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FIRST DIVISION 10% tax due thereon 167,915.50 in taxable year 1988.

COMASERCO averred that


since it was not engaged in business, it was not liable
[G.R. No. 125355. March 30, 2000] 25% surcharge 41,978.88 to pay VAT.

COMMISSIONER OF INTERNAL 20% interest per annum 125,936.63 On June 22, 1995, the Court of Tax Appeals rendered
REVENUE, petitioner, vs. COURT OF APPEALS decision in favor of the Commissioner of Internal
and COMMONWEALTH MANAGEMENT AND Compromise penalty for late Revenue, the dispositive portion of which reads:
SERVICES CORPORATION, respondents. Court payment 16,000.00
"WHEREFORE, the decision of the
DECISION TOTAL AMOUNT DUE AND Commissioner of Internal Revenue
COLLECTIBLE P 351,831.01"[3] assessing petitioner deficiency
PARDO, J.: value-added tax for the taxable year
COMASERCO's annual corporate income tax return 1988 is AFFIRMED with slight
What is before the Court is a petition for review ending December 31, 1988 indicated a net loss in its modifications. Accordingly,
on certiorari of the decision of the Court of Appeals, operations in the amount of P6,077.00. J lexj petitioner is ordered to pay
[1]
reversing that of the Court of Tax Appeals,[2] which respondent Commissioner of
affirmed with modification the decision of the On February 10, 1992, COMASERCO filed with the Internal Revenue the amount of
Commissioner of Internal Revenue ruling that BIR, a letter-protest objecting to the latter's finding of P335,831.01 inclusive of the 25%
Commonwealth Management and Services deficiency VAT. On August 20, 1992, the surcharge and interest plus 20%
Corporation, is liable for value added tax for services Commissioner of Internal Revenue sent a collection interest from January 24, 1992 until
to clients during taxable year 1988. letter to COMASERCO demanding payment of the fully paid pursuant to Section 248
deficiency VAT. and 249 of the Tax Code.
Commonwealth Management and Services
Corporation (COMASERCO, for brevity), is a On September 29,1992, COMASERCO filed with the "The compromise penalty of
corporation duly organized and existing under the Court of Tax Appeals[4] a petition for review P16,000.00 imposed by the
laws of the Philippines. It is an affiliate of Philippine contesting the Commissioner's assessment. respondent in her assessment letter
American Life Insurance Co. (Philamlife), organized COMASERCO asserted that the services it rendered shall not be included in the
by the letter to perform collection, consultative and to Philamlife and its affiliates, relating to collections, payment as there was no
other technical services, including functioning as an consultative and other technical assistance, including compromise agreement entered into
internal auditor, of Philamlife and its other affiliates. functioning as an internal auditor, were on a "no- between petitioner and respondent
profit, reimbursement-of-cost-only" basis. It averred with respect to the value-added tax
On January 24, 1992, the Bureau of Internal Revenue that it was not engaged id the business of providing deficiency."[5]
(BIR) issued an assessment to private respondent services to Philamlife and its affiliates.
COMASERCO for deficiency value-added tax (VAT) COMASERCO was established to ensure operational On July 26, 1995, respondent filed with the Court of
amounting to P351,851.01, for taxable year 1988, orderliness and administrative efficiency of Appeals, petition for review of the decision of the
computed as follows: Philamlife and its affiliates, and not in the sale of Court of Appeals.
services. COMASERCO stressed that it was not
"Taxable profit-motivated, thus not engaged in business. In After due proceedings, on May 13, 1996, the Court of
sale/receipt P1,679,155.00 fact, it did not generate profit but suffered a net loss Appeals rendered decision reversing that of the Court
of Tax Appeals, the dispositive portion of which At issue in this case is whether COMASERCO was We disagree.
reads: Lexj uris engaged in the sale of services, and thus liable to pay
VAT thereon. On May 28, 1994, Congress enacted Republic Act
"WHEREFORE, in view of the No. 7716, the Expanded VAT Law (EVAT), amending
foregoing, judgment is hereby Petitioner avers that to "engage in business" and to among other sections, Section 99 of the Tax Code.
rendered REVERSING and "engage in the sale of services" are two different On January 1, 1998, Republic Act 8424, the National
SETTING ASIDE the questioned things. Petitioner maintains that the services rendered Internal Revenue Code of 1997, took effect. The
Decision promulgated on 22 June by COMASERCO to Philamlife and its affiliates, for amended law provides that:
1995. The assessment for a fee or consideration, are subject to VAT. VAT is a
deficiency value-added tax for the tax on the value added by the performance of the "SEC. 105. Persons Liable. - Any
taxable year 1988 inclusive of service. It is immaterial whether profit is derived person who, in the course of trade
surcharge, interest and penalty from rendering the service. Juri smis or business, sells, barters,
charges are ordered CANCELLED exchanges, leases goods or
for lack of legal and factual We agree with the Commissioner. properties, renders services, and
basis."[6] any person who imports goods
Section 99 of the National Internal Revenue Code of shall be subject to the value-added
The Court of Appeals anchored its decision on the 1986, as amended by Executive Order (E.O.) No. 273 tax (VAT) imposed in Sections 106
ratiocination in another tax case involving the same in 1988, provides that: and 108 of this Code.
parties,[7] where it was held that COMASERCO was
not liable to pay fixed and contractor's tax for "Section 99. Persons liable. - Any "The value-added tax is an indirect
services rendered to Philamlife and its affiliates. The person who, in the course of trade tax and the amount of tax may be
Court of Appeals, in that case, reasoned that or business, sells, barters or shifted or passed on to the buyer,
COMASERCO was not engaged in business of exchanges goods, renders services, transferee or lessee of the goods,
providing services to Philamlife and its affiliates. In or engages in similar transactions properties or services. This rule
the same manner, the Court of Appeals held that and any person who imports goods shall likewise apply to existing sale
COMASERCO was not liable to pay VAT for it was shall be subject to the value-added or lease of goods, properties or
not engaged in the business of selling services. tax (VAT) imposed in Sections 100 services at the time of the
to 102 of this Code."[9] effectivity of Republic Act
On July 16, 1996, the Commissioner of Internal No.7716.
Revenue filed with this Court a petition for review on COMASERCO contends that the term "in the course
certiorari assailing the decision of the Court of of trade or business" requires that the "business" is "The phrase "in the course of trade
Appeals. carried on with a view to profit or livelihood. It avers or business" means the regular
that the activities of the entity must be profit- conduct or pursuit of a commercial
On August 7, 1996, we required respondent oriented. COMASERCO submits that it is not or an economic activity, including
COMASERCO to file comment on the petition, and motivated by profit, as defined by its primary purpose transactions incidental thereto, by
on September 26, 1996, COMASERCO complied in the articles of incorporation, stating that it is any person regardless of whether or
with the resolution.[8] operating "only on reimbursement-of-cost basis, not the person engaged therein is a
without any profit." Private respondent argues that nonstock, nonprofit organization
We give due course to the petition. profit motive is material in ascertaining who to tax (irrespective of the disposition of
for purposes of determining liability for VAT. its net income and whether or not it
sells exclusively to members of supply of technical advice, assistance or services Both the Commissioner of Internal Revenue and the
their guests), or government rendered in connection with technical management or Court of Tax Appeals correctly ruled that the services
entity. Jjj uris administration of any scientific, industrial or rendered by COMASERCO to Philamlife and its
commercial undertaking or project."[11] affiliates are subject to VAT. As pointed out by the
"The rule of regularity, to the Commissioner, the performance of all kinds of
contrary notwithstanding, services On February 5, 1998, the Commissioner of Internal services for others for a fee, remuneration or
as defined in this Code rendered in Revenue issued BIR Ruling No. 010- consideration is considered as sale of services subject
the Philippines by nonresident 98[12] emphasizing that a domestic corporation that to VAT. As the government agency charged with the
foreign persons shall be considered provided technical, research, management and enforcement of the law, the opinion of the
as being rendered in the course of technical assistance to its affiliated companies and Commissioner of Internal Revenue, in the absence of
trade or business." received payments on a reimbursement-of-cost basis, any showing that it is plainly wrong, is entitled to
without any intention of realizing profit, was subject great weight.[14] Also, it has been the long standing
Contrary to COMASERCO's contention the above to VAT on services rendered. In fact, even if such policy and practice of this Court to respect the
provision clarifies that even a non-stock, non- corporation was organized without any intention of conclusions of quasi-judicial agencies, such as the
profit, organization or government entity, is liable to realizing profit, any income or profit generated by the Court of Tax Appeals which, by the nature of its
pay VAT on the sale of goods or services. VAT is a entity in the conduct of its activities was subject to functions, is dedicated exclusively to the study and
tax on transactions, imposed at every stage of the income tax. lex consideration of tax cases and has necessarily
distribution process on the sale, barter, exchange of developed an expertise on the subject, unless there
goods or property, and on the performance of Hence, it is immaterial whether the primary purpose has been an abuse or improvident exercise of its
services, even in the absence of profit attributable of a corporation indicates that it receives payments authority.[15]
thereto. The term "in the course of trade or business" for services rendered to its affiliates on a
requires the regular conduct or pursuit of a reimbursement-on-cost basis only, without realizing There is no merit to respondent's contention that the
commercial or an economic activity, regardless of profit, for purposes of determining liability for VAT Court of Appeals' decision in CA-G. R. No. 34042,
whether or not the entity is profit-oriented. on services rendered. As long as the entity provides declaring the COMASERCO as not engaged in
service for a fee, remuneration or consideration, then business and not liable for the payment of fixed and
The definition of the term "in the course of trade or the service rendered is subject to VAT. percentage taxes, binds petitioner. The issue in CA-G.
business" incorporated in the present law applies to R. No. 34042 is different from the present case,
all transactions even to those made prior to its At any rate, it is a rule that because taxes are the which involves COMASERCO's liability for VAT. As
enactment. Executive Order No. 273 stated that any lifeblood of the nation, statutes that allow exemptions heretofore stated, every person who sells, barters, or
person who, in the course of trade or business, sells, are construed strictly against the grantee and liberally exchanges goods and services, in the course of trade
barters or exchanges goods and services, was already in favor of the government. Otherwise stated, any or business, as defined by law, is subject to
liable to pay VAT. The present law merely stresses exemption from the payment of a tax must be clearly VAT. Jksm
that even a nonstock, nonprofit organization or stated in the language of the law; it cannot be merely
government entity is liable to pay VAT for the sale of implied therefrom.[13] In the case of VAT, Section 109, WHEREFORE, the Court GRANTS the petition and
goods and services. Republic Act 8424 clearly enumerates the REVERSES the decision of the Court of Appeals in
transactions exempted from VAT. The services CA-G. R. SP No. 37930. The Court hereby
Section 108 of the National Internal Revenue Code of rendered by COMASERCO do not fall within the REINSTATES the decision of the Court of Tax
1997[10] defines the phrase "sale of services" as the exemptions. Appeals in C. T. A. Case No. 4853.
"performance of all kinds of services for others for a
fee, remuneration or consideration." It includes "the No costs.
SO ORDERED.
Republic of the Philippines shares in its wholly-owned subsidiary the National Gatmaitan, presumably in behalf of private
SUPREME COURT Marine Corporation (NMC). The NDC decided to sell respondents. Thus, the parties agreed that should no
Manila in one lot its NMC shares and five (5) of its ships, favorable ruling be received from the BIR, NDC was
which are 3,700 DWT Tween-Decker, "Kloeckner" authorized to draw on the Letter of Credit upon
THIRD DIVISION type vessels.1 The vessels were constructed for the written demand the amount needed for the payment
NDC between 1981 and 1984, then initially leased to of the VAT on the stipulated due date, 20 December
G.R. No. 146984 July 28, 2006 Luzon Stevedoring Company, also its wholly-owned 1988.6
subsidiary. Subsequently, the vessels were transferred
COMMISSIONER OF INTERNAL and leased, on a bareboat basis, to the NMC.2 In January of 1989, private respondents through
REVENUE, petitioner, counsel received VAT Ruling No. 568-88 dated 14
vs. The NMC shares and the vessels were offered for December 1988 from the BIR, holding that the sale
MAGSAYSAY LINES, INC., BALIWAG public bidding. Among the stipulated terms and of the vessels was subject to the 10% VAT. The ruling
NAVIGATION, INC., FIM LIMITED OF THE conditions for the public auction was that the winning cited the fact that NDC was a VAT-registered
MARDEN GROUP (HK) and NATIONAL bidder was to pay "a value added tax of 10% on the enterprise, and thus its "transactions incident to its
DEVELOPMENT COMPANY, respondents. value of the vessels."3On 3 June 1988, private normal VAT registered activity of leasing out
respondent Magsaysay Lines, Inc. (Magsaysay Lines) personal property including sale of its own assets that
DECISION offered to buy the shares and the vessels are movable, tangible objects which are appropriable
for P168,000,000.00. The bid was made by or transferable are subject to the 10% [VAT]."7
TINGA, J.: Magsaysay Lines, purportedly for a new company
still to be formed composed of itself, Baliwag Private respondents moved for the reconsideration of
The issue in this present petition is whether the sale Navigation, Inc., and FIM Limited of the Marden VAT Ruling No. 568-88, as well as VAT Ruling No.
by the National Development Company (NDC) of Group based in Hongkong (collectively, private 395-88 (dated 18 August 1988), which made a similar
five (5) of its vessels to the private respondents is respondents).4 The bid was approved by the ruling on the sale of the same vessels in response to
subject to value-added tax (VAT) under the National Committee on Privatization, and a Notice of Award an inquiry from the Chairman of the Senate Blue
Internal Revenue Code of 1986 (Tax Code) then dated 1 July 1988 was issued to Magsaysay Lines. Ribbon Committee. Their motion was denied when
prevailing at the time of the sale. The Court of Tax the BIR issued VAT Ruling Nos. 007-89 dated 24
Appeals (CTA) and the Court of Appeals commonly On 28 September 1988, the implementing Contract of February 1989, reiterating the earlier VAT rulings. At
ruled that the sale is not subject to VAT. We affirm, Sale was executed between NDC, on one hand, and this point, NDC drew on the Letter of Credit to pay
though on a more unequivocal rationale than that Magsaysay Lines, Baliwag Navigation, and FIM for the VAT, and the amount of P15,120,000.00 in
utilized by the rulings under review. The fact that the Limited, on the other. Paragraph 11.02 of the contract taxes was paid on 16 March 1989.
sale was not in the course of the trade or business of stipulated that "[v]alue-added tax, if any, shall be for
NDC is sufficient in itself to declare the sale as the account of the PURCHASER."5 Per arrangement, On 10 April 1989, private respondents filed an
outside the coverage of VAT. an irrevocable confirmed Letter of Credit previously Appeal and Petition for Refund with the CTA,
filed as bidders bond was accepted by NDC as followed by a Supplemental Petition for Review on
The facts are culled primarily from the ruling of the security for the payment of VAT, if any. By this time, 14 July 1989. They prayed for the reversal of VAT
CTA. a formal request for a ruling on whether or not the Rulings No. 395-88, 568-88 and 007-89, as well as
sale of the vessels was subject to VAT had already the refund of the VAT payment made amounting
Pursuant to a government program of privatization, been filed with the Bureau of Internal Revenue (BIR) to P15,120,000.00.8 The Commissioner of Internal
NDC decided to sell to private enterprise all of its by the law firm of Sycip Salazar Hernandez & Revenue (CIR) opposed the petition, first arguing that
private respondents were not the real parties in court agreed that the sale was an isolated transaction, services which ultimately shoulders the tax, as the
interest as they were not the transferors or sellers as not made in the course of NDCs regular trade or liability therefrom is passed on to the end users by
contemplated in Sections 99 and 100 of the then Tax business, it nonetheless found that the transaction fell the providers of these goods or services16 who in turn
Code. The CIR also squarely defended the VAT within the classification of those "deemed sale" under may credit their own VAT liability (or input VAT)
rulings holding the sale of the vessels liable for VAT, R.R. No. 5-87, since the sale of the vessels together from the VAT payments they receive from the final
especially citing Section 3 of Revenue Regulation with the NMC shares brought about a change of consumer (or output VAT).17 The final purchase by
No. 5-87 (R.R. No. 5-87), which provided that ownership in NMC. The Court of Appeals also the end consumer represents the final link in a
"[VAT] is imposed on any sale or transactions applied the principle governing tax exemptions that production chain that itself involves several
deemed sale of taxable goods (including capital such should be strictly construed against the taxpayer, transactions and several acts of consumption. The
goods, irrespective of the date of acquisition)." The and liberally in favor of the government.12 VAT system assures fiscal adequacy through the
CIR argued that the sale of the vessels were among collection of taxes on every level of
those transactions "deemed sale," as enumerated in However, the Court of Appeals reversed itself upon consumption,18 yet assuages the manufacturers or
Section 4 of R.R. No. 5-87. It seems that the CIR reconsidering the case, through a Resolution dated 5 providers of goods and services by enabling them to
particularly emphasized Section 4(E)(i) of the February 2001.13 This time, the appellate court ruled pass on their respective VAT liabilities to the next
Regulation, which classified "change of ownership of that the "change of ownership of business" as link of the chain until finally the end consumer
business" as a circumstance that gave rise to a contemplated in R.R. No. 5-87 must be a shoulders the entire tax liability.
transaction "deemed sale." consequence of the "retirement from or cessation of
business" by the owner of the goods, as provided for Yet VAT is not a singular-minded tax on every
In a Decision dated 27 April 1992, the CTA rejected in Section 100 of the Tax Code. The Court of Appeals transactional level. Its assessment bears direct
the CIRs arguments and granted the petition.9 The also agreed with the CTA that the classification of relevance to the taxpayers role or link in the
CTA ruled that the sale of a vessel was an "isolated transactions "deemed sale" was a classification production chain. Hence, as affirmed by Section 99
transaction," not done in the ordinary course of statute, and not an exemption statute, thus warranting of the Tax Code and its subsequent incarnations,19 the
NDCs business, and was thus not subject to VAT, the resolution of any doubt in favor of the taxpayer.14 tax is levied only on the sale, barter or exchange of
which under Section 99 of the Tax Code, was applied goods or services by persons who engage in such
only to sales in the course of trade or business. The To the mind of the Court, the arguments raised in the activities, in the course of trade or business. These
CTA further held that the sale of the vessels could not present petition have already been adequately transactions outside the course of trade or business
be "deemed sale," and thus subject to VAT, as the discussed and refuted in the rulings assailed before may invariably contribute to the production chain,
transaction did not fall under the enumeration of us. Evidently, the petition should be denied. Yet the but they do so only as a matter of accident or
transactions deemed sale as listed either in Section Court finds that Section 99 of the Tax Code is incident. As the sales of goods or services do not
100(b) of the Tax Code, or Section 4 of R.R. No. 5- sufficient reason for upholding the refund of VAT occur within the course of trade or business, the
87. Finally, the CTA ruled that any case of doubt payments, and the subsequent disquisitions by the providers of such goods or services would hardly, if
should be resolved in favor of private respondents lower courts on the applicability of Section 100 of the at all, have the opportunity to appropriately credit any
since Section 99 of the Tax Code which implemented Tax Code and Section 4 of R.R. No. 5-87 are VAT liability as against their own accumulated VAT
VAT is not an exemption provision, but a ultimately irrelevant. collections since the accumulation of output VAT
classification provision which warranted the arises in the first place only through the ordinary
resolution of doubts in favor of the taxpayer. A brief reiteration of the basic principles governing course of trade or business.
VAT is in order. VAT is ultimately a tax on
The CIR appealed the CTA Decision to the Court of consumption, even though it is assessed on many That the sale of the vessels was not in the ordinary
Appeals,10 which on 11 March 1997, rendered a levels of transactions on the basis of a fixed course of trade or business of NDC was appreciated
Decision reversing the CTA.11 While the appellate percentage.15 It is the end user of consumer goods or by both the CTA and the Court of Appeals, the latter
doing so even in its first decision which it eventually The conclusion that the sale was not in the course of if it is settled that the transaction occurred in the
reconsidered.20We cite with approval the CTAs trade or business, which the CIR does not dispute course of trade or business in the first place. If the
explanation on this point: before this Court,24 should have definitively settled transaction transpired outside the course of trade or
the matter. Any sale, barter or exchange of goods or business, it would be irrelevant for the purpose of
In Imperial v. Collector of Internal services not in the course of trade or business is not determining VAT liability whether the transaction
Revenue, G.R. No. L-7924, September 30, subject to VAT. may be deemed sale, since it anyway is not subject to
1955 (97 Phil. 992), the term "carrying on VAT.
business" does not mean the performance of Section 100 of the Tax Code, which is implemented
a single disconnected act, but means by Section 4(E)(i) of R.R. No. 5-87 now relied upon Accordingly, the Court rules that given the
conducting, prosecuting and continuing by the CIR, is captioned "Value-added tax on sale of undisputed finding that the transaction in question
business by performing progressively all the goods," and it expressly states that "[t]here shall be was not made in the course of trade or business of the
acts normally incident thereof; while "doing levied, assessed and collected on every sale, barter or seller, NDC that is, the sale is not subject to VAT
business" conveys the idea of business exchange of goods, a value added tax x x x." Section pursuant to Section 99 of the Tax Code, no matter
being done, not from time to time, but all the 100 should be read in light of Section 99, which lays how the said sale may hew to those transactions
time. [J. Aranas, UPDATED NATIONAL down the general rule on which persons are liable for deemed sale as defined under Section 100.
INTERNAL REVENUE CODE (WITH VAT in the first place and on what transaction if at
ANNOTATIONS), p. 608-9 (1988)]. all. It may even be noted that Section 99 is the very In any event, even if Section 100 or Section 4 of R.R.
"Course of business" is what is usually first provision in Title IV of the Tax Code, the Title No. 5-87 were to find application in this case, the
done in the management of trade or that covers VAT in the law. Before any portion of Court finds the discussions offered on this point by
business. [Idmi v. Weeks & Russel, 99 So. Section 100, or the rest of the law for that matter, the CTA and the Court of Appeals (in its subsequent
761, 764, 135 Miss. 65, cited in Words & may be applied in order to subject a transaction to Resolution) essentially correct. Section 4 (E)(i) of
Phrases, Vol. 10, (1984)]. VAT, it must first be satisfied that the taxpayer and R.R. No. 5-87 does classify as among the transactions
transaction involved is liable for VAT in the first deemed sale those involving "change of ownership of
What is clear therefore, based on the place under Section 99. business." However, Section 4(E) of R.R. No. 5-87,
aforecited jurisprudence, is that "course of reflecting Section 100 of the Tax Code, clarifies that
business" or "doing business" connotes It would have been a different matter if Section 100 such "change of ownership" is only an attending
regularity of activity. In the instant case, the purported to define the phrase "in the course of trade circumstance to "retirement from or cessation of
sale was an isolated transaction. The sale or business" as expressed in Section 99. If that were business[, ] with respect to all goods on hand [as] of
which was involuntary and made pursuant to so, reference to Section 100 would have been the date of such retirement or cessation."25Indeed,
the declared policy of Government for necessary as a means of ascertaining whether the sale Section 4(E) of R.R. No. 5-87 expressly characterizes
privatization could no longer be repeated or of the vessels was "in the course of trade or the "change of ownership of business" as only a
carried on with regularity. It should be business," and thus subject to "circumstance" that attends those transactions
emphasized that the normal VAT-registered "deemed sale," which are otherwise stated in the
activity of NDC is leasing personal VAT. But that is not the case. What Section 100 and same section.26
property.21 Section 4(E)(i) of R.R. No. 5-87 elaborate on is not
the meaning of "in the course of trade or business," WHEREFORE, the petition is DENIED. No costs.
This finding is confirmed by the Revised Charter22 of but instead the identification of the transactions
the NDC which bears no indication that the NDC was which may be deemed as sale. It would become SO ORDERED.
created for the primary purpose of selling real necessary to ascertain whether under those two
property.23 provisions the transaction may be deemed a sale, only
SECOND DIVISION resources, and the sale or marketing thereof to gold. It then filed applications for tax refunds/credits
COMMISSIONER OF G.R. Nos. 134587 & 134588 various entities.[4] Respondent is a value added tax corresponding to input VAT for the
INTERNAL REVENUE, (VAT) registered enterprise.[5] amounts[13] of P46,177,861.12,[14]
Petitioner, Present: P19,218,738.44,[15] and P84,909,247.96.[16] Responde
nts applications were either unacted upon or
PUNO, J., expressly disallowed by petitioner.[17] In addition,
Chairman, petitioner issued a deficiency assessment against
- versus - AUSTRIA-MARTINEZ, respondent when, after applying respondents
CALLEJO, SR., creditable input VAT costs against the retroactive
TINGA, and 10% VAT levy, there resulted a balance of excess
CHICO- The transactions in question occurred during output VAT.[18]
NAZARIO, JJ. the period between 1988 and 1991. Under Sec. 99 of
BENGUET CORPORATION, the National Internal Revenue Code (NIRC),[6] as The express disallowance of respondents
Respondent. amended by Executive Order (E.O.) No. 273 s. 1987, application for refunds/credits and the issuance of
P then in effect, any person who, in the course of trade deficiency assessments against it were based on a
romulga or business, sells, barters or exchanges goods, renders BIR rulingBIR VAT Ruling No. 008-92 dated 23
ted: services, or engages in similar transactions and any January 1992that was issued subsequent to the
July 8, 2005 person who imports goods is liable for output VAT at consummation of the subject sales of gold to the
x--------------------------------------------------------------- rates of either 10% or 0% (zero-rated) depending on Central Bank which provides that sales of gold to the
----x the classification of the transaction under Sec. 100 of Central Bank shall not be considered as export sales
the NIRC. Persons registered under the VAT and thus, shall be subject to 10% VAT. In addition,
DECISION system[7] are allowed to recognize input VAT, or the BIR VAT Ruling No. 008-92 withdrew, modified, and
VAT due from or paid by it in the course of its trade superseded all inconsistent BIR issuances. The
TINGA, J.: or business on importation of goods or local relevant portions of the ruling provides, thus:
purchases of goods or service, including lease or use
This is a petition for the review of a of properties, from a VAT-registered person.[8] 1. In general, for purposes of the
consolidated Decision of the Former Fourteenth term export sales only direct export
Division of the Court of Appeals[1] ordering the In January of 1988, respondent applied for sales and foreign currency
Commissioner of Internal Revenue to award tax and was granted by the BIR zero-rated status on its denominated sales, shall be
credits to Benguet Corporation in the amount sale of gold to Central Bank.[9] On 28 August 1988, qualified for zero-rating.
corresponding to the input value added taxes that the Deputy Commissioner of Internal Revenue Eufracio
latter had incurred in relation to its sale of gold to the D. Santos issued VAT Ruling No. 3788-88, which ....
Central Bank during the period of 01 August 1989 to declared that [t]he sale of gold to Central Bank is
31 July 1991. considered as export sale subject to zero-rate 4. Local sales of goods, which by
pursuant to Section 100[[10]] of the Tax Code, as fiction of law are considered export
Petitioner is the Commissioner of Internal amended by Executive Order No. 273. The BIR came sales (e.g., the Export Duty Law
Revenue (petitioner) acting in his official capacity as out with at least six (6) other issuances [11] reiterating considers sales of gold to the
head of the Bureau of Internal Revenue (BIR), an the zero-rating of sale of gold to the Central Bank, Central Bank of the Philippines, as
attached agency of the Department of Finance,[2] with the latest of which is VAT Ruling No. 036-90 dated export sale). This transaction shall
the authority, inter alia, to determine claims for 14 February 1990.[12] not be considered as export sale for
[3]
refunds or tax credits as provided by law. VAT purposes.
Relying on its zero-rated status and the
Respondent Benguet Corporation above issuances, respondent sold gold to the Central ....
(respondent) is a domestic corporation organized and Bank during the period of 1 August 1989 to 31 July [A]ll Orders and Memoranda
existing by virtue of Philippine laws, engaged in the 1991 and entered into transactions that resulted in issued by this Office inconsistent
exploration, development and operation of mineral input VAT incurred in relation to the subject sales of herewith are considered withdrawn,
modified or superseded. (Emphasis docketed therein as CA-G.R. SP Nos. 37205, 38958, 2) in CA-G.R. SP No. 38958
supplied) and 39435, and thereafter consolidated. The Court of - P19,218,738.44
Appeals, after evaluating the arguments of the 3) in CA-G.R. SP No. 39435
parties, rendered the questioned Decision reversing - P84,909,247.96[25]
The BIR also issued VAT Ruling No. 059-92 dated 28 the Court of Tax Appeals insofar as the latter had
April 1992 and Revenue Memorandum Order No. ruled that BIR VAT Ruling No. 008-92 did not
22-92 which decreed that the revocation of VAT prejudice the respondent and that the same could be Dissatisfied with the above ruling, petitioner
Ruling No. 3788-88 by VAT Ruling No. 008-92 given retroactive effect. filed the instant Petition for Review questioning the
would not unduly prejudice mining companies and, determination of the Court of Appeals that the
thus, could be applied retroactively.[19] In its Decision, the appellate court held that retroactive application of the subject issuance was
respondent suffered financial damage equivalent to prejudicial to respondent and could not be applied
Respondent filed three separate petitions for the sum of the disapproved claims. It stated that had retroactively.
review with the Court of Tax Appeals (CTA), respondent known that such sales were subject to
docketed as CTA Case No. 4945, CTA Case No. 10% VAT, which rate was not the prevailing rate at Apart from the central issue on the validity
4627, and the consolidated cases of CTA Case Nos. the time of the transactions, respondent would have of the retroactive application of VAT Ruling No. 008-
4686 and 4829. passed on the cost of the input taxes to the Central 92, the question of the validity of the issuance itself
Bank. It also ruled that the remedies which the CTA has been touched upon in the pleadings, including a
supposed would eliminate any resultant prejudice to reference made by respondent to a Court of
respondent were not sufficient palliatives as the Appeals Decision holding that the VAT Ruling had no
monetary values provided in the supposed remedies legal basis.[26] For its part, as the party that raised this
In the three cases, respondent argued that a do not approximate the monetary values of the tax issue, petitioner spiritedly defends the validity of the
retroactive application of BIR VAT Ruling No. 008- credits that respondent lost after the implementation issuance.[27]Effectively, however, the question is a
92 would violate Sec. 246 of the NIRC, which of the VAT ruling in question. It cited non-issue and delving into it would be a needless
mandates the non-retroactivity of rulings or circulars exercise for, as respondent emphatically pointed out
issued by the Commissioner of Internal Revenue that Manila Mining Corporation v. Commissioner of in its Comment, unlike petitioners formulation of the
would operate to prejudice the taxpayer. Respondent Internal Revenue,[23] in which the Court of Appeals issues, the only real issue in this case is whether VAT
then discussed in detail the manner and extent by held[24] that BIR VAT Ruling No. 008-92 cannot be Ruling No. 008-92 which revoked previous rulings of
which it was prejudiced by this retroactive given retroactive effect. Lastly, the Court of Appeals the petitioner which respondent heavily relied
application.[20] Petitioner on the other hand, observed that R.A. 7716, the The New Expanded upon . . . may be legally applied retroactively to
maintained that BIR VAT Ruling No. 008-92 is, VAT Law, reveals the intent of the lawmakers with respondent.[28] This Court need not invalidate the BIR
firstly, not void and entitled to great respect, having regard to the treatment of sale of gold to the Central issuances, which have the force and effect of law,
been issued by the body charged with the duty of Bank since the amended version therein of Sec. 100 unless the issue of validity is so crucially at the heart
administering the VAT law, and secondly, it may of the NIRC expressly provides that the sale of gold of the controversy that the Court cannot resolve the
validly be given retroactive effect since it was not to the Bangko Sentral ng Pilipinas is an export sale case without having to strike down the issuances.
prejudicial to respondent. subject to 0% VAT rate. The appellate court thus Clearly, whether the subject VAT ruling may validly
allowed respondents claims, decreeing in its be given retrospective effect is the lis mota in the
In three separate decisions,[21] the CTA dispositive portion, viz: case. Put in another but specific fashion, the sole
dismissed respondents respective petitions. It held, issue to be addressed is whether respondents sale of
with Presiding Judge Ernesto D. Acosta dissenting, WHEREFORE, the appealed gold to the Central Bank during the period when such
that no prejudice had befallen respondent by virtue of decision is hereby REVERSED. The was classified by BIR issuances as zero-rated could
the retroactive application of BIR VAT Ruling No. respondent Commissioner of Internal be taxed validly at a 10% rate after the consummation
008-92, and that, consequently, the application did Revenue is ordered to award the of the transactions involved.
not violate Sec. 246 of the NIRC.[22] following tax credits to petitioner.
1) In CA-G.R. SP No. In a long line of cases, [29] this Court has
The CTA decisions were appealed by 37209 P49,611,914.00 affirmed that the rulings, circular, rules and
respondent to the Court of Appeals. The cases were regulations promulgated by the Commissioner of
Internal Revenue would have no retroactive any output VAT thereon. In the case of a transaction
application if to so apply them would be prejudicial To begin with, the determination of whether subject to 10% VAT, the taxpayer is allowed to
to the taxpayers. In fact, both petitioner [30] and respondent had suffered prejudice is a factual issue. It recover both the input VAT of P7.30 which he paid to
respondent[31] agree that the retroactive application of is an established rule that in the exercise of its power his supplier and his output VAT of P2.70 (10%
VAT Ruling No. 008-92 is valid only if such of review, the Supreme Court is not a trier of facts. the P30.00 value he has added to the P80.00 material)
application would not be prejudicial to the respondent Moreover, in the exercise of the Supreme Courts by passing on both costs to the buyer. Thus, the buyer
pursuant to the explicit mandate under Sec. 246 of power of review, the findings of facts of the Court of pays the total 10% VAT cost, in this case P10.00 on
the NIRC, thus: Appeals are conclusive and binding on the Supreme the product.
Court.[32] An exception to this rule is when the
Sec. 246. Non- findings of fact a quo are conflicting,[33] as is in this In both situations, the taxpayer has the
retroactivity of rulings.- Any case. option not to carry any VAT cost because in the zero-
revocation, modification or reversal rated transaction, the taxpayer is allowed to recover
of any of the rules and VAT is a percentage tax imposed at every input tax from the BIR without need to pay output
regulations promulgated in stage of the distribution process on the sale, barter, tax, while in 10% rated VAT, the taxpayer is allowed
accordance with the preceding exchange or lease of goods or properties and to pass on both input and output VAT to the buyer.
Section or any of the rulings or rendition of services in the course of trade or Thus, there is an elemental similarity between the
circulars promulgated by the business, or the importation of goods.[34] It is an two types of VAT ratings in that the taxpayer has the
Commissioner shall not be given indirect tax, which may be shifted to the buyer, option not to take on any VAT payment for his
retroactive application if the transferee, or lessee of the goods, properties, or transactions by simply exercising his right to pass on
revocation, modification or reversal services.[35] However, the party directly liable for the the VAT costs in the manner discussed above.
will be prejudicial to the payment of the tax is the seller.[36]
taxpayers except in the following Proceeding from the foregoing, there
cases: (a) where the taxpayer In transactions taxed at a 10% rate, when at appears to be no upfront economic difference in
deliberately misstates or omits the end of any given taxable quarter the output VAT changing the sale of gold to the Central Bank from a
material facts from his return on exceeds the input VAT, the excess shall be paid to the 0% to 10% VAT rate provided that respondent would
any document required of him by government; when the input VAT exceeds the output be allowed the choice to pass on its VAT costs to the
the Bureau of Internal Revenue; (b) VAT, the excess would be carried over to VAT Central Bank. In the instant case, the retroactive
where the facts subsequently liabilities for the succeeding quarter or quarters. application of VAT Ruling No. 008-92 unilaterally
[37]
gathered by the Bureau of Internal On the other hand, transactions which are taxed at forfeited or withdrew this option of respondent. The
Revenue are materially different zero-rate do not result in any output tax. Input VAT adverse effect is that respondent became the
form the facts on which the ruling attributable to zero-rated sales could be refunded or unexpected and unwilling debtor to the BIR of the
is based; or (c) where the taxpayer credited against other internal revenue taxes at the amount equivalent to the total VAT cost of its
acted in bad faith. (Emphasis option of the taxpayer.[38] product, a liability it previously could have recovered
supplied) from the BIR in a zero-rated scenario or at least
passed on to the Central Bank had it known it would
have been taxed at a 10% rate. Thus, it is clear that
In that regard, petitioner submits that To illustrate, in a zero-rated transaction, respondent suffered economic prejudice when its
respondent would not be prejudiced by a retroactive when a VAT-registered person (taxpayer) purchases consummated sales of gold to the Central Bank were
application; respondent maintains the contrary. materials from his supplier at P80.00,P7.30[39] of taken out of the zero-rated category. The change in
Consequently, the determination of the issue of which was passed on to him by his supplier as the the VAT rating of respondents transactions with the
retroactivity hinges on whether respondent would latters 10% output VAT, the taxpayer is allowed to Central Bank resulted in the twin loss of its
suffer prejudice from the retroactive application of recover P7.30 from the BIR, in addition to other input exemption from payment of output VAT and its
VAT Ruling No. 008-92. VAT he had incurred in relation to the zero-rated opportunity to recover input VAT, and at the same
transaction, through tax credits or refunds. When the time subjected it to the 10% VAT sans the option to
We agree with the Court of Appeals and the taxpayer sells his finished product in a zero-rated pass on this cost to the Central Bank, with the total
respondent. transaction, say, for P110.00, he is not required to pay prejudice in money terms being equivalent to the
10% VAT levied on its sales of gold to the Central newfound output VAT liability against which is constituted as the final entity against which the
Bank. petitioner had offset the expected refund/credit. costs of the tax passes-onshall legally stop; hence, the
Additionally, the prejudice to respondent would not input taxes may be converted as costs available as
simply disappear, as petitioner claims, when a deduction for income tax purposes.[44]
Petitioner had made its position hopelessly liability (which liability was not there to begin with)
untenable by arguing that the deficiency 10% that is imposed concurrently with an opportunity to Even assuming that the right to recover
may be assessable will only be equal to 1/11thof the reduce, not totally eradicate, the newfound liability. respondents excess payment of income tax has not
amount billed to the [Central Bank] rather than 10% In sum, contrary to petitioners suggestion, yet prescribed, this relief would only address
thereof. In short, [respondent] may only be charged respondents net income still decreased corresponding respondents overpayment of income tax but not the
based on the tax amount actually and technically to the amount it expected as its refunds/credits and other burdens discussed above. Verily, this remedy is
passed on to the [Central Bank] as part of the the deficiency assessments against it, which when not a feasible option for respondent because the very
invoiced price.[40] To the Court, the aforequoted summed up would be the total cost of the 10% reason why it was issued a deficiency tax assessment
statement is a clear recognition that respondent would retroactive VAT levied on respondent. is that its input VAT was not enough to offset its
suffer prejudice in the amount actually and retroactive output VAT. Indeed, the burden of having
technically passed on to the [Central Bank] as part of Respondent claims to have incurred further to go through an unnecessary and cumbersome
the invoiced price. In determining the prejudice prejudice. In computing its income taxes for the refund process is prejudice enough. Moreover, there
suffered by respondent, it matters little how the relevant years, the input VAT cost that respondent had is in fact nothing left to claim as a deduction from
amount charged against respondent is computed, paid to its suppliers was not treated by respondent as income taxes.
[41]
the point is that the amount (equal to 1/11th of the part of its cost of goods sold, which is deductible
amount billed to the Central Bank) was charged from gross income for income tax purposes, but as an
against respondent, resulting in damage to the latter. asset which could be refunded or applied as payment
for other internal revenue taxes. In fact, Revenue
Petitioner posits that the retroactive Regulation No. 5-87 (VAT Implementing Guidelines),
application of BIR VAT Ruling No. 008-92 is requires input VAT to be recorded not as part of the
stripped of any prejudicial effect when viewed in cost of materials or inventory purchased but as a
relation to several available options to recoup separate entry called input taxes, which may then be
whatever liabilities respondent may have applied against output VAT, other internal revenue
incurred, i.e., respondents input VAT may still be taxes, or refunded as the case may be. [43] In being From the foregoing it is clear that petitioners
used (1) to offset its output VAT on the sales of gold denied the opportunity to deduct the input VAT from suggested options by which prejudice would be
to the Central Bank or on its output VAT on other its gross income, respondents net income was eliminated from a retroactive application of VAT
sales subject to 10% VAT, and (2) as deductions on its overstated by the amount of its input VAT. This Ruling No. 008-92 are either simply inadequate or
income tax under Sec. 29 of the Tax Code.[42] overstatement was assessed tax at the 32% corporate grossly unrealistic.
income tax rate, resulting in respondents
On petitioners first suggested recoupment overpayment of income taxes in the corresponding At the time when the subject transactions
modality, respondent counters that its other sales amount. Thus, respondent not only lost its right to were consummated, the prevailing BIR regulations
subject to 10% VAT are so minimal that this mode is refund/ credit its input VAT and became liable for relied upon by respondent ordained that gold sales to
of little value. Indeed, what use would a credit be deficiency VAT, it also overpaid its income tax in the the Central Bank were zero-rated. The BIR
where there is nothing to set it off against? Moreover, amount of 32% of its input VAT. interpreted Sec. 100 of the NIRC in relation to Sec. 2
respondent points out that after having been imposed of E.O. No. 581 s. 1980 which prescribed that gold
with 10% VAT sans the opportunity to pass on the This leads us to the second recourse that sold to the Central Bank shall be considered export
same to the Central Bank, it was issued a deficiency petitioner has suggested to offset any resulting and therefore shall be subject to the export and
tax assessment because its input VAT tax credits were prejudice to respondent as a consequence of giving premium duties. In coming out with this
not enough to offset the retroactive 10% output VAT. retroactive effect to BIR VAT Ruling No. 008-92. interpretation, the BIR also considered Sec. 169 of
The prejudice then experienced by respondent lies in Petitioner submits that granting that respondent has Central Bank Circular No. 960 which states that all
the fact that the tax refunds/credits that it expected to no other sale subject to 10% VAT against which its sales of gold to the Central Bank are considered
receive had effectively disappeared by virtue of its input taxes may be used in payment, then respondent
part of its agents. But, like other
principles of law, this also admits
of exceptions in the interest of
justice and fairplay. . . .In fact, in
the United States, . . . it has been
constructive exports.[45] Respondent should not be held that the Commissioner [of
faulted for relying on the BIRs interpretation of the Internal Revenue] is precluded
said laws and regulations.[46] While it is true, as from adopting a position
petitioner alleges, that government is not estopped inconsistent with one previously
from collecting taxes which remain unpaid on taken where injustice would result
account of the errors or mistakes of its agents and/or therefrom or where there has been a
officials and there could be no vested right arising misrepresentation to the taxpayer.
[49]
from an erroneous interpretation of law, these
principles must give way to exceptions based on and
in keeping with the interest of justice and fairplay, as
has been done in the instant matter. For, it is
primordial that every person must, in the exercise of
his rights and in the performance of his duties, act Respondent, in this case, has similarly been
with justice, give everyone his due, and observe put on the receiving end of a grossly unfair deal.
honesty and good faith.[47] Before respondent was entitled to tax refunds or
credits based on petitioners own issuances. Then
The case of ABS-CBN Broadcasting suddenly, it found itself instead being made to pay
Corporation v. Court of Tax Appeals[48] involved a deficiency taxes with petitioners retroactive change
similar factual milieu. There the Commissioner of in the VAT categorization of respondents transactions
Internal Revenue issued Memorandum Circular No. with the Central Bank. This is the sort of unjust
4-71 revoking an earlier circular for being erroneous treatment of a taxpayer which the law in Sec. 246 of
for lack of legal basis. When the prior circular was the NIRC abhors and forbids.
still in effect, petitioner therein relied on it and
consummated its transactions on the basis thereof. WHEREFORE, the petition is DENIED for lack of
We held, thus: merit. The Decision of the Court of Appeals is
AFFIRMED. No pronouncement as to costs.
. . . .Petitioner was no longer in a
position to withhold taxes due from SO ORDERED.
foreign corporations because it had
already remitted all film rentals and
no longer had any control over
them when the new Circular was
issued. . . .

