
two-year prescriptive period.
The theory that the 30-day period must fall within the two-year prescriptive period adds a condition that is not
found in the law. It results in truncating 120 days from the 730 days that the law grants the taxpayer for filing his
administrative claim with the Commissioner. This Court cannot interpret a law to defeat, wholly or even partly, a
remedy that the law expressly grants in clear, plain, and unequivocal language.
Section 112(A) and (C) must be interpreted according to its clear, plain, and unequivocal language. The taxpayer
can file his administrative claim for refund or credit at anytime within the two-year prescriptive period. If he files
his claim on the last day of the two-year prescriptive period, his claim is still filed on time. The Commissioner will
have 120 days from such filing to decide the claim. If the Commissioner decides the claim on the 120th day, or
does not decide it on that day, the taxpayer still has 30 days to file his judicial claim with the CTA. This is not only
the plain meaning but also the only logical interpretation of Section 112(A) and (C).
III. "Excess" Input VAT and "Excessively" Collected Tax
The input VAT is not "excessively" collected as understood under Section 229 because at the time the input VAT
is collected the amount paid is correct and proper. The input VAT is a tax liability of, and legally paid by, a VAT-
registered seller61 of goods, properties or services used as input by another VAT-registered person in the sale of
his own goods, properties, or services. This tax liability is true even if the seller passes on the input VAT to the
buyer as part of the purchase price. The second VAT-registered person, who is not legally liable for the input
VAT, is the one who applies the input VAT as credit for his own output VAT. 62 If the input VAT is in fact
"excessively" collected as understood under Section 229, then it is the first VAT-registered person - the taxpayer
who is legally liable and who is deemed to have legally paid for the input VAT - who can ask for a tax refund or
credit under Section 229 as an ordinary refund or credit outside of the VAT System. In such event, the second
VAT-registered taxpayer will have no input VAT to offset against his own output VAT.
In a claim for refund or credit of "excess" input VAT under Section 110(B) and Section 112(A), the input VAT is
not "excessively" collected as understood under Section 229. At the time of payment of the input VAT the
amount paid is the correct and proper amount. Under the VAT System, there is no claim or issue that the input
VAT is "excessively" collected, that is, that the input VAT paid is more than what is legally due. The person legally
liable for the input VAT cannot claim that he overpaid the input VAT by the mere existence of an "excess" input
VAT. The term "excess" input VAT simply means that the input VAT available as credit exceeds the output VAT,
not that the input VAT is excessively collected because it is more than what is legally due. Thus, the taxpayer who
legally paid the input VAT cannot claim for refund or credit of the input VAT as "excessively" collected under
Section 229.
Under Section 229, the prescriptive period for filing a judicial claim for refund is two years from the date of
payment of the tax "erroneously, x x x illegally, x x x excessively or in any manner wrongfully collected." The
prescriptive period is reckoned from the date the person liable for the tax pays the tax. Thus, if the input VAT is
in fact "excessively" collected, that is, the person liable for the tax actually pays more than what is legally due,
the taxpayer must file a judicial claim for refund within two years from his date of payment. Only the person
legally liable to pay the tax can file the judicial claim for refund. The person to whom the tax is passed on as
part of the purchase price has no personality to file the judicial claim under Section 229.63
Under Section 110(B) and Section 112(A), the prescriptive period for filing a judicial claim for "excess" input VAT
is two years from the close of the taxable quarter when the sale was made by the person legally liable to pay
the output VAT. This prescriptive period has no relation to the date of payment of the "excess" input VAT. The
"excess" input VAT may have been paid for more than two years but this does not bar the filing of a judicial claim
for "excess" VAT under Section 112(A), which has a different reckoning period from Section 229. Moreover, the
person claiming the refund or credit of the input VAT is not the person who legally paid the input VAT. Such
person seeking the VAT refund or credit does not claim that the input VAT was "excessively" collected from him,
or that he paid an input VAT that is more than what is legally due. He is not the taxpayer who legally paid the
input VAT.
As its name implies, the Value-Added Tax system is a tax on the value added by the taxpayer in the chain of
transactions. For simplicity and efficiency in tax collection, the VAT is imposed not just on the value added by the
taxpayer, but on the entire selling price of his goods, properties or services. However, the taxpayer is allowed a
refund or credit on the VAT previously paid by those who sold him the inputs for his goods, properties, or
services. The net effect is that the taxpayer pays the VAT only on the value that he adds to the goods, properties,
or services that he actually sells.
Under Section 110(B), a taxpayer can apply his input VAT only against his output VAT. The only exception is when
the taxpayer is expressly "zero-rated or effectively zero-rated" under the law, like companies generating power
through renewable sources of energy.64 Thus, a non zero-rated VAT-registered taxpayer who has no output VAT
because he has no sales cannot claim a tax refund or credit of his unused input VAT under the VAT System. Even
if the taxpayer has sales but his input VAT exceeds his output VAT, he cannot seek a tax refund or credit of his
"excess" input VAT under the VAT System. He can only carry-over and apply his "excess" input VAT against his
future output VAT. If such "excess" input VAT is an "excessively" collected tax, the taxpayer should be able to
seek a refund or credit for such "excess" input VAT whether or not he has output VAT. The VAT System does not
allow such refund or credit. Such "excess" input VAT is not an "excessively" collected tax under Section 229. The
"excess" input VAT is a correctly and properly collected tax. However, such "excess" input VAT can be applied
against the output VAT because the VAT is a tax imposed only on the value added by the taxpayer. If the input
VAT is in fact "excessively" collected under Section 229, then it is the person legally liable to pay the input VAT,
not the person to whom the tax was passed on as part of the purchase price and claiming credit for the input
VAT under the VAT System, who can file the judicial claim under Section 229.
Any suggestion that the "excess" input VAT under the VAT System is an "excessively" collected tax under Section
229 may lead taxpayers to file a claim for refund or credit for such "excess" input VAT under Section 229 as an
ordinary tax refund or credit outside of the VAT System. Under Section 229, mere payment of a tax beyond what
is legally due can be claimed as a refund or credit. There is no requirement under Section 229 for an output VAT
or subsequent sale of goods, properties, or services using materials subject to input VAT.
From the plain text of Section 229, it is clear that what can be refunded or credited is a tax that is "erroneously, x
x x illegally, x x x excessively or in any manner wrongfully collected." In short, there must be a wrongful
payment because what is paid, or part of it, is not legally due. As the Court held in Mirant, Section 229 should
"apply only to instances of erroneous payment or illegal collection of internal revenue taxes." Erroneous or
wrongful payment includes excessive payment because they all refer to payment of taxes not legally due. Under
the VAT System, there is no claim or issue that the "excess" input VAT is "excessively or in any manner wrongfully
collected." In fact, if the "excess" input VAT is an "excessively" collected tax under Section 229, then the taxpayer
claiming to apply such "excessively" collected input VAT to offset his output VAT may have no legal basis to make
such offsetting. The person legally liable to pay the input VAT can claim a refund or credit for such "excessively"
collected tax, and thus there will no longer be any "excess" input VAT. This will upend the present VAT System as
we know it.
IV. Effectivity and Scope of the Atlas , Mirant and Aichi Doctrines
The Atlas doctrine, which held that claims for refund or credit of input VAT must comply with the two-year
prescriptive period under Section 229, should be effective only from its promulgation on 8 June 2007 until its
abandonment on 12 September 2008 in Mirant. The Atlas doctrine was limited to the reckoning of the two-year
prescriptive period from the date of payment of the output VAT. Prior to the Atlas doctrine, the two-year
prescriptive period for claiming refund or credit of input VAT should be governed by Section 112(A) following
the verba legis rule. The Mirant ruling, which abandoned the Atlas doctrine, adopted the verba legis rule, thus
applying Section 112(A) in computing the two-year prescriptive period in claiming refund or credit of input VAT.
The Atlas doctrine has no relevance to the 120+30 day periods under Section 112(C) because the application of
the 120+30 day periods was not in issue in Atlas. The application of the 120+30 day periods was first raised
in Aichi, which adopted the verba legis rule in holding that the 120+30 day periods are mandatory and
jurisdictional. The language of Section 112(C) is plain, clear, and unambiguous. When Section 112(C) states that
"the Commissioner shall grant a refund or issue the tax credit within one hundred twenty (120) days from the
date of submission of complete documents," the law clearly gives the Commissioner 120 days within which to
decide the taxpayer’s claim. Resort to the courts prior to the expiration of the 120-day period is a patent
violation of the doctrine of exhaustion of administrative remedies, a ground for dismissing the judicial suit due to
prematurity. Philippine jurisprudence is awash with cases affirming and reiterating the doctrine of exhaustion of
administrative remedies.65 Such doctrine is basic and elementary.
When Section 112(C) states that "the taxpayer affected may, within thirty (30) days from receipt of the decision
denying the claim or after the expiration of the one hundred twenty-day period, appeal the decision or the
unacted claim with the Court of Tax Appeals," the law does not make the 120+30 day periods optional just
because the law uses the word "may." The word "may" simply means that the taxpayer may or may not
appeal the decision of the Commissioner within 30 days from receipt of the decision, or within 30 days from the
expiration of the 120-day period. Certainly, by no stretch of the imagination can the word "may" be construed as
making the 120+30 day periods optional, allowing the taxpayer to file a judicial claim one day after filing the
administrative claim with the Commissioner.
The old rule66 that the taxpayer may file the judicial claim, without waiting for the Commissioner’s decision if the
two-year prescriptive period is about to expire, cannot apply because that rule was adopted before the
enactment of the 30-day period. The 30-day period was adopted precisely to do away with the old rule, so that
under the VAT System the taxpayer will always have 30 days to file the judicial claim even if the Commissioner
acts only on the 120th day, or does not act at all during the 120-day period. With the 30-day period always
available to the taxpayer, the taxpayer can no longer file a judicial claim for refund or credit of input VAT without
waiting for the Commissioner to decide until the expiration of the 120-day period.
To repeat, a claim for tax refund or credit, like a claim for tax exemption, is construed strictly against the
taxpayer. One of the conditions for a judicial claim of refund or credit under the VAT System is compliance with
the 120+30 day mandatory and jurisdictional periods. Thus, strict compliance with the 120+30 day periods is
necessary for such a claim to prosper, whether before, during, or after the effectivity of the Atlas doctrine,
except for the period from the issuance of BIR Ruling No. DA-489-03 on 10 December 2003 to 6 October 2010
when the Aichi doctrine was adopted, which again reinstated the 120+30 day periods as mandatory and
jurisdictional.
V. Revenue Memorandum Circular No. 49-03 (RMC 49-03) dated 15 April 2003
There is nothing in RMC 49-03 that states, expressly or impliedly, that the taxpayer need not wait for the 120-day
period to expire before filing a judicial claim with the CTA. RMC 49-03 merely authorizes the BIR to continue
processing the administrative claim even after the taxpayer has filed its judicial claim, without saying that the
taxpayer can file its judicial claim before the expiration of the 120-day period. RMC 49-03 states: "In cases where
the taxpayer has filed a ‘Petition for Review’ with the Court of Tax Appeals involving a claim for refund/TCC that
is pending at the administrative agency (either the Bureau of Internal Revenue or the One- Stop Shop Inter-
Agency Tax Credit and Duty Drawback Center of the Department of Finance), the administrative agency and the
court may act on the case separately." Thus, if the taxpayer files its judicial claim before the expiration of the
120-day period, the BIR will nevertheless continue to act on the administrative claim because such premature
filing cannot divest the Commissioner of his statutory power and jurisdiction to decide the administrative claim
within the 120-day period.
On the other hand, if the taxpayer files its judicial claim after the 120- day period, the Commissioner can still
continue to evaluate the administrative claim. There is nothing new in this because even after the expiration of
the 120-day period, the Commissioner should still evaluate internally the administrative claim for purposes of
opposing the taxpayer’s judicial claim, or even for purposes of determining if the BIR should actually concede to
the taxpayer’s judicial claim. The internal administrative evaluation of the taxpayer’s claim
must necessarily continue to enable the BIR to oppose intelligently the judicial claim or, if the facts and the law
warrant otherwise, for the BIR to concede to the judicial claim, resulting in the termination of the judicial
proceedings.
What is important, as far as the present cases are concerned, is that the mere filing by a taxpayer of a judicial
claim with the CTA before the expiration of the 120-day period cannot operate to divest the Commissioner of
his jurisdiction to decide an administrative claim within the 120-day mandatory period, unless the
Commissioner has clearly given cause for equitable estoppel to apply as expressly recognized in Section 246 of
the Tax Code.67
VI. BIR Ruling No. DA-489-03 dated 10 December 2003
BIR Ruling No. DA-489-03 does provide a valid claim for equitable estoppel under Section 246 of the Tax Code.
BIR Ruling No. DA-489-03 expressly states that the "taxpayer-claimant need not wait for the lapse of the 120-
day period before it could seek judicial relief with the CTA by way of Petition for Review." Prior to this ruling,
the BIR held, as shown by its position in the Court of Appeals, 68 that the expiration of the 120-day period is
mandatory and jurisdictional before a judicial claim can be filed.
There is no dispute that the 120-day period is mandatory and jurisdictional, and that the CTA does not acquire
jurisdiction over a judicial claim that is filed before the expiration of the 120-day period. There are, however, two
exceptions to this rule. The first exception is if the Commissioner, through a specific ruling, misleads a particular
taxpayer to prematurely file a judicial claim with the CTA. Such specific ruling is applicable only to such particular
taxpayer. The second exception is where the Commissioner, through a general interpretative rule issued under
Section 4 of the Tax Code, misleads all taxpayers into filing prematurely judicial claims with the CTA. In these
cases, the Commissioner cannot be allowed to later on question the CTA’s assumption of jurisdiction over such
claim since equitable estoppel has set in as expressly authorized under Section 246 of the Tax Code.
Section 4 of the Tax Code, a new provision introduced by RA 8424, expressly grants to the Commissioner the
power to interpret tax laws, thus:
Sec. 4. Power of the Commissioner To Interpret Tax Laws and To Decide Tax Cases. — The power to interpret the
provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the
Commissioner, subject to review by the Secretary of Finance.
The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties
imposed in relation thereto, or other matters arising under this Code or other laws or portions thereof
administered by the Bureau of Internal Revenue is vested in the Commissioner, subject to the exclusive appellate
jurisdiction of the Court of Tax Appeals.
Since the Commissioner has exclusive and original jurisdiction to interpret tax laws, taxpayers acting in good
faith should not be made to suffer for adhering to general interpretative rules of the Commissioner interpreting
tax laws, should such interpretation later turn out to be erroneous and be reversed by the Commissioner or this
Court. Indeed, Section 246 of the Tax Code expressly provides that a reversal of a BIR regulation or ruling cannot
adversely prejudice a taxpayer who in good faith relied on the BIR regulation or ruling prior to its reversal.
Section 246 provides as follows:
Sec. 246. Non-Retroactivity of Rulings. — Any revocation, modification or reversal of any of the rules and
regulations promulgated in accordance with the preceding Sections or any of the rulings or circulars
promulgated by the Commissioner shall not be given retroactive application if the revocation, modification or
reversal will be prejudicial to the taxpayers, except in the following cases:
(a) Where the taxpayer deliberately misstates or omits material facts from his return or any document
required of him by the Bureau of Internal Revenue;
(b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially different
from the facts on which the ruling is based; or
(c) Where the taxpayer acted in bad faith. (Emphasis supplied)
Thus, a general interpretative rule issued by the Commissioner may be relied upon by taxpayers from the time
the rule is issued up to its reversal by the Commissioner or this Court. Section 246 is not limited to a reversal only
by the Commissioner because this Section expressly states, "Any revocation, modification or reversal" without
specifying who made the revocation, modification or reversal. Hence, a reversal by this Court is covered under
Section 246.
Taxpayers should not be prejudiced by an erroneous interpretation by the Commissioner, particularly on a
difficult question of law. The abandonment of the Atlas doctrine by Mirant and Aichi69 is proof that the reckoning
of the prescriptive periods for input VAT tax refund or credit is a difficult question of law. The abandonment of
the Atlas doctrine did not result in Atlas, or other taxpayers similarly situated, being made to return the tax
refund or credit they received or could have received under Atlas prior to its abandonment. This Court is
applying Mirant and Aichi prospectively. Absent fraud, bad faith or misrepresentation, the reversal by this Court
of a general interpretative rule issued by the Commissioner, like the reversal of a specific BIR ruling under
Section 246, should also apply prospectively. As held by this Court in CIR v. Philippine Health Care Providers,
Inc.:70
In ABS-CBN Broadcasting Corp. v. Court of Tax Appeals, this Court held that under Section 246 of the 1997 Tax
Code, the Commissioner of Internal Revenue is precluded from adopting a position contrary to one previously
taken where injustice would result to the taxpayer. Hence, where an assessment for deficiency withholding
income taxes was made, three years after a new BIR Circular reversed a previous one upon which the taxpayer
had relied upon, such an assessment was prejudicial to the taxpayer. To rule otherwise, opined the Court, would
be contrary to the tenets of good faith, equity, and fair play.
This Court has consistently reaffirmed its ruling in ABS-CBN Broadcasting Corp.1âwphi1 in the later cases
of Commissioner of Internal Revenue v. Borroughs, Ltd., Commissioner of Internal Revenue v. Mega Gen. Mdsg.
Corp., Commissioner of Internal Revenue v. Telefunken Semiconductor (Phils.) Inc., and Commissioner of Internal
Revenue v. Court of Appeals. The rule is that the BIR rulings have no retroactive effect where a grossly unfair
deal would result to the prejudice of the taxpayer, as in this case.
More recently, in Commissioner of Internal Revenue v. Benguet Corporation, wherein the taxpayer was entitled
to tax refunds or credits based on the BIR’s own issuances but later was suddenly saddled with deficiency taxes
due to its subsequent ruling changing the category of the taxpayer’s transactions for the purpose of paying its
VAT, this Court ruled that applying such ruling retroactively would be prejudicial to the taxpayer. (Emphasis
supplied)
Thus, the only issue is whether BIR Ruling No. DA-489-03 is a general interpretative rule applicable to all
taxpayers or a specific ruling applicable only to a particular taxpayer.
BIR Ruling No. DA-489-03 is a general interpretative rule because it was a response to a query made, not by a
particular taxpayer, but by a government agency tasked with processing tax refunds and credits, that is, the One
Stop Shop Inter-Agency Tax Credit and Drawback Center of the Department of Finance. This government
agency is also the addressee, or the entity responded to, in BIR Ruling No. DA-489-03. Thus, while this
government agency mentions in its query to the Commissioner the administrative claim of Lazi Bay Resources
Development, Inc., the agency was in fact asking the Commissioner what to do in cases like the tax claim of Lazi
Bay Resources Development, Inc., where the taxpayer did not wait for the lapse of the 120-day period.
Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, all taxpayers can rely on BIR Ruling No.
DA-489-03 from the time of its issuance on 10 December 2003 up to its reversal by this Court in Aichi on 6
October 2010, where this Court held that the 120+30 day periods are mandatory and jurisdictional
However, BIR Ruling No. DA-489-03 cannot be given retroactive effect for four reasons: first, it is admittedly an
erroneous interpretation of the law; second, prior to its issuance, the BIR held that the 120-day period was
mandatory and jurisdictional, which is the correct interpretation of the law; third, prior to its issuance, no
taxpayer can claim that it was misled by the BIR into filing a judicial claim prematurely; and fourth, a claim for tax
refund or credit, like a claim for tax exemption, is strictly construed against the taxpayer.
San Roque, therefore, cannot benefit from BIR Ruling No. DA-489-03 because it filed its judicial claim
prematurely on 10 April 2003, before the issuance of BIR Ruling No. DA-489-03 on 10 December 2003. To repeat,
San Roque cannot claim that it was misled by the BIR into filing its judicial claim prematurely because BIR Ruling
No. DA-489-03 was issued only after San Roque filed its judicial claim. At the time San Roque filed its judicial
claim, the law as applied and administered by the BIR was that the Commissioner had 120 days to act on
administrative claims. This was in fact the position of the BIR prior to the issuance of BIR Ruling No. DA-489-
03. Indeed, San Roque never claimed the benefit of BIR Ruling No. DA-489-03 or RMC 49-03, whether in this
Court, the CTA, or before the Commissioner.
Taganito, however, filed its judicial claim with the CTA on 14 February 2007, after the issuance of BIR Ruling No.
DA-489-03 on 10 December 2003. Truly, Taganito can claim that in filing its judicial claim prematurely without
waiting for the 120-day period to expire, it was misled by BIR Ruling No. DA-489-03. Thus, Taganito can claim the
benefit of BIR Ruling No. DA-489-03, which shields the filing of its judicial claim from the vice of prematurity.
Philex’s situation is not a case of premature filing of its judicial claim but of late filing, indeed very late filing. BIR
Ruling No. DA-489-03 allowed premature filing of a judicial claim, which means non-exhaustion of the 120-day
period for the Commissioner to act on an administrative claim. Philex cannot claim the benefit of BIR Ruling No.
DA-489-03 because Philex did not file its judicial claim prematurely but filed it long after the lapse of the 30-day
period following the expiration of the 120-day period. In fact, Philex filed its judicial claim 426 days after the
lapse of the 30-day period.
VII. Existing Jurisprudence
There is no basis whatsoever to the claim that in five cases this Court had already made a ruling that the filing
dates of the administrative and judicial claims are inconsequential, as long as they are within the two-year
prescriptive period. The effect of the claim of the dissenting opinions is that San Roque’s failure to wait for the
120-day mandatory period to lapse is inconsequential, thus allowing San Roque to claim the tax refund or credit.
However, the five cases cited by the dissenting opinions do not support even remotely the claim that this Court
had already made such a ruling. None of these five cases mention, cite, discuss, rule or even hint that
compliance with the 120-day mandatory period is inconsequential as long as the administrative and judicial
claims are filed within the two-year prescriptive period.
In CIR v. Toshiba Information Equipment (Phils.), Inc.,71 the issue was whether any output VAT was actually
passed on to Toshiba that it could claim as input VAT subject to tax credit or refund. The Commissioner argued
that "although Toshiba may be a VAT-registered taxpayer, it is not engaged in a VAT-taxable business." The
Commissioner cited Section 4.106-1 of Revenue Regulations No. 75 that "refund of input taxes on capital goods
shall be allowed only to the extent that such capital goods are used in VAT-taxable business." In the words of the
Court, "Ultimately, however, the issue still to be resolved herein shall be whether respondent Toshiba is entitled
to the tax credit/refund of its input VAT on its purchases of capital goods and services, to which this Court
answers in the affirmative." Nowhere in this case did the Court discuss, state, or rule that the filing dates of the
administrative and judicial claims are inconsequential, as long as they are within the two-year prescriptive
period.
In Intel Technology Philippines, Inc. v. CIR,72 the Court stated: "The issues to be resolved in the instant case are
(1) whether the absence of the BIR authority to print or the absence of the TIN-V in petitioner’s export sales
invoices operates to forfeit its entitlement to a tax refund/credit of its unutilized input VAT attributable to its
zero-rated sales; and (2) whether petitioner’s failure to indicate "TIN-V" in its sales invoices automatically
invalidates its claim for a tax credit certification." Again, nowhere in this case did the Court discuss, state, or rule
that the filing dates of the administrative and judicial claims are inconsequential, as long as they are within the
two-year prescriptive period.
In AT&T Communications Services Philippines, Inc. v. CIR,73 the Court stated: "x x x the CTA First Division,
conceding that petitioner’s transactions fall under the classification of zero-rated sales, nevertheless denied
petitioner’s claim ‘for lack of substantiation,’ x x x." The Court quoted the ruling of the First Division that "valid
VAT official receipts, and not mere sale invoices, should have been submitted" by petitioner to substantiate its
claim. The Court further stated: "x x x the CTA En Banc, x x x affirmed x x x the CTA First Division," and
"petitioner’s motion for reconsideration having been denied x x x, the present petition for review was filed."
Clearly, the sole issue in this case is whether petitioner complied with the substantiation requirements in
claiming for tax refund or credit. Again, nowhere in this case did the Court discuss, state, or rule that the filing
dates of the administrative and judicial claims are inconsequential, as long as they are within the two-year
prescriptive period.
In CIR v. Ironcon Builders and Development Corporation,74 the Court put the issue in this manner: "Simply put,
the sole issue the petition raises is whether or not the CTA erred in granting respondent Ironcon’s application for
refund of its excess creditable VAT withheld." The Commissioner argued that "since the NIRC does not
specifically grant taxpayers the option to refund excess creditable VAT withheld, it follows that such refund
cannot be allowed." Thus, this case is solely about whether the taxpayer has the right under the NIRC to ask for a
cash refund of excess creditable VAT withheld. Again, nowhere in this case did the Court discuss, state, or rule
that the filing dates of the administrative and judicial claims are inconsequential, as long as they are within the
two-year prescriptive period.
In CIR v. Cebu Toyo Corporation,75 the issue was whether Cebu Toyo was exempt or subject to VAT. Compliance
with the 120-day period was never an issue in Cebu Toyo. As the Court explained:
Both the Commissioner of Internal Revenue and the Office of the Solicitor General argue that respondent Cebu
Toyo Corporation, as a PEZA-registered enterprise, is exempt from national and local taxes, including VAT,
under Section 24 of Rep. Act No. 7916 and Section 109 of the NIRC. Thus, they contend that respondent Cebu
Toyo Corporation is not entitled to any refund or credit on input taxes it previously paid as provided under
Section 4.103-1 of Revenue Regulations No. 7-95, notwithstanding its registration as a VAT taxpayer. For
petitioner claims that said registration was erroneous and did not confer upon the respondent any right to claim
recognition of the input tax credit.
The respondent counters that it availed of the income tax holiday under E.O. No. 226 for four years from August
7, 1995 making it exempt from income tax but not from other taxes such as VAT. Hence, according to
respondent, its export sales are not exempt from VAT, contrary to petitioner’s claim, but its export sales is
subject to 0% VAT. Moreover, it argues that it was able to establish through a report certified by an independent
Certified Public Accountant that the input taxes it incurred from April 1, 1996 to December 31, 1997 were
directly attributable to its export sales. Since it did not have any output tax against which said input taxes may be
offset, it had the option to file a claim for refund/tax credit of its unutilized input taxes.
Considering the submission of the parties and the evidence on record, we find the petition bereft of merit.
Petitioner’s contention that respondent is not entitled to refund for being exempt from VAT is untenable. This
argument turns a blind eye to the fiscal incentives granted to PEZA-registered enterprises under Section 23 of
Rep. Act No. 7916. Note that under said statute, the respondent had two options with respect to its tax burden.
It could avail of an income tax holiday pursuant to provisions of E.O. No. 226, thus exempt it from income taxes
for a number of years but not from other internal revenue taxes such as VAT; or it could avail of the tax
exemptions on all taxes, including VAT under P.D. No. 66 and pay only the preferential tax rate of 5% under Rep.
Act No. 7916. Both the Court of Appeals and the Court of Tax Appeals found that respondent availed of the
income tax holiday for four (4) years starting from August 7, 1995, as clearly reflected in its 1996 and 1997
Annual Corporate Income Tax Returns, where respondent specified that it was availing of the tax relief under
E.O. No. 226. Hence, respondent is not exempt from VAT and it correctly registered itself as a VAT taxpayer. In
fine, it is engaged in taxable rather than exempt transactions. (Emphasis supplied)
Clearly, the issue in Cebu Toyo was whether the taxpayer was exempt from VAT or subject to VAT at 0% tax
rate. If subject to 0% VAT rate, the taxpayer could claim a refund or credit of its input VAT. Again, nowhere in
this case did the Court discuss, state, or rule that the filing dates of the administrative and judicial claims are
inconsequential, as long as they are within the two-year prescriptive period.
While this Court stated in the narration of facts in Cebu Toyo that the taxpayer "did not bother to wait for the
Resolution of its (administrative) claim by the CIR" before filing its judicial claim with the CTA, this issue was not
raised before the Court. Certainly, this statement of the Court is not a binding precedent that the taxpayer need
not wait for the 120-day period to lapse.
Any issue, whether raised or not by the parties, but not passed upon by the Court, does not have any value as
precedent. As this Court has explained as early as 1926:
It is contended, however, that the question before us was answered and resolved against the contention of the
appellant in the case of Bautista vs. Fajardo (38 Phil. 624). In that case no question was raised nor was it even
suggested that said section 216 did not apply to a public officer. That question was not discussed nor referred to
by any of the parties interested in that case. It has been frequently decided that the fact that a statute has been
accepted as valid, and invoked and applied for many years in cases where its validity was not raised or passed on,
does not prevent a court from later passing on its validity, where that question is squarely and properly raised
and presented. Where a question passes the Court sub silentio, the case in which the question was so passed is
not binding on the Court (McGirr vs. Hamilton and Abreu, 30 Phil. 563), nor should it be considered as a
precedent. (U.S. vs. Noriega and Tobias, 31 Phil. 310; Chicote vs. Acasio, 31 Phil. 401; U.S. vs. More, 3 Cranch
[U.S.] 159, 172; U.S. vs. Sanges, 144 U.S. 310, 319; Cross vs. Burke, 146 U.S. 82.) For the reasons given in the case
of McGirr vs. Hamilton and Abreu, supra, the decision in the case of Bautista vs. Fajardo, supra, can have no
binding force in the interpretation of the question presented here.76 (Emphasis supplied)
In Cebu Toyo, the nature of the 120-day period, whether it is mandatory or optional, was not even raised as an
issue by any of the parties. The Court never passed upon this issue. Thus, Cebu Toyo does not constitute binding
precedent on the nature of the 120-day period.
There is also the claim that there are numerous CTA decisions allegedly supporting the argument that the filing
dates of the administrative and judicial claims are inconsequential, as long as they are within the two-year
prescriptive period. Suffice it to state that CTA decisions do not constitute precedents, and do not bind this Court
or the public. That is why CTA decisions are appealable to this Court, which may affirm, reverse or modify the
CTA decisions as the facts and the law may warrant. Only decisions of this Court constitute binding precedents,
forming part of the Philippine legal system.77 As held by this Court in The Philippine Veterans Affairs Office v.
Segundo:78
x x x Let it be admonished that decisions of the Supreme Court "applying or interpreting the laws or the
Constitution . . . form part of the legal system of the Philippines," and, as it were, "laws" by their own right
because they interpret what the laws say or mean. Unlike rulings of the lower courts, which bind the parties to
specific cases alone, our judgments are universal in their scope and application, and equally mandatory in
character. Let it be warned that to defy our decisions is to court contempt. (Emphasis supplied)
The same basic doctrine was reiterated by this Court in De Mesa v. Pepsi Cola Products Phils., Inc.:79
The principle of stare decisis et non quieta movere is entrenched in Article 8 of the Civil Code, to wit:
ART. 8. Judicial decisions applying or interpreting the laws or the Constitution shall form a part of the legal
system of the Philippines.
It enjoins adherence to judicial precedents. It requires our courts to follow a rule already established in a final
decision of the Supreme Court. That decision becomes a judicial precedent to be followed in subsequent cases
by all courts in the land. The doctrine of stare decisis is based on the principle that once a question of law has
been examined and decided, it should be deemed settled and closed to further argument. (Emphasis supplied)
VIII. Revenue Regulations No. 7-95 Effective 1 January 1996
Section 4.106-2(c) of Revenue Regulations No. 7-95, by its own express terms, applies only if the taxpayer files
the judicial claim "after" the lapse of the 60-day period, a period with which San Roque failed to comply. Under
Section 4.106-2(c), the 60-day period is still mandatory and jurisdictional.
Moreover, it is a hornbook principle that a prior administrative regulation can never prevail over a later contrary
law, more so in this case where the later law was enacted precisely to amend the prior administrative regulation
and the law it implements.
The laws and regulation involved are as follows:
1977 Tax Code, as amended by Republic Act No. 7716 (1994)
Sec. 106. Refunds or tax credits of creditable input tax. —
(a) x x x x
(d) Period within which refund or tax credit of input tax shall be made - In proper cases, the
Commissioner shall grant a refund or issue the tax credit for creditable input taxes within sixty (60)
days from the date of submission of complete documents in support of the application filed in
accordance with subparagraphs (a) and (b) hereof. In case of full or partial denial of the claim for tax
refund or tax credit, or the failure on the part of the Commissioner to act on the application within
the period prescribed above, the taxpayer affected may, within thirty (30) days from receipt of the
decision denying the claim or after the expiration of the sixty-day period, appeal the decision or the
unacted claim with the Court of Tax Appeals.
Revenue Regulations No. 7-95 (1996)
Section 4.106-2. Procedures for claiming refunds or tax credits of input tax — (a) x x x
xxxx
(c) Period within which refund or tax credit of input taxes shall be made. — In proper cases, the Commissioner
shall grant a tax credit/refund for creditable input taxes within sixty (60) days from the date of submission of
complete documents in support of the application filed in accordance with subparagraphs (a) and (b) above.
In case of full or partial denial of the claim for tax credit/refund as decided by the Commissioner of Internal
Revenue, the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from the receipt of said
denial, otherwise the decision will become final. However, if no action on the claim for tax credit/refund has
been taken by the Commissioner of Internal Revenue after the sixty (60) day period from the date of
submission of the application but before the lapse of the two (2) year period from the date of filing of the VAT
return for the taxable quarter, the taxpayer may appeal to the Court of Tax Appeals.
xxxx
1997 Tax Code
Section 112. Refunds or Tax Credits of Input Tax —
(A) x x x
xxxx
(D) Period within which Refund or Tax Credit of Input Taxes shall be made. — In proper cases, the Commissioner
shall grant the refund or issue the tax credit certificate for creditable input taxes within one hundred twenty
(120) days from the date of submission of complete documents in support of the application filed in accordance
with Subsections (A) and (B) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within
thirty (30) days from the receipt of the decision denying the claim or after the expiration of the hundred
twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals.
There can be no dispute that under Section 106(d) of the 1977 Tax Code, as amended by RA 7716, the
Commissioner has a 60-day period to act on the administrative claim. This 60-day period is mandatory and
jurisdictional.
Did Section 4.106-2(c) of Revenue Regulations No. 7-95 change this, so that the 60-day period is no longer
mandatory and jurisdictional? The obvious answer is no.
Section 4.106-2(c) itself expressly states that if, "after the sixty (60) day period," the Commissioner fails to act
on the administrative claim, the taxpayer may file the judicial claim even "before the lapse of the two (2) year
period." Thus, under Section 4.106-2(c) the 60-day period is still mandatory and jurisdictional.
Section 4.106-2(c) did not change Section 106(d) as amended by RA 7716, but merely implemented it, for two
reasons. First, Section 4.106-2(c) still expressly requires compliance with the 60-day period. This cannot be
disputed.1âwphi1
Second, under the novel amendment introduced by RA 7716, mere inaction by the Commissioner during the 60-
day period is deemed a denial of the claim. Thus, Section 4.106-2(c) states that "if no action on the claim for tax
refund/credit has been taken by the Commissioner after the sixty (60) day period," the taxpayer "may" already
file the judicial claim even long before the lapse of the two-year prescriptive period. Prior to the amendment by
RA 7716, the taxpayer had to wait until the two-year prescriptive period was about to expire if the
Commissioner did not act on the claim.80 With the amendment by RA 7716, the taxpayer need not wait until the
two-year prescriptive period is about to expire before filing the judicial claim because mere inaction by the
Commissioner during the 60-day period is deemed a denial of the claim. This is the meaning of the phrase "but
before the lapse of the two (2) year period" in Section 4.106-2(c). As Section 4.106- 2(c) reiterates that the
judicial claim can be filed only "after the sixty (60) day period," this period remains mandatory and jurisdictional.
Clearly, Section 4.106-2(c) did not amend Section 106(d) but merely faithfully implemented it.
Even assuming, for the sake of argument, that Section 4.106-2(c) of Revenue Regulations No. 7-95, an
administrative issuance, amended Section 106(d) of the Tax Code to make the period given to the Commissioner
non-mandatory, still the 1997 Tax Code, a much later law, reinstated the original intent and provision of Section
106(d) by extending the 60-day period to 120 days and re-adopting the original wordings of Section 106(d).
Thus, Section 4.106-2(c), a mere administrative issuance, becomes inconsistent with Section 112(D), a later law.
Obviously, the later law prevails over a prior inconsistent administrative issuance.
Section 112(D) of the 1997 Tax Code is clear, unequivocal, and categorical that the Commissioner has 120 days to
act on an administrative claim. The taxpayer can file the judicial claim (1) only within thirty days after the
Commissioner partially or fully denies the claim within the 120- day period, or (2) only within thirty days from
the expiration of the 120- day period if the Commissioner does not act within the 120-day period.
There can be no dispute that upon effectivity of the 1997 Tax Code on 1 January 1998, or more than five
years before San Roque filed its administrative claim on 28 March 2003, the law has been clear: the 120- day
period is mandatory and jurisdictional. San Roque’s claim, having been filed administratively on 28 March 2003,
is governed by the 1997 Tax Code, not the 1977 Tax Code. Since San Roque filed its judicial claim before the
expiration of the 120-day mandatory and jurisdictional period, San Roque’s claim cannot prosper.
San Roque cannot also invoke Section 4.106-2(c), which expressly provides that the taxpayer can only file the
judicial claim "after" the lapse of the 60-day period from the filing of the administrative claim. San Roque filed
its judicial claim just 13 days after filing its administrative claim. To recall, San Roque filed its judicial claim on
10 April 2003, a mere 13 days after it filed its administrative claim.
Even if, contrary to all principles of statutory construction as well as plain common sense, we gratuitously apply
now Section 4.106-2(c) of Revenue Regulations No. 7-95, still San Roque cannot recover any refund or credit
because San Roque did not wait for the 60-day period to lapse, contrary to the express requirement in Section
4.106-2(c). In short, San Roque does not even comply with Section 4.106-2(c). A claim for tax refund or credit is
strictly construed against the taxpayer, who must prove that his claim clearly complies with all the conditions for
granting the tax refund or credit. San Roque did not comply with the express condition for such statutory grant.
A final word. Taxes are the lifeblood of the nation. The Philippines has been struggling to improve its tax
efficiency collection for the longest time with minimal success. Consequently, the Philippines has suffered the
economic adversities arising from poor tax collections, forcing the government to continue borrowing to fund
the budget deficits. This Court cannot turn a blind eye to this economic malaise by being unduly liberal to
taxpayers who do not comply with statutory requirements for tax refunds or credits. The tax refund claims in the
present cases are not a pittance. Many other companies stand to gain if this Court were to rule otherwise. The this Application is Filed
dissenting opinions will turn on its head the well-settled doctrine that tax refunds are strictly construed against Amount of Tax Credit/Refund Applied For ₱ 31,902,507.506
the taxpayer. Proceedings before the CTA Division

