#19 Hon. Exec. Sec V. Southwing Heavy Industries, et al., GR No.

164171

FACTS:

President Gloria Macapagal-Arroyo, issued EO 156, entitled "Providing for a comprehensive

industrial policy and directions for the motor vehicle development program and its implementing
guidelines”.

However the EO was challenged by herein respondent entities ,who or whose members, are
classified as Subic Bay Freeport Enterprises and engaged in the business of, among others, importing
and/or trading used motor vehicles.

They questioned Article 2, Section 3.1 of the said law which provides that: The importation into
the country, inclusive of the Freeport, of all types of used motor vehicles is prohibited.

Southwing, United Auctioneers and Microvan prayed to allow the unimpeded entry and
importation of used motor vehicles subject only to the payment of the required customs duties.

Petitioners however argue that respondents will not be affected by the importation ban considering that
their certificate of registration and tax exemption do not authorize them to engage in the importation
and/or trading of used cars.

ISSUE:

Whether the prohibition of entry of used motor vehicles in the Freeport is valid?

RULING:

Delegation of legislative powers to the President is permitted in Section 28(2) of Article VI of the
Constitution. It provides:

(2) The Congress may, by law, authorize the President to fix within specified limits, and subject to such
limitations and restrictions as it may impose, tariff rates, import and export quotas, tonnage and
wharfage dues, and other duties or imposts within the framework of the national development program
of the Government.

However, RA 7227 specifically defines the territory comprising the Subic Bay Freeport, referred to
as the Special Economic and Freeport Zone as "a separate customs territory”.

Among the salient provisions of RA 7227 are as follows:

(a) Within the framework and subject to the mandate and limitations of the Constitution and the
pertinent provisions of the Local Government Code, the Subic Special Economic Zone shall be developed
into a self-sustaining, industrial, commercial, financial and investment center to generate employment
opportunities in and around the zone and to attract and promote productive foreign investments;

(b) The Subic Special Economic Zone shall be operated and managed as a separate customs
territory ensuring free flow or movement of goods and capital within, into and exported out of the
Subic Special Economic Zone, as well as provide incentives such as tax and duty-free importations of
raw materials, capital and equipment. However, exportation or removal of goods from the territory of
the Subic Special Economic Zone to the other parts of the Philippine territory shall be subject to customs
duties and taxes under the Customs and Tariff Code and other relevant tax laws of the Philippines;

The Freeport was designed to ensure free flow or movement of goods and capital within a portion
of the Philippine territory in order to attract investors to invest their capital in a business climate with
the least governmental intervention.

Though in issuing EO 156, the President envisioned to rationalize the importation of used motor
vehicles and to enhance the capabilities of the Philippine motor manufacturing firms to be globally
competitive producers of completely build-up units and their parts and components for the local and
export markets. Petitioners alleged that there has been a decline in the sales of new vehicles and a
remarkable growth of the sales of imported used motor vehicles. To address the same, the President
issued the questioned EO to prevent further erosion of the already depressed market base of the local
motor vehicle industry and to curtail the harmful effects of the increase in the importation of used motor
vehicles.

The subject matter of the laws authorizing the President to regulate or forbid importation of used
motor vehicles, is the domestic industry. EO 156, however, exceeded the scope of its application by
extending the prohibition on the importation of used cars to the Freeport, which RA 7227, considers to
some extent, a foreign territory. The domestic industry which the EO seeks to protect is actually the
"customs territory" which is defined under the Rules and Regulations Implementing RA 7227, as follows:

"the portion of the Philippines outside the Subic Bay Freeport where the Tariff and Customs Code of
the Philippines and other national tariff and customs laws are in force and effect."

The proscription in the importation of used motor vehicles should be operative only outside the
Freeport and the inclusion of said zone within the ambit of the prohibition is an invalid modification of
RA 7227. Indeed, when the application of an administrative issuance modifies existing laws or exceeds
the intended scope, as in the instant case, the issuance becomes void, not only for being ultra vires, but
also for being unreasonable.