....

This Court is not unaware


of the well-entrenched principle
that the [g]overnment is never
estopped from collecting taxes
because of mistakes or errors on the
Republic of the Philippines style of "RED FIELD SHELL SERVICE STATION"; G.R. No. 168463
SUPREME COURT DONICA CORPORATION represented by its FRANCIS JOSEPH G. ESCUDERO, VINCENT
EN BANC President, DESI TOMACRUZ; RUTH E. MARBIBI CRISOLOGO, EMMANUEL JOEL J.
G.R. No. 168056 September 1, 2005 doing business under the name and style of "R&R VILLANUEVA, RODOLFO G. PLAZA, DARLENE
ABAKADA GURO PARTY LIST (Formerly PETRON STATION"; PETER M. UNGSON doing ANTONINO-CUSTODIO, OSCAR G.
AASJAS) OFFICERS SAMSON S. ALCANTARA business under the name and style of "CLASSIC MALAPITAN, BENJAMIN C. AGARAO, JR.
and ED VINCENT S. ALBANO, Petitioners, STAR GASOLINE SERVICE STATION"; MARIAN JUAN EDGARDO M. ANGARA, JUSTIN MARC
vs. SHEILA A. LEE doing business under the name and SB. CHIPECO, FLORENCIO G. NOEL, MUJIV S.
THE HONORABLE EXECUTIVE SECRETARY style of "NTE GASOLINE & SERVICE STATION"; HATAMAN, RENATO B. MAGTUBO, JOSEPH A.
EDUARDO ERMITA; HONORABLE JULIAN CESAR P. POSADAS doing business under SANTIAGO, TEOFISTO DL. GUINGONA III, RUY
SECRETARY OF THE DEPARTMENT OF the name and style of "STARCARGA ELIAS C. LOPEZ, RODOLFO Q. AGBAYANI and
FINANCE CESAR PURISIMA; and ENTERPRISES"; ADORACION MAEBO doing TEODORO A. CASIO, Petitioners,
HONORABLE COMMISSIONER OF business under the name and style of "CMA vs.
INTERNAL REVENUE GUILLERMO MOTORISTS CENTER"; SUSAN M. ENTRATA CESAR V. PURISIMA, in his capacity as
PARAYNO, JR., Respondent. doing business under the name and style of Secretary of Finance, GUILLERMO L.
x-------------------------x "LEONAS GASOLINE STATION and SERVICE PARAYNO, JR., in his capacity as Commissioner
G.R. No. 168207 CENTER"; CARMELITA BALDONADO doing of Internal Revenue, and EDUARDO R.
AQUILINO Q. PIMENTEL, JR., LUISA P. business under the name and style of "FIRST ERMITA, in his capacity as Executive
EJERCITO-ESTRADA, JINGGOY E. ESTRADA, CHOICE SERVICE CENTER"; MERCEDITAS A. Secretary, Respondent.
PANFILO M. LACSON, ALFREDO S. LIM, GARCIA doing business under the name and style of x-------------------------x
JAMBY A.S. MADRIGAL, AND SERGIO R. "LORPED SERVICE CENTER"; RHEAMAR A. G.R. No. 168730
OSMEA III, Petitioners, RAMOS doing business under the name and style of BATAAN GOVERNOR ENRIQUE T. GARCIA,
vs. "RJRAM PTT GAS STATION"; MA. ISABEL JR. Petitioner,
EXECUTIVE SECRETARY EDUARDO R. VIOLAGO doing business under the name and style vs.
ERMITA, CESAR V. PURISIMA, SECRETARY of "VIOLAGO-PTT SERVICE CENTER"; HON. EDUARDO R. ERMITA, in his capacity as the
OF FINANCE, GUILLERMO L. PARAYNO, JR., MOTORISTS HEART CORPORATION represented Executive Secretary; HON. MARGARITO TEVES,
COMMISSIONER OF THE BUREAU OF by its Vice-President for Operations, JOSELITO F. in his capacity as Secretary of Finance; HON. JOSE
INTERNAL REVENUE, Respondent. FLORDELIZA; MOTORISTS HARVARD MARIO BUNAG, in his capacity as the OIC
x-------------------------x CORPORATION represented by its Vice-President Commissioner of the Bureau of Internal Revenue;
G.R. No. 168461 for Operations, JOSELITO F. FLORDELIZA; and HON. ALEXANDER AREVALO, in his capacity
ASSOCIATION OF PILIPINAS SHELL DEALERS, MOTORISTS HERITAGE CORPORATION as the OIC Commissioner of the Bureau of Customs,
INC. represented by its President, ROSARIO represented by its Vice-President for Operations, Respondent.
ANTONIO; PETRON DEALERS ASSOCIATION JOSELITO F. FLORDELIZA; PHILIPPINE DECISION
represented by its President, RUTH E. BARBIBI; STANDARD OIL CORPORATION represented by AUSTRIA-MARTINEZ, J.:
ASSOCIATION OF CALTEX DEALERS OF THE its Vice-President for Operations, JOSELITO F. The expenses of government, having for their object
PHILIPPINES represented by its President, FLORDELIZA; ROMEO MANUEL doing business the interest of all, should be borne by everyone, and
MERCEDITAS A. GARCIA; ROSARIO ANTONIO under the name and style of "ROMMAN the more man enjoys the advantages of society, the
doing business under the name and style of "ANB GASOLINE STATION"; ANTHONY ALBERT more he ought to hold himself honored in
NORTH SHELL SERVICE STATION"; LOURDES CRUZ III doing business under the name and style of contributing to those expenses.
MARTINEZ doing business under the name and style "TRUE SERVICE STATION", Petitioners, -Anne Robert Jacques Turgot (1727-1781)
of "SHELL GATE N. DOMINGO"; BETHZAIDA vs. French statesman and economist
TAN doing business under the name and style of CESAR V. PURISIMA, in his capacity as Mounting budget deficit, revenue generation,
"ADVANCE SHELL STATION"; REYNALDO P. Secretary of the Department of Finance and inadequate fiscal allocation for education, increased
MONTOYA doing business under the name and style GUILLERMO L. PARAYNO, JR., in his capacity emoluments for health workers, and wider coverage
of "NEW LAMUAN SHELL SERVICE STATION"; as Commissioner of Internal Revenue, Respondent. for full value-added tax benefits these are the
EFREN SOTTO doing business under the name and x-------------------------x reasons why Republic Act No. 9337 (R.A. No.
9337)1 was enacted. Reasons, the wisdom of which, committee conference on the disagreeing provisions ATTY. BANIQUED : Its not, because, Your Honor,
the Court even with its extensive constitutional power of the proposed bills. there is an Executive Order that granted the
of review, cannot probe. The petitioners in these Before long, the Conference Committee on the Petroleum companies some subsidy . . . interrupted
cases, however, question not only the wisdom of the Disagreeing Provisions of House Bill No. 3555, J. PANGANIBAN : Thats correct . . .
law, but also perceived constitutional infirmities in its House Bill No. 3705, and Senate Bill No. 1950, "after ATTY. BANIQUED : . . . and therefore that was
passage. having met and discussed in full free and meant to temper the impact . . . interrupted
Every law enjoys in its favor the presumption of conference," recommended the approval of its report, J. PANGANIBAN : . . . mitigating measures . . .
constitutionality. Their arguments notwithstanding, which the Senate did on May 10, 2005, and with the ATTY. BANIQUED : Yes, Your Honor.
petitioners failed to justify their call for the invalidity House of Representatives agreeing thereto the next J. PANGANIBAN : As a matter of fact a part of the
of the law. Hence, R.A. No. 9337 is not day, May 11, 2005. mitigating measures would be the elimination of the
unconstitutional. On May 23, 2005, the enrolled copy of the Excise Tax and the import duties. That is why, it is
LEGISLATIVE HISTORY consolidated House and Senate version was not correct to say that the VAT as to petroleum
R.A. No. 9337 is a consolidation of three legislative transmitted to the President, who signed the same dealers increased prices by 10%.
bills namely, House Bill Nos. 3555 and 3705, and into law on May 24, 2005. Thus, came R.A. No. ATTY. BANIQUED : Yes, Your Honor.
Senate Bill No. 1950. 9337. J. PANGANIBAN : And therefore, there is no
House Bill No. 35552 was introduced on first reading July 1, 2005 is the effectivity date of R.A. No. justification for increasing the retail price by 10% to
on January 7, 2005. The House Committee on Ways 9337.5 When said date came, the Court issued a cover the E-Vat tax. If you consider the excise tax
and Means approved the bill, in substitution of House temporary restraining order, effective immediately and the import duties, the Net Tax would probably be
Bill No. 1468, which Representative (Rep.) Eric D. and continuing until further orders, enjoining in the neighborhood of 7%? We are not going into
Singson introduced on August 8, 2004. The President respondents from enforcing and implementing the exact figures I am just trying to deliver a point that
certified the bill on January 7, 2005 for immediate law. different industries, different products, different
enactment. On January 27, 2005, the House of Oral arguments were held on July 14, 2005. services are hit differently. So its not correct to say
Representatives approved the bill on second and third Significantly, during the hearing, the Court speaking that all prices must go up by 10%.
reading. through Mr. Justice Artemio V. Panganiban, voiced ATTY. BANIQUED : Youre right, Your Honor.
House Bill No. 37053 on the other hand, substituted the rationale for its issuance of the temporary J. PANGANIBAN : Now. For instance, Domestic
House Bill No. 3105 introduced by Rep. Salacnib F. restraining order on July 1, 2005, to wit: Airline companies, Mr. Counsel, are at present
Baterina, and House Bill No. 3381 introduced by J. PANGANIBAN : . . . But before I go into the imposed a Sales Tax of 3%. When this E-Vat law
Rep. Jacinto V. Paras. Its "mother bill" is House Bill details of your presentation, let me just tell you a took effect the Sales Tax was also removed as a
No. 3555. The House Committee on Ways and Means little background. You know when the law took effect mitigating measure. So, therefore, there is no
approved the bill on February 2, 2005. The President on July 1, 2005, the Court issued a TRO at about 5 justification to increase the fares by 10% at best 7%,
also certified it as urgent on February 8, 2005. The oclock in the afternoon. But before that, there was a correct?
House of Representatives approved the bill on second lot of complaints aired on television and on radio. ATTY. BANIQUED : I guess so, Your Honor, yes.
and third reading on February 28, 2005. Some people in a gas station were complaining that J. PANGANIBAN : There are other products that the
Meanwhile, the Senate Committee on Ways and the gas prices went up by 10%. Some people were people were complaining on that first day, were being
Means approved Senate Bill No. 19504 on March 7, complaining that their electric bill will go up by 10%. increased arbitrarily by 10%. And thats one reason
2005, "in substitution of Senate Bill Nos. 1337, 1838 Other times people riding in domestic air carrier were among many others this Court had to issue TRO
and 1873, taking into consideration House Bill Nos. complaining that the prices that theyll have to pay because of the confusion in the implementation.
3555 and 3705." Senator Ralph G. Recto sponsored would have to go up by 10%. While all that was Thats why we added as an issue in this case, even if
Senate Bill No. 1337, while Senate Bill Nos. 1838 being aired, per your presentation and per our own its tangentially taken up by the pleadings of the
and 1873 were both sponsored by Sens. Franklin M. understanding of the law, thats not true. Its not true parties, the confusion in the implementation of the E-
Drilon, Juan M. Flavier and Francis N. Pangilinan. that the e-vat law necessarily increased prices by vat. Our people were subjected to the mercy of that
The President certified the bill on March 11, 2005, 10% uniformly isnt it? confusion of an across the board increase of 10%,
and was approved by the Senate on second and third ATTY. BANIQUED : No, Your Honor. which you yourself now admit and I think even the
reading on April 13, 2005. J. PANGANIBAN : It is not? Government will admit is incorrect. In some cases, it
On the same date, April 13, 2005, the Senate agreed should be 3% only, in some cases it should be 6%
to the request of the House of Representatives for a depending on these mitigating measures and the
location and situation of each product, of each the constitutionality of Sections 4, 5 and 6 of R.A. goods and properties) and 108 (sale of services and
service, of each company, isnt it? No. 9337. use or lease of properties) of the NIRC.
ATTY. BANIQUED : Yes, Your Honor. Aside from questioning the so-called stand-by Petitioners contend that these provisions are
J. PANGANIBAN : Alright. So thats one reason why authority of the President to increase the VAT rate to unconstitutional for being arbitrary, oppressive,
we had to issue a TRO pending the clarification of all 12%, on the ground that it amounts to an undue excessive, and confiscatory.
these and we wish the government will take time to delegation of legislative power, petitioners also Petitioners argument is premised on the
clarify all these by means of a more detailed contend that the increase in the VAT rate to 12% constitutional right of non-deprivation of life, liberty
implementing rules, in case the law is upheld by this contingent on any of the two conditions being or property without due process of law under Article
Court. . . .6 satisfied violates the due process clause embodied in III, Section 1 of the Constitution. According to
The Court also directed the parties to file their Article III, Section 1 of the Constitution, as it petitioners, the contested sections impose limitations
respective Memoranda. imposes an unfair and additional tax burden on the on the amount of input tax that may be claimed.
G.R. No. 168056 people, in that: (1) the 12% increase is ambiguous Petitioners also argue that the input tax partakes the
Before R.A. No. 9337 took effect, because it does not state if the rate would be returned nature of a property that may not be confiscated,
petitioners ABAKADA GURO Party List, et al., filed to the original 10% if the conditions are no longer appropriated, or limited without due process of law.
a petition for prohibition on May 27, 2005. They satisfied; (2) the rate is unfair and unreasonable, as Petitioners further contend that like any other
question the constitutionality of Sections 4, 5 and 6 the people are unsure of the applicable VAT rate from property or property right, the input tax credit may be
of R.A. No. 9337, amending Sections 106, 107 and year to year; and (3) the increase in the VAT rate, transferred or disposed of, and that by limiting the
108, respectively, of the National Internal Revenue which is supposed to be an incentive to the President same, the government gets to tax a profit or value-
Code (NIRC). Section 4 imposes a 10% VAT on sale to raise the VAT collection to at least 2 4/5 of the GDP added even if there is no profit or value-added.
of goods and properties, Section 5 imposes a 10% of the previous year, should only be based on fiscal Petitioners also believe that these provisions violate
VAT on importation of goods, and Section 6 imposes adequacy. the constitutional guarantee of equal protection of the
a 10% VAT on sale of services and use or lease of Petitioners further claim that the inclusion of a stand- law under Article III, Section 1 of the Constitution, as
properties. These questioned provisions contain a by authority granted to the President by the the limitation on the creditable input tax if: (1) the
uniform proviso authorizing the President, upon Bicameral Conference Committee is a violation of entity has a high ratio of input tax; or (2) invests in
recommendation of the Secretary of Finance, to raise the "no-amendment rule" upon last reading of a bill capital equipment; or (3) has several transactions
the VAT rate to 12%, effective January 1, 2006, after laid down in Article VI, Section 26(2) of the with the government, is not based on real and
any of the following conditions have been satisfied, Constitution. substantial differences to meet a valid classification.
to wit: G.R. No. 168461 Lastly, petitioners contend that the 70% limit is
. . . That the President, upon the recommendation of Thereafter, a petition for prohibition was filed on anything but progressive, violative of Article VI,
the Secretary of Finance, shall, effective January 1, June 29, 2005, by the Association of Pilipinas Shell Section 28(1) of the Constitution, and that it is the
2006, raise the rate of value-added tax to twelve Dealers, Inc., et al., assailing the following smaller businesses with higher input tax to output tax
percent (12%), after any of the following conditions provisions of R.A. No. 9337: ratio that will suffer the consequences thereof for it
has been satisfied: 1) Section 8, amending Section 110 (A)(2) of the wipes out whatever meager margins the petitioners
(i) Value-added tax collection as a percentage of NIRC, requiring that the input tax on depreciable make.
Gross Domestic Product (GDP) of the previous year goods shall be amortized over a 60-month period, if G.R. No. 168463
exceeds two and four-fifth percent (2 4/5%); or the acquisition, excluding the VAT components, Several members of the House of Representatives led
(ii) National government deficit as a percentage of exceeds One Million Pesos (P1, 000,000.00); by Rep. Francis Joseph G. Escudero filed this petition
GDP of the previous year exceeds one and one-half 2) Section 8, amending Section 110 (B) of the NIRC, for certiorari on June 30, 2005. They question the
percent (1 %). imposing a 70% limit on the amount of input tax to constitutionality of R.A. No. 9337 on the following
Petitioners argue that the law is unconstitutional, as it be credited against the output tax; and grounds:
constitutes abandonment by Congress of its exclusive 3) Section 12, amending Section 114 (c) of the NIRC, 1) Sections 4, 5, and 6 of R.A. No. 9337 constitute an
authority to fix the rate of taxes under Article VI, authorizing the Government or any of its political undue delegation of legislative power, in violation of
Section 28(2) of the 1987 Philippine Constitution. subdivisions, instrumentalities or agencies, including Article VI, Section 28(2) of the Constitution;
G.R. No. 168207 GOCCs, to deduct a 5% final withholding tax on 2) The Bicameral Conference Committee acted
On June 9, 2005, Sen. Aquilino Q. Pimentel, Jr., et gross payments of goods and services, which are without jurisdiction in deleting the no pass
al., filed a petition for certiorari likewise assailing subject to 10% VAT under Sections 106 (sale of
on provisions present in Senate Bill No. 1950 and oppressive, and confiscatory, and that it violates the corporate income taxes, transfer taxes, and residence
House Bill No. 3705; and constitutional principle on progressive taxation, taxes.12
3) Insertion by the Bicameral Conference Committee among others. In the Philippines, the value-added system of sales
of Sections 27, 28, 34, 116, 117, 119, 121, 125,7 148, Finally, respondents manifest that R.A. No. 9337 is taxation has long been in existence, albeit in a
151, 236, 237 and 288, which were present in Senate the anchor of the governments fiscal reform agenda. different mode. Prior to 1978, the system was a
Bill No. 1950, violates Article VI, Section 24(1) of A reform in the value-added system of taxation is the single-stage tax computed under the "cost deduction
the Constitution, which provides that all core revenue measure that will tilt the balance method" and was payable only by the original sellers.
appropriation, revenue or tariff bills shall originate towards a sustainable macroeconomic environment The single-stage system was subsequently modified,
exclusively in the House of Representatives necessary for economic growth. and a mixture of the "cost deduction method" and
G.R. No. 168730 ISSUES "tax credit method" was used to determine the value-
On the eleventh hour, Governor Enrique T. Garcia The Court defined the issues, as follows: added tax payable.13 Under the "tax credit method,"
filed a petition for certiorari and prohibition on July PROCEDURAL ISSUE an entity can credit against or subtract from the VAT
20, 2005, alleging unconstitutionality of the law on Whether R.A. No. 9337 violates the following charged on its sales or outputs the VAT paid on its
the ground that the limitation on the creditable input provisions of the Constitution: purchases, inputs and imports.14
tax in effect allows VAT-registered establishments to a. Article VI, Section 24, and It was only in 1987, when President Corazon C.
retain a portion of the taxes they collect, thus b. Article VI, Section 26(2) Aquino issued Executive Order No. 273, that the VAT
violating the principle that tax collection and revenue SUBSTANTIVE ISSUES system was rationalized by imposing a multi-stage
should be solely allocated for public purposes and 1. Whether Sections 4, 5 and 6 of R.A. No. 9337, tax rate of 0% or 10% on all sales using the "tax
expenditures. Petitioner Garcia further claims that amending Sections 106, 107 and 108 of the NIRC, credit method."15
allowing these establishments to pass on the tax to violate the following provisions of the Constitution: E.O. No. 273 was followed by R.A. No. 7716 or the
the consumers is inequitable, in violation of Article a. Article VI, Section 28(1), and Expanded VAT Law,16 R.A. No. 8241 or the
VI, Section 28(1) of the Constitution. b. Article VI, Section 28(2) Improved VAT Law,17 R.A. No. 8424 or the Tax
RESPONDENTS COMMENT 2. Whether Section 8 of R.A. No. 9337, amending Reform Act of 1997,18 and finally, the presently
The Office of the Solicitor General (OSG) filed a Sections 110(A)(2) and 110(B) of the NIRC; and beleaguered R.A. No. 9337, also referred to by
Comment in behalf of respondents. Preliminarily, Section 12 of R.A. No. 9337, amending Section respondents as the VAT Reform Act.
respondents contend that R.A. No. 9337 enjoys the 114(C) of the NIRC, violate the following provisions The Court will now discuss the issues in logical
presumption of constitutionality and petitioners failed of the Constitution: sequence.
to cast doubt on its validity. a. Article VI, Section 28(1), and PROCEDURAL ISSUE
Relying on the case of Tolentino vs. Secretary of b. Article III, Section 1 I.
Finance, 235 SCRA RULING OF THE COURT Whether R.A. No. 9337 violates the following
630 (1994), respondents argue that the procedural As a prelude, the Court deems it apt to restate the provisions of the Constitution:
issues raised by petitioners, i.e., legality of the general principles and concepts of value-added tax a. Article VI, Section 24, and
bicameral proceedings, exclusive origination of (VAT), as the confusion and inevitably, litigation, b. Article VI, Section 26(2)
revenue measures and the power of the Senate breeds from a fallacious notion of its nature. A. The Bicameral Conference Committee
concomitant thereto, have already been settled. With The VAT is a tax on spending or consumption. It is Petitioners Escudero, et al., and Pimentel, et al.,
regard to the issue of undue delegation of legislative levied on the sale, barter, exchange or lease of goods allege that the Bicameral Conference Committee
power to the President, respondents contend that the or properties and services.8 Being an indirect tax on exceeded its authority by:
law is complete and leaves no discretion to the expenditure, the seller of goods or services may pass 1) Inserting the stand-by authority in favor of the
President but to increase the rate to 12% once any of on the amount of tax paid to the buyer,9 with the President in Sections 4, 5, and 6 of R.A. No. 9337;
the two conditions provided therein arise. seller acting merely as a tax collector.10 The burden of 2) Deleting entirely the no pass-on provisions found
Respondents also refute petitioners argument that the VAT is intended to fall on the immediate buyers and in both the House and Senate bills;
increase to 12%, as well as the 70% limitation on the ultimately, the end-consumers. 3) Inserting the provision imposing a 70% limit on
creditable input tax, the 60-month amortization on In contrast, a direct tax is a tax for which a taxpayer the amount of input tax to be credited against the
the purchase or importation of capital goods is directly liable on the transaction or business it output tax; and
exceeding P1,000,000.00, and the 5% final engages in, without transferring the burden to
withholding tax by government agencies, is arbitrary, someone else.11 Examples are individual and
4) Including the amendments introduced only by any bill or joint resolution, the differences shall be conference committee. It was argued that such
Senate Bill No. 1950 regarding other kinds of taxes settled by a conference committee of both Houses irregularities in the passage of the law nullified R.A.
in addition to the value-added tax. which shall meet within ten (10) days after their No. 9006, or the Fair Election Act.
Petitioners now beseech the Court to define the composition. The President shall designate the Striking down such argument, the Court held thus:
powers of the Bicameral Conference Committee. members of the Senate Panel in the conference Under the "enrolled bill doctrine," the signing of a
It should be borne in mind that the power of internal committee with the approval of the Senate. bill by the Speaker of the House and the Senate
regulation and discipline are intrinsic in any Each Conference Committee Report shall contain a President and the certification of the Secretaries of
legislative body for, as unerringly elucidated by detailed and sufficiently explicit statement of the both Houses of Congress that it was passed are
Justice Story, "[i]f the power did not exist, it would changes in, or amendments to the subject measure, conclusive of its due enactment. A review of cases
be utterly impracticable to transact the business of and shall be signed by a majority of the members of reveals the Courts consistent adherence to the
the nation, either at all, or at least with decency, each House panel, voting separately. rule. The Court finds no reason to deviate from the
deliberation, and order."19Thus, Article VI, Section A comparative presentation of the conflicting House salutary rule in this case where the irregularities
16 (3) of the Constitution provides that "each House and Senate provisions and a reconciled version alleged by the petitioners mostly involved the
may determine the rules of its proceedings." Pursuant thereof with the explanatory statement of the internal rules of Congress, e.g., creation of the 2nd
to this inherent constitutional power to promulgate conference committee shall be attached to the report. or 3rd Bicameral Conference Committee by the
and implement its own rules of procedure, the ... House. This Court is not the proper forum for the
respective rules of each house of Congress provided The creation of such conference committee was enforcement of these internal rules of Congress,
for the creation of a Bicameral Conference apparently in response to a problem, not addressed by whether House or Senate. Parliamentary rules are
Committee. any constitutional provision, where the two houses of merely procedural and with their observance the
Thus, Rule XIV, Sections 88 and 89 of the Rules of Congress find themselves in disagreement over courts have no concern. Whatever doubts there
House of Representatives provides as follows: changes or amendments introduced by the other may be as to the formal validity of Rep. Act No.
Sec. 88. Conference Committee. In the event that house in a legislative bill. Given that one of the most 9006 must be resolved in its favor. The Court
the House does not agree with the Senate on the basic powers of the legislative branch is to formulate reiterates its ruling in Arroyo vs. De Venecia, viz.:
amendment to any bill or joint resolution, the and implement its own rules of proceedings and to But the cases, both here and abroad, in varying
differences may be settled by the conference discipline its members, may the Court then delve into forms of expression, all deny to the courts the
committees of both chambers. the details of how Congress complies with its internal power to inquire into allegations that, in enacting
In resolving the differences with the Senate, the rules or how it conducts its business of passing a law, a House of Congress failed to comply with
House panel shall, as much as possible, adhere to and legislation? Note that in the present petitions, the its own rules, in the absence of showing that there
support the House Bill. If the differences with the issue is not whether provisions of the rules of both was a violation of a constitutional provision or the
Senate are so substantial that they materially impair houses creating the bicameral conference committee rights of private individuals. In Osmea v.
the House Bill, the panel shall report such fact to the are unconstitutional, but whether the bicameral Pendatun, it was held: "At any rate, courts have
House for the latters appropriate action. conference committee has strictly complied with declared that the rules adopted by deliberative
Sec. 89. Conference Committee Reports. . . . Each the rules of both houses, thereby remaining within bodies are subject to revocation, modification or
report shall contain a detailed, sufficiently explicit the jurisdiction conferred upon it by Congress. waiver at the pleasure of the body adopting
statement of the changes in or amendments to the In the recent case of Farias vs. The Executive them. And it has been said that "Parliamentary
subject measure. Secretary,20 the Court En rules are merely procedural, and with their
... Banc, unanimously reiterated and emphasized its observance, the courts have no concern. They may
The Chairman of the House panel may be adherence to the "enrolled bill doctrine," thus, be waived or disregarded by the legislative body."
interpellated on the Conference Committee Report declining therein petitioners plea for the Court to go Consequently, "mere failure to conform to
prior to the voting thereon. The House shall vote on behind the enrolled copy of the bill. Assailed in said parliamentary usage will not invalidate the action
the Conference Committee Report in the same case was Congresss creation of two sets of bicameral (taken by a deliberative body) when the requisite
manner and procedure as it votes on a bill on third conference committees, the lack of records of said number of members have agreed to a particular
and final reading. committees proceedings, the alleged violation of said measure."21 (Emphasis supplied)
Rule XII, Section 35 of the Rules of the Senate states: committees of the rules of both houses, and the The foregoing declaration is exactly in point with the
Sec. 35. In the event that the Senate does not agree disappearance or deletion of one of the provisions in present cases, where petitioners allege irregularities
with the House of Representatives on the provision of the compromise bill submitted by the bicameral committed by the conference committee in
introducing changes or deleting provisions in the 108 of NIRC) gross domestic product (GDP) of the previous year
House and Senate bills. Akin to exceeds 2 4/5%, or National Government deficit as a
the Farias case,22 the present petitions also raise an With regard to the "no pass-on" provision percentage of GDP of the previous year exceeds 1
issue regarding the actions taken by the conference No similar provision %, when the President, upon recommendation of the
committee on matters regarding Congress Secretary of Finance shall raise the rate of VAT to
compliance with its own internal rules. As stated 12% effective January 1, 2006.
With regard to 70% limit on input tax credit
earlier, one of the most basic and inherent power of 2. With regard to the disagreement on whether only
the legislature is the power to formulate rules for its Provides that the input tax credit for capital goods on which a VAT has been
the VAT paidon
imposed shall be equally
electricity distributed over 5 years or th
generation,
proceedings and the discipline of its members. shall not exceed 5% of the total amount of such goods and services; and for persons engaged in retail
transmission and distribution companies trading ofnot
should goods, the allo
Congress is the best judge of how it should conduct With regard to amendments to be made to NIRC provisions regarding income and excise taxes
be passed on to consumers or whether both the VAT
its own business expeditiously and in the most No similar provision No similar provision imposed on electricity generation, transmission and
orderly manner. It is also the sole distribution companies and the VAT imposed on sale
concern of Congress to instill discipline among the of petroleum products may be passed on to
members of its conference committee if it believes consumers, the Bicameral Conference Committee
that said members violated any of its rules of chose to settle such disagreement by altogether
proceedings. Even the expanded jurisdiction of this The disagreements between the provisions in the deleting from its Report any no pass-on provision.
Court cannot apply to questions regarding only the House bills and the Senate bill were with regard to 3. With regard to the disagreement on whether input
internal operation of Congress, thus, the Court is (1) what rate of VAT is to be imposed; (2) whether tax credits should be limited or not, the Bicameral
wont to deny a review of the internal proceedings of only the VAT imposed on electricity generation, Conference Committee decided to adopt the position
a co-equal branch of government. transmission and distribution companies should not of the House by putting a limitation on the amount of
Moreover, as far back as 1994 or more than ten years be passed on to consumers, as proposed in the Senate input tax that may be credited against the output tax,
ago, in the case of Tolentino vs. Secretary of bill, or both the VAT imposed on electricity although it crafted its own language as to the amount
Finance,23the Court already made the pronouncement generation, transmission and distribution companies of the limitation on input tax credits and the manner
that "[i]f a change is desired in the practice [of the and the VAT imposed on sale of petroleum products of computing the same by providing thus:
Bicameral Conference Committee] it must be should not be passed on to consumers, as proposed in (A) Creditable Input Tax. . . .
sought in Congress since this question is not the House bill; (3) in what manner input tax credits ...
covered by any constitutional provision but is only should be limited; (4) and whether the NIRC Provided, The input tax on goods purchased or
an internal rule of each house." 24 To date, Congress provisions on corporate income taxes, percentage, imported in a calendar month for use in trade or
has not seen it fit to make such changes adverted to franchise and excise taxes should be amended. business for which deduction for depreciation is
by the Court. It seems, therefore, that Congress finds There being differences and/or disagreements on the allowed under this Code, shall be spread evenly over
the practices of the bicameral conference committee foregoing provisions of the House and Senate bills, the month of acquisition and the fifty-nine (59)
to be very useful for purposes of prompt and efficient the Bicameral Conference Committee was mandated succeeding months if the aggregate acquisition cost
legislative action. by the rules of both houses of Congress to act on the for such goods, excluding the VAT component
Nevertheless, just to put minds at ease that no blatant same by settling said differences and/or thereof, exceeds one million Pesos (P1,000,000.00):
irregularities tainted the proceedings of the bicameral disagreements. The Bicameral Conference PROVIDED, however, that if the estimated useful
conference committees, the Court deems it necessary Committee acted on the disagreeing provisions by life of the capital good is less than five (5) years, as
to dwell on the issue. The Court observes that there making the following changes: used for depreciation purposes, then the input VAT
was a necessity for a conference committee because a 1. With regard to the disagreement on the rate of VAT shall be spread over such shorter period: . . .
comparison of the provisions of House Bill Nos. to be imposed, it would appear from the Conference (B) Excess Output or Input Tax. If at the end of any
3555 and 3705 on one hand, and Senate Bill No. Committee Report that the Bicameral Conference taxable quarter the output tax exceeds the input tax,
1950 on the other, reveals that there were indeed Committee tried to bridge the gap in the difference the excess shall be paid by the VAT-registered person.
disagreements. As pointed out in the petitions, said between the 10% VAT rate proposed by the Senate, If the input tax exceeds the output tax, the excess
disagreements were as follows: and the various rates with 12% as the highest VAT shall be carried over to the succeeding quarter or
rate proposed by the House, by striking a quarters: PROVIDED that the input tax inclusive of
With regard to "Stand-By Authority" in favor of President compromise whereby the present 10% VAT rate input VAT carried over from the previous quarter that
would be retained until certain conditions arise, i.e., may be credited
Provides for 12% VAT on every sale of goods or properties (amending Sec. 106 of NIRC); 12% VAT on importation of goods (amending in every
Sec. 107 quarterand
of NIRC); shall
12% notVAT
exceed
on sale of service
the value-added tax collection as a percentage of
seventy percent (70%) of the output VAT: explained the reason for deleting the no pass- cases of Philippine Judges Association vs.
PROVIDED, HOWEVER, THAT any input tax on provision in this wise: Prado29 and Tolentino vs. Secretary of Finance,30 the
attributable to zero-rated sales by a VAT-registered . . . the thinking was just to keep the VAT law or the Court recognized the long-standing legislative
person may at his option be refunded or credited VAT bill simple. And we were thinking that no sector practice of giving said conference committee ample
against other internal revenue taxes, . . . should be a beneficiary of legislative grace, neither latitude for compromising differences between the
4. With regard to the amendments to other provisions should any sector be discriminated on. The VAT is an Senate and the House. Thus, in the Tolentino case, it
of the NIRC on corporate income tax, franchise, indirect tax. It is a pass on-tax. And lets keep it was held that:
percentage and excise taxes, the conference plain and simple. Lets not confuse the bill and put a . . . it is within the power of a conference committee
committee decided to include such amendments and no pass-on provision. Two-thirds of the world have a to include in its report an entirely new provision that
basically adopted the provisions found in Senate Bill VAT system and in this two-thirds of the globe, I is not found either in the House bill or in the Senate
No. 1950, with some changes as to the rate of the tax have yet to see a VAT with a no pass-though bill. If the committee can propose an amendment
to be imposed. provision. So, the thinking of the Senate is basically consisting of one or two provisions, there is no
Under the provisions of both the Rules of the House simple, lets keep the VAT simple.26 (Emphasis reason why it cannot propose several provisions,
of Representatives and Senate Rules, the Bicameral supplied) collectively considered as an "amendment in the
Conference Committee is mandated to settle the Rep. Teodoro Locsin further made the manifestation nature of a substitute," so long as such amendment is
differences between the disagreeing provisions in the that the no pass-on provision "never really enjoyed germane to the subject of the bills before the
House bill and the Senate bill. The term "settle" is the support of either House."27 committee. After all, its report was not final but
synonymous to "reconcile" and "harmonize."25 To With regard to the amount of input tax to be credited needed the approval of both houses of Congress to
reconcile or harmonize disagreeing provisions, the against output tax, the Bicameral Conference become valid as an act of the legislative
Bicameral Conference Committee may then (a) adopt Committee came to a compromise on the percentage department. The charge that in this case the
the specific provisions of either the House bill or rate of the limitation or cap on such input tax credit, Conference Committee acted as a third legislative
Senate bill, (b) decide that neither provisions in the but again, the change introduced by the Bicameral chamber is thus without any basis.31 (Emphasis
House bill or the provisions in the Senate bill would Conference Committee was totally within the intent supplied)
be carried into the final form of the bill, and/or (c) try of both houses to put a cap on input tax that may be B. R.A. No. 9337 Does Not Violate Article VI, Section
to arrive at a compromise between the disagreeing credited against the output tax. From the inception of 26(2) of the Constitution on the "No-Amendment
provisions. the subject revenue bill in the House of Rule"
In the present case, the changes introduced by the Representatives, one of the major objectives was to Article VI, Sec. 26 (2) of the Constitution, states:
Bicameral Conference Committee on disagreeing "plug a glaring loophole in the tax policy and No bill passed by either House shall become a law
provisions were meant only to reconcile and administration by creating vital restrictions on the unless it has passed three readings on separate days,
harmonize the disagreeing provisions for it did not claiming of input VAT tax credits . . ." and "[b]y and printed copies thereof in its final form have been
inject any idea or intent that is wholly foreign to the introducing limitations on the claiming of tax credit, distributed to its Members three days before its
subject embraced by the original provisions. we are capping a major leakage that has placed our passage, except when the President certifies to the
The so-called stand-by authority in favor of the collection efforts at an apparent disadvantage."28 necessity of its immediate enactment to meet a public
President, whereby the rate of 10% VAT wanted by As to the amendments to NIRC provisions on taxes calamity or emergency. Upon the last reading of a
the Senate is retained until such time that certain other than the value-added tax proposed in Senate bill, no amendment thereto shall be allowed, and the
conditions arise when the 12% VAT wanted by the Bill No. 1950, since said provisions were among vote thereon shall be taken immediately thereafter,
House shall be imposed, appears to be a compromise those referred to it, the conference committee had to and the yeas and nays entered in the Journal.
to try to bridge the difference in the rate of VAT act on the same and it basically adopted the version Petitioners argument that the practice where a
proposed by the two houses of Congress. of the Senate. bicameral conference committee is allowed to add or
Nevertheless, such compromise is still totally within Thus, all the changes or modifications made by the delete provisions in the House bill and the Senate bill
the subject of what rate of VAT should be imposed on Bicameral Conference Committee were germane to after these had passed three readings is in effect a
taxpayers. subjects of the provisions referred circumvention of the "no amendment rule" (Sec. 26
The no pass-on provision was deleted altogether. In to it for reconciliation. Such being the case, the Court (2), Art. VI of the 1987 Constitution), fails to
the transcripts of the proceedings of the Bicameral does not see any grave abuse of discretion amounting convince the Court to deviate from its ruling in
Conference Committee held on May 10, 2005, Sen. to lack or excess of jurisdiction committed by the the Tolentino case that:
Ralph Recto, Chairman of the Senate Panel, Bicameral Conference Committee. In the earlier
Nor is there any reason for requiring that the 237 may be a rewriting of the whole. . . . At this point,
Issuance of receipts or sales or commercial invoices
Committees Report in these cases must have 288 Disposition of Incremental Revenue what is important to note is that, as a result of the
undergone three readings in each of the two houses. Petitioners claim that the amendments to these Senate action, a distinct bill may be produced. To
If that be the case, there would be no end to provisions of the NIRC did not at all originate from insist that a revenue statute and not only the bill
negotiation since each house may seek modification the House. They aver that House Bill No. 3555 which initiated the legislative process culminating
of the compromise bill. . . . proposed amendments only regarding Sections 106, in the enactment of the law must substantially be
Art. VI. 26 (2) must, therefore, be construed as 107, 108, 110 and 114 of the NIRC, while House Bill the same as the House bill would be to deny the
referring only to bills introduced for the first time No. 3705 proposed amendments only to Sections Senates power not only to "concur with
in either house of Congress, not to the conference 106, 107,108, 109, 110 and 111 of the NIRC; thus, amendments" but also to "propose
committee report.32 (Emphasis supplied) the other sections of the NIRC which the Senate amendments." It would be to violate the coequality
The Court reiterates here that the "no-amendment amended but which amendments were not found in of legislative power of the two houses of Congress
rule" refers only to the procedure to be followed the House bills are not intended to be amended by the and in fact make the House superior to the Senate.
by each house of Congress with regard to bills House of Representatives. Hence, they argue that
initiated in each of said respective houses, before since the proposed amendments did not originate Given, then, the power of the Senate to propose
said bill is transmitted to the other house for its from the House, such amendments are a violation of amendments, the Senate can propose its own
concurrence or amendment. Verily, to construe said Article VI, Section 24 of the Constitution. version even with respect to bills which are
provision in a way as to proscribe any further The argument does not hold water. required by the Constitution to originate in the
changes to a bill after one house has voted on it Article VI, Section 24 of the Constitution reads: House.
would lead to absurdity as this would mean that the Sec. 24. All appropriation, revenue or tariff bills, bills ...
other house of Congress would be deprived of its authorizing increase of the public debt, bills of local Indeed, what the Constitution simply means is that
constitutional power to amend or introduce changes application, and private bills shall originate the initiative for filing revenue, tariff or tax bills, bills
to said bill. Thus, Art. VI, Sec. 26 (2) of the exclusively in the House of Representatives but the authorizing an increase of the public debt, private
Constitution cannot be taken to mean that the Senate may propose or concur with amendments. bills and bills of local application must come from
introduction by the Bicameral Conference Committee In the present cases, petitioners admit that it was the House of Representatives on the theory that,
of amendments and modifications to disagreeing indeed House Bill Nos. 3555 and 3705 that initiated elected as they are from the districts, the members of
provisions in bills that have been acted upon by both the move for amending provisions of the NIRC the House can be expected to be more sensitive to
houses of Congress is prohibited. dealing mainly with the value-added tax. Upon the local needs and problems. On the other hand,
C. R.A. No. 9337 Does Not Violate Article VI, Section transmittal of said House bills to the Senate, the the senators, who are elected at large, are expected
24 of the Constitution on Exclusive Origination of Senate came out with Senate Bill No. 1950 proposing to approach the same problems from the national
Revenue Bills amendments not only to NIRC provisions on the perspective. Both views are thereby made to bear
Coming to the issue of the validity of the value-added tax but also amendments to NIRC on the enactment of such laws.33 (Emphasis
amendments made regarding the NIRC provisions on provisions on other kinds of taxes. Is the introduction supplied)
corporate income taxes and percentage, excise taxes. by the Senate of provisions not dealing directly with Since there is no question that the revenue bill
Petitioners refer to the following provisions, to wit: the value- added tax, which is the only kind of tax exclusively originated in the House of
Section 27 Rates of Income Tax on Domestic Corporationbeing amended in the House bills, still within the Representatives, the Senate was acting within its