WHEREFORE, the Court hereby (1) GRANTS the petition of the Commissioner of Internal Revenue in G.R. No. On December 27, 2000, due to the inaction of the respondent, petitioner filed a Petition for Review with the CTA
187485 to DENY the P483,797,599.65 tax refund or credit claim of San Roque Power Corporation; Division, docketed as CTA Case No. 6212. Petitioner alleged that for the 4th quarter of 1998, it generated and
(2) GRANTS the petition of Taganito Mining Corporation in G.R. No. 196113 for a tax refund or credit of recorded zero-rated export sales in the amount of ₱3,027,880,818.42, paid to petitioner in acceptable foreign
P8,365,664.38; and (3) DENIES the petition of Philex Mining Corporation in G.R. No. 197156 for a tax refund or currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas; 7 and
credit of P23,956,732.44. that for the said period, petitioner paid input VAT in the total amount of ₱31,902,507.50,8 which have not been
applied to any output VAT.9
SO ORDERED.
To this, respondent filed an Answer10 raising the following special and affirmative defenses, to wit:
G.R. No. 172378 January 17, 2011
8. The petition states no cause of action as it does not allege the dates when the taxes sought to be
SILICON PHILIPPINES, INC., (Formerly INTEL PHILIPPINES MANUFACTURING, INC.), Petitioner, refunded/credited were actually paid;
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent. 9. It is incumbent upon herein petitioner to show that it complied with the provisions of Section 229 of
the Tax Code as amended;
DECISION
10. Claims for refund are construed strictly against the claimant, the same being in the nature of
DEL CASTILLO, J.: exemption from taxes (Commissioner of Internal Revenue vs. Ledesma, 31 SCRA 95; Manila Electric Co.
vs. Commissioner of Internal Revenue, 67 SCRA 35);
The burden of proving entitlement to a refund lies with the claimant.
11. One who claims to be exempt from payment of a particular tax must do so under clear and
This Petition for Review on Certiorari under Rule 45 of the Rules of Court seeks to set aside the September 30, unmistakable terms found in the statute (Asiatic Petroleum vs. Llanes, 49 Phil. 466; Union Garment Co.
2005 Decision1 and the April 20, 2006 Resolution2 of the Court of Tax Appeals (CTA) En Banc. vs. Court of Tax Appeals, 4 SCRA 304);

