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COURT OF TAX APPEALS and FORTUNE TOBACCO CORPORATION,respondents. VITUG, J.:p The Commissioner of Internal Revenue ("CIR") disputes the decision, dated 31 March 1995, of respondent Court of 1 Appeals affirming the 10th August 1994 decision and the 11th October 1994 resolution of the Court of Tax 2 Appeals ("CTA") in C.T.A. Case No. 5015, entitled "Fortune Tobacco Corporation vs. Liwayway Vinzons-Chato in her capacity as Commissioner of Internal Revenue." The facts, by and large, are not in dispute. Fortune Tobacco Corporation ("Fortune Tobacco") is engaged in the manufacture of different brands of cigarettes. On various dates, the Philippine Patent Office issued to the corporation separate certificates of trademark registration over "Champion," "Hope," and "More" cigarettes. In a letter, dated 06 January 1987, of then Commissioner of Internal Revenue Bienvenido A. Tan, Jr., to Deputy Minister Ramon Diaz of the Presidential Commission on Good Government, "the initial position of the Commission was to classify 'Champion,' 'Hope,' and 'More' as foreign brands since they were listed in the World Tobacco Directory as belonging to foreign companies. However, Fortune Tobacco changed the names of 'Hope' to 'Hope Luxury' and 'More' to 'Premium More,' thereby removing the said brands from the foreign brand category. Proof was also submitted to the Bureau (of Internal Revenue ['BIR']) that 'Champion' was an original Fortune Tobacco Corporation register and therefore a local 3 4 brand." Ad Valorem taxes were imposed on these brands, at the following rates:
BRAND AD VALOREM TAX RATE E.O. 22 and E.O. 273 RA 6956 06-23-86 07-25-87 06-18-90 07-01-86 01-01-88 07-05-90 Hope Luxury M. 100's Sec. 142, (c), (2) 40% 45% ; Hope Luxury M. King Sec. 142, (c), (2) 40% 45% More Premium M. 100's Sec. 142, (c), (2) 40% 45%; More Premium International Sec. 142, (c), (2) 40% 45% Champion Int'l. M. 100's Sec. 142, (c), (2) 40% 45%; Champion M. 100's Sec. 142, (c), (2) 40% 45% Champion M. King Sec. 142, (c), last par. 15% 20%; Champion Lights Sec. 142, (c), last par. 15% 20% 5
(2) On other locally manufactured cigarettes, forty-five percent (45%) provided that the minimum tax shall not be less than Three Pesos (P3.00) per pack. xxx xxx xxx When the registered manufacturer's wholesale price or the actual manufacturer's wholesale price whichever is higher of existing brands of cigarettes, including the amounts intended to cover the taxes, of cigarettes packed in twenties does not exceed Four Pesos and eighty 7 centavos (P4.80) per pack, the rate shall be twenty percent (20%). (Emphasis supplied) About a month after the enactment and two (2) days before the effectivity of RA 7654, Revenue Memorandum Circular No. 37-93 ("RMC 37-93"), was issued by the BIR the full text of which expressed: REPUBLIKA NG PILIPINAS KAGAWARAN NG PANANALAPI KAWANIHAN NG RENTAS INTERNAS July 1, 1993 REVENUE MEMORANDUM CIRCULAR NO. 37-93 SUBJECT: Reclassification of Cigarettes Subject to Excise Tax TO: All Internal Revenue Officers and Others Concerned. In view of the issues raised on whether "HOPE," "MORE" and "CHAMPION" cigarettes which are locally manufactured are appropriately considered as locally manufactured cigarettes bearing a foreign brand, this Office is compelled to review the previous rulings on the matter. Section 142 (c)(1) National Internal Revenue Code, as amended by R.A. No. 6956, provides: On locally manufactured cigarettes bearing a foreign brand, fifty-five percent (55%) Provided, That this rate shall apply regardless of whether or not the right to use or title to the foreign brand was sold or transferred by its owner to the local manufacturer. Whenever it has to be determined whether or not a cigarette bears a foreign brand, the listing of brands manufactured in foreign countries appearing in the current World Tobacco Directory shall govern. Under the foregoing, the test for imposition of the 55% ad valorem tax on cigarettes is that the locally manufactured cigarettes bear a foreign brand regardless of whether or not the right to use or title to the foreign brand was sold or transferred by its owner to the local manufacturer. The brand must be originally owned by a foreign manufacturer or producer. If ownership of the cigarette brand is, however, not definitely determinable, ". . . the listing of brands manufactured in foreign countries appearing in the current World Tobacco Directory shall govern. . . ." "HOPE" is listed in the World Tobacco Directory as being manufactured by (a) Japan Tobacco, Japan and (b) Fortune Tobacco, Philippines. "MORE" is listed in the said directory as being manufactured by: (a) Fills de Julia Reig, Andorra; (b) Rothmans, Australia; (c) RJR-Macdonald Canada; (d) Rettig-Strenberg, Finland; (e) Karellas, Greece; (f) R.J. Reynolds, Malaysia; (g) Rothmans, New Zealand; (h) Fortune Tobacco, Philippines; (i) R.J. Reynolds, Puerto Rico; (j) R.J. Reynolds, Spain; (k) Tabacalera, Spain; (l) R.J. Reynolds, Switzerland; and (m) R.J. Reynolds, USA. "Champion" is registered in the said directory as being manufactured by (a)
A bill, which later became Republic Act ("RA") No. 7654, was enacted, on 10 June 1993, by the legislature and signed into law, on 14 June 1993, by the President of the Philippines. The new law became effective on 03 July 1993. It amended Section 142(c)(1) of the National Internal Revenue Code ("NIRC") to read; as follows: Sec. 142. Cigars and Cigarettes. — xxx xxx xxx (c) Cigarettes packed by machine. — There shall be levied, assessed and collected on cigarettes packed by machine a tax at the rates prescribed below based on the constructive manufacturer's wholesale price or the actual manufacturer's wholesale price, whichever is higher: (1) On locally manufactured cigarettes which are currently classified and taxed at fifty-five percent (55%) or the exportation of which is not authorized by contract or otherwise, fifty-five (55%) provided that the minimum tax shall not be less than Five Pesos (P5.00) per pack.
Commonwealth Bangladesh; (b) Sudan, Brazil; (c) Japan Tobacco, Japan; (d) Fortune Tobacco, Philippines; (e) Haggar, Sudan; and (f) Tabac Reunies, Switzerland. Since there is no showing who among the above-listed manufacturers of the cigarettes bearing the said brands are the real owner/s thereof, then it follows that the same shall be considered foreign brand for purposes of determining the ad valorem tax pursuant to Section 142 of the National Internal Revenue Code. As held in BIR Ruling No. 410-88, dated August 24, 1988, "in cases where it cannot be established or there is dearth of evidence as to whether a brand is foreign or not, resort to the World Tobacco Directory should be made." In view of the foregoing, the aforesaid brands of cigarettes, viz: "HOPE," "MORE" and "CHAMPION" being manufactured by Fortune Tobacco Corporation are hereby considered locally manufactured cigarettes bearing a foreign brand subject to the 55% ad valorem tax on cigarettes. Any ruling inconsistent herewith is revoked or modified accordingly. (SGD) LIWAYWAY VINZONS-CHATO Commissioner On 02 July 1993, at about 17:50 hours, BIR Deputy Commissioner Victor A. Deoferio, Jr., sent via telefax a copy of RMC 37-93 to Fortune Tobacco but it was addressed to no one in particular. On 15 July 1993, Fortune Tobacco received, by ordinary mail, a certified xerox copy of RMC 37-93. In a letter, dated 19 July 1993, addressed to the appellate division of the BIR, Fortune Tobacco requested for a review, reconsideration and recall of RMC 37-93. The request was denied on 29 July 1993. The following day, or on 30 July 1993, the CIR assessed Fortune Tobacco for ad valorem tax deficiency amounting to P9,598,334.00. On 03 August 1993, Fortune Tobacco filed a petition for review with the CTA.
The CIR forthwith filed a petition for review with the Court of Appeals, questioning the CTA's 10th August 1994 decision and 11th October 1994 resolution. On 31 March 1993, the appellate court's Special Thirteenth Division affirmed in all respects the assailed decision and resolution. In the instant petition, the Solicitor General argues: That — I. RMC 37-93 IS A RULING OR OPINION OF THE COMMISSIONER OF INTERNAL REVENUE INTERPRETING THE PROVISIONS OF THE TAX CODE. II. BEING AN INTERPRETATIVE RULING OR OPINION, THE PUBLICATION OF RMC 37-93, FILING OF COPIES THEREOF WITH THE UP LAW CENTER AND PRIOR HEARING ARE NOT NECESSARY TO ITS VALIDITY, EFFECTIVITY AND ENFORCEABILITY. III. PRIVATE RESPONDENT IS DEEMED TO HAVE BEEN NOTIFIED OR RMC 37-93 ON JULY 2, 1993. IV. RMC 37-93 IS NOT DISCRIMINATORY SINCE IT APPLIES TO ALL LOCALLY MANUFACTURED CIGARETTES SIMILARLY SITUATED AS "HOPE," "MORE" AND "CHAMPION" CIGARETTES. V. PETITIONER WAS NOT LEGALLY PROSCRIBED FROM RECLASSIFYING "HOPE," "MORE" AND "CHAMPION" CIGARETTES BEFORE THE EFFECTIVITY OF R.A. NO. 7654. VI. SINCE RMC 37-93 IS AN INTERPRETATIVE RULE, THE INQUIRY IS NOT INTO ITS VALIDITY, EFFECTIVITY 10 OR ENFORCEABILITY BUT INTO ITS CORRECTNESS OR PROPRIETY; RMC 37-93 IS CORRECT. In fine, petitioner opines that RMC 37-93 is merely an interpretative ruling of the BIR which can thus become effective without any prior need for notice and hearing, nor publication, and that its issuance is not discriminatory since it would apply under similar circumstances to all locally manufactured cigarettes. The Court must sustain both the appellate court and the tax court. Petitioner stresses on the wide and ample authority of the BIR in the issuance of rulings for the effective implementation of the provisions of the National Internal Revenue Code. Let it be made clear that such authority of the Commissioner is not here doubted. Like any other government agency, however, the CIR may not disregard legal requirements or applicable principles in the exercise of its quasi-legislative powers. Let us first distinguish between two kinds of administrative issuances — a legislative rule and aninterpretative rule. In Misamis Oriental Association of Coco Traders, Inc., vs. Department of Finance Secretary, expressed:
On 10 August 1994, the CTA upheld the position of Fortune Tobacco and adjudged: WHEREFORE, Revenue Memorandum Circular No. 37-93 reclassifying the brands of cigarettes, viz: "HOPE," "MORE" and "CHAMPION" being manufactured by Fortune Tobacco Corporation as locally manufactured cigarettes bearing a foreign brand subject to the 55% ad valorem tax on cigarettes is found to be defective, invalid and unenforceable, such that when R.A. No. 7654 took effect on July 3, 1993, the brands in question were not CURRENTLY CLASSIFIED AND TAXED at 55% pursuant to Section 1142(c)(1) of the Tax Code, as amended by R.A. No. 7654 and were therefore still classified as other locally manufactured cigarettes and taxed at 45% or 20% as the case may be. Accordingly, the deficiency ad valorem tax assessment issued on petitioner Fortune Tobacco Corporation in the amount of P9,598,334.00, exclusive of surcharge and interest, is hereby canceled for lack of legal basis. Respondent Commissioner of Internal Revenue is hereby enjoined from collecting the deficiency tax assessment made and issued on petitioner in relation to the implementation of RMC No. 37-93. SO ORDERED.
. . . a legislative rule is in the nature of subordinate legislation, designed to implement a primary legislation by providing the details thereof . In the same way that laws must have the benefit of public hearing, it is generally required that before a legislative rule is adopted there must be hearing. In this connection, the Administrative Code of 1987 provides: Public Participation. — If not otherwise required by law, an agency shall, as far as practicable, publish or circulate notices of proposed rules and afford interested parties the opportunity to submit their views prior to the adoption of any rule. (2) In the fixing of rates, no rule or final order shall be valid unless the proposed rates shall have been published in a newspaper of general circulation at least two (2) weeks before the first hearing thereon.
In its resolution, dated 11 October 1994, the CTA dismissed for lack of merit the motion for reconsideration.
(a) "PALM TREE" is listed as manufactured by office of Monopoly. be considered adjudicatory in nature and thus violative of due process following the Ang 16 Tibay doctrine. In so doing. the BIR not simply intrepreted the law. are to be treated 14 alike or put on equal footing both in privileges and liabilities. Prior to the issuance of the questioned circular. A reading of RMC 37-93. paragraph 1. its applicability needs nothing further than its bare issuance for it gives no real consequence more than what the law itself has already prescribed. Art. the administrative rule goes beyond merely providing for the means that can facilitate or render least cumbersome the implementation of the law but substantially adds to or increases the burden of those governed. upon the other hand." "Premium More. New Civil Code). the rules on contested cases shall be observed. without RMC 37-93. Hence. RMC 37-93 would only apply to "Hope Luxury." "Premium More" and "Champion" cigarettes and. Not insignificantly. has observed and provided: RMC NO. Art. their strict enforcement could possibly suffer from legal infirmity in the light of the constitutional provision on "due process of law" and the essence of the Civil Code provision concerning effectivity of laws. but has. (a) "WHITE HORSE" is listed as being manufactured by Rothman's. In addition such rule must be published. similarly situated. (b) Revenue Audit Memorandum Orders. In its decision." and "Champion" cigarettes within the scope of the amendatory law and subject them to an increased tax rate. the now disputed RMC 37-93 had to be issued. Bangladesh (Exhibit "T") 3. in order to place "Hope Luxury." "Premium More" and "Champion" within the classification of locally manufactured cigarettes bearing foreign brands and to thereby have them covered by RA 7654. 2. Indeed. Specifically. as in fact my esteemed colleague Mr. in conformity with the basic element of due process. Uniformity requires that all subjects or objects of taxation.(3) In case of opposition. all taxable articles or kinds of 15 property of the same class must be taxed at the same rate and the tax must operate with the same force and effect in every place where the subject may be found. xxx xxx xxx (5) Strict compliance with the foregoing procedures is 13 enjoined. before that new issuance is given the force and effect of law. it legislated under its quasilegislative authority. Evidently. Section 28." and "Champion" cigarettes were in the category of locally manufactured cigarettes not bearing foreign brand subject to 45% ad valorem tax. of hearing. Locally manufactured by MIGHTY CORPORATION (a) "WHITE HORSE" is listed as being manufactured by Rothman's. the measure suffers from lack of uniformity of taxation. in its RMC 10-86." "Premium More. the BIR itself. particularly considering the circumstances under which it has been issued. Korea (Exhibit "R") 2. IV. RMC 37-93 might have likewise infringed on uniformity of taxation. Sweden (Exhibit "V-1") 4. 1. Malaysia (Exhibit "U-1") . such as — 1. The due observance of the requirements of notice. as amended. would have had no new tax rate consequence on private respondent's products. the following procedures are hereby prescribed for the drafting. INC. 10-86 Effectivity of Internal Revenue Rules and Regulations It has been observed that one of the problem areas bearing on compliance with Internal Revenue Tax rules and regulations is lack or insufficiency of due notice to the tax paying public. And most importantly. "Hope Luxury. interpretative rules are designed to 12 provide guidelines to the law which the administrative agency is in charge of enforcing . Article VI. In order that there shall be a just enforcement of rules and regulations. Tobaks. of the 1987 Constitution mandates taxation to be uniform and equitable. whereby due notice is a basic requirement (Sec. the aforesaid internal revenue tax issuances shall not begin to be operative until after due notice thereof may be fairly presumed. verily. the enactment of RA 7654. and (c) Revenue Memorandum Circulars and Revenue Memorandum Orders bearing on internal revenue tax rules and regulations. and thereafter to be duly informed. Malaysia (Exhibit "U") (b) "RIGHT" is listed as being manufactured by SVENSKA. in fact and most importantly. issuance and implementation of the said Revenue Tax Issuances: (1) This Circular shall apply only to (a) Revenue Regulations. due compliance therewith may not be reasonably expected. When. the new law would have its amendatory provisions applied to locally manufactured cigarettes which at the time of its effectivity were not so classified as bearing foreign brands. Nothing on record could tell us that it was either impossible or impracticable for the BIR to observe and comply with the above requirements before giving effect to its questioned circular. Due notice of the said issuances may be fairly presumed only after the following procedures have been taken. It should be understandable that when an administrative rule is merely interpretative in nature. Justice Bellosillo so expresses in his separate opinion. Locally manufactured by LA PERLA INDUSTRIES. On the other hand. the CTA has keenly noted that other cigarettes bearing foreign brands have not been similarly included within the scope of the circular. Locally manufactured by ALHAMBRA INDUSTRIES. convinces us that the circular cannot be viewed simply as a corrective measure (revoking in the process the previous holdings of past Commissioners) or merely as construing Section 142(c)(1) of the NIRC. it behooves the agency to accord at least to those directly affected a chance to be heard. Pakistan (Exhibit "S") (b) "CANNON" is listed as being manufactured by Alpha Tobacco. and of publication should not have been then ignored. unless petitioner would be willing to concede to the submission of private respondent that the circular should. Thus. INC. Apparently. been made in order to place "Hope Luxury. Constitution. (2) Except when the law otherwise expressly provides. Unless there is due notice. Locally manufactured by LA SUERTE CIGAR and CIGARETTE COMPANY (a) "GOLDEN KEY" is listed being manufactured by United Tobacco.