28(A)(1) Tax on Resident Foreign Corporation purview of the constitutional provision authorizing constitutional power to introduce amendments to the
28(B)(1) Inter-corporate Dividends the Senate to propose or concur with amendments to House bill when it included provisions in Senate Bill
a revenue bill that originated from the House? No. 1950 amending corporate income taxes,
34(B)(1) Inter-corporate Dividends
The foregoing question had been squarely answered percentage, excise and franchise taxes. Verily, Article
116 Tax on Persons Exempt from VAT VI, Section 24 of the Constitution does not contain
in the Tolentino case, wherein the Court held, thus:
117 Percentage Tax on domestic carriers and keepers of Garage any prohibition or limitation on the extent of the
. . . To begin with, it is not the law but the revenue
119 Tax on franchises bill which is required by the Constitution to amendments that may be introduced by the Senate to
121 Tax on banks and Non-Bank Financial Intermediaries
"originate exclusively" in the House of the House revenue bill.
148 Excise Tax on manufactured oils and other fuels
Representatives. It is important to emphasize this, Furthermore, the amendments introduced by the
151 Excise Tax on mineral products because a bill originating in the House may undergo Senate to the NIRC provisions that had not been
236 Registration requirements such extensive changes in the Senate that the result touched in the House bills are still in furtherance of
the intent of the House in initiating the subject bills. It can provide for ways that would soften the reforms to the VAT system, as these sections would
revenue bills. The Explanatory Note of House Bill impact of the VAT measure on the consumer, i.e., by cushion the effects of VAT on consumers.
No. 1468, the very first House bill introduced on the distributing the burden across all sectors instead of Considering that certain goods and services which
floor, which was later substituted by House Bill No. putting it entirely on the shoulders of the consumers. were subject to percentage tax and excise tax would
3555, stated: The sponsorship speech of Sen. Ralph Recto on why no longer be VAT-exempt, the consumer would be
One of the challenges faced by the present the provisions on income tax on corporation were burdened more as they would be paying the VAT in
administration is the urgent and daunting task of included is worth quoting: addition to these taxes. Thus, there is a need to amend
solving the countrys serious financial problems. To All in all, the proposal of the Senate Committee on these sections to soften the impact of VAT. Again, in
do this, government expenditures must be strictly Ways and Means will raise P64.3 billion in additional his sponsorship speech, Sen. Recto said:
monitored and controlled and revenues must be revenues annually even while by mitigating prices of However, for power plants that run on oil, we will
significantly increased. This may be easier said than power, services and petroleum products. reduce to zero the present excise tax on bunker fuel,
done, but our fiscal authorities are still optimistic the However, not all of this will be wrung out of VAT. In to lessen the effect of a VAT on this product.
government will be operating on a balanced budget fact, only P48.7 billion amount is from the VAT on For electric utilities like Meralco, we will wipe out
by the year 2009. In fact, several measures that will twelve goods and services. The rest of the tab P10.5 the franchise tax in exchange for a VAT.
result to significant expenditure savings have been billion- will be picked by corporations. And in the case of petroleum, while we will levy the
identified by the administration. It is supported with What we therefore prescribe is a burden sharing VAT on oil products, so as not to destroy the VAT
a credible package of revenue measures that between corporate Philippines and the consumer. chain, we will however bring down the excise tax on
include measures to improve tax administration Why should the latter bear all the pain? Why should socially sensitive products such as diesel, bunker, fuel
and control the leakages in revenues from income the fiscal salvation be only on the burden of the and kerosene.
taxes and the value-added tax (VAT). (Emphasis consumer? ...
supplied) The corporate worlds equity is in form of the What do all these exercises point to? These are not
Rep. Eric D. Singson, in his sponsorship speech for increase in the corporate income tax from 32 to 35 contortions of giving to the left hand what was taken
House Bill No. 3555, declared that: percent, but up to 2008 only. This will raise P10.5 from the right. Rather, these sprang from our concern
In the budget message of our President in the year billion a year. After that, the rate will slide back, not of softening the impact of VAT, so that the people can
2005, she reiterated that we all acknowledged that on to its old rate of 32 percent, but two notches lower, to cushion the blow of higher prices they will have to
top of our agenda must be the restoration of the 30 percent. pay as a result of VAT.36
health of our fiscal system. Clearly, we are telling those with the capacity to pay, The other sections amended by the Senate pertained
In order to considerably lower the consolidated corporations, to bear with this emergency provision to matters of tax administration which are necessary
public sector deficit and eventually achieve a that will be in effect for 1,200 days, while we put our for the implementation of the changes in the VAT
balanced budget by the year 2009, we need to seize fiscal house in order. This fiscal medicine will have system.
windows of opportunities which might seem an expiry date. To reiterate, the sections introduced by the Senate are
poignant in the beginning, but in the long run For their assistance, a reward of tax reduction awaits germane to the subject matter and purposes of the
prove effective and beneficial to the overall status them. We intend to keep the length of their sacrifice house bills, which is to supplement our countrys
of our economy. One such opportunity is a review brief. We would like to assure them that not because fiscal deficit, among others. Thus, the Senate acted
of existing tax rates, evaluating the relevance there is a light at the end of the tunnel, this within its power to propose those amendments.
given our present conditions.34(Emphasis supplied) government will keep on making the tunnel long. SUBSTANTIVE ISSUES
Notably therefore, the main purpose of the bills The responsibility will not rest solely on the weary I.
emanating from the House of Representatives is to shoulders of the small man. Big business will be Whether Sections 4, 5 and 6 of R.A. No. 9337,
bring in sizeable revenues for the government there to share the burden.35 amending Sections 106, 107 and 108 of the NIRC,
to supplement our countrys serious financial As the Court has said, the Senate can propose violate the following provisions of the Constitution:
problems, and improve tax administration and control amendments and in fact, the amendments made on a. Article VI, Section 28(1), and
of the leakages in revenues from income taxes and provisions in the tax on income of corporations are b. Article VI, Section 28(2)
value-added taxes. As these house bills were germane to the purpose of the house bills which is to A. No Undue Delegation of Legislative Power
transmitted to the Senate, the latter, approaching the raise revenues for the government. Petitioners ABAKADA GURO Party List, et al.,
measures from the point of national perspective, can Likewise, the Court finds the sections referring to Pimentel, Jr., et al., and Escudero, et al. contend in
introduce amendments within the purposes of those other percentage and excise taxes germane to the common that Sections 4, 5 and 6 of R.A. No. 9337,
amending Sections 106, 107 and 108, respectively, of Secretary of Finance, shall, effective January 1, included within the purview of tariffs under the
the NIRC giving the President the stand-by 2006, raise the rate of value-added tax to twelve exempted delegation as the latter refers to customs
authority to raise the VAT rate from 10% to 12% percent (12%) after any of the following duties, tolls or tribute payable upon merchandise to
when a certain condition is met, constitutes undue conditions has been satisfied. the government and usually imposed on goods or
delegation of the legislative power to tax. (i) value-added tax collection as a percentage of merchandise imported or exported.
The assailed provisions read as follows: Gross Domestic Product (GDP) of the previous Petitioners ABAKADA GURO Party List, et al.,
SEC. 4. Sec. 106 of the same Code, as amended, is year exceeds two and four-fifth percent (2 4/5%) further contend that delegating to the President the
hereby further amended to read as follows: or legislative power to tax is contrary to republicanism.
SEC. 106. Value-Added Tax on Sale of Goods or (ii) national government deficit as a percentage of They insist that accountability, responsibility and
Properties. GDP of the previous year exceeds one and one-half transparency should dictate the actions of Congress
(A) Rate and Base of Tax. There shall be levied, percent (1 %). and they should not pass to the President the decision
assessed and collected on every sale, barter or SEC. 6. Section 108 of the same Code, as amended, to impose taxes. They also argue that the law also
exchange of goods or properties, a value-added tax is hereby further amended to read as follows: effectively nullified the Presidents power of control,
equivalent to ten percent (10%) of the gross selling SEC. 108. Value-added Tax on Sale of Services and which includes the authority to set aside and nullify
price or gross value in money of the goods or Use or Lease of Properties the acts of her subordinates like the Secretary of
properties sold, bartered or exchanged, such tax to be (A) Rate and Base of Tax. There shall be levied, Finance, by mandating the fixing of the tax rate by
paid by the seller or transferor: provided, that the assessed and collected, a value-added tax equivalent the President upon the recommendation of the
President, upon the recommendation of the to ten percent (10%) of gross receipts derived from Secretary of Finance.
Secretary of Finance, shall, effective January 1, the sale or exchange of services: provided, that the Petitioners Pimentel, et al. aver that the President has
2006, raise the rate of value-added tax to twelve President, upon the recommendation of the ample powers to cause, influence or create the
percent (12%), after any of the following Secretary of Finance, shall, effective January 1, conditions provided by the law to bring about either
conditions has been satisfied. 2006, raise the rate of value-added tax to twelve or both the conditions precedent.
(i) value-added tax collection as a percentage of percent (12%), after any of the following On the other hand, petitioners Escudero, et al. find
Gross Domestic Product (GDP) of the previous conditions has been satisfied. bizarre and revolting the situation that the imposition
year exceeds two and four-fifth percent (2 4/5%) (i) value-added tax collection as a percentage of of the 12% rate would be subject to the whim of the
or Gross Domestic Product (GDP) of the previous Secretary of Finance, an unelected bureaucrat,
(ii) national government deficit as a percentage of year exceeds two and four-fifth percent (2 4/5%) contrary to the principle of no taxation without
GDP of the previous year exceeds one and one-half or representation. They submit that the Secretary of
percent (1 %). (ii) national government deficit as a percentage of Finance is not mandated to give a favorable
SEC. 5. Section 107 of the same Code, as amended, GDP of the previous year exceeds one and one-half recommendation and he may not even give his
is hereby further amended to read as follows: percent (1 %). (Emphasis supplied) recommendation. Moreover, they allege that no
SEC. 107. Value-Added Tax on Importation of Petitioners allege that the grant of the stand-by guiding standards are provided in the law on what
Goods. authority to the President to increase the VAT rate is a basis and as to how he will make his
(A) In General. There shall be levied, assessed and virtual abdication by Congress of its exclusive power recommendation. They claim, nonetheless, that any
collected on every importation of goods a value- to tax because such delegation is not within the recommendation of the Secretary of Finance can
added tax equivalent to ten percent (10%) based on purview of Section 28 (2), Article VI of the easily be brushed aside by the President since the
the total value used by the Bureau of Customs in Constitution, which provides: former is a mere alter ego of the latter, such that,
determining tariff and customs duties, plus customs The Congress may, by law, authorize the President to ultimately, it is the President who decides whether to
duties, excise taxes, if any, and other charges, such fix within specified limits, and may impose, tariff impose the increased tax rate or not.
tax to be paid by the importer prior to the release of rates, import and export quotas, tonnage and A brief discourse on the principle of non-delegation
such goods from customs custody: Provided, That wharfage dues, and other duties or imposts within the of powers is instructive.
where the customs duties are determined on the basis framework of the national development program of The principle of separation of powers ordains that
of the quantity or volume of the goods, the value- the government. each of the three great branches of government has
added tax shall be based on the landed cost plus They argue that the VAT is a tax levied on the sale, exclusive cognizance of and is supreme in matters
excise taxes, if any: provided, further, that the barter or exchange of goods and properties as well as falling within its own constitutionally allocated
President, upon the recommendation of the on the sale or exchange of services, which cannot be sphere.37 A logical
corollary to the doctrine of separation of powers is standard the limits of which are sufficiently however, to relax the rule prohibiting delegation of
the principle of non-delegation of powers, as determinate and determinable to which the legislative authority on account of the complexity
expressed in the Latin maxim: potestas delegata non delegate must conform in the performance of his arising from social and economic forces at work in
delegari potest which means "what has been functions.42 A sufficient standard is one which defines this modern industrial age, the orthodox
delegated, cannot be delegated."38 This doctrine is legislative policy, marks its limits, maps out its pronouncement of Judge Cooley in his work on
based on the ethical principle that such as delegated boundaries and specifies the public agency to apply Constitutional Limitations finds restatement in Prof.
power constitutes not only a right but a duty to be it. It indicates the circumstances under which the Willoughby's treatise on the Constitution of the
performed by the delegate through the legislative command is to be effected.43 Both tests are United States in the following language speaking
instrumentality of his own judgment and not through intended to prevent a total transference of legislative of declaration of legislative power to administrative
the intervening mind of another.39 authority to the delegate, who is not allowed to step agencies: The principle which permits the
With respect to the Legislature, Section 1 of Article into the shoes of the legislature and exercise a power legislature to provide that the administrative
VI of the Constitution provides that "the Legislative essentially legislative.44 agent may determine when the circumstances are
power shall be vested in the Congress of the In People vs. Vera,45 the Court, through eminent such as require the application of a law is
Philippines which shall consist of a Senate and a Justice Jose P. Laurel, expounded on the concept and defended upon the ground that at the time this
House of Representatives." The powers which extent of delegation of power in this wise: authority is granted, the rule of public policy,
Congress is prohibited from delegating are those In testing whether a statute constitutes an undue which is the essence of the legislative act, is
which are strictly, or inherently and exclusively, delegation of legislative power or not, it is usual to determined by the legislature. In other words, the
legislative. Purely legislative power, which can never inquire whether the statute was complete in all its legislature, as it is its duty to do, determines that,
be delegated, has been described as the authority to terms and provisions when it left the hands of the under given circumstances, certain executive or
make a complete law complete as to the time legislature so that nothing was left to the judgment of administrative action is to be taken, and that,
when it shall take effect and as to whom it shall be any other appointee or delegate of the legislature. under other circumstances, different or no action
applicable and to determine the expediency of its ... at all is to be taken. What is thus left to the
enactment.40 Thus, the rule is that in order that a The true distinction, says Judge Ranney, is administrative official is not the legislative
court may be justified in holding a statute between the delegation of power to make the law, determination of what public policy demands, but
unconstitutional as a delegation of legislative power, which necessarily involves a discretion as to what simply the ascertainment of what the facts of the
it must appear that the power involved is purely it shall be, and conferring an authority or case require to be done according to the terms of
legislative in nature that is, one appertaining discretion as to its execution, to be exercised under the law by which he is governed. The efficiency of
exclusively to the legislative department. It is the and in pursuance of the law. The first cannot be an Act as a declaration of legislative will must, of
nature of the power, and not the liability of its use or done; to the latter no valid objection can be course, come from Congress, but the
the manner of its exercise, which determines the made. ascertainment of the contingency upon which the
validity of its delegation. ... Act shall take effect may be left to such agencies
Nonetheless, the general rule barring delegation of It is contended, however, that a legislative act may be as it may designate. The legislature, then, may
legislative powers is subject to the following made to the effect as law after it leaves the hands of provide that a law shall take effect upon the
recognized limitations or exceptions: the legislature. It is true that laws may be made happening of future specified contingencies
(1) Delegation of tariff powers to the President under effective on certain contingencies, as by proclamation leaving to some other person or body the power to
Section 28 (2) of Article VI of the Constitution; of the executive or the adoption by the people of a determine when the specified contingency has
(2) Delegation of emergency powers to the President particular community. In Wayman vs. Southard, the arisen. (Emphasis supplied).46
under Section 23 (2) of Article VI of the Constitution; Supreme Court of the United States ruled that the In Edu vs. Ericta,47 the Court reiterated:
(3) Delegation to the people at large; legislature may delegate a power not legislative What cannot be delegated is the authority under the
(4) Delegation to local governments; and which it may itself rightfully exercise. The power to Constitution to make laws and to alter and repeal
(5) Delegation to administrative bodies. ascertain facts is such a power which may be them; the test is the completeness of the statute in all
In every case of permissible delegation, there must be delegated. There is nothing essentially legislative its terms and provisions when it leaves the hands of
a showing that the delegation itself is valid. It is valid in ascertaining the existence of facts or conditions the legislature. To determine whether or not there is
only if the law (a) is complete in itself, setting forth as the basis of the taking into effect of a law. That an undue delegation of legislative power, the inquiry
therein the policy to be executed, carried out, or is a mental process common to all branches of the must be directed to the scope and definiteness of the
implemented by the delegate;41 and (b) fixes a government. Notwithstanding the apparent tendency, measure enacted. The legislative does not abdicate
its functions when it describes what job must be particular facts and circumstances impossible for certain facts or conditions by a person or body other
done, who is to do it, and what is the scope of his Congress itself properly to investigate.52 than the legislature itself.
authority. For a complex economy, that may be the In the present case, the challenged section of R.A. The Court finds no merit to the contention of
only way in which the legislative process can go No. 9337 is the common proviso in Sections 4, 5 and petitioners ABAKADA GURO Party List, et al. that
forward. A distinction has rightfully been made 6 which reads as follows: the law effectively nullified the Presidents power of
between delegation of power to make the laws That the President, upon the recommendation of the control over the Secretary of Finance by mandating
which necessarily involves a discretion as to what Secretary of Finance, shall, effective January 1, 2006, the fixing of the tax rate by the President upon the
it shall be, which constitutionally may not be done, raise the rate of value-added tax to twelve percent recommendation of the Secretary of Finance. The
and delegation of authority or discretion as to its (12%), after any of the following conditions has been Court cannot also subscribe to the position of
execution to be exercised under and in pursuance satisfied: petitioners
of the law, to which no valid objection can be (i) Value-added tax collection as a percentage of Pimentel, et al. that the word shall should be
made. The Constitution is thus not to be regarded as Gross Domestic Product (GDP) of the previous year interpreted to mean may in view of the phrase "upon
denying the legislature the necessary resources of exceeds two and four-fifth percent (2 4/5%); or the recommendation of the Secretary of Finance."
flexibility and practicability. (Emphasis supplied). 48 (ii) National government deficit as a percentage of Neither does the Court find persuasive the
Clearly, the legislature may delegate to executive GDP of the previous year exceeds one and one-half submission of petitioners Escudero, et al. that any
officers or bodies the power to determine certain facts percent (1 %). recommendation by the Secretary of Finance can
or conditions, or the happening of contingencies, on The case before the Court is not a delegation of easily be brushed aside by the President since the
which the operation of a statute is, by its terms, made legislative power. It is simply a delegation of former is a mere alter ego of the latter.
to depend, but the legislature must prescribe ascertainment of facts upon which enforcement and When one speaks of the Secretary of Finance as the
sufficient standards, policies or limitations on their administration of the increase rate under the law is alter ego of the President, it simply means that as
authority.49 While the power to tax cannot be contingent. The legislature has made the operation of head of the Department of Finance he is the assistant
delegated to executive agencies, details as to the the 12% rate effective January 1, 2006, contingent and agent of the Chief Executive. The multifarious
enforcement and administration of an exercise of upon a specified fact or condition. It leaves the entire executive and administrative functions of the Chief
such power may be left to them, including the power operation or non-operation of the 12% rate upon Executive are performed by and through the
to determine the existence of facts on which its factual matters outside of the control of the executive. executive departments, and the acts of the secretaries
operation depends.50 No discretion would be exercised by the President. of such departments, such as the Department of
The rationale for this is that the preliminary Highlighting the absence of discretion is the fact that Finance, performed and promulgated in the regular
ascertainment of facts as basis for the enactment of the word shall is used in the common proviso. The course of business, are, unless disapproved or
legislation is not of itself a legislative function, but is use of the word shall connotes a mandatory order. Its reprobated by the Chief Executive, presumptively the
simply ancillary to legislation. Thus, the duty of use in a statute denotes an imperative obligation and acts of the Chief Executive. The Secretary of
correlating information and making is inconsistent with the idea of discretion.53 Where Finance, as such, occupies a political position and
recommendations is the kind of subsidiary activity the law is clear and unambiguous, it must be taken to holds office in an advisory capacity, and, in the
which the legislature may perform through its mean exactly what it says, and courts have no choice language of Thomas Jefferson, "should be of the
members, or which it may delegate to others to but to see to it that the mandate is obeyed.54 President's bosom confidence" and, in the language
perform. Intelligent legislation on the complicated Thus, it is the ministerial duty of the President to of Attorney-General Cushing, is "subject to the
problems of modern society is impossible in the immediately impose the 12% rate upon the existence direction of the President."55
absence of accurate information on the part of the of any of the conditions specified by Congress. This In the present case, in making his recommendation to
legislators, and any reasonable method of securing is a duty which cannot be evaded by the President. the President on the existence of either of the two
such information is proper.51 The Constitution as a Inasmuch as the law specifically uses the word shall, conditions, the Secretary of Finance is not acting as
continuously operative charter of government does the exercise of discretion by the President does not the alter ego of the President or even her subordinate.
not require that Congress find for itself come into play. It is a clear directive to impose the In such instance, he is not subject to the power of
every fact upon which it desires to base legislative 12% VAT rate when the specified conditions are control and direction of the President. He is acting as
action or that it make for itself detailed present. The time of taking into effect of the 12% the agent of the legislative department, to determine
determinations which it has declared to be VAT rate is based on the happening of a certain and declare the event upon which its expressed will is
prerequisite to application of legislative policy to specified contingency, or upon the ascertainment of to take effect.56The Secretary of Finance becomes the
means or tool by which legislative policy is
determined and implemented, considering that he The insinuation by petitioners Pimentel, et al. that the the law is clear and unambiguous, so that there is no
possesses all the facilities to gather data and President has ample powers to cause, influence or occasion for the court's seeking the legislative intent,
information and has a much broader perspective to create the conditions to bring about either or both the the law must be taken as it is, devoid of judicial
properly evaluate them. His function is to gather and conditions precedent does not deserve any merit as addition or subtraction.61
collate statistical data and other pertinent information this argument is highly speculative. The Court does Petitioners also contend that the increase in the VAT
and verify if any of the two conditions laid out by not rule on allegations which are manifestly rate, which was allegedly an incentive to the
Congress is present. His personality in such instance conjectural, as these may not exist at all. The Court President to raise the VAT collection to at least
is in reality but a projection of that of Congress. deals with facts, not fancies; on realities, not 2 4/5 of the GDP of the previous year, should be based
Thus, being the agent of Congress and not of the appearances. When the Court acts on appearances on fiscal adequacy.
President, the President cannot alter or modify or instead of realities, justice and law will be short- Petitioners obviously overlooked that increase in VAT
nullify, or set aside the findings of the Secretary of lived. collection is not the only condition. There is another
Finance and to substitute the judgment of the former B. The 12% Increase VAT Rate Does Not Impose an condition, i.e., the national government deficit as a
for that of the latter. Unfair and Unnecessary Additional Tax Burden percentage of GDP of the previous year exceeds one
Congress simply granted the Secretary of Finance the Petitioners Pimentel, et al. argue that the 12% and one-half percent (1 %).
authority to ascertain the existence of a fact, namely, increase in the VAT rate imposes an unfair and Respondents explained the philosophy behind these
whether by December 31, 2005, the value-added tax additional tax burden on the people. Petitioners also alternative conditions:
collection as a percentage of Gross Domestic Product argue that the 12% increase, dependent on any of the 1. VAT/GDP Ratio > 2.8%
(GDP) of the previous year exceeds two and four- 2 conditions set forth in the contested provisions, is The condition set for increasing VAT rate to 12%
fifth percent (24/5%) or the national government ambiguous because it does not state if the VAT rate have economic or fiscal meaning. If VAT/GDP is less
deficit as a percentage of GDP of the previous year would be returned to the original 10% if the rates are than 2.8%, it means that government has weak or no
exceeds one and one-half percent (1%). If either of no longer satisfied. Petitioners also argue that such capability of implementing the VAT or that VAT is
these two instances has occurred, the Secretary of rate is unfair and unreasonable, as the people are not effective in the function of the tax collection.
Finance, by legislative mandate, must submit such unsure of the applicable VAT rate from year to year. Therefore, there is no value to increase it to 12%
information to the President. Then the 12% VAT rate Under the common provisos of Sections 4, 5 and 6 of because such action will also be ineffectual.
must be imposed by the President effective January 1, R.A. No. 9337, if any of the two conditions set forth 2. Natl Govt Deficit/GDP >1.5%
2006. There is no undue delegation of legislative therein are satisfied, the President shall increase the The condition set for increasing VAT when
power but only of the discretion as to the VAT rate to 12%. The provisions of the law are clear. deficit/GDP is 1.5% or less means the fiscal condition
execution of a law. This is constitutionally It does not provide for a return to the 10% rate nor of government has reached a relatively sound
permissible.57 Congress does not abdicate its does it empower the President to so revert if, after the position or is towards the direction of a balanced
functions or unduly delegate power when it describes rate is increased to 12%, the VAT collection goes budget position. Therefore, there is no need to
what job must be done, who must do it, and what is below the 24/5 of the GDP of the previous year or that increase the VAT rate since the fiscal house is in a
the scope of his authority; in our complex economy the national government deficit as a percentage of relatively healthy position. Otherwise stated, if the
that is frequently the only way in which the GDP of the previous year does not exceed 1%. ratio is more than 1.5%, there is indeed a need to
legislative process can go forward.58 Therefore, no statutory construction or interpretation increase the VAT rate.62
As to the argument of petitioners ABAKADA is needed. Neither can conditions or limitations be That the first condition amounts to an incentive to the
GURO Party List, et al. that delegating to the introduced where none is provided for. Rewriting the President to increase the VAT collection does not
President the legislative power to tax is contrary to law is a forbidden ground that only Congress may render it unconstitutional so long as there is a public
the principle of republicanism, the same deserves tread upon.60 purpose for which the law was passed, which in this
scant consideration. Congress did not delegate the Thus, in the absence of any provision providing for a case, is mainly to raise revenue. In fact, fiscal
power to tax but the mere implementation of the law. return to the 10% rate, which in this case the Court adequacy dictated the need for a raise in revenue.
The intent and will to increase the VAT rate to 12% finds none, petitioners argument is, at best, purely The principle of fiscal adequacy as a characteristic of
came from Congress and the task of the President is speculative. There is no basis for petitioners fear of a a sound tax system was originally stated by Adam
to simply execute the legislative policy. That fluctuating VAT rate because the law itself does not Smith in his Canons of Taxation (1776), as:
Congress chose to do so in such a manner is not provide that the rate should go back to 10% if the IV. Every tax ought to be so contrived as both to take
within the province of the Court to inquire into, its conditions provided in Sections 4, 5 and 6 are no out and to keep out of the pockets of the people as
task being to interpret the law.59 longer present. The rule is that where the provision of
little as possible over and above what it brings into borrow 4 billion dollars. Of that amount, we have 114(C) of the NIRC, violate the following provisions
the public treasury of the state.63 borrowed 1.5 billion. We issued last January a 25- of the Constitution:
It simply means that sources of revenues must be year bond at 9.7 percent cost. We were trying to a. Article VI, Section 28(1), and
adequate to meet government expenditures and their access last week and the market was not as favorable b. Article III, Section 1
variations.64 and up to now we have not accessed and we might A. Due Process and Equal Protection Clauses
The dire need for revenue cannot be ignored. Our pull back because the conditions are not very good. Petitioners Association of Pilipinas Shell Dealers,
country is in a quagmire of financial woe. During the So given this situation, we at the Department of Inc., et al. argue that Section 8 of R.A. No. 9337,
Bicameral Conference Committee hearing, then Finance believe that we really need to front-end our amending Sections 110 (A)(2), 110 (B), and Section
Finance Secretary Purisima bluntly depicted the deficit reduction. Because it is deficit that is causing 12 of R.A. No. 9337, amending Section 114 (C) of
countrys gloomy state of economic affairs, thus: the increase of the debt and we are in what we call a the NIRC are arbitrary, oppressive, excessive and
First, let me explain the position that the Philippines debt spiral. The more debt you have, the more deficit confiscatory. Their argument is premised on the
finds itself in right now. We are in a position where you have because interest and debt service eats and constitutional right against deprivation of life, liberty
90 percent of our revenue is used for debt service. So, eats more of your revenue. We need to get out of this of property without due process of law, as embodied
for every peso of revenue that we currently raise, 90 debt spiral. And the only way, I think, we can get out in Article III, Section 1 of the Constitution.
goes to debt service. Thats interest plus amortization of this debt spiral is really have a front-end Petitioners also contend that these provisions violate
of our debt. So clearly, this is not a sustainable adjustment in our revenue base.65 the constitutional guarantee of equal protection of the
situation. Thats the first fact. The image portrayed is chilling. Congress passed the law.
The second fact is that our debt to GDP level is way law hoping for rescue from an inevitable catastrophe. The doctrine is that where the due process and equal
out of line compared to other peer countries that Whether the law is indeed sufficient to answer the protection clauses are invoked, considering that they
borrow money from that international financial states economic dilemma is not for the Court to are not fixed rules but rather broad standards, there is
markets. Our debt to GDP is approximately equal to judge. In the Farias case, the Court refused to a need for proof of such persuasive character as
our GDP. Again, that shows you that this is not a consider the various arguments raised therein that would lead to such a conclusion. Absent such a
sustainable situation. dwelt on the wisdom of Section 14 of R.A. No. 9006 showing, the presumption of validity must prevail.68
The third thing that Id like to point out is the (The Fair Election Act), pronouncing that: Section 8 of R.A. No. 9337, amending Section
environment that we are presently operating in is not . . . policy matters are not the concern of the Court. 110(B) of the NIRC imposes a limitation on the
as benign as what it used to be the past five years. Government policy is within the exclusive dominion amount of input tax that may be credited against the
What do I mean by that? of the political branches of the government. It is not output tax. It states, in part: "[P]rovided, that the
In the past five years, weve been lucky because we for this Court to look into the wisdom or propriety of input tax inclusive of the input VAT carried over from
were operating in a period of basically global growth legislative determination. Indeed, whether an the previous quarter that may be credited in every
and low interest rates. The past few months, we have enactment is wise or unwise, whether it is based on quarter shall not exceed seventy percent (70%) of the
seen an inching up, in fact, a rapid increase in the sound economic theory, whether it is the best means output VAT: "
interest rates in the leading economies of the world. to achieve the desired results, whether, in short, the Input Tax is defined under Section 110(A) of the
And, therefore, our ability to borrow at reasonable legislative discretion within its prescribed limits NIRC, as amended, as the value-added tax
prices is going to be challenged. In fact, ultimately, should be exercised in a particular manner are due from or paid by a VAT-registered person on the
the question is our ability to access the financial matters for the judgment of the legislature, and the importation of goods or local purchase of good and
markets. serious conflict of opinions does not suffice to bring services, including lease or use of property, in the
When the President made her speech in July last year, them within the range of judicial cognizance.66 course of trade or business, from a VAT-registered
the environment was not as bad as it is now, at least In the same vein, the Court in this case will not person, and Output Tax is the value-added tax due on
based on the forecast of most financial institutions. dawdle on the purpose of Congress or the executive the sale or lease of taxable goods or properties or
So, we were assuming that raising 80 billion would policy, given that it is not for the judiciary to "pass services by any person registered or required to
put us in a position where we can then convince them upon questions of wisdom, justice or expediency of register under the law.
to improve our ability to borrow at lower rates. But legislation."67 Petitioners claim that the contested sections impose
conditions have changed on us because the interest II. limitations on the amount of input tax that may be
rates have gone up. In fact, just within this room, we Whether Section 8 of R.A. No. 9337, amending claimed. In effect, a portion of the input tax that has
tried to access the market for a billion dollars because Sections 110(A)(2) and 110(B) of the NIRC; and already been paid cannot now be credited against the
for this year alone, the Philippines will have to Section 12 of R.A. No. 9337, amending Section output tax.
Petitioners argument is not absolute. It assumes that First, if at the end of a taxable quarter the output recoverable from the taxes payable, although it
the input tax exceeds 70% of the output tax, and taxes charged by the seller are equal to the input taxes becomes part of the cost, which is deductible from
therefore, the input tax in excess of 70% remains that he paid and passed on by the suppliers, then no the gross revenue. When Pres. Aquino issued E.O.
uncredited. However, to the extent that the input tax payment is required; No. 273 imposing a 10% multi-stage tax on all sales,
is less than 70% of the output tax, then 100% of such Second, when the output taxes exceed the input taxes, it was then that the crediting of the input tax paid on
input tax is still creditable. the person shall be liable for the excess, which has to purchase or importation of goods and services by
More importantly, the excess input tax, if any, is be paid to the Bureau of Internal Revenue VAT-registered persons against the output tax was
retained in a businesss books of accounts and (BIR);69 and introduced.73 This was adopted by the Expanded VAT
remains creditable in the succeeding quarter/s. This is Third, if the input taxes exceed the output taxes, the Law (R.A. No. 7716),74 and The Tax Reform Act of
explicitly allowed by Section 110(B), which provides excess shall be carried over to the succeeding quarter 1997 (R.A. No. 8424).75 The right to credit input tax
that "if the input tax exceeds the output tax, the or quarters. Should the input taxes result from zero- as against the output tax is clearly a privilege created
excess shall be carried over to the succeeding quarter rated or effectively zero-rated transactions, any by law, a privilege that also the law can remove, or in
or quarters." In addition, Section 112(B) allows a excess over the output taxes shall instead be refunded this case, limit.
VAT-registered person to apply for the issuance of a to the taxpayer or credited against other internal Petitioners also contest as arbitrary, oppressive,
tax credit certificate or refund for any unused input revenue taxes, at the taxpayers option.70 excessive and confiscatory, Section 8 of R.A. No.
taxes, to the extent that such input taxes have not Section 8 of R.A. No. 9337 however, imposed a 70% 9337, amending Section 110(A) of the NIRC, which
been applied against the output taxes. Such unused limitation on the input tax. Thus, a person can credit provides:
input tax may be used in payment of his other his input tax only up to the extent of 70% of the SEC. 110. Tax Credits.
internal revenue taxes. output tax. In laymans term, the value-added taxes (A) Creditable Input Tax.
The non-application of the unutilized input tax in a that a person/taxpayer paid and passed on to him by a Provided, That the input tax on goods purchased or
given quarter is not ad infinitum, as petitioners seller can only be credited up to 70% of the value- imported in a calendar month for use in trade or
exaggeratedly contend. Their analysis of the effect of added taxes that is due to him on a taxable business for which deduction for depreciation is
the 70% limitation is incomplete and one-sided. It transaction. There is no retention of any tax allowed under this Code, shall be spread evenly over
ends at the net effect that there will be collection because the person/taxpayer has already the month of acquisition and the fifty-nine (59)
unapplied/unutilized inputs VAT for a given quarter. previously paid the input tax to a seller, and the seller succeeding months if the aggregate acquisition cost
It does not proceed further to the fact that such will subsequently remit such input tax to the BIR. for such goods, excluding the VAT component
unapplied/unutilized input tax may be credited in the The party directly liable for the payment of the tax is thereof, exceeds One million pesos
subsequent periods as allowed by the carry-over the seller.71 What only needs to be done is for the (P1,000,000.00): Provided, however, That if the
provision of Section 110(B) or that it may later on be person/taxpayer to apply or credit these input taxes, estimated useful life of the capital goods is less than
refunded through a tax credit certificate under as evidenced by receipts, against his output taxes. five (5) years, as used for depreciation purposes, then
Section 112(B). Petitioners Association of Pilipinas Shell Dealers, the input VAT shall be spread over such a shorter
Therefore, petitioners argument must be rejected. Inc., et al. also argue that the input tax partakes the period: Provided, finally, That in the case of purchase
On the other hand, it appears that petitioner Garcia nature of a property that may not be confiscated, of services, lease or use of properties, the input tax
failed to comprehend the operation of the 70% appropriated, or limited without due process of law. shall be creditable to the purchaser, lessee or license
limitation on the input tax. According to petitioner, The input tax is not a property or a property right upon payment of the compensation, rental, royalty or
the limitation on the creditable input tax in effect within the constitutional purview of the due process fee.
allows VAT-registered establishments to retain a clause. A VAT-registered persons entitlement to the The foregoing section imposes a 60-month period
portion of the taxes they collect, which violates the creditable input tax is a mere statutory privilege. within which to amortize the creditable input tax on
principle that tax collection and revenue should be The distinction between statutory privileges and purchase or importation of capital goods with
for public purposes and expenditures vested rights must be borne in mind for persons have acquisition cost of P1 Million pesos, exclusive of the
As earlier stated, the input tax is the tax paid by a no vested rights in statutory privileges. The state may VAT component. Such spread out only poses a delay
person, passed on to him by the seller, when he buys change or take away rights, which were created by in the crediting of the input tax. Petitioners argument
goods. Output tax meanwhile is the tax due to the the law of the state, although it may not take away is without basis because the taxpayer is not
person when he sells goods. In computing the VAT property, which was vested by virtue of such rights.72 permanently deprived of his privilege to credit the
payable, three possible scenarios may arise: Under the previous system of single-stage taxation, input tax.
taxes paid at every level of distribution are not
It is worth mentioning that Congress admitted that gross payments for services supplied by contractors The Court need not explore the rationale behind the
the spread-out of the creditable input tax in this case other than by public works contractors; 8.5% on provision. It is clear that Congress intended to treat
amounts to a 4-year interest-free loan to the gross payments for services supplied by public work differently taxable transactions with the
government.76 In the same breath, Congress also contractors; or 10% on payment for the lease or use government.80 This is supported by the fact that under
justified its move by saying that the provision was of properties or property rights to nonresident the old provision, the 5% tax withheld by the
designed to raise an annual revenue of 22.6 owners. Under the present Section 114(C), these government remains creditable against the tax