Factual Antecedents 12. In an action for refund, the burden is upon the taxpayer to prove that he is entitled thereto, and
failure to sustain the same is fatal to the action for refund. Furthermore, as pointed out in the case of
William Li Yao vs. Collector (L-11875, December 28, 1963), amounts sought to be recovered or credited
Petitioner Silicon Philippines, Inc., a corporation duly organized and existing under and by virtue of the laws of
should be shown to be taxes which are erroneously or illegally collected; that is to say, their payment
the Republic of the Philippines, is engaged in the business of designing, developing, manufacturing and exporting
was an independent single act of voluntary payment of a tax believed to be due and collectible and
advance and large-scale integrated circuit components or "IC’s."3 Petitioner is registered with the Bureau of
accepted by the government, which had therefor become part of the State moneys subject to
Internal Revenue (BIR) as a Value Added Tax (VAT) taxpayer 4 and with the Board of Investments (BOI) as a
expenditure and perhaps already spent or appropriated; and
preferred pioneer enterprise.5

13. Taxes paid and collected are presumed to have been made in accordance with the law and
On May 21, 1999, petitioner filed with the respondent Commissioner of Internal Revenue (CIR), through the One-
regulations, hence not refundable.11
Stop Shop Inter-Agency Tax Credit and Duty Drawback Center of the Department of Finance (DOF), an
application for credit/refund of unutilized input VAT for the period October 1, 1998 to December 31, 1998 in the
amount of ₱31,902,507.50, broken down as follows: On November 18, 2003, the CTA Division rendered a Decision12 partially granting petitioner’s claim for refund of
unutilized input VAT on capital goods. Out of the amount of ₱15,170,082.00, only ₱9,898,867.00 was allowed to
be refunded because training materials, office supplies, posters, banners, T-shirts, books, and other similar items
Amount purchased by petitioner were not considered capital goods under Section 4.106-1(b) of Revenue Regulations (RR)
Tax Paid on Imported/Locally Purchased ₱ 15,170,082.00 No. 7-95 (Consolidated Value-Added Tax Regulations).13 With regard to petitioner’s claim for credit/refund of
Capital Equipment input VAT attributable to its zero-rated export sales, the CTA Division denied the same because petitioner failed
Total VAT paid on Purchases per Invoices 16,732,425.50 to present an Authority to Print (ATP) from the BIR;14 neither did it print on its export sales invoices the ATP and
Received During the Period for which the word "zero-rated."15 Thus, the CTA Division disposed of the case in this wise:
WHEREFORE, in view of the foregoing the instant petition for review is hereby PARTIALLY GRANTED. Respondent
is ORDERED to ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner in the reduced amount of P9,898,867.00
representing input VAT on importation of capital goods. However, the claim for refund of input VAT attributable
to petitioner's alleged zero-rated sales in the amount of P16,732,425.50 is hereby DENIED for lack of merit.
SO ORDERED.16
Not satisfied with the Decision, petitioner moved for reconsideration. 17 It claimed that it is not required to
secure an ATP since it has a "Permit to Adopt Computerized Accounting Documents such as Sales Invoice and
Official Receipts" from the BIR.18 Petitioner further argued that because all its finished products are exported to
its mother company, Intel Corporation, a non-resident corporation and a non-VAT registered entity, the printing
of the word "zero-rated" on its export sales invoices is not necessary.19
On its part, respondent filed a Motion for Partial Reconsideration20 contending that petitioner is not entitled to a
credit/refund of unutilized input VAT on capital goods because it failed to show that the goods
imported/purchased are indeed capital goods as defined in Section 4.106-1 of RR No. 7-95.21
The CTA Division denied both motions in a Resolution22 dated August 10, 2004. It noted that:
[P]etitioner’s request for Permit to Adopt Computerized Accounting Documents such as Sales Invoice and Official
Receipt was approved on August 31, 2001 while the period involved in this case was October 31, 1998 to
December 31, 1998 x x x. While it appears that petitioner was previously issued a permit by the BIR Makati
Branch, such permit was only limited to the use of computerized books of account x x x. It was only on August
31, 2001 that petitioner was permitted to generate computerized sales invoices and official receipts [provided
that the BIR Permit Number is printed] in the header of the document x x x.
xxxx
Thus, petitioner’s contention that it is not required to show its BIR permit number on the sales invoices runs
counter to the requirements under the said "Permit." This court also wonders why petitioner was issuing
computer generated sales invoices during the period involved (October 1998 to December 1998) when it did not
have an authority or permit. Therefore, we are convinced that such documents lack probative value and should
be treated as inadmissible, incompetent and immaterial to prove petitioner’s export sales transaction.
xxxx
ACCORDINGLY, the Motion for Reconsideration and the Supplemental Motion for Reconsideration filed by
petitioner as well as the Motion for Partial Reconsideration of respondent are hereby DENIED for lack of merit.
The pronouncement in the assailed decision is REITERATED.
SO ORDERED 23
Ruling of the CTA En Banc
Undaunted, petitioner elevated the case to the CTA En Banc via a Petition for Review,24 docketed as EB Case No.
23.
On September 30, 2005, the CTA En Banc issued the assailed Decision25 denying the petition for lack of merit.
Pertinent portions of the Decision read:
This Court notes that petitioner raised the same issues which have already been thoroughly discussed in the
assailed Decision, as well as, in the Resolution denying petitioner's Motion for Partial Reconsideration.
With regard to the first assigned error, this Court reiterates that, the requirement of [printing] the BIR permit to
print on the face of the sales invoices and official receipts is a control mechanism adopted by the Bureau of
Internal Revenue to safeguard the interest of the government.
This requirement is clearly mandated under Section 238 of the 1997 National Internal Revenue Code, which
provides that:
SEC. 238. Printing of Receipts or Sales or Commercial Invoice. – All persons who are engaged in business shall
secure from the Bureau of Internal Revenue an authority to print receipts or sales or commercial invoices before
a printer can print the same.
The above mentioned provision seeks to eliminate the use of unregistered and double or multiple sets of
receipts by striking at the very root of the problem — the printer (H. S. de Leon, The National Internal Revenue
Code Annotated, 7th Ed., p. 901). And what better way to prove that the required permit to print was secured
from the Bureau of Internal Revenue than to show or print the same on the face of the invoices. There can be no
other valid proof of compliance with the above provision than to show the Authority to Print Permit number
[printed] on the sales invoices and official receipts.
With regard to petitioner’s failure to print the word "zero-rated" on the face of its export sales invoices, it must
be emphasized that Section 4.108-1 of Revenue Regulations No. 7-95 specifically requires that all value-added
tax registered persons shall, for every sale or lease of goods or properties or services, issue duly registered
invoices which must show the word "zero-rated" [printed] on the invoices covering zero-rated sales.
It is not enough that petitioner prove[s] that it is entitled to its claim for refund by way of substantial evidence.
Well settled in our jurisprudence [is] that tax refunds are in the nature of tax exemptions and as such, they are
regarded as in derogation of sovereign authority (Commissioner of Internal Revenue vs. Ledesma, 31 SCRA
95). Thus, tax refunds are construed in strictissimi juris against the person or entity claiming the
same (Commissioner of Internal Revenue vs. Procter & Gamble Philippines Manufacturing Corporation, 204 SCRA
377; Commissioner of Internal Revenue vs. Tokyo Shipping Co., Ltd., 244 SCRA 332).
In this case, not only should petitioner establish that it is entitled to the claim but it must most importantly show
proof of compliance with the substantiation requirements as mandated by law or regulations.
The rest of the assigned errors pertain to the alleged errors of the First Division: in finding that the petitioner
failed to comply with the substantiation requirements provided by law in proving its claim for refund; in reducing
the amount of petitioner’s tax credit for input vat on importation of capital goods; and in denying petitioner’s
claim for refund of input vat attributable to petitioner’s zero-rated sales.
It is petitioner’s contention that it has clearly established its right to the tax credit or refund by way of substantial
evidence in the form of material and documentary evidence and it would be improper to set aside with haste the
claimed input VAT on capital goods expended for training materials, office supplies, posters, banners, t-shirts,
books and the like because Revenue Regulations No. 7-95 defines capital goods as to include even those goods
which are indirectly used in the production or sale of taxable goods or services.
Capital goods or properties, as defined under Section 4.106-1(b) of Revenue Regulations No. 7-95, refer "to
goods or properties with estimated useful life greater than one year and which are treated as depreciable assets
under Section 29 (f), used directly or indirectly in the production or sale of taxable goods or services."
Considering that the items (training materials, office supplies, posters, banners, t-shirts, books and the like)
purchased by petitioner as reflected in the summary were not duly proven to have been used, directly or
indirectly[,] in the production or sale of taxable goods or services, the same cannot be considered as capital
goods as defined above[. Consequently,] the same may not x x x then [be] claimed as such.
WHEREFORE, in view of the foregoing, this instant Petition for Review is hereby DENIED DUE COURSE and hereby
DISMISSED for lack of merit. This Court's Decision of November 18, 2003 and Resolution of August 10, 2004 are
hereby AFFIRMED in all respects.
SO ORDERED.26
Petitioner sought reconsideration of the assailed Decision but the CTA En Banc denied the Motion27 in a
Resolution28 dated April 20, 2006.
Issues
Hence, the instant Petition raising the following issues for resolution:
(1) whether the CTA En Banc erred in denying petitioner’s claim for credit/ refund of input VAT
attributable to its zero-rated sales in the amount of ₱16,732,425.00 due to its failure:
(a) to show that it secured an ATP from the BIR and to indicate the same in its export sales
invoices; and
(b) to print the word "zero-rated" in its export sales invoices.29
(2) whether the CTA En Banc erred in ruling that only the amount of ₱9,898,867.00 can be classified as
input VAT paid on capital goods.30
Petitioner’s Arguments
Petitioner posits that the denial by the CTA En Banc of its claim for refund of input VAT attributable to its zero-
rated sales has no legal basis because the printing of the ATP and the word "zero-rated" on the export sales
invoices are not required under Sections 113 and 237 of the National Internal Revenue Code (NIRC). 31 And since
there is no law requiring the ATP and the word "zero-rated" to be indicated on the sales invoices,32 the absence
of such information in the sales invoices should not invalidate the petition33 nor result in the outright denial of a
claim for tax credit/refund.34 To support its position, petitioner cites Intel Technology Philippines, Inc. v.
Commissioner of Internal Revenue,35 where Intel’s failure to print the ATP on the sales invoices or receipts did
not result in the outright denial of its claim for tax credit/refund. 36 Although the cited case only dealt with the
printing of the ATP, petitioner submits that the reasoning in that case should also apply to the printing of the
word "zero-rated."37 Hence, failure to print of the word "zero-rated" on the sales invoices should not result in
the denial of a claim.
As to the claim for refund of input VAT on capital goods, petitioner insists that it has sufficiently proven through
testimonial and documentary evidence that all the goods purchased were used in the production and
manufacture of its finished products which were sold and exported.38
Respondent’s Arguments
To refute petitioner’s arguments, respondent asserts that the printing of the ATP on the export sales invoices,
which serves as a control mechanism for the BIR, is mandated by Section 238 of the NIRC;39 while the printing of
the word "zero-rated" on the export sales invoices, which seeks to prevent purchasers of zero-rated sales or
services from claiming non-existent input VAT credit/refund,40 is required under RR No. 7-95, promulgated
pursuant to Section 244 of the NIRC.41 With regard to the unutilized input VAT on capital goods, respondent
counters that petitioner failed to show that the goods it purchased/imported are capital goods as defined in
Section 4.106-1 of RR No. 7-95. 42
Our Ruling
The petition is bereft of merit.
Before us are two types of input VAT credits. One is a credit/refund of input VAT attributable to zero-rated sales
under Section 112 (A) of the NIRC, and the other is a credit/refund of input VAT on capital goods pursuant to
Section 112 (B) of the same Code.
Credit/refund of input VAT on zero-rated sales
In a claim for credit/refund of input VAT attributable to zero-rated sales, Section 112 (A)43 of the NIRC lays down
four requisites, to wit:
1) the taxpayer must be VAT-registered;
2) the taxpayer must be engaged in sales which are zero-rated or effectively zero-rated;
3) the claim must be filed within two years after the close of the taxable quarter when such sales were
made; and
4) the creditable input tax due or paid must be attributable to such sales, except the transitional input
tax, to the extent that such input tax has not been applied against the output tax.
To prove that it is engaged in zero-rated sales, petitioner presented export sales invoices, certifications of inward
remittance, export declarations, and airway bills of lading for the fourth quarter of 1998. The CTA Division,
however, found the export sales invoices of no probative value in establishing petitioner’s zero-rated sales for
the purpose of claiming credit/refund of input VAT because petitioner failed to show that it has an ATP from the
BIR and to indicate the ATP and the word "zero-rated" in its export sales invoices.44 The CTA Division cited as
basis Sections 113,4523746 and 23847 of the NIRC, in relation to Section 4.108-1 of RR No. 7-95.48
In Panasonic Communications Imaging Corporation of the Philippines (formerly Matsushita Business Machine
Corporation of the Philippines) v. Commissioner of Internal Revenue,54 we upheld the denial of Panasonic’s claim
for tax credit/refund due to the absence of the word "zero-rated" in its invoices. We explained that compliance
with Section 4.108-1 of RR 7-95, requiring the printing of the word "zero rated" on the invoice covering zero-
rated sales, is essential as this regulation proceeds from the rule-making authority of the Secretary of Finance
under Section 24455 of the NIRC.

We partly agree with the CTA.
Printing the ATP on the invoices or receipts is not required
It has been settled in Intel Technology Philippines, Inc. v. Commissioner of Internal Revenue49 that the ATP need
not be reflected or indicated in the invoices or receipts because there is no law or regulation requiring it. 50 Thus,
in the absence of such law or regulation, failure to print the ATP on the invoices or receipts should not result in
the outright denial of a claim or the invalidation of the invoices or receipts for purposes of claiming a refund.51
ATP must be secured from the BIR
But while there is no law requiring the ATP to be printed on the invoices or receipts, Section 238 of the NIRC
expressly requires persons engaged in business to secure an ATP from the BIR prior to printing invoices or
receipts. Failure to do so makes the person liable under Section 26452 of the NIRC.
This brings us to the question of whether a claimant for unutilized input VAT on zero-rated sales is required to
present proof that it has secured an ATP from the BIR prior to the printing of its invoices or receipts.
All told, the non-presentation of the ATP and the failure to indicate the word "zero-rated" in the invoices or
receipts are fatal to a claim for credit/refund of input VAT on zero-rated sales. The failure to indicate the ATP in
the sales invoices or receipts, on the other hand, is not. In this case, petitioner failed to present its ATP and to
print the word "zero-rated" on its export sales invoices. Thus, we find no error on the part of the CTA in denying
outright petitioner’s claim for credit/refund of input VAT attributable to its zero-rated sales.
Credit/refund of input VAT on capital goods
Capital goods are defined under Section 4.106-1(b) of RR No. 7-95
To claim a refund of input VAT on capital goods, Section 112 (B)56 of the NIRC requires that:
1. the claimant must be a VAT registered person;
2. the input taxes claimed must have been paid on capital goods;
3. the input taxes must not have been applied against any output tax liability; and

We rule in the affirmative. 4. the administrative claim for refund must have been filed within two (2) years after the close of the
taxable quarter when the importation or purchase was made.
Under Section 112 (A) of the NIRC, a claimant must be engaged in sales which are zero-rated or effectively zero-
rated. To prove this, duly registered invoices or receipts evidencing zero-rated sales must be presented. Corollarily, Section 4.106-1 (b) of RR No. 7-95 defines capital goods as follows:
However, since the ATP is not indicated in the invoices or receipts, the only way to verify whether the invoices or
receipts are duly registered is by requiring the claimant to present its ATP from the BIR. Without this proof, the
"Capital goods or properties" refer to goods or properties with estimated useful life greater that one year and
invoices or receipts would have no probative value for the purpose of refund. In the case of Intel, we emphasized
which are treated as depreciable assets under Section 29 (f),57 used directly or indirectly in the production or sale
that:
of taxable goods or services.

It bears reiterating that while the pertinent provisions of the Tax Code and the rules and regulations
Based on the foregoing definition, we find no reason to deviate from the findings of the CTA that training
implementing them require entities engaged in business to secure a BIR authority to print invoices or receipts
materials, office supplies, posters, banners, T-shirts, books, and the other similar items reflected in petitioner’s
and to issue duly registered invoices or receipts, it is not specifically required that the BIR authority to print be
Summary of Importation of Goods are not capital goods. A reduction in the refundable input VAT on capital
reflected or indicated therein. Indeed, what is important with respect to the BIR authority to print is that it has
goods from ₱15,170,082.00 to ₱9,898,867.00 is therefore in order.
been secured or obtained by the taxpayer, and that invoices or receipts are duly registered. 53 (Emphasis
supplied)
WHEREFORE, the Petition is hereby DENIED. The assailed Decision dated September 30, 2005 and the Resolution
dated April 20, 2006 of the Court of Tax Appeals En Banc are hereby AFFIRMED.
Failure to print the word "zero-rated" on the sales invoices is fatal to a claim for refund of input VAT1awphi1