Said provision is declared VALID insofar as it applies to the Philippine territory outside the
presently fenced-in former Subic Naval Base area and VOID with respect to its application to the secured
fenced-in former Subic Naval Base area.
#54 ABAKADA Guro Party List v. Purisima, G.R. No. 166715, 14 August 2008

FACTS:

RA 9335 (Lateral Attrition Law) was enacted to optimize the revenue-generation capability and
collection of the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC). The law intends to
encourage BIR and BOC officials and employees to exceed their revenue targets by providing a system of
rewards and sanctions through the creation of a Rewards and Incentives Fund (Fund) and a Revenue
Performance Evaluation Board (Board).It covers all officials and employees of the BIR and the BOC with at
least six months of service, regardless of employment status.

Petitioners, invoking their right as taxpayers filed this petition challenging the constitutionality of
RA 9335, a tax reform legislation. They contend that, by establishing a system of rewards and incentives,
the law "transform[s] the officials and employees of the BIR and the BOC into mercenaries and bounty
hunters" as they will do their best only in consideration of such rewards. Thus, the system of rewards
and incentives invites corruption and undermines the constitutionally mandated duty of these officials
and employees to serve the people with utmost responsibility, integrity, loyalty and efficiency.

Petitioners also claim that limiting the scope of the system of rewards and incentives only to
officials and employees of the BIR and the BOC violates the constitutional guarantee of equal protection.
There is no valid basis for classification or distinction as to why such a system should not apply to
officials and employees of all other government agencies.

ISSUE: Whether RA 9335 violates equal protection clause?

RULING:

All that is required of a valid classification is that it be reasonable, which means that the
classification should be based on substantial distinctions which make for real differences,
that it must be germane to the purpose of the law; that it must not be limited to existing
conditions only; and that it must apply equally to each member of the class. This Court has
held that the standard is satisfied if the classification or distinction is based on a reasonable
foundation or rational basis and is not palpably arbitrary.

The equal protection clause recognizes a valid classification, that is, a classification that has a
reasonable foundation or rational basis and not arbitrary. With respect to RA 9335, its expressed public
policy is the optimization of the revenue-generation capability and collection of the BIR and the
BOC. Since the subject of the law is the revenue- generation capability and collection of the BIR and the
BOC, the incentives and/or sanctions provided in the law should logically pertain to the said agencies.
Moreover, the law concerns only the BIR and the BOC because they have the common distinct primary
function of generating revenues for the national government through the collection of taxes, customs
duties, fees and charges.

Both the BIR and the BOC are bureaus under the DOF. They principally perform the special
function of being the instrumentalities through which the State exercises one of its great inherent
functions – taxation. Indubitably, such substantial distinction is germane and intimately related to the
purpose of the law. Hence, the classification and treatment accorded to the BIR and the BOC under RA
9335 fully satisfy the demands of equal protection.
#89 Panay Electric Co. v. Collector of Internal Revenue, L- 10574, May 28, 1958

FACTS:

Petitioner Panay Electric Co., Inc. is appealing the decision of the Court of Tax Appeals, denying to refund
the amount of P85, 355.72, balance of P135, 872.67, representing overpayment of franchise taxes from
January 19, 1947 to January 18, 1952.

Petitioner is a grantee of a legislative franchise under Act No. 2983, as amended by Act No. 3665, to install,
operate, and maintain an electric light, heat and power system in certain municipalities of Iloilo, for a period
of fifty years from the approval of its franchise on January 22, 1921. Under the franchise, it was required to
pay a franchise tax equal to 1 1/2 per cent of its gross earnings, during the first twenty years, and 2 per cent
during the remaining thirty years.

Upon the promulgation of Republic Act No. 39, amending Section 259 of the National Internal Revenue
Code, respondent Collector of Internal Revenue required petitioner to pay a franchise tax of 5 per cent instead
of 2 per cent of its gross earnings. Petitioner then paid the franchise tax of 5 per cent, beginning January 19,
1947 and up to January 18, 1952, in the total sum of P135, 872.67.

The last payment made by petitioner at the rate of 5 per cent was on January 18, 1952. On July 22, 1952,
respondent Collector wrote to petitioner, informing it of his stand on the question of refund, to the effect
that the first claim for refund filed by it was made only in its letter of April 18, 1952, and that refund may
be effected only of the overpayment made two years prior to said demand, that is to say, from April 18, 1950.

