Tax Rev Cases PDF

Tax Review
1st Semester SY 2018-2019
G.R. No. 137002 July 27, 2006
BANK OF THE PHILIPPINE ISLANDS, petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
DECISION
CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Court, as amended, seeking to
set aside a Decision1 of the Court of Appeals dated 14 August 2004 ordering the petitioner to pay respondent
Commissioner of Internal Revenue (CIR) deficiency documentary stamp tax of P690,030 for the year 1986,
inclusive of surcharge and compromise penalty, plus 20% annual interest until fully paid. The Court of
Appeals in its assailed Decision affirmed the Decision2 of the Court of Tax Appeals (CTA) dated 31 May 1994.
From 28 February 1986 to 8 October 1986, petitioner Bank of the Philippine Islands (BPI) sold to the Central
Bank of the Philippines (now Bangko Sentral ng Pilipinas) U.S. dollars for P1,608,541,900.00. BPI instructed,
by cable, its correspondent bank in New York to transfer U.S. dollars deposited in BPI's account therein to the
Federal Reserve Bank in New York for credit to the Central Bank's account therein. Thereafter, the Federal
Reserve Bank sent to the Central Bank confirmation that such funds had been credited to its account and the
Central Bank promptly transferred to the petitioner's account in the Philippines the corresponding amount in
Philippine pesos.3
During the period starting 11 June 1985 until 9 March 1987, the Central Bank enjoyed tax exemption
privileges pursuant to Resolution No. 35-85 dated 3 May 1985 of the Fiscal Incentive Review Board. However,
in 1985, Presidential Decree No. 1994 -- An Act Further Amending Certain Provisions of the National Internal
Revenue Code was enacted. This law amended Section 222 (now 173) of the National Internal Revenue Code
(NIRC), by adding the foregoing:
[W]henever one party to the taxable document enjoys exemption from the tax herein imposed, the
other party thereto who is not exempt shall be the one directly liable for the tax.
In 1988, respondent CIR ordered an investigation to be made on BPI's sale of foreign currency. As a result
thereof, the CIR issued a pre-assessment notice informing BPI that in accordance with Section 195 (now
Section 182)4 of the NIRC, BPI was liable for documentary stamp tax at the rate of P0.30 per P200.00 on all
foreign exchange sold to the Central Bank. Total tax liability was assessed at P3,016,316.06, which consists of
a documentary stamp tax liability of P2,412,812.85, a 25% surcharge of P603,203.21, and a compromise
penalty of P300.00.5
BPI disputed the findings contained in the pre-assessment notice. Nevertheless, the CIR issued Assessment
No. FAS-5-86-88-003022, dated 30 September 1988, which BPI received on 11 October 1988. BPI formally
protested the assessment, but the protest was denied. On 10 July 1990, BPI received the final notice and
demand for payment of its 1986 assessment for deficiency documentary stamp tax in the amount
of P3,016,316.06. Consequently, a petition for review was filed with the CTA on 9 August 1990. 6
On 31 May 1994, the CTA rendered the Decision holding BPI liable for documentary stamp tax in connection
with the sale of foreign exchange to the Central Bank from the period 29 July 1986 to 8 October 1986 only,
thus substantially reducing the CIR's original assessment. The dispositive portion of the said Decision reads:
WHEREFORE, premises considered, petitioner is hereby ordered to pay respondent Commissioner of

Internal Revenue, the amount of P690,030 inclusive of surcharge and compromise penalty, plus 20%
annual interest until fully paid pursuant to Section 249 (cc) (sic) (3) of the Tax Code. 7
The CTA ruled that BPI's instructions to its correspondent bank in the U.S. to pay to the Federal Reserve Bank
in New York, for the account of the Central Bank, a sum of money falls squarely within the scope of Section 51
of The Revised Documentary Stamp Tax Regulations (Regulations No. 26), dated 26 March 1924, the
implementing rules to the earlier provisions on documentary stamp tax, which provides that: 8
What may be regarded as telegraphic transfer. — a local bank cables to a certain bank in a foreign
country with which bank said local bank has a credit, and directs that foreign bank to pay to another
bank or person in the same locality a certain sum of money, the document for and in respect such
transaction will be regarded as a telegraphic transfer, taxable under the provisions of Section 1449(i)
of the Administrative Code.
Nevertheless, the CTA also noted that although Presidential Decree No. 1994, the law which passes the
liability on to the non-exempt party, was published in the Official Gazette issue of 2 December 1985, the same
was released to the public only on 18 June 1986, as certified by the National Printing Office. Therefore,
Presidential Decree No. 1994 took effect only in July 1986 or 15 days after the issue of Official Gazette where
the law was actually published, that is, circulated to the public. As a result of the delay, BPI's transactions
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prior to the effectivity of Presidential Decree No. 1994 were not subject to documentary stamp tax. Hence, the
CTA reduced the assessment from P3,016,316.06 to P690,030.00, plus 20% annual interest until fully paid
pursuant to Section 249(c) of the NIRC.9
Both parties filed their respective Motions for Reconsideration, which the CTA denied in a Resolution dated
26 September 1994. BPI filed a Petition for Review with the Court of Appeals on 11 November 1994. On 14
August 1998, the Court of Appeals affirmed the Decision of the CTA. The Court of Appeals ruled that the
documentary stamp tax imposed under Section 195 (now Section 182) is not limited only to foreign bills of
exchange and letters of credit but also includes the orders made by telegraph or by any other means for the
payment of money made by any person drawn in but payable out of the Philippines. The Court of Appeals also
maintained that telegraphic transfers, such as the one BPI sent to its correspondent bank in the U.S., are
proper subjects for the imposition of documentary stamp tax under Section 195 (now Section 182) and
Section 51 of Revenue Regulation No. 26. The Court of Appeals likewise affirmed the CTA's Decision imposing
a 20% delinquency on the reduced assessment, in accordance with Section 24(c)(3) of the NIRC and the case
of Philippine Refining Company v. Court of Appeals.10
Petitioner filed a Partial Motion for Reconsideration on 9 September 1998, which the Court of Appeals denied
on 29 December 1998.11
Hence this petition, wherein the petitioner raised the following issues:
WHETHER OR NOT, THE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING THAT SALES OF
FOREIGN EXCHANGE (SPOT CASH), AS DISTINGUISHED FROM SALES OF FOREIGN BILLS OF
EXCHANGE, ARE SUBJECT TO DOCUMENTARY STAMP TAX UNDER SECTION 182 OF THE TAX CODE
II
WHETHER OR NOT, THE COURT OF APPEALS GRIEVOUSLY ERRED IN AFFIRMING THE IMPOSITION
OF A DELINQUENCY INTEREST OF 20% ON THE REVISED DEFICIENCY STAMP ASSESSMENT
DESPITE A REDUCTION THEREOF BY THE COUR T OF TAX APPEALS WHICH ERRED IN ITS
ORIGINAL ASSESSMENT.12
The first issue raised by the petitioner is whether BPI is liable for documentary stamp taxes in connection
with its sale of foreign exchange to the Central Bank in 1986 under Section 195 (now Section 182) of the
NIRC, quoted hereunder:
Sec. 182. Stamp tax on foreign bills of exchange and letters of credit. On all foreign bills of exchange
and letters of credit (including orders, by telegraph or otherwise, for the payment of money issued by
express or steamship companies or by any person or persons) drawn in but payable out of the
Philippines in a set of three or more according to the custom of merchants and bankers, there shall
be collected a documentary stamp tax of thirty centavos on each two hundred pesos, or fractional
part thereof, of the face value of such bill of exchange or letter of credit, or the Philippine equivalent
of such face value, if expressed in foreign country.
To determine what is being taxed under this section, a discussion on the nature of the acts covered by Section
195 (now Section 182) of the NIRC is indispensable. This section imposes a documentary stamp tax on (1)
foreign bills of exchange, (2) letters of credit, and (3) orders, by telegraph or otherwise, for the payment of
money issued by express or steamship companies or by any person or persons. This enumeration is further
limited by the qualification that they should be drawn in the Philippines and payable outside of the
Philippines.
A definition of a "bill of exchange" is provided by Section 39 of Regulations No. 26, the rules governing
documentary taxes promulgated by the Bureau of Internal Revenue (BIR) in 1924:
Sec. 39. Definition of "bill of exchange". The term bill of exchange denotes checks, drafts, and all other
kinds of orders for the payment of money, payable at sight, or on demand or after a specific period
after sight or from a stated date.
Section 126 of The Negotiable Instruments Law (Act No. 2031) reiterates that it is an "order for the payment
of money" and specifies the particular requisites that make it negotiable.
Sec. 126. Bill of exchange defined. – A bill of exchange is an unconditional order in writing addressed
by one person to another, signed by the person giving it, requiring the person to whom it is
addressed to pay on demand or at fixed or determinable future time a sum certain in money to order
or to bearer.
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Section 129 of the same law classifies bills of exchange as inland and foreign, the distinction is laid down by
where the bills are drawn and paid. Thus, a "foreign bill of exchange" may be drawn outside the Philippines,
payable outside the Philippines, or both drawn and payable outside of the Philippines.
Sec. 129. Inland and foreign bills of exchange. -- An inland bill of exchange is a bill which is, or on its
face purports to be, both drawn and payable within the Philippines. Any other bill is a foreign bill. x x
x
The Code of Commerce loosely defines a "letter of credit" and provides for its essential conditions, thus:
Art. 567. Letters of credit are those issued by one merchant to another or for the purpose of
attending to a commercial transaction.
Art 568. The essential conditions of letters of credit shall be:
1. To be issued in favor of a definite person and not to order.
2. To be limited to a fixed and specified amount, or to one or more undetermined amounts,

but within a maximum the limits of which has to be stated exactly.
A more explicit definition of a letter of credit can be found in the commentaries:
A letter of credit is one whereby one person requests some other person to advance money or give
credit to a third person, and promises that he will repay the same to the person making the
advancement, or accept the bills drawn upon himself for the like amount.13
A bill of exchange and a letter of credit may differ as to their negotiability, and as to who owns the funds used
for the payment at the time payment is made. However, in both bills of exchange and letters of credit, a
person orders another to pay money to a third person.
The phrase "orders, by telegraph or otherwise, for the payment of money" used in reference to documentary
stamp taxes may be found in an earlier documentary tax provision, Section 1449(i) of the Administrative
Code of 1917, which was substantially reproduced in Section 195 (now Section 182) of the NIRC. Regulations
No. 26, which provided the rules and guidelines for the documentary stamp tax imposed under the
Administrative Code of 1917, contains an explanation for the phrase "orders, by telegraph or otherwise, for
the payment of money":
What may be regarded as telegraphic transfer. — a local bank cables to a certain bank in a foreign
country with which bank said local bank has a credit, and directs that foreign bank to pay to another
bank or person in the same locality a certain sum of money, the document for and in respect such
transaction will be regarded as a telegraphic transfer, taxable under the provisions of Section 1449(i)
of the Administrative Code.
In this case, BPI ordered its correspondent bank in the U.S. to pay the Federal Reserve Bank in New York a
sum of money, which is to be credited to the account of the Central Bank. These are the same acts described
under Section 51 of Regulations No. 26, interpreting the documentary stamp tax provision in the
Administrative Code of 1917, which is substantially identical to Section 195 (now Section 182) of the NIRC.
These acts performed by BPI incidental to its sale of foreign exchange to the Central Bank are included among
those taxed under Section 195 (now Section 182) of the NIRC.
BPI alleges that the assailed decision must be reversed since the sale between BPI and the Central Bank of
foreign exchange, as distinguished from foreign bills of exchange, is not subject to the documentary stamp
taxes prescribed in Section 195 (now Section 182) of the NIRC. This argument leaves much to be desired. In
this case, it is not the sale of foreign exchange per se that is being taxed under Section 195 of the NIRC. This
section refers to a documentary stamp tax, which is an excise upon the facilities used in the transaction of the
business separate and apart from the business itself.14 It is not a tax upon the business itself which is so
transacted, but it is a duty upon the facilities made use of and actually employed in the transaction of the
business, and separate and apart from the business itself.15
Section 195 (now Section 182) of the NIRC covers foreign bills of exchange, letters of credit, and orders of
payment for money, drawn in Philippines, but payable outside the Philippines. From this enumeration, two
common elements need to be present: (1) drawing the instrument or ordering a drawee, within the
Philippines; and (2) ordering that drawee to pay another person a specified amount of money outside the
Philippines. What is being taxed is the facility that allows a party to draw the draft or make the order to pay
within the Philippines and have the payment made in another country.
A perusal of the facts contained in the record in this case shows that BPI, while in the Philippines, ordered its
correspondent bank by cable to make a payment, and that payment is to be made to the Federal Reserve Bank
in New York. Thus, BPI made use of the aforementioned facility. As a result, BPI need not have sent a
representative to New York, nor did the Federal Reserve Bank have to go to the Philippines to collect the
Tax Review
funds which were to be credited to the Central Bank's account with them. The transaction was made at the
shortest time possible and at the greatest convenience to the parties. The tax was laid upon this privilege or
facility used by the parties in their transactions, transactions which they may effect through our courts, and
which are regulated and protected by our government.
BPI further alleges that since the funds transferred to the Federal Reserve Bank were taken from BPI's
account with the correspondent bank, this is not the transaction contemplated under Section 51 of
Regulations No. 26. BPI argues that Section 51 of Regulations No. 26, in using the phrase "with which local
bank has credit," involves transactions wherein the drawee bank pays with its own funds and excludes from
the coverage of the law situations wherein the funds paid out by the correspondent bank are owned by the
drawer. In the case of Republic of the Philippines v. Philippine National Bank,16 the Court equated "credit" with
the term "deposits," and identified the depositor as the creditor and the bank as the debtor.
And as correctly stated by the trial court, the term "credit" in its usual meaning is a sum credited on
the books of a company to a person who appears to be entitled to it. It presupposes a creditor-debtor
relationship, and may be said to imply ability, by reason of property or estates, to make a promised
payment. It is the correlative to debt or indebtedness, and that which is due to any person, as
distinguished from that which he owes. The same is true with the term "deposits" in banks where the
relationship created between the depositor and the bank is that of creditor and debtor.
By this definition of "credit," BPI's deposit account with its correspondent bank is much the same as the
"credit" referred to in Section 51 of Regulations No. 26. Thus, the fact that the funds transferred to the Central
Bank's account with the Federal Reserve Bank are from BPI's deposit account with the correspondent bank
can only underline that the present case is the same situation described under Section 51 of Regulations No.
26.
Moreover, the fact that the funds belong to BPI and were not advanced by the correspondent bank will not
remove the transaction from the coverage of Section 195 (now Section 182) of the NIRC. There are
transactions covered by this section wherein funds belonging to the drawer are used for payment. A bill of
exchange, when drawn in the Philippines but payable in another country, would surely be covered by this
section. And in the case of a bill of exchange, the funds may belong to the drawer and need not be advanced by
the drawee, as in the case of a check or a draft. In the description of a draft provided hereunder, the drawee is
in possession of funds belonging to the drawer of the bill:
A draft is a form of a bill of exchange used mainly in transactions between persons physically remote
from each other. It is an order made by one person, say the buyer of goods, addressed to a person
having in his possession funds of such buyer ordering the addressee to pay the purchase price to the
seller of the goods. Where the order is made by one bank to another, it is referred to as a bank draft.17
BPI argues that the foreign exchange sold was deposited and transferred within the U.S. and is therefore
outside Philippine territory. This argument is unsubstantial. The documentary stamp tax is not imposed on
the sale of foreign exchange, rather it is an excise tax on the privilege or facility which the parties used in their
transaction. In the case of Allied Thread Co., Inc. v. City Mayor of Manila,18 the Court explained the scope
encompassed by the power to levy an excise tax:
The tax imposition here is upon the performance of an act, enjoyment of a privilege, or the engaging
in an occupation, and hence is in the nature of an excise tax.
The power to levy an excise upon the performance of an act or the engaging in an occupation does
not depend upon the domicile of the person subject to the excise, nor upon the physical location of
the property and in connection with the act or occupation taxed, but depends upon the place in
which the act is performed or occupation engaged in (Emphasis supplied).
In this case, the act of BPI instructing the correspondent bank to transfer the funds to the Federal Reserve
Bank was performed in the Philippines. Therefore, the excise tax may be levied by the Philippine government.
Section 195 (now Section 182) of the NIRC would be rendered invalid if the fact that the payment was made
outside of the country can be used as a basis for nonpayment of the tax.
The second issue is whether the delinquency interest of 20% per annum, as provided under Section 249(c)(3)
of the NIRC, is applicable in this case.
In the case of Philippine Refining Company v. Court of Appeals,19 this Court categorically ruled that even if an
assessment was later reduced by the courts, a delinquency interest should still be imposed from the time
demand was made by the CIR.
As correctly pointed out by the Solicitor General, the deficiency tax assessment in this case, which
was the subject of the demand letter of respondent Commissioner dated April 11, 1989, should have
been paid within thirty (30) days from receipt thereof. By reason of petitioner's default thereon, the
delinquency penalties of 25% surcharge and interest of 20% accrued from April 11, 1989. The fact
that petitioner appealed the assessment to the CTA and that the same was modified does not relieve
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petitioner of the penalties incident to delinquency. The reduced amount of P237,381.25 is but a part
of the original assessment of P1,892,584.00.
This doctrine is consistent with the earlier decisions of this Court justifying the imposition of additional
charges and interests incident to delinquency by explaining that the nature of additional charges is
compensatory and not a penalty.
The above legal provision makes no distinctions nor does it establish exceptions. It directs the
collection of the surcharge and interest at the stated rate upon any sum or sums due and unpaid after
the dates prescribed in subsections (b), (c), and (d) of the Act for the payment of the amounts due.
The provision therefore is mandatory in case of delinquency. This is justified because the intention of
the law is precisely to discourage delay in the payment of taxes due to the State and, in this sense, the
surcharge and interest charged are not penal but compensatory in nature – they are compensation to
the State for the delay in payment, or for the concomitant use of the funds by the taxpayer beyond the
date he is supposed to have paid them to the State.20
The same principle was used in Ross v. U.S.21 when the U.S. Supreme Court ruled that it was only equitable for
the government to collect interest from a taxpayer who, by the government's error, received a refund which
was not due him.
Even though [the] taxpayer here did not request the refund made to him, and the situation is entirely
due to an error on the part of the government, taxpayer and not the government has had the use of
the money during the period involved and it is not unjustly penalizing taxpayer to require him to pay
compensation for this use of money.
Based on established doctrine, these charges incident to delinquency are compensatory in nature and are
imposed for the taxpayers' use of the funds at the time when the State should have control of said funds.
Collecting such charges is mandatory. Therefore, the Decision of the Court of Appeals imposing a 20%
delinquency interest over the assessment reduced by the CTA was justified and in accordance with Section
249(c)(3) of the NIRC.
WHEREFORE, premises considered, this Court DENIES this petition and AFFIRMS the Decision of the Court
of Appeals in CA-G.R. SP No. 57362 dated 14 August 1998, ordering that petitioner Bank of the Philippine
Islands to pay Respondent Commissioner of Internal Revenue the deficiency documentary stamp tax in the
amount of P690,030.00 inclusive of surcharge and compromise penalty, plus 20% annual interest from 7 June
1990 until fully paid. Costs against the petitioner.
SO ORDERED.
Panganiban, C.J., Ynares-Santiago, Austria-Martinez, Callejo, Sr., J.J., concur.

Tax Review
G.R. Nos. L-49839-46 April 26, 1991
JOSE B. L. REYES and EDMUNDO A. REYES, petitioners,