SO ORDERED.
Similarly, failure to print the word "zero-rated" on the sales invoices or receipts is fatal to a claim for
credit/refund of input VAT on zero-rated sales.
G.R. No. 202071 February 19, 2014
PROCTER & GAMBLE ASIA PTE LTD., Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
RESOLUTION
SERENO, CJ.:
This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the Court of Tax Appeals
(CTA) En Banc Decision1 and Resolution2 in CTA EB No. 746, which denied petitioner's claim for refund of
unutilized input value-added tax (VAT) for not observing the mandatory 120-day waiting period under Section
1123 of the National Internal Revenue Code.
On 26 September and 13 December 2006, petitioner filed administrative claims with the Bureau of Internal
Revenue (BIR) for the refund or credit of the input VAT attributable to the former’s zero-rated sales covering the
periods 1 July-30 September 2004 and 1 October-31 December 2004, respectively.4
On 2 October and 29 December 2006, petitioner filed judicial claims docketed as CTA Case Nos. 7523 and 7556,
respectively, for the aforementioned refund or credit of its input VAT.5 Respondent filed separate Answers to the
two cases, which were later consolidated, basically arguing that petitioner failed to substantiate its claims for
refund or credit.6
Trial on the merits ensued.7 On 17 January 2011, the CTA First Division rendered a Decision8 dismissing the
judicial claims for having been prematurely filed. It ruled that petitioner had failed to observe the mandatory
120-day waiting period to allow the Commissioner of Internal Revenue (CIR) to decide on the administrative
claim.9 Petitioner’s Motion for Reconsideration was denied on 15 March 2011.10
Petitioner thereafter filed a Petition for Review before the CTA En Banc. The latter, however, issued the assailed
Decision affirming the ruling of the CTA First Division. Petitioner’s Motion for Reconsideration was denied in the
assailed Resolution.1âwphi1
Petitioner filed the present petition11 arguing mainly that the 120-day waiting period, reckoned from the filing of
the administrative claim for the refund or credit of unutilized input VAT before the filing of the judicial claim, is
not jurisdictional. According to petitioner, the premature filing of its judicial claims was a mere failure to exhaust
administrative remedies, amounting to a lack of cause of action. When respondent did not file a motion to
dismiss based on this ground and opted to participate in the trial before the CT A, it was deemed to have waived
such defense.
On 3 June 2013, we required12 respondent to submit its Comment,13 which it filed on 4 December 2013. Citing
the recent case CIR v. San Roque Power Corporation, 14 respondent counters that the 120-day period to file
judicial claims for a refund or tax credit is mandatory and jurisdictional. Failure to comply with the waiting period
violates the doctrine of exhaustion of administrative remedies, rendering the judicial claim premature. Thus, the
CTA does not acquire jurisdiction over the judicial claim.
Respondent is correct on this score. However, it fails to mention that San Roque also recognized the validity of
BIR Ruling No. DA-489-03. The ruling expressly states that the "taxpayer-claimant need not wait for the lapse of
the 120-day period before it could seek judicial relief with the CTA by way of Petition for Review."15
The Court, in San Roque, ruled that equitable estoppel had set in when respondent issued BIR Ruling No. DA-
489-03. This was a general interpretative rule, which effectively misled all taxpayers into filing premature judicial
claims with the CTA. Thus, taxpayers could rely on the ruling from its issuance on 10 December 2003 up to its
reversal on 6 October 2010, when CIR v. Aichi Forging Company of Asia, lnc.16 was promulgated.
The judicial claims in the instant petition were filed on 2 October and 29 December 2006, well within the ruling's
period of validity. Petitioner is in a position to "claim the benefit of BIR Ruling No. DA-489-03, which shields the
filing of its judicial claim from the vice of prematurity."17
WHEREFORE, the petition is GRANTED. The Decision and Resolution of the Court of Tax Appeals En Banc in CTA
EB No. 746 are REVERSED and SET ASIDE. This case is hereby REMANDED to the CT A First Division for further
proceedings and a determination of whether the claims of petitioner for refund or tax credit of unutilized input
value-added tax are valid.
SO ORDERED.
G.R. No. 168950 January 14, 2015
ROHM APOLLO SEMICONDUCTOR PHILIPPINES, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondents.
DECISION
SERENO, CJ:
This Rule 45 Petition1 requires this Court to address the question of timeliness with respect to petitioner's
judicial claim for refund or credit of unutilized input Value-Added Tax (VAT) under Sections 112(A) and 112(D)2 of
the 1997 Tax Code. Petitioner Rohm Apollo Semiconductor Philippines., Inc. (Rohm Apollo) assails the
Decision3 and Resolution4 of the Court of Tax Appeals En Banc (CTA En Banc) in CTA En Banc Case No. 59,
affirming the Decision in CTA Case No. 6534 of the CTA First Division. 5 The latter denied the claim for the refund
or issuance of a tax credit certificate filed by petitioner Rohm Apollo in the amount of ₱30,359,615.40
representin& unutilized input VAT paid on capital goods purchased for the months of July and August 2000.
FACTS
Petitioner Rohm Apollo is a domestic corporation registered with the Securities and Exchange Commission. 6 It is
also registered with the Philippine Economic Zone Authority as an Ecozone Export Enterprise.7 Rohm Apollo is in
the business of manufacturing semiconductor products, particularly microchip transistors and tantalium
capacitors at the People’s Technology Complex – Special Economic Zone, Barangay Maduya, Carmona
Cavite.8 Further, it is registered with the Bureau of Internal Revenue (BIR) as a value-added taxpayer.9
Sometime in June 2000, prior to the commencement of its operations on 1 September 2001, Rohm Apollo
engaged the services of Shimizu Philippine Contractors, Inc. (Shimizu) for the construction of a factory.10 For
services rendered by Shimizu, petitioner made initial payments of ₱198,551,884.28 on 7 July 2000 and
₱132,367,923.58 on 3 August 2000.11
It should be noted at this point that Section 112(B),12 in relation to Section 112(A)13 of the 1997 Tax Code, allows
a taxpayer to file an application for the refund or tax credit of unutilized input VAT when it comes to the
purchase of capital goods. The provision sets a time frame for the filing of the application at two years from the
close of the taxable quarter when the purchase was made.
Going back to the case, petitioner treated the payments as capital goods purchases and thus filed with the BIR an
administrative claim for the refund or credit of accumulated unutilized creditable input taxes on 11 December
2000.14As the close of the taxable quarter when the purchases were made was 30 September 2000, the
administrative claim was filed well within the two-year prescriptive period.
Pursuant to Section 112(D)15 of the 1997 Tax Code, the Commissioner of Internal Revenue (CIR) had a period of
120 days from the filing of the application for a refund or credit on 11 December 2000, or until 10 April 2001, to
act on the claim. The waiting period, however, lapsed without any action by the CIR on the claim.
Instead of filing a judicial claim within 30 days from the lapse of the 120-day period on 10 April, or until 10 May
2001, Rohm Apollo filed a Petition for Review with the CTA docketed as CTA Case No. 6534 on 11 September
2002. It was under the belief that a judicial claim had to be filed within the two-year prescriptive period ending
on 30 September 2002.16
On 27 May 2004, the CTA First Division rendered a Decision17 denying the judicial claim for a refund or tax credit.
In support of its ruling, the CTA First Division held, among others, that petitioner must have at least submitted its
VAT return for the third quarter of 2001, since it was in that period that it began its business operations. The
purpose was to verify if indeed petitioner did not carry over the claimed input VAT to the third quarter or the
succeeding quarters.
On 14 July 2004, petitioner RohmApollo filed a Motion for Reconsideration, but the tax court stood by its
Decision.18
On 18 January 2005, the taxpayer elevated the case to the CTA En Bancvia a Petition for Review.19
On 22 June 2005, the CTA En Bancrendered its Decision denying Rohm Apollo’s Petition for Review. 20 The
appellate tax court held that the failure to present the VAT returns for the subsequent taxable year proved to be
fatal to the claim for a refund/tax credit, considering that it could not be determined whether the claimed
amount to be refunded remained unutilized. Petitioner filed a Motion for Reconsideration of the Decision, but it
was denied for lack of merit.
Persistent, the taxpayer filed this Rule 45 Petition, arguing that it has satisfied all the legal requirements for a
valid claim for refund or tax credit of unutilized input VAT.
ISSUE
The threshold question to be resolved is whether the CTA acquired jurisdiction over the claim for the refund or
tax credit of unutilized input VAT.
THE COURT’S RULING
We deny the Petition on the ground that the taxpayer’s judicial claim for a refund/tax credit was filed beyond the
prescriptive period.
The judicial claim was filed out of time.
Section 112(D) of the 1997 Tax Code states the time requirements for filing a judicial claim for the refund or tax
credit of input VAT. The legal provision speaks of two periods: the period of 120 days, which serves as a waiting
period to give time for the CIR to act on the administrative claim for a refund or credit; and the period of 30 days,
which refers to the period for filing a judicial claim with the CTA. It is the 30-day period that is at issue in this
case.
The landmark case of Commissioner of Internal Revenue v. San Roque Power Corporation 21 has interpreted
Section 112 (D). The Court held that the taxpayer can file an appeal in one of two ways: (1) file the judicial claim
within 30 days after the Commissioner denies the claim within the 120-day waiting period, or (2) file the judicial
claim within 30 days from the expiration of the 120-day period if the Commissioner does not act within that
period.
In this case, the facts are not up for debate. On 11 December 2000, petitioner filed with the BIR an application
for the refund or credit of accumulated unutilized creditable input taxes. Thus, the CIR had a period of 120 days
from 11 December 2000, or until 10 April 2001, to act on the claim. It failed to do so, however. Rohm Apollo
should then have treated the CIR’s inaction as a denial of its claim. Petitioner would then have had 30 days, or
until 10 May 2001, to file a judicial claim withthe CTA. But Rohm Apollo filed a Petition for Review with the CTA
only on 11 September 2002. The judicial claim was thus filed late.
The error of the taxpayer lies in the fact that it had mistakenly believed that a judicial claim need not be filed
within 30 days from the lapse of the 120-day period. It had believed that the only requirement is that the judicial
claim must be filed withinthe two-year period under Sections 112(A) and (B) of the 1997 Tax Code. In other
words, Rohm Apollo erroneously thought that the 30-day period does not apply to cases of the CIR’s inaction
after the lapse of the 120-day waiting period, and that a judicial claim is seasonably filed so long as it is done
within the two year period. Thus, it filed the Petition for Review with the CTA only on 11 September 2002.
These mistaken notions have already been dispelled by Commissioner of Internal Revenue v. Aichi Forging
Company of Asia, Inc. (Aichi)22 and San Roque. Aichi clarified that it is only the administrative claim that must be
filed within the two-year prescriptive period.23 San Roque, on the other hand, has ruled that the 30-day period
always applies, whether there is a denial or inaction on the part of the CIR.24
Justice Antonio Carpio, writing for the Court in San Roque, explained that the 30-day period is a 1997 Tax Code
innovation that does away with the old rule where the taxpayer could file a judicial claim when there is inaction
on the part of the CIR and the two-year statute of limitations is about to expire. Justice Carpio stated:
The old rule that the taxpayer may file the judicial claim, without waiting for the Commissioner's decision if the WHEREFORE, the Petition is DENIEDfor lack of merit.
two-year prescriptive period is about to expire, cannot apply because that rule was adopted before the
enactment of the 30-day period. The 30-day period was adopted precisely to do away with the old rule, so that SO ORDERED.
under the VAT System the taxpayer will always have 30 days to file the judicial claim even if the Commissioner
acts only on the 120th day, or does not act at all during the 120-day period.With the 30-day period always
G.R. No. 207112, December 08, 2015
available to the taxpayer, the taxpayer can no longer file a judicial claim for refund or credit of input VAT without
waiting for the Commissioner to decide until the expiration of the 120-day period.25 (Emphases supplied) The 30-
day period to appeal is mandatory and jurisdictional. PILIPINAS TOTAL GAS, INC., Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

As a general rule, the 30-day period to appeal is both mandatory and jurisdictional. The only exception to the DECISION
general rule is when BIR Ruling No. DA-489-03 was still in force, thatis, between 10 December 2003 and 5
October 2010, The BIR Ruling excused premature filing, declaring that the taxpayer-claimant need not wait for MENDOZA, J.:
the lapse of the 120-day period before it could seek judicial relief with the CTA by way of Petition for Review. In
San Roque, the High Court explained boththe general rule and the exception: Before the Court is a petition for review on certiorari1 under Rule 45 of the Rules of Court assailing the October
11, 2012 Decision2 and the May 8, 2013 Resolution3 of the Court of Tax Appeals (CTA) En Banc, in CTA EB Case
To repeat, a claim for tax refund or credit, like a claim for tax exemption, is construed strictly against the No. 776, which affirmed the January 13, 2011 Decision4 of the CTA Third Division (CTA Division) in CTA Case No.
taxpayer.1âwphi1One of the conditions for a judicial claim of refund or credit under the VAT System is with the 7863.
120+30 day mandatory and jurisdictional periods. Thus, strict compliance with the 120+30 day periods is
necessary for such a claim to prosper, whether before, during, or after the effectivity of the Atlas doctrine, The Facts
except for the period from the issuance of BIR Ruling No. DA-489-03 on 10 December 2003 to 6 October 2010
when the Aichidoctrine was adopted, which again reinstated the 120+30 day periods as mandatory and Petitioner Pilipinas Total Gas, Inc. (Total Gas) is engaged in the business of selling, transporting and distributing
jurisdictional.26 (Emphases supplied) industrial gas. It is also engaged in the sale of gas equipment and other related businesses. For this purpose,
Total Gas registered itself with the Bureau of Internal Revenue (BIR) as a Value Added Tax (VAT) taxpayer.
San Roque likewise ruled out the application of the BIR ruling to cases of late filing. The Court held that the BIR
ruling, as an exception to the mandatory and jurisdictional nature of the 120+30 day periods, is limited to On April 20, 2007 and July 20, 2007, Total Gas filed its Original Quarterly VAT Returns for the First and Second
premature filing and does not extend to the late filing of a judicial claim.27 quarters of 2007, respectively with the BIR.

In sum, premature filing is allowed for cases falling during the time when BIR Ruling No. DA-489-03 was in force; On May 20, 2008, it filed its Amended Quarterly VAT Returns for the first two quarters of 2007 reflecting its sales
nevertheless, late filing is absolutely prohibited even for cases falling within that period. subject to VAT, zero-rated sales, and domestic purchases of non-capital goods and services.

For the First and Second quarters of 2007, Total Gas claimed it incurred unutilized input VAT credits from its
As mentioned above, the taxpayer filed its judicial claim with the CTA on 11 September 2002. This was before domestic purchases of noncapital goods and services in the total amount of P8,124,400.35. Of this total
the issuance of BIR Ruling No. DA-489-03 on 10 December 2003. Thus, Rohm Apollo could not have benefited accumulated input VAT, Total Gas claimed that it had P7,898,433.98 excess unutilized input VAT.
from the BIR Ruling. Besides, its situation was not a case of premature filing of its judicial claim but one of late
filing. To repeat, its judicial claim was filed on 11 September 2002 – long after 10 May 2001, the last day of the On May 15, 2008, Total Gas filed an administrative claim for refund of unutilized input VAT for the first two
30-day period for appeal. The case thus falls under the general rule – the 30-day period is mandatory and quarters of taxable year 2007, inclusive of supporting documents.
jurisdictional. CONCLUSION
On August 28, 2008, Total Gas submitted additional supporting documents to the BIR.
In fine, our finding is that the judicial claim for the refund or credit of unutilized input VAT was belatedly filed.
Hence, the CTA lost jurisdiction over Rohm Apollo’s claim for a refund or credit. The foregoing considered, there On January 23, 2009, Total Gas elevated the matter to the CTA in view of the inaction of the Commissioner of
is no need to go into the merits of this case. Internal Revenue (CIR).

A final note, the taxpayers are reminded that that when the 120-day period lapses and there is inaction on the During the hearing, Total Gas presented, as witnesses, Rosalia T. Yu and Richard Go, who identified documentary
part of the CIR, they must no longer wait for it to come up with a decision thereafter. The CIR’s inaction is the evidence marked as Exhibits "A" to "ZZ-1," all of which were admitted. Respondent CIR, on the other hand, did
decision itself. It is already a denial of the refund claim. Thus, the taxpayer must file an appeal within 30 days not adduce any evidence and had the case submitted for decision.
from the lapse of the 120-day waiting period.
Ruling of the CTA Division
In its January 13, 2011 Decision,5 the CTA Division dismissed the petition for being prematurely filed. It explained
that Total Gas failed to complete the necessary documents to substantiate a claim for refund of unutilized input Total Gas filed a motion for reconsideration,17 but it was denied in the assailed resolution of the CTA En Banc.18
VAT on purchases of goods and services enumerated under Revenue Memorandum Order (RMO) No. 53-98. Of
note were the lack of Summary List of Local Purchases and the certifications from the Office of the Board of Hence, the present petition.
Investment (BOD), the Bureau of Customs (BOC), and the Philippine Economic Zone Authority (PEZA) that the ISSUES
taxpayer had not filed any similar claim for refund covering the same period. 6
(a) whether the judicial claim for refund was belatedly filed on 23 January 2009, or way beyond the 30-day
Believing that Total Gas failed to complete the necessary documents to substantiate its claim for refund, the CTA period to appeal as provided in Section 112(c) of the Tax Code, as amended; and
Division was of the view that the 120-day period allowed to the CIR to decide its claim under Section 112 (C) of
the National Internal Revenue Code of 1997 (NIRC), had not even started to run. With this, the CTA Division (b) whether the submission of incomplete documents at the adminstrative level (BIR) renders the judicial
opined that the petition for review was prematurely filed because Total Gas failed to exhauist the appropriate claim premature and dismissible for lack of jurisdiction.19ChanRoblesVirtualawlibrary
administrative remedies. The CTA Division stressed that tax refunds partake of the nature of an exemption, In its petition, Total Gas argues that its judicial claim was filed within the prescriptive period for claiming excess
putting into operation the rule of strict interpretation, with the taxpayer being charged with the burden of unutilized input VAT refund as provided under Section 112 of the NIRC and expounded in the Court's ruling in CIR
proving that he had satisfied all the statutory and administrative requirements.7 v. Aichi Forging Company of Asia20 (Aichi) and in compliance with Section 112 of the NIRC. In addition to citing
Section 112 (C) of the Tax Code, Total Gas points out that in one of its previous claims for refund of excess
Total Gas sought for reconsideration8 from the CTA Division, but its motion was denied for lack of merit in a unutilized input VAT, the CTA En Banc in CTA En Banc Case No. 674,21 faulted the BIR in not considering that the
Resolution, dated April 19, 2011.9 In the same resolution, it reiterated that "that the complete supporting reckoning period for the 120-period should be counted from the date of submission of complete documents.22 It
documents should be submitted to the BIR before the 120-day period for the Commissioner to decide the claim then adds that the previous ruling of the CTA En Banc was in accordance with law because Section 112 (C) of the
for refund shall commence to run. It is only upon the lapse of the 120-day period that the taxpayer can appeal Tax Code is clear in providing that the 120-day period should be counted from the date of its submission of the
the inaction [to the CTA.]"10 It noted that RMO No. 53-98, which provides a checklist of documents for the BIR to complete documents or from August 28, 2008 and not from the date it filed its administrative claim on May 15,
consider in granting claims for refund, also serves as a guideline for the courts to determine if the taxpayer had 2008.23 Total Gas argues that, since its claim was filed within the period of exception provided in CIR v. San
submitted complete supporting documents.11 It also stated that Total Gas could not invoke Revenue Roque Power Corporation24 (San Roque), it did not have to strictly comply with 120+30 day period before it could
Memorandum Circular (RMC) No. 29-09 because it was issued after the administrative claim was filed and could seek judicial relief.25cralawred
not be applied retroactively.12 Thus, the CTA Division disposed:
WHEREFORE, premises considered, the present Petition for Review is hereby DENIED DUE COURSE, and, Moreover, Total Gas questions the logic of the CTA En Banc which stated that the petition was filed both
accordingly DISMISSED for having been prematurely filed. belatedly and prematurely. Total Gas points out that on the one hand, the CTA En Banc ruled that it filed the
judicial claim belatedly as it was way beyond the 120+30 day period. Yet, it also affirmed the findings of its
SO ORDERED.13ChanRoblesVirtualawlibrary division that its petition for review was prematurely filed since the 120-day period did not even commence to
Ruling of the CTA En Banc run for lack of complete supporting documents. 26

In its assailed decision, the CTA En Banc likewise denied the petition for review of Total Gas for lack of merit. It For Total Gas, the CTA En Banc violated the doctrine of stare decisis because the tax tribunal had, on numerous
condensed its arguments into two core issues, to wit: (1) whether Total Gas seasonably filed its judicial claim for occassions, held that the submission of incomplete supporting documents should not make the judicial appeal
refund; and (2) whether it was unable to substantiate its administrative claim for refund by failing to submit the premature and dismissible for lack of jurisdiction. In these decisions, the CTA En Banc had previously held that
required documents that would allow respondent to act on it.14 non-compliance with RMO No. 53-98 should not be fatal since the requirements listed therein refer to
requirements for refund or tax credit in the administrative level for purposes of establishing the authenticity of a
As to the first issue, the CTA En Banc ruled that the CTA Division had no jurisdiction over the case because Total taxpayer's claim; and that in the judicial level, it is the Rules of Court that govern and, thus, whether or not the
Gas failed to seasonably file its petition. Counting from the date it filed its administrative claim on May 15, 2008, evidence submitted by the party to the court is sufficient lies within the sound discretion of the court. Total Gas
the CTA En Banc explained that the CIR had 120 days to act on the claim (until September 12, 2008), and Total emphasizes that RMO No. 53-98 does not state that non-submission of supporting documents will nullify the
Gas had 30 days from then, or until October 12, 2008, to question the inaction before the CTA. Considering that judicial claim. It posits that once a judicial claim is filed, what should be examined are the evidence formally
Total Gas only filed its petition on January 23, 2009, the CTA En Banc concluded that the petition for review was offered in the judicial proceedings. 27
belatedly filed. For the tax court, the 120-day period could not commence on the day Total Gas filed its last
supporting document on August 28, 2008, because to allow such would give the taxpayer unlimited discretion to Even assuming that the supporting documents submitted to the BIR were incomplete, Total Gas argues that
indefinitely extend the 120-day period by simply filing the required documents piecemeal.15 there was no legal basis to hold that the CIR could not decide or act on the claim for refund without the
complete supporting documents. It argues that under RMC No. 29-09, the BIR is tasked with the duty to notify
As to the second issue, the CTA En Banc affirmed the CTA Division that Total Gas failed to submit the complete the taxpayer of the incompleteness of its supporting documents and, if the taxpayer fails to complete the
supporting documents to warrant the grant of its application for refund. Quoting the pertinent portion of the supporting supporting documents despite such notice, the same shall be denied. The same regulation provides
decision of its division, the CTA En Banc likewise concurred in its finding that the judicial claim of Total Gas was that for purposes of computing the 120-day period, it should be considered tolled when the taxpayer is notified.
prematurely filed because the 120-day period for the CIR to decide the claim had yet to commence to run due to Total Gas, however, insists that it was never notified and, therefore, was justified in seeking judicial relief. 28
the lack of essential documents.16
Although Total Gas admits that RMC No. 29-09 was not yet issued at the time it filed its administrative claim, the Banc counted the running of the period from the date the application for refund was filed or May 15, 2008, and,
BIR still erred for not notifying them of their lack of supporting documents. According to Total Gas, the power to thus, ruled that the judicial claim was belatedly filed.
notify a taxpayer of lacking documents and to deny its claim if the latter would not comply is inherent in the CIR's
power to decide refund cases pursuant to Section 4 of the NIRC. It adds "[s]ound policy also dictates that it This should be corrected.
should be the taxpayer who should determine whether he has already submitted all documents pertinent to his
claim. To rule otherwise would result into a never-ending conflict/issue as to the completeness of documents Indeed, the 120-day period granted to the CIR to decide the administrative claim under the Section 112 is
which, in turn, would delay the taxpayer's claim, and would put to naught the protection afforded by Section 112 primarily intended to benefit the taxpayer, to ensure that his claim is decided judiciously and expeditiously. After
(C) of the Tax Code."29 all, the sooner the taxpayer successfully processes his refund, the sooner can such resources be further
reinvested to the business translating to greater efficiencies and productivities that would ultimately uplift the
In her Comment,30 the CIR echoed the ruling of the CTA En Banc, that Total Gas filed its petition out of time. She general welfare. To allow the CIR to determine the completeness of the documents submitted and, thus, dictate
countered that the 120-day period could not be counted from the time Total Gas submitted its additional the running of the 120-day period, would undermine these objectives, as it would provide the CIR the unbridled
documents on August 28, 2008 because such an interpretation of Section 112(D) would indefinitely extend the power to indefinitely delay the administrative claim, which would ultimately prevent the filing of a judicial claim
prescriptive period as provided in favor of the taxpayer. with the CTA.