billion.77 The legislature also dispelled the fear that different rates, except for the 10% on lease or liability of the seller or contractor, to wit:
the provision will fend off foreign investments, property rights payment to nonresidents, were SEC. 114. Return and Payment of Value-added Tax.
saying that foreign investors have other tax incentives deleted, and a uniform rate of 5% is applied. (C) Withholding of Creditable Value-added Tax.
provided by law, and citing the case of China, where The Court observes, however, that the law the used The Government or any of its political subdivisions,
despite a 17.5% non-creditable VAT, foreign the word final. In tax usage, final, as opposed to instrumentalities or agencies, including government-
investments were not deterred.78 Again, for whatever creditable, means full. Thus, it is provided in Section owned or controlled corporations (GOCCs) shall,
is the purpose of the 60-month amortization, this 114(C): "final value-added tax at the rate of five before making payment on account of each purchase
involves executive economic policy and legislative percent (5%)." of goods from sellers and services rendered by
wisdom in which the Court cannot intervene. In Revenue Regulations No. 02-98, implementing contractors which are subject to the value-added tax
With regard to the 5% creditable withholding tax R.A. No. 8424 (The Tax Reform Act of 1997), the imposed in Sections 106 and 108 of this Code, deduct
imposed on payments made by the government for concept of final withholding tax on income was and withhold the value-added tax due at the rate of
taxable transactions, Section 12 of R.A. No. 9337, explained, to wit: three percent (3%) of the gross payment for the
which amended Section 114 of the NIRC, reads: SECTION 2.57. Withholding of Tax at Source purchase of goods and six percent (6%) on gross
SEC. 114. Return and Payment of Value-added Tax. (A) Final Withholding Tax. Under the final receipts for services rendered by contractors on every
(C) Withholding of Value-added Tax. The withholding tax system the amount of income tax sale or installment payment which shall be creditable
Government or any of its political subdivisions, withheld by the withholding agent is constituted against the value-added tax liability of the seller or
instrumentalities or agencies, including government- as full and final payment of the income tax due contractor: Provided, however, That in the case of
owned or controlled corporations (GOCCs) shall, from the payee on the said income. The liability for government public works contractors, the
before making payment on account of each purchase payment of the tax rests primarily on the payor as a withholding rate shall be eight and one-half percent
of goods and services which are subject to the value- withholding agent. Thus, in case of his failure to (8.5%): Provided, further, That the payment for lease
added tax imposed in Sections 106 and 108 of this withhold the tax or in case of underwithholding, the or use of properties or property rights to nonresident
Code, deduct and withhold a final value-added tax at deficiency tax shall be collected from the owners shall be subject to ten percent (10%)
the rate of five percent (5%) of the gross payment payor/withholding agent. withholding tax at the time of payment. For this
thereof: Provided, That the payment for lease or use (B) Creditable Withholding Tax. Under the purpose, the payor or person in control of the
of properties or property rights to nonresident owners creditable withholding tax system, taxes withheld on payment shall be considered as the withholding
shall be subject to ten percent (10%) withholding tax certain income payments are intended to equal or at agent.
at the time of payment. For purposes of this Section, least approximate the tax due of the payee on said The valued-added tax withheld under this Section
the payor or person in control of the payment shall be income. Taxes withheld on income payments shall be remitted within ten (10) days following the
considered as the withholding agent. covered by the expanded withholding tax (referred to end of the month the withholding was made.
The value-added tax withheld under this Section shall in Sec. 2.57.2 of these regulations) and compensation (Emphasis supplied)
be remitted within ten (10) days following the end of income (referred to in Sec. 2.78 also of these As amended, the use of the word final and the
the month the withholding was made. regulations) are creditable in nature. deletion of the word creditable exhibits Congresss
Section 114(C) merely provides a method of As applied to value-added tax, this means that taxable intention to treat transactions with the government
collection, or as stated by respondents, a more transactions with the government are subject to a 5% differently. Since it has not been shown that the class
simplified VAT withholding system. The government rate, which constitutes as full payment of the tax subject to the 5% final withholding tax has been
in this case is constituted as a withholding agent with payable on the transaction. This represents the net unreasonably narrowed, there is no reason to
respect to their payments for goods and services. VAT payable of the seller. The other 5% effectively invalidate the provision. Petitioners, as petroleum
Prior to its amendment, Section 114(C) provided for accounts for the standard input VAT (deemed input dealers, are not the only ones subjected to the 5%
different rates of value-added taxes to be withheld -- VAT), in lieu of the actual input VAT directly or final withholding tax. It applies to all those who deal
3% on gross payments for purchases of goods; 6% on attributable to the taxable transaction.79 with the government.
Moreover, the actual input tax is not totally lost or based on real and substantial differences to meet a In this case, the tax law is uniform as it provides a
uncreditable, as petitioners believe. Revenue valid classification. standard rate of 0% or 10% (or 12%) on all goods
Regulations No. 14-2005 or the Consolidated Value- The argument is pedantic, if not outright baseless. and services. Sections 4, 5 and 6 of R.A. No. 9337,
Added Tax Regulations 2005 issued by the BIR, The law does not make any classification in the amending Sections 106, 107 and 108, respectively, of
provides that should the actual input tax exceed 5% subject of taxation, the kind of property, the rates to the NIRC, provide for a rate of 10% (or 12%) on sale
of gross payments, the excess may form part of the be levied or the amounts to be raised, the methods of of goods and properties, importation of goods, and
cost. Equally, should the actual input tax be less than assessment, valuation and collection. Petitioners sale of services and use or lease of properties. These
5%, the difference is treated as income.81 alleged distinctions are based on variables that bear same sections also provide for a 0% rate on certain
Petitioners also argue that by imposing a limitation different consequences. While the implementation of sales and transaction.
on the creditable input tax, the government gets to tax the law may yield varying end results depending on Neither does the law make any distinction as to the
a profit or value-added even if there is no profit or ones profit margin and value-added, the Court type of industry or trade that will bear the 70%
value-added. cannot go beyond what the legislature has laid down limitation on the creditable input tax, 5-year
Petitioners stance is purely hypothetical, and interfere with the affairs of business. amortization of input tax paid on purchase of capital
argumentative, and again, one-sided. The Court will The equal protection clause does not require the goods or the 5% final withholding tax by the
not engage in a legal joust where premises are what universal application of the laws on all persons or government. It must be stressed that the rule of
ifs, arguments, theoretical and facts, uncertain. Any things without distinction. This might in fact uniform taxation does not deprive Congress of the
disquisition by the Court on this point will only be, as sometimes result in unequal protection. What the power to classify subjects of taxation, and only
Shakespeare describes life in Macbeth,82 "full of clause requires is equality among equals as demands uniformity within the particular class.87
sound and fury, signifying nothing." determined according to a valid classification. By R.A. No. 9337 is also equitable. The law is equipped
Whats more, petitioners contention assumes the classification is meant the grouping of persons or with a threshold margin. The VAT rate of 0% or 10%
proposition that there is no profit or value-added. It things similar to each other in certain particulars and (or 12%) does not apply to sales of goods or services
need not take an astute businessman to know that it is different from all others in these same particulars.85 with gross annual sales or receipts not
a matter of exception that a business will sell goods Petitioners brought to the Courts attention the exceeding P1,500,000.00.88 Also, basic marine and
or services without profit or value-added. It cannot be introduction of Senate Bill No. 2038 by Sens. S.R. agricultural food products in their original state are
overstressed that a business is created precisely for Osmea III and Ma. Ana Consuelo A.S. Madrigal still not subject to the tax,89 thus ensuring that prices
profit. on June 6, 2005, and House Bill No. 4493 by Rep. at the grassroots level will remain accessible. As was
The equal protection clause under the Constitution Eric D. Singson. The proposed legislation seeks to stated in Kapatiran ng mga Naglilingkod sa
means that "no person or class of persons shall be amend the 70% limitation by increasing the same to Pamahalaan ng Pilipinas, Inc. vs. Tan:90
deprived of the same protection of laws which is 90%. This, according to petitioners, supports their The disputed sales tax is also equitable. It is imposed
enjoyed by other persons or other classes in the same stance that the 70% limitation is arbitrary and only on sales of goods or services by persons
place and in like circumstances."83 confiscatory. On this score, suffice it to say that these engaged in business with an aggregate gross annual
The power of the State to make reasonable and are still proposed legislations. Until Congress amends sales exceeding P200,000.00. Small corner sari-
natural classifications for the purposes of taxation has the law, and absent any unequivocal basis for its sari stores are consequently exempt from its
long been established. Whether it relates to the unconstitutionality, the 70% limitation stays. application. Likewise exempt from the tax are sales
subject of taxation, the kind of property, the rates to B. Uniformity and Equitability of Taxation of farm and marine products, so that the costs of
be levied, or the amounts to be raised, the methods of Article VI, Section 28(1) of the Constitution reads: basic food and other necessities, spared as they are
assessment, valuation and collection, the States The rule of taxation shall be uniform and equitable. from the incidence of the VAT, are expected to be
power is entitled to presumption of validity. As a rule, The Congress shall evolve a progressive system of relatively lower and within the reach of the general
the judiciary will not interfere with such power taxation. public.
absent a clear showing of unreasonableness, Uniformity in taxation means that all taxable articles It is admitted that R.A. No. 9337 puts a premium on
discrimination, or arbitrariness.84 or kinds of property of the same class shall be taxed businesses with low profit margins, and unduly
Petitioners point out that the limitation on the at the same rate. Different articles may be taxed at favors those with high profit margins. Congress was
creditable input tax if the entity has a high ratio of different amounts provided that the rate is uniform on not oblivious to this. Thus, to equalize the weighty
input tax, or invests in capital equipment, or has the same class everywhere with all people at all burden the law entails, the law, under Section 116,
several transactions with the government, is not times.86 imposed a 3% percentage tax on VAT-exempt persons
under Section 109(v), i.e., transactions with gross
annual sales and/or receipts not exceeding P1.5 The VAT is an antithesis of progressive taxation. By other transactions. (R.A. No. 7716, 4 amending
Million. This acts as a equalizer because in effect, its very nature, it is regressive. The principle of 103 of the NIRC)99
bigger businesses that qualify for VAT coverage and progressive taxation has no relation with the VAT CONCLUSION
VAT-exempt taxpayers stand on equal-footing. system inasmuch as the VAT paid by the consumer or It has been said that taxes are the lifeblood of the
Moreover, Congress provided mitigating measures to business for every goods bought or services enjoyed government. In this case, it is just an enema, a first-
cushion the impact of the imposition of the tax on is the same regardless of income. In aid measure to resuscitate an economy in distress.
those previously exempt. Excise taxes on petroleum other words, the VAT paid eats the same portion of an The Court is neither blind nor is it turning a deaf ear
products91 and natural gas92 were reduced. Percentage income, whether big or small. The disparity lies in on the plight of the masses. But it does not have the
tax on domestic carriers was removed.93 Power the income earned by a person or profit margin panacea for the malady that the law seeks to remedy.
producers are now exempt from paying franchise marked by a business, such that the higher the As in other cases, the Court cannot strike down a law
tax.94 income or profit margin, the smaller the portion of as unconstitutional simply because of its yokes.
Aside from these, Congress also increased the the income or profit that is eaten by VAT. A converso, Let us not be overly influenced by the plea that for
income tax rates of corporations, in order to distribute the lower the income or profit margin, the bigger the every wrong there is a remedy, and that the judiciary
the burden of taxation. Domestic, foreign, and non- part that the VAT eats away. At the end of the day, it should stand ready to afford relief. There are
resident corporations are now subject to a 35% is really the lower income group or businesses with undoubtedly many wrongs the judicature may not
income tax rate, from a previous low-profit margins that is always hardest hit. correct, for instance, those involving political
32%.95 Intercorporate dividends of non-resident Nevertheless, the Constitution does not really questions. . . .
foreign corporations are still subject to 15% final prohibit the imposition of indirect taxes, like the VAT. Let us likewise disabuse our minds from the notion
withholding tax but the tax credit allowed on the What it simply provides is that Congress shall that the judiciary is the repository of remedies for all
corporations domicile was increased to 20%.96 The "evolve a progressive system of taxation." The Court political or social ills; We should not forget that the
Philippine Amusement and Gaming Corporation stated in the Tolentino case, thus: Constitution has judiciously allocated the powers of
(PAGCOR) is not exempt from income taxes The Constitution does not really prohibit the government to three distinct and separate
anymore.97 Even the sale by an artist of his works or imposition of indirect taxes which, like the VAT, are compartments; and that judicial interpretation has
services performed for the production of such works regressive. What it simply provides is that Congress tended to the preservation of the independence of the
was not spared. shall evolve a progressive system of taxation. The three, and a zealous regard of the prerogatives of
All these were designed to ease, as well as spread constitutional provision has been interpreted to mean each, knowing full well that one is not the guardian
out, the burden of taxation, which would otherwise simply that direct taxes are . . . to be preferred [and] of the others and that, for official wrong-doing, each
rest largely on the consumers. It cannot therefore be as much as possible, indirect taxes should be may be brought to account, either by impeachment,
gainsaid that R.A. No. 9337 is equitable. minimized. (E. FERNANDO, THE trial or by the ballot box.100
C. Progressivity of Taxation CONSTITUTION OF THE PHILIPPINES 221 The words of the Court in Vera vs. Avelino101 holds
Lastly, petitioners contend that the limitation on the (Second ed. 1977)) Indeed, the mandate to Congress true then, as it still holds true now. All things
creditable input tax is anything but regressive. It is is not to prescribe, but to evolve, a progressive tax considered, there is no raison d'tre for the
the smaller business with higher input tax-output tax system. Otherwise, sales taxes, which perhaps are the unconstitutionality of R.A. No. 9337.
ratio that will suffer the consequences. oldest form of indirect taxes, would have been WHEREFORE, Republic Act No. 9337 not being
Progressive taxation is built on the principle of the prohibited with the proclamation of Art. VIII, 17 (1) unconstitutional, the petitions in G.R. Nos. 168056,
taxpayers ability to pay. This principle was also of the 1973 Constitution from which the present Art. 168207, 168461, 168463, and 168730, are
lifted from Adam Smiths Canons of Taxation, and it VI, 28 (1) was taken. Sales taxes are also regressive. hereby DISMISSED.
states: Resort to indirect taxes should be minimized but not There being no constitutional impediment to the full
I. The subjects of every state ought to contribute avoided entirely because it is difficult, if not enforcement and implementation of R.A. No. 9337,
towards the support of the government, as nearly as impossible, to avoid them by imposing such taxes the temporary restraining order issued by the Court
possible, in proportion to their respective abilities; according to the taxpayers' ability to pay. In the case on July 1, 2005 is LIFTED upon finality of herein
that is, in proportion to the revenue which they of the VAT, the law minimizes the regressive effects decision.
respectively enjoy under the protection of the state. of this imposition by providing for zero rating of SO ORDERED.
Taxation is progressive when its rate goes up certain transactions (R.A. No. 7716, 3, amending
depending on the resources of the person affected.98 102 (b) of the NIRC), while granting exemptions to
EN BANC 8424 (the 1997 National Internal Revenue Code or operations has been the subject as early as 2003 of
the NIRC) at the House of Representatives. Timbol, several BIR rulings and circulars.[5]
on the other hand, claims that she served as Assistant
Secretary of the Department of Trade and Industry The government also argues that petitioners
and consultant of the Toll Regulatory Board (TRB) in have no right to invoke the non-impairment of
the past administration. contracts clause since they clearly have no personal
interest in existing toll operating agreements (TOAs)
RENATO V. DIAZ and G.R. No. 193007 Petitioners allege that the BIR attempted between the government and tollway operators. At
AURORA MA. F. TIMBOL, during the administration of President Gloria any rate, the non-impairment clause cannot limit the
Petitioners, Present: Macapagal-Arroyo to impose VAT on toll fees. The States sovereign taxing power which is generally read
and imposition was deferred, however, in view of the into contracts.
SERENO,** JJ. consistent opposition of Diaz and other sectors to Finally, the government contends that the non-
THE SECRETARY OF FINANCE such move. But, upon President Benigno C. Aquino inclusion of VAT in the parametric formula for
and THE COMMISSIONER OF Promulgated: IIIs assumption of office in 2010, the BIR revived the computing toll rates cannot exempt tollway operators
INTERNAL REVENUE, idea and would impose the challenged tax on toll fees from VAT. In any event, it cannot be claimed that the
Respondents. July 19, 2011 beginning August 16, 2010 unless judicially enjoined. rights of tollway operators to a reasonable rate of
return will be impaired by the VAT since this is
x Petitioners hold the view that Congress did imposed on top of the toll rate. Further, the
---------------------------------------------------------------- not, when it enacted the NIRC, intend to include toll imposition of VAT on toll fees would have very
------------------------ x fees within the meaning of sale of services that are minimal effect on motorists using the tollways.
subject to VAT; that a toll fee is a users tax, not a sale
of services; that to impose VAT on toll fees would In their reply[6] to the governments
DECISION amount to a tax on public service; and that, since VAT comment, petitioners point out that tollway operators
was never factored into the formula for computing cannot be regarded as franchise grantees under the
ABAD, J.: toll fees, its imposition would violate the non- NIRC since they do not hold legislative
impairment clause of the constitution. franchises. Further, the BIR intends to collect the
VAT by rounding off the toll rate and putting any
May toll fees collected by tollway operators be On August 13, 2010 the Court issued a excess collection in an escrow account. But this
subjected to value- added tax? temporary restraining order (TRO), enjoining the would be illegal since only the Congress can modify
implementation of the VAT. The Court required the VAT rates and authorize its disbursement. Finally,
government, represented by respondents Cesar V. BIR Revenue Memorandum Circular 63-2010 (BIR
The Facts and the Case Purisima, Secretary of the Department of Finance, RMC 63-2010), which directs toll companies to
and Kim S. Jacinto-Henares, Commissioner of record an accumulated input VAT of zero balance in
Petitioners Renato V. Diaz and Aurora Ma. Internal Revenue, to comment on the petition within their books as of August 16, 2010, contravenes
F. Timbol (petitioners) filed this petition for 10 days from notice.[2] Later, the Court issued another Section 111 of the NIRC which grants entities that
declaratory relief[1] assailing the validity of the resolution treating the petition as one for prohibition. first become liable to VAT a transitional input tax
[3]
impending imposition of value-added tax (VAT) by credit of 2% on beginning inventory. For this reason,
the Bureau of Internal Revenue (BIR) on the the VAT on toll fees cannot be implemented.
collections of tollway operators. On August 23, 2010 the Office of the Solicitor The Issues Presented
General filed the governments comment.[4] The
Petitioners claim that, since the VAT would government avers that the NIRC imposes VAT on all The case presents two procedural issues:
result in increased toll fees, they have an interest as kinds of services of franchise grantees, including
regular users of tollways in stopping the BIR tollway operations, except where the law provides 1. Whether or not the Court may treat the
action. Additionally, Diaz claims that he sponsored otherwise; that the Court should seek the meaning petition for declaratory relief as one for prohibition;
the approval of Republic Act 7716 (the 1994 and intent of the law from the words used in the and
Expanded VAT Law or EVAT Law) and Republic Act statute; and that the imposition of VAT on tollway
2. Whether or not petitioners Diaz and proper remedy to prohibit or nullify acts of executive performed or rendered by
Timbol have legal standing to file the action. officials that amount to usurpation of legislative construction and service
authority.[9] contractors; stock, real estate,
The case also presents two substantive commercial, customs and
issues: Here, the imposition of VAT on toll fees has immigration brokers; lessors of
far-reaching implications. Its imposition would property, whether personal or
1. Whether or not the government is impact, not only on the more than half a million real; warehousing services;
unlawfully expanding VAT coverage by including motorists who use the tollways everyday, but more so lessors or distributors of
tollway operators and tollway operations in the terms on the governments effort to raise revenue for cinematographic films; persons
franchise grantees and sale of services under Section funding various projects and for reducing budgetary engaged in milling, processing,
108 of the Code; and deficits. manufacturing or repacking
goods for others; proprietors,
2. Whether or not the imposition of VAT on To dismiss the petition and resolve the operators or keepers of hotels,
tollway operators a) amounts to a tax on tax and not a issues later, after the challenged VAT has been motels, resthouses, pension
tax on services; b) will impair the tollway operators imposed, could cause more mischief both to the tax- houses, inns, resorts; proprietors
right to a reasonable return of investment under their paying public and the government. A belated or operators of restaurants,
TOAs; and c) is not administratively feasible and declaration of nullity of the BIR action would make refreshment parlors, cafes and
cannot be implemented. any attempt to refund to the motorists what they paid other eating places, including
an administrative nightmare with no clubs and caterers; dealers in
The Courts Rulings solution.Consequently, it is not only the right, but the securities; lending investors;
duty of the Court to take cognizance of and resolve transportation contractors on
A. On the Procedural Issues: the issues that the petition raises. their transport of goods or
cargoes, including persons who
On August 24, 2010 the Court issued a Although the petition does not strictly transport goods or cargoes for
resolution, treating the petition as one for prohibition comply with the requirements of Rule 65, the Court hire and other domestic common
rather than one for declaratory relief, the has ample power to waive such technical carriers by land relative to their
characterization that petitioners Diaz and Timbol requirements when the legal questions to be resolved transport of goods or cargoes;
gave their action. The government has sought are of great importance to the public. The same may common carriers by air and sea
reconsideration of the Courts resolution, [7] however, be said of the requirement of locus standi which is a relative to their transport of
arguing that petitioners allegations clearly made out a mere procedural requisite.[10] passengers, goods or cargoes
case for declaratory relief, an action over which the from one place in the Philippines
Court has no original jurisdiction. The government B. On the Substantive Issues: to another place in the
adds, moreover, that the petition does not meet the One. The relevant law in this case is Section Philippines; sales of electricity by
requirements of Rule 65 for actions for prohibition 108 of the NIRC, as amended. VAT is levied, generation companies,
since the BIR did not exercise judicial, quasi-judicial, assessed, and collected, according to Section 108, on transmission, and distribution
or ministerial functions when it sought to impose the gross receipts derived from the sale or exchange companies; services of franchise
VAT on toll fees. Besides, petitioners Diaz and of services as well as from the use or lease of grantees of electric utilities,
Timbol has a plain, speedy, and adequate remedy in properties. The third paragraph of Section 108 telephone and telegraph, radio
the ordinary course of law against the BIR action in defines sale or exchange of services as follows: and television broadcasting and
the form of an appeal to the Secretary of Finance. all other franchise grantees
The phrase sale or except those under Section 119 of
But there are precedents for treating a petition for exchange of services means the this Code and non-life insurance
declaratory relief as one for prohibition if the case performance of all kinds of companies (except their crop
has far-reaching implications and raises questions services in the Philippines for insurances), including surety,
that need to be resolved for the public good. [8] The others for a fee, remuneration or fidelity, indemnity and bonding
Court has also held that a petition for prohibition is a consideration, including those companies; and similar services
regardless of whether or not the 1. Lessors of property, from the payment of VAT. The word franchise
performance thereof calls for the whether personal or real; broadly covers government grants of a special right
exercise or use of the physical or 2. Warehousing service to do an act or series of acts of public concern.[14]
mental faculties. (Underscoring operators;
supplied) 3. Lessors or distributors Petitioners of course contend that tollway
of cinematographic films; operators cannot be considered franchise grantees
It is plain from the above that the law 4. Proprietors, operators or under Section 108 since they do not hold legislative
imposes VAT on all kinds of services rendered in keepers of hotels, motels, franchises. But nothing in Section 108 indicates that
the Philippines for a fee, including those specified in resthouses, pension houses, inns, the franchise grantees it speaks of are those who hold
the list. The enumeration of affected services is not resorts; legislative franchises. Petitioners give no reason, and
exclusive.[11] By qualifying services with the words 5. Lending investors (for the Court cannot surmise any, for making a
all kinds, Congress has given the term services an all- use of money); distinction between franchises granted by Congress
encompassing meaning. The listing of specific 6. Transportation and franchises granted by some other government
services are intended to illustrate how pervasive and contractors on their transport of agency. The latter, properly constituted, may grant
broad is the VATs reach rather than establish concrete goods or cargoes, including persons franchises. Indeed, franchises conferred or granted by
limits to its application. Thus, every activity that can who transport goods or cargoes for local authorities, as agents of the state, constitute as
be imagined as a form of service rendered for a fee hire and other domestic common much a legislative franchise as though the grant had
should be deemed included unless some provision of carriers by land relative to their been made by Congress itself. [15] The term franchise
law especially excludes it. transport of goods or cargoes; and has been broadly construed as referring, not only to
7. Common carriers by air authorizations that Congress directly issues in the
Now, do tollway operators render services for a and sea relative to their transport of form of a special law, but also to those granted by
fee? Presidential Decree (P.D.) 1112 or the Toll passengers, goods or cargoes from administrative agencies to which the power to grant
Operation Decree establishes the legal basis for the one place in the Philippines to franchises has been delegated by Congress.[16]
services that tollway operators render. Essentially, another place in the Philippines.
tollway operators construct, maintain, and operate Tollway operators are, owing to the nature
expressways, also called tollways, at the operators It does not help petitioners cause that and object of their business, franchise grantees. The
expense. Tollways serve as alternatives to regular Section 108 subjects to VAT all kinds of services construction, operation, and maintenance of toll
public highways that meander through populated rendered for a fee regardless of whether or not the facilities on public improvements are activities of
areas and branch out to local roads. Traffic in the performance thereof calls for the exercise or use of public consequence that necessarily require a special
regular public highways is for this reason slow- the physical or mental faculties. This means that grant of authority from the state. Indeed, Congress
moving. In consideration for constructing tollways at services to be subject to VAT need not fall under the granted special franchise for the operation of tollways
their expense, the operators are allowed to collect traditional concept of services, the personal or to the Philippine National Construction Company, the
government-approved fees from motorists using the professional kinds that require the use of human former tollway concessionaire for the North and
tollways until such operators could fully recover their knowledge and skills. South Luzon Expressways. Apart from Congress,
expenses and earn reasonable returns from their tollway franchises may also be granted by the TRB,
investments. And not only do tollway operators come under the pursuant to the exercise of its delegated powers under
broad term all kinds of services, they also come P.D. 1112.[17] The franchise in this case is evidenced
When a tollway operator takes a toll fee from a under the specific class described in Section 108 as by a Toll Operation Certificate.[18]
motorist, the fee is in effect for the latters use of the all other franchise grantees who are subject to VAT,
tollway facilities over which the operator enjoys except those under Section 119 of this Code. Petitioners contend that the public nature of
private proprietary rights[12]that its contract and the the services rendered by tollway operators excludes
law recognize. In this sense, the tollway operator is Tollway operators are franchise grantees and such services from the term sale of services under
no different from the following service providers they do not belong to exceptions (the low-income Section 108 of the Code.But, again, nothing in
under Section 108 who allow others to use their radio and/or television broadcasting companies with Section 108 supports this contention. The reverse is
properties or facilities for a fee: gross annual incomes of less than P10 million and true. In specifically including by way of example
gas and water utilities) that Section 119[13] spares electric utilities, telephone, telegraph, and
broadcasting companies in its list of VAT-covered Buildings are properties of public airlines, constitute the bulk of the
businesses, Section 108 opens other companies dominion and thus owned by the income that maintains the
rendering public service for a fee to the imposition of State or the Republic of operations of MIAA. The
VAT. Businesses of a public nature such as public the Philippines. collection of such fees does not
utilities and the collection of tolls or charges for its change the character of MIAA as
use or service is a franchise.[19] x x x The operation by an airport for public use. Such
the government of a tollway does fees are often termed users tax.
Nor can petitioners cite as binding on the not change the character of the This means taxing those among
Court statements made by certain lawmakers in the road as one for public use. the public who actually use a
course of congressional deliberations of the would-be Someone must pay for the public facility instead of taxing
law. As the Court said in South African Airways v. maintenance of the road, either all the public including those who
Commissioner of Internal Revenue,[20] statements the public indirectly through the never use the particular public
made by individual members of Congress in the taxes they pay the government, facility. A users tax is more
consideration of a bill do not necessarily reflect the or only those among the public equitable a principle of taxation
sense of that body and are, consequently, not who actually use the road mandated in the 1987
controlling in the interpretation of law. The through the toll fees they pay Constitution.[23] (Underscoring
congressional will is ultimately determined by the upon using the road. The tollway supplied)
language of the law that the lawmakers voted system is even a more efficient
on. Consequently, the meaning and intention of the and equitable manner of taxing Petitioners assume that what the Court said
law must first be sought in the words of the statute the public for the maintenance of above, equating terminal fees to a users tax must also
itself, read and considered in their natural, ordinary, public roads. pertain to tollway fees. But the main issue in
commonly accepted and most obvious significations, the MIAA case was whether or
according to good and approved usage and without The charging of fees to not Paraaque City could sell airport lands and
resorting to forced or subtle construction. the public does not determine the buildings under MIAA administration at public
character of the property auction to satisfy unpaid real estate taxes. Since local
Two. Petitioners argue that a toll fee is a whether it is for public dominion governments have no power to tax the national
users tax and to impose VAT on toll fees is or not. Article 420 of the Civil government, the Court held that the City could not
tantamount to taxing a tax.[21] Actually, petitioners Code defines property of public proceed with the auction sale. MIAA forms part of
base this argument on the following discussion dominion as one intended for the national government although not integrated in
in Manila International Airport Authority (MIAA) v. public use. Even if the the department framework.[24] Thus, its airport lands
Court of Appeals:[22] government collects toll fees, the and buildings are properties of public dominion
road is still intended for public beyond the commerce of man under Article 420(1)
[25]
No one can dispute that use if anyone can use the road of the Civil Code and could not be sold at public
properties of public dominion under the same terms and auction.
mentioned in Article 420 of the conditions as the rest of the
Civil Code, like roads, canals, public. The charging of fees, the As can be seen, the discussion in
rivers, torrents, ports and bridges limitation on the kind of vehicles the MIAA case on toll roads and toll fees was made,
constructed by the State,are that can use the road, the speed not to establish a rule that tollway fees are users tax,
owned by the State. The term restrictions and other conditions but to make the point that airport lands and buildings
ports includes seaports and for the use of the road do not are properties of public dominion and that the
airports. affect the public character of the collection of terminal fees for their use does not make
The MIAA Airport Lands and road. them private properties. Tollway fees are not
Buildings constitute a port taxes.Indeed, they are not assessed and collected by
constructed by the State. Under The terminal fees MIAA the BIR and do not go to the general coffers of the
Article 420 of the Civil Code, charges to passengers, as well as government.
the MIAA Airport Lands and the landing fees MIAA charges to
It would of course be another matter if burden since the amount of VAT paid by the former is Four. Finally, petitioners assert that the
Congress enacts a law imposing a users tax, added to the selling price. Once shifted, the VAT substantiation requirements for claiming input VAT
collectible from motorists, for the construction and ceases to be a tax[30] and simply becomes part of the make the VAT on tollway operations impractical and
maintenance of certain roadways.The tax in such a cost that the buyer must pay in order to purchase the incapable of implementation. They cite the fact that,
case goes directly to the government for the good, property or service. in order to claim input VAT, the name, address and
replenishment of resources it spends for the tax identification number of the tollway user must be
roadways. This is not the case here. What the Consequently, VAT on tollway operations is indicated in the VAT receipt or invoice. The manner
government seeks to tax here are fees collected from not really a tax on the tollway user, but on the tollway by which the BIR intends to implement the VAT by
tollways that are constructed, maintained, and operator. Under Section 105 of the Code, [31] VAT is rounding off the toll rate and putting any excess
operated by private tollway operators at their own imposed on any person who, in the course of trade or collection in an escrow account is also illegal, while
expense under the build, operate, and transfer scheme business, sells or renders services for a fee. In other the alternative of giving change to thousands of
that the government has adopted for expressways. words, the seller of services, who in this case is the motorists in order to meet the exact toll rate would be
[26]
Except for a fraction given to the government, the tollway operator, is the person liable for VAT. The a logistical nightmare. Thus, according to them, the
toll fees essentially end up as earnings of the tollway latter merely shifts the burden of VAT to the tollway VAT on tollway operations is not administratively
operators. user as part of the toll fees. feasible.[33]
For this reason, VAT on tollway operations
In sum, fees paid by the public to tollway operators cannot be a tax on tax even if toll fees were deemed Administrative feasibility is one of the
for use of the tollways, are not taxes in any sense. A as a users tax. VAT is assessed against the tollway canons of a sound tax system. It simply means that
tax is imposed under the taxing power of the operators gross receipts and not necessarily on the the tax system should be capable of being effectively
government principally for the purpose of raising toll fees. Although the tollway operator may shift the administered and enforced with the least
revenues to fund public expenditures. [27] Toll fees, on VAT burden to the tollway user, it will not make the inconvenience to the taxpayer. Non-observance of the
the other hand, are collected by private tollway latter directly liable for the VAT. The shifted VAT canon, however, will not render a tax imposition
operators as reimbursement for the costs and burden simply becomes part of the toll fees that one invalid except to the extent that specific
expenses incurred in the construction, maintenance has to pay in order to use the tollways.[32] constitutional or statutory limitations are impaired.
[34]
and operation of the tollways, as well as to assure Thus, even if the imposition of VAT on tollway
them a reasonable margin of income. Although toll Three. Petitioner Timbol has no personality to invoke operations may seem burdensome to implement, it is
fees are charged for the use of public facilities, the non-impairment of contract clause on behalf of not necessarily invalid unless some aspect of it is
therefore, they are not government exactions that can private investors in the tollway projects. She will shown to violate any law or the Constitution.
be properly treated as a tax. Taxes may be imposed neither be prejudiced by nor be affected by the
only by the government under its sovereign authority, alleged diminution in return of investments that may Here, it remains to be seen how the taxing
toll fees may be demanded by either the government result from the VAT imposition. She has no interest at authority will actually implement the VAT on tollway
or private individuals or entities, as an attribute of all in the profits to be earned under the TOAs. The operations. Any declaration by the Court that the
ownership.[28] interest in and right to recover investments solely manner of its implementation is illegal or
belongs to the private tollway investors. unconstitutional would be premature. Although the
Parenthetically, VAT on tollway operations cannot be transcript of the August 12, 2010 Senate hearing
deemed a tax on tax due to the nature of VAT as an Besides, her allegation that the private provides some clue as to how the BIR intends to go
indirect tax. In indirect taxation, a distinction is made investors rate of recovery will be adversely affected about it,[35] the facts pertaining to the matter are not
between the liability for the tax and burden of the tax. by imposing VAT on tollway operations is purely sufficiently established for the Court to pass
The seller who is liable for the VAT may shift or pass speculative. Equally presumptuous is her assertion judgment on. Besides, any concern about how the
on the amount of VAT it paid on goods, properties or that a stipulation in the TOAs known as the Material VAT on tollway operations will be enforced must first
services to the buyer. In such a case, what is Adverse Grantor Action will be activated if VAT is be addressed to the BIR on whom the task of
transferred is not the sellers liability but merely the thus imposed. The Court cannot rule on matters that implementing tax laws primarily and exclusively
burden of the VAT.[29] are manifestly conjectural. Neither can it prohibit the rests. The Court cannot preempt the BIRs discretion
State from exercising its sovereign taxing power on the matter, absent any clear violation of law or the
Thus, the seller remains directly and legally based on uncertain, prophetic grounds. Constitution.
liable for payment of the VAT, but the buyer bears its
For the same reason, the Court cannot tollway operators. The Court is thus duty-bound to
prematurely declare as illegal, BIR RMC 63-2010 simply apply the law as it is found.
which directs toll companies to record an
accumulated input VAT of zero balance in their books Lastly, the grant of tax exemption is a matter
as of August 16, 2010, the date when the VAT of legislative policy that is within the exclusive
imposition was supposed to take effect. The issuance prerogative of Congress. The Courts role is to merely
allegedly violates Section 111(A)[36] of the Code uphold this legislative policy, as reflected first and
which grants first time VAT payers a transitional foremost in the language of the tax statute. Thus, any
input VAT of 2% on beginning inventory. unwarranted burden that may be perceived to result
from enforcing such policy must be properly referred
In this connection, the BIR explained that to Congress. The Court has no discretion on the
BIR RMC 63-2010 is actually the product of matter but simply applies the law.
negotiations with tollway operators who have been
assessed VAT as early as 2005, but failed to charge The VAT on franchise grantees has been in
VAT-inclusive toll fees which by now can no longer the statute books since 1994 when R.A. 7716 or the
be collected. The tollway operators agreed to waive Expanded Value-Added Tax law was passed. It is
the 2% transitional input VAT, in exchange for only now, however, that the executive has earnestly
cancellation of their past due VAT liabilities. Notably, pursued the VAT imposition against tollway
the right to claim the 2% transitional input VAT operators. The executive exercises exclusive
belongs to the tollway operators who have not discretion in matters pertaining to the implementation
questioned the circulars validity. They are thus the and execution of tax laws. Consequently, the
ones who have a right to challenge the circular in a executive is more properly suited to deal with the
direct and proper action brought for the purpose. immediate and practical consequences of the VAT
imposition.
Conclusion
WHEREFORE, the
In fine, the Commissioner of Internal Court DENIES respondents Secretary of Finance and
Revenue did not usurp legislative prerogative or Commissioner of Internal Revenues motion for
expand the VAT laws coverage when she sought to reconsideration of its August 24, 2010
impose VAT on tollway operations. Section 108(A) of resolution, DISMISSES the petitioners Renato V.
the Code clearly states that services of all other Diaz and Aurora Ma. F. Timbols petition for lack of
franchise grantees are subject to VAT, except as may merit, and SETS ASIDE the Courts temporary
be provided under Section 119 of the Code.Tollway restraining order dated August 13, 2010.
operators are not among the franchise grantees SO ORDERED.
subject to franchise tax under the latter
provision. Neither are their services among the VAT-
exempt transactions under Section 109 of the Code.