vs.
PEDRO ALMANZOR, VICENTE ABAD SANTOS, JOSE ROÑO, in their capacities as appointed and Acting
Members of the CENTRAL BOARD OF ASSESSMENT APPEALS; TERESITA H. NOBLEJAS, ROMULO M. DEL
ROSARIO, RAUL C. FLORES, in their capacities as appointed and Acting Members of the BOARD OF
ASSESSMENT APPEALS of Manila; and NICOLAS CATIIL in his capacity as City Assessor of
Manila,respondents.
Barcelona, Perlas, Joven & Academia Law Offices for petitioners.
PARAS, J.:
This is a petition for review on certiorari to reverse the June 10, 1977 decision of the Central Board of
Assessment Appeals1 in CBAA Cases Nos. 72-79 entitled "J.B.L. Reyes, Edmundo Reyes, et al. v. Board of
Assessment Appeals of Manila and City Assessor of Manila" which affirmed the March 29, 1976 decision of the
Board of Tax Assessment Appeals2 in BTAA Cases Nos. 614, 614-A-J, 615, 615-A, B, E, "Jose Reyes, et al. v. City
Assessor of Manila" and "Edmundo Reyes and Milagros Reyes v. City Assessor of Manila" upholding the
classification and assessments made by the City Assessor of Manila.
The facts of the case are as follows:
Petitioners J.B.L. Reyes, Edmundo and Milagros Reyes are owners of parcels of land situated in Tondo and Sta.
Cruz Districts, City of Manila, which are leased and entirely occupied as dwelling sites by tenants. Said tenants
were paying monthly rentals not exceeding three hundred pesos (P300.00) in July, 1971. On July 14, 1971,
the National Legislature enacted Republic Act No. 6359 prohibiting for one year from its effectivity, an
increase in monthly rentals of dwelling units or of lands on which another's dwelling is located, where such
rentals do not exceed three hundred pesos (P300.00) a month but allowing an increase in rent by not more
than 10% thereafter. The said Act also suspended paragraph (1) of Article 1673 of the Civil Code for two
years from its effectivity thereby disallowing the ejectment of lessees upon the expiration of the usual legal
period of lease. On October 12, 1972, Presidential Decree No. 20 amended R.A. No. 6359 by making absolute
the prohibition to increase monthly rentals below P300.00 and by indefinitely suspending the
aforementioned provision of the Civil Code, excepting leases with a definite period. Consequently, the
Reyeses, petitioners herein, were precluded from raising the rentals and from ejecting the tenants. In 1973,
respondent City Assessor of Manila re-classified and reassessed the value of the subject properties based on
the schedule of market values duly reviewed by the Secretary of Finance. The revision, as expected, entailed
an increase in the corresponding tax rates prompting petitioners to file a Memorandum of Disagreement with
the Board of Tax Assessment Appeals. They averred that the reassessments made were "excessive,
unwarranted, inequitable, confiscatory and unconstitutional" considering that the taxes imposed upon them
greatly exceeded the annual income derived from their properties. They argued that the income approach
should have been used in determining the land values instead of the comparable sales approach which the
City Assessor adopted (Rollo, pp. 9-10-A). The Board of Tax Assessment Appeals, however, considered the
assessments valid, holding thus:
WHEREFORE, and considering that the appellants have failed to submit concrete evidence which
could overcome the presumptive regularity of the classification and assessments appear to be in
accordance with the base schedule of market values and of the base schedule of building unit values,
as approved by the Secretary of Finance, the cases should be, as they are hereby, upheld.
SO ORDERED. (Decision of the Board of Tax Assessment Appeals, Rollo, p. 22).
The Reyeses appealed to the Central Board of Assessment Appeals.1âwphi1 They submitted, among others,
the summary of the yearly rentals to show the income derived from the properties. Respondent City Assessor,
on the other hand, submitted three (3) deeds of sale showing the different market values of the real property
situated in the same vicinity where the subject properties of petitioners are located. To better appreciate the
locational and physical features of the land, the Board of Hearing Commissioners conducted an ocular
inspection with the presence of two representatives of the City Assessor prior to the healing of the case.
Neither the owners nor their authorized representatives were present during the said ocular inspection
despite proper notices served them. It was found that certain parcels of land were below street level and
were affected by the tides (Rollo, pp. 24-25).
On June 10, 1977, the Central Board of Assessment Appeals rendered its decision, the dispositive portion of
which reads:
WHEREFORE, the appealed decision insofar as the valuation and assessment of the lots covered by
Tax Declaration Nos. (5835) PD-5847, (5839), (5831) PD-5844 and PD-3824 is affirmed.
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For the lots covered by Tax Declaration Nos. (1430) PD-1432, PD-1509, 146 and (1) PD-266, the
appealed Decision is modified by allowing a 20% reduction in their respective market values and
applying therein the assessment level of 30% to arrive at the corresponding assessed value.
SO ORDERED. (Decision of the Central Board of Assessment Appeals, Rollo, p. 27)
Petitioner's subsequent motion for reconsideration was denied, hence, this petition.
The Reyeses assigned the following error:
THE HONORABLE BOARD ERRED IN ADOPTING THE "COMPARABLE SALES APPROACH" METHOD
IN FIXING THE ASSESSED VALUE OF APPELLANTS' PROPERTIES.
The petition is impressed with merit.
The crux of the controversy is in the method used in tax assessment of the properties in question. Petitioners
maintain that the "Income Approach" method would have been more realistic for in disregarding the effect of
the restrictions imposed by P.D. 20 on the market value of the properties affected, respondent Assessor of the
City of Manila unlawfully and unjustifiably set increased new assessed values at levels so high and successive
that the resulting annual real estate taxes would admittedly exceed the sum total of the yearly rentals paid or
payable by the dweller tenants under P.D. 20. Hence, petitioners protested against the levels of the values
assigned to their properties as revised and increased on the ground that they were arbitrarily excessive,
unwarranted, inequitable, confiscatory and unconstitutional (Rollo, p. 10-A).
On the other hand, while respondent Board of Tax Assessment Appeals admits in its decision that the income
approach is used in determining land values in some vicinities, it maintains that when income is affected by
some sort of price control, the same is rejected in the consideration and study of land values as in the case of
properties affected by the Rent Control Law for they do not project the true market value in the open market
(Rollo, p. 21). Thus, respondents opted instead for the "Comparable Sales Approach" on the ground that the
value estimate of the properties predicated upon prices paid in actual, market transactions would be a
uniform and a more credible standards to use especially in case of mass appraisal of properties (Ibid.).
Otherwise stated, public respondents would have this Court completely ignore the effects of the restrictions
of P.D. No. 20 on the market value of properties within its coverage. In any event, it is unquestionable that
both the "Comparable Sales Approach" and the "Income Approach" are generally acceptable methods of
appraisal for taxation purposes (The Law on Transfer and Business Taxation by Hector S. De Leon, 1988
Edition). However, it is conceded that the propriety of one as against the other would of course depend on
several factors. Hence, as early as 1923 in the case of Army & Navy Club, Manila v. Wenceslao Trinidad, G.R.
No. 19297 (44 Phil. 383), it has been stressed that the assessors, in finding the value of the property, have to
consider all the circumstances and elements of value and must exercise a prudent discretion in reaching
conclusions.
Under Art. VIII, Sec. 17 (1) of the 1973 Constitution, then enforced, the rule of taxation must not only be
uniform, but must also be equitable and progressive.
Uniformity has been defined as that principle by which all taxable articles or kinds of property of the same
class shall be taxed at the same rate (Churchill v. Concepcion, 34 Phil. 969 [1916]).
Notably in the 1935 Constitution, there was no mention of the equitable or progressive aspects of taxation
required in the 1973 Charter (Fernando "The Constitution of the Philippines", p. 221, Second Edition). Thus,
the need to examine closely and determine the specific mandate of the Constitution.
Taxation is said to be equitable when its burden falls on those better able to pay. Taxation is progressive
when its rate goes up depending on the resources of the person affected (Ibid.).
The power to tax "is an attribute of sovereignty". In fact, it is the strongest of all the powers of government.
But for all its plenitude the power to tax is not unconfined as there are restrictions. Adversely effecting as it
does property rights, both the due process and equal protection clauses of the Constitution may properly be
invoked to invalidate in appropriate cases a revenue measure. If it were otherwise, there would be truth to
the 1903 dictum of Chief Justice Marshall that "the power to tax involves the power to destroy." The web or
unreality spun from Marshall's famous dictum was brushed away by one stroke of Mr. Justice Holmes pen,
thus: "The power to tax is not the power to destroy while this Court sits. So it is in the Philippines " (Sison, Jr.
v. Ancheta, 130 SCRA 655 [1984]; Obillos, Jr. v. Commissioner of Internal Revenue, 139 SCRA 439 [1985]).
In the same vein, the due process clause may be invoked where a taxing statute is so arbitrary that it finds no
support in the Constitution. An obvious example is where it can be shown to amount to confiscation of
property. That would be a clear abuse of power (Sison v. Ancheta, supra).
The taxing power has the authority to make a reasonable and natural classification for purposes of taxation
but the government's act must not be prompted by a spirit of hostility, or at the very least discrimination that
finds no support in reason. It suffices then that the laws operate equally and uniformly on all persons under
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similar circumstances or that all persons must be treated in the same manner, the conditions not being
different both in the privileges conferred and the liabilities imposed (Ibid., p. 662).
Finally under the Real Property Tax Code (P.D. 464 as amended), it is declared that the first Fundamental
Principle to guide the appraisal and assessment of real property for taxation purposes is that the property
must be "appraised at its current and fair market value."
By no strength of the imagination can the market value of properties covered by P.D. No. 20 be equated with
the market value of properties not so covered. The former has naturally a much lesser market value in view of
the rental restrictions.
Ironically, in the case at bar, not even the factors determinant of the assessed value of subject properties
under the "comparable sales approach" were presented by the public respondents, namely: (1) that the sale
must represent a bonafide arm's length transaction between a willing seller and a willing buyer and (2) the
property must be comparable property (Rollo, p. 27). Nothing can justify or support their view as it is of
judicial notice that for properties covered by P.D. 20 especially during the time in question, there were hardly
any willing buyers. As a general rule, there were no takers so that there can be no reasonable basis for the
conclusion that these properties were comparable with other residential properties not burdened by P.D. 20.
Neither can the given circumstances be nonchalantly dismissed by public respondents as imposed under
distressed conditions clearly implying that the same were merely temporary in character. At this point in
time, the falsity of such premises cannot be more convincingly demonstrated by the fact that the law has
existed for around twenty (20) years with no end to it in sight.
Verily, taxes are the lifeblood of the government and so should be collected without unnecessary hindrance.
However, such collection should be made in accordance with law as any arbitrariness will negate the very
reason for government itself It is therefore necessary to reconcile the apparently conflicting interests of the
authorities and the taxpayers so that the real purpose of taxations, which is the promotion of the common
good, may be achieved (Commissioner of Internal Revenue v. Algue Inc., et al., 158 SCRA 9 [1988]).
Consequently, it stands to reason that petitioners who are burdened by the government by its Rental Freezing
Laws (then R.A. No. 6359 and P.D. 20) under the principle of social justice should not now be penalized by the
same government by the imposition of excessive taxes petitioners can ill afford and eventually result in the
forfeiture of their properties.
By the public respondents' own computation the assessment by income approach would amount to only
P10.00 per sq. meter at the time in question.
PREMISES CONSIDERED, (a) the petition is GRANTED; (b) the assailed decisions of public respondents are
REVERSED and SET ASIDE; and (e) the respondent Board of Assessment Appeals of Manila and the City
Assessor of Manila are ordered to make a new assessment by the income approach method to guarantee a
fairer and more realistic basis of computation (Rollo, p. 71).
SO ORDERED.
Fernan, C.J., Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz, Feliciano, Gancayco, Padilla, Bidin, Sarmiento, Griño-
Aquino, Medialdea, Regalado and Davide, Jr., JJ., concur.
Tax Review
G.R. No. 123206 March 22, 2000
COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
COURT OF APPEALS, COURT OF TAX APPEALS and JOSEFINA P. PAJONAR, as Administratrix of the
Estate of Pedro P. Pajonar, respondents.
RESOLUTION
GONZAGA-REYES, J.:
Assailed in this petition for review on certiorari is the December 21, 1995 Decision1 of the Court of Appeals2 in
CA-G.R. Sp. No. 34399 affirming the June 7, 1994 Resolution of the Court of Tax Appeals in CTA Case No. 4381
granting private respondent Josefina P. Pajonar, as administratrix of the estate of Pedro P. Pajonar, a tax
refund in the amount of P76,502.42, representing erroneously paid estate taxes for the year 1988.
Pedro Pajonar, a member of the Philippine Scout, Bataan Contingent, during the second World War, was a
part of the infamous Death March by reason of which he suffered shock and became insane. His sister Josefina
Pajonar became the guardian over his person, while his property was placed under the guardianship of the
Philippine National Bank (PNB) by the Regional Trial Court of Dumaguete City, Branch 31, in Special
Proceedings No. 1254. He died on January 10, 1988. He was survived by his two brothers Isidro P. Pajonar
and Gregorio Pajonar, his sister Josefina Pajonar, nephews Concordio Jandog and Mario Jandog and niece
Conchita Jandog.
On May 11, 1988, the PNB filed an accounting of the decedent's property under guardianship valued at
P3,037,672.09 in Special Proceedings No. 1254. However, the PNB did not file an estate tax return, instead it
advised Pedro Pajonar's heirs to execute an extrajudicial settlement and to pay the taxes on his estate. On
April 5, 1988, pursuant to the assessment by the Bureau of Internal Revenue (BIR), the estate of Pedro
Pajonar paid taxes in the amount of P2,557.
On May 19, 1988, Josefina Pajonar filed a petition with the Regional Trial Court of Dumaguete City for the
issuance in her favor of letters of administration of the estate of her brother. The case was docketed as Special
Proceedings No. 2399. On July 18, 1988, the trial court appointed Josefina Pajonar as the regular
administratrix of Pedro Pajonar's estate.
On December 19, 1988, pursuant to a second assessment by the BIR for deficiency estate tax, the estate of
Pedro Pajonar paid estate tax in the amount of P1,527,790.98. Josefina Pajonar, in her capacity as
administratrix and heir of Pedro Pajonar's estate, filed a protest on January 11, 1989 with the BIR praying
that the estate tax payment in the amount of P1,527,790.98, or at least some portion of it, be returned to the
heirs. 3
However, on August 15, 1989, without waiting for her protest to be resolved by the BIR, Josefina Pajonar filed
a petition for review with the Court of Tax Appeals (CTA), praying for the refund of P1,527,790.98, or in the
alternative, P840,202.06, as erroneously paid estate tax. 4 The case was docketed as CTA Case No. 4381.
On May 6, 1993, the CTA ordered the Commissioner of Internal Revenue to refund Josefina Pajonar the
amount of P252,585.59, representing erroneously paid estate tax for the year 1988. 5 Among the deductions
from the gross estate allowed by the CTA were the amounts of P60,753 representing the notarial fee for the
Extrajudicial Settlement and the amount of P50,000 as the attorney's fees in Special Proceedings No. 1254 for
guardianship.6
On June 15, 1993, the Commissioner of Internal Revenue filed a motion for reconsideration 7 of the CTA's May
6, 1993 decision asserting, among others, that the notarial fee for the Extrajudicial Settlement and the
attorney's fees in the guardianship proceedings are not deductible expenses.
On June 7, 1994, the CTA issued the assailed Resolution8 ordering the Commissioner of Internal Revenue to
refund Josefina Pajonar, as administratrix of the estate of Pedro Pajonar, the amount of P76,502.42
representing erroneously paid estate tax for the year 1988. Also, the CTA upheld the validity of the deduction
of the notarial fee for the Extrajudicial Settlement and the attorney's fees in the guardianship proceedings.
On July 5, 1994, the Commissioner of Internal Revenue filed with the Court of Appeals a petition for review of
the CTA's May 6, 1993 Decision and its June 7, 1994 Resolution, questioning the validity of the
abovementioned deductions. On December 21, 1995, the Court of Appeals denied the Commissioner's
petition.9
Hence, the present appeal by the Commissioner of Internal Revenue.
The sole issue in this case involves the construction of section 79 10 of the National Internal Revenue
Code 11 (Tax Code) which provides for the allowable deductions from the gross estate of the decedent. More
particularly, the question is whether the notarial fee paid for the extrajudicial settlement in the amount of
Tax Review
P60,753 and the attorney's fees in the guardianship proceedings in the amount of P50,000 may be allowed as
deductions from the gross estate of decedent in order to arrive at the value of the net estate.
We answer this question in the affirmative, thereby upholding the decisions of the appellate courts.
In its May 6, 1993 Decision, the Court of Tax Appeals ruled thus:
Respondent maintains that only judicial expenses of the testamentary or intestate proceedings are
allowed as a deduction to the gross estate. The amount of P60,753.00 is quite extraordinary for a
mere notarial fee.
This Court adopts the view under American jurisprudence that expenses incurred in the extrajudicial
settlement of the estate should be allowed as a deduction from the gross estate. "There is no
requirement of formal administration. It is sufficient that the expense be a necessary contribution
toward the settlement of the case." [ 34 Am. Jur. 2d, p. 765; Nolledo, Bar Reviewer in Taxation, 10th
Ed. (1990), p. 481]
xxx xxx xxx
The attorney's fees of P50,000.00, which were already incurred but not yet paid, refers to the
guardianship proceeding filed by PNB, as guardian over the ward of Pedro Pajonar, docketed as
Special Proceeding No. 1254 in the RTC (Branch XXXI) of Dumaguete City. . . .
xxx xxx xxx
The guardianship proceeding had been terminated upon delivery of the residuary estate to the heirs
entitled thereto. Thereafter, PNB was discharged of any further responsibility.
Attorney's fees in order to be deductible from the gross estate must be essential to the collection of
assets, payment of debts or the distribution of the property to the persons entitled to it. The services
for which the fees are charged must relate to the proper settlement of the estate. [34 Am. Jur. 2d
767.] In this case, the guardianship proceeding was necessary for the distribution of the property of
the late Pedro Pajonar to his rightful heirs.
xxx xxx xxx
PNB was appointed as guardian over the assets of the late Pedro Pajonar, who, even at the time of his
death, was incompetent by reason of insanity. The expenses incurred in the guardianship proceeding
was but a necessary expense in the settlement of the decedent's estate. Therefore, the attorney's fee
incurred in the guardianship proceedings amounting to P50,000.00 is a reasonable and necessary
business expense deductible from the gross estate of the decedent. 12
Upon a motion for reconsideration filed by the Commissioner of Internal Revenue, the Court of Tax Appeals
modified its previous ruling by reducing the refundable amount to P76,502.43 since it found that a deficiency
interest should be imposed and the compromise penalty excluded. 13 However, the tax court upheld its
previous ruling regarding the legality of the deductions —
It is significant to note that the inclusion of the estate tax law in the codification of all our national internal
revenue laws with the enactment of the National Internal Revenue Code in 1939 were copied from the
Federal Law of the United States. [ UMALI, Reviewer in Taxation (1985), p. 285 ] The 1977 Tax Code,
promulgated by Presidential Decree No. 1158, effective June 3, 1977, reenacted substantially all the
provisions of the old law on estate and gift taxes, except the sections relating to the meaning of gross estate
and gift. [ Ibid, p. 286. ]
In the United States, [a]dministrative expenses, executor's commissions and attorney's fees are considered
allowable deductions from the Gross Estate. Administrative expenses are limited to such expenses as are
actually and necessarily incurred in the administration of a decedent's estate. [PRENTICE-HALL, Federal
Taxes Estate and Gift Taxes (1936), p. 120, 533.] Necessary expenses of administration are such expenses as
are entailed for the preservation and productivity of the estate and for its management for purposes of
liquidation, payment of debts and distribution of the residue among the persons entitled thereto. [Lizarraga
Hermanos vs. Abada, 40 Phil. 124.] They must be incurred for the settlement of the estate as a whole. [34 Am.
Jur. 2d, p. 765.] Thus, where there were no substantial community debts and it was unnecessary to convert
community property to cash, the only practical purpose of administration being the payment of estate taxes,
full deduction was allowed for attorney's fees and miscellaneous expenses charged wholly to decedent's
estate. [Ibid., citing Estate of Helis, 26 T.C. 143 (A).]
Petitioner stated in her protest filed with the BIR that "upon the death of the ward, the PNB, which was still
the guardian of the estate, (Annex "Z"), did not file an estate tax return; however, it advised the heirs to execute
an extrajudicial settlement, to pay taxes and to post a bond equal to the value of the estate, for which the state
paid P59,341.40 for the premiums. (See Annex "K")." [p. 17, CTA record.] Therefore, it would appear from the
Tax Review
records of the case that the only practical purpose of settling the estate by means of an extrajudicial
settlement pursuant to Section 1 of Rule 74 of the Rules of Court was for the payment of taxes and the
distribution of the estate to the heirs. A fortiori, since our estate tax laws are of American origin, the
interpretation adopted by American Courts has some persuasive effect on the interpretation of our own
estate tax laws on the subject.
Anent the contention of respondent that the attorney's fees of P50,000.00 incurred in the guardianship
proceeding should not be deducted from the Gross Estate, We consider the same unmeritorious. Attorneys'
and guardians' fees incurred in a trustee's accounting of a taxable inter vivos trust attributable to the usual
issues involved in such an accounting was held to be proper deductions because these are expenses incurred
in terminating an inter vivos trust that was includible in the decedent's estate. [Prentice Hall, Federal Taxes
on Estate and Gift, p. 120, 861] Attorney's fees are allowable deductions if incurred for the settlement of the
estate. It is noteworthy to point that PNB was appointed the guardian over the assets of the deceased.
Necessarily the assets of the deceased formed part of his gross estate. Accordingly, all expenses incurred in
relation to the estate of the deceased will be deductible for estate tax purposes provided these are necessary
and ordinary expenses for administration of the settlement of the estate. 14
In upholding the June 7, 1994 Resolution of the Court of Tax Appeals, the Court of Appeals held that:
2. Although the Tax Code specifies "judicial expenses of the testamentary or intestate proceedings," there is
no reason why expenses incurred in the administration and settlement of an estate in extrajudicial
proceedings should not be allowed. However, deduction is limited to such administration expenses as are
actually and necessarily incurred in the collection of the assets of the estate, payment of the debts, and
distribution of the remainder among those entitled thereto. Such expenses may include executor's or
administrator's fees, attorney's fees, court fees and charges, appraiser's fees, clerk hire, costs of preserving
and distributing the estate and storing or maintaining it, brokerage fees or commissions for selling or
disposing of the estate, and the like. Deductible attorney's fees are those incurred by the executor or
administrator in the settlement of the estate or in defending or prosecuting claims against or due the estate.
(Estate and Gift Taxation in the Philippines, T. P. Matic, Jr., 1981 Edition, p. 176).
xxx xxx xxx
It is clear then that the extrajudicial settlement was for the purpose of payment of taxes and the distribution
of the estate to the heirs. The execution of the extrajudicial settlement necessitated the notarization of the
same. Hence the Contract of Legal Services of March 28, 1988 entered into between respondent Josefina
Pajonar and counsel was presented in evidence for the purpose of showing that the amount of P60,753.00
was for the notarization of the Extrajudicial Settlement. It follows then that the notarial fee of P60,753.00 was
incurred primarily to settle the estate of the deceased Pedro Pajonar. Said amount should then be considered
an administration expenses actually and necessarily incurred in the collection of the assets of the estate,
payment of debts and distribution of the remainder among those entitled thereto. Thus, the notarial fee of
P60,753 incurred for the Extrajudicial Settlement should be allowed as a deduction from the gross estate.
3. Attorney's fees, on the other hand, in order to be deductible from the gross estate must be essential to the
settlement of the estate.
The amount of P50,000.00 was incurred as attorney's fees in the guardianship proceedings in Spec. Proc. No.
1254. Petitioner contends that said amount are not expenses of the testamentary or intestate proceedings as
the guardianship proceeding was instituted during the lifetime of the decedent when there was yet no estate
to be settled.
Again, this contention must fail.
The guardianship proceeding in this case was necessary for the distribution of the property of the deceased
Pedro Pajonar. As correctly pointed out by respondent CTA, the PNB was appointed guardian over the assets
of the deceased, and that necessarily the assets of the deceased formed part of his gross estate. . . .
xxx xxx xxx
It is clear therefore that the attorney's fees incurred in the guardianship proceeding in Spec. Proc. No. 1254
were essential to the distribution of the property to the persons entitled thereto. Hence, the attorney's fees
incurred in the guardianship proceedings in the amount of P50,000.00 should be allowed as a deduction from
the gross estate of the decedent. 15
The deductions from the gross estate permitted under section 79 of the Tax Code basically reproduced the
deductions allowed under Commonwealth Act No. 466 (CA 466), otherwise known as the National Internal
Revenue Code of 1939, 16 and which was the first codification of Philippine tax laws. Section 89 (a) (1) (B) of
CA 466 also provided for the deduction of the "judicial expenses of the testamentary or intestate proceedings"
for purposes of determining the value of the net estate. Philippine tax laws were, in turn, based on the federal
tax laws of the United States. 17 In accord with established rules of statutory construction, the decisions of
American courts construing the federal tax code are entitled to great weight in the interpretation of our own
tax laws. 18
Tax Review
Judicial expenses are expenses of administration. 19 Administration expenses, as an allowable deduction from
the gross estate of the decedent for purposes of arriving at the value of the net estate, have been construed by
the federal and state courts of the United States to include all expenses "essential to the collection of the
assets, payment of debts or the distribution of the property to the persons entitled to it." 20 In other words, the
expenses must be essential to the proper settlement of the estate. Expenditures incurred for the individual
benefit of the heirs, devisees or legatees are not deductible. 21 This distinction has been carried over to our
jurisdiction. Thus, in Lorenzo v. Posadas 22 the Court construed the phrase "judicial expenses of the
testamentary or intestate proceedings" as not including the compensation paid to a trustee of the decedent's
estate when it appeared that such trustee was appointed for the purpose of managing the decedent's real
estate for the benefit of the testamentary heir. In another case, the Court disallowed the premiums paid on
the bond filed by the administrator as an expense of administration since the giving of a bond is in the nature
of a qualification for the office, and not necessary in the settlement of the estate. 23 Neither may attorney's
fees incident to litigation incurred by the heirs in asserting their respective rights be claimed as a deduction
from the gross estate. 24 1âwphi1
Coming to the case at bar, the notarial fee paid for the extrajudicial settlement is clearly a deductible expense
since such settlement effected a distribution of Pedro Pajonar's estate to his lawful heirs. Similarly, the
attorney's fees paid to PNB for acting as the guardian of Pedro Pajonar's property during his lifetime should
also be considered as a deductible administration expense. PNB provided a detailed accounting of decedent's
property and gave advice as to the proper settlement of the latter's estate, acts which contributed towards the
collection of decedent's assets and the subsequent settlement of the estate.
We find that the Court of Appeals did not commit reversible error in affirming the questioned resolution of
the Court of Tax Appeals.
WHEREFORE, the December 21, 1995 Decision of the Court of Appeals is AFFIRMED. The notarial fee for the
extrajudicial settlement and the attorney's fees in the guardianship proceedings are allowable deductions
from the gross estate of Pedro Pajonar.1âwphi1.nêt
SO ORDERED.
Melo, Vitug, Panganiban and Purisima, JJ., concur.
Footnotes
1 Entitled"Commissioner of Internal Revenue v. Josefina P. Pajonar, as Administratrix of the Estate of

Pedro P. Pajonar, and Court of Tax Appeals." Rollo, 35-46.
2 EighthDivision composed of J. Jaime M. Lantin, ponente; and JJ Eduardo G. Montenegro and Jose C.
De la Rama, concurring.
3 CA Records, 45-53.
4 Ibid., 37-44.
5 The CTA made the following computations —
Estate of Pedro P. Pajonar

Lagtangon, Siaton, Negros Oriental
Died January 10, 1988
I. Real Properties P102,966.59
II. Personal Properties
a. Refrigerator P7,500.00
b. Wall Clock, Esso Gasul.

Tables and Chairs 3,090.00
c. Beddings, Stereo Cassette,

TV, Betamax 15,700.00
d. Karaoke, Electric Iron, Fan,

Transformer and Corner Set 7,400.00
e. Toyota Tamaraw 27,500.00 61,190.00
Additional Personal Properties:
f. Time Deposit - PNB P200,000.00
g. Stocks and Bonds - PNB 201,232.37

Tax Review
h. Money Market 2,300,000.00
i. Cash Deposit 114,101.83 2,815,334.20
GROSS ESTATE P2,979,490.79
Less: Deductions:
A a. Funeral expenses P50,000.00
b. Commission to Trustee (PNB) 18,335.93
B c. Notarial Fee for the Extrajudicial Settlement 60,753.00
d. Attorney's Fees in Special Proceeding No. 1254 for Guardianship 50,000.00
e. Filing Fees in Special Proceeding No. 2399 6,374.88
f. Publication of Notice to Creditors September 7, 14 and 21, 1988

issues of the Dumaguete Star Informer 600.00
g. Certification fee for publication on the Bulletin Board of the

Municipal Building of Siaton, Negros Oriental 2.00
h. Certification fee for Publication in the Capitol 5.00
i. Certification fee for publication of Notice to Creditors 5.00 186,075.81
NET ESTATE 2,793,414.98

============
Estate Tax Due P1,277,762.39
Less: Estate Tax Paid:
CB Confirmation Receipt Nos.
B 14268064 P2,557.00
B 15517625 1,527,790.98 1,530,347.98
AMOUNT REFUNDABLE P252,585.59

===========
Rollo, 86-88.
6 Ibid., 78-79, 81-83.
7 CA Records, 118-130.
8 Rollo, 47-56.
9 Ibid., 35-46.
10 Sec.
79 Computation of net estate and estate tax. — For the purpose of the tax imposed in this
Chapter, the value of the net estate shall be determined:
(a) In the case of a citizen or resident of the Philippines, by deducting from the value of the
gross estate —
(1) Expenses, losses, indebtedness, and taxes. — Such amounts —
(A) For funeral expenses in an amount equal to five per centum of the gross estate but in no
case to exceed P50,000.00;
(B) For judicial expenses of the testamentary or intestate proceedings;
xxx xxx xxx
11 Thisrefers to the 1977 National Internal Revenue Code, as amended. On the date of decedent's
death (January 10, 1988), the latest amendment to the Tax Code was introduced by Executive Order
No. 273, which became effective on January 1, 1988.
12 Rollo, 78-79, 81-83.
13 Estate tax due P1,277,762.39

Tax Review
Less: estate tax paid 04.05.88 2,557.00

[CBCR No. 14268054]
Deficiency estate tax P1,275,205.39
Add: Additions to tax Interest on

deficiency [Sec. 249 (b)] 04.12.88 to
12.19.88 (1,275,205.39 x 20% x
252/365) 176,083.16
Total deficiency tax P1,451,288.55
Less: estate tax paid 12.19.88
[CBCR No. 15517625] 1,527,790.98
Amount refundable P76,502.43

===========
Ibid., 54.
14 Ibid., 49-51.
15 Ibid., 43-45.
16 Approved on June 15, 1939.
17 Wise & Co. v. Meer, 78 Phil 655 (1947),
18 Carolina Industries, Inc. v. CMS Stock Brokerage, Inc., 97 SCRA 734 (1980).
19 Lorenzo v. Posada, 64 Phil 353 (1937).
20 34AAm Jur 2d, Federal Taxation (1995), sec. 144, 288, citing Union Commerce Bank, trans, (1963)
39 TC 973, affd & revd on other issues (1964, CA6) 339 F2d 163, 65-1 USTC p 12279, 15 AFTR 2d
1281.
21 Ibid.,
sec. 144,272, citing Bretzfelder, Charles, exr v. Com., (1936, CA2) 86 F2d 713, 36-2 USTC sec.
9548, 18 AFTR 653.
22 Lorenzo v. Posada, supra.
23 Sison vs. Teodoro, 100 Phil. 1055 (1957).
24 Johannes v. Imperial, 43 Phil 597 (1922).