In its Reply,31 Total Gas insisted that Section 112(C) stated that the 120-day period should be reckoned from the A hypothetical situation illustrates the hazards of granting the CIR the authority to decide when complete
date of submission of complete documents, and not from the date of the filing of the administrative claim. documents have been submitted - A taxpayer files its administrative claim for VAT refund/credit with supporting
documents. After 121 days, the CIR informs the taxpayer that it must submit additional documents. Considering
Ruling of the Court that the CIR had determined that complete documents have not yet been submitted, the 120-day period to
decide the administrative claim has not yet begun to run. In the meantime, more than 120 days have already
The petition has merit. passed since the application with the supporting documents was filed to the detriment of the taxpayer, who has
no opportunity to file a judicial claim until the lapse of the 120+30 day period in Section 112(C). With no
Judicial claim timely filed limitation to the period for the CIR to determine when complete documents have been submitted, the taxpayer
Section 112 (C) of the NIRC provides:chanRoblesvirtualLawlibrary may be left in a limbo and at the mercy of the CIR, with no adequate remedy available to hasten the processing
of its administrative claim.
SEC. 112. Refunds or Tax Credits of Input Tax. -
Thus, the question must be asked: In an administrative claim for tax credit or refund of creditable input VAT,
xxxx from what point does the law allow the CIR to determine when it should decide an application for refund? Or
stated differently: Under present law, when should the submission of documents be deemed "completed" for
(C) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In proper cases, the Commissioner purposes of determining the running of the 120-day period?
shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120)
days from the date of submission of complete documents in support of the application filed in accordance with Ideally, upon filing his administrative claim, a taxpayer should complete the necessary documents to support his
Subsections (A) and (B) hereof. claim for tax credit or refund or for excess utilized VAT. After all, should the taxpayer decide to submit additional
documents and effectively extend the 120-period, it grants the CIR more time to decide the claim. Moreover, it
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the would be prejudicial to the interest of a taxpayer to prolong the period of processing of his application before he
Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within may reap the benefits of his claim. Therefore, ideally, the CIR has a period of 120 days from the date an
thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred administrative claim is filed within which to decide if a claim for tax credit or refund of excess unutilized VAT has
twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals. merit.

xxxx Thus, when the VAT was first introduced through Executive Order No. 273,32 the pertinent rule was that:
(e) Period within which refund of input taxes may be made by the Commissioner. The Commissioner shall refund
[Emphasis and Underscoring Supplied] input taxes within 60 days from the date the application for refund was filed with him or his duly authorized
From the above, it is apparent that the CIR has 120 days from the date of submission of complete documents to representative. No refund or input taxes shall be allowed unless the VAT-registered person files an application
decide a claim for tax credit or refund of creditable input taxes. The taxpayer may, within 30 days from receipt of for refund within the period prescribed in paragraphs (a), (b) and (c), as the case maybe.
the denial of the claim or after the expiration of the 120-day period, which is considered a "denial due to
inaction," appeal the decision or unacted claim to the CTA. [Emphasis supplied]
Here, the CIR was not only given 60 days within which to decide an administrative claim for refund of input taxes,
To be clear, Section 112(C) categorically provides that the 120-day period is counted "from the date of but the beginning of the period was reckoned "from the date the application for refund was filed."
submission of complete documents in support of the application." Contrary to this mandate, the CTA En
When Republic Act (R.A.) No. 771633 was, however, enacted on May 5, 1994, the law was amended to read:
(d) Period within which refund or tax credit of input taxes shall be made. - In proper cases, The Commissioner
shall grant a refund or issue the tax credit for creditable input taxes within sixty (60) days from the date of
submission of complete documents in support of the application filed in accordance with sub-paragraphs (a)
and (b) hereof. In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of
the Commissioner to act on the application within the period prescribed above, the taxpayer affected may,
within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the sixty-day
period, appeal the decision or the unacted claim with the Court of Tax Appeals.
[Emphasis supplied]
Again, while the CIR was given only 60 days within which to act upon an administrative claim for refund or tax
credit, the period came to be reckoned "from the date of submission of complete documents in support of the
application." With this amendment, the date when a taxpayer made its submission of complete documents
became relevant. In order to ensure that such date was at least determinable, RMO No. 4-94 provides:
REVENUE MEMORANDUM ORDER NO. 40-94
This time, the period granted to the CIR to act upon an admmistrative claim for refund was extended to 120
days. The reckoning point however, remained "from the date of submission of complete documents."
Aware that not all taxpayers were able to file the complete documents to allow the CIR to properly evaluate an
administrative claim for tax credit or refund of creditable input taxes, the CIR issued RMC No. 49-2003, which
provided:
Q-18: For pending claims with incomplete documents, what is the period within which to submit the supporting
documents required by the investigating/processing office? When should the investigating/processing office
officially receive claims for tax credit/refund and what is the period required to process such claims?
A-18: For pending claims which have not been acted upon by the investigating/processing office due to
incomplete documentation, the taxpayer-claimants are given thirty (30) days within which to submit the
documentary requirements unless given further extension by the head of the processing unit, but such
extension should not exceed thirty (30) days.

SUBJECT : Prescribing the Modified Procedures on the Processing of Claims for Value-Added Tax Credit/Refund For claims to be filed by claimants with the respective investigating/processing office of the administrative
agency, the same shall be officially received only upon submission of complete documents.
III. Procedures
REGIONAL OFFICE For current and future claims for tax credit/refund, the same shall be processed within one hundred twenty
A. Revenue District Office (120) days from receipt of the complete documents. If, in the course of the investigation and processing of the
In General:chanRoblesvirtualLawlibrary claim, additional documents are required for the proper determination of the legitimate amount of claim, the
taxpayer-claimants shall submit such documents within thirty (30) days from request of the
1. Ascertain the completeness of the supporting documents prior to the receipt of the application for VAT investigating/processing office, which shall be construed as within the one hundred twenty (120) day period.
credit/refund from the taxpayer.
[Emphases Supplied]
2. Receive application for VAT Credit/Refund (BIR Form No. 2552) in three (3) copies in the following manner: Consequently, upon filing of his application for tax credit or refund for excess creditable input taxes, the
a. stamp the word "RECEIVED" on the appropriate space provided in all copies of application; taxpayer-claimant is given thirty (30) days within which to complete the required documents, unless given
further extension by the head of the processing unit. If, in the course of the investigation and processing of the
b. indicate the claim number; claim, additional documents are required for the proper determination of the legitimate amount of claim, the
taxpayer-claimants shall submit such documents within thirty (30) days from request of the
c. indicate the date of receipt; and investigating/processing office. Notice, by way of a request from the tax collection authority to produce the
complete documents in these cases, became essential. It is only upon the submission of these documents that
d. initial by receiving officer. the 120-day period would begin to run.
The application shall be received only if the required attachments prescribed in RAMO 1-91 have been fully
complied with x x x. Then, when R.A. No. 933735 was passed on July 1, 2005, the same provision under the NIRC was retained. With
Then, when the NIRC34 was enacted on January 1, 1998, the rule was once more amended to read: the amendment to Section 112, particularly the deletion of what was once Section 112(B) of the NIRC, Section
(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In proper cases, the Commissioner 112 (D) was amended and renamed 112(C). Thus:
shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) (C) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In proper cases, the Commissioner
days from the date of submission of compete documents in support of the application filed in accordance with shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120)
Subsections (A) and (B) hereof. days from the date of submission of complete documents in support of the application filed in accordance with
Subsection (A) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the
thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within
twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals. thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred
twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals.
[Emphasis supplied] With the amendments only with respect to its place under Section 112, the Court finds that RMC No. 49-2003
should still be observed. Thus, taking the foregoing changes to the law altogether, it becomes apparent that, for
purposes of determining when the supporting documents have been completed — it is the taxpayer who
ultimately determines when complete documents have been submitted for the purpose of commencing and In all cases, whatever documents a taxpayer intends to file to support his claim must be completed within the
continuing the running of the 120-day period. After all, he may have already completed the necessary documents two-year period under Section 112(A) of the NIRC. The 30-day period from denial of the claim or from the
the moment he filed his administrative claim, in which case, the 120-day period is reckoned from the date of expiration of the 120-day period within which to appeal the denial or inaction of the CIR to the CTA must also be
filing. respected.

The taxpayer may have also filed the complete documents on the 30th day from filing of his application, pursuant It bears mentioning at this point that the foregoing summation of the rules should only be made applicable to
to RMC No. 49-2003. He may very well have filed his supporting documents on the first day he was notified by those claims for tax credit or refund filed prior to June 11, 2014, such as the claim at bench. As it now stands,
the BIR of the lack of the necessary documents. In such cases, the 120-day period is computed from the date the RMC 54-2014 dated June 11, 2014 mandates that:
taxpayer is able to submit the complete documents in support of his application. The application for VAT refund/tax credit must be accompanied by complete supporting documents as
enumerated in Annex "A" hereof. In addition, the taxpayer shall attach a statement under oath attesting to the
Then, except in those instances where the BIR would require additional documents in order to fully appreciate a completeness of the submitted documents (Annex B). The affidavit shall further state that the said documents
claim for tax credit or refund, in terms what additional document must be presented in support of a claim for tax are the only documents which the taxpayer will present to support the claim. If the taxpayer is a juridical person,
credit or refund - it is the taxpayer who has that right and the burden of providing any and all documents that there should be a sworn statement that the officer signing the affidavit (i.e., at the very least, the Chief Financial
would support his claim for tax credit or refund. After all, in a claim for tax credit or refund, it is the taxpayer who Officer) has been authorized by the Board of Directors of the company.
has the burden to prove his cause of action. As such, he enjoys relative freedom to submit such evidence to
prove his claim. Upon submission of the administrative claim and its supporting documents, the claim shall be processed and no
other documents shall be accepted/required from the taxpayer in the course of its evaluation. A decision shall be
The foregoing conclusion is but a logical consequence of the due process guarantee under the Constitution. rendered by the Commissioner based only on the documents submitted by the taxpayer. The application for tax
Corollary to the guarantee that one be afforded the opportunity to be heard, it goes without saying that the refund/tax credit shall be denied where the taxpayer/claimant failed to submit the complete supporting
applicant should be allowed reasonable freedom as to when and how to present his claim within the allowable documents. For this purpose, the concerned processing/investigating office shall prepare and issue the
period. corresponding Denial Letter to the taxpayer/claimant.
Thus, under the current rule, the reckoning of the 120-day period has been withdrawn from the taxpayer by
Thereafter, whether these documents are actually complete as required by law - is for the CIR and the courts RMC 54-2014, since it requires him at the time he files his claim to complete his supporting documents and
to determine. Besides, as between a taxpayer-applicant, who seeks the refund of his creditable input tax and the attest that he will no longer submit any other document to prove his claim. Further, the taxpayer is barred from
CIR, it cannot be denied that the former has greater interest in ensuring that the complete set of documentary submitting additional documents after he has filed his administrative claim.
evidence is provided for proper evaluation of the State.
On this score, the Court finds that the foregoing issuance cannot be applied rectroactively to the case at
Lest it be misunderstood, the benefit given to the taxpayer to determine when it should complete its submission bar since it imposes new obligations upon taxpayers in order to perfect their administrative claim, that is, [1]
of documents is not unbridled. Under RMC No. 49-2003, if in the course of the investigation and processing of compliance with the mandate to submit the "supporting documents" enumerated under RMC 54-2014 under its
the claim, additional documents are required for the proper determination of the legitimacy of the claim, the "Annex A"; and [2] the filing of "a statement under oath attesting to the completeness of the submitted
taxpayer-claimants shall submit such documents within thirty (30) days from request of the documents," referred to in RMC 54-2014 as "Annex B." This should not prejudice taxpayers who have every right
investigating/processing office. Again, notice, by way of a request from the tax collection authority to produce to pursue their claims in the manner provided by existing regulations at the time it was filed.
the complete documents in these cases, is essential.
As provided under Section 246 of the Tax Code:
Moreover, under Section 112(A) of the NIRC,36 as amended by RA 9337, a taxpayer has two (2) years, after the SEC. 246. Non-Retroactivity of Rulings. - Any revocation, modification or reversal of any of the rules and
close of the taxable quarter when the sales were made, to apply for the issuance of a tax credit certificate or regulations promulgated in accordance with the preceding Sections or any of the rulings or circulars promulgated
refund of creditable input tax due or paid attributable to such sales. Thus, before the adminstrative claim is by the Commissioner shall not be given retroactive application if the revocation, modification or reversal will
barred by prescription, the taxpayer must be able to submit his complete documents in support of the be prejudicial to the taxpayers, except in the following cases:chanRoblesvirtualLawlibrary
application filed. This is because, it is upon the complete submission of his documents in support of his
application that it can be said that the application was, "officially received" as provided under RMC No. 49-2003. (a) Where the taxpayer deliberately misstates or omits material facts from his return or any document required
of him by the Bureau of Internal Revenue;
To summarize, for the just disposition of the subject controversy, the rule is that from the date an administrative
claim for excess unutilized VAT is filed, a taxpayer has thirty (30) days within which to submit the documentary (b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the
requirements sufficient to support his claim, unless given further extension by the CIR. Then, upon filing by the facts on which the ruling is based; or
taxpayer of his complete documents to support his application, or expiration of the period given, the CIR has 120
days within which to decide the claim for tax credit or refund. Should the taxpayer, on the date of his filing, (c) Where the taxpayer acted in bad faith.
manifest that he no longer wishes to submit any other addition documents to complete his administrative claim,
the 120 day period allowed to the CIR begins to run from the date of filing. [Emphasis and Italics Supplied]
Applying the foregoing precepts to the case at bench, it is observed that the CIR made no effort to question the Value Added Tax
inadequacy of the documents submitted by Total Gas. It neither gave notice to Total Gas that its documents - Annex B (2 pages)
were inadequate, nor ruled to deny its claim for failure to adequately substantiate its claim. Thus, for purposes - Annex B-1 (5 pages)
of counting the 120-day period, it should be reckoned from August 28, 2008, the date when Total Gas made its
"submission of complete documents to support its application" for refund of excess unutilized input VAT. xxxx
Consequently, counting from this later date, the BIR had 120 days to decide the claim or until December 26, As can be gleaned from the above, RMO No. 53-98 is addressed to internal revenue officers and employees, for
2008. With absolutely no action or notice on the part of the BIR for 120 days, Total Gas had 30 days or until purposes of equity and uniformity, to guide them as to what documents they may require taxpayers to
January 25, 2009 to file its judicial claim. present upon audit of their tax liabilities. Nothing stated in the issuance would show that it was intended to be
a benchmark in determining whether the documents submitted by a taxpayer are actually complete to support a
Total Gas, thus, timely filed its judicial claim on January 23, 2009. claim for tax credit or refund of excess unutilized excess VAT. As expounded in Commissioner of Internal Revenue
v. Team Sual Corporation (formerely Mir ant Sual Corporation):37
Anent RMO No. 53-98, the CTA Division found that the said order provided a checklist of documents for the BIR The CIR's reliance on RMO 53-98 is misplaced. There is nothing in Section 112 of the NIRC. RR 3-88 or RMO K3-
to consider in granting claims for refund, and served as a guide for the courts in determining whether the Q8 itself that requires submission of the complete documents enumerated in RMO 53-98 for a grant of a refund
taxpayer had submitted complete supporting documents. or credit of input VAT. The subject of RMO 53-98 states that it is a "Checklist of Documents to be Submitted by a
Taxpayer upon Audit of his Tax Liabilities x x x." In this case, TSC was applying for a grant of refund or credit of its
This should also be corrected. input tax. There was no allegation of an audit being conducted by the CIR. Even assuming that RMO 53-98
applies, it specifically states that some documents are required to be submitted by the taxpayer "if applicable."
To quote RMO No. 53-98:
REVENUE MEMORANDUM ORDER NO. 53-98 Moreover, if TSC indeed failed to submit the complete documents in support of its application, the CIR could
have informed TSC of its failure, consistent with Revenue Memorandum Circular No. (RMC) 42-03. However, the
SUBJECT: Checklist of Documents to be Submitted by a Taxpayer upon Audit of his Tax Liabilities as well as of the CIR did not inform TSC of the document it failed to submit, even up to the present petition. The CIR likewise
Mandatory Reporting Requirements to be Prepared by a Revenue Officer, all of which Comprise a Complete Tax raised the issue of TSC's alleged failure to submit the complete documents only in its motion for reconsideration
Docket. of the CTA Special First Division's 4 March 2010 Decision. Accordingly, we affirm the CTA EB's finding that TSC
filed its administrative claim on 21 December 2005, and submitted the complete documents in support of its
TO: All Internal Revenue Officers, Employees and Others Concerned application for refund or credit of its input tax at the same time.