If the legislative intent was to exempt


tollway operations from VAT, as petitioners so
strongly allege, then it would have been well for the
law to clearly say so. Tax exemptions must be
justified by clear statutory grant and based on
language in the law too plain to be mistaken. [37] But
as the law is written, no such exemption obtains for
Republic of the Philippines On March 30, 1998, respondent filed with the Tax and the certification of constructive inward
SUPREME COURT and Revenue Group of the One-Stop Inter-Agency remittance.
Manila Tax Credit and Duty Drawback Center of the Undaunted, respondent filed on February 21, 2000,
FIRST DIVISION Department of Finance, an application for tax a Motion for Reconsideration arguing that: (1)
G.R. No. 149073 February 16, 2005 credit/refund of VAT paid for the period April 1, 1996 proof of its inward remittance was not required by
COMMISSIONER OF INTERNAL to December 31, 1997 amounting to P4,439,827.21 law; (2) BSP and BIR regulations do not require BSP
REVENUE, petitioner, representing excess VAT input payments. approval on its Agreement of Offsetting nor do they
vs. Respondent, however, did not bother to wait for the require certification on the amount constructively
CEBU TOYO CORPORATION, respondent. Resolution of its claim by the CIR. Instead, on June remitted; (3) it was not legally required to prove
DECISION 26, 1998, it filed a Petition for Review with the CTA foreign currency payments on the remaining sales to
QUISUMBING, J.: to toll the running of the two-year prescriptive period MEPZ enterprises; and (4) it had complied with the
In its Decision1 dated July 6, 2001, the Court of pursuant to Section 2307 of the Tax Code. substantiation requirements under Section 106(A)(2)
Appeals, in CA-G.R. SP No. 60304, affirmed Before the CTA, the respondent posits that as a VAT- (a) of the Tax Code. Hence, it was entitled to a refund
the Resolutions dated May 31, 20002 and August 2, registered exporter of goods, it is subject to VAT at of unutilized VAT input tax.
2000,3 of the Court of Tax Appeals (CTA) ordering the rate of 0% on its export sales that do not result in On May 31, 2000, the tax court partly granted the
the Commissioner of Internal Revenue (CIR) to allow any output tax. Hence, the unutilized VAT input taxes motion for reconsideration in a Resolution, to wit:
a partial refund or, alternatively, to issue a tax credit on its purchases of goods and services related to such WHEREFORE, finding the motion of petitioner to be
certificate in favor of Cebu Toyo Corporation in the zero-rated activities are available as tax credits or meritorious, the same is hereby partially granted.
sum of P2,158,714.46, representing the unutilized refunds. Accordingly, the Court hereby MODIFIES its
input value-added tax (VAT) payments. The petitioners position is that respondent was not decision in the above-entitled case, the dispositive
The facts, as culled from the records, are as follows: entitled to a refund or tax credit since: (1) it failed to portion of which shall now read as follows:
Respondent Cebu Toyo Corporation is a domestic show that the tax was erroneously or illegally WHEREFORE, finding the petition for review
corporation engaged in the manufacture of lenses and collected; (2) the taxes paid and collected are partially meritorious, respondent is hereby
various optical components used in television sets, presumed to have been made in accordance with law; ORDERED to REFUND or, in the alternative, to
cameras, compact discs and other similar devices. Its and (3) claims for refund are strictly construed ISSUE a TAX CREDIT CERTIFICATE in favor of
principal office is located at the Mactan Export against the claimant as these partake of the nature of Petitioner in the amount of P2,158,714.46
Processing Zone (MEPZ) in Lapu-Lapu City, Cebu. It tax exemption. representing unutilized input tax payments.
is a subsidiary of Toyo Lens Corporation, a non- Initially, the CTA denied the petition for insufficiency SO ORDERED.9
resident corporation organized under the laws of of evidence.8 The tax court sustained respondents In granting partial reconsideration, the tax court
Japan. Respondent is a zone export enterprise argument that it was a VAT-registered entity. It also found that there was no need for BSP approval of the
registered with the Philippine Economic Zone found that the petition was timely, as it was filed Agreement of Offsetting since the same may be
Authority (PEZA), pursuant to the provisions of within the prescription period. The CTA also ruled categorized as an inter-company open account offset
Presidential Decree No. 66.4 It is also registered with that the respondents sales to Toyo Lens Corporation arrangement. Hence, the respondent need not present
the Bureau of Internal Revenue (BIR) as a VAT and to certain establishments in the Mactan Export proof of foreign currency exchange proceeds from its
taxpayer.5 Processing Zone were export sales subject to VAT at sales to MEPZ enterprises pursuant to Section 106(A)
As an export enterprise, respondent sells 80% of its 0% rate. It found that the input VAT covered by (2)(a)10 of the Tax Code. However, the CTA stressed
products to its mother corporation, the Japan-based respondents claim was not applied against any that respondent must still prove that there was an
Toyo Lens Corporation, pursuant to an Agreement of output VAT. However, the tax court decreed that the actual offsetting of accounts to prove that
Offsetting. The rest are sold to various enterprises petition should nonetheless be denied because of the constructive foreign currency exchange proceeds
doing business in the MEPZ. Inasmuch as both sales respondents failure to present documentary evidence were inwardly remitted as required under Section
are considered export sales subject to Value-Added to show that there were foreign currency exchange 106(A)(2)(a).
Tax (VAT) at 0% rate under Section 106(A)(2)(a)6 of proceeds from its export sales. The CTA also The CTA found that only the amount
the National Internal Revenue Code, as amended, observed that respondent failed to submit the of Y274,043,858.00 covering respondents sales to
respondent filed its quarterly VAT returns from April approval by Bangko Sentral ng Pilipinas (BSP) of its Toyo Lens Corporation and purchases from said
1, 1996 to December 31, 1997 showing a total input Agreement of Offsetting with Toyo Lens Corporation mother company for the period August 7, 1996 to
VAT of P4,462,412.63. August 26, 1997 were actually offset against
respondents related accounts receivable and accounts payment of income taxes for 4 or 6 years depending
payable as shown by the Agreement for Offsetting Total Zero- on whether the registration was as a pioneer or as a
dated August 30, 1997. Resort to the respondents Rated Sales non-pioneer enterprise, but subject to other national
Accounts Receivable and Accounts Payable taxes including VAT.
Quotient 0.5859
subsidiary ledgers corroborated the amount. The tax The petitioner then filed a Petition for Review with
court also found that out of the total export sales for Multiply by the Court of Appeals (CA), docketed as CA-G.R. SP
the period April 1, 1996 to December 31, 1997 Allowable P3,684,441.91 No. 60304, praying for the reversal of the CTA
amounting to Y700,654,606.15, respondents sales to Input Tax Resolutions dated May 31, 2000 and August 2, 2000,
MEPZ enterprises amounted only and reiterating its claim that respondent is not entitled
to Y136,473,908.05 of said total. Thus, allocating the Amount P2,158,714. to a refund of input taxes since it is VAT-exempt.
input taxes supported by receipts to the export sales, Refundable [52] On July 6, 2001, the appellate court decided CA-G.R.
the CTA determined that the refund/credit amounted SP No. 60304 in respondents favor, thus:
to only P2,158,714.46,11 computed as follows: On June 21, 2000, petitioner Commissioner filed WHEREFORE, finding no merit in the petition, this
a Motion for Reconsideration arguing that Court DISMISSES it and AFFIRMS the Resolutions
Total Input respondent was not entitled to a refund because as a dated May 31, 2000 and August 2, 2000 . . . of the
Taxes
P4,439,827.21 PEZA-registered enterprise, it was not subject to VAT Court of Tax Appeals.
Claimed by pursuant to Section 2413of Republic Act No. SO ORDERED.19
respondent 7916,14 as amended by Rep. Act No. 8748.15 Thus, The Court of Appeals found no reason to set aside the
since respondent was not subject to VAT, the conclusions of the Court of Tax Appeals. The
Less: Commissioner contended that the capital goods it appellate court held as untenable herein petitioners
Exceptions purchased must be deemed not used in VAT taxable argument that respondent is not entitled to a refund
made by business and therefore it was not entitled to refund of because it is VAT-exempt since the evidence showed
SGV input taxes on such capital goods pursuant to Section that it is a VAT-registered enterprise subject to VAT at
4.106-1 of Revenue Regulations No. 7-95.16 the rate of 0%. It agreed with the ruling of the tax
a.) 1996 P651,256.17
Petitioner filed a Motion for Reconsideration on court that respondent had two options under Section
b.) 1997 104,129.13 755,385.30 June 21, 2000 based on the following theories: (1) 23 of Rep. Act No. 7916, namely: (1) to avail of an
that respondent being registered with the PEZA as an income tax holiday under E.O. No. 226 and be
Validly ecozone enterprise is not subject to VAT pursuant to subject to VAT at the rate of 0%; or (2) to avail of the
Supported P3,684,441.91 Sec. 24 of Rep. Act No. 7916; and (2) since 5% preferential tax under P.D. No. 66 and enjoy VAT
Input Taxes respondents business is not subject to VAT, the exemption. Since respondent availed of the incentives
capital goods it purchased are considered not used in under E.O. No. 226, then the 0% VAT rate would be
Allocation: a VAT taxable business and therefore is not entitled to applicable to it and any unutilized input VAT should
a refund of input taxes.17 be refunded to respondent upon proper application
Verified The respondent opposed the Commissioners Motion with and substantiation by the BIR.1awphi1.nt
Zero-Rated for Reconsideration and prayed that the CTA Hence, the instant petition for review now before us,
Sales resolution be modified so as to grant it the entire with herein petitioner alleging that:
amount of tax refund or credit it was seeking. I. RESPONDENT BEING REGISTERED WITH
a.) Toyo On August 2, 2000, the Court of Tax Appeals denied THE PHILIPPINE ECONOMIC ZONE
Lens Y274,043,858.0 the petitioners motion for reconsideration. It held AUTHORITY (PEZA) AS AN ECOZONE EXPORT
Corporatio 0 that the grounds relied upon were only raised for the ENTERPRISE, ITS BUSINESS IS NOT SUBJECT
n first time and that Section 24 of Rep. Act No. 7916 TO VAT PURSUANT TO SECTION 24 OF
was not applicable since respondent has availed of REPUBLIC ACT NO. 7916 IN RELATION TO
b.) MEPZ Y410,517,766.0 the income tax holiday incentive under Executive SECTION 103 OF THE TAX CODE, AS
136,473,908.05
Enterprises Order No. 226 or the Omnibus Investment Code of AMENDED BY RA NO. 7716.
1987 pursuant to Section 2318 of Rep. Act No. 7916. II. SINCE RESPONDENTS BUSINESS IS NOT
Divided by Y700,654,606.1 The tax court pointed out that E.O. No. 226 granted SUBJECT TO VAT, IT IS NOT ENTITLED TO
PEZA-registered enterprises an exemption from
REFUND OF INPUT TAXES PURSUANT TO under said statute, the respondent had two options rated sale by a VAT-registered person, which is a
SECTION 4.103-1 OF REVENUE REGULATIONS with respect to its tax burden. It could avail of an taxable transaction for VAT purposes, shall not result
NO. 7-95.20 income tax holiday pursuant to provisions of E.O. in any output tax. However, the input tax on his
In our view, the main issue for our resolution is No. 226, thus exempt it from income taxes for a purchase of goods, properties or services related to
whether the Court of Appeals erred in affirming the number of years but not from other internal revenue such zero-rated sale shall be available as tax credit or
Court of Tax Appeals resolution granting a refund in taxes such as VAT; or it could avail of the tax refund.261awphi1.nt
the amount of P2,158,714.46 representing unutilized exemptions on all taxes, including VAT under P.D. In principle, the purpose of applying a zero percent
input VAT on goods and services for the period April No. 66 and pay only the preferential tax rate of 5% (0%) rate on a taxable transaction is to exempt the
1, 1996 to December 31, 1997. under Rep. Act No. 7916. Both the Court of Appeals transaction completely from VAT previously
Both the Commissioner of Internal Revenue and the and the Court of Tax Appeals found that respondent collected on inputs. It is thus the only true way to
Office of the Solicitor General argue that respondent availed of the income tax holiday for four (4) years ensure that goods are provided free of VAT. While the
Cebu Toyo Corporation, as a PEZA-registered starting from August 7, 1995, as clearly reflected in zero rating and the exemption are computationally
enterprise, is exempt from national and local taxes, its 1996 and 1997 Annual Corporate Income Tax the same, they actually differ in several aspects, to
including VAT, under Section 24 of Rep. Act No. Returns, where respondent specified that it was wit:
7916 and Section 10921 of the NIRC. Thus, they availing of the tax relief under E.O. No. 226. Hence, (a) A zero-rated sale is a taxable transaction
contend that respondent Cebu Toyo Corporation is respondent is not exempt from VAT and it correctly but does not result in an output tax while an
not entitled to any refund or credit on input taxes it registered itself as a VAT taxpayer. In fine, it is exempted transaction is not subject to the
previously paid as provided under Section 4.103- engaged in taxable rather than exempt transactions. output tax;
122 of Revenue Regulations No. 7-95, Taxable transactions are those transactions which are (b) The input VAT on the purchases of a
notwithstanding its registration as a VAT taxpayer. subject to value-added tax either at the rate of ten VAT-registered person with zero-rated sales
For petitioner claims that said registration was percent (10%) or zero percent (0%). In taxable may be allowed as tax credits or refunded
erroneous and did not confer upon the respondent any transactions, the seller shall be entitled to tax credit while the seller in an exempt transaction is
right to claim recognition of the input tax credit. for the value-added tax paid on purchases and leases not entitled to any input tax on his purchases
The respondent counters that it availed of the income of goods, properties or services.23 despite the issuance of a VAT invoice or
tax holiday under E.O. No. 226 for four years from An exemption means that the sale of goods, receipt.
August 7, 1995 making it exempt from income tax properties or services and the use or lease of (c) Persons engaged in transactions which
but not from other taxes such as VAT. Hence, properties is not subject to VAT (output tax) and the are zero-rated, being subject to VAT, are
according to respondent, its export sales are not seller is not allowed any tax credit on VAT (input tax) required to register while registration is
exempt from VAT, contrary to petitioners claim, but previously paid. The person making the exempt sale optional for VAT-exempt persons.
its export sales is subject to 0% VAT. Moreover, it of goods, properties or services shall not bill any In this case, it is undisputed that respondent is
argues that it was able to establish through a report output tax to his customers because the said engaged in the export business and is registered as a
certified by an independent Certified Public transaction is not subject to VAT. Thus, a VAT- VAT taxpayer per Certificate of Registration of the
Accountant that the input taxes it incurred from April registered purchaser of goods, properties or services BIR.27 Further, the records show that the respondent
1, 1996 to December 31, 1997 were directly that are VAT-exempt, is not entitled to any input tax is subject to VAT as it availed of the income tax
attributable to its export sales. Since it did not have on such purchases despite the issuance of a VAT holiday under E.O. No. 226. Perforce, respondent is
any output tax against which said input taxes may be invoice or receipt.24 subject to VAT at 0% rate and is entitled to a refund
offset, it had the option to file a claim for refund/tax Now, having determined that respondent is engaged or credit of the unutilized input taxes, which the
credit of its unutilized input taxes. in taxable transactions subject to VAT, let us then Court of Tax Appeals computed at P2,158,714.46, but
Considering the submission of the parties and the proceed to determine whether it is subject to 10% or which we findafter recomputationshould
evidence on record, we find the petition bereft of zero (0%) rate of VAT. To begin with, it must be be P2,158,714.52.
merit. recalled that generally, sale of goods and supply of The Supreme Court will not set aside lightly the
Petitioners contention that respondent is not entitled services performed in the Philippines are taxable at conclusions reached by the Court of Tax Appeals
to refund for being exempt from VAT is untenable. the rate of 10%. However, export sales, or sales which, by the very nature of its functions, is
This argument turns a blind eye to the fiscal outside the Philippines, shall be subject to value- dedicated exclusively to the resolution of tax
incentives granted to PEZA-registered enterprises added tax at 0% if made by a VAT-registered problems and has accordingly developed an expertise
under Section 23 of Rep. Act No. 7916. Note that person.25 Under the value-added tax system, a zero- on the subject, unless there has been an abuse or
improvident exercise of authority.28 In this case, we
find no cogent reason to deviate from this well-
entrenched principle. Thus, we are persuaded that
indeed the Court of Appeals committed no reversible
error in affirming the assailed ruling of the Court of
Tax Appeals.
WHEREFORE, the petition is DENIED for lack of
merit.l^vvphi1.net The assailed Decision dated July 6,
2001 of the Court of Appeals, in CA-G.R. SP No.
60304 is AFFIRMED with very slight modification.
Petitioner is hereby ORDERED to REFUND or, in
the alternative, to ISSUE a TAX CREDIT
CERTIFICATE in favor of respondent in the amount
of P2,158,714.52 representing unutilized input tax
payments. No pronouncement as to costs.
SO ORDERED.
THIRD DIVISION 2. [Petitioner] is sued in his official investigation/examination by
[G.R. No. 153866. February 11, 2005] capacity, having been duly appointed [petitioners] Bureau;
COMMISSIONER OF INTERNAL and empowered to perform the duties 2. Since taxes are presumed to have been
REVENUE, petitioner, vs. SEAGATE of his office, including, among others, collected in accordance with laws and
TECHNOLOGY the duty to act and approve claims for regulations, the [respondent] has the
(PHILIPPINES), respondent. refund or tax credit; burden of proof that the taxes sought to
DECISION 3. [Respondent] is registered with the be refunded were erroneously or
PANGANIBAN, J.: Philippine Export Zone Authority illegally collected x x x;
Business companies registered in and operating (PEZA) and has been issued PEZA 3. In Citibank, N.A. vs. Court of Appeals,
from the Special Economic Zone in Naga, Cebu -- Certificate No. 97-044 pursuant to 280 SCRA 459 (1997), the Supreme
like herein respondent -- are entities exempt from all Presidential Decree No. 66, as Court ruled that:
internal revenue taxes and the implementing rules amended, to engage in the manufacture A claimant
relevant thereto, including the value-added taxes or of recording components primarily has the
VAT. Although export sales are not deemed used in computers for export. Such burden of
exempt transactions, they are nonetheless zero-rated. registration was made on 6 June 1997; proof to
Hence, in the present case, the distinction between 4. [Respondent] is VAT [(Value Added establish
exempt entities and exempt transactions has little Tax)]-registered entity as evidenced by the
significance, because the net result is that the VAT Registration Certification No. 97- factual
taxpayer is not liable for the VAT. Respondent, a 083-000600-V issued on 2 April 1997; basis of
VAT-registered enterprise, has complied with all 5. VAT returns for the period 1 April 1998 his or her
requisites for claiming a tax refund of or credit for to 30 June 1999 have been filed by claim for
the input VAT it paid on capital goods it purchased. [respondent]; tax
Thus, the Court of Tax Appeals and the Court of 6. An administrative claim for refund of credit/ref
Appeals did not err in ruling that it is entitled to such VAT input taxes in the amount und.
refund or credit. of P28,369,226.38 with supporting 4. Claims for tax refund/tax credit are
The Case documents (inclusive of construed in strictissimi juris against
Before us is a Petition for Review [1] under Rule the P12,267,981.04 VAT input taxes the taxpayer. This is due to the fact that
45 of the Rules of Court, seeking to set aside the May subject of this Petition for Review), claims for refund/credit [partake of]
27, 2002 Decision[2] of the Court of Appeals (CA) in was filed on 4 October 1999 with the nature of an exemption from tax.
CA-GR SP No. 66093. The decretal portion of the Revenue District Office No. 83, Thus, it is incumbent upon the
Decision reads as follows: Talisay Cebu; [respondent] to prove that it is indeed
WHEREFORE, foregoing premises considered, the 7. No final action has been received by entitled to the refund/credit sought.
petition for review is DENIED for lack of merit.[3] [respondent] from [petitioner] on Failure on the part of the [respondent]
The Facts [respondents] claim for VAT refund. to prove the same is fatal to its claim
The CA quoted the facts narrated by the Court The administrative claim for refund by the for tax credit. He who claims
of Tax Appeals (CTA), as follows: [respondent] on October 4, 1999 was not acted upon exemption must be able to justify his
As jointly stipulated by the parties, the pertinent facts by the [petitioner] prompting the [respondent] to claim by the clearest grant of organic
x x x involved in this case are as follows: elevate the case to [the CTA] on July 21, 2000 by or statutory law. An exemption from
1. [Respondent] is a resident foreign way of Petition for Review in order to toll the the common burden cannot be
corporation duly registered with the running of the two-year prescriptive period. permitted to exist upon vague
Securities and Exchange Commission For his part, [petitioner] x x x raised the following implications;
to do business in the Philippines, with Special and Affirmative Defenses, to wit: 5. Granting, without admitting, that
principal office address at the new 1. [Respondents] alleged claim for tax [respondent] is a Philippine Economic
Cebu Township One, Special refund/credit is subject to Zone Authority (PEZA) registered
Economic Zone, Barangay Cantao-an, administrative routinary Ecozone Enterprise, then its business is
Naga, Cebu; not subject to VAT pursuant to Section
24 of Republic Act No. ([RA]) 7916 in for its refund within the two-year prescriptive period. further be entitled to an income tax holiday;
relation to Section 103 of the Tax Such payments were -- to the extent of the refundable additional deduction for labor expense; simplification
Code, as amended. As [respondents] value -- duly supported by VAT invoices or official of customs procedure; unrestricted use of consigned
business is not subject to VAT, the receipts, and were not yet offset against any output equipment; access to a bonded manufacturing
capital goods and services it alleged to VAT liability. warehouse system; privileges for foreign nationals
have purchased are considered not Hence this Petition.[5] employed; tax credits on domestic capital equipment,
used in VAT taxable business. As such, Sole Issue as well as for taxes and duties on raw materials; and
[respondent] is not entitled to refund of Petitioner submits this sole issue for our exemption from contractors taxes, wharfage dues,
input taxes on such capital goods consideration: taxes and duties on imported capital equipment and
pursuant to Section 4.106.1 of Revenue Whether or not respondent is entitled to the refund or spare parts, export taxes, duties, imposts and fees,
[16]
Regulations No. ([RR])7-95, and of issuance of Tax Credit Certificate in the amount local taxes and licenses, and real property taxes.[17]
input taxes on services pursuant to of P12,122,922.66 representing alleged unutilized A privilege available to respondent under the
Section 4.103 of said regulations. input VAT paid on capital goods purchased for the provision in RA 7227 on tax and duty-free
6. [Respondent] must show compliance period April 1, 1998 to June 30, 1999.[6] importation of raw materials, capital and
with the provisions of Section 204 (C) The Courts Ruling equipment[18] -- is, ipso facto, also accorded to the
and 229 of the 1997 Tax Code on filing The Petition is unmeritorious. zone[19] under RA 7916. Furthermore, the latter law --
of a written claim for refund within Sole Issue: notwithstanding other existing laws, rules and
two (2) years from the date of payment Entitlement of a VAT-Registered regulations to the contrary -- extends [20] to that zone
of tax. PEZA Enterprise to the provision stating that no local or national taxes
On July 19, 2001, the Tax Court rendered a decision a Refund of or Credit for Input VAT shall be imposed therein.[21] No exchange control
granting the claim for refund.[4] No doubt, as a PEZA-registered enterprise policy shall be applied; and free markets for foreign
Ruling of the Court of Appeals within a special economic zone,[7] respondent is exchange, gold, securities and future shall be allowed
The CA affirmed the Decision of the CTA entitled to the fiscal incentives and and maintained.[22] Banking and finance shall also be
granting the claim for refund or issuance of a tax benefits[8] provided for in either PD 66 [9] or EO 226. liberalized under minimum Bangko Sentral
[10]
credit certificate (TCC) in favor of respondent in the It shall, moreover, enjoy all privileges, benefits, regulation with the establishment of foreign currency
reduced amount of P12,122,922.66. This sum advantages or exemptions under both Republic Act depository units of local commercial banks and
represented the unutilized but substantiated input Nos. (RA) 7227[11] and 7844.[12] offshore banking units of foreign banks.[23]
VAT paid on capital goods purchased for the period Preferential Tax Treatment In the same vein, respondent benefits under RA
covering April 1, 1998 to June 30, 1999. Under Special Laws 7844 from negotiable tax credits[24] for locally-
The appellate court reasoned that respondent If it avails itself of PD 66, notwithstanding the produced materials used as inputs. Aside from the
had availed itself only of the fiscal incentives under provisions of other laws to the contrary, respondent other incentives possibly already granted to it by the
Executive Order No. (EO) 226 (otherwise known as shall not be subject to internal revenue laws and Board of Investments, it also enjoys preferential
the Omnibus Investment Code of 1987), not of those regulations for raw materials, supplies, articles, credit facilities[25] and exemption from PD 1853.[26]
under both Presidential Decree No. (PD) 66, as equipment, machineries, spare parts and wares, From the above-cited laws, it is immediately
amended, and Section 24 of RA 7916. Respondent except those prohibited by law, brought into the zone clear that petitioner enjoys preferential tax treatment.
[27]
was, therefore, considered exempt only from the to be stored, broken up, repacked, assembled, It is not subject to internal revenue laws and
payment of income tax when it opted for the income installed, sorted, cleaned, graded or otherwise regulations and is even entitled to tax credits. The
tax holiday in lieu of the 5 percent preferential tax on processed, manipulated, manufactured, mixed or used VAT on capital goods is an internal revenue tax from
gross income earned. As a VAT-registered entity, directly or indirectly in such activities. [13] Even so, which petitioner as an entity is exempt. Although
though, it was still subject to the payment of other respondent would enjoy a net-operating loss carry the transactions involving such tax are not exempt,
national internal revenue taxes, like the VAT. over; accelerated depreciation; foreign exchange and petitioner as a VAT-registered person,[28] however, is
Moreover, the CA held that neither Section 109 financial assistance; and exemption from export entitled to their credits.
of the Tax Code nor Sections 4.106-1 and 4.103-1 of taxes, local taxes and licenses.[14] Nature of the VAT and
RR 7-95 were applicable. Having paid the input VAT Comparatively, the same exemption from the Tax Credit Method
on the capital goods it purchased, respondent internal revenue laws and regulations applies if EO Viewed broadly, the VAT is a uniform tax
correctly filed the administrative and judicial claims 226[15] is chosen. Under this law, respondent shall ranging, at present, from 0 percent to 10 percent
levied on every importation of goods, whether or not tax rate is set at zero.[48] When applied to the tax base, VAT under the Tax Code, without regard to the tax
in the course of trade or business, or imposed on each such rate obviously results in no tax chargeable status -- VAT-exempt or not -- of the party to
sale, barter, exchange or lease of goods or properties against the purchaser. The seller of such transactions the transaction.[60] Indeed, such transaction is not
or on each rendition of services in the course of trade charges no output tax,[49] but can claim a refund of or subject to the VAT, but the seller is not allowed any
or business[29] as they pass along the production and a tax credit certificate for the VAT previously charged tax refund of or credit for any input taxes paid.
distribution chain, the tax being limited only to the by suppliers. An exempt party, on the other hand, is a person
value added[30] to such goods, properties or services Effectively zero-rated transactions, however, or entity granted VAT exemption under the Tax Code,
by the seller, transferor or lessor.[31] It is an indirect refer to the sale of goods[50] or supply of services[51] to a special law or an international agreement to which
tax that may be shifted or passed on to the buyer, persons or entities whose exemption under special the Philippines is a signatory, and by virtue of which
transferee or lessee of the goods, properties or laws or international agreements to which the its taxable transactions become exempt from the VAT.
services.[32] As such, it should be understood not in Philippines is a signatory effectively subjects such [61]
Such party is also not subject to the VAT, but may
the context of the person or entity that is primarily, transactions to a zero rate.[52] Again, as applied to the be allowed a tax refund of or credit for input taxes
directly and legally liable for its payment, but in tax base, such rate does not yield any tax chargeable paid, depending on its registration as a VAT or non-
terms of its nature as a tax on consumption. [33] In against the purchaser. The seller who charges zero VAT taxpayer.
either case, though, the same conclusion is arrived at. output tax on such transactions can also claim a As mentioned earlier, the VAT is a tax on
The law[34] that originally imposed the VAT in refund of or a tax credit certificate for the VAT consumption, the amount of which may be shifted or
the country, as well as the subsequent amendments of previously charged by suppliers. passed on by the seller to the purchaser of the goods,
that law, has been drawn from the tax credit method. Zero Rating and properties or services.[62] While the liability is
[35]
Such method adopted the mechanics and self- Exemption imposed on one person, the burden may be passed on
enforcement features of the VAT as first implemented In terms of the VAT computation, zero rating to another. Therefore, if a special law merely exempts
and practiced in Europe and subsequently adopted in and exemption are the same, but the extent of a party as a seller from its direct liability for payment
New Zealand and Canada.[36] Under the present relief that results from either one of them is not. of the VAT, but does not relieve the same party as a
method that relies on invoices, an entity can credit Applying the destination principle[53] to the purchaser from its indirect burden of the VAT shifted
against or subtract from the VAT charged on its sales exportation of goods, automatic zero rating[54] is to it by its VAT-registered suppliers, the purchase
or outputs the VAT paid on its purchases, inputs and primarily intended to be enjoyed by the seller who is transaction is not exempt. Applying this principle to
imports.[37] directly and legally liable for the VAT, making such the case at bar, the purchase transactions entered into
If at the end of a taxable quarter the output seller internationally competitive by allowing the by respondent are not VAT-exempt.
taxes[38] charged by a seller[39] are equal to the input refund or credit of input taxes that are attributable to Special laws may certainly exempt transactions
taxes[40] passed on by the suppliers, no payment is export sales.[55] Effective zero rating, on the contrary, from the VAT.[63] However, the Tax Code provides
required. It is when the output taxes exceed the input is intended to benefit the purchaser who, not being that those falling under PD 66 are not. PD 66 is the
taxes that the excess has to be paid.[41] If, however, directly and legally liable for the payment of the VAT, precursor of RA 7916 -- the special law under which
the input taxes exceed the output taxes, the excess will ultimately bear the burden of the tax shifted by respondent was registered. The
shall be carried over to the succeeding quarter or the suppliers. purchase transactions it entered into are, therefore,
quarters.[42] Should the input taxes result from zero- In both instances of zero rating, there is total not VAT-exempt. These are subject to the VAT;
rated or effectively zero-rated transactions or from relief for the purchaser from the burden of the tax. respondent is required to register.
the acquisition of capital goods,[43] any excess over [56]
But in an exemption there is only partial relief, Its sales transactions, however, will either be
the output taxes shall instead be refunded [44] to the [57]
because the purchaser is not allowed any tax zero-rated or taxed at the standard rate of 10 percent,
taxpayer or credited[45] against other internal revenue refund of or credit for input taxes paid.[58] [64]
depending again on the application of
taxes.[46] Exempt Transaction the destination principle.[65]
Zero-Rated and Effectively and Exempt Party If respondent enters into such sales transactions
Zero-Rated Transactions The object of exemption from the VAT may with a purchaser -- usually in a foreign country -- for
Although both are taxable and similar in effect, either be the transaction itself or any of the parties to use or consumption outside the Philippines, these
zero-rated transactions differ from effectively zero- the transaction.[59] shall be subject to 0 percent. [66] If entered into with a
rated transactions as to their source. An exempt transaction, on the one hand, purchaser for use or consumption in the Philippines,
Zero-rated transactions generally refer to the involves goods or services which, by their nature, are then these shall be subject to 10 percent, [67] unless the
export sale of goods and supply of services.[47] The specifically listed in and expressly exempted from the
purchaser is exempt from the indirect burden of the entity, can neither be directly charged for the VAT on Fourth, even the rules implementing the PEZA
VAT, in which case it shall also be zero-rated. its sales nor indirectly made to bear, as added cost to law clearly reiterate that merchandise -- except those
Since the purchases of respondent are not such sales, the equivalent VAT on its purchases. Ubi prohibited by law -- shall not be subject to x x x
exempt from the VAT, the rate to be applied is zero. lex non distinguit, nec nos distinguere debemus. internal revenue laws and regulations x x x[86] if
Its exemption under both PD 66 and RA 7916 Where the law does not distinguish, we ought not to brought to the ecozones restricted area [87] for
effectively subjects such transactions to a zero rate, distinguish. manufacturing by registered export enterprises, [88] of
[68]
because the ecozone within which it is registered Moreover, the exemption is both express and which respondent is one. These rules also apply to all
is managed and operated by the PEZA as a separate pervasive for the following reasons: enterprises registered with the EPZA prior to the
customs territory.[69] This means that in such zone is First, RA 7916 states that no taxes, local and effectivity of such rules.[89]
created the legal fiction of foreign territory.[70] Under national, shall be imposed on business establishments Fifth, export processing zone enterprises
the cross-border principle[71] of the VAT system being operating within the ecozone.[81] Since this law does registered[90] with the Board of Investments (BOI)
enforced by the Bureau of Internal Revenue (BIR), not exclude the VAT from the prohibition, it is under EO 226 patently enjoy exemption from
[72]
no VAT shall be imposed to form part of the cost deemed included. Exceptio firmat regulam in casibus national internal revenue taxes on imported capital
of goods destined for consumption outside of the non exceptis. An exception confirms the rule in cases equipment reasonably needed and exclusively used
territorial border of the taxing authority. If exports of not excepted; that is, a thing not being excepted must for the manufacture of their products;[91] on required
goods and services from the Philippines to a foreign be regarded as coming within the purview of the supplies and spare part for consigned equipment;
country are free of the VAT,[73] then the same rule general rule. [92]
and on foreign and domestic merchandise, raw
holds for such exports from the national territory -- Moreover, even though the VAT is not imposed materials, equipment and the like -- except those
except specifically declared areas -- to an ecozone. on the entity but on the transaction, it may still be prohibited by law -- brought into the zone for
Sales made by a VAT-registered person in the passed on and, therefore, indirectly imposed on the manufacturing.[93] In addition, they are given credits
customs territory to a PEZA-registered entity are same entity -- a patent circumvention of the law. That for the value of the national internal revenue taxes
considered exports to a foreign country; conversely, no VAT shall be imposed directly upon business imposed on domestic capital equipment also
sales by a PEZA-registered entity to a VAT-registered establishments operating within the ecozone under reasonably needed and exclusively used for the
person in the customs territory are deemed imports RA 7916 also means that no VAT may be passed on manufacture of their products,[94] as well as for the
from a foreign country.[74] An ecozone -- indubitably and imposed indirectly. Quando aliquid prohibetur value of such taxes imposed on domestic raw
a geographical territory of the Philippines -- is, ex directo prohibetur et per obliquum. When materials and supplies that are used in the
however, regarded in law as foreign soil. [75] This legal anything is prohibited directly, it is also prohibited manufacture of their export products and that form
fiction is necessary to give meaningful effect to the indirectly. part thereof.[95]
policies of the special law creating the zone. [76] If Second, when RA 8748 was enacted to amend Sixth, the exemption from local and national
respondent is located in an export processing RA 7916, the same prohibition applied, except for taxes granted under RA 7227[96] are ipso facto
zone[77] within that ecozone, sales to the export real property taxes that presently are imposed on land accorded to ecozones.[97] In case of doubt, conflicts
processing zone, even without being actually owned by developers.[82] This similar and repeated with respect to such tax exemption privilege shall be
exported, shall in fact be viewed as constructively prohibition is an unambiguous ratification of the laws resolved in favor of the ecozone.[98]
exported under EO 226.[78] Considered as export intent in not imposing local or national taxes on And seventh, the tax credits under RA 7844 --
sales,[79] such purchase transactions by respondent business enterprises within the ecozone. given for imported raw materials primarily used in
would indeed be subject to a zero rate.[80] Third, foreign and domestic merchandise, raw the production of export goods, [99] and for locally
Tax Exemptions materials, equipment and the like shall not be subject produced raw materials, capital equipment and spare
Broad and Express to x x x internal revenue laws and regulations under parts used by exporters of non-traditional
Applying the special laws we have earlier PD 66[83] -- the original charter of PEZA (then EPZA) products[100] -- shall also be continuously enjoyed by
discussed, respondent as an entity is exempt from that was later amended by RA 7916.[84] No provisions similar exporters within the ecozone.[101] Indeed, the
internal revenue laws and regulations. in the latter law modify such exemption. latter exporters are likewise entitled to such tax
This exemption covers both direct and indirect Although this exemption puts the government at exemptions and credits.
taxes, stemming from the very nature of the VAT as a an initial disadvantage, the reduced tax collection Tax Refund as
tax on consumption, for which the direct liability is ultimately redounds to the benefit of the national Tax Exemption
imposed on one person but the indirect burden is economy by enticing more business investments and To be sure, statutes that grant tax exemptions
passed on to another. Respondent, as an exempt creating more employment opportunities.[85] are construed strictissimi juris[102] against the
taxpayer[103] and liberally in favor of the taxing reducing domestic unemployment, and of [126]
After all, international competitiveness requires
authority.[104] accelerating the development of the country.[112] economic and tax incentives to lower the cost of
Tax refunds are in the nature of such RA 7916, as amended by RA 8748, declared goods produced for export. State actions that affect
exemptions.[105] Accordingly, the claimants of those that by creating the PEZA and integrating the special global competition need to be specific and selective
refunds bear the burden of proving the factual basis economic zones, the government shall actively in the pricing of particular goods or services.[127]
of their claims;[106] and of showing, by words too encourage, promote, induce and accelerate a sound All these statutory policies are congruent to the
plain to be mistaken, that the legislature intended to and balanced industrial, economic and social constitutional mandates of providing incentives to
exempt them.[107] In the present case, all the cited development of the country x x x through the needed investments,[128] as well as of promoting the
legal provisions are teeming with life with respect to establishment, among others, of special economic preferential use of domestic materials and locally
the grant of tax exemptions too vivid to pass zones x x x that shall effectively attract legitimate produced goods and adopting measures to help make
unnoticed. In addition, respondent easily meets the and productive foreign investments.[113] these competitive.[129] Tax credits for domestic inputs
challenge. Under EO 226, the State shall encourage x x x strengthen backward linkages. Rightly so, the rule of
Respondent, which as an entity is exempt, is foreign investments in industry x x x which shall x x law and the existence of credible and efficient public
different from its transactions which are not exempt. x meet the tests of international competitiveness[,] institutions are essential prerequisites for sustainable
The end result, however, is that it is not subject to the accelerate development of less developed regions of economic development.[130]
VAT. The non-taxability of transactions that are the country[,] and result in increased volume and VAT Registration, Not Application
otherwise taxable is merely a necessary incident to value of exports for the economy.[114] Fiscal for Effective Zero Rating,
the tax exemption conferred by law upon it as an incentives that are cost-efficient and simple to Indispensable to VAT Refund
entity, not upon the transactions themselves. administer shall be devised and extended to Registration is an indispensable requirement
[108]
Nonetheless, its exemption as an entity and the significant projects to compensate for market under our VAT law.[131] Petitioner alleges that
non-exemption of its transactions lead to the same imperfections, to reward performance contributing to respondent did register for VAT purposes with the
result for the following considerations: economic development,[115] and to stimulate the appropriate Revenue District Office. However, it is
First, the contemporaneous construction of our establishment and assist initial operations of the now too late in the day for petitioner to challenge the
tax laws by BIR authorities who are called upon to enterprise.[116] VAT-registered status of respondent, given the latters
execute or administer such laws[109] will have to be Wisely accorded to ecozones created under RA prior representation before the lower courts and the
adopted. Their prior tax issuances have held 7916[117] was the governments policy -- spelled out mode of appeal taken by petitioner before this Court.
inconsistent positions brought about by their probable earlier in RA 7227 -- of converting into alternative The PEZA law, which carried over the
failure to comprehend and fully appreciate the nature productive uses[118] the former military reservations provisions of the EPZA law, is clear in exempting
of the VAT as a tax on consumption and the and their extensions,[119] as well as of providing them from internal revenue laws and regulations the
application of the destination principle.[110] Revenue incentives[120] to enhance the benefits that would be equipment -- including capital goods -- that registered
Memorandum Circular No. (RMC) 74-99, however, derived from them[121] in promoting economic and enterprises will use, directly or indirectly, in
now clearly and correctly provides that any VAT- social development.[122] manufacturing.[132] EO 226 even reiterates this
registered suppliers sale of goods, property or Finally, under RA 7844, the State declares the privilege among the incentives it gives to such
services from the customs territory to any registered need to evolve export development into a national enterprises.[133] Petitioner merely asserts that by virtue
enterprise operating in the ecozone -- regardless of effort[123] in order to win international markets. By of the PEZA registration alone of respondent, the
the class or type of the latters PEZA registration -- is providing many export and tax incentives, [124] the latter is not subject to the VAT. Consequently, the
legally entitled to a zero rate.[111] State is able to drive home the point that exporting is capital goods and services respondent has purchased
Second, the policies of the law should prevail. indeed the key to national survival and the means are not considered used in the VAT business, and no
Ratio legis est anima. The reason for the law is its through which the economic goals of increased VAT refund or credit is due. [134] This is a non sequitur.
very soul. employment and enhanced incomes can most By the VATs very nature as a tax on consumption, the
In PD 66, the urgent creation of the EPZA expeditiously be achieved.[125] capital goods and services respondent has purchased
which preceded the PEZA, as well as the The Tax Code itself seeks to promote are subject to the VAT, although at zero rate.
establishment of export processing zones, seeks to sustainable economic growth x x x; x x x increase Registration does not determine taxability under the
encourage and promote foreign commerce as a means economic activity; and x x x create a robust VAT law.
of x x x strengthening our export trade and foreign environment for business to enable firms to compete Moreover, the facts have already been
exchange position, of hastening industrialization, of better in the regional as well as the global market. determined by the lower courts. Having failed to
present evidence to support its contentions against Third, even though such an application was not determine a VAT exemption. Being subject to VAT,
the income tax holiday privilege of respondent, made, all the special laws we have tackled exempt payments erroneously collected thereon may then be
[135]
petitioner is deemed to have conceded. It is a respondent not only from internal revenue laws but refunded or credited.
cardinal rule that issues and arguments not also from the regulations issued pursuant thereto. Even if it is argued that respondent is subject to
adequately and seriously brought below cannot be Leniency in the implementation of the VAT in the 5 percent preferential tax regime in RA 7916,
raised for the first time on appeal. [136] This is a matter ecozones is an imperative, precisely to spur economic Section 24 thereof does not preclude the VAT. One
of procedure[137] and a question of fairness.[138] Failure growth in the country and attain global can, therefore, counterargue that such provision
to assert within a reasonable time warrants a competitiveness as envisioned in those laws. merely exempts respondent from taxes imposed on
presumption that the party entitled to assert it either A VAT-registered status, as well as compliance business. To repeat, the VAT is a tax imposed on
has abandoned or declined to assert it.[139] with the invoicing requirements,[147] is sufficient for consumption, not on business. Although respondent
The BIR regulations additionally requiring an the effective zero rating of the transactions of a as an entity is exempt, the transactions it enters into
approved prior application for effective zero taxpayer. The nature of its business and transactions are not necessarily so. The VAT payments made in
rating[140] cannot prevail over the clear VAT nature of can easily be perused from, as already clearly excess of the zero rate that is imposable may
respondents transactions. The scope of such indicated in, its VAT registration papers and certainly be refunded or credited.
regulations is not within the statutory authority x x x photocopied documents attached thereto. Hence, its Compliance with All Requisites
granted by the legislature.[141] transactions cannot be exempted by its mere failure for VAT Refund or Credit
First, a mere administrative issuance, like a BIR to apply for their effective zero rating. Otherwise, As further enunciated by the Tax Court,
regulation, cannot amend the law; the former cannot their VAT exemption would be determined, not by respondent complied with all the requisites for
purport to do any more than interpret the latter. their nature, but by the taxpayers negligence -- a claiming a VAT refund or credit.[150]
[142]
The courts will not countenance one that result not at all contemplated. Administrative First, respondent is a VAT-registered entity. This
overrides the statute it seeks to apply and implement. convenience cannot thwart legislative mandate. fact alone distinguishes the present case from Contex,
[143]
Tax Refund or in which this Court held that the petitioner therein
Other than the general registration of a taxpayer Credit in Order was registered as a non-VAT taxpayer.[151] Hence, for
the VAT status of which is aptly determined, no Having determined that respondents purchase being merely VAT-exempt, the petitioner in that case
provision under our VAT law requires an additional transactions are subject to a zero VAT rate, the tax cannot claim any VAT refund or credit.
application to be made for such taxpayers refund or credit is in order. Second, the input taxes paid on the capital
transactions to be considered effectively zero-rated. As correctly held by both the CA and the Tax goods of respondent are duly supported by VAT
An effectively zero-rated transaction does not and Court, respondent had chosen the fiscal incentives in invoices and have not been offset against any output
cannot become exempt simply because an application EO 226 over those in RA 7916 and PD 66. It opted taxes. Although enterprises registered with the BOI
therefor was not made or, if made, was denied. To for the income tax holiday regime instead of the 5 after December 31, 1994 would no longer enjoy the
allow the additional requirement is to give unfettered percent preferential tax regime. tax credit incentives on domestic capital equipment --
discretion to those officials or agents who, without The latter scheme is not a perfunctory aftermath as provided for under Article 39(d), Title III, Book I
fluid consideration, are bent on denying a valid of a simple registration under the PEZA law,[148] for of EO 226[152] -- starting January 1, 1996, respondent
application. Moreover, the State can never be EO 226[149] also has provisions to contend with. These would still have the same benefit under a general and
estopped by the omissions, mistakes or errors of its two regimes are in fact incompatible and cannot be express exemption contained in both Article 77(1),
officials or agents.[144] availed of simultaneously by the same entity. While Book VI of EO 226; and Section 12, paragraph 2 (c)
Second, grantia argumenti that such an EO 226 merely exempts it from income taxes, the of RA 7227, extended to the ecozones by RA 7916.
application is required by law, there is still the PEZA law exempts it from all taxes. There was a very clear intent on the part of our
presumption of regularity in the performance of Therefore, respondent can be considered legislators, not only to exempt investors in ecozones
official duty.[145] Respondents registration carries with exempt, not from the VAT, but only from the payment from national and local taxes, but also to grant them
it the presumption that, in the absence of of income tax for a certain number of years, tax credits. This fact was revealed by the sponsorship
contradictory evidence, an application for effective depending on its registration as a pioneer or a non- speeches in Congress during the second reading of
zero rating was also filed and approval thereof given. pioneer enterprise. Besides, the remittance of the House Bill No. 14295, which later became RA 7916,
Besides, it is also presumed that the law has been aforesaid 5 percent of gross income earned in lieu of as shown below:
obeyed[146] by both the administrative officials and the local and national taxes imposable upon business MR. RECTO. x x x Some of the incentives that this
applicant. establishments within the ecozone cannot outrightly bill provides are exemption from national and local
taxes; x x x tax credit for locally-sourced inputs x x
x.
xxxxxxxxx
MR. DEL MAR. x x x To advance its cause in
encouraging investments and creating an
environment conducive for investors, the bill offers
incentives such as the exemption from local and
national taxes, x x x tax credits for locally sourced
inputs x x x.[153]
And third, no question as to either the filing of
such claims within the prescriptive period or the
validity of the VAT returns has been raised. Even if
such a question were raised, the tax exemption under
all the special laws cited above is broad enough to
cover even the enforcement of internal revenue laws,
including prescription.[154]
Summary
To summarize, special laws expressly grant
preferential tax treatment to business establishments
registered and operating within an ecozone, which by
law is considered as a separate customs territory. As
such, respondent is exempt from all internal revenue
taxes, including the VAT, and regulations pertaining
thereto. It has opted for the income tax holiday
regime, instead of the 5 percent preferential tax
regime. As a matter of law and procedure, its
registration status entitling it to such tax holiday can
no longer be questioned. Its sales transactions
intended for export may not be exempt, but like its
purchase transactions, they are zero-rated. No prior
application for the effective zero rating of its
transactions is necessary. Being VAT-registered and
having satisfactorily complied with all the requisites
for claiming a tax refund of or credit for the input
VAT paid on capital goods purchased, respondent is
entitled to such VAT refund or credit.
WHEREFORE, the Petition is DENIED and
the Decision AFFIRMED. No pronouncement as to
costs.
SO ORDERED.
SECOND DIVISION software, such as HDD, CD-ROM and personal In his Answer to the Amended Petition for
computer printed circuit boards.[4] Review before the CTA, petitioner CIR raised several
[G.R. No. 150154. August 9, 2005] Special and Affirmative Defenses, to wit
On 27 September 1995, respondent Toshiba also
COMMISSIONER OF INTERNAL registered with the Philippine Economic Zone 5. Assuming without admitting that petitioner
REVENUE, petitioner, vs. TOSHIBA Authority (PEZA) as an ECOZONE Export filed a claim for refund/tax credit, the
INFORMATION EQUIPMENT Enterprise, with principal office in Laguna same is subject to investigation by the
(PHILS.), INC., respondent. Technopark, Bian, Laguna.[5] Finally, on 29 Bureau of Internal Revenue.
December 1995, it registered with the Bureau of
DECISION Internal Revenue (BIR) as a VAT taxpayer and a 6. Taxes are presumed to have been collected
withholding agent.[6] in accordance with law. Hence, petitioner
CHICO-NAZARIO, J.: must prove that the taxes sought to be
Respondent Toshiba filed its VAT returns for the refunded were erroneously or illegally
In this Petition for Review under Rule 45 of the first and second quarters of taxable year 1996, collected.
Rules of Court, petitioner Commissioner of Internal reporting input VAT in the amount
Revenue (CIR) prays for the reversal of the decision of P13,118,542.00[7] and P5,128,761.94, 7. Petitioner must prove the allegations
[8]
of the Court of Appeals in CA-G.R. SP No. 59106, respectively, or a total of P18,247,303.94. It alleged supporting its entitlement to a refund.
[1]
affirming the order of the Court of Tax Appeals that the said input VAT was from its purchases of
(CTA) in CTA Case No. 5593,[2] which ordered said capital goods and services which remained unutilized 8. Petitioner must show that it has complied
petitioner CIR to refund or, in the alternative, to issue since it had not yet engaged in any business activity with the provisions of Sections 204(c) and
a tax credit certificate to respondent Toshiba or transaction for which it may be liable for any 229 of the 1997 Tax Code on the filing of
Information Equipment (Phils.), Inc. (Toshiba), in the output VAT.[9] Consequently, on 27 March 1998, a written claim for refund within two (2)
amount of P16,188,045.44, representing unutilized respondent Toshiba filed with the One-Stop Shop years from the date of payment of the tax.
input value-added tax (VAT) payments for the first Inter-Agency Tax Credit and Duty Drawback Center
and second quarters of 1996. of the Department of Finance (DOF) applications for 9. Claims for refund of taxes are construed
tax credit/refund of its unutilized input VAT for 01 strictly against claimants, the same being
There is hardly any dispute as to the facts giving January to 31 March 1996 in the amount in the nature of an exemption from
rise to the present Petition. of P14,176,601.28,[10] and for 01 April to 30 June taxation.[12]
1996 in the amount of P5,161,820.79,[11] for a total
Respondent Toshiba was organized and of P19,338,422.07. To toll the running of the two- After evaluating the evidence submitted by
established as a domestic corporation, duly-registered year prescriptive period for judicially claiming a tax respondent Toshiba,[13] the CTA, in its Decision dated
with the Securities and Exchange Commission on 07 credit/refund, respondent Toshiba, on 31 March 1998, 10 March 2000, ordered petitioner CIR to refund, or
July 1995,[3] with the primary purpose of engaging in filed with the CTA a Petition for Review. It would in the alternative, to issue a tax credit certificate to
the business of manufacturing and exporting of subsequently file an Amended Petition for Review on respondent Toshiba in the amount of P16,188,045.44.
electrical and mechanical machinery, equipment, 10 November 1998 so as to conform to the evidence [14]