Tax Review
G.R. No. 143867 March 25, 2003
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, INC., petitioner,

vs.
CITY OF DAVAO and ADELAIDA B. BARCELONA, in her capacity as the City Treasurer of
Davao,respondents.
RESOLUTION
MENDOZA, J.:
Petitioner seeks a reconsideration of the decision of the Second Division in this case. Because the decision
bears directly on issues involved in other cases brought by petitioner before other Divisions of the Court, the
motion for reconsideration was referred to the Court en banc for resolution.1 The parties were heard in oral
arguments by the Court en banc on January 21, 2003 and were later granted time to submit their memoranda.
Upon the filing of the last memorandum by the City of Davao on February 10, 2003, the motion was deemed
submitted for resolution.
To provide perspective, it will be helpful to restate the basic facts.
Petitioner PLDT paid a franchise tax equal to three percent (3%) of its gross receipts. The franchise tax was
paid "in lieu of all taxes on this franchise or earnings thereof" pursuant to R.A. No. 7082 amending its charter,
Act. No. 3436. The exemption from "all taxes on this franchise or earnings thereof" was subsequently
withdrawn by R.A. No. 7160 (Local Government Code of 1991), which at the same time gave local government
units the power to tax businesses enjoying a franchise on the basis of income received or earned by them
within their territorial jurisdiction. The Local Government Code (LGC) took effect on January 1, 1992.
The pertinent provisions of the LGC state:
Sec. 137. Franchise Tax. — Notwithstanding any exemption granted by any law or other special law,
the province may impose a tax on businesses enjoying a franchise, at a rate not exceeding fifty
percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar year
based on the incoming receipt, or realized, within its territorial jurisdiction. . . .
Sec. 193. Withdrawal of Tax Exemption Privileges. — Unless otherwise provided in this Code, tax
exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or
juridical, including government-owned or -controlled corporations, except local water districts,
cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational
institutions, are hereby withdrawn upon the effectivity of this Code.
Pursuant to these provisions, the City of Davao enacted Ordinance No. 519, Series of 1992, which in pertinent
part provides:
Notwithstanding any exemption granted by any law or other special law, there is hereby imposed a
tax on businesses enjoying a franchise, at a rate of Seventy-five percent (75%) of one percent (1%) of
the gross annual receipts for the preceding calendar year based on the income or receipts realized
within the territorial jurisdiction of Davao City.
Subsequently, Congress granted in favor of Globe Mackay Cable and Radio Corp. (Globe) 2 and Smart
Information Technologies, Inc. (Smart)3 franchises which contained "in lieu of all taxes" provisos. In 1995, it
enacted R.A. No. 7925 (Public Telecommunications Policy of the Philippines), § 23 of which provides that
"Any advantage, favor, privilege, exemption, or immunity granted under existing franchises, or may hereafter
be granted, shall ipso factobecome part of previously granted telecommunications franchises and shall be
accorded immediately and unconditionally to the grantees of such franchises." The law took effect on March
16, 1995.
In January 1999, when PLDT applied for a mayor’s permit to operate its Davao Metro Exchange, it was
required to pay the local franchise tax for the first to the fourth quarter of 1999 which then had amounted to
P3,681,985.72. PLDT challenged the power of the city government to collect the local franchise tax and
demanded a refund of what it had paid as local franchise tax for the year 1997 and for the first to the third
quarters of 1998. For this reason, it filed a petition in the Regional Trial Court of Davao. However, its petition
was dismissed and its claim for exemption under R.A. No. 7925 was denied. The trial court ruled that the LGC
had withdrawn tax exemptions previously enjoyed by persons and entities and authorized local government
units to impose a tax on businesses enjoying franchises within their territorial jurisdictions, notwithstanding
the grant of tax exemption to them. Petitioner, therefore, brought this appeal.
In its decision of August 22, 2001, this Court, through its Second Division, held that R.A. No. 7925, § 23 cannot
be so interpreted as granting petitioner exemption from local taxes because the word "exemption," taking
into consideration the context of the law, does not mean "tax exemption." Hence this motion for
reconsideration.
Tax Review
The question is whether, by virtue of R.A. No. 7925, § 23, PLDT is again entitled to exemption from the
payment of local franchise tax in view of the grant of tax exemption to Globe and Smart.
Petitioner contends that because their existing franchises contain "in lieu of all taxes" clauses, the same grant
of tax exemption must be deemed to have become ipso facto part of its previously granted
telecommunications franchise. But the rule is that tax exemptions should be granted only by clear and
unequivocal provision of law "expressed in a language too plain to be mistaken." 4 If, as PLDT contends, the
word "exemption" in R.A. No. 7925 means "tax exemption" and assuming for the nonce that the charters of
Globe and of Smart grant tax exemptions, then this runabout way of granting tax exemption to PLDT is not a
direct, "clear and unequivocal" way of communicating the legislative intent.
But the best refutation of PLDT’s claim that R.A. No. 7925, § 23 grants tax exemption is the fact that after its
enactment on March 16, 1995, Congress granted several franchises containing both an "equality clause"
similar to § 23 and an "in lieu of all taxes" clause. If the equality clause automatically extends the tax
exemption of franchises with "in lieu of all taxes" clauses, there would be no need in the same statute for the
"in lieu of all taxes" clause in order to extend its tax exemption to other franchises not containing such clause.
For example, the franchise of Island Country Telecommunications, Inc., granted under R.A. No. 7939 and
which took effect on March 22, 1995, contains the following provisions:
Sec. 8. Equality Clause. — If any subsequent franchise for telecommunications service is awarded or
granted by the Congress of the Philippines with terms, privileges and conditions more favorable and
beneficial than those contained in this Act, then the same privileges or advantages shall ipso
facto accrue to the herein grantee and be deemed part of this Act.
Sec. 10. Tax Provisions. — The grantee shall be liable to pay the same taxes on their real estate,
buildings and personal property exclusive of this franchise, as other persons or telecommunications
entities are now or hereafter may be required by law to pay. In addition hereto, the grantee, its
successors or assigns, shall pay a franchise tax equivalent to three percent (3%) of all gross receipts
transacted under this franchise, and the said percentage shall be in lieu of all taxes on this franchise or
earnings thereof; Provided, That the grantee shall continue to be liable for income taxes payable
under Title II of the National Internal Revenue Code. The grantee shall file the return with and pay
the taxes due thereon to the Commissioner of Internal Revenue or his duly authorized
representatives in accordance with the National Revenue Code and the return shall be subject to
audit by the Bureau of Internal Revenue. (Emphasis added)
Similar provisions ("in lieu of all taxes" and equality clauses) are also found in the franchises of Cruz
Telephone Company, Inc.,5 Isla Cellular Communications, Inc.,6 and Islatel Corporation.7
We shall now turn to the other points raised in the motion for reconsideration of PLDT.
First. Petitioner contends that the legislative intent to promote the development of the telecommunications
industry is evident in the use of words as "development," "growth," and "financial viability," and that the way
to achieve this purpose is to grant tax exemption or exclusion to franchises belonging in this industry.
Furthermore, by using the words "advantage," "favor," "privilege," "exemption," and "immunity" and the
terms "ipso facto," "immediately," and "unconditionally," Congress intended to automatically extend whatever
tax exemption or tax exclusion has been granted to the holder of a franchise enacted after the LGC to the
holder of a franchise enacted prior thereto, such as PLDT.
The contention is untenable. The thrust of the law is to promote the gradual deregulation of entry, pricing,
and operations of all public telecommunications entities and thus to level the playing field in the
telecommunications industry. An intent to grant tax exemption cannot even be discerned from the law. The
records of Congress are bereft of any discussion or even mention of tax exemption. To the contrary, what the
Chairman of the Committee on Transportation, Rep. Jerome V. Paras, mentioned in his sponsorship of H.B. No.
14028, which became R.A. No. 7925, were "equal access clauses" in interconnection agreements, not tax
exemptions. He said:
There is also a need to promote a level playing field in the telecommunications industry. New entities
must be granted protection against dominant carriers through the encouragement of equitable access
charges and equal access clauses in interconnection agreements and the strict policing of predatory
pricing by dominant carriers. Equal access should be granted to all operators connecting into the
interexchange network. There should be no discrimination against any carrier in terms of priorities
and/or quality of service.8
Nor does the term "exemption" in § 23 of R.A. No. 7925 mean tax exemption. The term refers to exemption
from certain regulations and requirements imposed by the National Telecommunications Commission (NTC).
For instance, R.A. No. 7925, § 17 provides: "The Commission shall exempt any specific telecommunications
service from its rate or tariff regulations if the service has sufficient competition to ensure fair and reasonable
rates or tariffs." Another exemption granted by the law in line with its policy of deregulation is the exemption
from the requirement of securing permits from the NTC every time a telecommunications company imports
equipment.9
Tax Review
Second. PLDT says that the policy of the law is to promote healthy competition in the telecommunications
industry.10 According to PLDT, the LGC did not repeal the "in lieu of all taxes" provision in its franchise but
only excluded from it local taxes, such as the local franchise tax. However, some franchises, like those of Globe
and Smart, which contain "in lieu of all taxes" provisions were subsequently granted by Congress, with the
result that the holders of franchises granted prior to January 1, 1992, when the LGC took effect, had to pay
local franchise tax in view of the withdrawal of their local tax exemption. It is argued that it is this disparate
situation which R.A. No. 7925, § 23 seeks to rectify.
One can speak of healthy competition only between equals. For this reason, the law seeks to break up
monopoly in the telecommunications industry by gradually dismantling the barriers to entry and granting to
new telecommunications entities protection against dominant carriers through equitable access charges and
equal access clauses in interconnection agreements and through the strict policing of predatory pricing by
dominant carriers.11 Interconnection among carriers is made mandatory to prevent a dominant carrier from
delaying the establishment of connection with a new entrant and to deter the former from imposing excessive
access charges.12
That is also the reason there are franchises13 granted by Congress after the effectivity of R.A. No. 7925 which
do not contain the "in lieu of all taxes" clause, just as there are franchises, also granted after March 16, 1995,
which contain such exemption from other taxes.14 If, by virtue of § 23, the tax exemption granted under
existing franchises or thereafter granted is deemed applicable to previously granted franchises (i.e.,
franchises granted before the effectivity of R.A. No. 7925 on March 16, 1995), then those franchises granted
after March 16, 1995, which do not contain the "in lieu of all taxes" clause, are not entitled to tax exemption.
The "in lieu of all taxes" provision in the franchises of Globe and Smart, which are relatively new entrants in
the telecommunications industry, cannot thus be deemed applicable to PLDT, which had virtual monopoly in
the telephone service in the country for a long time,15without defeating the very policy of leveling the playing
field of which PLDT speaks.
Third. Petitioner argues that the rule of strict construction of tax exemptions does not apply to this case
because the "in lieu of all taxes" provision in its franchise is more a tax exclusion than a tax exemption.
Rather, the applicable rule should be that tax laws are to be construed most strongly against the government
and in favor of the taxpayer.
This is contrary to the uniform course of decisions16 of this Court which consider "in lieu of all taxes"
provisions as granting tax exemptions. As such, it is a privilege to which the rule that tax exemptions must be
interpreted strictly against the taxpayer and in favor of the taxing authority applies. Along with the police
power and eminent domain, taxation is one of the three necessary attributes of sovereignty. Consequently,
statutes in derogation of sovereignty, such as those containing exemption from taxation, should be strictly
construed in favor of the state. A state cannot be stripped of this most essential power by doubtful words and
of this highest attribute of sovereignty by ambiguous language.17
Indeed, both in their nature and in their effect there is no difference between tax exemption and tax exclusion.
Exemption is an immunity or privilege; it is freedom from a charge or burden to which others are
subjected.18Exclusion, on the other hand, is the removal of otherwise taxable items from the reach of taxation,
e.g., exclusions from gross income and allowable deductions.19 Exclusion is thus also an immunity or privilege
which frees a taxpayer from a charge to which others are subjected. Consequently, the rule that tax exemption
should be applied in strictissimi juris against the taxpayer and liberally in favor of the government applies
equally to tax exclusions. To construe otherwise the "in lieu of all taxes" provision invoked is to be
inconsistent with the theory that R.A. No. 7925, § 23 grants tax exemption because of a similar grant to Globe
and Smart.
Petitioner cites Cagayan Electric Power & Light Co., Inc. v. Commissioner of Internal Revenue 20 in support of its
argument that a "tax exemption" is restored by a subsequent law re-enacting the "tax exemption." It contends
that by virtue of R.A. No. 7925, its tax exemption or exclusion was restored by the grant of tax exemptions to
Globe and Smart. Cagayan Electric Power & Light Co., Inc., however, is not in point. For there, the re-enactment
of the exemption was made in an amendment to the charter of Cagayan Electric Power and Light Co.
Indeed, petitioner’s justification for its claim of tax exemption rests on a strained interpretation of R.A. No.
7925, § 23. For petitioner’s claim for exemption is not based on an amendment to its charter but on a
circuitous reasoning involving inquiry into the grant of tax exemption to other telecommunications
companies and the lack of such grant to others,21 when Congress could more clearly and directly have granted
tax exemption to all franchise holders or amend the charter of PLDT to again exempt it from tax if this had
been its purpose.
The fact is that after petitioner’s tax exemption by R.A. No. 7082 had been withdrawn by the LGC,22 no
amendment to re-enact its previous tax exemption has been made by Congress. Considering that the taxing
power of local government units under R.A. No. 7160 is clear and is ordained by the Constitution, petitioner
has the heavy burden of justifying its claim by a clear grant of exemption. 23
Tax exemptions should be granted only by clear and unequivocal provision of law on the basis of language too
plain to be mistaken.24 They cannot be extended by mere implication or inference. Thus, it was held in Home
Insurance & Trust Co. v. Tennessee25 that a law giving a corporation all the "powers, rights reservations,
Tax Review
restrictions, and liabilities" of another company does not give an exemption from taxation which the latter
may possess. In Rochester R. Co. v. Rochester,26 the U.S. Supreme Court, after reviewing cases involving the
effect of the transfer to one company of the powers and privileges of another in conferring a tax exemption
possessed by the latter, held that a statute authorizing or directing the grant or transfer of the "privileges" of
a corporation which enjoys immunity from taxation or regulation should not be interpreted as including that
immunity. Thus:
We think it is now the rule, notwithstanding earlier decisions and dicta to the contrary, that a statute
authorizing or directing the grant or transfer of the "privileges" of a corporation which enjoys
immunity from taxation or regulation should not be interpreted as including that immunity. We,
therefore, conclude that the words "the estate, property, rights, privileges, and franchises" did not
embrace within their meaning the immunity from the burden of paving enjoyed by the Brighton
Railroad Company. Nor is there anything in this, or any other statute, which tends to show that the
legislature used the words with any larger meaning than they would have standing alone. The
meaning is not enlarged, as faintly suggested, by the expression in the statute that they are to be held
by the successor "fully and entirely, and without change and diminution," — words of unnecessary
emphasis, without which all included in "estate, property, rights, privileges, and franchises" would
pass, and with which nothing more could pass. On the contrary, it appears, as clearly as it did in the
Phoenix Fire Insurance Company Case, that the legislature intended to use the words "rights,
franchises, and privileges" in the restricted sense. . . .27
Fourth. It is next contended that, in any event, a special law prevails over a general law and that the franchise
of petitioner giving it tax exemption, being a special law, should prevail over the LGC, giving local
governments taxing power, as the latter is a general law. Petitioner further argues that as between two laws
on the same subject matter which are irreconcilably inconsistent, that which is passed later prevails as it is
the latest expression of legislative will.
This proposition flies in the face of settled jurisprudence. In City Government of San Pablo, Laguna v.
Reyes,28 this Court held that the phrase "in lieu of all taxes" found in special franchises should give way to the
peremptory language of § 193 of the LGC specifically providing for the withdrawal of such exemption
privileges. Thus, the rule that a special law must prevail over the provisions of a later general law does not
apply as the legislative purpose to withdraw tax privileges enjoyed under existing laws or charters is
apparent from the express provisions of §§ 137 and 193 of the LGC.
As to the alleged inconsistency between the LGC and R.A. No. 7925, this Court has already explained in the
decision under reconsideration that no inconsistency exists and that the rule that the later law is the latest
expression of the legislature does not apply. The matter need not be further discussed.
In any case, it is contended, the ruling of the Bureau of Local Government Finance (BLGF) that petitioner’s
exemption from local taxes has been restored is a contemporaneous construction of § 23 and, as such, it is
entitled to great weight.
The ruling of the BLGF has been considered in this case. But unlike the Court of Tax Appeals, which is a
special court created for the purpose of reviewing tax cases, the BLGF was created merely to provide
consultative services and technical assistance to local governments and the general public on local taxation
and other related matters.29Thus, the rule that the "Court will not set aside conclusions rendered by the CTA,
which is, by the very nature of its function, dedicated exclusively to the study and consideration of tax
problems and has necessarily developed an expertise on the subject, unless there has been an abuse or
improvident exercise of authority"30 cannot apply in the case of BLGF.
WHEREFORE, the motion for reconsideration is DENIED and this denial is final.
SO ORDERED.
Tax Review
MANILA ELECTRIC COMPANY, G.R. No. 146747

Petitioner,
Present:
Davide, Jr., C.J.,
Chairman,
Quisumbing,
- versus - Ynares-Santiago,
Carpio, and
Azcuna, JJ.
Promulgated:
IMPERIAL TEXTILE MILLS, INC.,
Respondent. July 29, 2005
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
CARPIO, J.:
The Case
This is a petition for review[1] to set aside the Decision[2] dated 14 November 2000 of the Court of Appeals
(appellate court) in CA-G.R. CV No. 49465. The appellate court affirmed the Decision [3] dated 24 June 1994
issued by Branch 17 of the Regional Trial Court of Malolos, Bulacan (trial court) in Civil Case No. 170-M-89. The
trial court ruled that the interest charges imposed by Manila Electric Company (Meralco) against Imperial
Textile Mills, Inc. (ITM) in the assignment of ITMs tax credit certificates are void. The trial court also ruled that
Meralcos claims for differential billing for ITMs unregistered energy consumption are void.
The Facts
The facts as found by the appellate court are as follows:
ITM is a pioneer textile manufacturer which produces textiles and allied products, with its
factory situated on a 20-hectare lot in Marilao, Bulacan. As a textile manufacturing exporter
registered with the Board of Investment, it is entitled to tax refunds based on tax rebates as
an incentive to a manufacturer of registered export products. In its operations, ITM uses
electricity which is supplied by Meralco. Meralco accepts from its customers certificates of tax
credits which it applies as payment for their electric bills.
On September 8, 1987, Meralco and ITM entered into an agreement whereby Meralco agreed
to the proposal of ITM for the assignment of its tax credits in payment of its electric bills.
However, after the corresponding deeds of assignment had been signed, Meralco began
sending conflicting statements of accounts to ITM. Meralco has applied a portion of the tax
credits for the payment of supposed accumulated interest charges at the rate of 16.75% to
17.5% per annum, thereby diminishing the value of the assigned tax credits. ITM contested the
payment of the interest charges. It insisted that Meralco should apply the tax credits to the
payment of its accounts without any interest deduction charges.
On November 18, 1987, Meralco presented a differential billing to ITM in the amount
of P2,531,500.45 corresponding to the unregistered energy consumption of ITM for the period
of December 27, 1985 to November 18, 1987 as a result of ITMs alleged tampering with the
metering device in its premises. Meralco claimed that the current leads for all elements were
found with pricked holes near the BCTs. ITM denied the charge of tampering. Nevertheless,
Meralco proceeded to disconnect the power supply to ITM for its failure to pay the differential
billing. ITM was thus constrained to make a fast arrangement with Meralco for the immediate
Tax Review
restoration of electricity to keep the plant in operation. ITM paid the amount of P506,300.09
to Meralco under protest and undertook to pay the balance on installments of P226,218.88
per month.
On February 19, 1988, Meralco conducted another inspection and claimed to have discovered
another instance of tampering. It demanded payment from ITM of a differential billing
of P1,707,051.47 for the period January 22, 1986 to February 19, 1988, with a threat to
disconnect ITMs electric service if the same was not paid. ITM again denied the charge of
tampering. It blamed Meralco for not installing a single metering system in the ITM premises,
as had been previously agreed in a court-approved compromise in another case, to obviate
charges of tampering.
On March 20, 1989, Meralco informed ITM that it had an outstanding bill in the amount
of P6,929,001 which included interest charges and other charges for alleged violation of their
contract.
Thereupon, ITM filed a complaint against Meralco for injunction, specific performance and
damages, with a prayer for a temporary restraining order. It prayed that Meralco be ordered
to return to ITM all interest deductions on its tax credits and to disregard the differential
billings as without basis. It also asked for the award of damages and attorneys fees. [4]
The Ruling of the Trial Court
On 24 May 1993, the trial court issued an order stating that the case is deemed submitted for decision for
Meralcos failure to file its formal offer of evidence within the reglementary period prescribed in the 8 February
1993 order. On Meralcos motion for reconsideration, the trial court admitted Meralcos exhibits and offer of
evidence in an order dated 8 June 1993. On 24 June 1994, the trial court decided in favor of ITM. The trial court
held that:
WHEREFORE, judgment is hereby rendered in favor of [ITM] and against [Meralco]

ordering the following:
a. The interest charges unilaterally imposed by [Meralco] against [ITM] in the

assignment of its tax credit certificates [are] hereby declared null and void for lack of
legal basis. The amount of P3,814,816.61 imposed and collected by [Meralco] by way
of interest charges shall be applied to future electrical bills of [ITM] in favor of
[Meralco];
b. The claim of [Meralco] for Differential Billing in the amount of P2,531,500.45

under Account No. 9496-1422-18 is hereby declared null and void for lack of legal
and/or factual basis;
c. The amount of deposit made by [ITM] under protest pursuant to a Promissory

Note in the amount of P506,300.09 and such other deposits made in compliance
therewith, shall be applied to the future electric bills of [ITM in favor of Meralco];
d. The claim of [Meralco] for Differential Billing in the amount of P1,707,051.47

under Account No. 9496-1622-16 is likewise hereby declared null and void for want
of legal and/or factual basis; and
e. [Meralco] is hereby ordered to pay a reasonable amount of P50,000 as and for

attorneys fees.
The counterclaim of Meralco is hereby dismissed for lack of legal and/or factual basis.
SO ORDERED.[5]
Meralco filed its notice of appeal to the appellate court on 29 July 1994.
Tax Review
The Ruling of the Appellate Court
On 14 November 2000, after reviewing both parties claims, the appellate court dismissed the appeal and
affirmed the trial courts decision.[6]
The appellate court found that there was nothing in the 8 September 1987 agreement between Meralco and
ITM that imposed on ITM the obligation to pay interest charges on its electric bills. The appellate court
summarized the agreement thus:
The agreement simply stipulates: first, that ITM will pay its electric bills regularly when they
become due, and second, ITMs tax credits will be applied to its electric bills when the tax
credits have already been assigned to Meralco and the corresponding deeds of assignment
have been approved by all government agencies concerned.[7]
The appellate court also found no basis to hold ITM liable for the payment of differential billings to Meralco.
The appellate court found that:
The presence of pricked holes on the secondary lead wires near the BCTs (bushing current
transformer), for lack of substantial evidence, cannot be imputed to ITM. Notably, Meralco
inspectors have not found any shorting device in ITMs plant. The argument of Meralco that
even without the presence of any shorting pin, the circumstance (meaning, the presence of the
pricked holes) nonetheless shows tampering for the purpose of preventing the accurate
registration of electrical consumption, is purely conjectural. In fact, as testified to by Vicente
Saria, a Meralco inspector, without a shorting device, the consumption would still be normal
even if there are pricked holes on the lead wires.[8]
In addition, the appellate court also observed that after Meralco inspected and corrected ITMs electric meters,
there was even a reduction in ITMs recorded electric consumption.