The respondent admitted that there had been overpayment, but contended that it could allow a refund
of overpayment made for a period of only two years prior to April 18, 1952, when petitioner filed a
formal demand for refund, based on Section 306 of the Revenue Code, which states that: :chanrobles.com.ph

"SEC. 306. Recovery of tax erroneously or illegally collected. — No suit or proceeding shall be maintained in
any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or
illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any
sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit
has been duly filed with the Collector of Internal Revenue; but such suit or proceeding may be maintained,
whether or not such tax, penalty, or sum has been paid under protest or duress. In any case, no such suit or
proceeding shall be begun after the expiration of two years from the date of payment of the tax or penalty."

Petitioner’s contention was that the Franchise tax stipulated and payable under its franchise is not an
internal revenue tax and, therefore, Section 306 of the Tax Code, providing for refund of overpayment for a
period of only two years, is not applicable to it; that the legislative franchise constituted a contract between
itself and the Government; that the rate of franchise tax payable under it is part of said contract and the
collection of any amount in excess of said rate fixed in the contract is a violation of the contract itself; and
that under said view, petitioner may avail itself of the regular ten year period of prescription within which
to bring an action for redress.

ISSUE: Whether or not the tax payable by plaintiff under its franchise is an internal revenue tax?

RULING:
A tax is a forced charge, imposition or contribution; it operates in invitum, and is in no way dependent
upon the will or contractual assent, express or implied, of the person taxed.

Franchise tax is in consideration of the granting of the franchise, and it operates because a person taxed
assents expressly or impliedly. It is, in one word, a contractual assent.

From Section 259 of the Revenue Code ‘franchise tax’ refers not only to the tax imposed in the said
section but also to the ‘taxes, charges, and percentages’ prescribed in the special charters under which
holders of franchises operate. In fact, the collection of franchise taxes and the penalty for delinquency are
governed by Section 259, in so far as the provisions thereof are not inconsistent with the special charters.
And Section 18 of the Revenue Code, clearly classifies franchise taxes as national internal revenue taxes.
Further, Section 359 of the Revenue Code provides for the disposition of franchise taxes as other national
internal revenue taxes. Therefore no doubt that the franchise taxes prescribed in Act No. 2983, as amended
by Act No. 3665, under which plaintiff operates, is a national internal revenue tax, and the provisions of
law governing refunds of national internal revenue taxes are applicable to refunds of the franchise tax here
in question.

From a reading of Section 306 of the Tax Code, it is also equally clear that aside from the requirement
that before a suit or proceeding could be maintained in any court for the recovery of any tax said to have
been erroneously or illegally assessed or collected, a claim for refund of said overpayment or illegal
collection should first be made, the taxpayer is entitled to refund only if he brought the action within two
years from the date of the payment. In other words, all overpayment or illegal collection made beyond
the said two year period may not be refunded.

Of course, petitioner is to blame in part for supposedly sleeping on its rights and in not filing the claim
for refund and the suit to enforce said refund earlier. The court do not advocate the refund of the entire
overpayment of P135,872.67, but on moral and equitable grounds, they believe that the petitioner is
entitled to the refund of P64,607.07, basing on the two year period, beginning from the day the claim for
refund was made on April 18, 1952.
#124 CIR v. Filinvest, G.R. No. 163653, 19 July 2011

FACTS:
#159 CIR v. Sony Phils. Inc., 635 SCRA 234

FACTS:

On November 24, 1998, the CIR issued letter of Authority No. 19734 authorizing certain revenue
officers to examine Sony’s books of accounts and other accounting records regarding revenue taxes for “the
period 1997 and unverified prior years.”
After the examination of said books, the CIR found out, among others that Sony Philippines is liable
for deficiency taxes and penalties for value added tax amounting to P11, 141, 014. 41.
Sony Philippines contested such finding as it argued that the basis used by the CIR to assess said
deficiency were the records covering the period of January 1998 through March 1998 which was a period
not covered by the Letter of Authority so issued. The CIR counted that the LOA phrase “the period 1997
and unverified prior years” should be understood to mean the fiscal year ending on March 31, 1998.
Eventually the case reached the Court of Tax Appeals and agreed with the Sony Philippines.

ISSUE:
Whether or not the deficiency assessments against Sony Philippines is valid?