systems, accessories, parts, components, materials presented before the CTA during the hearings.
and goods of all kinds, including, without limitation, In a Resolution, dated 24 May 2000, the CTA
to those relating to office automation and information denied petitioner CIRs Motion for Reconsideration
technology, and all types of computer hardware and for lack of merit.[15]
The Court of Appeals, in its Decision dated 27 Ultimately, however, the issue still to be (b) Capital Goods. -- Only a VAT-registered person
September 2001, dismissed petitioner CIRs Petition resolved herein shall be whether respondent Toshiba may apply for issuance of a tax credit certificate or
for Review and affirmed the CTA Decision dated 10 is entitled to the tax credit/refund of its input VAT on refund of input taxes paid on capital goods imported
March 2000. its purchases of capital goods and services, to which or locally purchased. The refund shall be allowed to
this Court answers in the affirmative. the extent that such input taxes have not been applied
Comes now petitioner CIR before this Court against output taxes. The application should be made
assailing the above-mentioned Decision of the Court I within two (2) years after the close of the taxable
of Appeals based on the following grounds quarter when the importation or purchase was made.
An ECOZONE enterprise is a VAT-exempt entity.
1. The Court of Appeals erred in holding that Sales of goods, properties, and services by persons Refund of input taxes on capital goods shall be
petitioners failure to raise in the Tax Court from the Customs Territory to ECOZONE enterprises allowed only to the extent that such capital goods are
the arguments relied upon by him in the shall be subject to VAT at zero percent (0%). used in VAT taxable business. If it is also used in
petition, is fatal to his cause. exempt operations, the input tax refundable shall only
Respondent Toshiba bases its claim for tax be the ratable portion corresponding to the taxable
2. The Court of Appeals erred in not holding credit/refund on Section 106(b) of the Tax Code of operations.
that respondent being registered with the 1977, as amended, which reads:
Philippine Economic Zone Authority Capital goods or properties refer to goods or
(PEZA) as an Ecozone Export Enterprise, SEC. 106. Refunds or tax credits of creditable input properties with estimated useful life greater than one
its business is not subject to VAT pursuant tax. year and which are treated as depreciable assets
to Section 24 of Republic Act No. 7916 in under Section 29(f), used directly or indirectly in the
relation to Section 103 (now 109) of the (b) Capital goods. A VAT-registered person may production or sale of taxable goods or services.
Tax Code. apply for the issuance of a tax credit certificate or (Underscoring ours.)
refund of input taxes paid on capital goods imported
3. The Court of Appeals erred in not holding or locally purchased, to the extent that such input Petitioner CIR argues that although respondent
that since respondents business is not taxes have not been applied against output taxes. The Toshiba may be a VAT-registered taxpayer, it is not
subject to VAT, the capital goods and application may be made only within two (2) years engaged in a VAT-taxable business. According to
services it purchased are considered not after the close of the taxable quarter when the petitioner CIR, respondent Toshiba is actually VAT-
used in VAT taxable business, and, importation or purchase was made.[17] exempt, invoking the following provision of the Tax
therefore, it is not entitled to refund of Code of 1977, as amended
input taxes on such capital goods pursuant Petitioner CIR, on the other hand, opposes such
to Section 4.106-1 of Revenue claim on account of Section 4.106-1(b) of Revenue SEC. 103. Exempt transactions. The following shall
Regulations No. 7-95 and of input taxes Regulations (RR) No. 7-95, otherwise known as the be exempt from value-added tax.
on services pursuant to Section 4.103-1 of VAT Regulations, as amended, which provides as
said Regulations. follows (q) Transactions which are exempt under special
laws, except those granted under Presidential Decree
4. The Court of Appeals erred in holding that Sec. 4.106-1. Refunds or tax credits of input tax. No. 66, 529, 972, 1491, and 1590, and non-electric
respondent is entitled to a refund or tax cooperatives under Republic Act No. 6938, or
credit of input taxes it paid on zero-rated ... international agreements to which the Philippines is a
transactions.[16] signatory.[18]
Since respondent Toshiba is a PEZA-registered Section 103(q) of the Tax Code of 1977, as ECOZONE or a Special Economic Zone has been
enterprise, it is subject to the five percent (5%) amended, relied upon by petitioner CIR, relates to described as
preferential tax rate imposed under Chapter III, VAT-exempt transactions. These are transactions
Section 24 of Republic Act No. 7916, otherwise exempted from VAT by special laws or international . . . [S]elected areas with highly developed or which
known as The Special Economic Zone Act of 1995, agreements to which the Philippines is a signatory. have the potential to be developed into agro-
as amended. According to the said section, [e]xcept Since such transactions are not subject to VAT, the industrial, industrial, tourist, recreational,
for real property taxes on land owned by developers, sellers cannot pass on any output VAT to the commercial, banking, investment and financial
no taxes, local and national, shall be imposed on purchasers of goods, properties, or services, and they centers whose metes and bounds are fixed or
business establishments operating within the may not claim tax credit/refund of the input VAT they delimited by Presidential Proclamations. An
ECOZONE. In lieu thereof, five percent (5%) of the had paid thereon. ECOZONE may contain any or all of the following:
gross income earned by all business enterprises industrial estates (IEs), export processing zones
within the ECOZONE shall be paid The five percent Section 103(q) of the Tax Code of 1977, as (EPZs), free trade zones and tourist/recreational
(5%) preferential tax rate imposed on the gross amended, cannot apply to transactions of respondent centers.[21]
income of a PEZA-registered enterprise shall be in Toshiba because although the said section recognizes
lieu of all national taxes, including VAT. Thus, that transactions covered by special laws may be The national territory of the Philippines outside of the
petitioner CIR contends that respondent Toshiba is exempt from VAT, the very same section provides proclaimed borders of the ECOZONE shall be
VAT-exempt by virtue of a special law, Rep. Act No. that those falling under Presidential Decree No. 66 referred to as the Customs Territory.[22]
7916, as amended. are not. Presidential Decree No. 66, creating the
Export Processing Zone Authority (EPZA), is the Section 8 of Rep. Act No. 7916, as amended,
It would seem that petitioner CIR failed to precursor of Rep. Act No. 7916, as amended, [20] under mandates that the PEZA shall manage and operate the
differentiate between VAT-exempt transactions from which the EPZA evolved into the PEZA. ECOZONES as a separate customs territory; [23] thus,
VAT-exempt entities. In the case of Commissioner of Consequently, the exception of Presidential Decree creating the fiction that the ECOZONE is a foreign
Internal Revenue v. Seagate Technology No. 66 from Section 103(q) of the Tax Code of 1977, territory.[24] As a result, sales made by a supplier in
(Philippines),[19] this Court already made such as amended, extends likewise to Rep. Act No. 7916, the Customs Territory to a purchaser in the
distinction as amended. ECOZONE shall be treated as an exportation from
the Customs Territory. Conversely, sales made by a
An exempt transaction, on the one hand, involves This Court agrees, however, that PEZA- supplier from the ECOZONE to a purchaser in the
goods or services which, by their nature, are registered enterprises, which would necessarily be Customs Territory shall be considered as an
specifically listed in and expressly exempted from the located within ECOZONES, are VAT-exempt entities, importation into the Customs Territory.
VAT under the Tax Code, without regard to the tax not because of Section 24 of Rep. Act No. 7916, as
status VAT-exempt or not of the party to the amended, which imposes the five percent (5%) Given the preceding discussion, what would be
transaction preferential tax rate on gross income of PEZA- the VAT implication of sales made by a supplier from
registered enterprises, in lieu of all taxes; but, rather, the Customs Territory to an ECOZONE enterprise?
An exempt party, on the other hand, is a person or because of Section 8 of the same statute which
entity granted VAT exemption under the Tax Code, a establishes the fiction that ECOZONES are foreign The Philippine VAT system adheres to the Cross
special law or an international agreement to which territory. Border Doctrine, according to which, no VAT shall be
the Philippines is a signatory, and by virtue of which imposed to form part of the cost of goods destined for
its taxable transactions become exempt from VAT It is important to note herein that respondent consumption outside of the territorial border of the
Toshiba is located within an ECOZONE. An taxing authority. Hence, actual export of goods and
services from the Philippines to a foreign country
must be free of VAT; while, those destined for use or (5), NIRC and Sec. 23 of R.A. No. 7916 in relation to varies depending on whether the supplier from the
consumption within the Philippines shall be imposed ART. 77(2) of the Omnibus Investments Code. Customs Territory is VAT-registered or not.
with ten percent (10%) VAT.[25]
(b) Sale of Service. This shall be treated subject to Sales of goods, properties and services by a
Applying said doctrine to the sale of goods, zero percent (0%) VAT under the cross border VAT-registered supplier from the Customs Territory
properties, and services to and from the ECOZONES, doctrine of the VAT System, pursuant to VAT Ruling to an ECOZONE enterprise shall be treated as export
[26]
the BIR issued Revenue Memorandum Circular No. 032-98 dated Nov. 5, 1998. sales. If such sales are made by a VAT-registered
(RMC) No. 74-99, on 15 October 1999. Of particular supplier, they shall be subject to VAT at zero percent
interest to the present Petition is Section 3 thereof, (3) In the final analysis, any sale of goods, property (0%). In zero-rated transactions, the VAT-registered
which reads or services made by a VAT registered supplier from supplier shall not pass on any output VAT to the
the Customs Territory to any registered enterprise ECOZONE enterprise, and at the same time, shall be
SECTION 3. Tax Treatment Of Sales Made By a operating in the ecozone, regardless of the class or entitled to claim tax credit/refund of its input VAT
VAT Registered Supplier from The Customs type of the latters PEZA registration, is actually attributable to such sales. Zero-rating of export sales
Territory, To a PEZA Registered Enterprise. qualified and thus legally entitled to the zero percent primarily intends to benefit the exporter (i.e.,the
(0%) VAT. Accordingly, all sales of goods or property supplier from the Customs Territory), who is directly
(1) If the Buyer is a PEZA registered enterprise to such enterprise made by a VAT registered supplier and legally liable for the VAT, making it
which is subject to the 5% special tax regime, in lieu from the Customs Territory shall be treated subject to internationally competitive by allowing it to
of all taxes, except real property tax, pursuant to R.A. 0% VAT, pursuant to Sec. 106(A)(2)(a)(5), NIRC, in credit/refund the input VAT attributable to its export
No. 7916, as amended: relation to ART. 77(2) of the Omnibus Investments sales.
Code, while all sales of services to the said
(a) Sale of goods (i.e., merchandise). This shall be enterprises, made by VAT registered suppliers from Meanwhile, sales to an ECOZONE enterprise
treated as indirect export hence, considered subject to the Customs Territory, shall be treated effectively made by a non-VAT or unregistered supplier would
zero percent (0%) VAT, pursuant to Sec. 106(A)(2)(a) subject to the 0% VAT, pursuant to Section 108(B) only be exempt from VAT and the supplier shall not
(5), NIRC and Sec. 23 of R.A. No. 7916, in relation (3), NIRC, in relation to the provisions of R.A. No. be able to claim credit/refund of its input VAT.
to ART. 77(2) of the Omnibus Investments Code. 7916 and the Cross Border Doctrine of the VAT
system. Even conceding, however, that respondent
(b) Sale of service. This shall be treated subject to Toshiba, as a PEZA-registered enterprise, is a VAT-
zero percent (0%) VAT under the cross border This Circular shall serve as a sufficient basis to exempt entity that could not have engaged in a VAT-
doctrine of the VAT System, pursuant to VAT Ruling entitle such supplier of goods, property or services to taxable business, this Court still believes, given the
No. 032-98 dated Nov. 5, 1998. the benefit of the zero percent (0%) VAT for sales particular circumstances of the present case, that it is
made to the aforementioned ECOZONE enterprises entitled to a credit/refund of its input VAT.
(2) If Buyer is a PEZA registered enterprise which is and shall serve as sufficient compliance to the
not embraced by the 5% special tax regime, hence, requirement for prior approval of zero-rating imposed II
subject to taxes under the NIRC, e.g., Service by Revenue Regulations No. 7-95 effective as of the
Establishments which are subject to taxes under the date of the issuance of this Circular. Prior to RMC No. 74-99, however, PEZA-registered
NIRC rather than the 5% special tax regime: enterprises availing of the income tax holiday under
Indubitably, no output VAT may be passed on to Executive Order No. 226, as amended, were deemed
(a) Sale of goods (i.e., merchandise). This shall be an ECOZONE enterprise since it is a VAT-exempt subject to VAT.
treated as indirect export hence, considered subject to entity. The VAT treatment of sales to it, however,
zero percent (0%) VAT, pursuant to Sec. 106(A)(2)(a)
In his Petition, petitioner CIR opposed the grant Before anything else, this Court wishes to point recognized and affirmed by the CTA, the Court of
of tax credit/refund to respondent Toshiba, reasoning out that petitioner CIR is working on the erroneous Appeals, and even this Court,[30] cannot be lightly
thus premise that respondent Toshiba is claiming tax credit disregarded considering the great number of PEZA-
or refund of input VAT based on Section 4.100-2, registered enterprises which did rely on it to
[28]
In the first place, respondent could not have paid in relation to Section 4.106-1(a),[29] of RR No. 7- determine its tax liabilities, as well as, its privileges.
input taxes on its purchases of goods and services 95, as amended, which allows the tax credit/refund of
from VAT-registered suppliers because such input VAT on zero-rated sales of goods, properties or According to the old rule, Section 23 of Rep.
purchases being zero-rated, that is, no output tax was services. Instead, respondent Toshiba is basing its Act No. 7916, as amended, gives the PEZA-
paid by the suppliers, no input tax was shifted or claim for tax credit or refund on Sec. 4.106-1(b) of registered enterprise the option to choose between
passed on to respondent. The VAT is an indirect tax the same regulations, which allows a VAT-registered two sets of fiscal incentives: (a) The five percent
and the amount of tax may be shifted or passed on to person to apply for tax credit/refund of the input VAT (5%) preferential tax rate on its gross income under
the buyer, transferee or lessee of the goods, properties on its capital goods. While in the former, the seller of Rep. Act No. 7916, as amended; and (b) the income
or services (Section 105, 1997 Tax Code). the goods, properties or services is the one entitled to tax holiday provided under Executive Order No. 226,
the tax credit/refund; in the latter, it is the purchaser otherwise known as the Omnibus Investment Code of
Secondly, Section 4.100-2 of Revenue Regulations of the capital goods. 1987, as amended.[31]
No. 7-95 provides:
Nevertheless, regardless of his mistake as to the The five percent (5%) preferential tax rate on
SEC. 4.100-2. Zero-rated sales. A zero-rated sale by basis for respondent Toshibas application for tax gross income under Rep. Act No. 7916, as amended,
a VAT-registered person, which is a taxable credit/refund, petitioner CIR validly raised the is in lieu of all taxes. Except for real property taxes,
transaction for VAT purposes, shall not result in any question of whether any output VAT was actually no other national or local tax may be imposed on a
output tax. However, the input tax on his purchases of passed on to respondent Toshiba which it could claim PEZA-registered enterprise availing of this particular
goods, properties or services related to such zero- as input VAT subject to credit/refund. If the VAT- fiscal incentive, not even an indirect tax like VAT.
rated sale shall be available as tax credit or refund in registered supplier from the Customs Territory did
accordance with these regulations. not charge any output VAT to respondent Toshiba Alternatively, Book VI of Exec. Order No. 226,
believing that it is exempt from VAT or it is subject to as amended, grants income tax holiday to registered
From the foregoing, the VAT-registered person who zero-rated VAT, then respondent Toshiba did not pay pioneer and non-pioneer enterprises for six-year and
can avail as tax credit or refund of the input tax on any input VAT on its purchase of capital goods and it four-year periods, respectively.[32] Those availing of
his purchases of goods, services or properties is the could not claim any tax credit/refund thereof. this incentive are exempt only from income tax, but
seller whose sale is zero-rated. Applying the shall be subject to all other taxes, including the ten
foregoing provision to the case at bench, the VAT- The rule that any sale by a VAT-registered percent (10%) VAT.
registered supplier, whose sale of goods and services supplier from the Customs Territory to a PEZA-
to respondent is zero-rated, can avail as tax credit or registered enterprise shall be considered an export This old rule clearly did not take into
refund the input taxes on its (supplier) own purchases sale and subject to zero percent (0%) VAT was clearly consideration the Cross Border Doctrine essential to
of goods and services related to its zero-rated sale of established only on 15 October 1999, upon the the VAT system or the fiction of the ECOZONE as a
goods and services to respondent. On the other hand, issuance of RMC No. 74-99. Prior to the said date, foreign territory. It relied totally on the choice of
respondent, as the buyer in such zero-rated sale of however, whether or not a PEZA-registered fiscal incentives of the PEZA-registered enterprise.
goods and services, could not have paid input taxes enterprise was VAT-exempt depended on the type of Again, for emphasis, the old VAT rule for PEZA-
for which it can claim as tax credit or refund.[27] fiscal incentives availed of by the said enterprise. registered enterprises was based on their choice of
This old rule on VAT-exemption or liability of PEZA- fiscal incentives: (1) If the PEZA-registered
registered enterprises, followed by the BIR, also enterprise chose the five percent (5%) preferential tax
on its gross income, in lieu of all taxes, as provided Moreover, in another circular, Revenue implementation of RMC No.
by Rep. Act No. 7916, as amended, then it would be Memorandum Circular (RMC) No. 42-2003, issued 74-99; and
VAT-exempt; (2) If the PEZA-registered enterprise on 15 July 2003, the BIR answered the following
availed of the income tax holiday under Exec. Order question c. The supplier issues a sworn
No. 226, as amended, it shall be subject to VAT at ten statement under penalties of
percent (10%). Such distinction was abolished by Q-5: Under Revenue Memorandum Circular perjury that it shifted the VAT
RMC No. 74-99, which categorically declared that all (RMC) No. 74-99, purchases by and declared the sales to the
sales of goods, properties, and services made by a PEZA-registered firms PEZA-registered purchaser as
VAT-registered supplier from the Customs Territory automatically qualify as zero-rated taxable sales in its VAT
to an ECOZONE enterprise shall be subject to VAT, without seeking prior approval returns.
at zero percent (0%) rate, regardless of the latters from the BIR effective October
type or class of PEZA registration; and, thus, 1999. For invoices/receipts issued upon
affirming the nature of a PEZA-registered or an the effectivity of RMC No. 74-99,
ECOZONE enterprise as a VAT-exempt entity. 1) Will the OSS-DOF Center still the claims for input VAT by PEZA-
accept applications from registered companies, regardless of
The sale of capital goods by suppliers from the PEZA-registered claimants the type or class of PEZA
Customs Territory to respondent Toshiba in the who were allegedly billed VAT registration, should be denied.
present Petition took place during the first and second by their suppliers before and
quarters of 1996, way before the issuance of RMC during the effectivity of the Under RMC No. 42-2003, the DOF would still
No. 74-99, and when the old rule was accepted and RMC by issuing VAT accept applications for tax credit/refund filed by
implemented by no less than the BIR itself. Since invoices/receipts? PEZA-registered enterprises, availing of the income
respondent Toshiba opted to avail itself of the income tax holiday, for input VAT on their purchases made
tax holiday under Exec. Order No. 226, as amended, A-5(1): If the PEZA-registered enterprise is prior to RMC No. 74-99. Acceptance of applications
then it was deemed subject to the ten percent (10%) paying the 5% preferential tax in essentially implies processing and possible approval
VAT. It was very likely therefore that suppliers from lieu of all other taxes, the said thereof depending on whether the given conditions
the Customs Territory had passed on output VAT to PEZA-registered taxpayer cannot are met. Respondent Toshibas claim for tax
respondent Toshiba, and the latter, thus, incurred claim TCC or refund for the VAT credit/refund arose from the very same circumstances
input VAT. It bears emphasis that the CTA, with the paid on purchases. However, if the recognized by Q-5(1) and A-5(1) of RMC No. 42-
help of SGV & Co., the independent accountant it taxpayer is availing of the income 2003. It therefore seems irrational and unreasonable
commissioned to make a report, already thoroughly tax holiday, it can claim VAT credit for petitioner CIR to oppose respondent Toshibas
reviewed the evidence submitted by respondent provided: application for tax credit/refund of its input VAT,
Toshiba consisting of receipts, invoices, and when such claim had already been determined and
vouchers, from its suppliers from the Customs a. The taxpayer-claimant is VAT- approved by the CTA after due hearing, and even
Territory. Accordingly, this Court gives due respect to registered; affirmed by the Court of Appeals; while it could
and adopts herein the CTAs findings that the accept, process, and even approve applications filed
suppliers of capital goods from the Customs Territory b. Purchases are evidenced by VAT by other similarly-situated PEZA-registered
did pass on output VAT to respondent Toshiba and the invoices or receipts, whichever enterprises at the administrative level.
amount of input VAT which respondent Toshiba is applicable, with shifted VAT
could claim as credit/refund. to the purchaser prior to the III
Findings of fact by the CTA are respected and
adopted by this Court.

Finally, petitioner CIR, in a last desperate


attempt to block respondent Toshibas claim for tax
credit/refund, challenges the allegation of said
respondent that it availed of the income tax holiday
under Exec. Order No. 226, as amended, rather than
the five percent (5%) preferential tax rate under Rep.
Act No. 7916, as amended. Undoubtedly, this is a
factual matter that should have been raised and
threshed out in the lower courts. Giving it credence
would belie petitioner CIRs assertion that it is raising
only issues of law in its Petition that may be resolved
without need for reception of additional evidences.
Once more, this Court respects and adopts the finding
of the CTA, affirmed by the Court of Appeals, that
respondent Toshiba had indeed availed of the income
tax holiday under Exec. Order No. 226, as amended.

WHEREFORE, based on the foregoing, this


Court AFFIRMS the decision of the Court of Appeals
in CA-G.R. SP. No. 59106, and the order of the CTA
in CTA Case No. 5593, ordering said petitioner CIR
to refund or, in the alternative, to issue a tax credit
certificate to respondent Toshiba, in the amount
of P16,188,045.44, representing unutilized input VAT
for the first and second quarters of 1996.

SO ORDERED.
SECOND DIVISION acceptable foreign currency and accounted for in Services performed under the Agreement,[5] as well as
accordance with the rules and regulations of the a fee agreed to one percent (1%) of such Costs.[6]
COMMISSIONER OF INTERNAL G.R. No. 164365 [Bangko Sentral ng Pilipinas], are zero-rated. [3] The
REVENUE, grant of the present petition entails the extreme step In August of 1998, respondent amended its quarterly
Petitioner, of rejecting American Express as precedent, a VAT returns for the last two quarters of 1996, and for
Present: recourse which the Court is unwilling to take. the four quarters of 1997. In the amended returns,
QUISUMBING, J., respondent declared a total input VAT payment
- versus - Chairperson, The facts, as culled from the recital in the assailed of P43,015,461.98 for the said quarters,
CARPIO, Decision[4] dated 30 June 2004 of the Court of and P42,837,933.60 as its total excess input VAT for
CARPIO MORALES, Appeals, follow. the same period. Then on 11 September 1998,
TINGA, and respondent filed an administrative claim for the
PLACER DOME TECHNICAL VELASCO, JR., JJ. On 24 March 1996, at the San Antonio Mines in refund of its reported total input VAT payments in
SERVICES (PHILS.), INC., Marinduque owned by Marcopper Mining relation to the project it had contracted from PDTSL,
Respondent. Corporation (Marcopper), mine tailings from the amounting to P43,015,461.98. In support of this
P Taipan Pit started to escape through the Makulapnit claim for refund, respondent argued that the revenues
r Tunnel and Boac Rivers, causing the cessation of it derived from services rendered to PDTSL, pursuant
o mining and milling operations, and causing potential to the Agreement, qualified as zero-rated sales under
m environmental damage to the rivers and the Section 102(b)(2) of the then Tax Code, since it was
u immediate area. To contain the damage and prevent paid in foreign currency inwardly remitted to the
l the further spread of the tailing leak, Placer Dome, Philippines. When the Commissioner of Internal
g Inc. (PDI), the owner of 39.9% of Marcopper, Revenue (CIR) did not act on this claim, respondent
a undertook to perform the clean-up and rehabilitation duly filed a Petition for Review with the Court of Tax
t of the Makalupnit and Boac Rivers, through a Appeals (CTA), praying for the refund of its total
e subsidiary. To accomplish this, PDI engaged Placer reported excess input VAT totaling P42,837,933.60.
d Dome Technical Services Limited (PDTSL), a non- In its Answer to the Petition, the CIR merely invoked
: resident foreign corporation with office in Canada, to the presumption that taxes are collected in
carry out the project. In turn, PDTSL engaged the accordance with law, and that claims for refund of
June 8, 2007 services of Placer Dome Technical Services taxes are construed strictly against claimants, as the
(Philippines), Inc. (respondent), a domestic same was in the nature of an exemption from
x--------------------------------------------------------------- corporation and registered Value-Added Tax (VAT) taxation.[7]
------------------x entity, to implement the project in the Philippines.
In its Decision dated 19 March 2002,[8] the CTA
supported respondents legal position that its sale of
DECISION services to PDTSL constituted a zero-rated
PDTSL and respondent thus entered into an transaction under the Tax Code, as these services
TINGA, J.: Implementation Agreement signed on 15 November were paid for in acceptable foreign currency which
1996. Due to the urgency and potentially significant had been inwardly remitted to the Philippines in
damage to the environment, respondent had agreed to accordance with the rules and regulations of the
Two years ago, the Court in Commissioner of immediately implement the project, and the Bangko Sentral ng Pilipinas (BSP). At the same time,
Internal Revenue v. American Express International, Implementation Agreement stipulated that all the CTA pointed out that of the US$27,544,707.00
Inc. (Philippine Branch)[1] definitively ruled that implementation services rendered by respondent even paid by PDTSL to respondent, only
under the National Internal Revenue Code of 1986, as prior to the agreements signing shall be deemed to US$14,750,473.00 was inwardly remitted and
amended,[2] services performed by VAT-registered have been provided pursuant to the said Agreement. accounted for in accordance with the BSP.[9] The CTA
persons in the Philippines (other than the processing, The Agreement further stipulated that PDTSL was to also noted that not all the reported total input VAT
manufacturing or repacking of goods for persons pay respondent an amount of money, in U.S. funds, payments of respondent were properly supported by
doing business outside the Philippines), when paid in equal to all Costs incurred for Implementation VAT invoices and/or official receipts,[10] and that not
all of the allowable input VAT of the respondent Section 102. Value-Added in acceptable
could be directly attributed to its zero-rated sales. Tax on Sale of Services and foreign currency
[11]
In the end, the CTA found that only the resulting Use or Lease of Properties. and accounted for
input VAT of P17,178,373.12 could be refunded the in accordance
respondent.[12] (a) xxx with the rules and
regulations of the
The CIR filed a Motion for Reconsideration where (b) Transactions Subject to Zero [BSP].
he invoked Section 4.102-2(b)(2) of Revenue Percent (0%) Rate. The following
Regulation No. 5-96,[13] and especially VAT Ruling services performed in x x x [20]
No. 040-98 dated 23 November 1998, which had the Philippines by VAT-registered
interpreted the aforecited provision. persons shall be subject to zero
percent (0%) rate: It is Section 102(b)(2) which finds special relevance
The CTA remained unpersuaded despite the cited to this case. As explicitly provided in the law, a zero-
issuances. In fact, the CTA Resolution[14] dated 20 (1) Processing, rated VAT transaction includes services by VAT-
June 2002, denying the CIRs motion for manufacturing or registered persons other than processing,
reconsideration, noted that petitioners argument was repacking goods manufacturing or repacking goods for other persons
not novel as it had debunked the same when first for other persons doing business outside the Philippines, which goods
raised before it, referring to its decision dated 19 doing business are subsequently exported, the consideration for
April 2002 in CTA Case No. 6099, American outside the which is paid in foreign currency and accounted for
Express International, Inc. Philippine Branch v. Philippines which in accordance with the rules and regulations of the
Commissioner of Internal Revenue.[15] The CTA goods are BSP.
reiterated its pronouncement in said case, thus: x x x subsequently
it is very clear that VAT Ruling No. 040-98 not only exported, where Still, this provision was interpreted by the
expands the language of Section (108)(B)(2) but also the services are Bureau of Internal Revenue through Revenue
of Revenue Regulation No. 5-96 which interprets the paid for in Regulation No. 5-96, Section 4.102-2(b)(2) of which
said statute. The same cannot be countenanced. It is a acceptable states:
settled rule of legal hermeneutics that the foreign currency
implementing rules and regulations cannot amend the and accounted for Section 4.102(b)(2)- Services other
act of Congress x x x for administrative rules and in accordance than processing, manufacturing or
regulations are intended to carry out, not supplant or with the rules and repacking for other persons doing
modify, the law.[16] regulations of the business outside the Philippines for
Bangko Sentral goods which are subsequently
The rulings of the CTA were elevated by petitioner to ng Pilipinas exported, as well as services by a
the Court of Appeals on Petition for Review. In a (BSP); resident to a non-resident foreign
Decision[17] dated 30 June 2004, the appellate court client such as project studies,
affirmed the CTA rulings. As a consequence, the information services, engineering
present petition is now before us. and architectural designs and other
similar services, the consideration
Our evaluation of the petition must begin for which is paid for in acceptable
with the statutory scope of the services performed in (2) Services other foreign currency and accounted for
the Philippines by VAT-registered persons,[18] referred than those in accordance with the rules and
to in the law applicable at the time of the subject mentioned in the regulations of the BSP.
incidents, the National Internal Revenue Code of preceding
1986, as amended[19] (1986 NIRC). Section 102(b) of subparagraph, the
the 1986 NIRC reads: consideration for
which is paid for
tour package services of your client Unfortunately for petitioner, his arguments
Although there is nothing in Section 4.102-2(b)(2) to foreign tourists in are no longer fresh. The Court spurned them
that is expressly fatal to respondents claim, VAT the Philippines cannot legally in Commissioner of Internal Revenue v. American
Ruling No. 040-98 interpreted the provision in such qualify for zero-rated (0%) VAT but Express.[23]
fashion. The relevant portion of the ruling reads: rather subject to the regular VAT
rate of 10%. American Express involved transactions
invoked as zero-rated by a VAT-registered person
The sales of services Petitioner argues that following Section that facilitates the collection and payment of
subject to zero percent (0%) VAT 4.102-2(b)(2) of Revenue Regulation No. 5-96, there receivables belonging to its non-resident foreign
under Section 108(B)(2), of the Tax are only two categories of services that are subject to client, for which it gets paid in acceptable foreign
Code of 1997, are limited to such zero percent VAT, namely: services other than currency inwardly remitted and accounted for in
sales which are destined for processing, manufacturing or repacking for other conformity with BSP rules and regulations. [24] The
consumption outside of the persons doing business outside the Philippines for CIR in that case relied extensively on the same VAT
Philippines in that such services are goods which are subsequently exported; and services Ruling No. 040-98 now cited before us. However,
tacked-in as part of the cost of by a resident to a non-resident foreign client, such as the Court would conclude in American Express that
goods exported. The zero-rating project studies, information services, engineering and the opinion therein that the service must be destined
also extends to project studies, architectural designs and other similar services. for consumption outside of the Philippines was
[21]
information services, engineering Petitioner explains that the services rendered by clearly ultra vires and invalid.[25]
and architectural designs and other respondent were not for goods which were
similar services sold by a resident subsequently exported. Likewise, it is argued that the The discussion of the issues in American
of the Philippines to a non-resident services rendered by respondent were not similar to Express was comprehensive enough as to address
foreign client because these project studies, information services, engineering and each issue now presently raised before us.
services are likewise destined to be architectural designs which were destined to be
consumed abroad. The phrase consumed abroad by non-resident foreign clients. American Express explained the nature of
project studies, information VAT imposed on services in this manner:
services, engineering and These views, petitioner points out, were
architectural designs and other reiterated in VAT Ruling No. 040-98. It is clear from The VAT is a tax on
similar services does not include that issuance that the location or destination where consumption "expressed as a
services rendered by travel agents the services were destined for consumption was percentage of the value added to
to foreign tourists in the Philippines determinative of whether the zero-rating availed goods or services" purchased by the
following the doctrine of ejusdem when such services were sold by a resident of producer or taxpayer. As an indirect
generis, since such services by the Philippines to a non-resident foreign client. VAT tax on services, its main object is
travel agents are not of the same Ruling No. 040-98 expresses that the zero-rating may the transaction itself or, more
class or of the same nature as those apply only when the services are destined for concretely, the performance of all
enumerated under the aforesaid consumption abroad. This view aligns with the kinds of services conducted in the
section. theoretical principle that the VAT is ultimately levied course of trade or business in
on consumption.[22] If the service were destined for the Philippines. These services
Considering that the services by consumption in the Philippines, the service provider must be regularly conducted in this
your client to foreign tourists are would have the faculty to pass on its VAT liability to country; undertaken in "pursuit of a
basically and substantially rendered the end-user, thus avoiding having to shoulder the tax commercial or an economic
within the Philippines, it follows itself. activity;" for a valuable
that the onus of taxation of the consideration; and not exempt
revenue arising therefrom, for VAT under the Tax Code, other special
purposes, is also within laws, or any international
the Philippines. For this reason, it agreement.[26]
is our considered opinion that the
Code is very clear. Therefore, no
Yet even as services may be subject to VAT, statutory construction or However, the Court in American Express clearly
our tax laws extend the benefit of zero-rating the VAT interpretation is needed. Neither rebuffed a similar contention.
due on certain services. The aforementioned Section can conditions or limitations be
102(b) of the 1986 NIRC activates such zero-rating introduced where none is provided
on two categories of transactions: (1) Processing, for. Rewriting the law is a
manufacturing or repacking goods for other persons forbidden ground that only Aside from the already
doing business outside the Philippines which goods Congress may tread upon. scopious coverage of services in
are subsequently exported, where the services are Section 4.102-2(b)(2) of RR 7-95,
paid for in acceptable foreign currency and accounted The Court may not the amendment introduced by RR
for in accordance with the rules and regulations of the construe a statute that is free from 5-96 further enumerates specific
BSP;and (2) services other than those mentioned in doubt. "[W]here the law speaks in services entitled to zero rating.
the preceding subparagraph, the consideration for clear and categorical language, Although superfluous, these sample
which is paid for in acceptable foreign currency and there is no room for interpretation. services are meant to be merely
accounted for in accordance with the rules and There is only room for illustrative. In this provision, the
regulations of the BSP.[27] application." The Court has no use of the term "as well as" is not
choice but to "see to it that its restrictive. As a prepositional
Obviously, it is the second category that mandate is obeyed."[29] phrase with an adverbial relation
begs for further explication, owing to its apparently to some other word, it simply
broad scope, covering as it does services other than means "in addition to, besides,
those mentioned in the preceding subparagraph. Yet, It was from the awareness that Section 102(b) is free also or too."
as found by the Court in American Express, such from ambiguity in providing so broad an extension of
broad scope did not mean that Section 102(b) is the zero-rated benefit on VAT-registered persons Neither the law nor any
vague, thus: performing services that the Court in American of the implementing revenue
Express proceeded to consider the same Section regulations aforequoted
The law is very clear. 4.102-2(b)(2) of Revenue Regulation No. 5-96 now categorically defines or limits the
Under the last paragraph [of cited by petitioner. The Court in American services that may be sold or
Section 102(b)], services performed Express explained that Revenue Regulation No. 5-96 exchanged for a fee,
by VAT-registered persons in had amended Revenue Regulation No. 7-95, Section remuneration or
the Philippines (other than the 4.102-2 of which had retained the broad language of consideration. Rather, both merely
processing, manufacturing or Section 102(b) in defining transactions subject to enumerate the items of service that
repacking of goods for persons zero-rate, adding only, by way of specific example, fall under the term "sale or
doing business outside the phrase those [services] rendered by hotels and exchange of services."
the Philippines), when paid in other service establishments.[30] However, the
acceptable foreign currency and amendatory Revenue Regulation No. 5-96 opted for a xxxx
accounted for in accordance with more specific approach, providing, by way of
the rules and regulations of the example, an enumeration of those services The canon of statutory construction
BSP, are zero-rated.[28] contemplated as zero-rated.[31] In the present case, it known as ejusdem generis or "of
is because of such enumeration that petitioner now the same kind or specie" does not
argues that respondents services likewise do not fall apply to Section 4.102-2(b)(2) of
Since Section 102(b) is, in fact, very clear, the Court under the second category mentioned in Section RR 7-95 as amended by RR 5-96.
declared that any resort to statutory construction or 4.102-2(b)(2) [as amended by Revenue Regulation
interpretation was unnecessary. No. 5-96], because they are not similar to project First, although the
studies, information services, engineering and regulatory provision contains an
As mentioned at the architectural designs which are destined to be enumeration of particular or
outset, Section 102(b)(2) of the Tax consumed abroad by non-resident foreign clients.[32] specific words, followed by the
general phrase "and other abroad. American Express minced no words in in American Express debunked this argument when it
similar services," such words do criticizing said ruling. rebutted the theoretical underpinnings of VAT Ruling
not constitute a readily No. 040-98, particularly its reliance on the
discernible class and are patently VAT Ruling No. 040-98 destination principle in taxation:
not of the same kind. Project relied upon by petitioner is a less
studies involve investments or general interpretation at the As a general rule, the
marketing; information services administrative level, rendered by VAT system uses the destination
focus on data technology; the BIR commissioner upon request principle as a basis for the
engineering and architectural of a taxpayer to clarify certain jurisdictional reach of the tax.
designs require creativity. Aside provisions of the VAT law. As Goods and services are taxed only
from calling for the exercise or use correctly held by the CA, when in the country where they are
of mental faculties or perhaps this ruling states that the service consumed. Thus, exports are zero-
producing written technical must be "destined for rated, while imports are taxed.
outputs, no common denominator consumption outside of
to the exclusion of all others the Philippines" in order to Confusion in zero rating
characterizes these three services. qualify for zero rating, it arises because petitioner equates
Nothing sets them apart from other contravenes both the law and the the performance of a particular
and similar general services that regulations issued pursuant to it. type of service with the
may involve advertising, This portion of VAT Ruling No. consumption of its output
computers, consultancy, health 040-98 is clearly ultra vires and abroad. In the present case, the
care, management, messengerial invalid. facilitation of the collection of
work to name only a few. receivables is different from the
Second, there is the Although "[i]t is widely utilization or consumption of the
regulatory intent to give the general accepted that the interpretation outcome of such service. While the
phrase "and other similar services" placed upon a statute by the facilitation is done in
a broader meaning. Clearly, the executive officers, whose duty is the Philippines, the consumption is
preceding phrase "as well as" is to enforce it, is entitled to great not. Respondent renders assistance
not meant to limit the effect of respect by the courts," this to its foreign clients the ROCs
"and other similar services." interpretation is not conclusive outside the country by receiving the
and will have to be "ignored if bills of service establishments
Third, and most judicially found to be erroneous" located here in the country and
important, the statutory and "clearly absurd x x x or forwarding them to the ROCs
provision upon which this improper." An administrative abroad. The consumption
regulation is based is by itself not issuance that overrides the law it contemplated by law, contrary to
restrictive. The scope of the word merely seeks to interpret, instead petitioner's administrative
"services" in Section 102(b)(2) of of remaining consistent and in interpretation, does not imply
the [1986 NIRC] is broad; it is harmony with it, will not be that the service be done abroad
not susceptible of narrow countenanced by this Court. in order to be zero-rated.
interpretation. (Emphasis (Emphasis supplied)[34]
supplied)[33] Consumption is "the use
Petitioner presently invokes the destination of a thing in a way that thereby
The Court in American Express recognized principle, citing that [r]espondents services, while exhausts it." Applied to services,
the existence of the contrary holding in VAT Ruling rendered to a non-resident foreign corporation, are the term means the performance
No. 040-98, now relied upon by petitioner especially not destined to be consumed abroad. Hence, the onus or "successful completion of a
as he states that the zero-rating applied only when the of taxation of the revenue arising therefrom, for VAT contractual duty, usually
services are destined for consumption purposes, is also within the Philippines. Yet the Court resulting in the performer's
release from any past or future service fall under any of the service is rendered determines the
liability x x x" The services categories in Section 102(b) of the jurisdiction to impose the
rendered by respondent are Tax Code; and, third, it be paid in VAT. Performed in
performed or successfully acceptable foreign currency the Philippines, such service is
completed upon its sending to its accounted for in accordance with necessarily subject to its
foreign client the drafts and bills it BSP rules and regulations. jurisdiction, for the State
has gathered from service (Emphasis supplied)[35] necessarily has to have "a
establishments here. Its services, substantial connection" to it, in
having been performed in the xxxx order to enforce a zero rate. The
Philippines, are therefore also place of payment is immaterial;
consumed in the Philippines. Again, contrary to petitioner's much less is the place where the
stand, for the cost of respondent's output of the service will be
Unlike goods, services service to be zero-rated, it need further or ultimately used.[37]
cannot be physically used in or not be tacked in as part of the Finally, the Court in American Express found support
bound for a specific place when cost of goods exported. The law from the legislative record that revealed that
their destination is determined. neither imposes such consumption abroad is not a pertinent factor to imbue
Instead, there can only be a requirement nor associates the zero-rating on services by VAT-registered persons
"predetermined end of a course" services with exported goods. It performed in the Philippines.
when determining the service simply states that the services
"location or position x x x for performed by VAT-registered
legal purposes." Respondent's persons in the Philippines
facilitation service has no physical services other than the Interpellations on the subject in the
existence, yet takes place upon processing, manufacturing or halls of the Senate also reveal a
rendition, and therefore upon repacking of goods for persons clear intent on the part of the
consumption, in the Philippines. doing business outside this legislators not to impose the
Under the destination principle, as country if paid in acceptable condition of being "consumed
petitioner asserts, such service is foreign currency and accounted abroad" in order for services
subject to VAT at the rate of 10 for in accordance with the rules performed in the Philippines by a
percent. and regulations of the BSP, are VAT-registered person to be zero-
zero-rated. The service rendered rated. We quote the relevant
xxxx by respondent is clearly different portions of the proceedings:
from the product that arises from
However, the law clearly the rendition of such service. The "Senator Maceda: Going
provides for an exception to the activity that creates the income back to Section 102 just for the
destination principle; that is, for must not be confused with the main moment. Will the Gentleman
a zero percent VAT rate for business in the course of which that kindly explain to me I am
services that are performed in the income is realized. (Emphasis referring to the lower part of the
Philippines, "paid for in supplied)[36] first paragraph with the
acceptable foreign currency and 'Provided'. Section 102. 'Provided
accounted for in accordance with xxxx that the following services
the rules and regulations of the performed in the Philippines by
[BSP]." Thus, for the supply of The law neither makes a VAT registered persons shall be
service to be zero-rated as an qualification nor adds a condition subject to zero percent.' There are
exception, the law merely requires in determining the tax situs of a three here. What is the difference
that first, the service be performed zero-rated service. Under this between the three here which is
in the Philippines; second, the criterion, the place where the subject to zero percent and
Section 103 which is exempt manufacturing computers and payment is made from outside
transactions, to being with? computer chips or repacking and remitted into the country.
goods for persons doing business
"Senator Herrera: Mr. outside the Philippines. Meaning "Senator Herrera: What
President, in the case of to say, we ship the goods to them is important here is that these
processing and manufacturing or in Chicago or Washington and services are paid in acceptable
repacking goods for persons they send the payment inwardly foreign currency remitted
doing business outside the to the Philippines in foreign inwardly to the Philippines.
Philippines which are currency, and that is, of course,
subsequently exported, and where zero-rated. "Senator Maceda: Yes,
the services are paid for in Mr. President. Like those
acceptable foreign currencies "Now, when we say Japanese tours which include $50
inwardly remitted, this is 'services other than those for the services of a woman or a
considered as subject to 0%. But mentioned in the preceding tourist guide, it is zero-rated
if these conditions are not subsection[,'] may I have some when it is remitted here.
complied with, they are subject to examples of these?
the VAT. "Senator Herrera: I
"Senator Herrera: guess it can be interpreted that
"In the case of No. 2, Which portion is the Gentleman way, although this tourist guide
again, as the Gentleman pointed referring to? should also be considered as
out, these three are zero-rated and among the professionals. If they
the other one that he indicated are "Senator Maceda: I am earn more than P200,000, they
exempted from the very referring to the second paragraph, should be covered.
beginning. These three in the same Section 102. The first
enumerations under Section 102 paragraph is when one xxxx
are zero-rated provided that these manufactures or packages
conditions indicated in these three something here and he sends it
paragraphs are also complied abroad and they pay him, that is
with. If they are not complied covered. That is clear to me. The
with, then they are not entitled to second paragraph says 'Services
the zero ratings. Just like in the other than those mentioned in the
export of minerals, if these are preceding subparagraph, the Senator Maceda: So, the
not exported, then they cannot consideration of which is paid for services by Filipino citizens
qualify under this provision of in acceptable foreign outside the Philippines are subject
zero rating. currency. . . .' to VAT, and I am talking of all
services. Do big contractual
"Senator Maceda: Mr. "One example I could engineers in Saudi Arabia pay
President, just one small item so immediately think ofI do not VAT?
we can leave this. Under the know why this comes to my mind
proviso, it is required that the tonightis for tourism or escort "Senator Herrera: This
following services be performed services. For example, the provision applies to a VAT-
in the Philippines. services of the tour operator or registered person. When he
tour escortjust a good name for performs services in
"Under No. 2, services all kinds of activitiesis made here the Philippines, that is zero-rated.
other than those mentioned above at the Midtown Ramada Hotel or
includes, let us say, at the Philippine Plaza, but the
"Senator Maceda: That
is right."[38]