Issues
Meralco states that the appellate court seriously erred in affirming the trial courts ruling that:
1. Meralco did not have basis to impose the subject interest charges;
2. Meralco did not have basis to recover from ITM the P2,531,500.45 covered by the
subject differential bill under Account No. 9496-1422-18;
3. Meralco did not have basis to recover from ITM the P1,707,051.47 covered by the
subject differential bill under Account No. 9496-1622-16;
4. Meralco should apply ITMs P506,300.09 deposit to ITMs future electric bills; and
5. Meralco should pay ITM attorneys fees.[9]
The Ruling of the Court
We find the appeal meritorious. While only questions of law may be raised in a petition for review under Rule
45 of the 1997 Rules of Civil Procedure, review of the lower courts findings of fact may be granted under certain
Tax Review
exceptions.[10] One of the exceptions is when the judgment of the appellate court is premised on a
misapprehension of facts.[11] Another is when the findings of fact are premised on the supposed absence of
evidence but is contradicted by the evidence on record.[12] Also, this Court may review findings of fact when the
conclusion of the appellate court manifestly overlooked certain facts not disputed by the parties and which, if
properly considered, would justify a different conclusion.[13]
Payment of Interest Charges
In its petition, Meralco argued that both the trial court and the appellate court misunderstood the meaning of
the interest charges that Meralco imposed on ITM. Meralco denied that the interest charges were in payment
by a debtor to a creditor for the use of money lent. Rather, Meralco claimed that the interest charges represent
the penalty on Meralcos late payment of franchise taxes. Meralco alleged that ITM caused the delayed
submission of the required documents to effect the assignment of ITMs tax credits to Meralco.
Meralco asserted that the Deeds of Assignment authorized the shifting to ITM of the burden of paying
the interest charges on Meralcos late payment of franchise taxes. The Deeds of Assignment provide that:
xxx ASSIGNOR agrees to assign in favor of ASSIGNEE the aforesaid tax credit so as to
fully utilize the value thereof against future franchise tax payables.[14]
Meralco further asserted that ITMs acts show its acquiescence to the imposition of the interest charges. ITM
protested payment of the interest charges only after a prolonged period elapsed. ITM even asked Meralco to
waive the imposition of the interest charges. Meralco contended that ITMs acts should be construed as estoppel
by laches, thus leading Meralco to believe that the imposition of interest charges was in accordance with the
agreement between the parties.

We are not persuaded.
The Deeds of Assignment that ITM executed in favor of Meralco are uniform in wording, differing only as to the
dates and the amount of tax credits assigned. The Deeds of Assignment provide that:
WHEREAS, in a letter offer dated xxx of the ASSIGNOR to the ASSIGNEE, the latter
agreed to offset the value of the tax credit duly issued under the formers name against its
current receivables accounts;
WHEREAS, by reason of its registration with the Board of Investment as a registered

export producer, ASSIGNOR, is entitled to a refund or tax credit based on Tax Rebate under
standard Rate imposed by law as an incentive for the manufacture of registered export
products;
WHEREAS, on the following stated dates, ASSIGNOR was granted by the Board of
Investments a total tax credit of xxx with the corresponding tax credit certificate numbers:
xxx
Tax Review
Photocopy of said tax credit certificates are attached and made a part hereof;
WHEREAS, ASSIGNOR warrants that said tax credits are genuine, valid and subsisting,
and that it has no account and/or administrative case with any government revenue agency;
WHEREAS, ASSIGNOR waives all its rights to use the aforesaid Tax Credit Certificates
enumerated above amounting to xxx issued by the Board of Investments and that ASSIGNOR
agrees to assist ASSIGNEE in effecting the transfer/assignment by providing all the necessary
documents required by the Board of Investments;
WHEREAS, in accordance with the understanding and agreement in connection with

the settlement of ASSIGNEEs current receivable account, ASSIGNOR agrees to assign in
favor of ASSIGNEE the aforesaid tax credits so as to fully utilize the value thereof against
future franchise tax payables.
NOW, THEREFORE, for and in consideration of the foregoing premises and covenants
herein contained, ASSIGNOR hereby assigns, transfers and conveys in favor of the ASSIGNEE
that aforesaid tax credits mentioned above up to the amount of xxx stipulated; ASSIGNEE shall
corresponding issue the appropriate credit note to ASSIGNOR to evidence timely settlement
of its current account.[15]
Under the Deed of Assignment, it is ITMs obligation to ensure that Meralco can utilize the full value of
the tax credits assigned. There is nothing in the Deeds of Assignment which states that Meralcos current
receivable account with ITM includes interest charges for Meralcos late payment of franchise taxes. ITM has no
obligation to pay interest on Meralcos late payment of franchise taxes.
Meralco, through L. D. Torres, Vice President and Head of the Legal Services Department, wrote to
Cesar Marcelo, ITMs Vice President for Finance, on ITMs request to pay its electric bills through assignment of
tax credit certificates. The letter (letter-agreement), dated 8 September 1987, reads thus:
Mr. Cesar R. Marcelo

Vice President Finance
Imperial Textile Mills, Inc.
Km 21 McArthur Hi-way
Marilao, Bulacan
Dear Mr. Marcelo:
This has reference to your letter dated August 5, 1987 requesting for the transfer of
your Companys tax credits to the Manila Electric Company (MERALCO) as payment [for]
electricity consumed.
Please be informed that upon representations made by your Mr. Robert Ong with
MERALCO, we did not interpose any objection to your request on the condition that
henceforth you will take care of your metering facilities to avoid the same being tampered
with thereby preventing any loss of electric energy on the part of MERALCO in your Companys
plants and premises. It is likewise understood that you are to pay your electric bills
regularly when the same are due and your tax credits will only be applied to your bills
when these tax credits have been duly assigned to MERALCO and the deed of
assignment have [sic] been approved by all government agencies concerned.
We have actually started working out the documentary requirements to effect the
requested transfer but we will only release the same after receipt of your written confirmation
that you are agreeable to the above-stated conditions. It is understood and agreed that you
are duly authorized to execute this document and signify your conformity to this agreement.
We shall expect your early reply in this regard.
Very truly yours,

(signed)
L.D. TORRES
Vice President & Head
Legal Services Dept.
Tax Review
CONFORME:
IMPERIAL TEXTILE MILLS, INC.
By: (signed)
CESAR R. MARCELO
Vice President - Finance [16]
According to the letter-agreement, Meralco granted ITMs request to pay its electric bills thru
assignment of tax credit certificates provided that: (1) ITM would take care of its metering facilities to avoid
the same being tampered; (2) ITM would pay its electric bills regularly when they become due;
and (3) ITMs tax credits would be applied to its electric bills when the tax credits have already been
assigned to Meralco and the corresponding deeds of assignment have been approved by all government
agencies concerned. Like the Deeds of Assignment, there is nothing in the letter-agreement which states that
ITM would be held liable for Meralcos payment of interest charges for late payment of franchise taxes.
Meralco had a different interpretation of the reckoning point in determining the date of payment thru
tax credits. Mr. Martinez, from Meralcos Tax & Tariff Section, explained Meralcos position regarding tax credits
and interest charges during a meeting between Meralco and ITM on 7 February 1989. The purpose of the
meeting was to reconcile ITMs account with Meralcos records. The pertinent portions of the minutes of the
meeting read:
Mr. G.F. Martinez, of Tax & Tariff Section, informed the body that acceptance of Tax
Credit Certificates (TCCs) thru the signing of Deed of Assignment by Meralco shall not mean
an outright payment of ITMs electric bills. The reckoning point of determining the date of
payment, thru Tax Credit transfers, of ITMs electric bills is the date of the actual
application and utilization of duly transferred Tax Credits against Meralcos payment of
franchise tax.
He specified that the period of interest charges is reckoned from ten (10) days
after presentation of the Statement of Account up to the date of utilization or application
of Tax Credit Certificates (TCCs) against Meralcos payment of franchise tax which falls on
the 20th day of every month, and not upon TCCs date of assignment/transfer in favor of
Meralco. Mr. Martinez reasoned out that not all TCCs are approved by the government body
on total face value. As a consequence, it is advisable that ITM transfer of duly approved TCCs
in favor of Meralco be done five days before the 20 th day of the month to give Tax & Tariff
Section reasonable time for processing.
On the question why Meralco charges interest for late payment of GP customers, Mr.
Martinez explained that NPC charges Meralco with interest for the latters late payment. It is
in the same breadth that Meralco deems reasonable to recover the interest cost. [17]
As of 20 March 1989, Meralco has charged ITM a total of P3,814,816.61 as interest charges for delay
in the application of tax credits.[18] Meralco charged ITM interest at the rate of 14.50% to 18.00% per
annum.[19] However, the letter-agreement and the deeds of assignment do not authorize Meralco to charge ITM
interest for delay in the approval of the tax credits. Neither do they authorize Meralco to pass on to ITM the
penalty that Meralco would have to pay for late payment of its franchise tax.
Tax Review
Nevertheless, ITM must pay on time its electric bills as stipulated in the letter-agreement, otherwise ITM would
be liable for damages in the form of interest charges pursuant to Article 2209 [20] of the Civil Code. ITM should
consider its bills paid only after the tax credit certificates assigned to Meralco have been approved by all
government agencies concerned, to the extent of the value approved. Thus, ITM must assign the tax credits to
Meralco and secure the approval of the deed of assignment by all government agencies concerned not later
than the due date for its electric bills, otherwise interest would accrue.
Meralco can charge ITM interest for delay in the payment of ITMs electric bills pending approval of the
tax credit. However, Meralco cannot shift to ITM the penalty for late payment of franchise taxes. Both parties
should have strictly adhered to the terms of application of payment stipulated in their agreement. ITM is liable
only for damages for the delay in the payment of electric bills pending approval of the tax credits. Since there
is no interest stipulated by the parties, the indemnity for damages shall be the payment of legal interest at 6%
per annum based on the outstanding electric bills. The 6% interest shall accrue from the due date of ITMs
electric bills up to the time of approval of the assignment of tax credits by all government agencies concerned.
Differential Billings
Both the trial court and the appellate court found no factual or legal basis to hold ITM liable for the
payment of the differential billings. We hold otherwise. The records reveal that both the trial court and the
appellate court overlooked and disregarded the evidence in favor of Meralco, and which evidence ITM failed to
refute.
To justify its conclusion that the electric meter covered by Account No. 9496-1422-18 was tampered to prevent
the accurate registration of ITMs energy consumption, Meralco alleged the following facts:
First, the current leads for all elements in the electric metering installation in ITMs premises
had holes pricked thereon.
Second, these holes were unnaturally pricked in pairs. In other words, the existence
of holes pricked on the current leads of the electric metering installation and the positions in
which said holes were found indicate that the said leads were intentionally pricked for the
purpose of disrupting the registration of ITMs electric energy consumption by inserting a
shorting device.
Third, if shorting devices are inserted in these holes, only the registration of ITMs
actual electric energy consumption, and not its supply of electricity, will be affected. Thus, the
insertion of shorting devices is a good scheme to prevent the registration of electric energy
consumption since continuous electric supply is maintained.
Fourth, ITMs monthly average consumption from December 1985 to November 1987
was 207,067 Kilowatts per hour (Kwh). Within the 23-month period before the 17 November
1987 inspection, however, ITMs electric energy consumption went down to as suspiciously
low as 34,400 Kwh in January 1986.
Fifth, the Demand Charts for the period 27 December 1985 to 18 November 1987,
show very little or absolutely no usage of electricity for long periods of time which is totally
inconsistent with ITMs daily 24 hour textile manufacturing operations. [21]
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To justify its conclusion that there was tampering of the electric meter covered by Account No. 9496-
1622-16 to prevent the accurate registration of ITMs energy consumption, Meralco alleged the following facts:
First, the BCT of the electric metering installation could not be sealed and the current
leads for the lower element had holes pricked thereon near the BCT. The foregoing findings
were confirmed in a subsequent laboratory test conducted at Meralcos meter laboratory.
Second, shorting the BCT by placing a device in holes pricked on the secondary
current leads is one of the most common method[s] of tampering electric metering
installations for the purpose of affecting its capability to register electric energy consumption.
Third, as in the case of Account No. 9496-1422-18, if shorting devices are inserted in
these holes, only the registration of ITMs actual electric energy consumption, and not its
supply of electricity, will be affected. x x x
Fourth, ITMs monthly average consumption from January 1986 to February 1988 was
218,190 Kwh. Within the 19 month period before the 19 February 1988 inspection, ITMs
electric energy consumption went down to as suspiciously low as 12,000 Kwh in January
1986.
Fifth, the Demand Charts for the period 27 December 1985 to 24 February 1985 show
very little usage of electricity for long periods of time which is totally inconsistent with ITMs
daily 24 hour textile manufacturing operations.[22]
Meralco offered the following evidence to prove that ITM tampered with two of its electric meters to
prevent the accurate registration of ITMs energy consumption:
1. Photographs of the holes pricked on the secondary lead wires of ITMs electric
metering installations of Account Nos. 9496-1422-18 and 9496-1622-16, taken
during the inspection of Meralco. (Exhs. 1 to 1-f-3 and 5 to 5-a)
2. Service Inspection Reports dated 18 November 1987 and 19 February 1988 with
findings of the existence of pricked holes on secondary current leads. (Exhs. 4 and 8)
3. Polyphase Meter Test Memos with the findings that the BCTs were being shorted by
means of a removable shorting device as indicated by pricked holes on all the
secondary current leads near the BCTs. (Exhs. 9 to 10 and 53)
4. Meralcos Billing Records for ITM under Account Nos. 9496-1422-18 and 9496-1622-
16. (Exhs. 11 to 11-f and 54)
5. Demand Charts for Account No. 9496-1422-18 for the period 26 August 1985 to 18
November 1987. (Exhs. 12 to 50)
6. Demand Charts for Account No. 9496-1622-16 for the period 27 December 1985 to
24 February 1988. (Exhs. 55 to 55-t)
7. Meralcos Detailed Computation of Losses under Account No. 9496-1422-18. (Exhs.
51 and 51-a)
8. Meralcos Detailed Computation of Losses under Account No. 9496-1622-16. (Exhs.
56 and 56-a)
Instead of refuting Meralcos allegation of ITMs tampering of electric meters, ITM countered by faulting
Meralco for failure to replace the multi-metering system with a single metering system in accordance with a
court-approved compromise agreement.[23] ITM asserts that the occurrences of alleged tampering could have
been avoided had Meralco complied with the compromise agreement. ITM further alleges that Meralcos
inspectors did not discover any removable shorting device during their inspections on 18 November 1987 and
19 February 1988.
ITM, however, did not refute Meralcos allegation about the sudden decline in ITMs energy
consumption, particularly under Account Nos. 9496-1422-18 and 9496-1622-16. ITM could not explain why
Tax Review
there was no consumption recorded for consecutive days or weeks as shown on the demand charts for Account
No. 9496-1422-18, covering the period from 27 March 1987 to 26 May 1987. Neither could ITM explain why
the demand charts for Account Nos. 9496-1422-18 and 9496-1622-16 show very little usage of electricity for
long periods of time. The demand charts show intermittent gaps which is inconsistent with ITMs daily 24-hour
textile operation.
The evidence presented clearly shows there was tampering of electric meters which led to non-
registration of ITMs correct electrical consumption. Thus, Meralco issued differential billings of P2,531,500.45
for Account No. 9496-1422-18 and P1,707,051.47 for Account No. 9496-1622-16. However, the differential
billings for Account Nos. 9496-1422-18 and 9496-1622-16 should only include the period after 23 October
1986. ITMs differential billing as of 23 October 1986 amounting to P43,967,860.55 was already the subject of
a court-approved compromise agreement between Meralco and ITM.[24] Berdio Jambalos (Engineer Jambalos),
the Supervising Engineer of Meralco who computed the differential billings of ITM, admitted under cross-
examination that he was not aware of the compromise agreement.[25] This explains why the differential billings
still included the period already covered by the compromise agreement.
Meralcos computation[26] of losses for ITMs Account No. 9496-1422-18 for the affected period[27] after
23 October 1986 states:
Billing Rendered Corrected Billing Difference

Date
Demand P.F. KWH Amount Demand P.F. KWH Amount KWH Amount
NOV 25 86 500.0 97.0 132,400 261,177.91 500.0 85.7 207,067 411,223.91 74,667 150,046.00
DEC 26 86 500.0 97.2 141,600 284,076.60 500.0 85.7 207,067 419,999.26 65,467 135,922.66
JAN 26 87 500.0 95.0 160,000 323,471.78 500.0 85.7 207,067 420,274.01 47,067 96,802.23
FEB 25 87 500.0 97.8 181,600 354,668.65 500.0 85.7 207,067 414,343.65 25,467 59,675.00
MAR 27 87 500.0 94.9 216,800 425,951.53 500.0 85.7 216,800 432,791.06 0 6,839.53
APR 24 87 500.0 93.8 188,800 384,174.28 500.0 85.7 207,067 426,471.66 18,267 42,297.38
MAY 26 87 500.0 93.9 227,200 462,102.17 500.0 85.7 227,200 469,542.02 0 7,439.85
JUN 25 87 500.0 95.9 202,400 411,017.90 500.0 85.7 207,067 433,089.99 4,667 22,072.09
JUL 27 87 500.0 94.9 209,200 439,343.63 500.0 85.7 209,200 446,405.93 0 7,062.30
AUG 26 87 500.0 97.4 188,000 391,536.41 500.0 85.7 207,067 442,781.82 19,067 51,245.41
SEP 25 87 500.0 94.1 223,200 440,380.70 500.0 85.7 223,200 447,480.74 0 7,100.04
OCT 26 87 500.0 93.1 183,200 360,920.90 500.0 85.7 207,067 412,141.85 23,867 51,220.95
NOV 24 87 500.0 94.6 198,800 374,660.45 500.0 85.7 203,951 390,152.81 5,151 15,492.36
TOTAL 2,453,200 4,913,482.91 2,736,887 5,566,698.71 283,687 P653,215.80
=========
Meralcos computation[28] of losses for Account No. 9496-1622-16 for the affected period after 23
October 1986 states:
Billing Rendered Corrected Billing Difference

Date
Demand P.F. KWH Amount Demand P.F. KWH Amount KWH Amount
NOV 25 86 500.0 93.8 152,400 302,525.38 500.0 99.7 218,190 419,541.79 65,790 117,016.41
DEC 26 86 500.0 94.9 166,800 336,474.20 500.0 99.7 218,190 428,505.75 51,390 92,031.54
JAN 26 87 500.0 94.0 165,600 334,226.84 500.0 99.7 218,190 428,808.38 52,590 94,581.53
FEB 25 87 500.0 92.5 204,400 402,726.60 500.0 99.7 218,190 422,751.89 13,790 20,025.28
APR 24 87 500.0 88.0 195,600 403,772.29 500.0 99.7 218,190 435,144.26 22,590 31,371.97
OCT 26 87 500.0 96.3 212,400 409,802.79 500.0 99.7 218,190 420,527.04 5,790 10,724.25
DEC 24 87 500.0 99.3 193,200 383,387.22 500.0 99.7 218,190 430,807.09 24,990 47,419.87
JAN 25 88 500.0 93.8 135,600 271,270.25 500.0 99.7 218,190 425,691.38 82,590 154,421.13
FEB 24 88 500.0 100.0 194,400 358,313.63 500.0 99.7 212,225 389,782.03 17,825 31,468.40
TOTAL 1,620,400 3,202,499.20 2,175,935 3,801,559.61 337,345 P599,060.41[29]

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=========
Thus, ITM is liable for P653,215.80 under Account No. 9496-1422-18 and P599,060.41 under Account
No. 9496-1622-16. However, since ITM has already paid under protest P506,300.09 to Meralco, this amount
shall be deducted from the total differential billing of ITM under Account Nos. 9496-1422-18 and 9496-1622-
16.
In computing the differential billing for Account No. 9496-1622-16, Engineer Jambalos used the
average energy consumption during the period of January-December 1985, the 12-month period prior to the
affected period.[30] However, for Account No. 9496-1622-16, the basis for the computation of the differential
billing was the average consumption registered by the Meralco meter during the period subsequent to the
affected period.[31]
The subsequent billing period used as basis covered the daily average consumption from 19 February
1988 to 25 April 1988. According to Engineer Jambalos, he used the subsequent billing period as the basis of
computation because the billing periods before the affected period were also subject of numerous differential
billings.[32] We find the use of the subsequent billing period reasonable.
Attorneys Fees
We do not find the award of attorneys fees justified in this case. The general rule is that no premium
should be placed on the right to litigate.[33] We find no evident bad faith by Meralco which would justify the
award of attorneys fees.[34]
WHEREFORE, we SET ASIDE the Decision of the Court of Appeals and RENDER a new one:
1. Imperial Textile Mills, Inc. shall pay Manila Electric Company the differential billing for Account
No. 9496-1422-18 which is reduced from P2,531,500.45 to P653,215.80;
2. Imperial Textile Mills, Inc. shall pay Manila Electric Company the differential billing for
Account No. 9496-1622-16 which is reduced from P1,707,051.47 to P599,060.41;
3. The amount of P506,300.09 paid under protest by Imperial Textile Mills, Inc. to Manila Electric
Company shall be deducted from the total differential billing of Imperial Textile Mills, Inc. under
Account Nos. 9496-1422-18 and 9496-1622-16;
4. We declare VOID the interest charges Manila Electric Company unilaterally imposed on
Imperial Textile Mills, Inc. to cover the penalty for Manila Electric Companys late payment of
franchise taxes. The amount of P3,814,816.61 interest charges which Manila Electric Company
collected from Imperial Textile Mills, Inc. shall be applied to the interest charges due from
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Imperial Textile Mills, Inc. under sub-paragraph 4 below, as well as to the payment of
outstanding electric bills of Imperial Textile Mills, Inc. to Manila Electric Company, and the
excess, if any, shall be refunded by Manila Electric Company to Imperial Textile Mills, Inc.; and
5. We REMAND this case to the trial court for determination of damages owed by Imperial Textile
Mills, Inc. to Manila Electric Company for late payment of electric bills, computed at 6% interest
per annum on the amount of electric bills from due date until full payment by the application of
tax credits.
SO ORDERED.
Tax Review
G.R. No. 150806 January 28, 2008
EUFEMIA ALMEDA and ROMEL ALMEDA, petitioners,

vs.
BATHALA MARKETING INDUSTRIES, INC., respondent.
DECISION
NACHURA, J.:
This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, of the Decision1 of the Court of
Appeals (CA), dated September 3, 2001, in CA-G.R. CV No. 67784, and its Resolution2 dated November 19,
2001. The assailed Decision affirmed with modification the Decision3 of the Regional Trial Court (RTC),
Makati City, Branch 136, dated May 9, 2000 in Civil Case No. 98-411.
Sometime in May 1997, respondent Bathala Marketing Industries, Inc., as lessee, represented by its president
Ramon H. Garcia, renewed its Contract of Lease 4 with Ponciano L. Almeda (Ponciano), as lessor, husband of
petitioner Eufemia and father of petitioner Romel Almeda. Under the said contract, Ponciano agreed to lease a
portion of the Almeda Compound, located at 2208 Pasong Tamo Street, Makati City, consisting of 7,348.25
square meters, for a monthly rental of P1,107,348.69, for a term of four (4) years from May 1, 1997 unless
sooner terminated as provided in the contract.5 The contract of lease contained the following pertinent
provisions which gave rise to the instant case:
SIXTH - It is expressly understood by the parties hereto that the rental rate stipulated is based on the
present rate of assessment on the property, and that in case the assessment should hereafter be
increased or any new tax, charge or burden be imposed by authorities on the lot and building where
the leased premises are located, LESSEE shall pay, when the rental herein provided becomes due, the
additional rental or charge corresponding to the portion hereby leased; provided, however, that in
the event that the present assessment or tax on said property should be reduced, LESSEE shall be
entitled to reduction in the stipulated rental, likewise in proportion to the portion leased by him;
SEVENTH - In case an extraordinary inflation or devaluation of Philippine Currency should

supervene, the value of Philippine peso at the time of the establishment of the obligation shall be the
basis of payment;6
During the effectivity of the contract, Ponciano died. Thereafter, respondent dealt with petitioners. In a
letter7 dated December 29, 1997, petitioners advised respondent that the former shall assess and collect
Value Added Tax (VAT) on its monthly rentals. In response, respondent contended that VAT may not be
imposed as the rentals fixed in the contract of lease were supposed to include the VAT therein, considering
that their contract was executed on May 1, 1997 when the VAT law had long been in effect. 8
On January 26, 1998, respondent received another letter from petitioners informing the former that its
monthly rental should be increased by 73% pursuant to condition No. 7 of the contract and Article 1250 of
the Civil Code. Respondent opposed petitioners' demand and insisted that there was no extraordinary
inflation to warrant the application of Article 1250 in light of the pronouncement of this Court in various
cases.9
Respondent refused to pay the VAT and adjusted rentals as demanded by petitioners but continued to pay the
stipulated amount set forth in their contract.
On February 18, 1998, respondent instituted an action for declaratory relief for purposes of determining the
correct interpretation of condition Nos. 6 and 7 of the lease contract to prevent damage and prejudice. 10 The
case was docketed as Civil Case No. 98-411 before the RTC of Makati.
On March 10, 1998, petitioners in turn filed an action for ejectment, rescission and damages against
respondent for failure of the latter to vacate the premises after the demand made by the former.11 Before
respondent could file an answer, petitioners filed a Notice of Dismissal.12 They subsequently refiled the
complaint before the Metropolitan Trial Court of Makati; the case was raffled to Branch 139 and was
docketed as Civil Case No. 53596.
Petitioners later moved for the dismissal of the declaratory relief case for being an improper remedy
considering that respondent was already in breach of the obligation and that the case would not end the
litigation and settle the rights of the parties. The trial court, however, was not persuaded, and consequently,
denied the motion.
After trial on the merits, on May 9, 2000, the RTC ruled in favor of respondent and against petitioners. The
pertinent portion of the decision reads:
WHEREFORE, premises considered, this Court renders judgment on the case as follows:
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1) declaring that plaintiff is not liable for the payment of Value-Added Tax (VAT) of 10% of the rent
for [the] use of the leased premises;
2) declaring that plaintiff is not liable for the payment of any rental adjustment, there being no
[extraordinary] inflation or devaluation, as provided in the Seventh Condition of the lease contract, to
justify the same;
3) holding defendants liable to plaintiff for the total amount of P1,119,102.19, said amount
representing payments erroneously made by plaintiff as VAT charges and rental adjustment for the
months of January, February and March, 1999; and
4) holding defendants liable to plaintiff for the amount of P1,107,348.69, said amount representing
the balance of plaintiff's rental deposit still with defendants.
SO ORDERED.13
The trial court denied petitioners their right to pass on to respondent the burden of paying the VAT since it
was not a new tax that would call for the application of the sixth clause of the contract. The court, likewise,
denied their right to collect the demanded increase in rental, there being no extraordinary inflation or
devaluation as provided for in the seventh clause of the contract. Because of the payment made by
respondent of the rental adjustment demanded by petitioners, the court ordered the restitution by the latter
to the former of the amounts paid, notwithstanding the well-established rule that in an action for declaratory
relief, other than a declaration of rights and obligations, affirmative reliefs are not sought by or awarded to
the parties.
Petitioners elevated the aforesaid case to the Court of Appeals which affirmed with modification the RTC
decision. The fallo reads:
WHEREFORE, premises considered, the present appeal is DISMISSED and the appealed decision in
Civil Case No. 98-411 is hereby AFFIRMED with MODIFICATION in that the order for the return of the
balance of the rental deposits and of the amounts representing the 10% VAT and rental adjustment,
is hereby DELETED.
No pronouncement as to costs.
SO ORDERED.14
The appellate court agreed with the conclusions of law and the application of the decisional rules on the
matter made by the RTC. However, it found that the trial court exceeded its jurisdiction in granting
affirmative relief to the respondent, particularly the restitution of its excess payment.
Petitioners now come before this Court raising the following issues:
I.
WHETHER OR NOT ARTICLE 1250 OF THE NEW CIVIL CODE IS APPLICABLE TO THE CASE AT BAR.
II.
WHETHER OR NOT THE DOCTRINE ENUNCIATED IN FILIPINO PIPE AND FOUNDRY CORP. VS.
NAWASA CASE, 161 SCRA 32 AND COMPANION CASES ARE (sic) APPLICABLE IN THE CASE AT BAR.
III.
WHETHER OR NOT IN NOT APPLYING THE DOCTRINE IN THE CASE OF DEL ROSARIO VS. THE
SHELL COMPANY OF THE PHILIPPINES, 164 SCRA 562, THE HONORABLE COURT OF APPEALS
SERIOUSLY ERRED ON A QUESTION OF LAW.
IV.
WHETHER OR NOT THE FINDING OF THE HONORABLE COURT OF APPEALS THAT RESPONDENT IS
NOT LIABLE TO PAY THE 10% VALUE ADDED TAX IS IN ACCORDANCE WITH THE MANDATE OF RA
7716.
V.
WHETHER OR NOT DECLARATORY RELIEF IS PROPER SINCE PLAINTIFF-APPELLEE WAS IN