I. BACKGROUND [Emphasis included. Underlining Ours.]

As explained earlier and underlined in Team Sual above, taxpayers cannot simply be faulted for failing to submit
It has been observed that for the same kind of tax audit case, Revenue Officers differ in their request for the complete documents enumerated in RMO No. 53-98, absent notice from a revenue officer or employee that
requirements from taxpayers as well as in the attachments to the dockets resulting to tremendous complaints other documents are required. Granting that the BIR found that the documents submitted by Total Gas were
from taxpayers and confusion among tax auditors and reviewers. inadequate, it should have notified the latter of the inadequacy by sending it a request to produce the necessary
documents in order to make a just and expeditious resolution of the claim.
For equity and uniformity, this Bureau comes up with a prescribed list of requirements from taxpayers, per kind
of tax, as well as of the internally prepared reporting requirements, all of which comprise a complete tax docket. Indeed, a taxpayer's failure with the requirements listed under RMO No. 53-98 is not fatal to its claim for tax
credit or refund of excess unutilized excess VAT. This holds especially true when the application for tax credit or
II. OBJECTIVE refund of excess unutilized excess VAT has arrived at the judicial level. After all, in the judicial level or when the
case is elevated to the Court, the Rules of Court governs. Simply put, the question of whether the evidence
This order is issued to:chanRoblesvirtualLawlibrary submitted by a party is sufficient to warrant the granting of its prayer lies within the sound discretion and
judgment of the Court.
a. Identify the documents to be required from a taxpayer during audit, according to particular kind of tax; and
At this point, it is worth emphasizing that the reckoning of the 120-day period from August 28, 2008 cannot be
b. Identify the different audit reporting requirements to be prepared, submitted and attached to a tax audit doubted. First, a review of the records of the case undubitably show that Total Gas filed its supporting
docket. documents on August 28, 2008, together with a transmittal letter bearing the same date. These documents were
then stamped and signed as received by the appropriate officer of the BIR. Second, contrary to RMO No. 40-94,
III. LIST OF REQUIREMENTS PER TAX TYPE which mandates officials of the BIR to indicate the date of receipt of documents received by their office in every
claim for refund or credit of VAT, the receiving officer failed to indicate the precise date and time when he
Income Tax/ Withholding Tax received these documents. Clearly, the error is attributable to the BIR officials and should not prejudice Total
- Annex A (3 pages) Gas.
Third, it is observed that whether before the CTA or this Court, the BIR had never questioned the date it received
the supporting documents filed by Total Gas, or the propriety of the filing thereof. In contrast to the contiuous
efforts of Total Gas to complete the necessary documents needed to support its application, all that was insisted
by the CIR was that the reckoning period should be counted from the date Total Gas filed its application for
refund of excess unutilized input VAT. There being no question as to whether these documents were actually
received on August 28, 2008, this Court shall not, by way of conjecture, cast doubt on the truthfullness on such
submission. Finally, in consonance with the presumption that a person acts in accordance with the ordinary
course of business, it is presumed that such documents were received on the date stated therein.
Verily, should there be any doubt on whether Total Gas filed its supporting documents on August 28, 2008, it is
incumbent upon the CIR to allege and prove such assertion. As the saying goes, contra preferentum.
If only to settle any doubt, this Court is by no means setting a precedent by leaving it to the mercy of the
taxpayer to determine when the 120- day reckoning period should begin to run by providing absolute discretion
as to when he must comply with the mandate submitting complete documents in support of his claim. In
addition to the limitations thoroughly discussed above, the peculiar circumstance applicable herein, as to relieve
Total Gas from the application of the rule, is the obvious failure of the BIR to comply with the specific directive,
under RMO 40-94, to stamp the date it received the supporting documents which Total Gas had submitted to
the BIR for its consideration in the processing of its claim. The utter failure of the tax administrative agency to
comply with this simple mandate to stamp the date it receive the documents submitted by Total Gas - should not
in any manner prejudice the taxpayer by casting doubt as to when it was able to submit its complete documents
for purposes of determing the 120-day period.
While it is still true a taxpayer must prove not only his entitlement to a refund but also his compliance with the
procedural due process38 - it also true that when the law or rule mandates that a party or authority must comply
with a specific obligation to perform an act for the benefit of another, the non-compliance therof by the former
should not operate to prejudice the latter, lest it render the nugatory the objective of the rule. Such is the
situation in case at bar.
Judicial claim not prematurely filed
The CTA En Banc curiously ruled in the assailed decision that the judicial claim of Total Gas was not only
belatedly filed, but prematurely filed as well, for failure of Total Gas to prove that it had submitted the complete
supporting documents to warrant the grant of the tax refund and to reckon the commencement of the 120-day
period. It asserted that Total Gas had failed to submit all the required documents to the CIR and, thus, the 120-
day period for the CIR to decide the claim had not yet begun to run, resulting in the premature filing of the
judicial claim. It wrote that the taxpayer must first submit the complete supporting documents before the 120-
day period could commence, and that the CIR could not decide the claim for refund without the complete
supporting documents.
The Court disagrees.
The alleged failure of Total Gas to submit the complete documents at the administrative level did not render its
petition for review with the CTA dismissible for lack of jurisdiction. First, the 120-day period had commenced to
run and the 120+30 day period was, in fact, complied with. As already discussed, it is the taxpayer who
determines when complete documents have been submitted for the purpose of the running of the 120-day
period. It must again be pointed out that this in no way precludes the CIR from requiring additional documents
necessary to decide the claim, or even denying the claim if the taxpayer fails to submit the additional documents
requested.
Second, the CIR sent no written notice informing Total Gas that the documents were incomplete or required it to
submit additional documents. As stated above, such notice by way of a written request is required by the CIR to
be sent to Total Gas. Neither was there any decision made denying the administrative claim of Total Gas on the
ground that it had failed to submit all the required documents. It was precisely the inaction of the BIR which
prompted Total Gas to file the judicial claim. Thus, by failing to inform Total Gas of the need to submit any
additional document, the BIR cannot now argue that the judicial claim should be dismissed because it failed to
submit complete documents.
Finally, it should be mentioned that the appeal made by Total Gas to the CTA cannot be said to be premature on
the ground that it did not observe the otherwise mandatory and juridictional 120+30 day period. When Total Gas
filed its appeal with the CTA on January 23, 2009, it simply relied on BIR Ruling No. DA-489-03, which, at that
time, was not yet struck down by the Court's ruling in Aichi. As explained in San Roque, this Court recognized a
period in time wherein the 120-day period need not be strictly observed. Thus:
To repeat, a claim for tax refund or credit, like a claim for tax exemption, is construed strictly against the
taxpayer. One of the conditions for a judicial claim of refund or credit under the VAT System is compliance with
the 120+30 day mandatory and jurisdictional periods. Thus, strict compliance with the 120+30 day periods is
necessary for such a claim to prosper, whether before, during, or after the effectivity of the Atlas
doctrine, except for the period from the issuance of BIR Ruling No. DA-489-03 on 10 December 2003 to 6
October 2010 when the Aichi doctrine was adopted, which again reinstated the 120+30 day periods as
mandatory and jurisdictional.
xxxx
Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, all taxpayers can rely on BIR Ruling No.
DA-489-03 from the time of its issuance on 10 December 2003 up to its reversal by this Court in Aichi on 6
October 2010, where this Court held that the 120+30 day periods are mandatory and jurisdictional.
At this stage, a review of the nature of a judicial claim before the CTA is in order. In Atlas Consolidated Mining
and Development Corporation v. CIR, it was ruled -
x x x First, a judicial claim for refund or tax credit in the CTA is by no means an original action but rather
an appeal by way of petition for review of a previous, unsuccessful administrative claim. Therefore, as in every
appeal or petition for review, a petitioner has to convince the appellate court that the quasi-judicial agency a
quo did not have any reason to deny its claims. In this case, it was necessary for petitioner to show the CTA not
only that it was entitled under substantive law to the grant of its claims but also that it satisfied all the
documentary and evidentiary requirements for an administrative claim for refund or tax credit. Second, cases
filed in the CTA are litigated de novo. Thus, a petitioner should prove every minute aspect of its case by
presenting, formally offering and submitting its evidence to the CTA. Since it is crucial for a petitioner in a judicial
claim for refund or tax credit to show that its administrative claim should have been granted in the first place,
part of the evidence to be submitted to the CTA must necessarily include whatever is required for the successful
prosecution of an administrative claim.39
[Underscoring Supplied]
A distinction must, thus, be made between administrative cases appealed due to inaction and those dismissed at
the administrative level due to the failure of the taxpayer to submit supporting documents. If an administrative
claim was dismissed by the CIR due to the taxpayer's failure to submit complete documents despite
notice/request, then the judicial claim before the CTA would be dismissible, not for lack of jurisdiction, but for
the taxpayer's failure to substantiate the claim at the administrative level. When a judicial claim for refund or tax
credit in the CTA is an appeal of an unsuccessful administrative claim, the taxpayer has to convince the CTA that
the CIR had no reason to deny its claim. It, thus, becomes imperative for the taxpayer to show the CTA that not
only is he entitled under substantive law to his claim for refund or tax credit, but also that he satisfied all the
documentary and evidentiary requirements for an administrative claim. It is, thus, crucial for a taxpayer in a
judicial claim for refund or tax credit to show that its administrative claim should have been granted in the first
place. Consequently, a taxpayer cannot cure its failure to submit a document requested by the BIR at the
administrative level by filing the said document before the CTA.
In the present case, however, Total Gas filed its judicial claim due to the inaction of the BIR. Considering that the
administrative claim was never acted upon; there was no decision for the CTA to review on appeal per se.
Consequently, the CTA may give credence to all evidence presented by Total Gas, including those that may not
have been submitted to the CIR as the case is being essentially decided in the first instance. The Total Gas must
prove every minute aspect of its case by presenting and formally offering its evidence to the CTA, which must
necessarily include whatever is required for the successful prosecution of an administrative claim.40
The Court cannot, however, make a ruling on the issue of whether Total Gas is entitled to a refund or tax credit
certificate in the amount of P7,898,433.98. Considering that the judicial claim was denied due course and
dismissed by the CTA Division on the ground of premature and/or belated filing, no ruling on the issue of Total
Gas entitlement to the refund was made. The Court is not a trier of facts, especially when such facts have not
been ruled upon by the lower courts. The case shall, thus, be remanded to the CTA Division for trial de novo.
WHEREFORE, the petition is PARTIALLY GRANTED. The October 11, 2012 Decision and the May 8, 2013
Resolution of the Court of Tax Appeals En Banc, in CTA EB No. 776 are REVERSED and SET ASIDE.
The Case
Before the Court is the Motion for Reconsideration filed by petitioner Chevron Philippines, Inc. (Chevron)1 vis-a-
vis the resolution promulgated on March 19, 2014,2 whereby the Court’s Second Division denied its petition for
review on certiorari for failure to show any reversible error on the part of the Court of Tax Appeals (CTA) En
Banc. The CTA En Banc had denied Chevron’s claim for tax refund or tax credit for the excise taxes paid on its
importation of petroleum products that it had sold to the Clark Development Corporation (CDC), an entity
exempt from direct and indirect taxes.
The Motion for Reconsideration was later on referred to the Court En Banc after the Second Division noted that
the CTA En Banc had denied Chevron’s claim for the tax refund or tax credit based on the ruling promulgated in
Commissioner of Internal Revenue v. Pilipinas Shell Petroleum Corporation (Pilipinas Shell) on April 25,
2012,3 but which ruling was meanwhile reversed upon reconsideration by the First Division through the
resolution promulgated on February 19, 2014.4 The Court En Banc accepted the referral last June 16, 2015.
Antecedents
Chevron sold and delivered petroleum products to CDC in the period from August 2007 to December
2007.5Chevron did not pass on to CDC the excise taxes paid on the importation of the petroleum products sold to
CDC in taxable year 2007;6 hence, on June 26, 2009, it filed an administrative claim for tax refund or issuance of
tax credit certificate in the amount of P6,542,400.00.7Considering that respondent Commissioner of

The case is REMANDED to the CTA Third Division for trial de novo. Internal Revenue (CIR) did not act on the administrative claim for tax refund or tax credit, Chevron elevated its
claim to the CTA by petition for review on June 29, 2009.8 The case, docketed as CTA Case No. 7939, was raffled
SO ORDERED.chanroblesvirtuallawlibrary to the CTA’s First Division.

September 1, 2105 The CTA First Division denied Chevron’s judicial claim for tax refund or tax credit through its decision dated July
31, 2012,9 and later on also denied Chevron’s Motion for Reconsideration on November 20, 2012.10
G.R. No. 210836
In due course, Chevron appealed to the CTA En Banc (CTA EB No. 964), which, in the decision dated September
30, 2013,11 affirmed the ruling of the CTA First Division, stating that there was nothing in Section 135(c) of the
CHEVRON PHILIPPINES INC., Petitioner,
NIRC that explicitly exempted Chevron as the seller of the imported petroleum products from the payment of
vs.
the excise taxes; and holding that because it did not fall under any of the categories exempted from paying
COMMISSIONER OF INTERNAL REVENUE, Respondent.
excise tax, Chevron was not entitled to the tax refund or tax credit.

RESOLUTION
The CTA En Banc noted that:

BERSAMIN, J.:
Considering that an excise tax is in the nature of an indirect tax where the tax burden can be shifted, Section
135(c) of the NIRC of 1997, as amended, should be construed as prohibiting the shifting of the burden of the
Excise tax on petroleum products is essentially a tax on property, the direct liability for which pertains to the excise tax to tax-exempt entities who buys petroleum products from the manufacturer/seller by incorporating
statutory taxpayer (i.e., manufacturer, producer or importer). Any excise tax paid by the statutory taxpayer on the excise tax component as an added cost in the price fixed by the manufacturer/seller.
petroleum products sold to any of the entities or agencies named in Section 135 of the National Internal
Revenue Code (NIRC) exempt from excise tax is deemed illegal or erroneous, and should be credited or refunded
xxxx
to the ayor pursuant to Section 204 of the NIRC. This is because the exemption granted under Section 135 of the
NIRC must be construed in favor of the property itself, that is, the petroleum products.
The above discussion is in line with the pronouncement made by the Supreme Court in the case of Commissioner
of Internal Revenue v. Pilipinas Shell Petroleum Corporation (Shell case), involving Shell’s claim for excise tax
refund for petroleum products sold to international carriers. The Supreme Court held that the exemption from
excise tax payment on petroleum products under Section 135(a) of the NIRC of 1997, as amended, is conferred
on international carriers who purchased the same for their use or consumption outside the Philippines. The oil
companies which sold such petroleum products to international carriers are not entitled to a refund of excise
taxes previously paid on the petroleum products sold. x x x
xxxx
Accordingly, petitioner is not entitled to any refund or issuance of tax credit certificate on excise taxes paid on its
importation of petroleum products sold to CDC pursuant to the doctrine laid down by the Supreme Court in the
Shell case.12
Chevron sought reconsideration, but the CTA En Banc denied its motion for that purpose in the resolution dated
January 7, 2014.13
Chevron appealed to the Court,14 but the Court (Second Division) denied the petition for review on certiorari
through the resolution promulgated on March 19, 2014 for failure to show any reversible error on the part of the
CTA En Banc.
Hence, Chevron has filed the Motion for Reconsideration, submitting that it was entitled to the tax refund or tax
credit because ruling promulgated on April 25, 2012 in Pilipinas Shell,15 on which the CTA En Banc had based its
denial of the claim of Chevron, was meanwhile reconsidered by the Court’s First Division on February 19, 2014.16
Issue
The lone issue for resolution is whether Chevron was entitled to the tax refund or the tax credit for the excise
taxes paid on the importation of petroleum products that it had sold to CDC in 2007.
Ruling of the Court
Chevron’s Motion for Reconsideration is meritorious.
Pilipinas Shell concerns the manufacturer’s entitlement to refund or credit of the excise taxes paid on the
petroleum products sold to international carriers exempt from excise taxes under Section 135(a) of the NIRC.
However, the issue raised here is whether the importer (i.e., Chevron) was entitled to the refund or credit of the
excise taxes it paid on petroleum products sold to CDC, a tax-exempt entity under Section 135(c) of the NIRC.
Notwithstanding that the claims for refund or credit of excise taxes were premised on different subsections of
Section 135 of the NIRC, the basic tax principle applicable was the same in both cases – that excise tax is a tax on
property; hence, the exemption from the excise tax expressly granted under Section 135 of the NIRC must be
construed in favor of the petroleum products on which the excise tax was initially imposed.
Accordingly, the excise taxes that Chevron paid on its importation of petroleum products subsequently sold to
CDC were illegal and erroneous, and should be credited or refunded to Chevron in accordance with Section 204
of the NIRC.
We explain.
Under Section 12917 of the NIRC, as amended, excise taxes are imposed on two kinds of goods, namely: (a) goods
manufactured or produced in the Philippines for domestic sales or consumption or for any other disposition; and
(b) things imported. Undoubtedly, the excise tax imposed under Section 129 of the NIRC is a tax on property.18
With respect to imported things, Section 131 of the NIRC declares that excise taxes on imported things shall be
paid by the owner or importer to the Customs officers, conformably with the regulations of the Department of
Finance and before the release of such articles from the customs house, unless the imported things are exempt
from excise taxes and the person found to be in possession of the same is other than those legally entitled to
such tax exemption. For this purpose, the statutory taxpayer is the importer of the things subject to excise tax.
Chevron, being the statutory taxpayer, paid the excise taxes on its importation of the petroleum products.19
Section 135 of the NIRC states:
SEC. 135. Petroleum Products Sold to International Carriers and Exempt Entities or Agencies. – Petroleum
products sold to the following are exempt from excise tax:
(a) International carriers of Philippine or foreign registry on their use or consumption outside the
Philippines: Provided, That the petroleum products sold to these international carriers shall be stored
in a bonded storage tank and may be disposed of only in accordance with the rules and regulations to
be prescribed by the Secretary of Finance, upon recommendation of the Commissioner;
(b) Exempt entities or agencies covered by tax treaties, conventions and other international agreement
for their use or consumption: Provided, however, That the country of said foreign international carrier
or exempt entities or agencies exempts from similar taxes petroleum products sold to Philippine
carriers, entities or agencies; and
(c) Entities which are by law exempt from direct and indirect taxes. (Emphasis supplied.)
Pursuant to Section 135(c), supra, petroleum products sold to entities that are by law exempt from direct and
indirect taxes are exempt from excise tax. The phrase which are by law exempt from direct and indirect taxes
describes the entities to whom the petroleum products must be sold in order to render the exemption operative.
Section 135(c) should thus be construed as an exemption in favor of the petroleum products on which the excise
tax was levied in the first place. The exemption cannot be granted to the buyers – that is, the entities that are by
law exempt from direct and indirect taxes – because they are not under any legal duty to pay the excise tax.
CDC was created to be the implementing and operating arm of the Bases Conversion and Development Authority
to manage the Clark Special Economic Zone (CSEZ).20 As a duly-registered enterprise in the CSEZ, CDC has been
exempt from paying direct and indirect taxes pursuant to Section 2421 of Republic Act No. 7916 (The Special
Economic Zone Act of 1995), in relation to Section 15 of Republic Act No. 9400 (Amending Republic Act No. 7227,
otherwise known as the Bases Conversion Development Act of 1992).22
Inasmuch as its liability for the payment of the excise taxes accrued immediately upon importation and prior to
the removal of the petroleum products from the customshouse, Chevron was bound to pay, and actually paid
such taxes. But the status of the petroleum products as exempt from the excise taxes would be confirmed only
upon their sale to CDC in 2007 (or, for that matter, to any of the other entities or agencies listed in Section 135 of
the NIRC). Before then, Chevron did not have any legal basis to claim the tax refund or the tax credit as to the
petroleum products.
Consequently, the payment of the excise taxes by Chevron upon its importation of petroleum products was
deemed illegal and erroneous upon the sale of the petroleum products to CDC. Section 204 of the NIRC explicitly
allowed Chevron as the statutory taxpayer to claim the refund or the credit of the excise taxes thereby paid, viz.:
SEC 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. – The Commissioner
may –
xxxx
(C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the
value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his
discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon
proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing
with the Commissioner a claim for credit or refund within two (2) years after payment of the tax or penalty:
Provided, however, That a return filed showing an overpayment shall be considered as a written claim for credit
or refund.
It is noteworthy that excise taxes are considered as a kind of indirect tax, the liability for the payment of which
may fall on a person other than whoever actually bears the burden of the tax. 23 Simply put, the statutory
taxpayer may shift the economic burden of the excise tax payment to another – usually the buyer.
In cases involving excise tax exemptions on petroleum products under Section 135 of the NIRC, the Court has
consistently held that it is the statutory taxpayer, not the party who only bears the economic burden, who is
entitled to claim the tax refund or tax credit.24 But the Court has also made clear that this rule does not apply
where the law grants the party to whom the economic burden of the tax is shifted by virtue of an exemption
from both direct and indirect taxes. In which case, such party must be allowed to claim the tax refund or tax
credit even if it is not considered as the statutory taxpayer under the law.25
The general rule applies here because Chevron did not pass on to CDC the excise taxes paid on the importation
of the petroleum products, the latter being exempt from indirect taxes by virtue of Section 24 of Republic
Act No. 7916, in relation to Section 15 of Republic Act No. 9400, not because Section 135(c) of the NIRC
exempted CDC from the payment of excise tax.1âwphi1
Accordingly, conformably with Section 204(C) of the NIRC, supra, and pertinent jurisprudence, Chevron was
entitled to the refund or credit of the excise taxes erroneously paid on the importation of the petroleum
products sold to CDC.
WHEREFORE, the Court GRANTS petitioner Chevron Philippines, Inc. 's Motion for Reconsideration; DIRECTS
respondent Commissioner of Internal Revenue to refund the excise taxes in the amount of P6,542,400.00
paid ·on the petroleum products sold to Clark Development Corporation in the period from August 2007 to
December 2007, or to issue a tax credit certificate of that amount to Chevron Philippines, Inc.
No pronouncement on costs of suit.
G.R. No. 186223, October 01, 2014
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. PHILIPPINE ASSOCIATED SMELTING AND REFINING
CORPORATION, Respondent.
RESOLUTION
REYES, J.:
The instant petition filed under Rule 45 of the Revised Rules of Court seeks to reverse and set aside the Court of
Tax Appeals (CTA) En Bane Decision1 dated November 12, 2008 in CTA E.B. Case No. 351 (CTA Case No. 7565)
entitled "Philippine Associated Smelting and Refining Corporation v. The Honorable Commissioner of Internal
Revenue" which ruled that respondent is a PEZA-registered enterprise and enjoys tax exemption privilege; hence,
it is exempt from paying the excise tax on petroleum products in issue and entitled to seek a refund thereof. The
Resolution2 dated January 30, 2009 denied the motion for reconsideration filed by the Commissioner of Internal
Revenue (petitioner).
The respondent Philippine Associated Smelting and Refining Corporation (PASAR) is a domestic corporation
engaged in the business of processing, smelting, refining and exporting refined copper cathodes and other
copper products, and a registered Zone Export Enterprise with the Export Processing Zone Authority
(EPZA).3 PASAR uses petroleum products for its manufacturing and other processes, and purchases it from local
distributors, which import the same and pay the corresponding excise taxes. The excise taxes paid are then
passed on by the local distributors to its purchasers. In this particular case, Petron passed on to PASAR the excise
taxes it paid on the petroleum products bought by the latter during the period of January 2005 to October 2005,
totalling eleven million six hundred eighty-seven thousand four hundred sixty-seven 62/100 (P11,687,467.62).
In December 2006, PASAR filed a claim for refund and/or tax credit with the Office of the Regional Director of
Region XIV, which denied the same in a letter dated January 3, 2007. 4cralawred
PASAR then filed a petition for review with the Court of Tax Appeals (CTA) Second Division, which was contested
by the petitioner. The petitioner also filed a motion to preliminarily resolve whether PASAR is the proper party to
ask for a refund. Thereafter, the parties agreed to the following stipulation of issues:chanRoblesvirtualLawlibrary
1. Whether or not petroleum products purchased from Petron and delivered to PASAR to be used in its operation
in LIDE are exempt from excise taxes under Section 17 of P.D. No. 66 and thus entitled to a refund or issuance of THE SPECIFIC TAXES HEREIN SOUGHT TO BE REFUNDED/CREDITED DO NOT FORM PART OF THE EXPORT
a tax credit certificate. PRODUCTS MANUFACTURED BY RESPONDENT AND, THEREFORE, NOT REFUNDABLE.13