RULING:
No. The LOA issued is clear on which period is covered by the examination to be conducted. It’s only
meant to cover year “1997 and unverified prior years” not the year 1998. The revenue officers who examined
the records covering the period of January to March 1998 had exceeded the jurisdiction granted to them by
the LOA.
Further, the LOA which covered “1997 and unverified prior years’ is in violation of the principle that
LOA should cover a taxable period not exceeding one taxable year. If the audit of a taxpayer shall include
more than one taxable period, the other period of years shall be specifically indicated in the LOA (as
embodied in Section C of Revenue Memorandum Order No. 49-90 dated September 20, 1990).
#194 Belle Corporation vs. CIR, GR No. 181298, 10 January 2011

FACTS:

On May 30, 1997, Belle filed with the Bureau of Internal Revenue (BIR) its Income Tax Return (ITR)
for the first quarter of 1997, showing a gross income of P741, 607,495.00, a deduction of P65,381,054.00,
a net taxable income of P676,226,441.00 and an income tax due of P236,679,254.00, which Belle paid on
even date through PCI Bank, Tektite Tower Branch, an Authorized Agent Bank of the BIR.
On August 14, 1997, Belle filed with the BIR its second quarter ITR, declaring an overpayment of
income taxes in the amount of P66, 634,290.00. In view of the overpayment, no taxes were paid for the
second and third quarters of 1997. Belle’s ITR for the taxable year ending December 31,1997 thereby
reflected an overpayment of income taxes in the amount of P132,043,528.00.
Instead of claiming the amount as a tax refund, Belle decided to apply it as a tax credit to the
succeeding taxable year by marking the tax credit option box in its 1997 ITR.
For the taxable year 1998, Belle’s amended ITR showed an overpayment of P106,447,318.00. On
April 12, 2000, Belle filed with the BIR an administrative claim for refund of its unutilized excess income
tax payments for the taxable year 1997 in the amount of P106,447,318.00.
Notwithstanding the filing of the administrative claim for refund, Belle carried over
the amount of P106,447,318.00 to the taxable year 1999 and applied a portion thereof to its 1999
Minimum Corporate Income Tax (MCIT) liability. Now, Belle appealed its claim for refund of unutilized
excess income tax payments for the taxable year 1997 in the amount of P106,447,318.00.

ISSUE:
Whether Belle is entitled to a refund of its excess income tax payments for the taxable year 1997
in the amount of P106, 447,318.00?

RULING:

Section 69 of the old National Internal Revenue Code (NIRC) allows unutilized tax credits to be
refunded as long as the claim is filed within the prescriptive period. This, however, no longer holds true
under Section 76 of the 1997 NIRC as the option to carry-over excess income tax payments to the
succeeding taxable year is now irrevocable.

The option to carry over excess income tax payments is irrevocable under Section 76 of the 1997
NIRC. This rule, however, no longer applies as Section 76 of the 1997 NIRC now reads:
Section 76. Final Adjustment Return. –Every corporation liable to tax under Section 24 shall file a
final adjustment return covering the total net income for the preceding calendar or fiscal year.
If the sum of the quarterly tax payments made during the said taxable year is not equal to the
total tax due on the entire taxable net income of that year the corporation shall either:
(a) Pay the excess tax still due; or
(b) Be refunded the excess amount paid, as the case may be.

In case the corporation is entitled to a refund of the excess estimated quarterly income taxes paid,
the refundable amount shown on its final adjustment return may be credited against the estimated
quarterly income tax liabilities for the taxable quarters of the succeeding taxable years.
Once the option to carry over and apply the excess quarterly income tax against income tax due
for the taxable quarters of the succeeding taxable years has been made, such option shall be considered
irrevocable for that taxable period and no application for tax refund or issuance of a tax credit certificate
shall be allowed therefor.

Under the new law, in case of overpayment of income taxes, the remedies are still the same; and
the availment of one remedy still precludes the other. But unlike Section 69 of the old NIRC, the carry-
over of excess income tax payments is no longer limited to the succeeding taxable year. Unutilized excess
income tax payments may now be carried over to the succeeding taxable years until fully utilized. In
addition, the option to carry-over excess income tax payments is now irrevocable. Hence, unutilized
excess income tax payments may no longer be refunded.