BREACH WHEN THE PETITION FOR DECLARATORY RELIEF WAS FILED BEFORE THE TRIAL COURT.
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In fine, the issues for our resolution are as follows: 1) whether the action for declaratory relief is proper; 2)
whether respondent is liable to pay 10% VAT pursuant to Republic Act (RA) 7716; and 3) whether the
amount of rentals due the petitioners should be adjusted by reason of extraordinary inflation or devaluation.
Declaratory relief is defined as an action by any person interested in a deed, will, contract or other written
instrument, executive order or resolution, to determine any question of construction or validity arising from
the instrument, executive order or regulation, or statute, and for a declaration of his rights and duties
thereunder. The only issue that may be raised in such a petition is the question of construction or validity of
provisions in an instrument or statute. Corollary is the general rule that such an action must be justified, as no
other adequate relief or remedy is available under the circumstances. 15
Decisional law enumerates the requisites of an action for declaratory relief, as follows: 1) the subject matter
of the controversy must be a deed, will, contract or other written instrument, statute, executive order or
regulation, or ordinance; 2) the terms of said documents and the validity thereof are doubtful and require
judicial construction; 3) there must have been no breach of the documents in question; 4) there must be an
actual justiciable controversy or the "ripening seeds" of one between persons whose interests are adverse; 5)
the issue must be ripe for judicial determination; and 6) adequate relief is not available through other means
or other forms of action or proceeding.16
It is beyond cavil that the foregoing requisites are present in the instant case, except that petitioners insist
that respondent was already in breach of the contract when the petition was filed.
We do not agree.
After petitioners demanded payment of adjusted rentals and in the months that followed, respondent
complied with the terms and conditions set forth in their contract of lease by paying the rentals stipulated
therein. Respondent religiously fulfilled its obligations to petitioners even during the pendency of the present
suit. There is no showing that respondent committed an act constituting a breach of the subject contract of
lease. Thus, respondent is not barred from instituting before the trial court the petition for declaratory relief.
Petitioners claim that the instant petition is not proper because a separate action for rescission, ejectment
and damages had been commenced before another court; thus, the construction of the subject contractual
provisions should be ventilated in the same forum.
We are not convinced.
It is true that in Panganiban v. Pilipinas Shell Petroleum Corporation17 we held that the petition for declaratory
relief should be dismissed in view of the pendency of a separate action for unlawful detainer. However, we
cannot apply the same ruling to the instant case. In Panganiban, the unlawful detainer case had already been
resolved by the trial court before the dismissal of the declaratory relief case; and it was petitioner in that case
who insisted that the action for declaratory relief be preferred over the action for unlawful detainer.
Conversely, in the case at bench, the trial court had not yet resolved the rescission/ejectment case during the
pendency of the declaratory relief petition. In fact, the trial court, where the rescission case was on appeal,
itself initiated the suspension of the proceedings pending the resolution of the action for declaratory relief.
We are not unmindful of the doctrine enunciated in Teodoro, Jr. v. Mirasol18 where the declaratory relief
action was dismissed because the issue therein could be threshed out in the unlawful detainer suit. Yet, again,
in that case, there was already a breach of contract at the time of the filing of the declaratory relief petition.
This dissimilar factual milieu proscribes the Court from applying Teodoro to the instant case.
Given all these attendant circumstances, the Court is disposed to entertain the instant declaratory relief
action instead of dismissing it, notwithstanding the pendency of the ejectment/rescission case before the trial
court. The resolution of the present petition would write finis to the parties' dispute, as it would settle once
and for all the question of the proper interpretation of the two contractual stipulations subject of this
controversy.
Now, on the substantive law issues.
Petitioners repeatedly made a demand on respondent for the payment of VAT and for rental adjustment
allegedly brought about by extraordinary inflation or devaluation. Both the trial court and the appellate court
found no merit in petitioners' claim. We see no reason to depart from such findings.
As to the liability of respondent for the payment of VAT, we cite with approval the ratiocination of the
appellate court, viz.:
Clearly, the person primarily liable for the payment of VAT is the lessor who may choose to pass it on
to the lessee or absorb the same. Beginning January 1, 1996, the lease of real property in the ordinary
course of business, whether for commercial or residential use, when the gross annual receipts
exceed P500,000.00, is subject to 10% VAT. Notwithstanding the mandatory payment of the 10%
VAT by the lessor, the actual shifting of the said tax burden upon the lessee is clearly optional on the
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part of the lessor, under the terms of the statute. The word "may" in the statute, generally speaking,
denotes that it is directory in nature. It is generally permissive only and operates to confer discretion.
In this case, despite the applicability of the rule under Sec. 99 of the NIRC, as amended by R.A. 7716,
granting the lessor the option to pass on to the lessee the 10% VAT, to existing contracts of lease as of
January 1, 1996, the original lessor, Ponciano L. Almeda did not charge the lessee-appellee the 10%
VAT nor provided for its additional imposition when they renewed the contract of lease in May 1997.
More significantly, said lessor did not actually collect a 10% VAT on the monthly rental due from the
lessee-appellee after the execution of the May 1997 contract of lease. The inevitable implication is
that the lessor intended not to avail of the option granted him by law to shift the 10% VAT upon the
lessee-appellee. x x x.19
In short, petitioners are estopped from shifting to respondent the burden of paying the VAT.
Petitioners' reliance on the sixth condition of the contract is, likewise, unavailing. This provision clearly states
that respondent can only be held liable for new taxes imposed after the effectivity of the contract of lease, that
is, after May 1997, and only if they pertain to the lot and the building where the leased premises are located.
Considering that RA 7716 took effect in 1994, the VAT cannot be considered as a "new tax" in May 1997, as to
fall within the coverage of the sixth stipulation.
Neither can petitioners legitimately demand rental adjustment because of extraordinary inflation or
devaluation.
Petitioners contend that Article 1250 of the Civil Code does not apply to this case because the contract
stipulation speaks of extraordinary inflation or devaluation while the Code speaks of extraordinary inflation
or deflation. They insist that the doctrine pronounced in Del Rosario v. The Shell Company, Phils.
Limited20 should apply.
Essential to contract construction is the ascertainment of the intention of the contracting parties, and such
determination must take into account the contemporaneous and subsequent acts of the parties. This
intention, once ascertained, is deemed an integral part of the contract.21
While, indeed, condition No. 7 of the contract speaks of "extraordinary inflation or devaluation" as compared
to Article 1250's "extraordinary inflation or deflation," we find that when the parties used the term
"devaluation," they really did not intend to depart from Article 1250 of the Civil Code. Condition No. 7 of the
contract should, thus, be read in harmony with the Civil Code provision.
That this is the intention of the parties is evident from petitioners' letter 22 dated January 26, 1998, where, in
demanding rental adjustment ostensibly based on condition No. 7, petitioners made explicit reference to
Article 1250 of the Civil Code, even quoting the law verbatim. Thus, the application of Del Rosario is not
warranted. Rather, jurisprudential rules on the application of Article 1250 should be considered.
Article 1250 of the Civil Code states:
In case an extraordinary inflation or deflation of the currency stipulated should supervene, the value
of the currency at the time of the establishment of the obligation shall be the basis of payment, unless
there is an agreement to the contrary.
Inflation has been defined as the sharp increase of money or credit, or both, without a corresponding increase
in business transaction. There is inflation when there is an increase in the volume of money and credit
relative to available goods, resulting in a substantial and continuing rise in the general price level. 23 In a
number of cases, this Court had provided a discourse on what constitutes extraordinary inflation, thus:
[E]xtraordinary inflation exists when there is a decrease or increase in the purchasing power of the
Philippine currency which is unusual or beyond the common fluctuation in the value of said
currency, and such increase or decrease could not have been reasonably foreseen or was manifestly
beyond the contemplation of the parties at the time of the establishment of the obligation. 24
The factual circumstances obtaining in the present case do not make out a case of extraordinary inflation or
devaluation as would justify the application of Article 1250 of the Civil Code. We would like to stress that the
erosion of the value of the Philippine peso in the past three or four decades, starting in the mid-sixties, is
characteristic of most currencies. And while the Court may take judicial notice of the decline in the
purchasing power of the Philippine currency in that span of time, such downward trend of the peso cannot be
considered as the extraordinary phenomenon contemplated by Article 1250 of the Civil Code. Furthermore,
absent an official pronouncement or declaration by competent authorities of the existence of extraordinary
inflation during a given period, the effects of extraordinary inflation are not to be applied. 25
WHEREFORE, premises considered, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R.
CV No. 67784, dated September 3, 2001, and its Resolution dated November 19, 2001, are AFFIRMED.
SO ORDERED.
Tax Review
G.R. No. 172359 October 2, 2009
CHINA BANKING CORPORATION, Petitioner,

vs.
THE COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
DEL CASTILLO, J.:
Before this Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court seeking to set
aside the January 3, 2006 Decision2 and March 20, 2006 Resolution3 of the Court of Tax Appeals (CTA) En
Banc in C.T.A. EB No. 66 (C.T.A Case No. 6400).
The facts of the case.
Petitioner China Banking Corporation, a universal banking corporation duly organized and existing under and
by virtue of the laws of the Republic of the Philippines, was engaged in the transaction of accepting special
savings deposits (SSD), otherwise known as "Savings Plus Deposit.4
On September 23, 1999, petitioner received a Pre-Assessment Notice5 (PAN) issued by respondent
Commission on Internal Revenue, assessing it for deficiency documentary stamp tax on its Reverse
Repurchase Agreements (RRA) and SSDs for the taxable years 1994 and 1995 in the total amount of Php
27,451,844.09 including increments thereon.
On October 6, 1999, petitioner sent a letter6 to respondent whereby it manifested its formal disagreement to
the PAN.
Subsequently, petitioner received a Final Assessment Notice (FAN) dated October 8, 1999, which reiterated
petitioner’s liability for deficiency documentary stamp tax on its RRAs and SSDs for the taxable years 1994
and 1995. The same was detailed as follows, to wit:
For the year 1994
A. Reverse Repurchase Agreements P 424,000,000.00
B. Special Savings Accounts 2,142,305,326.67

------------------------
Total 2,566,305,326.67
Rate of Tax 0.15%

------------------------
Total Tax due thereon 3,849,457.98
Add:
25% Surcharge 962,364.50
Compromise Penalty 25,000.00 987,364.50

------------------------ ------------------------
Total Deficiency DST-Industry Issue ₱4,836,822.487
For the year 1995
A. Reverse Repurchase Agreements ₱ 9,773,000,000.00
B. Special Savings Accounts 2,275,011,526.88

----------------------
Total 12,048,011,526.88
Rate of Tax 0.15%

----------------------
Total Tax due thereon ₱ 18,072,017.29
Add:
25% Surcharge 4,518,004.32
Compromise Penalty 25,000.00 4,543,004.32

------------------------ ------------------------
Total Deficiency DST-Industry Issue ₱ 22,615,021.618

Tax Review
On November 24, 1999, petitioner filed a formal protest 9 questioning the legality and basis of both the PAN
and the FAN. In said protest, petitioner contested the basis of the assessment of deficiency documentary
stamp tax on its SSDs in the following manner, to wit:
xxxx
B. On the Special Savings Account:
With respect to the Savings Plus Deposit transactions, the latter is also not subject to documentary stamp tax
because by the very nature of the transaction which is just a variation of the regular savings account, the
same is not taxable under the aforequoted Section 180. Let us consider some salient features of the product
that differentiates it from a Time Deposit Account:
1. The terms and conditions of the Savings Plus Deposit are provided for in the traditional passbook
form as distinguished from a Time Deposit Account which is evidenced by a certificate of deposit.
2. In a time deposit, there is no partial withdrawal. The term is preterminated and the certificate of
deposit is cancelled and surrendered and the entire amount is paid to the depositor. In the case of
Savings Plus Deposit, however, there is partial withdrawal, which is posted in the passbook. The
amount withdrawn is paid to the depositor and the passbook is returned to the depositor. In other
words, the Savings Plus Deposit, contrary to the basis for assessment, represents a continuing fund
which is open to deposits and withdrawals anytime, and therefore, falls under the category of
certificates of deposit at sight or on demand which is exempt from documentary stamp tax.
3. When fifty percent (50%) of the term of a Time Deposit had lapsed, interest to be paid is fifty
percent (50%) of the agreed rate. When less than fifty percent (50%) of the term had lapsed, interest
to be paid is twenty- five percent (25%) of the agreed rate. In the case of a Savings Plus Deposit,
however, amount withdrawn earns only the regular fixed savings rate of three percent (3%).
4. The features of the product in no way resemble that of a promissory note or a certificate of
indebtedness, and
5. The intention, not any occasional error in the implementation of the product, should be the basis of
taxation. A correctible error in the implementation does not convert a non-taxable product into a
taxable one.
In view of all the foregoing reasons and considerations, we hereby request that subject assessment notice be
recalled and/or reconsidered, the same not being due and demandable from China Bank, under the
premises.10
On December 20, 1999, petitioner received a Preliminary Agreement Notice11dated December 17, 1999,
assessing petitioner’s deficiency documentary stamp taxes on its RRAs and SSDs covering the taxable years
1996 and 1997. Like in the first assessment, petitioner sent a letter 12 manifesting its disagreement thereto.
On December 29, 1999, a formal letter of demand 13 was received by petitioner whereby respondent
demanded the total amount of ₱13,781,350.00, representing deficiency documentary stamp tax on
petitioner’s RRAs and SSDs for the taxable years 1996 and 1997.
On January 26, 2000, petitioner sent a letter14 to respondent reiterating its position that the RRAs and SSDs
were not subject to documentary stamp tax.
On February 18, 2000, respondent sent a notice15 to petitioner setting an informal hearing with regard to the
protest made by the latter on the assessment of deficiency documentary stamp tax on its RRAs and SSDs. On
April 7, 2000, petitioner submitted its final position paper.16
On January 11, 2002, respondent rendered a Decision17 resolving to cancel and withdraw the assessments for
deficiency documentary stamp tax on petitioner’s RRAs covering the taxable years 1994, 1995 and 1996.
However, said decision affirmed the assessments for alleged deficiency documentary stamp tax on
petitioner’s RRAs for the year 1997 as well as on its SSDs covering the taxable years 1994 to 1997. The
dispositive portion of said decision is hereunder quoted, to wit:
IN VIEW WHEREOF, this Office do hereby resolved the following:
1. The protest of herein protestant bank on the deficiency stamp taxes on RRPs covering the years
1994, 1995 and 1996 under the following Assessment Notices, to wit:
Assessment Notice No. Amount Year
ST-DST-94-0054-99 ₱ 820,000.00 1994

Tax Review
ST-DST-95-0055-99 ₱18,349,375.00 1995
ST-DST-96-0374-99 ₱ 1,976,250.00 1996
are hereby withdrawn and cancelled and the same are considered closed and terminated.
2. The protest of herein protestant bank on the deficiency stamp tax on RRPs for 1997 under
Assessment Notice No. ST-DST-97-0372-99 demanding payment of ₱3,523,600.00 is hereby affirmed
and reiterated.
3. The protest of herein protestant bank on the deficiency stamp taxes on SSA covering the taxable
years 1994, 1995, 1996 and 1997 under the following Assessment Notices, to wit:
Assessment Notice No. Amount Year
ST-DST-94-0054-99 ₱4, 041,822.48 1994
ST-DST-95-0055-99 4,290,646.61 1995
ST-DST-96-0371-99 1,633,750.00 1996
ST-DST-97-0373-99 2,595,400.00 1997
are hereby affirmed in all respects.
Consequently, the protestant bank is hereby ordered to pay the above- stated amounts plus interest that may
have accrued thereon until actual payment to the Collection Service, BIR National Office, Diliman, Quezon
City, within thirty (30) days from receipt hereof, otherwise, the collection thereof shall be effected through
the summary remedies provided by law.
This constitutes the final decision of this Office on the matter.18
On February 22, 2002, petitioner appealed to the Court of Tax Appeals (CTA) via a Petition for Review,19 the
same was docketed as C.T.A. Case No. 6400.
On October 14, 2004, the CTA rendered a Decision20 partially granting the petition, the dispositive portion of
which reads:
IN VIEW OF THE FOREGOING, the subject Petition for Review is hereby PARTIALLY GRANTED. Assessment
Notice No. ST-DST-97-0372-99 for deficiency documentary stamp taxes on petitioner’s Reverse Repurchase
Agreement Transactions in the amount of ₱3,523,600.00 covering the taxable year 1997 is hereby
CANCELLED AND WITHDRAWN. However, Assessment Notice Nos. ST-DST-94-0054-99, ST-DST-95-0055-99,
ST-DST-96-0371-99, and ST-DST-96-0373-99 for deficiency documentary stamp taxes on petitioner’s Special
Savings Deposit Accounts for the taxable years 1994, 1995, 1996 and 1997, respectively, are UPHELD but in
the following modified amounts:
xxxx
Accordingly, petitioner is ORDERED TO PAY the above recomputed documentary stamp tax liabilities of
₱4,016,822.48, ₱4,265,646.61, ₱1,218,750.00 and ₱1,890,000.00 or in the total amount of ₱11,391,219.09,
plus 20% delinquency interest from February 24, 2002 until full payment thereof pursuant to Section 249 (c)
of the 1997 Tax Code.
SO ORDERED.21
On November 9, 2004, petitioner filed a Motion for Partial Reconsideration, 22 specifically assailing the portion
of the CTA Decision affirming the assessment of deficiency documentary stamp tax on its SSDs.
On February 2, 2005, the CTA issued a Resolution23denying petitioner’s motion for partial reconsideration.
Aggrieved with the Decision and Resolution of the CTA, petitioner then filed a petition for review 24 before the
CTA en banc.
On January 3, 2006, the CTA en banc rendered a Decision25 denying said petition, the dispositive portion of
which reads:
WHEREFORE, the instant petition is hereby DENIED DUE COURSE, and accordingly, DISMISSED for the above-
stated reasons. The assailed Decision and Resolution are hereby AFFIRMED.26
Tax Review
The CTA en banc ruled that a deposit account which have the same features as a time deposit account, i.e., a
fixed term in order to earn a higher interest rate, is subject to the Documentary Stamp Tax imposed in Section
18027 of the 1997 National Internal Revenue Code.28 Specifically, the CTA en banc held that the SSDs are
"certificates of deposit drawing interest" as contemplated under Section 180.
Petitioner then filed a Motion for Partial Reconsideration,29 which was, however, denied by the CTA en
banc in a Resolution30 dated March 20, 2006.
Hence, herein petition, with petitioner raising the following errors, to wit:
IN RENDERING THE QUESTIONED DECISION AND RESOLUTION (ANNEXES "A" AND "B"), THE HONORABLE
COURT OF TAX APPEALS EN BANC, IN CLEAR DISREGARD OF THE BASIC RULES ON STATUTORY
CONSTRUCTION, ERRONEOUSLY AND CAPRICIOUSLY INTERPRETED THE BANKING-INDUSTRYWIDE
INNOVATIVE PRODUCT CALLED "SPECIAL SAVINGS DEPOSIT" AS A CERTIFICATE OF TIME DEPOSIT
SUBJECT TO DOCUMENTARY STAMP TAX UNDER SECTION 180 OF THE THEN GOVERNING NATIONAL
INTERNAL REVENUE CODE.
II
THE HONORABLE COURT OF TAX APPEALS EN BANC GRAVELY ERRED IN NOT CONSIDERING THAT ITS
ERRONEOUS INTERPRETATION OF THE "SPECIAL SAVINGS DEPOSIT" WAS ONLY RATIONALIZED AND
EXPLICITLY PROVIDED FOR UNDER REPUBLIC ACT NO. 9243, OTHERWISE KNOWN AS "AN ACT
RATIONALIZING THE PROVISIONS ON THE DOCUMENTARY STAMP TAX OF THE NATIONAL INTERNAL
REVENUE CODE OF 1997, AS AMENDED, AND FOR OTHER PURPOSE" WHICH WAS ENACTED INTO LAW ON
FEBRUARY 7, 2004.31
The petition is not meritorious.
The issue of whether or not Special Savings Deposits are subject to documentary stamp tax is not novel as the
same has been the subject of this Court’s ruling in International Exchange Bank v. Commissioner of Internal
Revenue32 (International) and Philippine Banking Corporation v. Commissioner of Internal Revenue 33(PBC).
Section 180 of the 1997 National Internal Revenue Code, as amended, provides:
Sec. 180. Stamp tax on all loan agreements, promissory notes, bills of exchange, drafts, instruments
and securities issued by the government or any of its instrumentalities, certificates of deposit bearing
interest and others not payable on sight or demand. — On all loan agreements signed abroad wherein the
object of the contract is located or used in the Philippines; bills of exchange (between points within the
Philippines), drafts, instruments and securities issued by the Government or any of its instrumentalities
or certificates of deposits drawing interest, or orders for the payment of any sum of money otherwise than
at the sight or on demand, or on all promissory notes, whether negotiable or non-negotiable, except bank
notes issued for circulation, and on each renewal of any such note, there shall be collected a documentary
stamp tax of Thirty centavos (₱0.30) on each Two hundred pesos, or fractional part thereof, of the face value
of any such agreement, bill of exchange, draft, certificate of deposit, or note: provided, that only one
documentary stamp tax shall be imposed on either loan agreement, or promissory note issued to secure such
loan, whichever will yield a higher tax: provided, however, that loan agreements or promissory notes the
aggregate of which does not exceed Two hundred fifty thousand pesos (₱250,000) executed by an individual
for his purchase on installment for his personal use or that of his family and not for business, resale, barter or
hire of a house, lot, motor vehicle, appliance or furniture shall be exempt from the payment of the
documentary stamp tax provided under this section.
The CTA en banc dissected Section 180 and enumerated the following documents which are subject to
documentary stamp tax, to wit:
1. Loan Agreements;
2. Bills of Exchange;
3. Drafts;
4. Instruments and Securities issued by the Government or any of its instrumentalities;
5. Certificates of Deposit Drawing Interest;
6. Order for the payment of money otherwise that at sight or on demand;
7. Promissory Notes, whether negotiable or non-negotiable.34