2. Whether or not PASAR is the proper party to claim for refund or issuance of tax credit certificate for excise
taxes paid.
3. Whether or not the claim for tax credit/refund is properly substantiated by receipts and invoices.
4. Whether or not the claim for tax credit/refund is timely filed.5
On September 19, 2007, the CTA Second Division issued a Resolution6 granting the petitioner's motion to
preliminarily resolve whether PASAR is the proper party to ask for a refund, and dismissed its petition for review.
When its motion for reconsideration was denied in the Resolution7 dated December 3, 2007, PASAR filed a
petition for review with the CTA En Banc.
In the assailed Resolution8 dated November 12, 2008, the CTA En Banc set aside CTA Resolutions dated
September 19, 2007 and December 3, 2007, and ordered the remand of the petition for review to the CTA
Second Division for reception of evidence and determination of the amount to be refunded to the petitioner.
The petitioner filed a motion for reconsideration, which was denied by the CTA En Banc in the assailed
Resolution9 dated January 30, 2009.
In granting PASAR's petition for review, the CTA En Banc ruled that it is the proper party to claim the
refund/credit, citing Commissioner of Customs v. Philippine Phosphate Fertilizer Corp.10 and Philippine Phosphate
Fertilizer Corporation v. Commissioner of Internal Revenue.11 According to the CTA, since PASAR is a PEZA-
registered entity enjoying tax exemption privilege under Presidential Decree (P.D.) No. 66 and subsequently,
Republic Act (R.A.) No. 7916, it is exempt from payment of excise taxes on petroleum products. And following
the Court's ruling in the Philippine Phosphate Fertilizer Corporation, PASAR, therefore, may seek
refund.12cralawred
The petitioner contends that the CTA has no jurisdiction over the BIR Regional Director's denial of PASAR's claim,
arguing that the CTA's exclusive appellate jurisdiction pertains only to decisions of the Commissioner of Internal
Revenue, as provided in Section 7 of R.A. No. 1125, as amended by Section 7 of R.A. No. 9282. The petitioner
also objects to the CTA En Banc's application of the Commissioner of Customs and Philphos cases in the present
case and argues that Commissioner of Customs involved the tax refund/credit of customs duties and not excise
taxes; Philphos, on the other hand, did not squarely resolve the issue of whether an EPZA-registered enterprise is
exempt from paying the excise taxes on petroleum products indirectly used. The petitioner also contends that
the proper party to seek a tax refund/credit is the statutory taxpayer or the person on whom the tax was
imposed and paid the same, which in this case was Petron, even though the latter subsequently shifted the
burden to PASAR. Finally, the petitioner believes that Section 17 of P.D. No. 66 does not clearly provide that
petroleum products delivered to EPZA-registered enterprises are exempt from taxes, and that the petroleum
products purchased by PASAR from Petron do not form part of the export products it manufactures. 14cralawred
Respondent, meanwhile, claims that the petitioner is estopped from questioning the jurisdiction of the CTA.
Respondent also contends, in sum, that Commissioner of Customs and Philphos are applicable in this case, that it
is the proper party to apply for a tax refund and that it is exempted from paying excise taxes. 15cralawred
At the outset, it must be stated that the Court will limit the issue to be resolved in this case to whether PASAR is
the proper party to claim the tax credit/refund on the excise taxes paid on the petroleum products purchased
from Petron. The other grounds raised by the petitioner, i.e., jurisdiction and the factual basis of PASAR's claim
for tax refund/credit, are not proper at the moment inasmuch as the CTA En Banc's review only dealt with the
petitioner's "motion to preliminary resolve the issue of whether or not [respondent] is the proper party that may
ask for a refund."16 And on this issue, the Court finds that the CTA En Banc did not commit any reversible error
when it ruled that PASAR is the proper party to file a claim for the refund/credit of excise taxes. Hence, the
petition must be denied.

The grounds relied upon in this petition are as follows:chanRoblesvirtualLawlibrary PASAR is a business enterprise registered with the EPZA pursuant to P.D. No. 66.17 There is no dispute as regards
its use of fuel and petroleum products for the processing, smelting and refining of its export copper products,
I. and that Petron, from which PASAR purchased its fuel and petroleum, products, passed on the excise taxes paid
to the latter. In ruling that PASAR is the proper party to file the claim for the refund/credit, the CTA En Bane
THE CTA SHOULD HAVE DISMISSED RESPONDENT'S PETITION FOR REVIEW FOR LACK OF JURISDICTION OVER THE chiefly relied on the Court's rulings in Commissioner of Customs v. Philippine Phosphate Fertilizer
SUBJECT MATTER OF THE CASE. Corp.18 and Philippine Phosphate Fertilizer Corporation v. Commissioner of Internal Revenue.19cralawred

II. Commissioner of Customs involved a claim for refund by Philippine Phosphate Fertilizer Corporation (Philphos) of
the customs duties it indirectly paid on fuel and petroleum products purchased from Petron Corporation for the
THE CTA EN BANC'S RELIANCE ON COMMISSIONER OF CUSTOMS V. PHILIPPINE PHOSPHATE FERTILIZER period of October 1991 until June 1992. This was opposed by the Commissioner of Customs. One of the issues
CORPORATION AND PHILIPPINE PHOSPHATE FERTILIZER CORPORATION V. COMMISSIONER OF INTERNAL raised in the case was the legal basis for Philphos' exemption from duties and taxes, it being an EPZA-registered
REVENUE IS MISPLACED. company. While it may be true that Commissioner of Customsinvolved the refund of customs duties paid on
petroleum products, it was nevertheless correctly applied by the CTA En Banc.
III.
Notably, in Commissioner of Customs, the Court squarely interpreted the exemption granted under Section 17 of
RESPONDENT IS NOT THE PROPER PARTY TO CLAIM A TAX CREDIT AND/OR REFUND. P.D. No. 66 as applicable to both customs duties and internal revenue taxes, viz:chanroblesvirtuallawlibrary

IV. The incentives offered to enterprises duly registered with the PEZA consist, among others, of tax exemptions,
xxx
Section 17 of the EPZA Law particularizes the tax benefits accorded to duly registered enterprises. It states: that supplies, including petroleum products, whether used directly or indirectly, shall not be subject to internal
SEC. 17. Tax Treatment of Merchandize in the Zone. - (1) Except as otherwise provided in this Decree, foreign and revenue laws and regulations. Such exemption includes the payment of excise taxes, which was passed on to
domestic merchandise, raw materials, supplies, articles, equipment, machineries, spare parts and wares of every PASAR by Petron. PASAR, therefore, is the proper party to file a claim for refund.
description, except those prohibited by law, brought into the Zone to be sold, stored, broken up, repacked,
assembled, installed, sorted, cleaned, graded, or otherwise processed, manipulated, manufactured, mixed with WHEREFORE, the petition is DENIED for lack of merit. Accordingly, the Decision dated November 12, 2008 and its
foreign or domestic merchandise or used whether directly or indirectly in such activity, shall not be subject to Resolution dated January 30, 2009 of the Court of Tax Appeals En Banc in CTA E.B. Case No. 351 are
customs and internal revenue laws and regulations nor to local tax ordinances, the following provisions of law to hereby AFFIRMED in toto.
the contrary notwithstanding.
The cited provision certainly covers petroleum supplies used, directly or indirectly, by Philphos to facilitate its SO ORDERED.
production of fertilizers, subject to the minimal requirement that these supplies are brought into the zone. The
supplies are not subject to customs and internal revenue laws and regulations, nor to local tax ordinances. It is
clear that Section 17(1) considers such supplies exempt even if they are used indirectly, as they had been in February 8, 2017
this case.20 (Emphasis and underscoring ours)
G.R. No. 201326
Thus, the Court affirmed the refund of customs duties granted by the CTA and in closing, stated that "[t]he grant
of exemption under Section 17(1) is clear and unambiguous, x x x."21cralawred
SITEL PHILIPPINES CORPORATION (FORMERLY CLIENTLOGIC PHILS., INC.), Petitioner
vs.
Philphos, meanwhile, involved Philphos' claim for refund of excise taxes passed on by Petron. One of the issues
COMMISSIONER OF INTERNAL REVENUE, Respondent
identified by the Court in the case was whether the CTA should have granted the claim for refund. In resolving
said issue, the Court ruled that the CTA erred when it disallowed the petitioner's claim due to its failure to
present invoices as there is nothing in CTA Circular No. 1-95 that requires its presentation. The issue of whether DECISION
the petitioner was entitled to exemption from payment of excise taxes was not lengthily discussed by the Court
because it was already undisputed. Thus, the Court stated:chanRoblesvirtualLawlibrary CAGUIOA, J.:

In this case, there is no dispute that petitioner is entitled to exemption from the payment of excise taxes by This Petition for Review on Certiorari1 under Rule 45 of the Rules of Court filed by petitioner Sitel Philippines
virtue of its being an EPZA registered enterprise. As stated by the CTA, the only thing left to be determined is Corporation (Sitel) against the Commissioner of Internal Revenue (CIR) seeks to reverse and set aside the
whether or not petitioner is entitled to the amount claimed for refund. Decision dated November 11, 2011[[2]] and Resolution dated March 28, 2012[[3]] of the Court of Tax Appeals
(CTA) En Banc in CTA EB No. 644, which denied Sitel' s claim for refund of unutilized input value-added tax (VAT)
xxxx for the first to fourth quarters of taxable year 2004 for being prematurely filed.

Since it is not disputed that petitioner is entitled to tax exemption, it should not be precluded from presenting
Facts
evidence to substantiate the amount of refund it is claiming on mere technicality especially in this case, where
the failure to present invoices at the first instance was adequately explained by petitioner.22 (Emphasis ours)
Sitel, a corporation organized and existing under the laws of the Philippines, is engaged in the business of
Applying the foregoing rulings in this case, it is therefore undeniable that PASAR is exempted from payment of providing call center services from the Philippines to domestic and offshore businesses. It is registered with the
excise taxes. Bureau of Internal Revenue (BIR) as a VAT taxpayer, as well as with the Board of Investments on pioneer status
as a new information technology service firm 'in the field of call center.[[4]]
The next pivotal question then that must be resolved is whether PASAR has the legal personality to file the claim
for the refund of the excise taxes passed on by Petron. The petitioner insists that PASAR is not the proper party For the period from January 1, 2004 to December 31, 2004, Sitel filed with the BIR its Quarterly VAT Returns as
to seek a refund of an indirect tax, such as an excise tax or Value Added Tax, because it is not the statutory follows:
taxpayer. The petitioner's argument, however, has no merit.

The rule that it is the statutory taxpayer which has the legal personality to file a claim for refund 23 finds no Period Covered Date Filed
applicability in this case. In Philippine Airlines, Inc. v. Commissioner of Internal Revenue,24 the Court distinguished 1st Quarter 2004 26 April 2004
between the kinds of exemption enjoyed by a claimant in order to determine the propriety of a tax refund
claim. "If the law confers an exemption from both direct or indirect taxes, a claimant is entitled to a tax refund 2nd Quarter 2004 26 July 2004
even if it only bears the economic burden of the applicable tax. On the other hand, if the exemption conferred
only applies to direct taxes, then the statutory taxpayer is regarded as the proper party to file the refund 3rd Quarter 2004 25 October 2004
claim."25 In PASAR's case, Section 17 of P.D. No. 66, as affirmed in Commissioner of Customs, specifically declared
 4th Quarter 2004 25 January 20055 Per this Court's further verification 2,668,852.55
Sitel's Amended Quarterly VAT Returns for the first to fourth quarters of 2004 declared as follows:
Refundable Input VAT on Capital Goods Purchases ₱ 11,155,276.59
Accordingly, respondent is ORDERED to REFUND OR ISSUE A TAX CREDIT CERTIFICATE in the reduced amount
Taxable Sales Zero-Rated Total Sales Input Tax for the Input Tax from Input Tax Input Tax Input Tax representing unutilized input VAT arising from petitioner's domestic purchases of goods and
of ₱11,155,276.59
(A) Sales (C=A+B) [Quarter] Capital Goods from Regular Allocated Allocated to Zero-
services which are attributable to zero-rated transactions and purchases/importations of capital goods for the
(B) (D) (E) Transactions to Taxable Rated Sales
taxable year 2004.
(F+D-E) Sales [H=(B/C) x (F)]
[G=(A/C) x
(F)] SO ORDERED.9

509,799.74 180,450,030.29 180,957,830.03 3,842,714.21 2,422,090.40 1,400,623.81 3,930.40 1,396,693.41

The CTA Division denied Sitel's ₱7,170,276.02 claim for unutilized input VAT attributable to its zero-rated sales
for the four quarters of 2004. Relying upon the rulings of this Court in Commissioner of Internal Revenue
0 142,664,271.00 142,664,271.00 3,554,922.94 2,846,225.66 708,696.58 - 708,696.58
v.Burmeister and Wain Scandinavian Contractor Mindanao, Inc.10 (Burmeister), the CTA Division found that Sitel
failed to prove that the recipients of its services are doing business outside the Philippines, as required under
517,736.36 205,021,590.46 205,539,326.82 9,568,047.25 7,629, 734.40 1,938,312.85 4,882.45 1,933,430.40
Section 108(B)(2) of the National Internal Revenue Code of 1997 (NIRC), as amended.11
0 334,384,766.48 334,384,766.48 6,137,028.74 3,005,573.11 3,313,455.63 - 3,313,455.63
The CTA Division also disallowed the amount of ₱2,668,852.55 representing input VAT paid on capital goods
1,025,536.10 862,520,658.23 863,546,194.33 23,102,712.44 15,923,623.57 7,179,088.87 8,812.85 7,170,276.02 6
purchased for taxable year 2004 for failure to comply with the invoicing requirements under Sections 113, 237,
and 238 of the NIRC of 1997, as amended, and Section 4.108-1 of Revenue Regulations No. 7-95 (RR 7-95).12
On March 28, 2006, Sitel filed separate formal claims for refund or issuance of tax credit with the One-Stop Shop
Inter-Agency Tax Credit and Duty Drawback Center of the Department of Finance for its unutilized input VAT
arising from domestic purchases of goods and services attributed to zero-rated transactions and Aggrieved, Sitel filed a motion for partial reconsideration13 and Supplement (To Motion for Reconsideration [of
purchases/importations of capital goods for the 1st, 2nd, 3rd and 4th quarters of 2004 in the aggregate amount Decision dated October 21, 2009]),14 on November 11, 2009 and March 26, 2010, respectively.
of ₱23,093,899.59.7
Prior thereto, or on January 8, 2010, Sitel filed a Motion for Partial Execution of Judgment15 seeking the
On March 30, 2006, Sitel filed a judicial claim for refund or tax credit via a petition for review before the CTA, execution pending appeal of the portion of the Decision dated October 21, 2009 granting refund in the amount
docketed as CTA Case No. 7423. of ₱11,155,276.59, which portion was not made part of its motion for partial reconsideration.

Ruling of the CTA Division
On October 21, 2009, the CTA Division rendered a Decision8 partially granting Sitel' s claim for VAT refund or tax
credit, the dispositive portion of which reads as follows:
In view of the foregoing, the instant Petition for Review is hereby PARTIALLY GRANTED. Petitioner is entitled to
the instant claim in the reduced amount of ₱11,155,276.59 computed as follows:
On May 31, 2010, the CTA Division denied Sitel's Motion for Reconsideration and Supplement (To Motion for
Reconsideration [of Decision dated October 21, 2009]) for lack of merit.16
Undaunted, Sitel filed a Petition for Review17 with the CTA En Banc claiming that it is entitled to the amount
denied by the CTA Division.
Ruling of the CTA En Banc

In the assailed Decision, the CTA En Banc reversed and set aside the ruling of the CTA Division. Citing the case
Amount of Input VAT Claim ₱ 23,093,899.59 of Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc. 18 (Aichi), the CTA En Banc ruled that
the 120-day period for the CIR to act on the administrative claim for refund or tax credit, under Section 112(D) of
Less: Input VAT Claim on Zero-Rated Sales 7,170,276.02
the NIRC of 1997, as amended, is mandatory and jurisdictional. Considering that Sitel filed its judicial claim for
Input VAT Claim on Capital Goods Purchases ₱ 15,923,623.57 VAT refund or credit without waiting for the lapse of the 120-day period for the CIR to act on its administrative
claim, the CTA did not acquire jurisdiction as there was no decision or inaction to speak of. 19 Thus, the CTA En
Not Properly Substantiated Input VAT Claim on Capital Goods Banc denied Sitel' s entire refund claim on the ground of prematurity. The dispositive portion of the CTA En
Less:
Purchases Banc's Decision reads as follows:

Per ICPA Report (₱15,923,623.57 less ₱13,824,129.14) 2,099,494.43

WHEREFORE, on the basis of the foregoing considerations, the Petition for Review En Banc is DISMISSED. amount for refund of ₱11,155,276.59 should be reinstated and declared final and executory, the same not being
Accordingly, the Decision of the CTA First Division dated October 21, 2009 and the Resolution issued by the the subject of Sitel's partial appeal before the CTA En Banc,nor of any appeal from the CIR.
Special First Division dated May 31, 2010, are hereby reversed and set aside. Petitioner's refund claim of
₱19,702,880.80 is DENIED on the ground that the judicial claim for the first to fourth quarters of taxable year Finally, Sitel contends that insofar as the denied portion of the claim is concerned, which the CTA En Banc failed
2004 was prematurely filed. to pass upon with the dismissal of its appeal, speedy justice demands that the Court resolved the same on the
merits and Sitel be declared entitled to an additional refund in the amount of ₱9,839, 128.57.
SO ORDERED.20
The Court's Ruling
Aggrieved, Sitel moved for reconsideration,21 but the same was denied by the Court En Banc for lack of merit.22
The Court finds the petition partly meritorious.
Hence, the instant petition raising the following issues:
Sitel's Judicial Claim/or VAT Refund
x x x WHETHER OR NOT THE AICHI RULING PROMULGATED ON OCTOBER 6, 2010 MAY BE APPLIED was deemed timely filed pursuant to
RETROACTIVELY TO THE INST ANT CLAIM FOR REFUND OF INPUT VAT INCURRED IN 2004. the Court's pronouncement in San
Roque.
x x x WHETHER OR NOT THE CTA EN BANC CAN VALIDLY WITHDRAW AND REVOKE THE PORTION OF THE REFUND
CLAIM ALREADY GRANTED TO PETITIONER IN THE AMOUNT OF ₱11,155,276.59 AFTER TRIAL ON THE MERITS, Section 112(C) of the NIRC, as amended, provides:
NOTWITHSTANDING THAT SUCH PORTION OF THE DECISION HAD NOT BEEN APPEALED.
SEC. 112. Refunds or Tax Credits of Input Tax. –
x x x WHETHER OR NOT PETITIONER IS ENTITLED TO A REFUND OR TAX CREDIT OF ITS UNUTILIZED INPUT VAT
ARISING FROM PURCHASES OF GOODS AND SERVICES ATTRIBUTABLE TO ZERO-RATED SALES AND xxxx
PURCHASES/IMPORTATIONS OF CAPITAL GOODS FOR THE 1sT, 2ND, 3RD, [AND] 4TH QUARTERS OF TAXABLE
YEAR 2004 IN THE AGGREGATE AMOUNT OF ₱20,994,405.16.23
(C) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In proper cases, the Commissioner
shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120)
In the Resolution24 dated July 4, 2012, the CIR was required to comment on the instant petition. In compliance days from the date of submission of complete documents in support of the application filed in accordance
thereto, the CIR filed its Comment25 on November 14, 2012. with Subsection (A) hereof.