. the short time that we were given to study the matter that we could not include all the rest of the other brands that would have been really classified as foreign brand if we went by the law itself. which are also listed in the World Tobacco Directory . CHATO. . . We have already prepared a revenue memorandum circular clarifying with the other . would have been a list of locally manufactured cigarettes bearing a foreign brand for excise tax purposes which would include all the other brands that were mentioned by the Honorable Chairman . But did you not consider that there are similarly situated? MS. . So we came out with this proposed revenue memorandum circular which we forwarded to the Secretary of Finance except that at that point in time. in fact. All taken. we went by the Republic Act 7654 in Section 1 which amended Section 142." par. the period that was allotted to us to come up with the right actions on the matter. then I think our action would really be subject to question but we feel that . So we were saying that when this law took effect in July 3 and if we are going to come up with this revenue circular thereafter. 1 Pakistan. Memorandum Circular Number 37-93 would really cover even similarly situated brands. after we have come up with this Revenue Memorandum Circular No. These brands that you referred to or just read to us and in fact just for your information. Why were these brand not reclassified at 55 if your want to give a level playing filed to foreign manufacturers? MS. does not yet. Premier Tobacco. And we really found based on our own interpretation that the only test that is given by that existing law would be registration in the World Tobacco Directory. Now. No costs. SO ORDERED. it was really because of the study. is AFFIRMED. . Hongkong. They are locally manufactured bearing foreign brands. But I do agree with you now that it cannot and in fact that is why I felt that we . the Court is convinced that the hastily promulgated RMC 37-93 has fallen short of a valid and effective administrative issuance. CHATO. . . it would not have been possible to really come up with the reclassification or the proper classification of all brands that are listed there. Locally manufactured by STERLING TOBACCO CORPORATION (a) "UNION" is listed as being manufactured by Sumatra Tobacco. that on locally manufactured cigarettes which are currently classified and taxed at 55 percent. we were forced to study the brands of Hope. WHEREFORE. . I wanted to come up with a more extensive coverage and precisely why I asked that revenue memorandum circular that would cover all those similarly situated would be prepared but because of the lack of time and I came out with a study of RA 7654.(emphasis supplied) (Exhibit "FF-2d. (Emphasis supplied) (Exhibit "FF-2-C. the other brands came about the would have also clarified RMC 37-93 by I was saying really because of the fact that I was just recently appointed and the lack of time. when we had to come up with this.5. That is precisely why. More and Champion because we were given documents that would indicate the that these brands were actually being claimed or patented in other countries because we went by Revenue Memorandum Circular 1488 and we wanted to give some rationality to how it came about but we couldn't find the rationale there. it said. we really came out with a proposed revenue memorandum circular for those brands. we have already prepared a Revenue Memorandum Circular that was supposed to come after RMC No. You don't have specific information on other tobacco manufacturers. Pakistan Tobacco Co. Pakistan and Haggar. we were really caught by the July 3 deadline. But in fact. V-5 TO V-6. ." page IX-1) xxx xxx xxx HON. . Chairman. 37-93 which have really named specifically the list of locally manufactured cigarettes bearing a foreign brand for excise tax purposes and includes all these brands that you mentioned at 55 percent except that at that time. And in fact. viz: THE CHAIRMAN. Sir. . So you have specific information on Fortune Tobacco alone. the decision of the Court of Appeals. Sudan (Exhibit "U-4"). sustaining that of the Court of Tax Appeals. 7 The court quoted at length from the transcript of the hearing conducted on 10 August 1993 by the Committee on Ways and Means of the House of Representatives. . Malaysia. Indonesia and Brown and Williamson. there are other brands which are similarly situated. Bangladesh. And may I enumerate to you all these brands. I am sure that by the reading of the law. Joo Lan. . IX-4). Nangyang. 37-93. Mr. DIAZ." pp. xxx xxx xxx MS. CHATO. . you would without that ruling by Commissioner Tan they would really have been included in the definition or in the classification of foregoing brands. VI-1 to VI-3).. C-1. (Emphasis supplied) 18 (Exhibit "FF-2-d. USA (Exhibit "U-3") (b) "WINNER" is listed as being manufactured by Alpha Tobacco.
Commissioner of Internal Revenue. SO ORDERED. 1986. petitioner.602.00) (P14. The taxes due were settled by applying PBCom's tax credit memos and accordingly. for a tax credit of P5.016.R. petitioner filed a claim for refund of creditable taxes withheld by their lessees from property rentals in 1985 for P282. But during these two years.077. respondent. the petitioner likewise reported a net loss of P14.G.795. The lessees withheld and remitted to the BIR withholding creditable taxes of P282. 8 that there were taxes due in 1987 and that PBCom availed of tax-crediting that year. 1985.253.: This petition for review assails the Resolution of the Court of Appeals dated September 22.615. reported profits. THE FOREGOING. petitioner requested the Commissioner of Internal Revenue.50 234. PBCom suffered losses so that when it filed its Annual Income Tax Returns for the yearended December 31.00. petitioner instituted a Petition for Review on November 18. Pending the investigation of the respondent Commissioner of Internal Revenue. filed its quarterly income tax returns for the first and second quarters of 1985. J.954. The 1986 claim for refund amounting to P234.69 was likewise denied on the assumption that it was automatically credited by PBCom against its tax payment in the succeeding year.077. denied the request of petitioner for a tax refund or credit in the sum amount of P5. COURT OF TAX APPEALS and COURT OF APPEALS. Thereafter.077.50 and in 1986 for P234. on the ground that it was filed beyond the two-year reglementary period provided for by law. Hence this petition now before us. The Decision of the Court of Tax Appeals dated May 20.129. 1988. 1993. 785 and did not immediately file with the CTA a petition for review asking for the refund/tax credit of its 1985-86 excess quarterly income tax payments — can be prejudiced by the subsequent BIR rejection. 0746-85 and 0747-85 for P3.016.602.749. 1987. The petition for review is dismissed for lack of merit.749. II. the Bureau of Internal Revenue (BIR) issued Tax Debit Memo Nos. 1993. vs. 1993.299. are as follows: 1985 1986 ——— ——— Net Income (Loss) (P25.50 in 1985 and P234. of its assurances in RMC No. Whether the Court of Appeals seriously erred in affirming the CTA decision which denied PBCom's claim for the refund of P234. changing the prescriptive period of two years to ten years? Petitioner argues that its claims for refund and tax credits are not yet barred by prescription relying on the applicability of Revenue Memorandum Circular No.701. The issues raised by the petitioner are: I.749.95.288. the Court of Appeals affirmed in toto the CTA's resolution dated July 20.317.077. the main question is: Whether or not the Court of Appeals erred in denying the plea for tax refund or tax credits on the ground of prescription.95 is hereby denied for having been filed beyond the reglementary period.00 — Tax Withheld at Source 282. 1993 affirming the 2 3 Decision and a Resolution of the Court Of Tax Appeals which denied the claims of the petitioner for tax refund and tax credits. Subsequently.077." .954. 1993. the instant petition for review. 4309 entitled: "Philippine Bank of Communications vs. Philippine Bank of Communications (PBCom).00 and P1. 1993.401. 112024 January 28.50* P234.95.299.00. 7-85 issued on April 1.69 in 1986. Simply stated. PBCom earned rental income from leased properties. without proof. filed before the Court of Tax Appeals.00 representing the overpayment of taxes in the first and second quarters of 1985.69 ———————— ——————— Excess Tax Payments P5. COMMISSIONER OF INTERNAL REVENUE. Payments Made 5.299. PBCom filed a petition for review of said decision and resolution of the CTA with the Court of Appeals. The circular states that overpaid The Court of Tax Appeals earlier ruled as follows: WHEREFORE.69 income tax overpaid in 1986 on the mere speculation. the CTA rendered a decision which. despite petitioner's reliance on RMC No. The losses petitioner incurred as per the summary of petitioner's claims for refund and tax credit for 1985 and 1986.69 =============== ============= * CTA's decision reflects PBCom's 1985 tax claim as P5. Thereafter.299. respectively. The petitioner's claim for refund in 1986 amounting to P234. 4 1 Tax Due NIL NIL Quarterly tax. 1999 PHILIPPINE BANK OF COMMUNICATIONS. Whether taxpayer PBCom — which relied in good faith on the formal assurances of BIR in RMC No.69 is likewise denied since petitioner has opted and in all likelihood automatically credited the same to the succeeding year. A forty five centavo difference was noted. among others. Petitioner's claim for refund/tax credits of overpaid income tax for 1985 in the amount of P5. on July 25.69. However on September 22.00. Petitioner. are hereby AFFIRMED in toto. applied retroactivity. and thus declared no tax payable for the year. On August 7. The petition was docketed as CTA Case No. however. a commercial banking corporation duly organized under Philippine laws.749. 7-85 that the prescriptive period for the refund/tax 7 credit of excess quarterly income tax payments is not two years but ten (10).795. On June 22.954.077. is DENIED due course. No.077. and paid the total income tax of P5. On May 20. and disposing as follows: IN VIEW OF ALL. petitioner filed a Motion for Reconsideration of the CTA's decision but the same was denied due 6 course for lack of merit. as stated on the outset. SO ORDERED.795. 5 The facts on record show the antecedent circumstances pertinent to this case.00) QUISUMBING.016. 7-85. 1988 before the Court of Tax Appeals (CTA). 1993 and its resolution dated July 20.129.
(Emphasis supplied) . through Solicitor General. or of any penalty claimed to have been collected without authority. NIRC of 1997) provides for the prescriptive period for filing a court proceeding for the recovery of tax erroneously or illegally collected. the same was filed beyond the time fixed by law. 1988 to seek relief from the court. After a careful study of the records and applicable jurisprudence on the matter.income taxes are not covered by the two-year prescriptive period under the tax Code and that taxpayers may claim refund or tax credits for the excess quarterly income tax with the BIR within ten (10) years under Article 1144 of the Civil Code. contrary to the petitioner's contention. respondent Commissioner stresses that when the petitioner filed the case before the CTA on November 18. the relaxation of revenue regulations by RMC 7-85 is not warranted as it disregards the two-year prescriptive period set by law. and. the Court held that the government is precluded from adopting a position inconsistent with one previously taken where injustice would result therefrom or where there has been a misrepresentation to the taxpayer. but such suit or proceeding may be maintained. 246 of the National Internal Revenue Code explicitly provides for this rules as follows: Sec. and such failure is fatal to petitioner's cause of action. That the Commissioner may. in accordance with sections 292 and 295 of the National Internal Revenue Code. therefore. and Commissioner of Internal Revenue vs. where on the face of the return upon which payment was made. Court of Tax 10 Appeals petitioner claims that rulings or circulars promulgated by the Commissioner of Internal Revenue have no retroactive effect if it would be prejudicial to taxpayers. 229. viz. (Emphasis supplied. where the taxpayer deliberately misstates or omits material facts from his return or in any document required of him by the Bureau of Internal Revenue. In ABS-CBN case. its functions should not be unduly delayed or hampered by incidental matters. Basic is the principle that "taxes are the lifeblood of the nation. refund or credit any tax.: Sec. It should he noted. As already stated. however. or of any sum alleged to have been excessive or in any manner wrongfully collected." The primary purpose is to generate funds for the 13 State to finance the needs of the citizenry and to advance the common weal. In this regard. Under these procedures. 246 Non-retroactivity of rulings— Any revocation. penalty. TO: All Internal Revenue Officers and Others Concerned. TMX Sales. this Office has promulgated Revenue Memorandum Order No. respondent Commissioner cited cases which adhered to this principle. corporations file claims for recovery of overpaid income tax with the Court of Tax Appeals within the two-year period from the date of payment. a taxpayer may recover from the Bureau of Internal Revenue excess income tax paid under the provisions of Section 86 of the Tax Code within 10 years from the date of payment considering that it is an obligation created by 9 law (Article 1144 of the Civil Code). this procedure was adopted to facilitate immediate action on cases like this. until a claim for refund or credit has been duly filed with the Commissioner. In any case. To insure prompt action on corporate annual income tax returns showing refundable amounts arising from overpaid quarterly income taxes. Due process of law under the Constitution does not require judicial proceedings in tax cases. Court of Appeals. From the same perspective. that because of the excess tax payments. After which. 32-76 dated June 11. Inc. whether or not such tax. modification or reversal of any of the rules and regulations promulgated in accordance with the preceding section or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation. vs. or sum has been paid under protest or duress. c). the refund or tax credit is granted. b).Provided however. 1986. Petitioner contends that Sec. et al. even without a written claim therefor. Respondent Commissioner also states that since the Final Adjusted Income Tax Return of the petitioner for the taxable year 1985 was supposed to be filed on April 15. Further. Respondent Commissioner of Internal Revenue. we find that. there is no need to file petitions for review in the Court of Tax Appeals in order to preserve the right to claim refund or tax credit the two year period. 230. As precedents. the returns are merely pre-audited which consist mainly of checking mathematical accuracy of the figures of the return.. 1976.. 85 And 86 Of the National Internal Revenue Code provide: xxx xxx xxx The foregoing provisions are implemented by Section 7 of Revenue Regulations Nos. to wit ACCRA 11 Investments Corp. actions hereon by the Bureau are immediate after only a cursory pre-audit of the income tax returns.. claims for refund or tax credit should be exercised within the time fixed by law because the BIR being an administrative body enforced to collect taxes. — 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. The pertinent portions of the circular reads: REVENUE MEMORANDUM CIRCULAR NO. argues that the two-year prescriptive period for filing tax cases in court concerning income tax payments of Corporations is reckoned from the date of filing the Final Adjusted Income Tax Return. Recovery of tax erroneously or illegally collected. however. 10-77 which provide. containing the procedure in processing said returns. modification or reversal will be prejudicial to the taxpayers except in the following cases: a).) Petitioner argues that the government is barred from asserting a position contrary to its declared circular if it would result to injustice to taxpayers. In the above provision of the Regulations the corporation may request for the refund of the overpaid income tax or claim for automatic tax credit. that this is not a case of erroneously or illegally paid tax under the provisions of Sections 292 and 295 of the Tax Code. such payment appears clearly to have been erroneously paid. 1988. Sec. Citing ABS CBN Broadcasting Corporation vs. Sec. This must necessarily be so because it is upon taxation that the government chiefly relies to obtain the means to carry on its operations and it is of utmost importance that the modes adopted to enforce the collection of taxes levied should be summary and interfered 14 with as little as possible. where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based. xxx xxx xxx It has been observed. 7-85 SUBJECT: PROCESSING OF REFUND OR TAX CREDIT OF EXCESS CORPORATE INCOME TAX RESULTING FROM THE FILING OF THE FINAL ADJUSTMENT RETURN. It is obvious that the filing of the case in court is to preserve the judicial right of the corporation to claim the refund or tax credit. et 12 al. which is generally done on April 15 following the close of the calendar year. where the taxpayer acted in bad faith. 230 of the National Internal Revenue Code (NIRC) of 1977 (now Sec. Moreover. the latter had only until April 15. no such suit or proceedings shall begun after the expiration of two years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment.