Tax Review
From said enumeration, the CTA en banc held that petitioner’s SSDs fall under the category of "certificates of
deposit drawing interest."
In Far East Bank and Trust Company v. Querimit,35 the Court defined a certificate of deposit as "a written
acknowledgment by a bank or banker of the receipt of a sum of money on deposit which the bank or banker
promises to pay to the depositor, to the order of the depositor, or to some other person or his order, whereby
the relation of debtor and creditor between the bank and the depositor is created." A certificate of deposit is
also defined as "a receipt issued by a bank for an interest-bearing time deposit coming due at a specified
future date."
In its Decision, the CTA en banc held that certificates of time deposit are subject to documentary stamp tax
and that the same are but a type of a certificate of deposit drawing interest. 36 Hence, whether or not SSDs are
subject to documentary stamp tax is dependent on the nature and specific features thereof. It is thus
conceded that if the SSDs are more akin to a time deposit account then the same would be subject to
documentary stamp tax. However, if the SSDs are more akin to a regular savings deposit account then the
same would not be subject to documentary stamp tax.
Petitioner argues that its SSDs have the same distinctive features of a regular savings deposit account.
Particularly, petitioner asserts that its SSDs are not "certificates of deposits drawing interest" as held by the
CTA en banc. Petitioner thus explains:
Firstly, the law, as it may in pertinence, be scrutinized, specifically mentioned "certificates of deposits
drawing interest" as subject to the documentary stamp tax. In the special savings deposit of petitioner, what
is issued to a depositor is a passbook just like in regular savings deposit. The reason for this is that, as
appreciated by the Honorable Court a quo itself --- the amount deposited in the special savings deposit is
withdrawable any time. Partial or full withdrawal may be done by the depositor from this deposit. Not only
this, the depositor may likewise deposit any amount he pleases anytime he wants. Hence, the fund in a special
savings deposit is a continuing fund, just like regular savings account. The passbook then would be suitable
and proper record of all the transactions made and to be made on the special savings deposit.
Certificates of deposit, on the other hand, are issued to evidence a time deposit placement. Time deposits, to a
tee, are certificates of indebtedness issued by a bank for fixed amounts which earn interest at fixed rates and
payable at a fixed future date. These features do not attend foursquare on the special savings deposit. In the
latter, just like in ordinary savings deposit, there is a minimum amount of deposit required, but it is never
fixed or stipulated upon; the interest is assured at savings deposit rate but if the balance required is
maintained for a certain period, the depositor is entitled to a prevailing market rate; and, special savings
deposit has no maturity date and is a continuing concern. With the withdrawability of the amount deposited
herein at any time, as the depositor may please, special savings deposit just like an ordinary savings account
includes itself under the category of deposit payable at sight or on demand, read as "orders for the payment of
any sum of money [otherwise] at sight or on demand" which is exempt from documentary stamp tax.37
This Court does not agree. Contrary to the claim of petitioner, the SSDs are in fact "certificates of deposits
drawing interest" subject to documentary stamp tax as provided for in Section 180 of the 1997 NIRC.
In PBC, this Court distinguished a regular savings account, a time deposit account and the Special/Super
Savings Deposit Account (SSDA) in the following manner, to wit:
Savings Account Time Deposit SSDA
Interest rate Regular savings interest Higher interest rate Higher interest rate
Period None Fixed Term Fixed Term
Evidenced by: Passbook Certificate of Time Deposit Passbook
Pre-termination None With penalty With penalty
Holding Period None Yes Yes
Withdrawal Allowed Withdrawal amounts to pre- Allowed provided the

termination minimum amount to earn the
higher interest rate is
maintained, otherwise, the
regular savings interest rate
will apply.
Based on the foregoing comparison, the Court in PBC ruled that a "Special/Super Savings Deposit Account"
has all the distinct features of a certificate of deposit, to wit:
Based on the definition and comparison, it is clear that a certificate of deposit drawing interest as used in
Section 180 of the 1977 NIRC refers to a time deposit account. As the Bureau of Internal Revenue (BIR)
explained in Revenue Memorandum Circular No. 16-2003, the distinct features of a certificate of deposit from
a technical point of view are as follows:
a. Minimum deposit requirement;

Tax Review
b. Stated maturity period;
c. Interest rate is higher than the ordinary savings account;
d. Not payable on sight or demand, but upon maturity or in case of pre-termination, prior notice is
required; and
e. Early withdrawal penalty in the form of partial loss or total loss of interest in case of pre-
termination.
The SSDA is for depositors who maintain savings deposits with substantial average daily balance and which
earn higher interest rates. The holding period of an SSDA floats at the option of the depositor at 30, 60, 90,
120 days or more and for maintaining a longer holding period, the depositor earns higher interest rates.
There is no pre-termination of accounts in an SSDA because the account is simply reverted to an ordinary
savings status in case of early or partial withdrawal or if the required holding period is not met. Based on the
foregoing, the SSDA has all of the distinct features of a certificate of deposit.
In International, this Court held that a "Savings Account-Fixed Savings Deposit" is likewise subject to
documentary stamp tax, to wit:
The FSD, like a time deposit, provides for a higher interest rate when the deposit is not withdrawn within the
required fixed period; otherwise, it earns interest pertaining to a regular savings deposit. Having a fixed term
and the reduction of interest rates in case of pre-termination are essential features of a time deposit. Thus,
explains the CTA En Banc:
It is well-settled that certificates of time deposit are subject to the DST and that a certificate of time deposit is
but a type of a certificate of deposit drawing interest. Thus, in resolving the issue before Us, it is necessary to
determine whether petitioner’s Savings Account-Fixed Savings Deposit (SA-FSD) has the same nature and
characteristics as a time deposit. In this regard, the findings of fact stated in the assailed Decision [of the CTA
Division] are as follows:
"In this case, a depositor of a savings deposit-FSD is required to keep the money with the bank for at least
thirty (30) days in order to yield a higher interest rate. Otherwise, the deposit earns interest pertaining only
to a regular savings deposit.
"The same feature is present in a time deposit. A depositor is allowed to withdraw his time deposit even
before its maturity subject to bank charges on its pre[-]termination and the depositor loses his entitlement to
earn the interest rate corresponding to the time deposit. Instead, he earns interest pertaining only to a
regular savings deposit. Thus, petitioner’s argument that the savings deposit-FSD is withdrawable anytime as
opposed to a time deposit which has a maturity date, is not tenable. In both cases, the deposit may be
withdrawn anytime but the depositor gets to earn a lower rate of interest. The only difference lies on the
evidence of deposit, a savings deposit-FSD is evidenced by a passbook, while a time deposit is evidenced by a
certificate of time deposit."
In order for a depositor to earn the agreed higher interest rate in a SA-FSD, the amount of deposit must be
maintained for a fixed period. Such being the case, We agree with the finding that the SA-FSD is a deposit
account with a fixed term. Withdrawal before the expiration of said fixed term results in the reduction of the
interest rate. Having a fixed term and reduction of interest rate in case of pre-termination are essentially the
features of a time deposit. Hence, this Court concurs with the conclusion reached in the assailed Decision that
petitioner’s SA-FSD and time deposit are substantially the same. . . . (Italics in the original; underscoring
supplied)
The findings and conclusions reached by the CTA which, by the very nature of its function, is dedicated
exclusively to the consideration of tax problems and has necessarily developed an expertise on the subject,
and unless there has been an abuse or improvident exercise of authority, and none has been shown in the
present case, deserves respect.38
In herein petition, petitioner’s version of the special savings deposit is called the "Savings Plus Deposit
Accounts." Said accounts have the following features as can be gathered from the petition:
1. Amount deposited is withdrawable anytime39
2. The same is evidenced by a passbook40
3. The rate of interest offered is the prevailing market rate, provided the depositor would maintain
his minimum balance in thirty (30) days at the minimum, and should he withdraw before the period,
his deposit would earn the regular savings deposit rate.41
Based on the foregoing, the conclusion is certain in that petitioner’s SSDs are "certificates of deposits drawing
interest" as contemplated in Section 180 of the 1997 National Internal Revenue Code. Petitioner’s "Savings
Tax Review
Plus Deposit" is essentially the same as the "Savings Account-Fixed Savings Deposit" in International, as well
as the "Special/Super Savings Account" in PBC wherein this Court ruled that said accounts are subject to
documentary stamp tax.
Petitioner, however, insists that its SSDs are evidenced by a passbook and thus it claims that the same should
bolster its position that said accounts are more akin to a regular savings deposit account.
This Court does not agree. In International, this Court held that a passbook representing an interest-earning
deposit account issued by a bank qualifies as a certificate of deposit drawing interest. 42A document to be
deemed a certificate of deposit requires no specific form as long as there is some written memorandum that
the bank accepted a deposit of a sum of money from a depositor. What is important and controlling is the
nature or meaning conveyed by the passbook and not the particular label or nomenclature attached to it,
inasmuch as substance, not form, is paramount.43
Anent the second error raised, the same deserves scant consideration. Petitioner cites Republic Act (R.A.) No.
924344 (approved on February 17, 2004), whereby Section 180 of the 1997 NIRC was amended, to wit:
SEC. 5. Section 180 of the National Internal Revenue Code of 1997, as amended, is hereby renumbered as
Section 179 and further amended to read as follows:
SEC. 179. Stamp Tax on All Debt Instruments. – On every original issue of debt instruments, there shall be
collected a documentary stamp tax of One peso (₱1.00) on each Two hundred pesos (₱200), or fractional part
thereof, of the issue price of any such debt instruments: Provided, That for such debt instruments with terms
of less than one (1) year, the documentary stamp tax to be collected shall be of a proportional amount in
accordance with the ratio of its term in number of days to three hundred sixty-five (365) days: Provided,
further, That only one documentary stamp tax shall be imposed on either loan agreement, or promissory
notes issued to secure such loan.1avvphi1
For purposes of this section, the term debt instrument shall mean instruments representing borrowing and
lending transactions including but not limited to debentures, certificates of indebtedness, due bills, bonds,
loan agreements, including those signed abroad wherein the object of contract is located or used in the
Philippines, instruments and securities issued by the government of any of its instrumentalities, deposit
substitute debt instruments, certificates or other evidences of deposits that are either drawing interest
significantly higher than the regular savings deposit taking into consideration the size of the deposit and the
risks involved or drawing interest and having a specific maturity date, orders for payment of any sum of
money otherwise than at sight or on demand, promissory notes, whether negotiable or non-negotiable,
except bank notes issued for circulation." (Underscoring supplied)
Petitioner asserts that the amendment of Section 180 of the National Internal Revenue Code of 1997 only
shows ostensibly that the old Section 180 was not applicable to special savings deposit, which by then cannot
be slapped with the imposition of documentary stamp tax.45 Simply put, at the time material to this case,
when R.A. No. 9243 was yet to be enacted, petitioner contends there was no law that clearly subjected its
special savings deposits to documentary stamp tax.46
This Court does not agree. In International, the Court held that the further amendment was intended to
eliminate the scheme used by banks of issuing passbooks to "cloak" its time deposits as regular savings
deposits.47 More importantly, the Court held that the amendment to include "other evidences of deposits that
are drawing interest significantly higher than the regular savings deposit" was merely intended to eliminate
the ambiguity48 as reflected in the exchanges49 between Mr. Miguel Andaya of the Bankers Association of the
Philippines and Senator Ralph Recto, Senate Chairman of the Committee on Ways and Means, during the
deliberations on Senate Bill No. 2518 which eventually became R.A. No. 9243. Contrary therefore to
petitioner’s position, International is categorical in that the said amendment did not signify that time deposits
evidenced by a passbook were exempt from documentary stamp tax under Section 180 of the 1997
NIRC,50 but that it merely served to eliminate the ambiguity in the law.
WHEREFORE, the petition is DENIED. The January 3, 2006 Decision and March 20, 2006 Resolution of the
Court of Tax Appeals En Banc in C.T.A. EB No. 66 (C.T.A Case No. 6400) are hereby AFFIRMED. SO ORDERED.
EXXONMOBIL PETROLEUM AND CHEMICAL G.R. No. 180909

HOLDINGS, INC. PHILIPPINE BRANCH,
Petitioner, Present:
CARPIO, J., Chairperson,

NACHURA,
- versus - PERALTA,
ABAD, and
MENDOZA, JJ.
COMMISSIONER OF INTERNAL REVENUE,

Respondent.
Promulgated:
Tax Review
January 19, 2011
x ---------------------------------------------------------------------------------------- x
DECISION
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 filed by petitioner Exxonmobil Petroleum and
Chemical Holdings, Inc. - Philippine Branch (Exxon) to set aside the September 7, 2007 Decision[1] of the
Court of Tax Appeals En Banc(CTA-En Banc) in CTA E.B. No. 204, and its November 27, 2007
Resolution[2] denying petitioners motion for reconsideration.
THE FACTS
Petitioner Exxon is a foreign corporation duly organized and existing under the laws of the State
of Delaware, United States of America.[3] It is authorized to do business in the Philippines through its Philippine
Branch, with principal office address at the 17/F The Orient Square, Emerald
Avenue, Ortigas Center, Pasig City.[4]
Exxon is engaged in the business of selling petroleum products to domestic and international carriers. [5] In
pursuit of its business, Exxon purchased from Caltex Philippines, Inc. (Caltex) and Petron Corporation (Petron)
Jet A-1 fuel and other petroleum products, the excise taxes on which were paid for and remitted by both Caltex
and Petron.[6] Said taxes, however, were passed on to Exxon which ultimately shouldered the excise taxes on
the fuel and petroleum products.[7]
From November 2001 to June 2002, Exxon sold a total of 28,635,841 liters of Jet A-1 fuel to
international carriers, free of excise taxes amounting to Php105,093,536.47. [8] On various dates, it filed
administrative claims for refund with the Bureau of Internal Revenue (BIR) amounting to
Php105,093,536.47.[9]
On October 30, 2003, Exxon filed a petition for review with the CTA [10] claiming a refund or tax credit in the
amount of Php105,093,536.47, representing the amount of excise taxes paid on Jet A-1 fuel and other
petroleum products it sold to international carriers from November 2001 to June 2002.[11]
Exxon and the Commissioner of Internal Revenue (CIR) filed their Joint Stipulation of Facts and Issues on June
24, 2004, presenting a total of fourteen (14) issues for resolution.[12]
During Exxons preparation of evidence, the CIR filed a motion dated January 28, 2005 to first resolve the issue
of whether or not Exxon was the proper party to ask for a refund. [13] Exxon filed its opposition to the motion
on March 15, 2005.
On July 27, 2005, the CTA First Division issued a resolution[14] sustaining the CIRs position and dismissing
Exxons claim for refund. Exxon filed a motion for reconsideration, but this was denied on July 27, 2006.[15]
Exxon filed a petition for review[16] with the CTA En Banc assailing the July 27, 2005 Resolution of the CTA First
Division which dismissed the petition for review, and the July 27, 2006 Resolution[17] which affirmed the said
ruling.
RULING OF THE COURT OF TAX APPEALS EN BANC

Tax Review
In its Decision dated September 7, 2007, the CTA En Banc dismissed the petition for review and affirmed the
two resolutions of the First Division dated July 27, 2005 and July 27, 2006. Exxon filed a motion for
reconsideration, but it was denied on November 27, 2007.
Citing Sections 130 (A)(2)[18] and 204 (C) in relation to Section 135 (a)[19] of the National Internal
Revenue Code of 1997 (NIRC), the CTA ruled that in consonance with its ruling in several cases,[20] only the
taxpayer or the manufacturer of the petroleum products sold has the legal personality to claim the refund of
excise taxes paid on petroleum products sold to international carriers.[21]
The CTA stated that Section 130(A)(2) makes the manufacturer or producer of the petroleum products
directly liable for the payment of excise taxes.[22] Therefore, it follows that the manufacturer or producer is the
taxpayer.[23]
This determination of the identity of the taxpayer designated by law is pivotal as the NIRC provides that it is
only the taxpayer who has the legal personality to ask for a refund in case of erroneous payment of taxes.[24]
Further, the excise tax imposed on manufacturers upon the removal of petroleum products by oil companies is
an indirect tax, or a tax which is primarily paid by persons who can shift the burden upon someone else.[25] The
CTA cited the cases of Philippine Acetylene Co., Inc. v. Commissioner of Internal Revenue,[26] Contex Corporation
v. Commissioner of Internal Revenue,[27] and Commissioner of Internal Revenue v. Philippine Long Distance
Telephone Company,[28] and explained that with indirect taxes, although the burden of an indirect tax can be
shifted or passed on to the purchaser of the goods, the liability for the indirect tax remains with the
manufacturer.[29] Moreover, the manufacturer has the option whether or not to shift the burden of the tax to
the purchaser. When shifted, the amount added by the manufacturer becomes a part of the price, therefore, the
purchaser does not really pay the tax per se but only the price of the commodity.[30]
Going by such logic, the CTA concluded that a refund of erroneously paid or illegally received tax can only be
made in favor of the taxpayer, pursuant to Section 204(C) of the NIRC.[31] As categorically ruled in the Cebu
Portland Cement[32] and Contex[33] cases, in the case of indirect taxes, it is the manufacturer of the goods who is
entitled to claim any refund thereof.[34] Therefore, it follows that the indirect taxes paid by the manufacturers
or producers of the goods cannot be refunded to the purchasers of the goods because the purchasers are not
the taxpayers.[35]
The CTA also emphasized that tax refunds are in the nature of tax exemptions and are, thus, regarded as in
derogation of sovereign authority and construed strictissimi juris against the person or entity claiming the
exemption.[36]
Finally, the CTA disregarded Exxons argument that in effectively holding that only petroleum products
purchased directly from the manufacturers or producers are exempt from excise taxes, the First Division of
[the CTA] sanctioned a universal amendment of existing bilateral agreements which the Philippines have with
other countries, in violation of the basic principle of pacta sunt servanda.[37] The CTA explained that the findings
of fact of the First Division (that when Exxon sold the Jet A-1 fuel to international carriers, it did so free of tax)
negated any violation of the exemption from excise tax of the petroleum products sold to international
carriers. Second, the right of international carriers to invoke the exemption granted under Section 135(a) of
the NIRC was neither affected nor restricted in any way by the ruling of the First Division. At the point of sale,
the international carriers were free to invoke the exemption from excise taxes of the petroleum products sold
to them. Lastly, the lawmaking body was presumed to have enacted a later law with the knowledge of all other
laws involving the same subject matter.[38]
THE ISSUES
Petitioner now raises the following issues in its petition for review:
Tax Review
I.
WHETHER THE ASSAILED DECISION AND RESOLUTION ERRONEOUSLY PROHIBITED
PETITIONER, AS THE DISTRIBUTOR AND VENDOR OF PETROLEUM PRODUCTS TO
INTERNATIONAL CARRIERS REGISTERED IN FOREIGN COUNTRIES WHICH HAVE
EXISTING BILATERAL AGREEMENTS WITH THE PHILIPPINES, FROM CLAIMING A
REFUND OF THE EXCISE TAXES PAID THEREON; AND
II.
WHETHER THE ASSAILED DECISIONS ERRED IN AFFIRMING THE DISMISSAL OF

PETITIONERS CLAIM FOR REFUND BASED ON RESPONDENTS MOTION TO RESOLVE
FIRST THE ISSUE OF WHETHER OR NOT THE PETITIONER IS THE PROPER PARTY THAT
MAY ASK FOR A REFUND, SINCE SAID MOTION IS ESSENTIALLY A MOTION TO DISMISS,
WHICH SHOULD HAVE BEEN DENIED OUTRIGHT BY THE COURT OF TAX APPEALS FOR
HAVING BEEN FILED OUT OF TIME.
RULING OF THE COURT
I. On respondents motion to resolve first the issue of whether or

not the petitioner is the proper party that may ask for a refund.
For a logical resolution of the issues, the court will tackle first the issue of whether or not the CTA erred
in granting respondents Motion to Resolve First the Issue of Whether or Not the Petitioner is the Proper Party
that may Ask for a Refund.[39]In said motion, the CIR prayed that the CTA First Division resolve ahead of the
other stipulated issues the sole issue of whether petitioner was the proper party to ask for a refund. [40]
Exxon opines that the CIRs motion is essentially a motion to dismiss filed out of time,[41] as it was
filed after petitioner began presenting evidence[42] more than a year after the filing of the Answer.[43] By
praying that Exxon be declared as not the proper party to ask for a refund, the CIR asked for the dismissal of
the petition, as the grant of the Motion to Resolve would bring trial to a close. [44]
Moreover, Exxon states that the motion should have also complied with the three-day notice and ten-
day hearing rules provided in Rule 15 of the Rules of Court. [45] Since the CIR failed to set its motion for any
hearing before the filing of the Answer, the motion should have been considered a mere scrap of paper. [46]
Finally, citing Maruhom v. Commission on Elections and Dimaporo,[47] Exxon argues that a defendant
who desires a preliminary hearing on special and affirmative defenses must file a motion to that effect at the
time of filing of his answer.[48]
The CIR, on the other hand, counters that it did not file a motion to dismiss.[49] Instead, the grounds for
dismissal of the case were pleaded as special and affirmative defenses in its Answer filed on December 15,
2003.[50] Therefore, the issue of whether or not petitioner is the proper party to claim for a tax refund of the
excise taxes allegedly passed on by Caltex and Petron was included as one of the issues in the Joint Stipulation
of Facts and Issues dated June 24, 2004 signed by petitioner and respondent.[51]
The CIR now argues that nothing in the Rules requires the preliminary hearing to be held before the
filing of an Answer.[52] However, a preliminary hearing cannot be held before the filing of the Answer precisely
because any ground raised as an affirmative defense is pleaded in the Answer itself.[53]
Further, the CIR contends that the case cited by petitioner, Maruhom v. Comelec,[54] does not apply
here. In the said case, a motion to dismiss was filed after the filing of the answer. [55] And, the said motion to
dismiss was
found to be a frivolous motion designed to prevent the early termination of the proceedings in the election case
Tax Review
therein.[56] Here, the Motion to Resolve was filed not to delay the disposition of the case, but rather, to expedite
proceedings.[57]
Rule 16, Section 6 of the 1997 Rules of Civil Procedure provides:
SEC. 6. Pleading grounds as affirmative defenses. - If no motion to dismiss has

been filed, any of the grounds for dismissal provided for in this Rule may be pleaded as an
affirmative defense in the answer, and in the discretion of the court, a preliminary hearing
may be had thereon as if a motion to dismiss had been filed.
The dismissal of the complaint under this section shall be without prejudice to the
prosecution in the same or separate action of a counterclaim pleaded in the answer.
(Underscoring supplied.)
This case is a clear cut application of the above provision. The CIR did not file a motion to dismiss. Thus,
he pleaded the grounds for dismissal as affirmative defenses in its Answer and thereafter prayed for the
conduct of a preliminary hearing to determine whether petitioner was the proper party to apply for the refund
of excise taxes paid.
The determination of this question was the keystone on which the entire case was leaning. If Exxon
was not the proper party to apply for the refund of excise taxes paid, then it would be useless to proceed with
the case. It would not make any sense to proceed to try a case when petitioner had no standing to pursue it.
In the case of California and Hawaiian Sugar Company v. Pioneer Insurance and Surety
Corporation,[58] the Court held that:
Considering that there was only one question, which may even be deemed to be the
very touchstone of the whole case, the trial court had no cogent reason to deny the Motion for
Preliminary Hearing. Indeed, it committed grave abuse of discretion when it denied a
preliminary hearing on a simple issue of fact that could have possibly settled the entire
case. Verily, where a preliminary hearing appears to suffice, there is no reason to go on to
trial. One reason why dockets of trial courts are clogged is the unreasonable refusal to use a
process or procedure, like a motion to dismiss, which is designed to abbreviate the resolution
of a case.[59] (Underscoring supplied.)
II. On whether petitioner, as the distributor and vendor of

petroleum products to international carriers registered in
foreign countries which have existing bilateral agreements with
the Philippines, can claim a refund of the excise taxes paid
thereon
This brings us now to the substantive issue of whether Exxon, as the distributor and vendor of petroleum
products to international carriers registered in foreign countries which have existing bilateral agreements with
the Philippines, is the proper party to claim a tax refund for the excise taxes paid by the manufacturers, Caltex
and Petron, and passed on to it as part of the purchase price.
Exxon argues that having paid the excise taxes on the petroleum products sold to international
carriers, it is a real party in interest consistent with the rules and jurisprudence.[60]
It reasons out that the subject of the exemption is neither the seller nor the buyer of the petroleum products,
but the products themselves, so long as they are sold to international carriers for use in international flight
operations, or to exempt entities covered by tax treaties, conventions and other international agreements for
their use or consumption, among other conditions.[61]
Tax Review
Thus, as the exemption granted under Section 135 attaches to the petroleum products and not to the seller, the
exemption will apply regardless of whether the same were sold by its manufacturer or its distributor for two
reasons.[62] First, Section 135 does not require that to be exempt from excise tax, the products should be sold by
the manufacturer or producer.[63] Second, the legislative intent was precisely to make Section 135 independent
from Sections 129 and 130 of the NIRC,[64] stemming from the fact that unlike other products subject to excise
tax, petroleum products of this nature have become subject to preferential tax treatment by virtue of either
specific international agreements or simply of international reciprocity.[65]
Respondent CIR, on the other hand, posits that Exxon is not the proper party to seek a refund of excise taxes
paid on the petroleum products.[66] In so arguing, the CIR states that excise taxes are indirect taxes, the liability
for payment of which falls on one person, but the burden of payment may be shifted to another. [67] Here, the
sellers of the petroleum products or Jet A-1 fuel subject to excise tax are Petron and Caltex, while Exxon was the
buyer to whom the burden of paying excise tax was shifted.[68] While the impact or burden of taxation falls on
Exxon, as the tax is shifted to it as part of the purchase price, the persons statutorily liable to pay the tax are
Petron and Caltex.[69] As Exxon is not the taxpayer primarily liable to pay, and not exempted from paying, excise
tax, it is not the proper party to claim for the refund of excise taxes paid.[70]
The excise tax, when passed on to the purchaser, becomes