It is indubitable that petitioners arguments cannot


withstand the Courts ruling in American Express, a
precedent warranting stare decisis application and
one which, in any event, we are disinclined to revisit
at this juncture.

WHEREFORE, the petition is DENIED. No


pronouncement as to costs.

SO ORDERED.
Republic of the Philippines Express International, Inc. - Hongkong Branch Section 110. Tax Credits. -
SUPREME COURT (Amex-HK) and is engaged primarily to facilitate the xxxxxxxxx
Manila collections of Amex-HK receivables from card (B) Excess Output or Input Tax. - If at the end of any
THIRD DIVISION members situated in the Philippines and payment to taxable quarter the output tax exceeds the input tax,
G.R. No. 152609 June 29, 2005 service establishments in the Philippines. the excess shall be paid by the VAT-registered person.
COMMISSIONER OF INTERNAL "Amex Philippines registered itself with the Bureau If the input tax exceeds the output tax, the excess
REVENUE, Petitioner, of Internal Revenue (BIR), Revenue District Office shall be carried over to the succeeding quarter or
vs. No. 47 (East Makati) as a value-added tax (VAT) quarters. Any input tax attributable to the purchase of
AMERICAN EXPRESS INTERNATIONAL, taxpayer effective March 1988 and was issued VAT capital goods or to zero-rated sales by a VAT-
INC. (PHILIPPINE BRANCH), Respondent. Registration Certificate No. 088445 bearing VAT registered person may at his option be refunded or
DECISION Registration No. 32A-3-004868. For the period credited against other internal revenue taxes, subject
PANGANIBAN, J.: January 1, 1997 to December 31, 1997, [respondent] to the provisions of Section 112.
As a general rule, the value-added tax (VAT) system filed with the BIR its quarterly VAT returns as "There being no immediate action on the part of the
uses the destination principle. However, our VAT law follows: [petitioner], [respondents] petition was filed on April
itself provides for a clear exception, under which the Exhibit Period Covered Date Filed15, 1999.
supply of service shall be zero-rated when the "In support of its Petition for Review, the following
following requirements are met: (1) the service is D 1997 1st Qtr. April 18, 1997
arguments were raised by [respondent]:
performed in the Philippines; (2) the service falls A. Export sales by a VAT-registered person, the
under any of the categories provided in Section F 2nd Qtr. July 21, 1997
consideration for which is paid for in acceptable
102(b) of the Tax Code; and (3) it is paid for in G 3rd Qtr. October 2,foreign
1997 currency inwardly remitted to the Philippines
acceptable foreign currency that is accounted for in and accounted for in accordance with existing
accordance with the regulations of the Bangko H 4th Qtr. January 20, 1998
regulations of the Bangko Sentral ng Pilipinas, are
Sentral ng Pilipinas. Since respondents services meet "On March 23, 1999, however, [respondent] amended subject to [VAT] at zero percent (0%). According to
these requirements, they are zero-rated. Petitioners the aforesaid returns and declared the following: [respondent], being a VAT-registered entity, it is
Revenue Regulations that alter or revoke the above subject to the VAT imposed under Title IV of the Tax
requirements are ultra vires and invalid. Exh 1997 Taxable Sales Output Code, to wit:
The Case VAT Section 102.(sic) Value-added tax on sale of
Before us is a Petition for Review1 under Rule 45 of I 1st qtr P59,597.20 P5,959.72 services.- (a) Rate and base of tax. - There shall be
the Rules of Court, assailing the February 28, 2002 levied, assessed and collected, a value-added tax
Decision2of the Court of Appeals (CA) in CA-GR SP J 2nd qtr 67,517.20 6,751.72 equivalent to 10% percent of gross receipts derived
No. 62727. The assailed Decision disposed as by any person engaged in the sale of services. The
K 3rd qtr 51,936.60 5,193.66
follows: phrase "sale of services" means the performance of
"WHEREFORE, premises considered, the petition is L 4th qtr 67,994.30 6,799.43 all kinds of services for others for a fee, remuneration
hereby DISMISSED for lack of merit. The assailed or consideration, including those performed or
decision of the Court of Tax Appeals (CTA) rendered by construction and service contractors:
is AFFIRMED in toto."3 Total P247,045.30 P24,704.53 stock, real estate, commercial, customs and
The Facts immigration brokers; lessors of personal property;
Quoting the CTA, the CA narrated the undisputed "On April 13, 1999, [respondent] filed with the BIR a lessors or distributors of cinematographic films;
facts as follows: letter-request for the refund of its 1997 excess input persons engaged in milling, processing,
"[Respondent] is a Philippine branch of American taxes in the amount of P3,751,067.04, which amount manufacturing or repacking goods for others; and
Express International, Inc., a corporation duly was arrived at after deducting from its total input similar services regardless of whether o[r] not the
organized and existing under and by virtue of the VAT paid of P3,763,060.43 its applied output VAT performance thereof calls for the exercise or use of
laws of the State of Delaware, U.S.A., with office in liabilities only for the third and fourth quarters of the physical or mental faculties: Provided That the
the Philippines at the Ground Floor, ACE Building, 1997 amounting to P5,193.66 and P6,799.43, following services performed in the Philippines by
corner Rada and de la Rosa Streets, Legaspi Village, respectively. [Respondent] cites as basis therefor, VAT-registered persons shall be subject to 0%:
Makati City. It is a servicing unit of American Section 110 (B) of the 1997 Tax Code, to state: (1) x x x
(2) Services other than those mentioned in "[Petitioner], in his Answer filed on May 6, 1999, until a claim for refund or credit has been duly filed
the preceding subparagraph, the claimed by way of Special and Affirmative Defenses with the Commissioner; but such suit or proceeding
consideration is paid for in acceptable that: may be maintained, whether or not such tax, penalty
foreign currency which is remitted inwardly 7. The claim for refund is subject to investigation by or sum has been paid under protest or duress.
to the Philippines and accounted for in the Bureau of Internal Revenue; In any case, no such suit or proceeding shall be begun
accordance with the rules and regulations of 8. Taxes paid and collected are presumed to have (sic) after the expiration of two (2) years from the
the BSP. x x x. been made in accordance with laws and regulations, date of payment of the tax or penalty regardless of
In addition, [respondent] relied on VAT Ruling No. hence, not refundable. Claims for tax refund are any supervening cause that may arise after
080-89, dated April 3, 1989, the pertinent portion of construed strictly against the claimant as they partake payment: Provided, however, That the Commissioner
which reads as follows: of the nature of tax exemption from tax and it is may, even without written claim therefor, refund or
In Reply, please be informed that, as a VAT incumbent upon the [respondent] to prove that it is credit any tax, where on the face of the return upon
registered entity whose service is paid for in entitled thereto under the law and he who claims which payment was made, such payment appears
acceptable foreign currency which is remitted exemption must be able to justify his claim by the clearly to have been erroneously paid.
inwardly to the Philippines and accounted for in clearest grant of organic or statu[t]e law. An "From the foregoing, the [CTA], through the
accordance with the rules and regulations of the exemption from the common burden [cannot] be Presiding Judge Ernesto D. Acosta rendered a
Central [B]ank of the Philippines, your service permitted to exist upon vague implications; decision7 in favor of the herein respondent holding
income is automatically zero rated effective January 9. Moreover, [respondent] must prove that it has that its services are subject to zero-rate pursuant to
1, 1998. [Section 102(a)(2) of the Tax Code as complied with the governing rules with reference to Section 108(b) of the Tax Reform Act of 1997 and
amended].4 For this, there is no need to file an tax recovery or refund, which are found in Sections Section 4.102-2 (b)(2) of Revenue Regulations 5-96,
application for zero-rate. 204(c) and 229 of the Tax Code, as amended, which the decretal portion of which reads as follows:
B. Input taxes on domestic purchases of taxable are quoted as follows: WHEREFORE, in view of all the foregoing, this
goods and services related to zero-rated revenues are Section 204. Authority of the Commissioner to Court finds the [petition] meritorious and in
available as tax refund in accordance with Section Compromise, Abate and Refund or Credit Taxes. - accordance with law. Accordingly, [petitioner] is
106 (now Section 112) of the [Tax Code] and Section The Commissioner may - x x x. hereby ORDERED to REFUND to [respondent] the
8(a) of [Revenue] Regulations [(RR)] No. 5-87, to (C) Credit or refund taxes erroneously or illegally amount of P3,352,406.59 representing the latters
state: received or penalties imposed without authority, excess input VAT paid for the year 1997."8
Section 106. Refunds or tax credits of input tax. - refund the value of internal revenue stamps when Ruling of the Court of Appeals
(A) Zero-rated or effectively Zero-rated Sales. - Any they are returned in good condition by the purchaser, In affirming the CTA, the CA held that respondents
VAT-registered person, except those covered by and, in his discretion, redeem or change unused services fell under the first type enumerated in
paragraph (a) above, whose sales are zero-rated or are stamps that have been rendered unfit for use and Section 4.102-2(b)(2) of RR 7-95, as amended by RR
effectively zero-rated, may, within two (2) years after refund their value upon proof of destruction. No 5-96. More particularly, its "services were not of the
the close of the taxable quarter when such sales were credit or refund of taxes or penalties shall be allowed same class or of the same nature as project studies,
made, apply for the issuance of tax credit certificate unless the taxpayer files in writing with the information, or engineering and architectural
or refund of the input taxes due or attributable to such Commissioner a claim for credit or refund within two designs" for non-resident foreign clients; rather, they
sales, to the extent that such input tax has not been (2) years after payment of the tax or were "services other than the processing,
applied against output tax. x x x. [Section 106(a) of penalty: Provided, however, That a return filed with manufacturing or repacking of goods for persons
the Tax Code]5 an overpayment shall be considered a written claim doing business outside the Philippines." The
Section 8. Zero-rating. - (a) In general. - A zero- for credit or refund. consideration in both types of service, however, was
rated sale is a taxable transaction for value-added tax Section 229. Recovery of tax erroneously or paid for in acceptable foreign currency and accounted
purposes. A sale by a VAT-registered person of goods illegally collected.- No suit or proceeding shall be for in accordance with the rules and regulations of the
and/or services taxed at zero rate shall not result in maintained in any court for the recovery of any Bangko Sentral ng Pilipinas.
any output tax. The input tax on his purchases of national internal revenue tax hereafter alleged to have Furthermore, the CA reasoned that reliance on VAT
goods or services related to such zero-rated sale shall been erroneously or illegally assessed or collected, or Ruling No. 040-98 was unwarranted. By requiring
be available as tax credit or refundable in accordance of any penalty claimed to have been collected that respondents services be consumed abroad in
with Section 16 of these Regulations. x x x. [Section without authority, or of any sum alleged to have been order to be zero-rated, petitioner went beyond the
8(a), [RR] 5-87].6 excessively or in any manner wrongfully collected, sphere of interpretation and into that of legislation.
Even granting that it is valid, the ruling cannot be management or administration of any x x x and should, therefore, be zero-rated. In reply to a
given retroactive effect, for it will be harsh and commercial undertaking, venture, project or scheme; query of respondent, the BIR opined in VAT Ruling
oppressive to respondent, which has already relied xxxxxxxxx No. 080-89 that the income respondent earned from
upon VAT Ruling No. 080-89 for zero rating. "The term 'gross receipts means the total amount of its parent companys regional operating centers
Hence, this Petition.9 money or its equivalent representing the contract (ROCs) was automatically zero-rated effective
The Issue price, compensation, service fee, rental or royalty, January 1, 1988.12
Petitioner raises this sole issue for our consideration: including the amount charged for materials supplied Service has been defined as "the art of doing
"Whether or not the Court of Appeals committed with the services and deposits and advanced something useful for a person or company for a
reversible error in holding that respondent is entitled payments actually or constructively received during fee"13 or "useful labor or work rendered or to be
to the refund of the amount of P3,352,406.59 the taxable quarter for the services performed or to be rendered by one person to another."14 For facilitating
allegedly representing excess input VAT for the year performed for another person, excluding value-added in the Philippines the collection and payment of
1997."10 tax. receivables belonging to its Hong Kong-based
The Courts Ruling "(b) Transactions subject to zero percent (0%) rate. -- foreign client, and getting paid for it in duly
The Petition is unmeritorious. The following services performed in the Philippines accounted acceptable foreign currency, respondent
Sole Issue: by VAT-registered persons shall be subject to zero renders service falling under the category of zero
Entitlement to Tax Refund percent (0%) rate[:] rating. Pursuant to the Tax Code, a VAT of zero
Section 102 of the Tax Code11 provides: (1) Processing, manufacturing or repacking goods percent should, therefore, be levied upon the supply
"Sec. 102. Value-added tax on sale of services and for other persons doing business outside the of that service.15
use or lease of properties. -- (a) Rate and base of tax. Philippines which goods are subsequently exported, The Credit Card System and Its Components
-- There shall be levied, assessed and collected, a where the services are paid for in acceptable foreign For sure, the ancillary business of facilitating the said
value-added tax equivalent to ten percent (10%) of currency and accounted for in accordance with the collection is different from the main business of
gross receipts derived from the sale or exchange of rules and regulations of the Bangko Sentral ng issuing credit cards.16 Under the credit card system,
services x x x. Pilipinas (BSP); the credit card company extends credit
"The phrase 'sale or exchange of services' means the (2) Services other than those mentioned in the accommodations to its card holders for the purchase
performance of all kinds of services in the preceding subparagraph, the consideration for which of goods and services from its member
Philippines for others for a fee, remuneration or is paid for in acceptable foreign currency and establishments, to be reimbursed by them later on
consideration, including those performed or rendered accounted for in accordance with the rules and upon proper billing. Given the complexities of
by x x x persons engaged in milling, processing, regulations of the [BSP];" present-day business transactions, the components of
manufacturing or repacking goods for others; x x x xxxxxxxxx this system can certainly function as separate billable
services of banks, non-bank financial intermediaries Zero Rating of "Other" Services services.
and finance companies; x x x and similar services The law is very clear. Under the last paragraph Under RA 8484,17 the credit card that is issued by
regardless of whether or not the performance thereof quoted above, services performed by VAT-registered banks18 in general, or by non-banks in particular,
calls for the exercise or use of the physical or mental persons in the Philippines (other than the processing, refers to "any card x x x or other credit device
faculties. The phrase 'sale or exchange of services' manufacturing or repacking of goods for persons existing for the purpose of obtaining x x x goods x x
shall likewise include: doing business outside the Philippines), when paid in x or services x x x on credit;"19 and is being used
xxxxxxxxx acceptable foreign currency and accounted for in "usually on a revolving basis."20 This means that the
(3) The supply of x x x commercial knowledge or accordance with the rules and regulations of the BSP, consumer-credit arrangement that exists between the
information; are zero-rated. issuer and the holder of the credit card enables the
(4) The supply of any assistance that is ancillary and Respondent is a VAT-registered person that facilitates latter to procure goods or services "on a continuing
subsidiary to and is furnished as a means of enabling the collection and payment of receivables belonging basis as long as the outstanding balance does not
the application or enjoyment of x x x any such to its non-resident foreign client, for which it gets exceed a specified limit."21 The card holder is,
knowledge or information as is mentioned in paid in acceptable foreign currency inwardly remitted therefore, given "the power to obtain present control
subparagraph (3); and accounted for in conformity with BSP rules and of goods or service on a promise to pay for them in
xxxxxxxxx regulations. Certainly, the service it renders in the the future."22
(6) The supply of technical advice, assistance or Philippines is not in the same category as Business establishments may extend credit sales
services rendered in connection with technical "processing, manufacturing or repacking of goods" through the use of the credit card facilities of a non-
bank credit card company to avoid the risk of The extent of accounting activity at any of these conducted in this country; undertaken in "pursuit of a
uncollectible accounts from their customers. Under branches depends upon company policy,31 but the commercial or an economic activity;"49 for a valuable
this system, the establishments do not deposit in their financial reports of the entire business enterprise -- consideration; and not exempt under the Tax Code,
bank accounts the credit card drafts23 that arise from the credit card company to which they all belong -- other special laws, or any international agreement.50
the credit sales. Instead, they merely record their must always show its financial position, results of Without doubt, the transactions respondent entered
receivables from the credit card company and operation, and changes in its financial position as a into with its Hong Kong-based client meet all these
periodically send the drafts evidencing those single unit.32 Reciprocal accounts are reconciled or requirements.
receivables to the latter. eliminated, because they lose all significance when First, respondent regularly renders in the
The credit card company, in turn, sends checks as the branches and home office are viewed as a single Philippines the service of facilitating the
payment to these business establishments, but it does entity.33 In like manner, intra-company profits or collection and payment of receivables
not redeem the drafts at full price. The agreement losses must be offset against each other for belonging to a foreign company that is a
between them usually provides for discounts to be accounting purposes. clearly separate and distinct entity.
taken by the company upon its redemption of the Contrary to petitioners assertion,34 respondent can Second, such service is commercial in
drafts.24 At the end of each month, it then bills its sell its services to another branch of the same parent nature; carried on over a sustained period of
credit card holders for their respective drafts company.35 In fact, the business concept of a transfer time; on a significant scale; with a
redeemed during the previous month. If the holders price allows goods and services to be sold between reasonable degree of frequency; and not at
fail to pay the amounts owed, the company sustains and among intra-company units at cost or above random, fortuitous or attenuated.
the loss.25 cost.36 A branch may be operated as a revenue center, Third, for this service, respondent definitely
In the present case, respondents role in the consumer cost center, profit center or investment center, receives consideration in foreign currency
credit26 process described above primarily consists of depending upon the policies and accounting system that is accounted for in conformity with law.
gathering the bills and credit card drafts of different of its parent company.37Furthermore, the latter may Finally, respondent is not an entity exempt
service establishments located in the Philippines and choose not to make any sale itself, but merely to under any of our laws or international
forwarding them to the ROCs outside the country. function as a control center, where most or all of its agreements.
Servicing the bill is not the same as billing. For the expenses are allocated to any of its branches.38 Services Subject to Zero VAT
former type of service alone, respondent already gets Gratia argumenti that the sending of drafts and bills As a general rule, the VAT system uses the
paid. by service establishments to respondent is equivalent destination principle as a basis for the jurisdictional
The parent company -- to which the ROCs and to the act of sending them directly to its parent reach of the tax.51Goods and services are taxed only
respondent belong -- takes charge not only of company abroad, and that the parent companys in the country where they are consumed. Thus,
redeeming the drafts from the ROCs and sending the subsequent redemption of these drafts and billings of exports are zero-rated, while imports are taxed.
checks to the service establishments, but also of credit card holders is also attributable to respondent, Confusion in zero rating arises because petitioner
billing the credit card holders for their respective then with greater reason should the service rendered equates the performance of a particular type of
drafts that it has redeemed. While it usually imposes by respondent be zero-rated under our VAT system. service with the consumption of its output abroad. In
finance charges27 upon the holders, none may be The service partakes of the nature of export sales as the present case, the facilitation of the collection of
exacted by respondent upon either the ROCs or the applied to goods,39 especially when rendered in the receivables is different from the utilization or
card holders. Philippines by a VAT-registered person40 that gets consumption of the outcome of such service. While
Branch and Home Office paid in acceptable foreign currency accounted for in the facilitation is done in the Philippines,
By designation alone, respondent and the ROCs are accordance with BSP rules and regulations. the consumption is not. Respondent renders
operated as branches. This means that each of them is VAT Requirements for the Supply of Service assistance to its foreign clients -- the ROCs outside
a unit, "an offshoot, lateral extension, or The VAT is a tax on consumption41 "expressed as a the country -- by receiving the bills of service
division"28 located at some distance from the home percentage of the value added to goods or establishments located here in the country and
office29 of the parent company; carrying separate services"42purchased by the producer or forwarding them to the ROCs abroad.
inventories; incurring their own expenses; and taxpayer.43 As an indirect tax44 on services,45 its main The consumption contemplated by law, contrary to
generating their respective incomes. Each may object is the transaction46itself or, more concretely, petitioners administrative interpretation,52 does not
conduct sales operations in any locality as an the performance of all kinds of services47 conducted imply that the service be done abroad in order to be
extension of the principal office.30 in the course of trade or business in the zero-rated.
Philippines.48 These services must be regularly
Consumption is "the use of a thing in a way that currency duly accounted for in accordance with BSP No Qualifications Under RR 5-87
thereby exhausts it."53 Applied to services, the term rules. Thus, it should be zero-rated. In implementing the VAT provisions of the Tax Code,
means the performance or "successful completion of Performance of Service versus Product Arising RR 5-87 provides for the zero rating of services other
a contractual duty, usually resulting in the from Performance than the processing, manufacturing or repacking of
performers release from any past or future liability x Again, contrary to petitioners stand, for the cost of goods -- in general and without qualifications -- when
x x."54 The services rendered by respondent are respondents service to be zero-rated, it need not be paid for by the person to whom such services are
performed or successfully completed upon its tacked in as part of the cost of goods exported.58 The rendered in acceptable foreign currency inwardly
sending to its foreign client the drafts and bills it has law neither imposes such requirement nor associates remitted and duly accounted for in accordance with
gathered from service establishments here. Its services with exported goods. It simply states that the BSP (then Central Bank) regulations. Section 8 of
services, having been performed in the Philippines, the services performed by VAT-registered persons in RR 5-87 states:
are therefore also consumed in the Philippines. the Philippines -- services other than the processing, "SECTION 8. Zero-rating. -- (a) In general. -- A zero-
Unlike goods, services cannot be physically used in manufacturing or repacking of goods for persons rated sale is a taxable transaction for value-added tax
or bound for a specific place when their destination is doing business outside this country -- if paid in purposes. A sale by a VAT-registered person of goods
determined. Instead, there can only be a acceptable foreign currency and accounted for in and/or services taxed at zero rate shall not result in
"predetermined end of a course"55 when determining accordance with the rules and regulations of the BSP, any output tax. The input tax on his purchases of
the service "location or position x x x for legal are zero-rated. The service rendered by respondent is goods or services related to such zero-rated sale shall
purposes."56 Respondents facilitation service has no clearly different from the product that arises from the be available as tax credit or refundable in accordance
physical existence, yet takes place upon rendition, rendition of such service. The activity that creates the with Section 16 of these Regulations.
and therefore upon consumption, in the Philippines. income must not be confused with the main business xxxxxxxxx
Under the destination principle, as petitioner asserts, in the course of which that income is realized.59 " (c) Zero-rated sales of services. -- The following
such service is subject to VAT at the rate of 10 Tax Situs of a Zero-Rated Service services rendered by VAT-registered persons are zero-
percent. The law neither makes a qualification nor adds a rated:
Respondents Services Exempt from the Destination condition in determining the tax situs of a zero-rated (1) Services in connection with the processing,
Principle service. Under this criterion, the place where the manufacturing or repacking of goods for persons
However, the law clearly provides for an exception to service is rendered determines the jurisdiction60 to doing business outside the Philippines, where such
the destination principle; that is, for a zero percent impose the VAT.61Performed in the Philippines, such goods are actually shipped out of the Philippines to
VAT rate for services that are performed in the service is necessarily subject to its jurisdiction,62 for said persons or their assignees and the services are
Philippines, "paid for in acceptable foreign currency the State necessarily has to have "a substantial paid for in acceptable foreign currency inwardly
and accounted for in accordance with the rules and connection"63 to it, in order to enforce a zero remitted and duly accounted for under the regulations
regulations of the [BSP]."57 Thus, for the supply of rate.64 The place of payment is immaterial;65much of the Central Bank of the Philippines.
service to be zero-rated as an exception, the law less is the place where the output of the service will xxxxxxxxx
merely requires that first, the service be performed in be further or ultimately used. (3) Services performed in the Philippines other than
the Philippines; second, the service fall under any of Statutory Construction or Interpretation those mentioned in subparagraph (1) above which are
the categories in Section 102(b) of the Tax Code; Unnecessary paid for by the person or entity to whom the service
and, third, it be paid in acceptable foreign currency As mentioned at the outset, Section 102(b)(2) of the is rendered in acceptable foreign currency inwardly
accounted for in accordance with BSP rules and Tax Code is very clear. Therefore, no statutory remitted and duly accounted for in accordance with
regulations. construction or interpretation is needed. Neither can Central Bank regulations. Where the contract
Indeed, these three requirements for exemption from conditions or limitations be introduced where none is involves payment in both foreign and local currency,
the destination principle are met by respondent. Its provided for. Rewriting the law is a forbidden ground only the service corresponding to that paid in foreign
facilitation service is performed in the Philippines. It that only Congress may tread upon. currency shall enjoy zero-rating. The portion paid for
falls under the second category found in Section The Court may not construe a statute that is free from in local currency shall be subject to VAT at the rate of
102(b) of the Tax Code, because it is a service other doubt.66 "[W]here the law speaks in clear and 10%."
than "processing, manufacturing or repacking of categorical language, there is no room for RR 7-95 Broad Enough
goods" as mentioned in the provision. Undisputed is interpretation. There is only room for RR 7-95, otherwise known as the "Consolidated VAT
the fact that such service meets the statutory application."67 The Court has no choice but to "see to Regulations,"69 reiterates the above-quoted provision
condition that it be paid in acceptable foreign it that its mandate is obeyed."68 and further presents as examples only the services
performed in the Philippines by VAT-registered hotels in accordance with the rules and regulations of the preceding phrase "as well as" is not meant to
and other service establishments. Again, the BSP." limit the effect of "and other similar
condition remains that these services must be paid in Aside from the already scopious coverage of services services."
acceptable foreign currency inwardly remitted and in Section 4.102-2(b)(2) of RR 7-95, the amendment Third, and most important, the statutory
accounted for in accordance with the rules and introduced by RR 5-96 further enumerates specific provision upon which this regulation is
regulations of the BSP. The term "other service services entitled to zero rating. Although superfluous, based is by itself not restrictive. The scope
establishments" is obviously broad enough to cover these sample services are meant to be merely of the word "services" in Section 102(b)(2)
respondents facilitation service. Section 4.102-2 of illustrative. In this provision, the use of the term "as of the Tax Code is broad; it is not
RR 7-95 provides thus: well as" is not restrictive. As a prepositional phrase susceptible of narrow
"SECTION 4.102-2. Zero-Rating. -- (a) In general. -- with an adverbial relation to some other word, it interpretation.741avvphi1.zw+
A zero-rated sale by a VAT registered person, which simply means "in addition to, besides, also or too."70 VAT Ruling Nos. 040-98 and 080-89
is a taxable transaction for VAT purposes, shall not Neither the law nor any of the implementing revenue VAT Ruling No. 040-98 relied upon by petitioner is a
result in any output tax. However, the input tax on his regulations aforequoted categorically defines or less general interpretation at the administrative
purchases of goods, properties or services related to limits the services that may be sold or exchanged for level,75rendered by the BIR commissioner upon
such zero-rated sale shall be available as tax credit or a fee, remuneration or consideration. Rather, both request of a taxpayer to clarify certain provisions of
refund in accordance with these regulations. merely enumerate the items of service that fall under the VAT law. As correctly held by the CA, when this
"(b) Transaction subject to zero-rate. -- The following the term "sale or exchange of services."71 ruling states that the service must be "destined for
services performed in the Philippines by VAT- Ejusdem Generis consumption outside of the Philippines"76 in order to
registered persons shall be subject to 0%: Inapplicable qualify for zero rating, it contravenes both the law
(1) Processing, manufacturing or repacking The canon of statutory construction known and the regulations issued pursuant to it.77 This
goods for other persons doing business as ejusdem generis or "of the same kind or specie" portion of VAT Ruling No. 040-98 is clearly ultra
outside the Philippines which goods are does not apply to Section 4.102-2(b)(2) of RR 7-95 vires and invalid.78
subsequently exported, where the services as amended by RR 5-96. Although "[i]t is widely accepted that the
are paid for in acceptable foreign currency First, although the regulatory provision interpretation placed upon a statute by the executive
and accounted for in accordance with the contains an enumeration of particular or officers, whose duty is to enforce it, is entitled to
rules and regulations of the BSP; specific words, followed by the general great respect by the courts,"79 this interpretation is not
(2) Services other than those mentioned in phrase "and other similar services," such conclusive and will have to be "ignored if judicially
the preceding subparagraph, e.g. those words do not constitute a readily discernible found to be erroneous"80 and "clearly absurd x x x or
rendered by hotels and other service class and are patently not of the same improper."81 An administrative issuance that
establishments, the consideration for which kind.72 Project studies involve investments overrides the law it merely seeks to interpret, instead
is paid for in acceptable foreign currency or marketing; information services focus on of remaining consistent and in harmony with it, will
and accounted for in accordance with the data technology; engineering and not be countenanced by this Court.82
rules and regulations of the BSP;" architectural designs require creativity. In the present case, respondent has relied upon VAT
xxxxxxxxx Aside from calling for the exercise or use of Ruling No. 080-89, which clearly recognizes its zero
Meaning of "as well as" in RR 5-96 mental faculties or perhaps producing rating. Changing this status will certainly deprive
Section 4.102-2(b)(2) of RR 7-95 was subsequently written technical outputs, no common respondent of a refund of the substantial amount of
amended by RR 5-96 to read as follows: denominator to the exclusion of all others excess input taxes to which it is entitled.
"Section 4.102-2(b)(2) -- Services other than characterizes these three services. Nothing Again, assuming arguendo that VAT Ruling No. 040-
processing, manufacturing or repacking for other sets them apart from other and similar 98 revoked VAT Ruling No. 080-89, such revocation
persons doing business outside the Philippines for general services that may involve could not be given retroactive effect if the application
goods which are subsequently exported, as well as advertising, computers, consultancy, health of the latter ruling would only be prejudicial to
services by a resident to a non-resident foreign client care, management, messengerial work -- to respondent.83 Section 246 of the Tax Code
such as project studies, information services, name only a few. categorically declares that "[a]ny revocation x x x of
engineering and architectural designs and other Second, there is the regulatory intent to give x x x any of the rulings x x x promulgated by the
similar services, the consideration for which is paid the general phrase "and other similar Commissioner shall not be given retroactive
for in acceptable foreign currency and accounted for services" a broader meaning.73 Clearly, the
application if the revocation x x x will be prejudicial three paragraphs are also complied with. If they are "Senator Herrera: I guess it can be interpreted that
to the taxpayers."84 not complied with, then they are not entitled to the way, although this tourist guide should also be
It is also basic in law that "no x x x rule x x x shall be zero ratings. Just like in the export of minerals, if considered as among the professionals. If they earn
given retrospective effect85 unless explicitly these are not exported, then they cannot qualify under more than P200,000, they should be covered.
stated."86 No indication of such retroactive this provision of zero rating. xxxxxxxxx
application to respondent does the Court find in VAT "Senator Maceda: Mr. President, just one small item Senator Maceda: So, the services by Filipino
Ruling No. 040-98. Neither do the exceptions so we can leave this. Under the proviso, it is required citizens outside the Philippines are subject to VAT,
enumerated in Section 24687 of the Tax Code apply. that the following services be performed in the and I am talking of all services. Do big contractual
Though vested with the power to interpret the Philippines. engineers in Saudi Arabia pay VAT?
provisions of the Tax Code88 and not bound by "Under No. 2, services other than those mentioned "Senator Herrera: This provision applies to a VAT-
predecessors acts or rulings, the BIR commissioner above includes, let us say, manufacturing computers registered person. When he performs services in the
may render a different construction to a statute89 only and computer chips or repacking goods for persons Philippines, that is zero-rated.
if the new interpretation is in congruence with the doing business outside the Philippines. Meaning to "Senator Maceda: That is right."90
law. Otherwise, no amount of interpretation can ever say, we ship the goods to them in Chicago or Legislative Approval By Reenactment
revoke, repeal or modify what the law says. Washington and they send the payment inwardly to Finally, upon the enactment of RA 8424, which
"Consumed Abroad" Not Required by Legislature the Philippines in foreign currency, and that is, of substantially carries over the particular provisions on
Interpellations on the subject in the halls of the course, zero-rated.lawphil.net zero rating of services under Section 102(b) of the
Senate also reveal a clear intent on the part of the "Now, when we say services other than those Tax Code, the principle of legislative approval of
legislators not to impose the condition of being mentioned in the preceding subsection[,] may I have administrative interpretation by reenactment clearly
"consumed abroad" in order for services performed in some examples of these? obtains. This principle means that "the reenactment
the Philippines by a VAT-registered person to be zero- "Senator Herrera: Which portion is the Gentleman of a statute substantially unchanged is persuasive
rated. We quote the relevant portions of the referring to? indication of the adoption by Congress of a prior
proceedings: "Senator Maceda: I am referring to the second executive construction."91
"Senator Maceda: Going back to Section 102 just paragraph, in the same Section 102. The first The legislature is presumed to have reenacted the law
for the moment. Will the Gentleman kindly explain to paragraph is when one manufactures or packages with full knowledge of the contents of the revenue
me - I am referring to the lower part of the first something here and he sends it abroad and they pay regulations then in force regarding the VAT, and to
paragraph with the Provided. Section him, that is covered. That is clear to me. The second have approved or confirmed them because they
102. Provided that the following services performed paragraph says Services other than those mentioned would carry out the legislative purpose. The
in the Philippines by VAT registered persons shall be in the preceding subparagraph, the consideration of particular provisions of the regulations we have
subject to zero percent. There are three here. What is which is paid for in acceptable foreign currency mentioned earlier are, therefore, re-enforced. "When
the difference between the three here which is subject "One example I could immediately think of -- I do a statute is susceptible of the meaning placed upon it
to zero percent and Section 103 which is exempt not know why this comes to my mind tonight -- is for by a ruling of the government agency charged with
transactions, to being with? tourism or escort services. For example, the services its enforcement and the [l]egislature thereafter
"Senator Herrera: Mr. President, in the case of of the tour operator or tour escort -- just a good name [reenacts] the provisions [without] substantial
processing and manufacturing or repacking goods for for all kinds of activities -- is made here at the change, such action is to some extent confirmatory
persons doing business outside the Philippines which Midtown Ramada Hotel or at the Philippine Plaza, that the ruling carries out the legislative purpose."92
are subsequently exported, and where the services are but the payment is made from outside and remitted In sum, having resolved that transactions of
paid for in acceptable foreign currencies inwardly into the country. respondent are zero-rated, the Court upholds the
remitted, this is considered as subject to 0%. But if "Senator Herrera: What is important here is that formers entitlement to the refund as determined by
these conditions are not complied with, they are these services are paid in acceptable foreign currency the appellate court. Moreover, there is no conflict
subject to the VAT. remitted inwardly to the Philippines. between the decisions of the CTA and CA. This Court
"In the case of No. 2, again, as the Gentleman pointed "Senator Maceda: Yes, Mr. President. Like those respects the findings and conclusions of a specialized
out, these three are zero-rated and the other one that Japanese tours which include $50 for the services of a court like the CTA "which, by the nature of its
he indicated are exempted from the very beginning. woman or a tourist guide, it is zero-rated when it is functions, is dedicated exclusively to the study and
These three enumerations under Section 102 are zero- remitted here. consideration of tax cases and has necessarily
rated provided that these conditions indicated in these developed an expertise on the subject."93
Furthermore, under a zero-rating scheme, the sale or
exchange of a particular service is completely freed
from the VAT, because the seller is entitled to recover,
by way of a refund or as an input tax credit, the tax
that is included in the cost of purchases attributable to
the sale or exchange.94 "[T]he tax paid or withheld is
not deducted from the tax base."95 Having been
applied for within the reglementary
period,96 respondents refund is in order.
WHEREFORE, the Petition is hereby DENIED, and
the assailed Decision AFFIRMED. No
pronouncement as to costs.
SO ORDERED.
Republic of the Philippines and Peso). The freely convertible non-Peso
SUPREME COURT component is deposited directly to the Consortiums
Manila bank accounts in Denmark and Japan, while the Peso- On December 29, 1997, [respondent] availed of the
SECOND DIVISION denominated component is deposited in a separate Voluntary Assessment Program (VAP) of the BIR. It
G.R. No. 153205 January 22, 2007 and special designated bank account in the allegedly misinterpreted Revenue Regulations No. 5-
COMMISSIONER OF INTERNAL Philippines. On the other hand, the Consortium pays 96 dated February 20, 1996 to be applicable to its
REVENUE, Petitioner, [respondent] in foreign currency inwardly remitted to case. Revenue Regulations No. 5-96 provides in part
vs. the Philippines through the banking system. thus:
BURMEISTER AND WAIN SCANDINAVIAN In order to ascertain the tax implications of the above SECTIONS 4.102-2(b)(2) and 4.103-1(B)(c) of
CONTRACTOR MINDANAO, INC., Respondent. transactions, [respondent] sought a ruling from the Revenue Regulations No. 7-95 are hereby amended
DECISION BIR which responded with BIR Ruling No. 023-95 to read as follows:
CARPIO, J.: dated February 14, 1995, declaring therein that if Section 4.102-2(b)(2) "Services other than
The Case [respondent] chooses to register as a VAT person and processing, manufacturing or repacking for other
This petition for review1 seeks to set aside the 16 the consideration for its services is paid for in persons doing business outside the Philippines for
April 2002 Decision2 of the Court of Appeals in CA- acceptable foreign currency and accounted for in goods which are subsequently exported, as well as
G.R. SP No. 66341 affirming the 8 August 2001 accordance with the rules and regulations of the services by a resident to a non-resident foreign client
Decision3 of the Court of Tax Appeals (CTA). The Bangko Sentral ng Pilipinas, the aforesaid services such as project studies, information services,
CTA ordered the Commissioner of Internal Revenue shall be subject to VAT at zero-rate. engineering and architectural designs and other
(petitioner) to issue a tax credit certificate [Respondent] chose to register as a VAT taxpayer. On similar services, the consideration for which is paid
for P6,994,659.67 in favor of Burmeister and Wain May 26, 1995, the Certificate of Registration bearing for in acceptable foreign currency and accounted for
Scandinavian Contractor Mindanao, Inc. RDO Control No. 95-113-007556 was issued in favor in accordance with the rules and regulations of the
(respondent). of [respondent] by the Revenue District Office No. BSP."
The Antecedents 113 of Davao City. x x x x x x x x x x.
The CTA summarized the facts, which the Court of For the year 1996, [respondent] seasonably filed its In [conformity] with the aforecited Revenue
Appeals adopted, as follows: quarterly Value-Added Tax Returns reflecting, among Regulations, [respondent] subjected its sale of
[Respondent] is a domestic corporation duly others, a total zero-rated sales of P147,317,189.62 services to the Consortium to the 10% VAT in the
organized and existing under and by virtue of the with VAT input taxes of P3,361,174.14, detailed as total amount of P103,558,338.11 representing April
laws of the Philippines with principal address located follows: to December 1996 sales since said Revenue
at Daruma Building, Jose P. Laurel Avenue, Lanang, Regulations No. 5-96 became effective only on April
Exh Date Zero-Rated VAT Input
Davao City. Qtr. 1996. The sum of P43,893,951.07, representing
. Filed Sales Tax
It is represented that a foreign consortium composed January to March 1996 sales was subjected to zero
of Burmeister and Wain Scandinavian Contractor A/S rate. Consequently, [respondent] filed its 1996
(BWSC-Denmark), Mitsui Engineering and amended VAT return consolidating therein the VAT
Shipbuilding, Ltd., and Mitsui and Co., Ltd. entered 04- P 33,019,651.0 output and input taxes for the four calendar quarters
1st E P608,953.48
into a contract with the National Power Corporation 18-96 7 of 1996. It paid the amount of P6,994,659.67 through
(NAPOCOR) for the operation and maintenance of BIRs collecting agent, PCIBank, as its output tax
07- liability for the year 1996, computed as follows:
[NAPOCORs] two power barges. The Consortium 2nd F 37,108,863.33 756,802.66
16-96 Amount subject to 10%
appointed BWSC-Denmark as its coordination
manager. 10- VAT P103,558,338.11
3rd G 34,196,372.35 930,279.14 Multiply by 10%
BWSC-Denmark established [respondent] which 14-96
subcontracted the actual operation and maintenance VAT Output Tax P 10,355,833.81
of NAPOCORs two power barges as well as the 01- Less: 1996 Input VAT P 3,361,174.14
4th H 42,992,302.87 1,065,138.86
performance of other duties and acts which 20-97 VAT Output Tax Payable P 6,994,659.67
necessarily have to be done in the Philippines. On January 7,1999, [respondent] was able to secure
Total VAT Ruling No. 003-99 from the VAT Review
NAPOCOR paid capacity and energy fees to the s P147,317,189.6 P3,361,174.1 Committee which reconfirmed BIR Ruling No. 023-
Consortium in a mixture of currencies (Mark, Yen,
2 4
95 "insofar as it held that the services being rendered delivered by mistake, the [petitioner] is obligated to providing the implementing details by adding another
by BWSCMI is subject to VAT at zero percent (0%)." issue the tax credit certificate prayed for by requirement to zero-rating. "This is indicated by the
On the strength of the aforementioned rulings, [respondent]. x x x5 additional phrase as well as services by a resident to
[respondent] on April 22,1999, filed a claim for the Petitioner filed a petition for review with the Court of a non-resident foreign client, such as project studies,
issuance of a tax credit certificate with Revenue Appeals, which dismissed the petition for lack of information services and engineering and
District No. 113 of the BIR. [Respondent] believed merit and affirmed the CTA decision.6 architectural designs and other similar services. In
that it erroneously paid the output VAT for 1996 due Hence, this petition. effect, this phrase adds not just one but two
to its availment of the Voluntary Assessment Program The Court of Appeals Ruling requisites: (a) services must be rendered by a resident
(VAP) of the BIR.4 In affirming the CTA, the Court of Appeals rejected to a non-resident; and (b) these must be in the nature
On 27 December 1999, respondent filed a petition for petitioners view that since respondents services are of project studies, information services, etc."11
review with the CTA in order to toll the running of not destined for consumption abroad, they are not of The Court of Appeals explained that under Section
the two-year prescriptive period under the Tax Code. the same nature as project studies, information 108(b)(2) of the Tax Code,12 for services which were
The Ruling of the Court of Tax Appeals services, engineering and architectural designs, and performed in the Philippines to enjoy zero-rating,
In its 8 August 2001 Decision, the CTA ordered other similar services mentioned in Section 4.102- these must comply only with two requisites, to wit:
petitioner to issue a tax credit certificate 2(b)(2) of Revenue Regulations No. 5-967 as subject (1) payment in acceptable foreign currency and (2)
for P6,994,659.67 in favor of respondent. The CTAs to 0% VAT. Thus, according to petitioner, accounted for in accordance with the rules of the
ruling stated: respondents services cannot legally qualify for 0% BSP. Section 108(b)(2) of the Tax Code does not
[Respondents] sale of services to the Consortium VAT but are subject to the regular 10% VAT.8 provide that services must be "destined for
[was] paid for in acceptable foreign currency The Court of Appeals found untenable petitioners consumption abroad" in order to be VAT zero-rated.13
inwardly remitted to the Philippines and accounted contention that under VAT Ruling No. 040-98, The Court of Appeals disagreed with petitioners
for in accordance with the rules and regulations of respondents services should be destined for argument that our VAT law generally follows the
Bangko Sentral ng Pilipinas. These were established consumption abroad to enjoy zero-rating. Contrary to destination principle (i.e., exports exempt, imports
by various BPI Credit Memos showing remittances in petitioners interpretation, there are two kinds of taxable).14 The Court of Appeals stated that "if indeed
Danish Kroner (DKK) and US dollars (US$) as transactions or services subject to zero percent VAT the destination principle underlies and is the basis of
payments for the specific invoices billed by under VAT Ruling No. 040-98. These are (a) services the VAT laws, then petitioners proper remedy would
[respondent] to the consortium. These remittances other than repacking goods for other persons doing be to recommend an amendment of Section 108(b)(2)
were further certified by the Branch Manager x x x of business outside the Philippines which goods are to Congress. Without such amendment, however,
BPI-Davao Lanang Branch to represent payments for subsequently exported; and (b) services by a resident petitioner should apply the terms of the basic law.
sub-contract fees that came from Den Danske to a non-resident foreign client, such as project Petitioner could not resort to administrative
Aktieselskab Bank-Denmark for the account of studies, information services, engineering and legislation, as what [he] had done in this case."15
[respondent]. Clearly, [respondents] sale of services architectural designs and other similar services, the The Issue
to the Consortium is subject to VAT at 0% pursuant to consideration for which is paid for in acceptable The lone issue for resolution is whether respondent is
Section 108(B)(2) of the Tax Code. foreign currency and accounted for in accordance entitled to the refund of P6,994,659.67 as erroneously
xxxx with the rules and regulations of the Bangko Sentral paid output VAT for the year 1996.16
The zero-rating of [respondents] sale of services to ng Pilipinas (BSP).9 The Ruling of the Court
the Consortium was even confirmed by the The Court of Appeals stated that "only the first We deny the petition.
[petitioner] in BIR Ruling No. 023-95 dated February classification is required by the provision to be At the outset, the Court declares that the denial of the
15, 1995, and later by VAT Ruling No. 003-99 dated consumed abroad in order to be taxed at zero rate. In instant petition is not on the ground that respondents
January 7,1999, x x x. x x x the absence of such express or implied services are subject to 0% VAT. Rather, it is based on
Since it is apparent that the payments for the services stipulation in the statute, the second classification the non-retroactivity of the prejudicial revocation of
rendered by [respondent] were indeed subject to VAT need not be consumed abroad."10 BIR Ruling No. 023-9517 and VAT Ruling No. 003-
at zero percent, it follows that it mistakenly availed The Court of Appeals further held that assuming 99,18 which held that respondents services are subject
of the Voluntary Assessment Program by paying petitioners interpretation of Section 4.102-2(b)(2) of to 0% VAT and which respondent invoked in
output tax for its sale of services. x x x Revenue Regulations No. 5-96 is correct, such applying for refund of the output VAT.
x x x Considering the principle of solutio administrative provision is void being an amendment Section 102(b) of the Tax Code,19 the applicable
indebiti which requires the return of what has been to the Tax Code. Petitioner went beyond merely provision in 1996 when respondent rendered the
services and paid the VAT in question, enumerates remotely similar to project studies, information cannot sanction. A tax is a mandatory exaction, not a
which services are zero-rated, thus: services and engineering and architectural designs voluntary contribution.
(b) Transactions subject to zero-rate. The under Section 4.102-2(b)(2) of Revenue Regulations When Section 102(b)(2) stipulates payment in
following services performed in the Philippines by No. 5-96." As such, respondents services need not be "acceptable foreign currency" under BSP rules, the
VAT-registered persons shall be subject to 0%: "destined to be consumed abroad in order to be VAT law clearly envisions the payer-recipient of services
(1) Processing, manufacturing or repacking zero-rated." to be doing business outside the Philippines. Only
goods for other persons doing business Respondent is mistaken. those not doing business in the Philippines can be
outside the Philippines which goods are The Tax Code not only requires that the services be required under BSP rules20 to pay in acceptable
subsequently exported, where the services other than "processing, manufacturing or repacking foreign currency for their purchase of goods or
are paid for in acceptable foreign currency of goods" and that payment for such services be in services from the Philippines. In a domestic
and accounted for in accordance with the acceptable foreign currency accounted for in transaction, where the provider and recipient of
rules and regulations of the Bangko Sentral accordance with BSP rules. Another essential services are both doing business in the Philippines,
ng Pilipinas (BSP); condition for qualification to zero-rating under the BSP cannot require any party to make payment in
(2) Services other than those mentioned in Section 102(b)(2) is that the recipient of such foreign currency.
the preceding sub-paragraph, the services is doing business outside the Philippines. Services covered by Section 102(b) (1) and (2) are in
consideration for which is paid for in While this requirement is not expressly stated in the the nature of export sales since the payer-recipient of
acceptable foreign currency and accounted second paragraph of Section 102(b), this is clearly services is doing business outside the Philippines.
for in accordance with the rules and provided in the first paragraph of Section 102(b) Under BSP rules,21 the proceeds of export sales must
regulations of the Bangko Sentral ng where the listed services must be "for other persons be reported to the Bangko Sentral ng Pilipinas. Thus,
Pilipinas (BSP); doing business outside the Philippines." The phrase there is reason to require the provider of services
(3) Services rendered to persons or entities "for other persons doing business outside the under Section 102(b) (1) and (2) to account for the
whose exemption under special laws or Philippines" not only refers to the services foreign currency proceeds to the BSP. The same
international agreements to which the enumerated in the first paragraph of Section 102(b), rationale does not apply if the provider and recipient
Philippines is a signatory effectively but also pertains to the general term "services" of the services are both doing business in the
subjects the supply of such services to zero appearing in the second paragraph of Section 102(b). Philippines since their transaction is not in the nature
rate; In short, services other than processing, of an export sale even if payment is denominated in
(4) Services rendered to vessels engaged manufacturing, or repacking of goods must likewise foreign currency.
exclusively in international shipping; and be performed for persons doing business outside the Further, when the provider and recipient of services
(5) Services performed by subcontractors Philippines. are both doing business in the Philippines, their
and/or contractors in processing, converting, This can only be the logical interpretation of Section transaction falls squarely under Section 102(a)
or manufacturing goods for an enterprise 102(b)(2). If the provider and recipient of the "other governing domestic sale or exchange of services.
whose export sales exceed seventy percent services" are both doing business in the Philippines, Indeed, this is a purely local sale or exchange of
(70%) of total annual production. (Emphasis the payment of foreign currency is irrelevant. services subject to the regular VAT, unless of course
supplied) Otherwise, those subject to the regular VAT under the transaction falls under the other provisions of
In insisting that its services should be zero-rated, Section 102(a) can avoid paying the VAT by simply Section 102(b).
respondent claims that it complied with the stipulating payment in foreign currency inwardly Thus, when Section 102(b)(2) speaks of "[s]ervices
requirements of the Tax Code for zero rating under remitted by the recipient of services. To interpret other than those mentioned in the preceding
the second paragraph of Section 102(b). Respondent Section 102(b)(2) to apply to a payer-recipient of subparagraph," the legislative intent is that only the
asserts that (1) the payment of its service fees was in services doing business in the Philippines is to make services are different between subparagraphs 1 and 2.
acceptable foreign currency, (2) there was inward the payment of the regular VAT under Section 102(a) The requirements for zero-rating, including the
remittance of the foreign currency into the dependent on the generosity of the taxpayer. The essential condition that the recipient of services is
Philippines, and (3) accounting of such remittance provider of services can choose to pay the regular doing business outside the Philippines, remain the
was in accordance with BSP rules. Moreover, VAT or avoid it by stipulating payment in foreign same under both subparagraphs.
respondent contends that its services which currency inwardly remitted by the payer-recipient. Significantly, the amended Section
"constitute the actual operation and management of Such interpretation removes Section 102(a) as a tax 108(b)22 [previously Section 102(b)] of the present
two (2) power barges in Mindanao" are not "even measure in the Tax Code, an interpretation this Court Tax Code clarifies this legislative intent. Expressly
included among the transactions subject to 0% VAT pays respondent also in foreign currency inwardly accordance with BSP rules and regulations. x x x
are "[s]ervices other than those mentioned in the remitted and accounted for in accordance with BSP x27 (Emphasis supplied)
[first] paragraph [of Section 108(b)] rendered to a rules. This payment scheme does not entitle In contrast, this case involves a recipient of services
person engaged in business conducted outside the respondent to 0% VAT. As the Court held in the Consortium which is doing business in the
Philippines or to a nonresident person not engaged in Commissioner of Internal Revenue v. American Philippines. Hence, American Express services were
business who is outside the Philippines when the Express International, Inc. (Philippine Branch),24 the subject to 0% VAT, while respondents services
services are performed, the consideration for which is place of payment is immaterial, much less is the should be subject to 10% VAT.
paid for in acceptable foreign currency and accounted place where the output of the service is ultimately Nevertheless, in seeking a refund of its excess output
for in accordance with the rules and regulations of the used. An essential condition for entitlement to 0% tax, respondent relied on VAT Ruling No. 003-
BSP." VAT under Section 102(b)(1) and (2) is that the 99,28 which reconfirmed BIR Ruling No. 023-
In this case, the payer-recipient of respondents recipient of the services is a person doing business 9529 "insofar as it held that the services being
services is the Consortium which is a joint-venture outside the Philippines. In this case, the recipient of rendered by BWSCMI is subject to VAT at zero
doing business in the Philippines. While the the services is the Consortium, which is doing percent (0%)." Respondents reliance on these BIR
Consortiums principal members are non-resident business not outside, but within the Philippines rulings binds petitioner.
foreign corporations, the Consortium itself is doing because it has a 15-year contract to operate and Petitioners filing of his Answer before the CTA
business in the Philippines. This is shown clearly in maintain NAPOCORs two 100-megawatt power challenging respondents claim for refund effectively
BIR Ruling No. 023-95 which states that the contract barges in Mindanao. serves as a revocation of VAT Ruling No. 003-99 and
between the Consortium and NAPOCOR is for a 15- The Court recognizes the rule that the VAT system BIR Ruling No. 023-95. However, such revocation
year term, thus: generally follows the "destination principle" (exports cannot be given retroactive effect since it will
This refers to your letter dated January 14, 1994 are zero-rated whereas imports are taxed). However, prejudice respondent. Changing respondents status
requesting for a clarification of the tax implications as the Court stated in American Express, there is an will deprive respondent of a refund of a substantial
of a contract between a consortium composed of exception to this rule.25 This exception refers to the amount representing excess output tax.30 Section 246
Burmeister & Wain Scandinavian Contractor A/S 0% VAT on services enumerated in Section 102 and of the Tax Code provides that any revocation of a
("BWSC"), Mitsui Engineering & Shipbuilding, Ltd. performed in the Philippines. For services covered by ruling by the Commissioner of Internal Revenue shall
(MES), and Mitsui & Co., Ltd. ("MITSUI"), all Section 102(b)(1) and (2), the recipient of the not be given retroactive application if the revocation
referred to hereinafter as the "Consortium", and the services must be a person doing business outside the will prejudice the taxpayer. Further, there is no
National Power Corporation ("NAPOCOR") for the Philippines. Thus, to be exempt from the destination showing of the existence of any of the exceptions
operation and maintenance of two 100-Megawatt principle under Section 102(b)(1) and (2), the enumerated in Section 246 of the Tax Code for the
power barges ("Power Barges") acquired by services must be (a) performed in the Philippines; (b) retroactive application of such revocation.
NAPOCOR for a 15-year term.23 (Emphasis for a person doing business outside the Philippines; However, upon the filing of petitioners Answer
supplied) and (c) paid in acceptable foreign currency accounted dated 2 March 2000 before the CTA contesting
Considering this length of time, the Consortiums for in accordance with BSP rules. respondents claim for refund, respondents services
operation and maintenance of NAPOCORs power Respondents reliance on the ruling in American shall be subject to the regular 10% VAT.31 Such filing
barges cannot be classified as a single or isolated Express26 is misplaced. That case involved a recipient is deemed a revocation of VAT Ruling No. 003-99
transaction. The Consortium does not fall under of services, specifically American Express and BIR Ruling No. 023-95.
Section 102(b)(2) which requires that the recipient of International, Inc. (Hongkong Branch), doing WHEREFORE, the Court DENIES the petition.
the services must be a person doing business outside business outside the Philippines. There, the Court SO ORDERED.
the Philippines. Therefore, respondents services to stated:
the Consortium, not being supplied to a person doing Respondent [American Express International, Inc.
business outside the Philippines, cannot legally (Philippine Branch)] is a VAT-registered person that
qualify for 0% VAT. facilitates the collection and payment of receivables
Respondent, as subcontractor of the Consortium, belonging to its non-resident foreign client
operates and maintains NAPOCORs power barges in [American Express International, Inc. (Hongkong
the Philippines. NAPOCOR pays the Consortium, Branch)], for which it gets paid in acceptable foreign
through its non-resident partners, partly in foreign currency inwardly remitted and accounted for in
currency outwardly remitted. In turn, the Consortium
Republic of the Philippines The facts as found by the appellate court are transaction with PAGCOR
SUPREME COURT undisputed, thus: was subject to zero rate as it
Manila was rendered to a tax-
Acesite is the owner and exempt entity. On 21 May
operator of the Holiday Inn 1998, Acesite filed an
SECOND DIVISION Manila Pavilion Hotel administrative claim for
along United Nations refund with the CIR but the
Avenue in Manila. It leases latter failed to resolve the
THE COMMISIONER OF G.R. No. 147295 6,768.53 square meters of same. Thus on 29 May
INTERNAL REVENUE, the hotels premises to the 1998, Acesite filed a
Petitioner, Present: Philippine Amusement and petition with the Court of
Gaming Corporation Tax Appeals [hereafter,
QUISUMBING, J., Chairperson, [hereafter, PAGCOR] for CTA] which was decided in
- versus - CARPIO, casino operations. It also this wise:
CARPIO MORALES, caters food and beverages to
TINGA, and PAGCORs casino patrons As earlier
VELASCO, JR., JJ. through the hotels restaurant stated, Petitioner
ACESITE (PHILIPPINES) outlets. For the period is subject to zero
HOTEL CORPORATION, Promulgated: January (sic) 96 to April percent tax
Respondent. 1997, Acesite incurred VAT pursuant to
February 16, 2007 amounting to Section 102 (b)
x--------------------------------------------------------------- P30,152,892.02 from its (3) [now 106(A)
--------------------------x rental income and sale of (C)] insofar as its
food and beverages to gross income
PAGCOR during said from rentals and
DECISION period. Acesite tried to shift sales to
the said taxes to PAGCOR PAGCOR, a tax
VELASCO, JR., J.: by incorporating it in the exempt entity by
amount assessed to virtue of a special
The Case PAGCOR but the latter law. Accordingly,
refused to pay the taxes on the amounts of
Before us is a Petition for Review on account of its tax exempt P21,413,026.78
Certiorari[1] under Rule 45 of the Rules of Court, status. and
assailing the November 17, 2000 Decision [2] of the P8,739,865.24,
Court of Appeals (CA) in CA-G.R. SP No. 56816, Thus, PAGCOR paid the representing the
which affirmed the January 3, 2000 Decision[3] of amount due to Acesite 10% EVAT on its
the Court of Tax Appeals (CTA) in CTA Case No. minus the P30,152,892.02 sales of food and
5645 entitled Acesite (Philippines) Hotel VAT while the latter paid the services and
Corporation v. The Commissioner of Internal VAT to the Commissioner of gross rentals,
Revenue for Refund of VAT Payments. Internal Revenue [hereafter, respectively from
CIR] as it feared the legal PAGCOR shall,
consequences of non- as a matter of
payment of the course, be
The Facts tax. However, Acesite refunded to the
belatedly arrived at the petitioner for
conclusion that its having been
inadvertently vvvvvvv The Issues
remitted to the vvvvvv
respondent. WHEREFO Hence, we have the instant petition with the
RE, in view of all following issues: (1) whether PAGCORs tax
Thus, taking the foregoing, the exemption privilege includes the indirect tax of VAT
into consideration instant Petition to entitle Acesite to zero percent (0%) VAT rate; and
the prescribed for Review is (2) whether the zero percent (0%) VAT rate under
portion of partially then Section 102 (b)(3) of the Tax Code (now Section
Petitioners claim GRANTED. The 108 (B)(3) of the Tax Code of 1997) legally applies
for refund of Respondent is to Acesite.
P98,743.40, and hereby
considering ORDERED to The petition is devoid of merit.
further the REFUND to the
principle petitioner the In resolving the first issue on whether
of solutio amount of PAGCORs tax exemption privilege includes the
indebiti which THIRTY indirect tax of VAT to entitle Acesite to zero percent
requires the MILLION (0%) VAT rate, we answer in the affirmative. We will
return of what FIFTY FOUR however discuss both issues together.
has been THOUSAND
delivered through ONE HUNDRED PAGCOR is exempt from payment of indirect
mistake, FORTY EIGHT taxes
Respondent must PESOS AND
refund to the SIXTY FOUR It is undisputed that P.D. 1869, the charter
Petitioner the CENTAVOS creating PAGCOR, grants the latter an exemption
amount of (P30,054,148.64) from the payment of taxes. Section 13 of P.D. 1869
P30,054,148.64 immediately. pertinently provides:
computed as
follows: SO Sec. 13. Exemptions.
ORDERED.[4]
Total amount xxxx
per
claim 30,152,892 (2) Income and other
.02 The Ruling of the Court of Appeals taxes. (a) Franchise
Less Holder: No tax of any kind
Prescribed Upon appeal by petitioner, the CA or form, income or
amount (Exhs A, affirmed in toto the decision of the CTA holding that otherwise, as well as fees,
X, & X-20) PAGCOR was not only exempt from direct taxes but charges or levies of
January was also exempt from indirect taxes like the VAT and whatever nature, whether
1996 P 2,199.94 consequently, the transactions between respondent National or Local, shall be
February Acesite and PAGCOR were effectively zero-rated assessed and collected
1996 26,205.04 because they involved the rendition of services to an under this Franchise from
March entity exempt from indirect taxes. Thus, the CA the Corporation; nor shall
1996 70,338.42 9 affirmed the CTAs determination by ruling that any form of tax or charge
8,743.40 respondent Acesite was entitled to a refund of PhP attach in any way to the
P30,054, 30,054,148.64 from petitioner. earnings of the
148.64 Corporation, except a
Franchise Tax of five (5%) furnished and/or technical and neither is Acesite as the
percent of the gross revenue services rendered to the latter is effectively subject
or earnings derived by the Corporation or operator. to zero percent rate under
Corporation from its (Emphasis supplied.) Sec. 108 B (3). R.A.
operation under this 8424. (Emphasis supplied.)
Franchise. Such tax shall be Petitioner contends that the above tax
due and payable quarterly to exemption refers only to PAGCORs direct tax
the National Government liability and not to indirect taxes, like the VAT. Indeed, by extending the exemption to
and shall be in lieu of all entities or individuals dealing with PAGCOR, the
kinds of taxes, levies, fees We disagree. legislature clearly granted exemption also from
or assessments of any kind, indirect taxes. It must be noted that the indirect tax of
nature or description, levied, A close scrutiny of the above provisos VAT, as in the instant case, can be shifted or passed to
established or collected by clearly gives PAGCOR a blanket exemption to taxes the buyer, transferee, or lessee of the goods,
any municipal, provincial, with no distinction on whether the taxes are direct or properties, or services subject to VAT. Thus, by
or national government indirect. We are one with the CA ruling that extending the tax exemption to entities or individuals
authority. PAGCOR is also exempt from indirect taxes, like dealing with PAGCOR in casino operations, it is
VAT, as follows: exempting PAGCOR from being liable to indirect
xxxx taxes.
Under the above provision
(b) Others: The exemp [Section 13 (2) (b) of P.D. The manner of charging VAT does not make
tions herein granted for 1869], the term Corporation PAGCOR liable to said tax
earnings derived from the or operator refers to
operations conducted PAGCOR. Although the law It is true that VAT can either be incorporated
under the franchise does not specifically in the value of the goods, properties, or services sold
specifically from the mention PAGCORs or leased, in which case it is computed as 1/11 of
payment of any tax, exemption from indirect such value, or charged as an additional 10% to the
income or otherwise, as taxes, PAGCOR is value. Verily, the seller or lessor has the option to
well as any form of undoubtedly exempt from follow either way in charging its clients and
charges, fees or such taxes because the law customer. In the instant case, Acesite followed the
levies, shall inure to the exempts from taxes latter method, that is, charging an additional 10% of
benefit of and extend to persons or entities the gross sales and rentals. Be that as it may, the use
corporation(s), contracting with of either method, and in particular, the first method,
association(s), agency(ies), PAGCOR in casino does not denigrate the fact that PAGCOR is exempt
or individual(s) with operations.Although, from an indirect tax, like VAT.
whom the Corporation or differently worded, the
operator has any provision clearly exempts VAT exemption
contractual relationship in PAGCOR from indirect extends to
connection with the taxes. In fact, it goes one Acesite
operations of the casino(s) step further by granting
authorized to be tax exempt status to Thus, while it was proper for PAGCOR not
conducted under this persons dealing with to pay the 10% VAT charged by Acesite, the latter is
Franchise and to those PAGCOR in casino not liable for the payment of it as it is exempt in this
receiving compensation or operations. The particular transaction by operation of law to pay the
other remuneration from the unmistakable conclusion is indirect tax. Such exemption falls within the former
Corporation or operator as a that PAGCOR is not liable Section 102 (b) (3) of the 1977 Tax Code, as
result of essential facilities for the P30,152,892.02 VAT
amended (now Sec. 108 [b] [3] of R.A. 8424), which exempt is the contractor itself who constructed the
provides: building owned by contractee WHO, and such does Art. 2142. Certain lawful,
not violate the rule that tax exemptions are personal voluntary, and unilateral
Section 102. Value-added because the manifest intention of the agreement is acts give rise to the juridical
tax on sale of services (a) to exempt the contractor so that no contractors relation of quasi-contract to
Rate and base of tax There tax may be shifted to the contractee WHO. Thus, the end that no one shall be
shall be levied, assessed and the proviso in P.D. 1869, extending the exemption to unjustly enriched or
collected, a value-added tax entities or individuals dealing with PAGCOR in benefited at the expense of
equivalent to 10% of gross casino operations, is clearly to proscribe any indirect another.
receipts derived by any tax, like VAT, that may be shifted to PAGCOR.
person engaged in the sale Art. 2154. If something is
of services x x x; Provided, Acesite paid VAT by mistake received when there is no
that the following services right to demand it, and it
performed in the Philippines Considering the foregoing discussion, there was unduly delivered
by VAT-registered persons are undoubtedly erroneous payments of the VAT through mistake, the
shall be subject to 0%. pertaining to the effectively zero-rate transactions obligation to return it arises.
between Acesite and PAGCOR. Verily, Acesite has
xxxx clearly shown that it paid the subject taxes under a When money is paid to another under the
mistake of fact, that is, when it was not aware that the influence of a mistake of fact, that is to say, on the
(b) Transactions subject to transactions it had with PAGCOR were zero-rated at mistaken supposition of the existence of a specific
zero percent (0%) rated. the time it made the payments. In UST Cooperative fact, where it would not have been known that the
Store v. City of Manila,[6] we explained that there is fact was otherwise, it may be recovered. The ground
xxxx erroneous payment of taxes when a taxpayer pays upon which the right of recovery rests is that money
under a mistake of fact, as for the instance in a case paid through misapprehension of facts belongs in
(3) Services rendered to where he is not aware of an existing exemption in his equity and in good conscience to the person who paid
persons or entities whose favor at the time the payment was made. [7] Such it.[9]
exemption under special payment is held to be not voluntary and, therefore,
laws or international can be recovered or refunded.[8] The Government comes within the scope of solutio
agreements to which the indebiti principle as elucidated in Commissioner of
Philippines is a signatory Moreover, it must be noted that aside from Internal Revenue v. Firemans Fund Insurance
effectively subjects the not raising the issue of Acesites compliance with Company, where we held that: Enshrined in the basic
supply of such services to pertinent Revenue Regulations on exemptions during legal principles is the time-honored doctrine that no
zero (0%) rate (emphasis the proceedings in the CTA, it cannot be gainsaid that person shall unjustly enrich himself at the expense of
supplied). Acesite should have done so as it paid the VAT under another. It goes without saying that the Government
a mistake of fact. Hence, petitioners argument on this is not exempted from the application of this doctrine.
[10]
The rationale for the exemption from point is utterly tenuous.
indirect taxes provided for in P.D. 1869 and the
extension of such exemption to entities or individuals Solutio Action for refund strictly construed; Acesite
dealing with PAGCOR in casino operations are best indebiti applies discharged the
elucidated from the 1987 case of Commissioner of to the burden of proof
Internal Revenue v. John Gotamco & Sons, Inc., Government
[5]
where the absolute tax exemption of the World Since an action for a tax refund partakes of
Health Organization (WHO) upon an international Tax refunds are based on the principle of the nature of an exemption, which cannot be allowed
agreement was upheld. We held in said case that the quasi-contract or solutio indebiti and the pertinent unless granted in the most explicit and categorical
exemption of contractee WHO should be laws governing this principle are found in Arts. 2142 language, it is strictly construed against the claimant
implemented to mean that the entity or person and 2154 of the Civil Code, which provide, thus: who must discharge such burden convincingly.[11] In
the instant case, respondent Acesite had discharged
this burden as found by the CTA and the CA. Indeed,
the records show that Acesite proved its actual VAT
payments subject to refund, as attested to by an
independent Certified Public Accountant who was
duly commissioned by the CTA. On the other hand,
petitioner never disputed nor contested respondents
testimonial and documentary evidence. In fact,
petitioner never presented any evidence on its behalf.