or (b) may be credited against the estimated quarterly income tax liabilities for the quarters of the succeeding taxable year. Estoppel has no application in the case at bar because it was not the Commissioner of Internal Revenue who denied petitioner's claim of refund or tax credit. That the petitioner opted for an automatic tax credit in accordance with Sec. without proof. WHEREFORE. we are bound by the findings of fact by respondent courts. The Memorandum Circular. As stated by respondent Court of Appeals: Finally. it establishes an absolute ban for all time. But administrative decisions do not enjoy that level of recognition. .. Rather. 230 of 1977 NIRC. was the ruling and judicial interpretation of the Court of Tax Appeals. Philippine American Life Insurance Co. Further. 69 of the 1977 NIRC (now Sec. This discrepancy between Act No. 230. is entitled to great respect by the courts. NIRC). 7-85 issued by the Acting Commissioner of Internal Revenue is an administrative interpretation which is not in harmony with Sec. after examining the adjusted final corporate annual income tax return for taxable year 1986. 230 of 1977 NIRC.SO ORDERED. before any suit in CTA is commenced. his interpretation could not be given weight for to do so would. the basic Act prevails. For there are no vested rights to speak of respecting a wrong construction of the law by the administrative officials and such wrong 27 interpretation could not place the Government in estoppel to correct or overrule the same. within two (2) years after payment of tax. such circular created a clear inconsistency with the provision of Sec. as repeatedly held by this Court. 16 69. after promulgating RMC No. The decision of the Court of Appeals appealed from is AFFIRMED. it was held that rules and regulations issued by administrative officials to implement a law cannot go beyond the terms and provisions of the latter. application of Sec. changing the prescriptive period of two years to ten years on claims of excess quarterly income tax payments. 17 and 70 18 on Quarterly Corporate Income Tax Payment and Section 321 should be considered in conjunction with it 19 Revenue. a claim for refund is in the nature of a claim for exemption and 28 should be construed in strictissimi juris against the taxpayer. 30 as to [sic] the two remedies of refund and tax credit are alternative. cannot be given weight for to do so would in effect amend the statute. . with COSTS against the petitioner. and the choice of one precludes the other. the decision. that is to say. applying or interpreting statutes as part of the legal system of the country. whose duty is to enforce it. hence it can no longer ask for refund. Sections 68. Nevertheless. NIRC. fundamental is the rule that the State cannot be put in estoppel by the mistakes or errors of its officials or 24 agents. In Commissioner of Internal Revenue vs. instead of remaining consistent and in harmony with the law they seek to 21 apply and implement. this to avoid any possible misunderstanding or 23 confusion as in the present case. Lim.69 (tax overpaid in 1986). such interpretation is not 20 conclusive and will be ignored if judicially found to be erroneous. was issued by the Acting Commissioner of Internal 22 . because whereas the prohibition prescribed in said Fisheries Act was for any single period of time not exceeding five years duration. It is widely accepted that the interpretation placed upon a statute by the executive officers. and that the lengthening of the period of limitation on refund from two to ten years would be adverse to public policy and run counter to the positive mandate of Sec. courts will not countenance administrative issuances that override. that PBCom availed of the automatic tax credit in 1987. Moreover. the BIR did not simply interpret the law. 37-1 is void because it is not only inconsistent with but is contrary to the provisions and spirit of Act. in effect. 230. Hence. ruled that the RMC No. The two-year prescriptive period provided. Again We do not agree. In the present case. as to the claimed refund of income tax over-paid in 1986 — the Court of Tax Appeals. should be computed from the time of filing the Adjustment Return and final payment of the tax for the year. 7-85. In the case of People vs. 7-85 issued by the Commissioner of Internal Revenue is an administrative interpretation which is out of harmony with or contrary to the express provision of a statute (specifically 25 Sec. for being contrary to the express provision of a statute. is a finding of fact which we must respect. as specified in its 1986 Final Adjusted Income Tax Return. which can only be determined after a final adjustment return is accomplished. No 4003 as amended. for the reason that the regulation or rule issued to implement a law cannot go beyond the terms and provisions of the latter. As pointed out by the respondent courts. rather it legislated guidelines contrary to the statute passed by Congress. 69 of the 1977 NIRC. 230 of 1977 NIRC. it must be noted that. shall either(a) be refunded to the corporation. . and two years from this date would be April 16. On the second issue. the 1987 annual corporate tax return of the petitioner was not offered as evidence to contovert said fact. Moreover. . . the nonretroactivity of rulings by the Commissioner of Internal Revenue is not applicable in this case because the nullity of RMC No. based on mere speculation. the petitioner alleges that the Court of Appeals seriously erred in affirming CTA's decision denying its claim for refund of P234. it was the Court of Tax Appeals who denied (albeit correctly) the claim and in effect. Art. FAO No 37-1 fixed no period. A memorandum-circular of a bureau head could not operate to vest a taxpayer with shield against judicial action. the prescriptive period of two years should commence to run only from the time that the refund is ascertained. In this connection.The rule states that the taxpayer may file a claim for refund or credit with the Commissioner of Internal Revenue. Of course. petition is hereby DENIED. 37-1 was probably due to an oversight on the part of Secretary of Agriculture and Natural Resources. is estopped by the principle of non-retroactively of BIR rulings.077. On the other hand. whether to request for a refund or claim for an automatic tax credit for the succeeding taxable year. The corporation must signify in its annual corporate adjustment return (by marking the option box provided in the BIR form) its intention. 8 of the Civil Code recognizes judicial decisions. 1986. To ease the administration of tax collection. this date is April 16. Lastly. these remedies are in the alternative. It is likewise argued that the Commissioner of Internal Revenue. as follows: 15 this Court explained the Clearly. It bears repeating that Revenue memorandum-circulars are considered administrative rulings (in the sense of more specific and less general interpretations of tax laws) which are issued from time to time by the Commissioner of Internal Revenue. hence. in case of discrepancy. As we have earlier said in the TMX Sales case. stating that the taxpayer should still file a claim for a refund or tax credit and corresponding petition fro review within the two-year prescription period. In so doing. Thus. stating that a taxpayer may recover the excess income tax paid within 10 years from date of payment because this is an obligation created by law. 29 26 When the Acting Commissioner of Internal Revenue issued RMC 7-85. Sec. This was the basis used (vis-avis the fact that the 1987 annual corporate tax return was not offered by the petitioner as evidence) by the CTA in concluding that petitioner had indeed availed of and applied the automatic tax credit to the succeeding year. Appellant contends that Section 2 of FAO No. 1984. the. amend the statute. 7-85 was declared by respondent courts and not by the Commissioner of Internal Revenue. there being no showing of gross error or abuse on their part to disturb 31 our reliance thereon. Thus. . 76 of the 1997 NIRC) provides that any excess of the total quarterly payments over the actual income tax computed in the adjustment or final corporate income tax return. the attention of the technical men in the offices of Department Heads who draft rules and regulation is called to the importance and necessity of closely following the terms and provisions of the law which they intended to implement. the nullification of RMC No. found out that petitioner opted to apply for automatic tax credit. 4003 and FAO No.
A. 1996 in CA-GR SP No.605. Finally. The said License Agreement was duly registered with the Technology Transfer Board of the Bureau of Patents.00 was computed as follows: Gross 25% 10% Month/ Royalty Withholding Withholding Year Fee Tax Paid Tax Balance ——— ——— ——— ——— ——— July 1992 559. to wit: [Respondent].088 April 660.601 63. the certification was not executed by the petitioner herself but by her counsel. USA IS ENTITLED TO THE "MOST FAVORED NATION" TAX RATE OF 10% ON ROYALTIES AS PROVIDED IN THE RP-US TAX TREATY IN RELATION TO THE RP-WEST GERMANY TAX TREATY. a domestic corporation organized and operating under the Philippine laws.R. GONZAGA-REYES.266. respondents.266 1 ======== ======== ======== ======== The Commissioner did not act on said claim for refund.276 95. "A"). because the "most favored nation" clause is intended to allow the taxpayer in one state to avail of more liberal provisions contained in another tax treaty wherein the country of .630 68. Private respondent S.221 62. Inc. Johnson) then filed a petition for review before the Court of Tax Appeals (CTA) where the case was docketed as CTA Case No.794 85.956 148. par.C. JOHNSON AND SON. royalties. For the use of the trademark or technology.328 57.596 89. the preferential tax rate of 10% should apply to the [respondent]. Trade Marks and Technology Transfer under Certificate of Registration No. the provisions of the treaty must be construed strictly against it.603.443 P642. petitioner. a non-resident foreign corporation based in the U. still. these must necessarily refer to circumstances that are tax-related.491 Jan 1993 602.. 1996. vs.TAX TREATIES G. S. that is.089 93. that is. private respondent S. Petitioner contends that under Article 13(2) (b) (iii) of the RP-US Tax Treaty. marketing and production from SC Johnson and Son. (S. S.076 150. package and distribute the products covered by the Agreement and secure assistance in management.443.770 P1. In its Comment. Even assuming that the phrase "paid under similar circumstances" refers to the payment of royalties.203 66.725 82.813 54.585 84. 8064 (Exh. 1993. No. the lowest rate of the Philippine tax at 10% may be imposed on royalties derived by a resident of the United States from sources within the Philippines only if the circumstances of the resident of the United States are similar to those of the resident of West Germany. The antecedent facts as found by the Court of Tax Appeals are not disputed. "the antecedent facts attending [respondent's] case fall squarely within the same circumstances under which said MacGeorge and Gillete rulings were issued.C.845 141. as held by the Court of Appeals. Since the RP-US Tax Treaty contains no "matching credit" provision as that provided under Article 24 of the RP-West Germany Tax Treaty. 5136. 28-91. Johnson avers that the instant petition should be denied (1) because it contains a defective certification against forum shopping as required under SC Circular No. patents and technology owned by the latter including the right to manufacture. petitioner argues that since S. Since the agreement was approved by the Technology Transfer Board.982 August 567.393 October 634. The Commissioner of Internal Revenue thus filed a petition for review with the Court of Appeals which rendered the decision subject of this appeal on November 7.266. and (2) that the "most favored nation" clause under the RP-US Tax Treaty refers to royalties paid under similar circumstances as those royalties subject to tax in other treaties.461 56. Johnson and ordered the Commissioner of Internal Revenue to issue a tax credit certificate in the amount of P963. We therefore submit that royalties paid by the [respondent] to SC Johnson and Son. This petition for review was filed by the Commissioner of Internal Revenue raising the following issue: THE COURT OF APPEALS ERRED IN RULING THAT SC JOHNSON AND SON.C. [respondent] filed with the International Tax Affairs Division (ITAD) of the BIR a claim for refund of overpaid withholding tax on royalties arguing that.133 December 383. 12). On October 29.441 95. or royalty remittances for that matter. Johnson & Son.819 36. and COURT OF APPEALS. [respondent] was obliged to pay SC Johnson and Son. 127105 June 25.253 136.081 99.885 155. "B" to "L" and submarkings).190 September 595.00 representing 2 overpaid withholding tax on royalty payments.308 90. the Court of Tax Appeals rendered its decision in favor of S. to claim a refund of the overpaid withholding tax on royalty payments from July 1992 to May 1993. U.S.988 83. 1992 to May.877 March 547. entered into a license agreement with SC Johnson and Son. J.368 February 565. 5136.421. and not taxes. the tax on royalties under the RPUS Tax Treaty is not paid under similar circumstances as those obtaining in the RP-West Germany Tax Treaty.451 170. A.984 56. pursuant to which the [respondent] was granted the right to use the trademark.769 60. Johnson's invocation of the "most favored nation" clause is in the nature of a claim for exemption from the application of the regular tax rate of 25% for royalties.C. USA is only subject to 10% withholding tax pursuant to the most-favored nation clause of the RP-US Tax Treaty [Article 13 Paragraph 2 (b) (iii)] in relation to the RP-West Germany Tax Treaty [Article 12 (2) (b)]" (Petition for Review [filed with the Court of Appeals].C. USA royalties based on a percentage of net sales and subjected the same to 25% withholding tax on royalty payments which [respondent] paid for the period covering July 1992 to May 1993 in the total amount of P1.989 59.161 November 620. On May 7.810 165.878 139.935 141.: This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to set aside the decision of the Court of Appeals dated November 7. United States of America (USA). 40802 affirming the decision of the Court of Tax Appeals in CTA Case No. beginning July.C. which is known as the "most favored nation" clause.177 P963. that the phrase "paid under similar circumstances" does not refer to payment of the tax but to the subject matter of the tax.00 (Exhs. the "most favored nation" clause cannot be invoked for the reason that when a tax treaty contemplates circumstances attendant to the payment of a tax.461 ———— ———— ———— ——— P6.245 102. [Respondent's] claim for there fund of P963.970 55. 1996 finding no merit in the petition and affirming in toto the 3 CTA ruling. 1999 COMMISSIONER OF INTERNAL REVENUE. INC.122 May 603.405 158. 1993.
