KABALIKAT PARA SA

MAUNLAD NA BUHAY, INC.,

- versus -
COMMISSIONER OF INTERNAL REVENUE
G.R. No.217530-31

KABALIKAT PARA SA
MAUNLAD NA BUI-JAY , INC.,
Petitioner,
- versus -
COMMISSIONER OF INTERNAL REVENUE
G.R. Nos. 217536-37

COMMISSIONER OF INTERNAL REVENUE

- versus -
KABALIKAT PARA SA MAUNLAD NA BUHAY, INC.
G.R. No. 217802

February 10,2020

PERLAS-BERNABE, S.A.J.,

FACTS:
Kabalikat Para Sa Maunlad na Buhay Inc. is a non-stock, non-profit civic organization, and
through BIR Ruling No. S-30-071-2001, the Bureau of Internal Revenue (BIR) confirmed Kabalikat's status
as a civic organization, as well as its exemption from the payment of income tax.

In 2006, pursuant to Republic Act No. 8425 or the "Social Reform and Poverty Alleviation Act,"
Kabalikat amended its Articles of Incorporation to expressly provide micro-financing services to "small,
cottage-scale, micro-entrepreneurial poor and the disadvantaged such as farmers, fishermen, women,
tribal minorities, urban poor and other similar sectors.

Later on, unpaid taxes of Kabalikat for the taxable year 2006 were discovered that is why BIR,
through Regional Director Jaime B. Santiago, issued Preliminary Assessment Notices (PAN) against
Kabalikat.

As a reply, Kabalikat filed a Position Letter for the cancellation and withdrawal of the assessed
amounts and executed a Waiver of the Defense of Prescription Under the Statute of Limitations to
extend the assessment period for its 2006 unpaid taxes until December 31, 2010.

Likewise, the CIR, through its Regional Director, issued Final Assessment Notices (FAN) and a
Formal Letter of Demand (FLD)against Kabalikat for its unpaid taxes, inclusive of interest, surcharge, and
compromise penalty.
 December 22, 2010, Kabalikat then filed a Protest Letter to oppose the FAN/FLD (Administrative
Protest). However, the CIR failed to act on this protest. Thus, on September 15, 2011, Kabalikat filed a
Petition for Review (Judicial Protest) before the CTA, and assigned it to the CTA Second Division (CTA
Division).

The CTA Division Ruling:

The CTA Division cancelled and set aside the assessments issued against Kabalikat, because It
found that the Waiver was infirm; thus, it is void, and the tax authorities' right to assess has already
prescribed. The CTA Division also denied the parties' subsequent motions for reconsideration.
Both parties then appealed to the CTA En Banc via their respective petitions for review.

The CTA En Banc Ruling:

The CTA En Banc dismissed both petitions outright for being procedurally defective.
On the part of Kabalikat, it failed to aver in its petition a "concise and direct statement of
complete facts" and attach "either clearly legible duplicate originals or certified true copies" of the
issuances assailed.

On the other hand, the CIR failed to attach a Verification and Certification Against Forum
Shopping (Verification). And even it belatedly submitted verification (executed by Mr. Gerardo R.
Florendo) it did not cure the deficiency because the CIR did not show proof of Florendo's authority to
execute and sign the verification. Likewise, the CIR also failed to properly serve a copy of the petition
upon Kabalikat.

ISSUE:

Whether the CTA En Banc made a mistake when it denied outright the parties' respective petitions due
solely to formal and procedural infirmities.

RULING:

Yes the CTA En Banc committed mistake. The petitions are meritorious.

As a rule, procedural rules are designed to facilitate the adjudication of cases. Courts and
litigants alike are enjoined to abide strictly by the rules. However, it is not novel for courts to brush aside
technicalities in the interest of substantial justice. Notably, in Malixi v. Baltazar, the Court recounted the
long line of jurisprudence consistently supporting the relaxation of procedural rules if strict adherence
thereto would only frustrate rather than promote justice.

To warrant relaxation of the rules, the erring party must: (a) show reasonable cause justifying its
noncompliance with the rules, (b) convince the Court that the outright dismissal of the petition would
defeat the administration of substantive justice, and (c) offer proof of at least a reasonable attempt at
compliance therewith. "The desired leniency cannot be accorded absent valid and compelling reasons
for such a procedural lapse.
 In the present case, both parties offer reasons justifying their respective procedural flaws.

The outright dismissal of Kabalikat's petition was due to its failure to aver a "concise and direct
statement of complete facts" and attach "either clearly legible duplicate originals or certified true
copies" of the issuances assailed. However, they rectified these deficiencies through their subsequent
motion for reconsideration. On the other hand, the CIR's petition was dismissed because it failed to
attach the requisite verification. However, the CIR submitted a verification to supplant the previous
deficiency.

The present case involves taxes amounting to P91,234,747.55. The parties face significant
financial loss from the assessment's final adjudication. And if cancelled, the government stands to lose
revenues from taxation, its lifeblood. On the other hand, if upheld, the immensely onerous obligation of
settling the assessment shall loom over Kabalikat, a non-stock, non-profit civic organization generally
exempt therefrom. Certainly, an appeal is the proper forum to fully ventilate their cases. To abruptly put
an end to litigation solely based on technicalities amounts to serious injustice to the parties.