part of the purchase price.
Excise taxes are imposed under Title VI of the NIRC. They apply to specific goods manufactured or produced in
the Philippines for domestic sale or consumption or for any other disposition, and to those that are
imported.[71] In effect, these taxes are imposed when two conditions concur: first, that the articles subject to tax
belong to any of the categories of goods enumerated in Title VI of the NIRC; and second, that said articles are for
domestic sale or consumption, excluding those that are actually exported.[72]
There are, however, certain exemptions to the coverage of excise taxes, such as petroleum products sold to
international carriers and exempt entities or agencies. Section 135 of the NIRC provides:
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 agreements for their use of 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. (Underscoring
supplied.)
Thus, under Section 135, petroleum products sold to international carriers of foreign registry on their use or
consumption outside the Philippines are exempt from excise tax, provided that the petroleum products sold to
such 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.[73]
The confusion here stems from the fact that excise taxes are of the nature of indirect taxes, the liability for
payment of which may fall on a person other than he who actually bears the burden of the tax.
Tax Review
In Commissioner of Internal Revenue v. Philippine Long Distance Telephone Company,[74] the Court discussed the
nature of indirect taxes as follows:
[I]ndirect taxes are those that are demanded, in the first instance, from, or are paid by, one
person to someone else. Stated elsewise, indirect taxes are taxes wherein the liability for the
payment of the tax falls on one person but the burden thereof can be shifted or passed on to
another person, such as when the tax is imposed upon goods before reaching the consumer
who ultimately pays for it. When the seller passes on the tax to his buyer, he, in effect, shifts
the tax burden, not the liability to pay it, to the purchaser, as part of the goods sold or services
rendered.
Accordingly, the party liable for the tax can shift the burden to another, as part of the purchase price of the goods
or services. Although the manufacturer/seller is the one who is statutorily liable for the tax, it is the buyer who
actually shoulders or bears the burden of the tax, albeit not in the nature of a tax, but part of the purchase price
or the cost of the goods or services sold.
As petitioner is not the statutory taxpayer, it is not entitled to

claim a refund of excise taxes paid.
The question we are faced with now is, if the party statutorily liable for the tax is different from the party who
bears the burden of such tax, who is entitled to claim a refund of the tax paid?
Sections 129 and 130 of the NIRC provide:
SEC. 129. Goods subject to Excise Taxes. - Excise taxes apply to goods
manufactured or produced in the Philippines for domestic sales or consumption or for any
other disposition and to things imported. The excise tax imposed herein shall be in addition
to the value-added tax imposed under Title IV.
For purposes of this Title, excise taxes herein imposed and based on weight or volume
capacity or any other physical unit of measurement shall be referred to as 'specific tax' and
an excise tax herein imposed and based on selling price or other specified value of the good
shall be referred to as 'ad valorem tax.'
SEC. 130. Filing of Return and Payment of Excise Tax on Domestic Products. -
(A) Persons Liable to File a Return, Filing of Return on Removal and Payment of
Tax. -
(1) Persons Liable to File a Return. - Every person liable to pay excise tax imposed
under this Title shall file a separate return for each place of production setting forth, among
others the description and quantity or volume of products to be removed, the applicable tax
base and the amount of tax due thereon: Provided, however, That in the case of indigenous
petroleum, natural gas or liquefied natural gas, the excise tax shall be paid by the first buyer,
purchaser or transferee for local sale, barter or transfer, while the excise tax on exported
products shall be paid by the owner, lessee, concessionaire or operator of the mining claim.
Should domestic products be removed from the place of production without the
payment of the tax, the owner or person having possession thereof shall be liable for the tax
due thereon.
(2) Time for Filing of Return and Payment of the Tax. - Unless otherwise
specifically allowed, the return shall be filed and the excise tax paid by the manufacturer or
producer before removal of domestic products from place of production:Provided, That the tax
excise on locally manufactured petroleum products and indigenous petroleum/levied under
Sections 148 and 151(A)(4), respectively, of this Title shall be paid within ten (10) days from
the date of removal of such products for the period from January 1, 1998 to June 30, 1998;
within five (5) days from the date of removal of such products for the period from July 1, 1998
to December 31, 1998; and, before removal from the place of production of such products
from January 1, 1999 and thereafter: Provided, further, That the excise tax on nonmetallic
mineral or mineral products, or quarry resources shall be due and payable upon removal of
such products from the locality where mined or extracted, but with respect to the excise tax
on locally produced or extracted metallic mineral or mineral products, the person liable shall
file a return and pay the tax within fifteen (15) days after the end of the calendar quarter
when such products were removed subject to such conditions as may be prescribed by rules
and regulations to be promulgated by the Secretary of Finance, upon recommendation of the
Tax Review
Commissioner. For this purpose, the taxpayer shall file a bond in an amount which
approximates the amount of excise tax due on the removals for the said quarter. The
foregoing rules notwithstanding, for imported mineral or mineral products, whether metallic
or nonmetallic, the excise tax due thereon shall be paid before their removal from customs
custody.
xxx
(Italics and underscoring supplied.)
As early as the 1960s, this Court has ruled that the proper party to question, or to seek a refund of, an indirect
tax, is the statutory taxpayer, or the person on whom the tax is imposed by law and who paid the same, even if
he shifts the burden thereof to another.[75]
In Philippine Acetylene Co., Inc. v. Commissioner of Internal Revenue,[76] the Court held that the sales tax is
imposed on the manufacturer or producer and not on the purchaser, except probably in a very remote and
inconsequential sense.[77]Discussing the passing on of the sales tax to the purchaser, the Court therein cited
Justice Oliver Wendell Holmes opinion in Lashs Products v. United States[78] wherein 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 sellers obligation, but that is all. x x x 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 x x x.[79]
Proceeding from this discussion, the Court went on to state:
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. x x x 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 sellers obligation, but that is all and the amount added because of the tax is paid
to get the goods and for nothing else.
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. Then it can no longer be contended that a
sales tax is a tax on the purchaser.[80]
The above case was cited in the later case of Cebu Portland Cement Company v. Collector (now Commissioner) of
Internal Revenue,[81] where the Court ruled that as the sales tax is imposed upon the manufacturer or producer
and not on the purchaser, it is petitioner and not its customers, who may ask for a refund of whatever amount
it is entitled for the percentage or sales taxes it paid before the amendment of section 246 of the Tax Code. [82]
The Philippine Acetylene case was also cited in the first Silkair (Singapore) Pte, Ltd. v. Commissioner of Internal
Revenue[83] case, where the Court held that the proper party to question, or to seek a refund of, an indirect tax
is the statutory taxpayer, the person on whom the tax is imposed by law and who paid the same even if he shifts
the burden thereof to another.[84]
In the Silkair cases,[85] petitioner Silkair (Singapore) Pte, Ltd. (Silkair), filed with the BIR a written application
for the refund of excise taxes it claimed to have paid on its purchase of jet fuel from Petron. As the BIR did not
act on the application, Silkair filed a Petition for Review before the CTA.
In both cases, the CIR argued that the excise tax on petroleum products is the direct liability of the
manufacturer/producer, and when added to the cost of the goods sold to the buyer, it is no longer a tax but part
of the price which the buyer has to pay to obtain the article.
In the first Silkair case, the Court ruled:
Tax Review
The proper party to question, or seek a refund of, an indirect tax is the statutory
taxpayer, the person on whom the tax is imposed by law and who paid the same even
if he shifts the burden thereof to another. Section 130 (A) (2) of the NIRC provides that
"[u]nless otherwise specifically allowed, the return shall be filed and the excise tax paid by
the manufacturer or producer before removal of domestic products from place of
production." Thus, Petron Corporation, not Silkair, is the statutory taxpayer which is entitled
to claim a refund based on Section 135 of the NIRC of 1997 and Article 4(2) of the Air
Transport Agreement between RP and Singapore.
Even if Petron Corporation passed on to Silkair the burden of the tax, the
additional amount billed to Silkair for jet fuel is not a tax but part of the price which
Silkair had to pay as a purchaser.[86] (Emphasis and underscoring supplied.)
Citing the above case, the second Silkair case was promulgated a few months after the first, and stated:
The issue presented is not novel. In a similar case involving the same parties, this Court has
categorically ruled that "the proper party to question, or seek a refund of an indirect tax is the
statutory taxpayer, the person on whom the tax is imposed by law and who paid the same
even if he shifts the burden thereof to another." The Court added that "even if Petron
Corporation passed on to Silkair the burden of the tax, the additional amount billed to Silkair
for jet fuel is not a tax but part of the price which Silkair had to pay as a purchaser."[87]
The CTA En Banc, thus, held that:
The determination of who is the taxpayer plays a pivotal role in claims for refund because the
same law provides that it is only the taxpayer who has the legal personality to ask for a refund
in case of erroneous payment of taxes. Section 204 (C) of the 1997 NIRC, [provides] in part,
as follows:
SEC. 204. Authority of the Commissioner to Compromise, Abate, and

Refund or Credit Taxes. The Commissioner may
xxx xxx xxx
(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 showing an overpayment shall be
considered as a written claim for credit or refund.
xxx xxx xxx
(Emphasis shown supplied by the CTA.)[88]
Therefore, as Exxon is not the party statutorily liable for payment of excise taxes under Section 130, in relation
to Section 129 of the NIRC, it is not the proper party to claim a refund of any taxes erroneously paid.
There is no unilateral amendment of existing bilateral

agreements of the Philippines with other countries.
Exxon also argues that in effectively holding that only petroleum products purchased directly from the
manufacturers or producers are exempt from excise taxes, the CTA En Banc sanctioned a unilateral amendment
of existing bilateral agreements which the Philippines has with other countries, in violation of the basic
international law principle of pacta sunt servanda.[89] The Court does not agree.
Tax Review
As correctly held by the CTA En Banc:
One final point, petitioners argument that in effectively holding that only petroleum products
purchased directly from the manufacturers or producers are exempt from excise taxes, the
First Division of this Court sanctioned a unilateral amendment of existing bilateral
agreements which the Philippines have (sic) with other countries, in violation of the basic
international principle of pacta sunt servanda is misplaced. First, the findings of fact of the
First Division of this Court that when petitioner sold the Jet A-1 fuel to international carriers,
it did so free of tax negates any violation of the exemption from excise tax of the petroleum
products sold to international carriers insofar as this case is concerned. Secondly, the right of
international carriers to invoke the exemption granted under Section 135 (a) of the 1997
NIRC has neither been affected nor restricted in any way by the ruling of the First Division of
this Court. At the point of sale, the international carriers are free to invoke the exemption
from excise taxes of the petroleum products sold to them. Lastly, the law-making body is
presumed to have enacted a later law with the knowledge of all other laws involving the same
subject matter.[90] (Underscoring supplied.)
WHEREFORE, the petition is DENIED.
SO ORDERED.
Tax Review
G.R. Nos. 164155 & 175543 February 25, 2013
FORT BONIFACIO DEVELOPMENT CORPORATION, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondents.
DECISION
ABAD, J.:
These cases are concerned with the imposition of an assessment for unpaid documentary stamp tax (DST)
allegedly due on the Government's sale of the military land in Fort Bonifacio to Fort Bonifacio Development
Corporation (FBDC), then a wholly-owned government corporation.
The Facts and the Case
In 1992 Congress enacted Republic Act (R.A.) 7227 creating the Bases Conversion Development Authority
(BCDA) for the purpose of raising funds through the sale to private investors of military camps located in
bustling Metro Manila. To do this, on Febmary 3, 1995 the BCDA established the FBDC for the purpose of
enabling it to develop a 440-hectare area in Fort Bonifacio, Taguig City, for mixed residential, commercial,
business, institutional, recreational, tourism, and other purposes. At the time of its incorporation, FBDC was a
wholly-owned subsidiary of BCDA.
As part of the scheme that would enable BCDA to raise funds through FBDC,1 on February 7, 1995 the
Republic of the Philippines transferred by land grant to FBDC, through Special Patent 3596, a 214-hectare
land in Fort Bonifacio. FBDC in turn executed a Promissory Note for ₱71.2 billion plus in favor of the Republic.
The Republic for its part assigned the promissory note to BCDA which assigned it back to FBDC as full and
complete payment of BCDA’s subscription to FBDC’s authorized capital stock.
Further, on February 8, 1995 the Republic executed a Deed of Absolute Sale with Quitclaim in favor of FBDC
covering the same 214-hectare land also for ₱71.2 billion. Based on this deed, on February 19, 1995 the
Register of Deeds issued Original Certificate of Title SP-001 in favor of FBDC, replacing Special Patent 3596.
On February 24, 1995, within the same month of the issuance of the Special Patent and the execution of the
deed of absolute sale, Congress enacted R.A. 7917, declaring exempt from all forms of taxes the proceeds of
the Government sale of the Fort Bonifacio land. Subsequently, fulfilling its task of raising funds for specified
government projects, BCDA sold at public bidding 55% of its shares in FBDC to private investors, retaining
ownership of the remaining 45%.
More than three years later or on September 15, 1998 respondent Commissioner of Internal Revenue issued a
Letter of Authority, providing for the examination of FBDC’s books and other accounting records covering all
its internal revenue liabilities for the 1995 taxable year, the year it came into being. On December 10, 1999
the Commissioner issued a Final Assessment Notice to FBDC for deficiency documentary stamp tax of
₱1,068,412,560.00 based on the Republic’s 1995 sale to it of the Fort Bonifacio land.
FBDC protested the assessment. On January 6, 2000 it wrote respondent Commissioner a letter, invoking R.A.
7917, which exempted the proceeds of the sale of the Fort Bonifacio land from all forms of taxes. When
respondent Commissioner failed to act on FBDC’s request for tax exemption despite the lapse of the 180-day
period,2 FBDC filed a petition for review3 before the Court of Tax Appeals (CTA) contesting the deficiency
assessment.
On March 5, 2003 the CTA rendered a decision denying FBDC’s petition and affirming the Commissioner’s
DST assessment. The CTA treated the Republic’s issuance of the Special Patent separate and distinct from the
Deed of Absolute Sale that it executed. The former, said the CTA, was tax exempt but the latter was not. Still,
the Commissioner filed a motion for partial reconsideration of the decision on the ground that the CTA failed
to impose a 25% surcharge and a 20% delinquency interest on top of the unpaid DST.
For its part, FBDC filed a petition for review4 of the CTA decision before the Court of Appeals (CA) alleging
that the CTA erred in affirming the imposition of the assessment. On August 14, 2003, while that petition for
review was pending, the CTA issued a resolution modifying its March 5, 2003 decision and imposed on FBDC
a 20% delinquency interest on the ₱1,068,412,560.00 DST, computed from January 26, 2000 until full
payment. From this resolution, FBDC filed a separate petition for review 5 before the CA questioning the
imposition of the 20% delinquency interest.
The CA first affirmed the March 5, 2003 CTA decision. Subsequently, it also affirmed the August 14, 2003 CTA
resolution. The CA held that FBDC was not exempt from the payment of DST in connection with the execution
of the deed of sale covering the Fort Bonifacio land. The CA, in the subsequent decision also held that the CTA
properly imposed the 20% delinquency interest. The CA decisions prompted FBDC to file these consolidated
petitions.
Tax Review
During the pendency of these petitions or on December 17, 2004 the FBDC filed a manifestation and motion
informing the Court that the disputed assessment had already been paid through a Special Allotment Release
Order issued by the Department of Budget and Management (DBM) to BCDA for ₱1,189,121,947.00. The
amount "covers the payment of documentary stamp taxes, transfer fees, 5% withholding tax and registration
fees relative to the sale of a portion of Fort Bonifacio," chargeable against the Military Camps Sale Proceeds
Fund.1âwphi1
Commenting on the manifestation, the Commissioner claimed that the payment was illegal since it breached
the scope of the tax exemption provided in Section 8 of R.A. 7917 and since BCDA paid the tax for the benefit
of FBDC, a private corporation.
The Issues Presented
These consolidated cases essentially present two issues:
1. Whether or not the CA erred in ruling that FBDC was liable for the payment of the DST and a 20%
delinquency interest on the Deed of Absolute Sale of the 214-hectare Fort Bonifacio land that the
Republic executed in FBDC’s favor; and
2. Whether or not the case is already moot and academic by the fact of payment of the DST
assessment by BCDA.
The Rulings of the Court
The CTA ruled that, while the Special Patent that the Republic issued to FBDC in consideration of ₱71.2 billion
plus was exempt from the payment of DST, the Deed of Absolute Sale that the Republic subsequently executed
in FBDC’s favor covering the same land is not.
Section 196 of the NIRC, as amended by Republic Act 7660, provides:
Sec. 196. Stamp tax on deeds of sale and conveyance of real property. – On all conveyances, deeds, instruments,
or writings, other than grants, patents, or original certificates of adjudication issued by the
Government, whereby any lands, tenements or other realty sold shall be granted, assigned, transferred, or
otherwise conveyed to the purchaser or purchasers, or to any other person or persons designated by such
purchaser or purchasers, there shall be collected a documentary stamp tax at the following rates: x x x.
(Emphasis supplied)
But the two documents—the Special Patent and the Deed of Absolute Sale—covered the Republic’s
conveyance to FBDC of the same Fort Bonifacio land for the same price that the FBDC paid but once. It is one
transaction, twice documented.
On February 7, 1995 the Republic through the President, issued Special Patent 3596 to FBDC pursuant to an
Act of Congress or R.A. 7227. That legislative act removed the public character of the Fort Bonifacio land and
allowed the President to cede ownership of the same to FBDC, then a wholly-owned government corporation
under the BCDA, for the price of ₱71.2 billion plus, covered by a negotiable promissory note. The Republic
could not just spend or use the money it received from the sale without authority from Congress. In this case,
the basis for appropriation is found also in R.A. 7227 which earmarked the proceeds of the sale of the Fort
Bonifacio land for use in capitalizing the BCDA. Section 6 of R.A. 7227 thus provides:
Section 6. Capitalization. – The Conversion Authority [BCDA] shall have an authorized capital of One hundred
billion pesos (₱100,000,000,000) which may be fully subscribed by the Republic of the Philippines and
shall either be paid up from the proceeds of the sales of its land assets as provided for in Section 8 of
this Act or by transferring to he Conversion Authority properties valued in such amount. (Emphasis
supplied)
At the time the sale subject of this case was entered into, FBDC was a wholly-owned subsidiary of the BCDA
pursuant to Section 166 of R.A. 7227. Notably, the Republic sold the Fort Bonifacio land to FBDC and the latter
paid for it with a promissory note. When the Republic in turn assigned that promissory note to BCDA, not
only did it comply with its obligation under the above provision to capitalize BCDA from the proceeds of the
sales of its land assets but it also enabled the latter to fully and completely pay for its subscription to FBDC’s
authorized capital stock. Consequently, to tax the proceeds of that sale would be to tax an appropriation made
by law, a power that the Commissioner of Internal Revenue does not have.
The Republic’s subsequent execution of a Deed of Absolute Sale cannot be regarded as a separate transaction
subject to the payment of DST. The Republic’s sale of the land to FBDC under the Special Patent was a
complete and valid sale that conveyed ownership of the land to the buyer.7 Notably, FBDC paid for the land
with a negotiable promissory note. Indeed, paragraph 4 of the Deed of Absolute Sale acknowledges the
absolute and irrevocable nature of the sale made under the special patent. Thus, the pertinent portion of
paragraph 4 states:
Tax Review
4. To implement the transfer and registration of the Subject Property in the name of the Buyer [FBDC], the
Seller [Republic] has issued or shall hereafter cause to be issued, a Special Patent which will absolutely
and irrevocably grant and convey the legal and beneficial title to the Subject Property to and in favor
of the Buyer. x x x. (Emphasis supplied)
Clearly, in acknowledging that the Republic "has issued x x x a Special Patent which will absolutely and
irrevocably grant and convey" the legal title over the land to FBDC, the Republic in effect admitted that the
Deed of Absolute Sale was only a formality, not a vehicle for conveying ownership, that it thought essential for
the issuance of an Original Certificate of Title (OCT) covering the land. The issuance of the OCT lent itself to
unrestricted commercial use that helped attain the law’s objective of raising through the BCDA and its
subsidiaries the funds needed for specified government projects.
DST is by nature, an excise tax since it is levied on the exercise by persons of privileges conferred by law.
These privileges may cover the creation, modification or termination of contractual relationships by
executing specific documents like deeds of sale, mortgages, pledges, trust and issuance of shares of
stock.8 The sale of Fort Bonifacio land was not a privilege but an obligation imposed by law which was to sell
lands in order to fulfill a public purpose. To charge DST on a transaction which was basically a compliance
with a legislative mandate would go against its very nature as an excise tax.1âwphi1
Besides, it is clear from Section 8 of R.A. 7227 that the capital of BCDA, which shall come from the sales
proceeds and/or transfers of certain Metro Manila military camps, was not intended to be diminished by the
payment of DST. Section 8 states:
SEC. 8. Funding Scheme. — The capital of the Conversion Authority shall come from the sales proceeds
and/or transfers of certain Metro Manila military camps, including all lands covered by Proclamation
No. 423, series of 1957, commonly known as Fort Bonifacio and Villamor (Nichols) Air Base, namely: x
xx
xxxx
The President is hereby authorized to sell the above lands, in whole or in part, which are hereby declared
alienable and disposable pursuant to the provisions of existing laws and regulations governing sales of
government properties: Provided, That no sale or disposition of such lands will be undertaken until a
development plan embodying projects for conversion shall be approved by the President in accordance with
paragraph (b), Section 4, of this Act. However, six (6) months after approval of this Act, the President
shall authorize the Conversion Authority to dispose of certain areas in Fort Bonifacio and Villamor as
the latter so determines. The Conversion Authority shall provide the President a report on any such
disposition or plan for disposition within one (1) month from such disposition or preparation of such
plan. The proceeds from any sale, after deducting all expenses related to the sale, of portions of Metro
Manila military camps as authorized under this Act, shall be used for the following purposes with
their corresponding percent shares of proceeds: x x x (Emphasis supplied)
Had FBDC paid the amount on February 8, 1995 when it was supposed to be due, such payment would have
resulted in diminishing the proceeds of the sale that the Republic received and turned over to BCDA to
capitalize it. The above-quoted provision of Section 8 clearly exempted the proceeds of the sale of the Fort
Bonifacio land from all forms of taxes, including DST.
As it developed, while this case was pending before this Court, the BCDA paid the DST assessment for the
benefit of FBDC through a government release of funds from the national treasury, chargeable against the
Military Camps Sale Proceeds Fund. Clearly, by allowing such payment, the government acknowledges that it
made the private investors who submitted bids to acquire 55% of the capital stock of FBDC believe that the
proceeds of the government's sale of the land that capitalized FBDC was exempt from all forms of taxes as the
law provides. Indeed, the government warranted under the Deed of Absolute Sale it executed in FBDC's favor
that "There are no x x x taxes due and owing on or in respect of the subject property or the transfer thereof in
favor of the buyer."
With the Court's above ruling, it would be useless to resolve the further issue of whether or not the case has
been rendered moot and academic by BCDA's payment of the DST assessment.
WHEREFORE, the Court GRANTS the consolidated petitions and REVERSES and SETS ASIDE the Decisions of
the Court of Appeals in CA-G.R. SP 76017 and CA-G.R. SP 79010 dated June 11, 2004 and November 27, 2006,
respectively, and DECLARES VOID Assessment STDST -95-0131-99 of respondent Commissioner of Internal
Revenue.
SO ORDERED.
Tax Review
FIRST DIVISION
G.R. No. 190021, October 22, 2014
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. BURMEISTER AND WAIN SCANDINAVIAN