commercial or scientific experience. xxx xxx xxx (emphasis supplied) Respondent S. it is entitled to the concessional tax rate of 10 percent on royalties based on Article 12 (2) (b) of the RP-Germany Tax Treaty which provides: (2) However.1âwphi1. and was expressly revoked in BIR Ruling No.G. . Said ruling should be given retroactive effect except if such is prejudicial to the taxpayer pursuant to Section 246 of the National Internal Revenue Code. or from the use of or the right to use. which is a 4 government agency mandated under Section 35.) through one of its Solicitors. the tax imposed by that Contracting State shall not exceed. secret formula or process. industrial. such royalties may also be taxed in the Contracting State in which they arise. Unlike the RP-US Tax Treaty. must certify under oath to all of the following facts or undertakings: (a) he has not theretofore commenced any other action or proceeding involving the same issues in the Supreme Court. SC Circular No. 28-91 applies only to original actions and not to appeals as in the instant case is not supported by the text nor by the obvious intent of the Circular which is to prevent multiple petitions that will result in the same issue being resolved by different courts. the Office of the Solicitor General (O. the RPUS Tax Treaty speaks of "royalties of the same kind paid under similar circumstances". we are inclined to accept petitioner's submission that since the OSG is the only lawyer for the petitioner. and (iii) the lowest rate of Philippine tax that may be imposed on royalties of the same kind paid under similar circumstances to a resident of a third State.nêt We address first the objection raised by private respondent that the certification against forum shopping was not executed by the petitioner herself but by her counsel. For as long as the transfer of technology. the RP-Germany Tax Treaty allows a tax credit of 20 percent of the gross amount of such royalties against German income and corporation tax for the taxes payable in the Philippines on such royalties where the tax rate is reduced to 10 or 15 percent under such treaty. . not counsel. 052-95 which stated that royalties paid to an American licensor are subject only to 10% withholding tax pursuant to Art 13(2)(b)(iii) of the RP-US Tax Treaty in relation to the RP-West Germany Tax Treaty. . C. the main point of contention in this appeal is the interpretation of Article 13 (2) (b) (iii) of the RP-US Tax Treaty regarding the rate of tax to be imposed by the Philippines upon royalties received by a non-resident foreign corporation. design or model. (ii) 15 percent of the gross amount of the royalties. the Court of Appeals or other tribunals or agencies. . any patent.residence of such taxpayer is also a party thereto. the petitioner aside from complying with pertinent provisions of the Rules of Court and existing circulars. the limitation of the tax rate mentioned under b) shall. . or for information concerning industrial. Petitioner reiterates that even if the phrase "paid under similar circumstances" embodied in the most favored nation clause of the RP-US Tax Treaty refers to the payment of royalties and not taxes. under Philippine law. 28-91 applies only to original actions and not to appeals. must certify under oath that he has not commenced any other action involving the same issues in this Court or the Court of Appeals or any other tribunal or agency. 28-91 provides: SUBJECT: ADDITIONAL REQUISITES FOR PETITIONS FILED WITH THE SUPREME COURT AND THE COURT OF APPEALS TO PREVENT FORUM SHOPPING OR MULTIPLE FILING OF PETITIONS AND COMPLAINTS TO: xxx xxx xxx The attention of the Court has been called to the filing of multiple petitions and complaints involving the same issues in the Supreme Court. title III. With respect to the merits of this petition. or scientific equipment. Navarro. thus. trademark. tribunals or agencies have to resolve the same issues. (2) Any violation of this revised Circular will entail the following sanctions: (a) it shall be a cause for the summary dismissal of the multiple petitions or complaints. Chapter 12. the Court of Appeals. as in the instant case. where the royalties are paid by a corporation registered with the Philippine Board of Investments and engaged in preferred areas of activities.S. in every petition filed with the Supreme Court or the Court of Appeals. The provision states insofar as pertinent that — 1) Royalties derived by a resident of one of the Contracting States from sources within the other Contracting State may be taxed by both Contracting States. 15 percent of the gross amount of the royalties. for the reason that said interpretation is embodied in Revenue Memorandum Circular ("RMC") 39-92 which was already abandoned by the Commissioner's predecessor in 1993. Inc. and according to the law of that State. the least of: (i) 25 percent of the gross amount of the royalties. with the result that said courts. Petitioner's allegation that Circular No. 2) However. Petitioner filed Reply alleging that the fact that the certification against forum shopping was signed by petitioner's counsel is not a fatal defect as to warrant the dismissal of this petition since Circular No. Johnson and Son. Article 24 of the RP-Germany Tax Treaty states — . . Book IV of the 1987 Administrative Code to be represented only by the Solicitor General. in the case of royalties arising in the Republic of the Philippines. Atty. Anent the requirement that the party. and b) In the case of the Philippines. Johnson also contends that the Commissioner is estopped from insisting on her interpretation that the phrase "paid under similar circumstances" refers to the manner in which the tax is paid. 28-91.C. claims that on the basis of the quoted provision. or the right to use. commercial. Moreover. (1) To avoid the foregoing. Tomas M. the requirement that the certification should be signed by petitioner and not by counsel does not apply to petitioner who has only the Office of the Solicitor General as statutory counsel. S. still the presence or absence of a "matching credit" provision in the said RP-US Tax Treaty would constitute a material circumstance to such payment and would be determinative of the said clause's application. subject to the basic condition that the subject matter of taxation in that other tax treaty is the same as that in the original tax treaty under which the taxpayer is liable. or any tribunal or agency. The circular expressly requires that a certificate of non-forum shopping should be attached to petitions filed before this Court and the Court of Appeals. is subject to approval. the certification executed by the OSG in this case constitutes substantial compliance with Circular No. but the tax so charged shall not exceed: xxx xxx xxx b) 10 percent of the gross amount of royalties arising from the use of. plan. a) In the case of the United States. only apply if the contract giving rise to such royalties has been approved by the Philippine competent authorities.
the focus is on the income or capital itself. i. the underlying rationale for reducing the tax rate is that the Philippines will give up a part of the tax in the expectation that the tax given up for this particular investment is not taxed by the other 16 country. xxx xxx xxx c) For the purpose of the credit referred in subparagraph. The RP-US Tax Treaty contains no similar "matching credit" as that provided under the RP-West Germany Tax Treaty.e. although the income or capital which is taxed in the state of source is still taxable in the state of residence.1) Tax shall be determined in the case of a resident of the Federal Republic of Germany as follows: xxx xxx xxx b) Subject to the provisions of German tax law regarding credit for foreign tax. There are two methods of relief — the exemption method and the credit method. Foreign investments will only thrive in a fairly predictable and reasonable international 13 investment climate and the protection against double taxation is crucial in creating such a climate. the treaties make it incumbent upon the state of residence to allow relief in order to avoid double taxation. however. (iii) of the RP-US Tax Treaty should be interpreted to refer to payment of royalty. and not to the payment of the tax. That means the rate of 10% is granted to the German taxpayer if he is similarly granted a credit against the income and corporation tax of West Germany. the tax paid in the former is credited against the tax levied in the latter. Under the RP-US Tax Treaty. is based there. U. The respondent court held that "Words are to be understood in the context in which they are used". S. As will be shown later. In the case at bar. The purpose of these international agreements is to reconcile the national fiscal legislations of the contracting parties in order to help the taxpayer avoid simultaneous taxation in two different 10 jurisdictions. any patent. as defined in paragraph 3 of Article 12. that the phrase "paid under similar circumstances in Article 13 (2) (b). In order to eliminate double taxation. patents and technology. is taxed at 10% of the gross amount of said royalty under certain conditions. The RP-US Tax Treaty is just one of a number of bilateral treaties which the Philippines has entered into for the 9 avoidance of double taxation. or the right to use. a cursory reading of the various tax treaties will show that there is no similarity in 7 the provisions on relief from or avoidance of double taxation as this is a matter of negotiation between the 8 contracting parties. The rate of 10% is imposed if credit against the German income and corporation tax on said royalty is allowed in favor of the German resident. trademarks. and since what is paid to a resident of a third state is not a tax but a royalty "logic instructs" that the treaty provision in question should refer to royalties of the same kind paid under similar circumstances. plan. The United States is the state of residence since the taxpayer. the income or capital which is taxable in the state of source or situs is exempted in the state of residence. the credit shall be 20% of the gross amount of such royalty. trade mark. xxx xxx xxx According to petitioner. technology and persons between countries. the "most favored nation" clause in the RP5 West Germany Tax Treaty cannot be availed of in interpreting the provisions of the RP-US Tax Treaty. which provides for the payment of royalties under dissimilar circumstances. More precisely. C. The clear intent of the "matching credit" is to soften the impact of double taxation by different jurisdictions. Petitioner's position is explained thus: Under the foregoing provision of the RP-West Germany Tax Treaty. Johnson and Son. Double taxation usually takes place when a person is resident of a contracting state and derives income from. the other contracting state and both states impose tax on that income or capital. the tax on royalties under the RP-US Tax Treaty is not paid under similar circumstances as those obtaining in the RP-West Germany Tax Treaty. whereas the credit 15 method focuses upon the tax. Hence. it sets out the respective rights to tax of the state of source or situs and of the state of residence with regard to certain classes of income or capital. we are not aware of any law or rule pertinent to the payment of royalties. On the other hand. there shall be allowed as a credit against German income and corporation tax payable in respect of the following items of income arising in the Republic of the Philippines. in the credit method. To illustrate. an exclusive right to tax is conferred on one of the contracting states. which is defined as the imposition of comparable taxes in two or more 11 states on the same taxpayer in respect of the same subject matter and for identical periods. for other items of income or capital. The basic difference between the two methods is that in the exemption method. the tax paid under the laws of the Philippines in accordance with this Agreement on: xxx xxx xxx dd) royalties. The above construction is based principally on syntax or sentence structure but fails to take into account the purpose animating the treaty provisions in point. Thus the petitioner correctly opined that the phrase "royalties paid under similar circumstances" in the most favored nation clause of the US-RP Tax Treaty necessarily contemplated "circumstances that are tax-related". In the case of royalties for which the tax is reduced to 10 or 15 percent according to paragraph 2 of Article 12 of the RP-West Germany Tax Treaty. b) the Philippine tax shall be deemed to be xxx xxx xxx cc) in the case of royalties for which the tax is reduced to 10 or 15 per cent according to paragraph 2 of Article 12. although the amount of tax that may be imposed by the 14 state of source is limited. The petition is meritorious. the tax conventions are drafted with a view towards the elimination of international juridical double taxation. the Philippine tax paid on income from sources within the Philippines is allowed as a credit against German income and corporation tax on the same income. the state of source is the Philippines because the royalties are paid for the right to use property 17 or rights. S. for the reason that the phrase "paid under similar circumstances" is followed by the phrase "to a resident of a third state".. In negotiating tax treaties. a tax treaty resorts to several methods. located within the Philippines. On the other hand. The tax rates on royalties and the circumstances of payment thereof are the same for all the recipients of such royalties and there is no disparity based on nationality in the circumstances of such 6 payment. the . this dissimilarity is true particularly in the treaties between the Philippines and the United States and between the Philippines and West Germany. The second method for the elimination of double taxation applies whenever the state of source is given a full or limited right to tax together with the state of residence. In some cases. the royalty income of a German resident from sources within the Philippines arising from the use of. To begin with. The apparent rationale for doing away with double taxation is of encourage the free flow of goods and services and the movement of capital. or owns capital in. Therefore. In this case. which was upheld by the Court of Appeals. In the exemption method. First. conditions deemed vital in creating robust and 12 dynamic economies. secret formula or process. the taxes upon royalties under the RP-US Tax Treaty are not paid under circumstances similar to those in the RP-West Germany Tax Treaty since there is no provision for a 20 percent matching credit in the former convention and private respondent cannot invoke the concessional tax rate on the strength of the most favored nation clause in the RP-US Tax Treaty. We are unable to sustain the position of the Court of Tax Appeals. and none has been brought to our attention. although in some instances it may be taken into account in determining the rate of tax applicable to the taxpayer's remaining income or capital. design or model. both states are given the right to tax. 20 percent of the gross amount of such royalties. A.
the tax burden laid upon the income or capital of the investor. the tax which could have been collected by the Philippine government will simply be collected by another state. with a restraint on the tax that 18 may be collected by the state of source. the concessional tax rate of 10 percent provided for in the RP-Germany Tax Treaty should apply only if the taxes imposed upon royalties in the RP-US Tax Treaty and in the RP-Germany Tax Treaty are paid under similar circumstances..state of residence and the state of source are both permitted to tax the royalties. the United States shall allow to a citizen or resident of the United States as a credit against the United States tax the appropriate amount of taxes paid or accrued to the Philippines and. The most favored nation clause is intended to establish the principle of equality of international treatment by providing that the citizens or subjects of the contracting nations may enjoy the privileges accorded by either party to those of the most favored 26 nation. The essence of the principle is to allow the taxpayer in one state to avail of more liberal provisions granted in another tax treaty to which the country of residence of such taxpayer is also a party provided that the subject matter of taxation. The Vienna Convention on the Law of Treaties states that a treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and 22 purpose. the Supreme Court pointed out that laws are not just mere compositions. WHEREFORE. Furthermore. Under Article 13 thereof. Article 24 of the RP-Germany Tax Treaty. by the Philippines. . The purpose of a most favored nation clause is to grant to the contracting party treatment not less favorable than 25 that which has been or may be granted to the "most favored" among other countries. In one case. which is the counterpart provision with respect to relief for double taxation. however. and it would be better to impose the regular rate rather than lose much-needed revenues to another country. It bears stress that tax refunds are in the nature of tax exemptions. 1996 of the Court of Tax Appeals and the decision dated November 7. and technology. As such they are regarded as in derogation of 27 sovereign authority and to be construed strictissimi juris against the person or entity claiming the exemption. the ultimate reason for avoiding double taxation is to encourage foreign investors to invest in the 23 Philippines — a crucial economic goal for developing countries. Otherwise. We accordingly agree with petitioner that since the RP-US Tax Treaty does not give a matching tax credit of 20 percent for the taxes paid to the Philippines on royalties as allowed under the RP-West Germany Tax Treaty. On the other hand. At the same time. if not completely eliminate. The RP-US and the RP-West Germany Tax Treaties do not contain similar provisions on tax crediting. i. in this case royalty income. Such appropriate amount shall be based upon the amount of tax paid or accrued to the Philippines. should it impose a lower tax rate on the royalty earnings of the investor. The goal of double taxation conventions would be thwarted if such treaties did not provide for effective measures to minimize. If the state of residence does not grant some form of tax relief to the investor. Both Article 13 of the RP-US Tax Treaty and Article 12 (2) (b) of the RP-West Germany Tax Treaty. does not provide for similar crediting of 20% of the gross amount of royalties paid. The decision dated May 7. there should be a concomitant commitment on the part of the state of residence to 24 grant some form of tax relief. private respondent cannot be deemed entitled to the 10 percent rate granted under the latter treaty for the reason that there is no payment of taxes on royalties under similar circumstances. the instant petition is GRANTED. but such amount shall not exceed the 19 limitations provided by United States law for the taxable year. the intention behind the adoption of the provision on "relief from double taxation" in the two tax treaties in question should be considered in light of the purpose behind the most favored nation clause. and should give the law a reasonable or liberal construction which will best effectuate its purpose. The reason for construing the phrase "paid under similar circumstances" as used in Article 13 (2) (b) (iii) of the RPUS Tax Treaty as referring to taxes is anchored upon a logical reading of the text in the light of the fundamental purpose of such treaty which is to grant an incentive to the foreign investor by lowering the tax and at the same time crediting against the domestic tax abroad a figure higher than what was collected in the Philippines. no benefit would redound to the Philippines. As stated earlier. Thus. but the credit shall not exceed the limitations (for the purpose of limiting the credit to the United States tax on income from sources within the Philippines or on income from sources outside the United States) provided by United States law for the taxable year. . SO ORDERED. for all the foregoing. 21 . expressly allows crediting against German income and corporation tax of 20% of the gross amount of royalties paid under the law of the Philippines. patent. Given the purpose underlying tax treaties and the rationale for the most favored nation clause. is the same as that in the tax treaty under which the taxpayer is liable. The entitlement of the 10% rate by U. the evils to be remedied. speaks of tax on royalties for the use of trademark. in the case of a United States corporation owning at least 10 percent of the voting stock of a Philippine corporation from which it receives dividends in any taxable year. or the purpose to be subserved. the method employed to give relief from double taxation is the allowance of a tax credit to citizens or residents of the United States (in an appropriate amount based upon the taxes paid or accrued to the Philippines) against the United States tax. or the lowest rate of Philippine tax that may be imposed on royalties of the same kind paid under similar circumstances to a resident of a third state. if the rates of tax are lowered by the state of source. Private respondent is claiming for a refund of the alleged overpayment of tax on royalties. It is the duty of the courts to look to the object to be accomplished. in this case. there is nothing on record to support a claim that the tax on royalties under the RPUS Tax Treaty is paid under similar circumstances as the tax on royalties under the RP-West Germany Tax Treaty. above-quoted. but have ends to be achieved and that the general purpose is a more important aid to the meaning of a law than any rule which 20 grammar may lay down. Article 23 of the RP-US Tax Treaty. Said Article 23 reads: Article 23 Relief from double taxation Double taxation of income shall be avoided in the following manner: 1) In accordance with the provisions and subject to the limitations of the law of the United States (as it may be amended from time to time without changing the general principle thereof). increased investment resulting from a favorable tax regime. firms despite the absence of a matching credit (20% for royalties) would derogate from the design behind the most grant equality of international treatment since the tax burden laid upon the income of the investor is not the same in the two countries. . supra. This would mean that private respondent must prove that the RP-US Tax Treaty grants similar tax reliefs to residents of the United States in respect of the taxes imposable upon royalties earned from sources within the Philippines as those allowed to their German counterparts under the RP-Germany Tax Treaty. 1996 of the Court of Appeals are hereby SET ASIDE. 15 percent when the royalties are paid by a corporation registered with the Philippine Board of Investments and engaged in preferred areas of activities. defeating the object of the tax treaty since the tax burden imposed upon the investor would remain unrelieved. shall allow credit for the appropriate amount of taxes paid or accrued to the Philippines by the Philippine corporation paying such dividends with respect to the profits out of which such dividends are paid. whether this be in the form of a tax credit or exemption.S. the Philippines may impose one of three rates — 25 percent of the gross amount of the royalties. The burden of proof is upon him who claims the exemption in his favor and he must be able to justify his claim by the 28 clearest grant of organic or statute law. The similarity in the circumstances of payment of taxes is a condition for the enjoyment of most favored nation treatment precisely to underscore the need for equality of treatment.e.