Court finds that the CTA En Banc erred when it refused to consider these as sufficient
rectification of the parties' respective mistakes. The circumstances in the present case warrant the
relaxation of procedural rules.

Thus, the court remanded this case to the CTA En Banc to proceed in hearing the parties'
appeals on the merits.
 Association of International Shipping Lines v. Sec. of Finance
G.R. No. 222239, January 15, 2020
SC First Division
Lazara-Javier, J.

FACTS:
July 1, 2005: Republic Act No. 9337 (RA 9337) was enacted amending Sections 27-28, 34, 106-119,
121, 148, 151, 236, 237 and 288 of the 1997 National Internal Revenue Code, as amended.
January 30, 2008: Commissioner of Internal Revenue (CIR) issued Revenue Memorandum Circular
No. 31-2008 (RMC 31-2008) seeking to clarify certain provisions of the NIRC regarding On-line international
sea carriers, Demurrage fees, Detention fees, the sale of goods, supplies, equipment, fuel and services
(including leases of property) to the common carrier to be used in its international sea transport operations,
and the commission income or fees received by the local shipping agents for outbound freights/fares
received by their foreign principals which are on-line international sea carriers
December 6, 2010: Petitioners Association of International Shipping Lines, Inc. and Maersk-Filipinas,
Inc. (Maersk) sought to nullify RMC No. 31-2008 via a petition for declaratory relief praying for the issuance
of a writ of preliminary injunction enjoining then CIR and her agents from implementing, enforcing or acting
pursuant to or on the basis of the challenged provisions of RMC 31-2008 and render judgment declaring
these challenged provisions void.
It alleged that RMC 31-2008 was void as it imposed regular tax rate of 30% and 12% VAT on the
demurrage and detention fees collected by international shipping carriers from shippers or consignees for
delay in the return of containers, on the domestic portion of services to persons engaged in international
shipping operations, and on commission income received by local shipping agents from international shipping
carriers or in connection with inbound shipments.
May 18, 2012: RTC declared as invalid the challenged provisions of RMC 31-2008 insofar as it
subjects demurrage and detention fees to the regular corporate income tax under Section 28(A)(1) and 12%
VAT.
March 7, 2013: RA 10378 was enacted amending Section 28 (A)(3)(a) of the NIRC which provides
that:
Being incidental to the trade or business of the international carrier, demurrage fees should
instead form part of the Gross Philippine Billings (GPB) subject to 2.5% tax under Section 28
(A)(1)(3b) of the NIRC and the same does not expressly impose 12% VAT on the domestic
portion of the services rendered by international carriers.
The Secretary of Finance, thereafter, issued the implementing rules under Revenue Regulation No.
15-2013 (RR 15-2013).
Petitioners then initiated a petition for declaratory relief challenging Section 4.4 of RR 15-2013
(implementing rules of RA 10378) and impleading both the Secretary of Finance and CIR.
 Section 4.4) Taxability   of   Income   Other   Than   Income   from International Transport
Services. —All items of income derived by international carriers that do not form part of
Gross Philippine Billings as defined under these Regulations shall be subject to tax under the
pertinent provisions of the NIRC, as amended.
 
Demurrage fees, which are in the nature of rent for the use of property of the carrier in the
Philippines, is considered income from Philippine source and is subject to income tax under
the regular rate as the other types of income of the on-line carrier.

Detention fees and other charges relating to outbound cargoes and inbound cargoes are all
considered Philippine-sourced income of international sea carriers they being collected for
the use of property or rendition of services in the Philippines, and are subject to the
Philippine income tax under the regular rate.
ISSUE:
Is RR 15-2013 a valid rule?

RULING:
Yes.
RR 15-2013 is a valid interpretative and internal issuance for the guidance of all internal revenue officers
and others concerned.  It merely sums up the rules by which international carriers may avail of preferential
rates or exemption from income tax on their gross revenues derived from the carriage of persons and their
excess baggage based on the principle of reciprocity or an applicable tax treaty or international agreement to
which the Philippines is a signatory.  As such it need not pass through a public hearing or consultation, get
published nor registered with UP Law Center for its effectivity. 
In treating demurrage and detention fees as regular income subject to regular income tax rate, the
Secretary of Finance relied on Section 23(A) of NIRC, as amended by RA 10378, which is still in effect since not
amended by Tax Reform for Acceleration and Inclusion (TRAIN) law.
Under RR 15-2013, demurrage and detention fees are not deemed within the scope of GPB.  GPB
covers gross revenue derived from transportation of passengers, cargo and/or mail originating from the
Philippines up to the final destination.  Any other income, therefore, is subject to the regular income tax
rate.  When the law is clear, there is no other recourse but to apply it regardless of its perceived harshness. 
Dura lex sed lex.
Demurrage fee is rent payment for a vessel, while detention fee is fee paid for the use of container.
Demurrage and detention fees fall within the definition of “gross income” - acquired in the normal
course of trade or business .
Exclusion of demurrage and detention fees from the preferential rate of 2.5% is proper since they
are not considered income derived from transportation of persons, goods and/or mail, in accordance with
the rul e expressio unios est exclusion alterius.
Lessons Applicable: Res judiciata, Petition for Declaratory Relief, Income tax and VAT on demurrage and
detention fees, Interpretative and internal rule

Laws Applicable: CA 55, RA 9337, RMC 31-2008