CONTRACTOR MINDANAO, INC., Respondent.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are the Decision2 dated August 13, 2009 and the
Resolution3 dated October 22, 2009 of the Court of Tax Appeals (CTA) En Banc in C.T.A. EB No. 487 which
affirmed the Decision4 dated September 17, 2008 and the Resolution5 dated April 13, 2009 of the CTA First
Division in C.T.A. Case No. 6220 granting respondent Burmeister and Wain Scandinavian Contractor
Mindanao, Inc. (respondent) a refund of its unutilized input taxes attributable to zero-rated sales of services
for the fourth quarter of taxable year 1998.
The Facts
Respondent is a corporation duly organized and existing under the laws of the Philippines, and primarily
engaged in the business of constructing, erecting, assembling, commissioning, operating, maintaining,
rehabilitating, and managing industrial and power-generating plants and related facilities for the conversion
into electricity of coal distillate, and other fuels, provided by and under contract with the Philippine
Government, or any government-owned and controlled corporations, or other entities engaged in the
development, supply, or distribution of electricity.6 It is registered as a value-added tax (VAT) taxpayer.7
Respondent subcontracted from a consortium8 of non-resident foreign corporations the actual operation and
maintenance of two 100-megawatt power barges owned by the National Power Corporation, which services
are subject to zero percent (0%) VAT, pursuant to Bureau of Internal Revenue (BIR) Ruling No. 023-95 issued
on February 14, 1995, that was reconfirmed on January 7, 1999 in its VAT Review Committee Ruling No. 003-
99.9
On January 21, 1999, respondent filed its Quarterly VAT Return for the fourth quarter of taxable year 1998
indicating zero-rated sales of P68,761,361.50 and input VAT of PI,834,388.55 paid on its domestic purchases
of goods and services for the same period.10
On July 21, 1999, respondent filed an Application for Tax Credit/Refund of VAT Paid for the period July to
December 1998 in the amount of P4,154,969.51, which was not acted upon by herein petitioner, the
Commissioner of Internal Revenue (CIR).11
On January 9, 2001, respondent filed a petition for review before the CTA, praying for the refund or the
issuance of a tax credit certificate in the amount of PI,834,388.55 representing its alleged unutilized input
VAT payment for the fourth quarter of 1998. The petition was denied on January 29, 2003 due to insufficiency
of evidence. However, on appeal before the Court of Appeals (CA), docketed as CA-G.R. SP No. 79272, the case
was remanded to the CTA on April 19, 2005 for the reception of respondent's evidence consisting of VAT
invoices and receipts which had not been submitted earlier, but were already attached to its motion for
reconsideration of the denial of the CTA petition.12
The CTA First Division Ruling
On September 17, 2008, after due trial, the CTA First Division rendered a Decision13 in C.T.A. Case No. 6220
ordering the C1R to refund or issue a tax credit certificate in favor of respondent in the reducedamount of
P1,556,913.68 representing the latter's valid claim. It was determined that the administrative claim filed on
July 21, 1999 and the petition for review filed on January 9, 2001 fell within the two-year prescriptive period
reckoned from January 21, 1999, the date when respondent filed its Quarterly VAT Return for the fourth
quarter of taxable year 1998.14
The CIR moved for the reconsideration of the aforesaid CTA First Division Decision, but was denied in a
Resolution15 dated April 13, 2009.
Undaunted, the CIR elevated the case to the CTA En Banc on petition for review, docketed as C.T.A. EB No.
487, lamenting the alleged failure on the part of respondent to comply with the periods mandated under
Section 112 of Republic Act No. (RA) 8424,16 otherwise known as the Tax Reform Act of 1997. From the time
the administrative claim for refund was filed on July 21, 1999, the CIR had 120 days, or until November 18,
1999, to act on the application, failing in which, respondent may elevate the case before the CTA within
30 days from November 18, 1999, or until December 18, 1999. However, respondent filed its judicial
claim only on January 9, 2001.
The CTA En Banc Ruling
In a Decision17 dated August 13, 2009, the CTA En Banc dismissed the petition holding that the CIR could not
Tax Review
raise for the first time on appeal the issue of prescription in the filing of respondent's judicial claim for
refund, viz.:
It is worthy to note that the present case was remanded from the CA to the CTA ordering the latter to admit
and consider the VAT receipts and invoices attached to respondent's Motion for Reconsideration to
determine respondent's claim for refund. During the proceedings before the CA until this case was remanded
to the CTA, [CIR] never questioned the period within which the respondent's judicial claim for refund was
filed. When the CTA First Division partially granted respondent's judicial claim for refund, [the CIR]
immediately filed his Motion for Reconsideration to which he neither mentioned nor raised the issue of
prescription. More than eight years have lapsed before the [CIR] brought the issue of prescription and was
questioned only now at the CTA en banc level after an unfavorable judgment was issued against him.18
The CIR filed a motion for reconsideration but was likewise denied in a Resolution 19 dated October 22, 2009
for lack of merit, hence, the present petition.
The Issue Before the Court
The lone issue for the Court's resolution is whether or not the CIA En Banc correctly dismissed the petition for
review on the ground that the issue of prescription was belatedly raised.
The Court's Ruling
The petition is meritorious.
Section 112 of RA 8424,20 which was in force at the time of the filing of respondent's claim for credit or refund
of its creditable input tax, pertinently reads as follows:
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 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 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 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 one
hundred twenty-day period, appeal the decision or the unacted claim with the Court of Tax
Appeals.21 (Emphases supplied)
It should be recalled that the CTA First Division declared in its September 17, 2008 Decision that the
administrative claim filed on July 21, 1999 and the petition for review filed on January 9, 2001 fell within the
two-year prescriptive period reckoned from January 21, 1999, the date when respondent filed its Quarterly
VAT Return for the fourth quarter of taxable year 1998.22
The CIR argues, on the other hand, that the two-year period for filing both the administrative and judicial
claims should be reckoned from the close of the fourth taxable quarter when the relevant sales were made,
which fell on December 31, 1998. As such, respondent only had until December 31, 2000 to file both its
administrative and judicial claims.23 While it filed its administrative claim on July 21, 1999 within the two-
year prescriptive period, the same is not true with the petition for review that was filed with the CTA only on
January 9, 2001.24 To support its contention, the CIR cited the case of CIR v. Mir ant Pagbilao
Corp.25cralawred (Mirant).
To resolve the matter, the Court deems it fit to briefly discuss the doctrinal metamorphosis of the two-year
prescriptive period provided under Section 112 (A) as above-cited.
In the case of Atlas Consolidated Mining and Dev't. Corp. v. CIR 26 (Atlas), which was promulgated on June 8,
2007, the two-year prescriptive period stated in Section 112 (A)27 was counted from the date of payment of
the output VAT.28 At that time, the output VAT must be paid at the time of filing of the quarterly tax returns,
which meant within 20 days following the end of each quarter.29 However, on September 12, 2008,
the Atlas doctrine was abandoned in the case of Mirant which adopted the verba legis rule and counted the
two-year prescriptive period from the "close of the taxable quarter when the sales were made" as
expressly stated in the law,30 regardless when the input VAT was paid.31 In the recent case of CIR v. San Roque
Tax Review
Power Corporation32 (San Roque), promulgated on February 12, 2013, the Court clarified that (a)
the Atlas doctrine was effective only from its promulgation on June 8, 2007 until its abandonment on
September 12, 2008 in Mirant, and (b) prior to the Atlas doctrine, Section 112 (A) should be applied following
the verba legis rule adopted in Mirant.33
Thus, applying Section 112 (A) strictly as worded, it may then be concluded that the administrative claim filed
by respondent on July 21, 1999 was filed within the two-year prescriptive period reckoned from the close of
the fourth taxable quarter falling on December 31, 1998, the last day of filing being December 31, 2000.
In fact, whether the two-year prescriptive period is counted from the date of payment (January 21, 1999) of
the output VAT following Atlas, or from the close of the taxable quarter when the sales were made (December
31, 1998) pursuant to Mirant, the conclusion that the administrative claim was timely filed would equally
stand.
The CIR insists, however, that both the administrative and judicial claims should fall within the two-year
prescriptive period. This argument is untenable.
It should be pointed out that on October 6, 2010, the Court held in the case of CIR v. Aichi Forging Company of
Asia, Inc.34 (Aichi) that 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
CTA.35 The Court gave three (3) compelling reasons for this ruling in San Roque, namely:
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. x x x.
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 611 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.36(Emphases in the
original)
In fine, the taxpayer can file its administrative claim for refund or credit at any time within the two-year
prescriptive period. If it files its claim on the last day of said period, it is still filed on time. 37 The CIR will
have 120 days from such filing to decide the claim. If the CIR decides the claim on the 120th day, or does not
decide it on that day, the taxpayer still has 30 days to file its judicial claim with the CTA;38 otherwise, the
judicial claim would be, properly speaking, dismissed for being filed out of time and not, as the CTA En
Banc puts it, prescribed.
It bears emphasis that Section 112 (D)39 (now renumbered as Section 112[C]) of RA 8424, which is explicit on
the mandatory and jurisdictional nature of the 120+30-day period, was already effective on January 1,
1998.40 Hence, it is of no consequence that the Aichi and San Roque rulings were not yet in existence when
respondent's administrative claim was filed in 1999, so as to rid itself of the said section's mandatory and
jurisdictional application.
That being said, and notwithstanding the fact that respondent's administrative claim had been timely filed,
the Court is nonetheless constrained to deny the averred tax refund or credit, as its judicial claim therefor
was filed beyond the 120+30-day period, and, hence - as earlier stated - deemed to be filed out of time.
As the records would show, the CIR had 120 days from the filing of the administrative claim on July 21, 1999,
or until November 18, 1999, to decide on respondent's application. Since the CIR did not act at
all, respondent had until December 18, 1999, the last day of the 30-day period, to file its judicial
Tax Review
claim. However, respondent filed its petition for review with the CTA only on January 9, 2001 and, thus,
was one (1) year and 22 days late. As a consequence of the late filing of said petition, the CTA did not
properly acquire jurisdiction over the claim.41
In this relation, it is significant to point out that the CTA, being a court of special jurisdiction, can take
cognizance only of matters that are clearly within its jurisdiction. Section 7 of RA 1125, 42 as amended by RA
9282,43 specifically provides:
SEC. 7. Jurisdiction. � The CTA shall exercise:

(a) Exclusive appellate jurisdiction to review by appeal, as herein provided:
(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the
National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue;chanrobleslaw
(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the
National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the
National Internal Revenue Code provides a specific period of action, in which case the inaction shall
be deemed a denial;
x x x x (Emphasis supplied)
The inaction of the CIR on the claim during the 120-day period is, by express provision of law, "deemed a
denial" of such claim, and the failure of the taxpayer to file its judicial claim within 30 days from the
expiration of the 120-day period shall render the "deemed a denial" decision of the CIR 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.44 Thus,
respondent's failure to comply with the statutory conditions is fatal to its claim. This is so, notwithstanding
the fact that the CIR, for his part, failed to raise the issue of non-compliance with the mandatory periods at the
earliest opportunity.
In the case of Nippon Express (Philippines) Corporation v. CIR,45 the Court ruled that, because the 120+30-
day period is jurisdictional, the issue of whether the taxpayer complied with the said time frame may
be broached at any stage, even on appeal. Well-settled is the rule that the question of jurisdiction over
the subject matter can be raised at any time during the proceedings. Jurisdiction cannot be waived
because it is conferred by law and is not dependent on the consent or objection or the acts or omissions of the
parties or any one of them.46 Therefore, respondent's contention on this score is of no moment.
Indeed, it has been pronounced time and again that taxes are the lifeblood of the government and,
consequently, tax laws must be faithfully and strictly implemented as they are not intended to be liberally
construed.47 Hence, with this in mind and in light of the foregoing considerations, the Court so holds that the
CTA En Banc committed reversible error when it granted respondent's claim for refund or tax credit despite
its non-compliance with the mandatory periods under Section 112 (D) (now renumbered as Section 112[C])
of RA 8424. Accordingly, the claim for refund/tax credit must be denied.
WHEREFORE, the petition is GRANTED. The Decision dated August 13, 2009 and the Resolution dated
October 22, 2009 of the Court of Tax Appeals (CTA) En Banc in CTA. EB No. 487 are
hereby REVERSEDand SET ASIDE. Respondent Burmeister and Wain Scandinavian Contractor Mindanao,
Inc.'s judicial claim for refund or tax credit through its petition for review before the CTA is DENIED.
SO ORDERED.
Tax Review
G.R. No. 175188, July 15, 2015
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. LA TONDE�A DISTILLERS, INC. (LTDI [NOW

GINEBRA SAN MIGUEL], Respondent.
DECISION
DEL CASTILLO, J.:
The transfer of real property to a surviving corporation pursuant to a merger is not subject to Documentary
Stamp Tax (DST).1
This Petition for Review on Certiorari2 under Rule 45 of the Rules of Court assails the September 26, 2006
Decision3 and the October 31, 2006 Resolution4 of the Court of Tax Appeals (CTA) in C.T.A. EB No. 178.
Factual Antecedents
On September 17, 2001, respondent La Tondena Distillers, Inc. entered into a Plan of Merger 5 with Sugarland
Beverage Corporation (SBC), SMC Juice, Inc. (SMCJI), and Metro Bottled Water Corporation (MBWC). 6 As a
result of the merger, the assets and liabilities of the absorbed corporations were transferred to respondent,
the surviving corporation.7 Respondent later changed its corporate name to Ginebra San Miguel, Inc. (GSMI). 8
On September 26, 2001, respondent requested for a confirmation of the tax-free nature of the said merger
from the Bureau of Internal Revenue (BIR).9
On November 5, 2001, the BIR issued a ruling stating that pursuant to Section 40(C)(2) 10 and (6)(b)11of the
1997 National Internal Revenue Code (NIRC), no gain or loss shall be recognized by the absorbed
corporations as transferors of all assets and liabilities.12 However, the transfer of assets, such as real
properties, shall be subject to DST imposed under Section 196 13 of the NIRC.14
Consequently, on various dates from October 31, 2001 to November 15, 2001, respondent paid to the BIR the
following DST, to wit:
Property Locations Total Assets DST Payments
� � �
A. Metro Bottled Water Corp. � �
General Trias, Cavite P326,508,953.0015 P4,897,635.00
Mandaue City,Cebu 14,078,381.00 211,185.00
Pavia, Iloilo 10,644,861.00 159,675.00
B. Sugarland Beverage Corp.
Navotas, Metro Manila 171,790,790.00 2,576,865.00
Imus, Cavite 218,114,261.00 3,272,175.00
Pine Street, Mandaluyong 201,562,148.00 3,023,445.00
Totals P942,729,393.00 14,140,980.0016
On October 14, 2003, claiming that it is exempt from paying DST, respondent filed with petitioner
Commissioner of Internal Revenue (CIR) an administrative claim for tax refund or tax credit in the amount of
P14,140,980.00, representing the DST it allegedly erroneously paid on the occasion of the merger.17
On the same day, respondent filed with the CTA a Petition for Review, docketed as C.T.A. Case No. 6796 and
raffled to the Second (2nd) Division of the CTA.18
Ruling of the Court of Tax Appeals Division
On January 6, 2006, the 2nd Division19 of the CTA rendered a Decision19 finding respondent entitled to its
claim for tax refund or tax credit in the amount of P14,140,980.00, representing its erroneously paid DST for
the taxable year 2001.20 The 2nd Division of the CTA ruled that Section 196 of the NIRC does not apply because
there is no purchaser or buyer in the case of a merger.21 Citing Section 8022 of the Corporation Code of the
Philippines, the 2nd Division of the CTA explained that the assets of the absorbed corporations were not
bought or purchased by respondent but were transferred to and vested in respondent as an inherent legal
consequence of the merger, without any further act or deed.23 It also noted that any doubts as to the tax-free
Tax Review
nature of the merger had been already removed by the subsequent enactment of Republic Act No. (RA)
9243,24 which amended Section 19925 of the NIRC by specifically exempting from the payment of DST the
transfer of property pursuant to a merger.26
Aggrieved, petitioner moved for reconsideration but the 2 nd Division of the
CTA denied the same in a Resolution dated April 4, 2006.27
Unfazed, petitioner elevated the matter to the CTA En Banc via a Petition for Review, docketed as C.T.A. EB
No. 178.
Ruling of the Court of Tax Appeals En Banc
On September 26, 2006, the CTA En Banc rendered the assailed Decision, finding no reversible error on the
part of the 2nd Division of the CTA in granting respondent's claim for tax refund or tax credit. 28 The CTA En
Banc opined that Section 196 of the NIRC does not apply to a merger as the properties subject of a merger are
not sold, but are merely absorbed by the surviving corporation.29 In other words, the properties are
transferred by operation of law, without any further act or deed.30
Petitioner sought reconsideration of the assailed Decision.
On October 31, 2006, the CTA En Banc issued the assailed Resolution, denying petitioner's motion for
reconsideration.31
Issue
Hence, petitioner filed the instant Petition for Review on Certiorari raising the sole issue of whether the
CTA En Banc erred in ruling that respondent is exempt from payment of DST.32
Petitioner's Arguments
Petitioner posits that DST is levied on the exercise of the privilege to convey real property regardless of the
manner of conveyance.33 Thus, it is imposed on all conveyances of realty, including realty transfer during a
corporate merger.34 As to the subsequent enactment of RA 9243, petitioner claims that respondent cannot
benefit from it as laws apply prospectively.35
Respondent's Arguments
Respondent, on the other hand, contends that DST is imposed only on conveyances, deeds, instruments, or
writing, where realty sold shall be conveyed to a purchaser or buyer. 36 In this case, there is no purchaser or
buyer as a merger is neither a sale nor a liquidation of corporate property but a consolidation of properties,
powers, and facilities of the constituent companies.37
Our Ruling
The Petition must fail.
In Commissioner of Internal Revenue v. Pilipinas Shell Petroleum Corporation,38 the Supreme Court already
ruled that Section 196 of the NIRC does not include the transfer of real property from one corporation to
another pursuant to a merger. It explained that:
[W]e do not find merit in petitioner's contention that Section 196 covers all transfers and conveyances of real
property for a valuable consideration. A perusal of the subject provision would clearly show it pertains only
to sale transactions where real property is conveyed to a purchaser for a consideration. The phrase "granted,
assigned, transferred or otherwise conveyed" is qualified by the word "sold" which means that documentary
stamp tax under Section 196 is imposed on the transfer of realty by way of sale and does not apply to all
conveyances of real property. Indeed, as correctly noted by the respondent, the fact that Section 196 refers to
words "sold", "purchaser" and "consideration" undoubtedly leads to the conclusion that only sales of real
property are contemplated therein.
Thus, petitioner obviously erred when it relied on the phrase "granted, assigned, transferred or otherwise
conveyed" in claiming that all conveyances of real property regardless of the manner of transfer are subject to
documentary stamp tax under Section 196. It is not proper to construe the meaning of a statute on the basis
of one part. x x x
xxxx
It should be emphasized that in the instant case, the transfer of SPPC's real property to respondent was
pursuant to their approved plan of merger. In a merger of two existing corporations, one of the corporations
survives and continues the business, while the other is dissolved, and all its rights, properties, and liabilities
are acquired by the surviving corporation. Although there is a dissolution of the absorbed or merged
corporations, there is no winding up of their affairs or liquidation of their assets because the surviving
corporation automatically acquires all their rights, privileges, and powers, as well as their liabilities. Here,
SPPC ceased to have any legal personality and respondent PSPC stepped into everything that was SPPC's,
Tax Review
pursuant to the law and the terms of their Plan of Merger.
Pertinently, a merger of two corporations produces the following effects, among others:
Sec. 80. Effects of merger or consolidation. - x x x
xxxx
4. The surviving or the consolidated corporation shall thereupon and thereafter possess all the rights,
privileges, immunities and franchises of each of the constituent corporations; and all property, real or
personal, and all receivables due on whatever account, including subscriptions to shares and other
choses in action, and all and every other interest of, or belonging to, or due to each constituent
corporations, shall be taken and deemed to be transferred to and vested in such surviving or
consolidated corporation without further act or deed;
In a merger, the real properties are not deemed "sold" to the surviving corporation and the latter could not be
considered as "purchaser" of realty since the real properties subject of the merger were merely absorbed by
the surviving corporation by operation of law and these properties are deemed automatically transferred to
and vested in the surviving corporation without further act or deed. Therefore, the transfer of real properties
to the surviving corporation in pursuance of a merger is not subject to documentary stamp tax. As stated at
the outset, documentary stamp tax is imposed only on all conveyances, deeds, instruments or writing where
realty sold shall be conveyed to a purchaser or purchasers. The transfer of SPPC's real property to respondent
was neither a sale nor was it a conveyance of real property for a consideration contracted to be paid as
contemplated under Section 196 of the Tax Code. Hence, Section 196 of the Tax Code is inapplicable and
respondent is not liable for documentary stamp tax.39 (Emphasis in the original)
Following the doctrine of stare decisis, which dictates that when a court has reached a conclusion in one case,
it should be applied to those that follow if the facts are substantially the same, even though the parties may be
different,40 we find that respondent is not liable for DST as the transfer of real properties from the absorbed
corporations to respondent was pursuant to a merger. And having complied with the provisions of Sections
204(C)41 and 22942 of the NIRC, we agree with the CTA that respondent is entitled to a refund of the DST it
erroneously paid on various dates between October 31, 2001 to November 15, 2001 in the total amount of
P14,140,980.00.
Likewise without merit is petitioner's contention that respondent cannot claim exemption under RA 9243 as
this was enacted only in 2004 or after respondent's tax liability accrued. To be clear, respondent did not file
its claim for tax refund or tax credit based on the exemption found in RA 9243. Rather, it filed a claim for tax
refund or tax credit on the ground that Section 196 of the MRC does not include the transfer of real property
pursuant to a merger. In fact, the ratio decidendi (or reason for the decision) in Pilipinas Shell Petroleum
Corporation43 was based on Section 196 of the NIRC, in relation to Section 80 of the Corporation Code, not RA
9243. In that case, RA 9243 was mentioned only to emphasize that "the enactment of the said law now
removes any doubt and had made clear that the transfer of real properties as a consequence of merger or
consolidation is not subject to [DST]."44
All told, we find no error on the part of the CTA in granting respondent's claim for tax refund or tax credit in
the amount of P14,140,980.00, representing its erroneously paid DST for the taxable year 2001.
In closing, we must stress that taxes must not be imposed beyond what the law expressly and clearly declares
as tax laws must be construed strictly against the State and liberally in favor of the taxpayer.45
WHEREFORE, the Petition is hereby DENIED. The assailed September 26, 2006 Decision and the October 31,
2006 Resolution of the Court of Tax Appeals in C.T.A. EB No. 178 are hereby AFFIRMED.
SO ORDERED.
Tax Review
February 8, 2017
G.R. No. 201326
SITEL PHILIPPINES CORPORATION (FORMERLY CLIENTLOGIC PHILS., INC.), Petitioner

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent
DECISION
CAGUIOA, J.:
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 (CTA) En Banc in CTA EB No. 644, which denied Sitel' s claim for refund of unutilized input value-
added tax (VAT) for the first to fourth quarters of taxable year 2004 for being prematurely filed.
Facts
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:
Period Covered Date Filed

1st Quarter 2004 26 April 2004
2nd Quarter 2004 26 July 2004
3rd Quarter 2004 25 October 2004
4th Quarter 2004 25 January 20055
Sitel's Amended Quarterly VAT Returns for the first to fourth quarters of 2004 declared as follows:
Taxable Sales Zero-Rated Sales Total Sales Input Tax for the Input Tax from Input Tax from Input Tax Input Tax
(A) (B) (C=A+B) [Quarter] Capital Goods Regular Allocated to Allocated to Zero-
(D) (E) Transactions Taxable Rated Sales
(F+D-E) Sales [H=(B/C) x (F)]
[G=(A/C) x
(F)]
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
0 142,664,271.00 142,664,271.00 3,554,922.94 2,846,225.66 708,696.58 - 708,696.58
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
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
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 7,170,276.026
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
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
On March 30, 2006, Sitel filed a judicial claim for refund or tax credit via a petition for review before the CTA,
docketed as CTA Case No. 7423.
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:
Tax Review
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.
Tax Review
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 Revenue 27 (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.
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
The Court finds the petition partly meritorious.
Sitel's Judicial Claim/or VAT Refund

was deemed timely filed pursuant to
the Court's pronouncement in San
Roque.
Section 112(C) of the NIRC, as amended, provides:
SEC. 112. Refunds or Tax Credits of Input Tax. –
xxxx
(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 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.
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
Tax Review
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
Tax Review
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
Tax Review
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)
Tax Review
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.
Tax Review
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.

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Tax Review

1st Semester SY 2018-2019

G.R. No. 137002 July 27, 2006

BANK OF THE PHILIPPINE ISLANDS, petitioner,

WHEREFORE, premises considered, petitioner is hereby ordered to pay respondent Commissioner of

Art 568. The essential conditions of letters of credit shall be:

1. To be issued in favor of a definite person and not to order.

2. To be limited to a fixed and specified amount, or to one or more undetermined amounts,

A more explicit definition of a letter of credit can be found in the commentaries:

Panganiban, C.J., Ynares-Santiago, Austria-Martinez, Callejo, Sr., J.J., concur.

G.R. Nos. L-49839-46 April 26, 1991

JOSE B. L. REYES and EDMUNDO A. REYES, petitioners,

Barcelona, Perlas, Joven & Academia Law Offices for petitioners.

The facts of the case are as follows:

SO ORDERED. (Decision of the Board of Tax Assessment Appeals, Rollo, p. 22).

SO ORDERED. (Decision of the Central Board of Assessment Appeals, Rollo, p. 27)

The Reyeses assigned the following error:

The petition is impressed with merit.

G.R. No. 123206 March 22, 2000

COMMISSIONER OF INTERNAL REVENUE, petitioner,

Hence, the present appeal by the Commissioner of Internal Revenue.

xxx xxx xxx

xxx xxx xxx

xxx xxx xxx

xxx xxx xxx

Again, this contention must fail.

xxx xxx xxx

Melo, Vitug, Panganiban and Purisima, JJ., concur.

1 Entitled"Commissioner of Internal Revenue v. Josefina P. Pajonar, as Administratrix of the Estate of

5 The CTA made the following computations —

Estate of Pedro P. Pajonar

I. Real Properties P102,966.59

II. Personal Properties

b. Wall Clock, Esso Gasul.

c. Beddings, Stereo Cassette,

d. Karaoke, Electric Iron, Fan,

e. Toyota Tamaraw 27,500.00 61,190.00

Additional Personal Properties:

f. Time Deposit - PNB P200,000.00

g. Stocks and Bonds - PNB 201,232.37

h. Money Market 2,300,000.00

i. Cash Deposit 114,101.83 2,815,334.20

GROSS ESTATE P2,979,490.79

A a. Funeral expenses P50,000.00

b. Commission to Trustee (PNB) 18,335.93

B c. Notarial Fee for the Extrajudicial Settlement 60,753.00

d. Attorney's Fees in Special Proceeding No. 1254 for Guardianship 50,000.00

e. Filing Fees in Special Proceeding No. 2399 6,374.88

f. Publication of Notice to Creditors September 7, 14 and 21, 1988

g. Certification fee for publication on the Bulletin Board of the

h. Certification fee for Publication in the Capitol 5.00

i. Certification fee for publication of Notice to Creditors 5.00 186,075.81

NET ESTATE 2,793,414.98

Estate Tax Due P1,277,762.39

Less: Estate Tax Paid:

CB Confirmation Receipt Nos.

B 15517625 1,527,790.98 1,530,347.98

AMOUNT REFUNDABLE P252,585.59

6 Ibid., 78-79, 81-83.

(1) Expenses, losses, indebtedness, and taxes. — Such amounts —

(B) For judicial expenses of the testamentary or intestate proceedings;

xxx xxx xxx

12 Rollo, 78-79, 81-83.