the Court of Appeals ruled that respondent’s filing of an amended return indicating an overpayment was sufficient compliance with the 9 requirement of a written claim for refund. she filed another amended return indicating an overpayment of P358. During that period. vs. 2 COMMISSIONER OF INTERNAL REVENUE. 5828 with the Court of Tax Appeals (CTA). or the suit or proceeding therefor must be commenced in court within two (2) years from date of payment of the tax or penalty regardless of any 15 supervening cause. 1999 of the Court of Tax Appeals in C. Thus. A written claim for refund or tax credit must be filed by the taxpayer with the Commissioner.37 plus interests in the amount of P14. a condition precedent to the filing of a petition for 5 review before the CTA. through her representative. The decretal portion of the Court of Appeals’ decision reads: WHEREFORE. to wit: xxxx …Provided. 10 . finding the petition to be meritorious. Claiming that the income taxes withheld and paid by Intel and respondent resulted in an overpayment 4 ofP340. First. 2002. to allege in her petition the date of filing the final adjustment return. on June 17. deprived the court of its jurisdiction over the subject 6 matter of the case. first. 1999. On the other hand. respondent. petitioner. but it was denied. Intel withheld the taxes due on respondent’s compensation income and remitted to the Bureau of Internal Revenue (BIR) the amount ofP308. We are.. respondent and her husband filed with the BIR their Joint Individual Income Tax Return for the year 1996. Court of Appeals. Inc. (Intel). In its Resolution dated August 4. That a return filed showing an overpayment shall be considered as a written claim for credit or refund. The facts are as follows: Respondent is an employee of Intel Manufacturing Phils. does the amended return filed by respondent indicating an overpayment constitute the written claim for refund required by law. the requirements under Section 230 for refund claims are as follows: 1. the Court of Appeals reversed the CTA and directed the latter to resolve respondent’s petition for 8 review. before resorting to an action in court. xxxx Along the same vein. On March 21.92. the CTA noted that respondent’s omission. Second. Applying Section 204(c) of the 1997 National Internal Revenue Code (NIRC).274. (Emphasis ours.693. 5828 and ordered the latter to resolve respondent’s petition for review. SO ORDERED. and second. Abogado. J. respondent contends that the filing of an amended return indicating an overpayment ofP358. SO ORDERED. unable to agree with respondent’s submission on this score. to notify the government that such taxes have been questioned. Noteworthy.455.] the Petition for Review is hereby DISMISSED.56. This obviously is intended. Entrenched in our jurisprudence is the principle that tax refunds are in the nature of tax exemptions which are construed strictissimi juris against the taxpayer and Upon review. Inc. Respondent’s Motion to Dismiss is GRANTED. No. and the notice should then be borne in mind in estimating the revenue available for 16 expenditure. 3 respectively. v.A. 1997. categorically demanding recovery of overpaid taxes with the CIR.: Assailed in this petition for review are the Decision and Resolution dated February 13. respondent was assigned in a foreign country. the CTA ruled that respondent failed to file a written claim for refund with the CIR. WHETHER OR NOT THE 1997 TAX REFORM ACT CAN BE APPLIED RETROACTIVELY.918.) In our view. 1998. respondent filed on April 15.76. SP No. He claims that an actual written claim for refund is necessary before a suit for its recovery may proceed in any court. and not Section 204(c) of the new Tax Code. 2002 and May 29.274. on the first issue. 2007 Petitioner sought reconsideration. The claim for refund or tax credit must be filed. 55572 which had reversed the Resolution dated August 4. thereby vesting the CTA with jurisdiction over this case? Second. 1997.R.63. filed an amended return and a NonResident Citizen Income Tax Return. DECISION QUISUMBING. For the period January 1. which was effective starting only on January 1. we rule against respondent’s contention.PROSPECTIVITY G. however. 1996.A. however. II. 3. as represented by Virgilio A. WHETHER OR NOT THE CTA HAS JURISDICTION TO TAKE *COGNIZANCE+ OF RESPONDENT’S PETITION FOR 11 REVIEW. On October 8.T. which was the law then in effect.R. respondent. the CTA dismissed respondent’s petition. the instant petition raising the following questions of law: I. The Commissioner of Internal Revenue (CIR) moved to dismiss the petition for failure of respondent to file the mandatory written claim for refund before the CIR. 2. Hence. Accordingly[. The claim for refund must be a categorical demand for reimbursement. Case No.T. respondent invokes the liberal application of technicalities in tax refund cases. Later. 1997. to afford the CIR an opportunity to correct the action of subordinate officers.63 constitutes a written claim for refund pursuant to the clear proviso stated in the last sentence of Section 204(c) of the 1997 NIRC (new Tax Code). in view of all the foregoing. and paid the BIR P17. A claimant must first file a written claim for refund. of the Court of Appeals in CA-G. 7 1 While the main concern in this controversy is the CTA’s jurisdiction. The applicable law on refund of taxes pertaining to the 1996 compensation income is Section 230 of the old Tax Code. this Court GRANTS it due course and REVERSES the appealed Resolutions and DIRECTS the Court of Tax Appeal[s] to resolve the petition for review on the merits. inadvertently or otherwise. we must first resolve two issues.084. can the 1997 NIRC be applied retroactively? Petitioner avers that an amended return showing an overpayment does not constitute the written claim for refund 12 13 required under Section 230 of the 1993 NIRC (old Tax Code). The decretal portion of the CTA’s resolution states: WHEREFORE. conformably 14 with our ruling in BPI-Family Savings Bank. For one. Case No. 154068 August 3. 1999 a petition for review docketed as C. the law is clear. 1996 to December 31. ROSEMARIE ACOSTA.
hence. Furthermore. Section 204(c) should apply.T. the 1997 NIRC was already in effect. we find that we cannot give retroactive application to Section 204(c) abovecited. 5828 is herebyREINSTATED. Considering that taxes are the lifeblood of the government and in Holmes’s memorable metaphor. but also pursue it to its appropriate conclusion before seeking judicial intervention in order to give the administrative agency an opportunity to decide the matter itself correctly 21 and prevent unnecessary and premature resort to court action. 2002 and May 29. 55572 are REVERSED and SET ASIDE. Respondent.A. respondent had no reason at that time to think that the filing of an amended return would constitute the written claim for refund required by applicable law. however. We have to stress that tax laws are prospective in operation. unlike this case before us. WHEREFORE. Additionally. Inc. Neither can we apply the liberal interpretation of the law based on our pronouncement in the case of BPI-Family Savings Bank. by respondent in her petition for review. Hence. Case No. tax laws must be faithfully and strictly implemented. 2002. even the date of filing of the Final Adjustment Return was omitted. Moreover. we cannot agree that the amended return filed by respondent constitutes the written claim for refund required by the old Tax Code. the price we pay for civilization. SP No. the claimant must show indubitably the specific provision of law from which her right arises. No pronouncement as to costs. the law prevailing at that time. Revenue statutes are substantive laws and in no sense must their application be equated with that of remedial laws. it should be emphasized that a party seeking an administrative remedy must not merely initiate the prescribed administrative procedure to obtain relief. Both the assailed Decision and Resolution dated February 13. points out that when the petition was filed with the CTA on April 15. This the respondent did not follow through. of the Court of Appeals in CA-G. strict compliance with the 19 conditions imposed for the return of revenue collected is a doctrine consistently applied in this jurisdiction. Under the circumstances of this case. it could not escape notice that at the time respondent filed her amended return. As tax refunds involve a return of revenue from the government. inadvertently or otherwise. v. petitioner argues that the 1997 NIRC cannot be applied retroactively as the instant case involved refund of taxes withheld on a 1996 income. On the second issue. respectively. the 1997 NIRC was not yet in effect. SO ORDERED.R. Finally. To repeat. despite the fact that the refund being sought pertains to a 1996 income tax. After a thorough consideration of this matter. The Resolution dated August 4. 1999 of the Court of Tax Appeals in C. . as the CTA stressed. Court of Appeals. we cannot agree with the Court of Appeals’ finding that the nature of the instant case calls for the application of remedial laws. 20 unless the language of the statute clearly provides otherwise.liberally in favor of the government. as the taxpayer therein filed a written claim for refund aside from presenting other evidence to prove its claim. Note that the issue on the retroactivity of Section 204(c) of the 1997 NIRC arose because the last paragraph of Section 204(c) was not found in Section 230 of the old Code. it cannot be allowed to exist upon 17 a mere vague implication or inference nor can it be extended beyond the ordinary and reasonable intendment of 18 the language actually used by the legislature in granting the refund. This omission was fatal to respondent’s claim. the petition is GRANTED. 1999. revenue laws are not intended to be liberally 22 construed. for it deprived the CTA of its jurisdiction over the subject matter of the case. As well said in a prior case.
1999 and September 1. The assailed Decision reversed and set aside the Decision dated 04 May 2007 of the Court of Tax Appeals Second Division (CTA Second Division) in CTA Case No. Instead of submitting the documents required by the respondent. that: a. Petitioner’s acceptance and use of the TCCs as payment of its excise tax liabilities for the taxable years 1995 to 1998. the assessment made against it is void. 89-1037 and D95-136. The transfers and assignments of the said TCCs were approved by the Department of Finance’s One Stop Shop Inter-Agency Tax Credit and Duty Drawback Center (DOF Center). 03-05-99. vs. which ordered respondent Petron Corporation (Petron) to pay deficiency excise taxes for the taxable years 1995 to 1998. The Facts The CTA En Banc in CTA EB Case No. Prior to the cancellation of the aforesaid TCCs and TDMs.900. among others. construing the Warrant of Distraint and/or Levy as the final adverse decision of the BIR on its protest of the assessment. Respondent Petron is a corporation engaged in the production of petroleum products and is a Board of Investment (BOI) – registered enterprise in accordance with the provisions of the Omnibus Investments Code of 1987 (E. hence.335. and Spintex International. c.. 6423. The BIR did not comply with the requirements of Revenue Regulations 12-99 in issuing the "assessment" letter dated January 30. Master Colour System Corp. based on the ground that the TCCs utilized by petitioner in its payment of excise taxes have been cancelled by the DOF for having been fraudulently issued and transferred. On 27 March 2002. 2002..O. The cancellation by the DOF of the aforesaid TCCs and TDMs has the presumption of regularity upon which respondent may validly rely. 7. Inc. On April 30. examined and approved by the concerned government agencies which processed the assignment in accordance with law and revenue regulations. Respondent allegedly served the Warrant of Distraint and/or Levy against petitioner without first acting on its letter-protest. 2002 letter are already barred by prescription under Section 203 of the National Internal Revenue Code.32 tax deficiencies. DECISION SERENO. respondent [herein petitioner CIR] issued the assailed Assessment against petitioner for deficiency excise taxes for the taxable years 1995 to 1998. pursuant to its EXCOM Resolution No. the Department of Finance (DOF). respondent filed his Answer. No. 311. Inc. petitioner. Respondent. 9.’ C. was . the Bureau of Customs (BOC) and the Bureau of Internal Revenue (BIR).32. 2002.003. d.. Considering that there are no factual issues in this case.620. on February 27. The assignment/transfer of the TCCs to petitioner by the TCC holders was submitted to... 3 226) under Certificate of Registration Nos. b. On January 30. With such cancellation. should no longer be included in the ‘assessment’. FLB International Fiber Corp.. Some of the items included in the ‘assessment’ are already pending litigation and are subject of the case entitled ‘Commissioner of Internal Revenue vs. the TCCs and the Tax Debit Memos (TDMs) issued by the Center to petitioner against said TCCs were cancelled by the DOF. it was found that TCCs issued to Alliance Thread Co. 55330 (CTA Case No. 311 adopted the findings of fact by the CTA Second Division in CTA Case No. Petitioner. inclusive of surcharges and interests.003. Inc.: This is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure filed by the 1 Commissioner of Internal Revenue (CIR) assailing the Decision dated 03 December 2008 of the Court of Tax 2 Appeals En Banc (CTA En Banc) in CTA EB No. 2002. and e. GR SP No. through letters dated August 31. J.R. 03-05-99. Diamond Knitting Corp. we likewise adopt the findings of fact by the CTA En Banc. as follows: As culled from the records and as agreed upon by the parties in their Joint Stipulation of Facts and Issues. were fraudulently obtained and were fraudulently transferred to petitioner. Fiber Technology Corp. 1999.460.32 against it. 6423. Taking ground on a BOI letter issued on 15 May 1998 which states that ‘hydraulic oil. penetrating oil. raising the following as his Special Affirmative Defenses: 6. Petitioner was informed by the DOF of the post-audit conducted on the TCCs and was given the opportunity to submit documents showing that the TCCs were transferred to it in payment of petroleum products allegedly delivered by it to the TCC transferors upon which the TCC transfers were approved. therefore.NO ESTOPPEL AGAINST THE GOVERNMENT G. The assessment and collection of alleged excise tax deficiencies sought to be collected by the BIR against petitioner through the January 30. 2012 required by the DOF Center to submit copies of its sales invoices and delivery receipts showing the consummation of the sale transaction to certain TCC transferors.. with the admonition that failure to submit the required documents would result in the cancellation of COMMISSIONER OF INTERNAL REVENUE. through Assistant Commissioner Edwin R.. In a post-audit conducted by the One-Stop Inter-Agency Tax Credit and Duty Drawback Center (Center) of the Department of Finance (DOF).036. petitioner filed its protest letter to the ‘Assessment’ on the grounds. 2002. Abella served a Warrant of Distraint and/or Levy on petitioner to enforce payment of the P 739. 2002. petitioner (herein respondent Petron) had been an assignee of several Tax Credit Certificates (TCCs) from various BOI-registered entities for which petitioner utilized in the payment of its excise tax liabilities for the taxable years 1995 to 1998.036. Inc.A. the excise taxes for which they were used as payment are now deemed unpaid. namely. petitioner filed the instant petition before this Honorable Court [referring to the CTA Second Division] on April 2. 8. Filstar Textile Industrial Corp. respondent. PETRON CORPORATION. together with surcharges and delinquency interests imposed thereon.’ petitioner acknowledged and accepted the transfers of the TCCs from the various BOI -registered entities. 185568 March 21. the TCCs and TDMs have no value in money or money’s worth and. Jantex Philippines. had been continuously approved by the DOF as well as the BIR’s Collection Program Division through its surrender and subsequent issuance by the Assistant Commissioner of the Collection Service of the BIR of the Tax Debit Memos (TDMs). Thus. Jibtex Industrial Corp. in the total amount of P 739. Allstar Spinning. Petron Corporation. petitioner had utilized the same in the payment of its excise tax liabilities. pursuant to the Center’s Excom Resolution No. the Board of Investments (BOI). composed of representatives from the appropriate government agencies. As a result of said findings.. During the period covering the taxable years 1995 to 1998. these are the facts of the case. 5657) and hence.00 and interest penalties in the amount of P 260. diesel fuels and industrial gases are classified as supplies and considered the suppliers thereof as qualified transferees of tax credit. Thus. There is no basis for the imposition of the 50% surcharge in the amount of P 159.