On January 16, 2013, the Court issued a Resolution26 denying Sitel's petition for failure to sufficiently show that
the CTA En Banc committed reversible error in denying its refund claim on the ground of prematurity based on
prevailing jurisprudence.
Soon thereafter, however, or on February 12, 2013, the Court En Banc decided the consolidated cases
of Commissioner of Internal Revenue v. San Roque Power Corporation, Taganito Mining Corporation v.
Commissioner of Internal Revenue, and Phi/ex Mining Corporation v. Commissioner of Internal Revenue27 (San
Roque). In that case, the Court recognized BIR Ruling No. DA-489-03 as an exception to the mandatory and
jurisdictional nature of the 120-day waiting period.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within
thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred
twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals. (Emphasis supplied)
Based on the plain language of the foregoing provision, the CIR is given 120 days within which to grant or deny a
claim for refund. Upon receipt of CIR' s decision or ruling denying the said claim, or upon the expiration of the
120-day period without action from the CIR, the taxpayer has thirty (30) days within which to file a petition for
review with the CTA.

Invoking San Roque, Sitel filed a Motion for Reconsideration.28
In the Resolution29 dated June 17, 2013, the Court granted Sitel's motion and reinstated the instant petition.
In the instant petition, Sitel claims that its judicial claim for refund was timely filed following the Court's
pronouncements in San Roque; thus, it was erroneous for the CTA En Banc to reverse the ruling of the CTA
Division and to dismiss its petition on the ground of prematurity. Sitel further argues that the previously granted
In Aichi, the Court ruled that the 120-day period granted to the CIR was mandatory and jurisdictional, the non-
observance of which was fatal to the filing of a judicia1 claim with the CTA. The Court further explained that the
two (2)-year prescriptive period under Section 112(A) of the NIRC pertained only to the filing of the
administrative claim with the BIR; while the judicial claim may be filed with the CTA within thirty (30) days from
the receipt of the decision of the CIR or the expiration of the 120-day period of the CIR to act on the claim. Thus:
Section 112 (D) of the NIRC clearly provides that the CIR has "120 days, from the date of the submission of the
complete documents in support of the application [for tax refund/credit]," within which to grant or deny the
claim. In case of full or partial denial by the CIR, the taxpayer's recourse is to file an appeal before the CTA within
30 days from receipt of the decision of the CIR. However, if after the 120-day period the CIR fails to act on the
application for tax refund/credit, the remedy of the taxpayer is to appeal the inaction of the CIR to CTA within 30
days.
In this case, the administrative and the judicial claims were simultaneously filed on September 30, 2004.
Obviously, respondent did not wait for the decision of the CIR or the lapse of the 120-day period. For this reason,
we find the filing of the judicial claim with the CTA premature.
Respondent's assertion that the non-observance of the 120-day period is not fatal to the filing of a judicial claim
as long as both the administrative and the judicial claims are filed within the two-year prescriptive period has no
legal basis.
There is nothing in Section 112 of the NIRC to support respondent's view. Subsection (A) of the said provision
states that "any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two
years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit
certificate or refund of creditable input tax due or paid attributable to such sales." The phrase "within two (2)
years x x x apply for the issuance of a tax credit certificate or refund" refers to applications for refund/credit filed
with the CIR and not to appeals made to the CT A. This is apparent in the first paragraph of subsection (D) of the
same provision, which states that the CIR has "120 days from the submission of complete documents in support
of the application filed in accordance with Subsections (A) and (B)" within which to decide on the claim.
In fact, applying the two-year period to judicial claims would render nugatory Section 112(D) of the NIRC, which
already provides for a specific period within which a taxpayer should appeal the decision or inaction of the CIR.
The second paragraph of Section 112(D) of the NIRC envisions two scenarios: (1) when a decision is issued by the
CIR before the lapse of the 120-day period; and (2) when no decision is made after the 120-day period. In both
instances, the taxpayer has 30 days within which to file an appeal with the CTA. As we see it then, the 120-day
period is crucial in filing an appeal with the CTA.
xxxx
In fine, the premature filing of respondent's claim for refund/credit of input VAT before the CTA warrants a
dismissal inasmuch as no jurisdiction was acquired by the CTA.30
However, in San Roque, the Court clarified that the 120-day period does not apply to claims for refund that were
prematurely filed during the period from the issuance of BIR Ruling No. DA-489-03, on December 10, 2003, until
October 6, 2010, when Aichi was promulgated. The Court explained that BIR Ruling No. DA-489-03, which
expressly allowed the filing of judicial claims with the CTA even before the lapse of the 120-day period, provided
for a valid claim of equitable estoppel because the CIR had misled taxpayers into prematurely filing their judicial
claims before the CTA:
There is no dispute that the 120-day period is mandatory and jurisdictional, and that the CTA does not acquire
jurisdiction over a judicial claim that is filed before the expiration of the 120-day period. There are, however, two
exceptions to this rule. The first exception is if the Commissioner, through a specific ruling, misleads a particular
taxpayer to prematurely file a judicial claim with the CTA. Such specific ruling is applicable only to such particular
taxpayer. The second exception is where the Commissioner, through a general interpretative rule issued under
Section 4 of the Tax Code, misleads all taxpayers into filing prematurely judicial claims with the CTA. In these
cases, the Commissioner cannot be allowed to later on question the CTA's assumption of jurisdiction over such
claim since equitable estoppel has set in as expressly authorized under Section 246 of the Tax Code.
xxxx
BIR Ruling No. DA-489-03 is a general interpretative rule because it was a response to a query made, not by a
particular taxpayer, but by a government agency tasked with processing tax refunds and credits, that is, the One
Stop Shop Inter-Agency Tax Credit and Drawback Center of the Department of Finance. This government agency
is also the addressee, or the entity responded to, in BIR Ruling No. DA-489-03. Thus, while this government
agency mentions in its query to the Commissioner the administrative claim of Lazi Bay Resources Development,
Inc., the agency was in fact asking the Commissioner what to do in cases like the tax claim of Lazi Bay Resources
Development, Inc., where the taxpayer did not wait for the lapse of the 120-day period.
Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, all taxpayers can rely on BIR Ruling No.
DA-489-03 from the time of its issuance on 10 December 2003 up to its reversal by this Court in Aichi on 6
October 2010, where this Court held that the 120+30 day periods are mandatory and
jurisdictional.31 (Emphasis supplied).
In Visayas Geothermal Power Company v. Commissioner of Internal Revenue,32 the Court came up with an outline
summarizing the pronouncements in San Roque, to wit:
For clarity and guidance, the Court deems it proper to outline the rules laid down in San Roque with regard to
claims for refund or tax credit of unutilized creditable input VAT. They are as follows:
1. When to file an administrative claim with the CIR:
a. General rule - Section 112(A) and Mirant
Within 2 years from the close of the taxable quarter when the sales were
made.
b. Exception – Atlas
Within 2 years from the date of payment of the output VAT, if the
administrative claim was filed from June 8, 2007 (promulgation
of Atlas) to September 12, 2008 (promulgation of Mirant).
2. When to file a judicial claim with the CT A:
a. General rule - Section 112(D); not Section 229
i. Within 30 days from the full or partial denial of the administrative
claim by the CIR; or
 ii. Within 30 days from the expiration of the 120-day period provided to
the CIR to decide on the claim. This is mandatory and jurisdictional
beginning January 1, 1998 (effectivity of 1997 NIRC).
b. Exception-BIR Ruling No. DA-489-03
The judicial claim need not await the expiration of the 120-day period, if such was filed from December 10,
2003 (issuance of BIR Ruling No. DA-489-03) to October 6, 2010 (promulgation of Aichi).33 (Emphasis and
underscoring supplied).
In this case, records show that Sitel filed its administrative and judicial claim for refund on March 28, 2006 and
March 30, 2006, respectively, or after the issuance of BIR Ruling No. DA-489-03, but before the date
when Aichi was promulgated. Thus, even though Sitel filed its judicial claim prematurely, i.e., without waiting for
the expiration of the 120-day mandatory period, the CTA may still take cognizance of the case because the claim
was filed within the excepted period stated in San Roque. In other words, Sitel' s judicial claim was deemed
timely filed and should have not been dismissed by the CTA En Banc.Consequently, the October 21, 2009
Decision34 of the CTA Division partially granting Sitel' s judicial claim for refund in the reduced amount of
₱11,155,276.59, which is not subject of the instant appeal, should be reinstated. In this regard, since the CIR did
not appeal said decision to the CTA En Banc, the same is now considered final and beyond this Court's review.
Sitel now questions the following portions of its refund claim which the CTA Division denied: (1) ₱7,l 70,276.02,
representing unutilized input VAT on purchases of goods and services attributable to zero-rated sales, which was
denied because Sitel failed to prove that the call services it rendered for the year 2004 were made to non-
resident foreign clients doing business outside the Philippines; and (2) ₱2,668,852.55 representing input VAT on
purchases of capital goods, because these are supported by invoices and official receipts with pre-printed TIN-V
instead of TIN-VAT, as required under Section 4.108-1 of RR 7-95.
Sitel claims that testimonial and documentary evidence sufficiently established that its clients were non-resident
foreign corporations not doing business in Philippines. It also asserts that the input VAT on its purchases of
capital goods were duly substantiated because the supporting official receipts substantially complied with the
invoicing requirements provided by the rules.
In other words, Sitel wants the Court to review factual findings of the CTA Division, reexamine the evidence and
determine on the basis thereof whether it should be refunded the additional amount of ₱9,839,128.57. This,
however, cannot be done in the instant case for settled is the rule that this Court is not a trier of facts and does
not normally embark in the evaluation of evidence adduced during trial.35 It is not this Court's function to analyze
or weigh all over again the evidence already considered in the proceedings below, the Court's jurisdiction being
limited to reviewing only errors of law that may have been committed by the lower court.36
Furthermore, the Court accords findings and conclusions of the CTA with the highest respect. 37 As a specialized
court dedicated exclusively to the resolution of tax problems, the CTA has accordingly developed an expertise on
the subject of taxation.38 Thus, its decisions are presumed valid in every aspect and will not be overturned on
appeal, unless the Court finds that the questioned decision is not supported by substantial evidence or there has
been an abuse or improvident exercise of authority on the part of the tax court. 39
Upon careful review of the instant case, and directly addressing the issues raised by Sitel, the Court finds no
cogent reason to reverse or modify the findings of the CTA Division.
The Court expounds.
Sitel failed to prove that the
recipients of its call services are
foreign corporations doing business
outside the Philippines.
Sitel's claim for refund is anchored on Section 112(A) 40 of the NIRC, which allows the refund or credit of input
VAT attributable to zero-rated or effectively zero-rated sales. In relation thereto, Sitel points to Section 108(B)(2)
of the NIRC [formerly Section 102(b)(2) of the NIRC of 1977, as amended] as legal basis for treating its sale of
services as zero-rated or effectively zero-rated. Section 108(B)(2) reads:
SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. -
xxxx
(B) Transactions Subject to Zero Percent (0%) Rate. - The following services performed in the Philippines by VAT-
registered persons shall be subject to zero percent (0%) rate:
xxxx
(2) Services other than those mentioned in the preceding paragraph rendered to a person engaged in business
conducted outside the Philippines or to a nonresident person not engaged in business who is outside the
Philippines when the services are performed, the consideration for which is paid for in acceptable foreign
currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
(Emphasis supplied)
In Burmeister, the Court clarified that an essential condition to qualify for zero-rating under the aforequoted
provision is that the service-recipient must be doing business outside the Philippines, to wit:
The Tax Code not only requires that the services be other than "processing, manufacturing or repacking of
goods" and that payment for such services be in acceptable foreign currency accounted for in accordance with
BSP rules. Another essential condition for qualification to zero-rating under Section 102(b)(2) is that the recipient
of such services is doing business outside the Philippines. x x x
This can only be the logical interpretation of Section 102(b)(2). If the provider and recipient of the "other
services" are both doing business in the Philippines, the payment of foreign currency is irrelevant. Otherwise,
those subject to the regular VAT under Section 102(a) can avoid paying the VAT by simply stipulating payment in
foreign currency inwardly remitted by the recipient of services. To interpret Section 102(b)(2) to apply to a
payer-recipient of services doing business in the Philippines is to make the payment of the regular VAT under
Section 102(a) dependent on the generosity of the taxpayer. The provider of services can choose to pay the
regular VAT or avoid it by stipulating payment in foreign currency inwardly remitted by the payer-recipient. Such
interpretation removes Section 102(a) as a tax measure in the Tax Code, an interpretation this Court cannot
sanction. A tax is a mandatory exaction, not a voluntary contribution.
xxxx
Thus, when Section 102(b)(2) speaks of "[s]ervices other than those mentioned in the preceding
subparagraph," the legislative intent is that only the services are different between subparagraphs 1 and 2. The
requirements for zero-rating, including the essential condition that the recipient of services is doing business
outside the Philippines, remain the same under both subparagraphs.
Significantly, the amended Section 108(b) [previously Section 102 (b)] of the present Tax Code clarifies this
legislative intent. Expressly included among the transactions subject to 0% VAT are "[s]ervices other than those
mentioned in the [first] paragraph [of Section 108(b)] rendered to a person engaged in business conducted
outside the Philippines or to a nonresident person not engaged in business who is outside the
Philippines when the services are performed, the consideration for which is paid for in acceptable foreign
currency and accounted for in accordance with the rules and regulations of the BSP."41
Following Burmeister, the Court, in Accenture, Inc. v. Commissioner of Internal
Revenue,42 (Accenture), emphasized that a taxpayer claiming for a VAT refund or credit under Section 108(B) has
the burden to prove not only that the recipient of the service is a foreign corporation, but also that said
corporation is doing business outside the Philippines. For failure to discharge this burden, the Court
denied Accenture's claim for refund.
We rule that the recipient of the service must be doing business outside the Philippines for the transaction to
qualify for zero-rating under Section 108(B) of the Tax Code.
xxxx
The evidence presented by Accenture may have established that its clients are foreign. This fact does not
automatically mean, however, that these clients were doing business outside the Philippines. After all, the Tax
Code itself has provisions for a foreign corporation engaged in business within the Philippines and vice versa, to
wit:
SEC. 22. Definitions. - When used in this Title:
xxxx
(H) The term "resident foreign corporation" applies to a foreign corporation engaged in trade or business within
the Philippines.
(I) The term 'nonresident foreign corporation' applies to a foreign corporation not engaged in trade or business
within the Philippines. (Emphasis in the original)
Consequently, to come within the purview of Section 108(B)(2), it is not enough that the recipient of the
service be proven to be a foreign corporation; rather, it must be specifically proven to be a nonresident
foreign corporation.
There is no specific criterion as to what constitutes "doing" or "engaging in" or "transacting" business. We ruled
thus in Commissioner of Internal Revenue v. British Overseas Airways Corporation:
x x x. There is no specific criterion as to what constitutes "doing" or "engaging in" or "transacting" business. Each
case must be judged in the light of its peculiar environmental circumstances. The term implies a continuity of
commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or
the exercise of some of the functions normally incident to, and in progressive prosecution of commercial gain or
for the purpose and object of the business organization. "In order that a foreign corporation may be regarded
as doing business within a State, there must be continuity of conduct and intention to establish a continuous
business, such as the appointment of a local agent, and not one of a temporary character."
A taxpayer claiming a tax credit or refund has the burden of proof to establish the factual basis of that claim. Tax
refunds, like tax exemptions, are construed strictly against the taxpayer.
Accenture failed to discharge this burden. It alleged and presented evidence to prove only that its clients were
foreign entities. However, as found by both the CTA Division and the CTA En Banc, no evidence was presented
by Accenture to prove the fact that the foreign clients to whom petitioner rendered its services were clients
doing business outside the Philippines.
As ruled by the CTA En Banc, the Official Receipts, Intercompany Payment Requests, Billing Statements, Memo
Invoices-Receivable, Memo Invoices-Payable, and Bank Statements presented by Accenture merely
substantiated the existence of sales, receipt of foreign currency payments, and inward remittance of the
proceeds of such sales duly accounted for in accordance with BSP rules, all of these were devoid of any evidence
that the clients were doing business outside of the Philippines. 43 (Emphasis supplied; citations omitted)
In the same vein, Sitel fell short of proving that the recipients of its call services were foreign corporations doing
business outside the Philippines. As correctly pointed out by the CTA Division, while Sitel' s documentary
evidence, which includes Certifications issued by the Securities and Exchange Commission and Agreements
between Sitel and its foreign clients, may have established that Sitel rendered services to foreign corporations in
2004 and received payments therefor through inward remittances, said documents failed to specifically prove
that such foreign clients were doing business outside the Philippines or have a continuity of commercial dealings
outside the Philippines.
Thus, the Court finds no reason to reverse the ruling of the CTA Division denying the refund of ₱7,170,276.02,
allegedly representing Sitel's input VAT attributable to zero-rated sales.
Sitel failed to strictly comply with
invoicing requirements for VAT
refund.
The CTA Division also did not err when it denied the amount of ₱2,668,852.55, allegedly representing input taxes
claimed on Sitel's domestic purchases of goods and services which are supported by invoices/receipts with pre-
printed TIN-V. In Western Mindanao Power Corp. v. Commissioner of Internal Revenue, 44 the Court ruled that in a
claim for tax refund or tax credit, the applicant must prove not only entitlement to the grant of the claim under
substantive law, he must also show satisfaction of all the documentary and evidentiary requirements for an
administrative claim for a refund or tax credit and compliance with the invoicing and accounting requirements
mandated by the NIRC, as well as by revenue regulations implementing them. The NIRC requires that the
creditable input VAT should be evidenced by a VAT invoice or official receipt,45 which may only be considered as
such when the TIN-VAT is printed thereon, as required by Section 4.108-1 of RR 7-95.

The Court's pronouncement in Kepco Philippines Corp. v. Commissioner of Internal Revenue46 is instructive:

Furthermore, Kepco insists that Section 4.108-1 of Revenue Regulation 07-95 does not require the word "TIN-
VAT" to be imprinted on a VAT-registered person's supporting invoices and official receipts and so there is no
reason for the denial of its ₱4,720,725.63 claim of input tax.

In this regard, Internal Revenue Regulation 7-95 (Consolidated Value-Added Tax Regulations) is
clear.1âwphi1 Section 4.108-1 thereof reads:

Only VAT registered persons are required to print their TIN followed by the word "VAT" in their invoice or
receipts and this shall be considered as a "VAT" Invoice. All purchases covered by invoices other than 'VAT
Invoice' shall not give rise to any input tax.

Contrary to Kepco's allegation, the regulation specifically requires the VAT registered person to imprint TIN-VAT
on its invoices or receipts. Thus, the Court agrees with the CTA when it wrote: "[T]o be considered a 'VAT
invoice,' the TIN-VAT must be printed, and not merely stamped. Consequently, purchases supported by invoices
or official receipts, wherein the TIN-VAT is not printed thereon, shall not give rise to any input VAT. Likewise,
input VAT on purchases supported by invoices or official receipts which are NON-VAT are disallowed because
these invoices or official receipts are not considered as 'VAT Invoices."'47

In the same vein, considering that the subject invoice/official receipts are not imprinted with the taxpayer's TIN
followed by the word VAT, these would not be considered as VAT invoices/official receipts and would not give
rise to any creditable input VAT in favor of Sitel.

At this juncture, it bears to emphasize that "[t]ax refunds or tax credits - just like tax exemptions - are strictly
construed against taxpayers, the latter having the burden to prove strict compliance with the conditions for the
grant of the tax refund or credit."48

WHEREFORE, premises considered, the instant petition for review is GRANTED IN PART. The Decision dated
November 11, 2011 and Resolution dated March 28, 2012 of the CTA En Banc in CTA EB No. 644 are
hereby REVERSED and SET ASIDE.Accordingly, the October 21, 2009 Decision of the CTA First Division in CTA
Case No. 7423 is hereby REINSTATED.

Respondent is hereby ORDERED TO REFUND or, in the alternative, TO ISSUE A TAX CREDIT CERTIFICATE, in favor
of the petitioner in the amount of ₱11,155,276.59, representing unutilized input VAT arising from
purchases/importations of capital goods for taxable year 2004.

SO ORDERED.