06 19.455. No. FLB International Fiber Corp.273. Inc.638.24 20.783.547.300. this Court resolved to grant respondent’s Motion and allowed respondent to present additional evidence in support of his arguments. to prove fraud is not clear and convincing. Basic Tax P 12. it is a truism that every case must be presented in accordance with the prescribed procedure to insure an orderly administration of justice. Elizabeth R. a Request for the Issuance of Subpoena Duces Tecum to the Executive Director of the Center or his duly authorized representative. Since petitioner is deemed not to have paid its excise tax liabilities.977. a Subpoena Ad Testificandum to Ms.408. Hence.018. must be presented to prove the fraudulent issuance and transfer of the subject TCCs.00 18.302.812. Subsequent to this Court’s Resolution. Total 25.265.00 Fiber Technology Corp. 13 SCRA 257.151. demanding payment of petitioner’s excise tax liabilities explicitly states the basis for said demand.. it had reduced the amount of deficiency excise taxes to P 720. and the case at bar have distinct causes of action. In effect.912. 14. 2002 (should be January 30. a pre-assessment notice is not required under Section 228 of the Tax Code. The acceptance by the Bureau of Internal Revenue of the TCCs fraudulently obtained and fraudulently transferred to petitioner as payment of its excise tax liabilities turned out to be a mistake after the post-audit was conducted.50 P 340.954.21 105.666.00 Surcharge P 6.224.295.319.758.167.333.71 P 253.40 115. The former involves the invalid transfers of the TCCs to petitioner on the theory that it is not a qualified transferee thereof. 2004. 2002).00 16.204.536. but deferred the resolution of respondent’s original Formal Offer of Evidence until after the respondent has terminated his presentation of evidence. respondent filed a Manifestation informing this Court that on May 29.00 Interest P 16.50 12. 2004 contending that to sustain respondent’s motion would ‘smack of procedural disorder and spawn a reversion of the proceedings. Inc. for which reason said transfers were approved by the Center. 12.036.95 Total P 34.451. 16. 13.022. 10. While litigation is not a game of technicalities.265.192. the amount of deficiency excise taxes is recomputed as follows: Transferor Alliance Thread Co. thereby rendering the returns fraudulent. Commissioner of Internal Revenue.00 7. petitioner and the TCC transferors committed fraud in the transfer of the TCCs when they made appear (sic) that the transfers were in consideration for the delivery of petroleum products by petitioner to the TCCs transferors. As found in the post-audit.822. 2004.835.347.911.411.632.655.679.039. Sp.50 6.866.823. .486.764.310. 2004.822.527.802.753. Respondent submits that it is imperative on his part to do so considering that. Cruz.00 15.95 Diamond Knitting Corporation 36. Master Colour system Corp.00 7. 2004 on the ground that additional evidence consisting of documents presented to the Center in support of the TCC transferor’s claims for tax credit as well as document supporting the applications for approval of the transfer of the TCCs to petitioner.147. However.096. Petitioner used the TCCs fraudulently obtained and fraudulently transferred in the payment of excise taxes declared in its excise tax returns with intent to evade tax to the extent of the value represented by the TCCs.980.66 73.900.967.247.52 44. The letter dated January 20.224.558. the prescriptive period to collect the tax is ten (10) years from the discovery of the fraud pursuant to Section 222 of the Tax Code. when in fact there were no such deliveries. were fraudulently issued to the TCC transferors and were fraudulently transferred to Shell.078.00 25. that ‘there is no clear and convincing evidence that the Tax Credit Certificates (TCCs) transferred to Shell (for brevity) and used by it in the payment of excise taxes. but after respondent had already submitted his Formal Offer of Evidence for this Court’s consideration.587. The case pending in the Court of Appeals (CA-G. it is liable for the 50% surcharge and 20% annual interest imposed under Sections 248 and 249 of the Tax Code. The government is never estopped from collecting legitimate taxes due to the error committed by its agents (Visayas Cebu Terminal Inc.950. vs. among others.R.50 12.64 33.547.781.90 54. 55330 [CTA Case No.869. Atlas Consolidated Mining and Development Corporation vs. Inc. Jibtex Industrial Corp.456.16 34.’ On October 4.’ An ‘Opposition to Urgent Motion to Reopen Case’ was filed by petitioner on September 3.35 34.891.650.00 P 126. respondent then filed on October 20. 102 SCRA 246).404. Since petitioner wilfully filed fraudulent returns.00 33. he filed an ‘Urgent Motion to Reopen Case’ on August 24. 2002. Spintex International Inc.06 41.264. Petitioner was also informed of the cancellation of the TCCs and TDMs and the reason for their cancellation. on November 12.21 49.e. Allstar Spinning. 11. and on October 21. said payments were void and the excise taxes may be validly collected from petitioner.923. he may suffer the same fate that had befallen upon therein respondent when this Court held.695.00 40.14 15.383.224. also of the Center.923.the transfers. Filstar Textile Corp.24 P 720. and 17. 15. Jantex Philippines.382.506. i.50 20.768.879. without necessarily admitting that the evidence presented in the case of Pilipinas Shell Petroleum Corporation vs.00 37.50 18.00 49. while the latter involves the fraudulent procurement of said TCCs and the fraudulent transfers thereof to petitioner.767.934.293. Commissioner of Internal Revenue.74 During the pendency of the case.368.24 43. Since petitioner wilfully filed fraudulent returns with intent to evade tax.52 94.926.471.00 14.655.411.293.257..00 12.74 as a result of its verification that some of the TCCs which formed part of the original "Assessment" were already included in a case previously filed with this Court.71 104.772.299. 2002.072.550.85 72. Commissioner of Internal Revenue. the cancellation of the TCCs and TDMs. 5657]).610.
714. Inc.699.911.75 10.791. 6136 was already submitted for decision on 4 April 24. 2006. petitioner is ORDERED TO PAY the respondent TWENTY FIVE PERCENT (25%) LATE PAYMENT SURCHARGE AND TWENTY PERCENT (20%) DELIQUENCY INTEREST per annum on the amount of SIX HUNDRED MILLION SEVEN HUNDRED SIXTY NINE THOUSAND THREE HUNDRED FIFTY THREE & 95/100 PESOS (P 600. the CTA Second Division promulgated a Decision in CTA Case No.Petitioner filed a ‘Motion for Reconsideration (Re: Resolution dated October 4. 2004." Hence. which was considered a suspensive 8 condition governed by Article 1181 of the Civil Code.572.25 45. The CTA Second Division also affirmed its ruling that Petron was liable for a 25% late payment 13 14 surcharge and 20% surcharges under Section 248 of the National Internal Revenue Code (NIRC) of 1997. SO ORDERED.408. Petitioner’s motion was denied by this Court in a Resolution dated February 28.00 15.T.558. On April 28.95 In addition. and petitioner subsequently filing its ‘Reply to Opposition’ on December 20.536.147. 2005.353.333.00 9.04 60.934. This Court granted respondent’s motion in the Resolution dated April 24. Petron filed a Motion for Reconsideration of the Decision of the CTA Second Division. the instant Petition for Review is hereby DENIED for lack of merit. this Court granted respondent’s motion only insofar as taking judicial notice of the fact that each of the dorsal side of the TCCs contains the subject ‘liability clause’.670.77 79.96 Diamond Knitting Corporation 36. computed from June 27.520.75 6.606.102. The court reiterated its conclusion that the TCCs utilized by Petron to pay the latter’s excise tax liabilities did not result in payment after these TCCs were found to be fraudulent in the postaudit by the DOF. 2004. the said court concluded that since the TCCs used by Petron were found to be spurious. respondent was deemed to have not paid its excise taxes and ought to be liable to the 10 CIR in the amount of P 600.353.668. 2006.191. the dispositive portion of which reads: WHEREFORE.191.769. on the ground that both cases involve the same parties and common questions of law or fact.95 plus 25% interests and 20% surcharges.80 29. 2004 and ‘Supplemental Formal Offer of Evidence’ filed on August 25.393.310.205.077. respondent filed a ‘Motion for Partial Reconsideration’ of the Court’s Resolution to admit Exhibits 31 and 31-A on the ground that he already submitted and offered certified true copies of said exhibits. this Court denied the Motion of petitioner for lack of merit.192.75 P 283.475.95).965.00 Fiber Technology Corp. Total 25. The CTA Second Division ruled that payment can only occur if the instrument used to discharge an 6 obligation represents its stated value.066. An ‘Opposition/Comment on Omnibus Motion’ was filed by petitioner on June 26.27 37.95). 6423. Filstar Textile Corp. On November 7.673.506.55 61.03 28.20 P 600. Jantex Philippines.876. Allstar Spinning. and ‘Reply to Opposition/Comment’ was filed by respondent on July 17.00 P 63.70 17.177.353.384.351.769. the Court finally resolved respondent’s ‘Formal Offer of Evidence’ filed o n May 7. but denied respondent’s motion to consolidate considering that C.88 34. which denied the motion in 12 a Resolution dated 14 August 2007.46 Total P 28. on February 10.146.628.00 14.009. Basic Tax P 12. On March 18.70 36. FLB International Fiber Corp. Inc.00 40.945.325.327. this case was then considered submitted for decision.266.50 20% Interest P 13. 2006 and considering that the parties already filed their respective Memoranda. 6136. 2005.078.00 3.640.036.00 12.764. 11 . Inc. 2005 for lack of merit.823. Jibtex Industrial Corp.265.302. On May 16. 2006. 2006. contained the standard ‘Liability Clause’ and that the case be consolidated with CTA Case No. However.728.484. These taxes corresponded to the value of the TCCs Petron used for payment.00 41. 2006. 2006.353.852.75 3.900. 5 The CTA Second Division held Petron liable for deficiency excise taxes on the ground that the cancellation by the DOF of the TCCs previously issued to and utilized by respondent to settle its tax liabilities had the effect of nonpayment of the latter’s excise taxes.59 P 253.75 9. which the Court granted in its Resolution on January 19.122. 2002 until the amount is fully paid.136.053.333. On November 22.705. recomputed as follows: Transferor Alliance Thread Co.805. Accordingly.75 6.575. Spintex International Inc.50 8.175.00 33.227. 2005 stating that ‘the question of which Division of this Honorable Court shall hear the instant case is an internal matter which is better left to the sound discretion of this Honorable Court without interference by a party litigant’.362.767.019.018.209.150.713. Master Colour system Corp. respondent filed an ‘Omnibus Motion’ praying that this Court take judicial notice of the fact that the TCCs issued by the Center. petitioner filed an ‘Urgent Motion to Revert Case to the First Division’ with respondent’s ‘Manifestation’ filed on April 6.143.43 88.88 16.316. Case No. 2006.048.456. however. respondent filed a ‘Motion to Amend Formal Offer of Evidence’ praying that he be allowed to amend his formal offer since some exhibits although attached thereto were inadvertently not mentioned in the Formal Offer of Evidence. 2005.939.769.222.59 87.483. 2004.769.695. petitioner is ORDERED TO PAY the respondent the reduced amount of SIX HUNDRED MILLION SEVEN HUNDRED SIXTY NINE THOUSAND THREE HUNDRED FIFTY THREE AND 95/100 PESOS (P600.912. It further ruled that Petron’s acceptance of the TCCs was considered a 7 contract entered into by respondent with the CIR and subject to post-audit. premises considered.579.00 37.00 25% Surcharge P 3. 6423) On 04 May 2007.083.783. Petitioner’s ‘Opposition’ was filed on March 14. the CTA Second Division found that the circumstances pertaining to the issuance of the subject TCCs and 9 their transfer to Petron "brim with fraud.00 3. 2005. In a Resolution promulgated on September 1. representing petitioner’s deficiency excise taxes for the taxable years 1995 to 1998. The Ruling of the Court of Tax Appeals–Second Division (CTA Case No.28 13.300.298.A. 2006. 2005. 2004)’ on October 27.587. Further.547.00 25.554. with respondent filing his ‘Opposition’ on November 4.566. including the TCCs in this instant case.68 41.29 28.00 96.009.725.
v. respondent merely succeeded to the rights of the tcc assignors/transferors. the instant petition for Review is hereby GRANTED. the CTA En Banc promulgated a Decision.) Finally.353. Petron alleged that the Second Division erred in holding respondent liable to pay the amount of P 600.353. 2002 until the amount is fully paid. the CTA En Banc adopted the main points in Shell. Respondent was involved in the perpetration of fraud in the tccs’ transfer and utilization. In resolving the issues. petitioner vs. Moreover.) No. Petron is thus considered to have not fraudulently filed its excise tax returns. which it quoted at length as basis for deciding the appeal in favor of Petron. 28 The CIR moved for the reconsideration of the CTA En Banc Decision. the assessment prescribes in ten (10) years from the discovery of the falsity thereof pursuant to section 22 of the same 31 code. The Issues The CIR appealed the Decision of the CTA En Banc by filing a Petition for Review on Certiorari under Rule 45 of the 30 Rules of Court.95 as deficiency excise taxes for the years 1995-1998. Accordingly. and respondent-Commissioner of Internal Revenue is hereby ENJOINED from collecting the said amount from PETRON. as follows: Whether or not the Second Division erred in holding petitioner liable for the amount of P 600.769. SO ORDERED. and that CIR be enjoined from 15 collecting the contested excise tax deficiency assessment. yet this principle cannot be 25 applied to work injustice against an innocent party. but the motion was denied in a Resolution 29 dated 14 August 2007. if the tccs assigned to respondent were void. 6423 before 24 the CTA Second Division. The gist of the main points of Shell cited by the said court is as follows: a) The issued TCCs are immediately valid and effective and are not subject to a post-audit as a suspensive 18 condition b) A TCC is subject only to the following conditions: i) Post-audit in the event of a computational discrepancy ii) A reduction for any outstanding account with the BIR and/or BOC iii) A revalidation of the TCC if not utilized within one year from issuance or date of utilization c) A transferee of a TCC should only be a BOI-registered firm under the Implementing Rules and 20 Regulations of Executive Order (E. and nowhere is this truer than in the field of taxation. Its ruling in favor of Petron was anchored on this Court’s pronouncements in Pilipinas Shell Petroleum 17 Corp. Accordingly. which reversed and set aside the CTA Second Division on 04 May 2007.95 excluding penalties and interest covering the taxable years 1995 to 1998 are hereby CANCELLED and SET ASIDE. In its Petition.O. 226. respondent". the May 4. as it was already cancelled after the transferee had applied it 23 as payment for the latter’s excise tax liabilities. The former absolved Petron from any deficiency excise tax liability for taxable years 1995 to 1998. it did not acquire any valid title over the tccs. Petron appealed the Decision to the CTA En Banc through a Petition for Review. the 27 assessment issued by the CIR against it had no legal basis. The CTA En Banc summed up into one issue the grounds relied upon by Petron in its Petition for Review. the CTA En Banc ruled that Petron was considered an innocent transferee of the subject TCCs and may not be prejudiced by a re-assessment of excise tax liabilities that respondent has already settled. As assignee/transferee of the tccs. Consequently. which was docketed as CTA EB No. Commissioner of Internal Revenue. 2007 Decision and August 14. 6423 entitled. with the 26 use of the TCCs. The Ruling of the Court of Tax Appeals En Banc (CTA EB Case No. 2007 Resolution of the CTA Second Division in CTA Case No. plus 25% surcharge and 20% 16 delinquency interest per annum from June 27. The finding of the cta second division that the tax credit certificates were fraudulently transferred by the transferor-companies to respondent is supported by substantial evidence. In resolving the issue of whether the government is estopped from collecting taxes due to the fault of its agents. Arguments I The cta en banc erred in finding that respondent petron was not shown to have participated in the fraudulent acts. IV Respondent is liable for 25% surcharge and 20% interest per annum pursuant to the provisions of sections 248 and 249 of the NIRC. e) A transferee can rely on the Center’s approval of the TCCs’ transfer and subsequent acceptance as 22 payment of the transferee’s excise tax liability.353. The dispositive portion of the assailed 03 December 2008 Decision of the CTA En Banc reads: WHEREFORE.769. since respondent’s returns were false. 311) On 03 December 2008. d) The liability clause in the TCCs provides only for the solidary liability of the transferee relative to its 21 transfer in the event it is a party to the fraud.95 in deficiency excise taxes with penalties and interests covering the taxable years 1995-1998. Petitioner assails the Decision by raising the following issues: The court of tax appeals committed reversible error in holding that respondent petron is not liable for its excise tax liabilities from 1995 to 1998. (Emphasis supplied.Aggrieved.769. The CTA En Banc also found that Petron had no participation in or knowledge of the fraudulent issuance and transfer of the subject TCCs. which found that the factual background and legal issues therein were similar to those in the present case. In fact. III The government is not Estopped from collecting taxes due to the mistakes of its agents. f) A TCC cannot be cancelled by the Center. . are hereby REVERSED and SET ASIDE. the demand and collection of the deficiency excise taxes of PETRON in the amount of P 600. the parties made a joint stipulation on this matter in CTA Case No. "Petron Corporation. In addition. including surcharges and interest. Petron prayed that the said Decision be reversed and set aside. Commissioner of Internal Revenue (Shell). when due. II Respondent cannot validly claim the right of innocent transferee for value. 311. the CTA En Banc quoted Shell as follows: 19 While we agree with respondent that the State in the performance of government function is not estopped by the neglect or omission of its agents.
the money value of which may be used in payment or in satisfaction of any of his internal revenue tax liability (except those excluded). or the Board. Its 36 purpose is to expedite the processing and approval of tax credits and duty drawbacks. because the latter did not supply petroleum products to the companies 40 that were the assignors of the subject TCCs. Petron did not deliver fuel and other petroleum products to the companies (the transferor companies) that had assigned the subject TCCs to respondent. However. Upon surrender of the TCC and the DOF-TDM. That petitioner (Petron) did not participate in the procurement and issuance of the TCCs. Under the said regulation. who are tasked to process the 37 TCC and approve its application as payment of an assignee’s tax liability. duties. a close examination of the arguments proffered by the CIR in their Petition calls for a reevaluation of the sufficiency of evidence in the case. is treated as a judicial admission. which TCCs were 43 transferred to Petron and later utilized by Petron in payment of its excise taxes. Not finding merit in the CIR’s contention. herein parties jointly stipulated before the Second Division in CTA Case No. The processing of a TCC is entrusted to a specialized agency called the "One-Stop-Shop Inter-Agency Tax Credit and Duty Drawback Center" ("Center"). the CIR cannot now be allowed to change its stand and renege on that admission. Petitioner believes that there was substantial evidence to 39 support its allegation of a fraudulent transfer of the TCCs to Petron. Under Section 4. Thus. We agree with the pronouncement of the CTA En Banc that Petron has not been shown or proven to have participated in the alleged fraudulent acts involved in the transfer and utilization of the subject TCCs. From the records. the corresponding Authority to Accept Payment of Excise Taxes (ATAPET) will be issued by the BIR Collection Program Division and will be submitted to the issuing office of the BIR for acceptance by the Assistant Commissioner of Collection Service. This stipulation of fact by the CIR amounts to an admission and. the CIR impugns the CTA En Banc ruling that respondent was a 42 transferee in good faith and for value of the subject TCCs. The tax credit certificates including those issued by the Board pursuant to laws repealed by this Code but without in any way diminishing the scope of negotiability under their laws of issue are transferable under such conditions as may be determined by the Board after consultation with the Department of Finance. 6423 as follows: 13. we observe that the CIR had no allegation that there was a deviation from the process for the approval of the TCCs. Bureau of Customs (BOC) and Bureau of Internal Revenue (BIR). by the Commissioner or his duly authorized representative.The Court’s Ruling We DENY the CIR’s Petition for lack of merit. duly issued to the taxpayer named therein. as may be prescribed by the provisions of these Regulations. Under Article 39 (j) of the Omnibus Investment Code of 1987. In this case. a judicial 44 admission requires no proof. issued by the BIR on 15 August 2000. Section 4 is that an admission may be contradicted only by a showing that it was made through a palpable mistake. or may otherwise be disposed of in the manner and in accordance with the limitations. The Center is composed of a representative from the DOF as its chairperson. created on 07 February 1992 under Administrative Order (A. and (2) it must be revalidated thereafter or be otherwise considered invalid. . That such tax credits shall be valid only for a period of ten (10) years from date of issuance. 2) the transfer of a TCC should be limited to one transfer only. The tax credit certificate shall be used to pay taxes. A TCC is defined under Section 1 of Revenue Regulation (RR) No. because the petroleum products were delivered 46 not to the transferor but to other companies. "Tax credit" shall mean any of the credits against taxes and/or duties equal to those actually paid or would have been paid to evidence which a tax credit certificate shall be issued by the Secretary of Finance or his representative. exception to the rule does not exist. Clearly. a recalibration of the sufficiency of evidence presented by the CIR is needed for a different conclusion to be reached. A TCC may be assigned through a Deed of Assignment. revalidation and transfer. Thus. which found Petron to have had no participation in the fraudulent procurement and transfer of the TCCs. if any. however. Thus. as no proof is required for an admission 45 made by a party in the course of the proceedings. and the members thereof are representatives of the Bureau of Investment (BOI). or that no such admission was made. we affirm the ruling of the CTA En Banc finding that Petron is a transferee in good faith and for value of the subject TCCs. 226 defines a tax credit as follows: ARTICLE 21. the Center will issue a DOF Tax Debit Memo (DOF-TDM). the TCCs assigned by the transferor companies to Petron were fraudulent. 5-2000.) No. acknowledging that the grantee-taxpayer named therein is legally entitled a tax credit. The Court cannot lightly set it aside. which the assignee submits to the Center for its approval.O. and 3) the transferee shall strictly use the TCC for the payment of the assignee’s direct internal revenue tax liability and shall not be convertible to 34 cash. if so delegated by the Secretary of Finance. Moreover. 32 Thus. The CIR seeks to persuade this Court to believe that there is substantial evidence to prove that Petron committed a misrepresentation. charges and fees due to the National Government. having been made by the parties in a stipulation of facts at pretrial. The exception provided in Rule 129. especially when the opposing party relies upon it and accordingly dispenses with further proof of the fact already admitted. It may be transferred in favor of an assignee subject to the following conditions: 1) the TCC transfer must be with prior approval of the Commissioner or the duly authorized representative. That the tax credits issued under this Code shall not form part of the gross income of the grantee/transferee for income tax purposes under Section 29 of the National Internal Revenue Code and are therefore not taxable: Provided. Rule 129 of the Rules of Court. The CIR quotes the CTA Second Division and urges us to affirm the latter’s Decision. as follows: B. The CIR bases its contentions on the DOF’s post-audit findings stating that. Tax Credit Certificate — means a certification. reduced in a BIR Accountable Form in accordance with the prescribed formalities. RR 5-2000 prescribes the regulations governing the manner of issuance of TCCs and the conditions for their use. for the periods covering 1995 to 1998. the CIR disputes the ruling of the CTA En Banc. In the case at bar. further. The joint stipulation made by the parties consequently obviated the opportunity of the CIR to present evidence on this matter. 38 Upon approval of the deed. Petron had the right to rely on the joint stipulation that absolved it from any participation in the alleged fraud pertaining to the issuance and procurement of the subject TCCs. As correctly noted by the CTA En Banc. which Petron used as payment to settle its excise tax liabilities for the years 1995 to 1998. Petitioner further alleges that the findings indicate that the transferor companies could not have had such a high volume of export sales declared to the Center and made the basis for 41 the issuance of the TCCs assigned to Petron. A TCC is valid only for 10 years subject to the following rules: (1) it must be utilized within five (5) years 35 from the date of issue. 226. tax credits are granted to entities registered with the Bureau of Investment (BOI) and are given for taxes and duties paid on raw materials used for the manufacture of their export products. Provided. which found Petron to have participated in the fraudulent issuance and transfer of the TCCs. or may be converted as a cash refund. which will be utilized by the assignee to pay the latter’s tax liabilities for a specified period. The CIR further contends that respondent was not a qualified transferee of the TCCs. Article 21 of E. any merit in the position of petitioner on this issue is negated by the Joint Stipulation it entered into with Petron in the proceedings before the said Division. it is apparent that a TCC undergoes a stringent process of verification by various specialized government agencies before it is accepted as payment of an assignee’s tax liability. a TCC may be used by the grantee or its assignee in the 33 payment of its direct internal revenue tax liability. This act of the BIR signifies its acceptance of the TCC as payment of the assignee’s excise taxes.O.
. Conversely. unless there is a showing that the findings of the lower court are totally devoid of support or are 49 glaringly erroneous as to constitute palpable error or grave abuse of discretion. without prescribed grounds or limits as to the exercise of said post-audit.) We also find that the post-audit report. this is clear from the Guidelines and instructions found at the back of each TCC. this Court's Second Division definitively ruled in the aforesaid Pilipinas Shell case that the post audit is not a suspensive condition for the validity of TCCs. the One-Stop-Shop Tax Credit Center shall issue the corresponding Tax Debit Memo (TDM) to the grantee. thus. A transferee in good faith and for value of a TCC who has relied on the Center's representation of the genuineness and validity of the TCC transferred to it may not be legally required to pay again the tax covered by the TCC which has been belatedly declared null and void. xxx xxx xxx 4. Our system of laws and procedures abhors ambiguity. CIR (Petron). the CIR does not point out any specific provision of law that was wrongly interpreted by the CTA En Banc in the latter’s assailed Decision. which declared that the subject 50 TCCs were obtained through fraud and. EO 765. was clarified by this Court in Shell. Evidently. The Liability Clause of the TCCs reads: Both the TRANSFEROR and the TRANSFEREE shall be jointly and severally liable for any fraudulent act or violation of the pertinent laws. It is not only unjust but well-nigh violative of the constitutional right not to be deprived of one's property without due process of law. specific laws." The foregoing guidelines cannot be clearer on the validity and effectivity of the TCC to pay or settle tax liabilities of the grantee or transferee. This Tax Credit Certificate (TCC) shall entitle the grantee to apply the tax credit against taxes and duties until the amount is fully utilized. not the general provisions of the Civil Code. In finally determining their effectivity in the settlement of respondent’s excise tax liabilities. because the TCCs assigned to respondent were void. does not have the effect of a suspensive condition that would determine the validity of the TCCs. if the TCCs are considered to be subject to post-audit as a suspensive condition. Such an exception does not obtain in the circumstances of this case. Any fraud or breach of law or rule relating to the issuance of the TCC by the Center to the transferor or the original grantee is the latter's responsibility and liability. Among the applicable laws that cover the TCCs are EO 226 or the Omnibus Investments Code. Petitioner anchors it contention on the alleged existence of the sufficiency of evidence it had proffered to prove that Petron was involved in the perpetration of fraud in the transfer and utilization of the subject TCCs. There is nothing in the above clause that provides for the liability of the transferee in the event that the validity of the TCC issued to the original grantee by the Center is impugned or where the TCC is declared to have been fraudulently procured by the said original grantee. a tax payment through a TCC cannot be both effective when made and dependent on a future event for its effectivity. No investor would take the risk of utilizing TCCs if these were subject to a post-audit that may invalidate them. that is. The authorized Revenue Officer/Customs Collector to which payment/utilization was made shall accomplish the Application of Tax Credit at the back of the certificate and affix his signature on the column provided. had no monetary value. as follows: The above clause to our mind clearly provides only for the solidary liability relative to the transfer of the TCCs from the original grantee to a transferee. Letter of Instructions No. Petitioner based its allegations on the post-audit report of the DOF. 1181 does not apply to the present case since the parties did NOT agree to a suspensive condition. The CIR claims that Petron was not an innocent transferee for value. more so when surcharges and interests are likewise assessed. or regulation specifies a period when a post-audit should or could be conducted with a prescriptive period? Clearly. which categorically states that a TCC is valid and effective upon its issuance and is not subject to a post-audit. It is basic that where it is the sufficiency of evidence that 48 is being questioned. 106 (c) of the Tariff and Customs Code. rules and regulations relating to the transfer of this TAX CREDIT CERTIFICATE. Petitioner further contends that the Liability Clause of the TCCs makes the transferee or assignee solidarily liable with the original grantee for any fraudulent act pertinent to their procurement and transfer. We are not persuaded by the CIR’s position on this matter. said transferee is liable for the taxes 52 and for the fraud committed as provided for by law. the solidary liability. applies only to the sale of the TCC to the transferee by the original grantee. As aptly pointed out in the dissent of Justice Lovell Bautista in CTA EB No. if we are to sustain the appellate tax court. The scope of this solidary liability. 1355. RP-US Military Agreement. The CIR adds that the TCCs were subject to a post-audit by the Center to complete the payment of the excise tax liability to which they were applied. the validity of those TCCs should not depend on the results of the DOF’s post-audit findings. Thus. Sec. rules and regulations. (T)he TCCs are immediately valid and effective after their issuance. 1181 tells us that the condition is suspensive when the acquisition of rights or demandability of the obligation must await the occurrence of the condition. The transferee in good faith and for value may not be unjustly prejudiced by the fraud committed by the claimant or transferor in the procurement or issuance of the TCC from the Center. that TCCs are valid and effective from their issuance and are not subject to a post-audit as a suspensive condition for their validity. if any. However. We held thus in Petron: As correctly pointed out by Petron. which provide: 1. rules. The CIR assails the contrary ruling of the CTA En Banc. To acknowledge application of payment. Nowhere in the aforementioned laws does the post-audit become necessary for the validity or effectivity of the TCCs. thus: Art. and others. which confined the solidary liability only to the original grantee of the TCCs. Does the payment made become effective if no post-audit is conducted? Or does the so-called suspensive condition still apply as no law. and regulations govern the subject TCCs. Moreover. on which the CIR based its allegations. petitioner believes that the correct interpretation of the Liability Clause in the TCCs makes Petron and the transferor companies or the original grantee solidarily liable for any fraudulent act or violation of the pertinent 51 laws relating to the transfers of the TCCs. it would be absurd to make the effectivity of the payment of a TCC dependent on a post-audit since there is no contemplation of the situation wherein there is no post-audit. 106 of the NIRC. Our ruling in Petron finds guidance from our earlier ruling in Shell. Nowhere in the aforementioned laws is it provided that a TCC is issued subject to a suspensive condition. Rather. . however. as they do not make the effectivity and validity of the TCC dependent on the outcome of a post-audit. rule. Art. the issue about the immediate validity of TCCs and the use thereof in payment of tax liabilities and duties are not matters of first impression for this Court. BIR Revenue Regulations (RRs). after the TCCs have been fully utilized through settlement of internal revenue tax liabilities. (Emphasis supplied. a re-assessment of tax liabilities previously paid through TCCs by a transferee in good faith and for value is utterly confiscatory. which is on all fours with the instant case. xxx xxx xxx 53 . as stated in the TCCs. The implication on the instant case of the said earlier ruling is that Petron has the right to rely on the validity and effectivity of the TCCs that were assigned to it. an allegation that the CTA En Banc failed to consider. 64. We have consistently held that it is not the function of this Court to analyze or weigh the evidence all over again. in accordance with the pertinent tax and customs laws. Thus. Taking into consideration the definition and nature of tax credits and TCCs.The fundamental rule is that the scope of our judicial review under Rule 45 of the Rules of Court is confined only to 47 errors of law and does not extend to questions of fact. In fact. . the very purpose of the TCC would be defeated as there would be no guarantee that the TCC would be honored by the government as payment for taxes. when the transferee is party to the fraud as when it did not obtain the TCC for value or was a party to or has knowledge of its fraudulent issuance. Sec. We held in Petron v. Thus. there is a question of fact.
Petron. Thus. the CIR’s invocation of the non-applicability of estoppel in this case is misplaced. were subsequently found to be vo id. On the final issue it raised. Given the circumstances. however. Petitioner considers the tax returns filed by respondent for the years 1995 to 1998 as fraudulent on the basis of the post-audit finding that the TCCs were void. As an exception. petitioner contends that the TCCs. Respondent’s status as a transferee in good faith and for 58 value of these TCCs has been established and even stipulated upon by petitioner. we affirm the CTA En Banc Decision finding Petron to be an innocent transferee for value of the subject TCCs. Hence. WHEREFORE. Shell and Petron recognized an exception that holds the transferee/assignee liable if proven to have been a party to the fraud or to have had knowledge of the fraudulent issuance of the subject TCCs. . The CIR explains that respondent’s assessment on 30 January 2002 of respondent’s deficiency excise tax for 62 the years 1995 to 1998 was well within the ten-year prescription period. the CIR insists that the government is not estopped from collecting from Petron the excise tax liabilities that had accrued to the latter as a result of the voidance of these TCCs. Respondent was thereby 59 provided ample protection from the adverse findings subsequently made by the Center. the Tax Returns it filed for the years 1995 to 1998 are not considered fraudulent.1âwphi1 Taxes are the nation’s lifeblood through which government agencies continue to operate and 56 with which the State discharges its functions for the welfare of its constituents. In the light of the main ruling in this case. the CIR contends that a 25% surcharge and a 20% interest per annum must be imposed upon Petron for respondent’s excise tax liabilities as mandated under Sections 248 and 249 of the National Internal 60 Revenue Code (NIRC). On the issue of estoppel.The inescapable conclusion is that the TCCs are not subject to post-audit as a suspensive condition. 311 is hereby AFFIRMED in toto. In addition. SO ORDERED. As earlier mentioned. the CIR’s Petition is DENIED for lack of merit. the CIR had no legal basis to assess the excise taxes or any penalty surcharge or interest thereon. Consequently. which the Center had continually approved as payment for respondent’s excise tax liabilities. as respondent had already paid the appropriate excise taxes using the subject TCCs. in this case. Petitioner argues that the State should not be prejudiced by the neglect or 55 omission of government employees entrusted with the collection of taxes. and are thus 54 valid and effective from their issuance. the parties entered into a joint stipulation of facts stating that Petron did not participate in the procurement or issuance of those TCCs. was not proven to have had any participation in or knowledge of the CIR’s allegation of the fraudulent transfer and utilization of the subject TCCs. this 57 general rule cannot be applied if it would work injustice against an innocent party. Thus. We recognize the well-entrenched principle that estoppel does not apply to the government. No pronouncement as to costs. The CTA En Banc Decision dated 03 December 2008 in CTA EB No. we affirm the CTA En Banc’s ruling that respondent was an innocent transferee for value thereof. We are not persuaded by the CIR’s argument. especially on matters of taxation. It argues that the prescriptive period 61 within which to lawfully assess Petron for its tax liabilities has not prescribed under Section 222 (a) of the Tax Code.
COURT OF APPEALS.61 1989 007732 11 July 1996 P37.994.39 ————— ————— —————— —————— 1st Qtr. 1991 12.88 ————— ————— —————— —————— 47. 1992. In view of the BIR's denial of the offsetting of Philex's claim for VAT input credit/refund against its excise tax 7 obligation.668.177.982.409.677. CV No.837.52.64 22. Itogon-Suyoc Mines.341.677.620. The 12 pertinent portion of which reads: WHEREFORE.88 ————— ————— —————— —————— 43.13 4.82 30.49 1. the Court of Appeals a Affirmed the Court of Tax Appeals observation. 3rd and 4th quarter of 1991 as well as the 1st and 2nd quarter of 1992 in the total amount of P123.835.088. a few days after the denial of its motion for reconsideration.52 3 ========= ========= ========= ========= the total tax liabilities of Philex of P123.851.748.988. 1992 23. nevertheless. the claims of the Petitioner for VAT refund is still pending litigation.631. 1992.01. In reply. 125704 August 28. No. 4707).52 computed as follows: PERIOD COVERED BASIC TAX 25% SURCHARGE INTEREST TOTAL EXCISE TAX DUE 2nd Qtr. both obligations must be liquidated and demandable.325. for legal compensation to take place. in a letter dated September 7. However. Therefore these claims for tax credit/refund should be applied against the tax 5 liabilities. In the instant case.821.845. it follows that no legal compensation can take place.94 11.97 123.317. found no merit in Philex's position.52.. 1996.781. In the course of the proceedings.671. Philex was able to obtain its VAT input 14 credit/refund not only for the taxable year 1989 to 1991 but also for 1992 and 1994. the BIR reiterated its demand that Philex settle the amount plus interest within 30 days from the receipt of the letter. Philex filed a motion for reconsideration which was. 1996 in CA-G. computed as follows: Period Covered Tax Credit Date By Claims For Certificate of VAT refund/credit Number Issue Amount 1994 (2nd Quarter) 007730 11 July 1996 P25.037. Debts are due to the Government . the Court of Tax Appeals ruled that "taxes cannot be subject to set-off on compensation since claim for 9 10 taxes is not a debt or contract.580.926.194.91 3rd Qtr.70 10.19.362.501.. 1918. We see no merit in this contention. this Petition for Review is hereby DENIED for lack of merit and Petitioner is hereby ORDERED to PAY the Respondent the amount of P110.353. denied in a Resolution dated July 11.250. IV.147. 1992.A.020.693. and still has to be determined by this Court (C.517.00 55. Despite the reduction of its tax liabilities.91 10.97 68.721.914. 1994 until fully paid pursuant to Section 248 and 249 of the Tax Code. Philex now contends that the same should. Aggrieved with the decision.16 19. 1990-1991 007751 16 July 1996 P84.688.749. therefore. respondents. The facts show that on August 5.03 2.887.612.52 representing excise tax liability for the period from the 2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from August 6. A fortiori. 4872 dated March 16. Annotated.581. 14027. the CTA still ordered Philex to pay the remaining balance of P110.805. on April 8. applied to 6 4 In view of the grant of its VAT input credit/refund.88 which. as amended.805.R.144.43 1.02 plus interest. November 8. 8 French and Unson.21 3.. to wit: Thus.48 8. Vol.982. vs. 1994 (4th Quarter) 007731 11 July 1996 P21.G.821.378.60 4th Qtr. off-set its 15 16 excise tax liabilities since both had already become "due and demandable.821. 1996." hence. 1994 until fully paid pursuant to Sections 248 and 249 of the Tax Code of 1977.18 24.669.668. as well as fully liquidated.013. Ninth Edition.791.710. Case No.76 4.534.982.52 plus interest. 1991 14.128. Inc. be set-off against the unliquidated claim which Petitioner conceived to exist in its favor (see Compañia General de Tabacos vs.72 26. J.849.937.917. the BIR issued Tax Credit Certificate SN 001795 in the amount of P13. elucidating its reason.60 3. "Liquidated" debts are those where the exact amount has already been determined (PARAS.922.687.677.227.94 215.662. the appeal by way of petition for review is hereby DISMISSED and the decision dated March 16. the BIR. effectively lowered the latter's tax obligation to P110.480. 36975 affirming the Court of Tax Appeals decision in CTA Case No. CIR.T.677.406. Philex appealed the case before the Court of Appeals docketed as CA-GR. Hence. 1995 is AFFIRMED.799.688. and THE CTA.25 2nd Qtr.828. legal compensation can properly take place.978.889.787.30 2. 39 Phil. No. we have already made the pronouncement that taxes cannot be subject to compensation for the simple reason that the government and the taxpayer are not creditors and 17 debtors of each other. There is a material distinction between a tax and debt.021. ipso jure. In several instances prior to the instant case. Philex raised the issue to the Court of Tax Appeals on November 6.322. 1991 19.313.95 13 In a letter dated August 20. Civil Code of the Philippines.895.R.09 21.385. Nonetheless.977. 1992 19.691. 259)..52 as excise tax liability for the period from the 2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from August 6. Moreover.94 5.15 3. 1998 PHILEX MINING CORPORATION. Philex protested the demand for payment of the tax liabilities stating that it has pending claims for VAT input credit/refund for the taxes it paid for the years 1989 to 1991 in the amount of P119.462.911. the liquidated debt of the Petitioner to the government cannot. 1 2 SP No.982. citing our ruling inCommissioner of Internal Revenue v. assails the decision of the Court of Appeals promulgated on April 8. ROMERO. p.46 1992 (1st-3rd Quarter) 007755 23 July 1996 P36.116.541. 34). the BIR sent a letter to Philex asking it to settle its tax liabilities for the 2nd." The dispositive portion of the CTA decision provides: In all the foregoing.124..473.753.312. petitioner.13 ————— ————— —————— —————— 90. 1992.: Petitioner Philex Mining Corp. 1995 ordering it to pay the amount of P110. Since these pending claims have not yet been established or determined with certainty. 11 36975.
We take judicial notice of the taxpayer's generally negative perception towards the BIR. Any person suffering material or moral loss because a public servant or employee refuses or neglects. Moreover. demand. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. it must be stressed that the same is not a valid reason for the non-payment of its tax liabilities. to countenance Philex's whimsical reason would render ineffective our tax collection system. this would adversely affect the government revenue system. after all. which 31 requires the refund of input taxes within 60 days. After all. The same cannot be condoned for flimsy reasons. Accordingly. SO ORDERED. in Francia v. 37 Nowhere is this more true than in the field of taxation. while taxes are due to the Government in its sovereign capacity. If any taxpayer can defer the payment of taxes by raising the defense that it still has a pending claim for refund or credit. willful neglect and unreasonable delay in the performance of 39 official duties. a tax does not 26 depend upon the consent of the taxpayer. the VAT input taxes were paid between 1989 to 1991 but the refund of these erroneously paid taxes was only granted in 1996. WHEREFORE. the doctrine enunciated in Itogon-Suyoc cannot be invoked by Philex. Further.in its corporate capacity. First. However. once the claimant has submitted all the required documents it is the function of the BIR to assess these documents with purposeful dispatch. Fair dealing and nothing less. 27. be subject to set-off or compensation. reason to deviate from the aforementioned distinction. it finds no support in law or in jurisprudence. equally and uniformly. is expected by the taxpayer from the BIR in the latter's 36 discharge of its function. A taxpayer cannot refuse to pay his taxes when they fall due simply because he has a claim against the government or that the collection of the tax is contingent on the result of the lawsuit it filed against the 27 government. In this regard. 22 the same provision upon which the Itogon-Suyoc pronouncement was based was omitted. had the BIR been more diligent and judicious with their duty. Insolence and delay have no place in government service. We fail to see the logic of Philex's claim for this is an outright disregard of the basic principle in tax law that taxes 24 are the lifeblood of the government and so should be collected without unnecessary hindrance. especially BIR examiners who. it is up to the latter to prove its detractors wrong. It must be noted that a 25 distinguishing feature of a tax is that it is compulsory rather than a matter of bargain. More importantly. without prejudice to any disciplinary action that may be taken. Simply put. the latter can seek judicial remedy before the Court of 38 Tax Appeals in the manner prescribed by law. being the government collecting arm. the instant petition is hereby DISMISSED. both provisions abhor official inaction. The payment of the surcharge is mandatory and the BIR is not vested with any authority to waive the collection 28 29 thereof.. we agree with Philex. . while we can never condone the BIR's apparent callousness in performing its duties. It must be exercised fairly. similar to the one advanced by Philex in justifying its non-payment of its tax liabilities. We need not remind the BIR that simple justice requires the speedy refund of 35 wrongly-held taxes. it asserts that the imposition of surcharge and interest for the non-payment of the excise taxes within the time prescribed was unjustified. It simply cannot be apathetic and laggard in rendering service to the taxpayer if it wishes to remain true to its mission of hastening the country's development. we cannot allow Philex to refuse the payment of its tax liabilities on the ground that it has a pending tax claim for refund or credit against the government which has not yet been granted. however. It is important to note. when it took five years for the latter to grant its tax claim for 32 VAT input credit/refund. To be sure. contract or judgment as is allowed to be set-off. that the premise of our ruling in the aforementioned case was anchored on Section 51 (d) of the National Revenue Code of 1939. 27 of the Civil Code provides: Art. without just cause. Prescinding from this premise. Again. which reiterated that: . Art. Intermediate Appellate Court. Hence. then recourse under the Civil Code and the Tax Code can also be availed of. Section 269 (c) of the National Internal Revenue Act of 1997 states: xxx (c) Wilfully neglecting to give receipts. Philex posits the theory that it had no obligation to pay the excise tax liabilities within the prescribed period since. The assailed decision of the Court of Appeals dated April 8. it still 23 has pending claims for VAT input credit/refund with BIR. While there is no dispute that a claimant has the burden of proof to establish 33 the factual basis of his or her claim for tax credit or refund. Inc. 34 since taxpayers owe honestly to government it is but just that government render fair service to the taxpayers. Philex's reliance on our holding in Commissioner of Internal Revenue v. must and should do no less. Corollarily. Court of Tax Appeals: The power of taxation is sometimes called also the power to destroy. v. 30 We have consistently ruled that there can be no off-setting of taxes against the claims that the taxpayer may have against the government. To be sure. the State is not bound by the neglect of its agents and officers. 1996 is hereby AFFIRMED. while we understand Philex's predicament. when the National Internal Revenue Code of 1977 was enacted. depriving the government of authority over the manner by which taxpayers credit and offset their tax liabilities. any other duties enjoyed by law. if the BIR takes time in acting upon the taxpayer's claim for refund. the fact that Philex has pending claims for VAT input claim/refund with the government is immaterial for the imposition of charges and penalties prescribed under Section 248 and 249 of the Tax Code of 1977. Too simplistic. this is not to state that the taxpayer is devoid of remedy against public servants or employees. lest the tax collector kill the "hen that lays the golden egg" And. wherein we ruled that a pending refund may be set off against an existing tax liability even though the refund has not yet 21 been approved by the Commissioner. still. Despite our concern with the lethargic manner by which the BIR handled Philex's tax claim. in order to maintain the general public's trust and confidence in the Government this power must be used justly and not treacherously. Philex's theory that would automatically apply its VAT input credit/refund against its tax liabilities can easily give rise to confusion and abuse. to perform his official duty may file an action for damages and other relief against the latter. . Evidently. the same cannot justify Philex's non-payment of its tax liabilities. In the instant case. Commission on 20 Audit. As aptly held in Roxas v. Itogon-Suyoc Mines Inc. as by law required for any sum collected in the performance of duty or wilfully neglecting to perform. it could have granted the refund earlier. Second. it is a settled rule that in the performance of governmental function. Obviously. Therefore it should be exercised with caution to minimize injury to the proprietary rights of a taxpayer. in investigating tax claims are seen to drag their feet needlessly. . hence. Philex asserts that the BIR violated Section 106 (e) of the National Internal Revenue Code of 1977. In sum. The ruling in Francia has been applied to the subsequent case of Caltex Philippines. thus: 19 18 We find no cogent we categorically held that taxes cannot Finally. is no longer without any support in statutory law. Despite the foregoing rulings clearly adverse to Philex's position. if the inaction can be characterized as willful neglect of duty. a taxpayer may not offset taxes due from the claims that he may have against the government. Taxes cannot be the subject of compensation because the government and taxpayer are not mutually creditors and debtors of each other and a claim for taxes is not such a debt. The collection of a tax cannot await the results of a lawsuit against the government. The adage "no one should take the law into his own hands" should have guided Philex's action. in view of the foregoing. In no uncertain terms must we stress that every public employee or servant must strive to render service to the people with utmost diligence and efficiency. The BIR.