One final word. The BIR must release the


refund to respondent without any unreasonable
delay. Indeed, fair dealing is expected by our
taxpayers from the BIR and this duty demands that
the BIR should refund without any unreasonable
delay what it has erroneously collected.[12]

WHEREFORE, the petition


is DENIED for lack of merit and the November 17,
2000 Decision of the CA is hereby AFFIRMED. No
costs.

SO ORDERED.
Republic of the Philippines
SUPREME COURT Goods
Manila
Domestic Zero-rated
SECOND DIVISION P545,686,639.18
Purchases- P16,455,868.10 P1,645,586.81 Sales
G.R. No. 190102 July 11, 2012
Services
ACCENTURE, INC., Petitioner, Total Sales P P572,880,982.68
vs. Total
COMMISSIONER OF INTERNAL P9,355,809.80 The monthly and quarterly VAT returns of Accenture
Input Tax
REVENUE, Respondent. show that, notwithstanding its application of the input
DECISION VAT credits earned from its zero-rated transactions
SERENO, J.: against its output VAT liabilities, it still had excess or
This is a Petition filed under Rule 45 of the 1997 Zero-rated unutilized input VAT credits. These VAT credits are in
Rules of Civil Procedure, praying for the reversal of P316,113,513.34 the amounts of P9,355,809.80 for the 1st period and
Sales
the Decision of the Court of Tax Appeals En Banc P27,682,459.38 for the 2nd period, or a total of
7
(CTA En Banc ) dated 22 September 2009 and its Total Sales P335,640,544.74 P37,038,269.18.
subsequent Resolution dated 23 October 2009.1 Out of the P37,038,269.18, only P35,178,844.21
Accenture, Inc. (Accenture) is a corporation engaged Accenture filed its Monthly VAT Return for the pertained to the allocated input VAT on Accentures
in the business of providing management consulting, month of September 2002 on 24 October 2002; and "domestic purchases of taxable goods which cannot
business strategies development, and selling and/or that for October 2002, on 12 November 2002. These be directly attributed to its zero-rated sale of
licensing of software.2 It is duly registered with the returns were amended on 9 January 2003. services."8 This allocated input VAT was broken
Bureau of Internal Revenue (BIR) as a Value Added Accentures Quarterly VAT Return for the first down to P8,811,301.66 for the 1st period and
Tax (VAT) taxpayer or enterprise in accordance with quarter of 2003, which included the period 1 P26,367,542.55 for the 2nd period.9
Section 236 of the National Internal Revenue Code September 2002 to 30 November 2002 (2nd period), The excess input VAT was not applied to any output
(Tax Code).3 was filed on 17 December 2002; and the Amended VAT that Accenture was liable for in the same quarter
On 9 August 2002, Accenture filed its Monthly VAT Quarterly VAT Return, on 18 June 2004. The latter when the amount was earnedor to any of the
Return for the period 1 July 2002 to 31 August 2002 contains the following information:6 succeeding quarters. Instead, it was carried forward
(1st period). Its Quarterly VAT Return for the fourth Purchases Amount Input VAT to petitioners 2nd Quarterly VAT Return for 2003.10
quarter of 2002, which covers the 1st period, was Thus, on 1 July 2004, Accenture filed with the
filed on 17 September 2002; and an Amended Domestic Department of Finance (DoF) an administrative claim
Quarterly VAT Return, on 21 June 2004.4 The Purchases- for the refund or the issuance of a Tax Credit
following are reflected in Accentures VAT Return for P80,765,294.10 P8,076,529.41 Certificate (TCC). The DoF did not act on the claim
Capital
the fourth quarter of 2002:5 Goods of Accenture. Hence, on 31 August 2004, the latter
1wphi1 filed a Petition for Review with the First Division of
Domestic the Court of Tax Appeals (Division), praying for the
Purchases Amount Input VAT issuance of a TCC in its favor in the amount of
Purchases-
Goods P35,178,844.21.
Domestic P132,820,541.70 P13,282,054.17 The Commissioner of Internal Revenue (CIR), in its
Purchases- other than
P12,312,722.00 P1,231,272.20 capital Answer,11 argued thus:
Capital
Goods 1. The sale by Accenture of goods and
Goods
services to its clients are not zero-rated
Domestic P64,789,507.90 P6,478,950.79 Domestic transactions.
Purchases- Purchases- P63,238,758.00 P6,323,875.80 2. Claims for refund are construed strictly
Goods Services against the claimant, and Accenture has
other than failed to prove that it is entitled to a refund,
Total because its claim has not been fully
capital P27,682,459.38
Input Tax substantiated or documented.
In a 13 November 2008 Decision,12 the Division requirement that the services must be rendered to a 4. Whether or not Petitioner is entitled to the
denied the Petition of Accenture for failing to prove person engaged in business conducted outside the refund of the amount of P35,178,884.21,
that the latters sale of services to the alleged foreign Philippines to qualify for zero-rating. The CTA En representing the unutilized input VAT on
clients qualified for zero percent VAT.13 Banc agreed that because the case pertained to the domestic purchases of goods and services
In resolving the sole issue of whether or not third and the fourth quarters of taxable year 2002, the for the period commencing from 1 July 2002
Accenture was entitled to a refund or an issuance of a applicable law was the 1997 Tax Code, and not R.A. until 30 November 2002, from its sales of
TCC in the amount of P35,178,844.21,14 the Division 9337.26 Still, it ruled that even though the provision services to various foreign clients.
ruled that Accenture had failed to present evidence to used in Burmeister was Section 102(b)(2) of the 5. Whether or not Petitioners claim for
prove that the foreign clients to which the former earlier 1977 Tax Code, the pronouncement therein refund/tax credit in the amount of
rendered services did business outside the requiring recipients of services to be engaged in P35,178,884.21, as alleged unutilized input
Philippines.15 Ruling that Accentures services would business outside the Philippines to qualify for zero- VAT on domestic purchases of goods and
qualify for zero-rating under the 1997 National rating was applicable to the case at bar, because services for the period covering 1 July 2002
Internal Revenue Code of the Philippines (Tax Code) Section 108(B)(2) of the 1997 Tax Code was a mere until 30 November 2002 are duly
only if the recipient of the services was doing reenactment of Section 102(b)(2) of the 1977 Tax substantiated by proper documents.30
business outside of the Philippines,16 the Division Code. For consideration in the present Petition are the
cited Commissioner of Internal Revenue v. The CTA En Banc concluded that Accenture failed to following issues:
Burmeister and Wain Scandinavian Contractor discharge the burden of proving the latters allegation 1. Should the recipient of the services be
Mindanao, Inc. (Burmeister)17 as basis. that its clients were foreign-based.27 "doing business outside the Philippines" for
Accenture appealed the Divisions Decision through Resolute, Accenture filed a Petition for Review with the transaction to be zero-rated under
a Motion for Reconsideration (MR).18 In its MR, it the CTA En Banc, but the latter affirmed the Section 108(B)(2) of the 1997 Tax Code?
argued that the reliance of the Division on Burmeister Divisions Decision and Resolution.28 A subsequent 2. Has Accenture successfully proven that its
was misplaced19 for the following reasons: MR was also denied in a Resolution dated 23 October clients are entities doing business outside the
1. The issue involved in Burmeister was the 2009. Philippines?
entitlement of the applicant to a refund, Hence, the present Petition for Review29 under Rule Recipient of services must be doing business outside
given that the recipient of its service was 45. the Philippines for the transactions to qualify as zero-
doing business in the Philippines; it was not In a Joint Stipulation of Facts and Issues, the parties rated.
an issue of failure of the applicant to present and the Division have agreed to submit the following Accenture anchors its refund claim on Section 112(A)
evidence to prove the fact that the recipient issues for resolution: of the 1997 Tax Code, which allows the refund of
of its services was a foreign corporation 1. Whether or not Petitioners sales of goods unutilized input VAT earned from zero-rated or
doing business outside the Philippines.20 and services are zero-rated for VAT purposes effectively zero-rated sales. The provision reads:
2. Burmeister emphasized that, to qualify for under Section 108(B)(2)(3) of the 1997 Tax SEC. 112. Refunds or Tax Credits of Input Tax. -
zero-rating, the recipient of the services Code. (A) Zero-Rated or Effectively Zero-Rated Sales. -
should be doing business outside the 2. Whether or not petitioners claim for Any VAT-registered person, whose sales are zero-
Philippines, and Accenture had successfully refund/tax credit in the amount of rated or effectively zero-rated may, within two (2)
established that.21 P35,178,884.21 represents unutilized input years after the close of the taxable quarter when the
3. Having been promulgated on 22 January VAT paid on its domestic purchases of goods sales were made, apply for the issuance of a tax credit
2007 or after Accenture filed its Petition and services for the period commencing certificate or refund of creditable input tax due or
with the Division, Burmeister cannot be from 1 July 2002 until 30 November 2002. paid attributable to such sales, except transitional
made to apply to this case.22 3. Whether or not Petitioner has carried over input tax, to the extent that such input tax has not
Accenture also cited Commissioner of Internal to the succeeding taxable quarter(s) or been applied against output tax: Provided, however,
Revenue v. American Express (Amex)23 in support of year(s) the alleged unutilized input VAT paid That in the case of zero-rated sales under Section
its position. The MR was denied by the Division in on its domestic purchases of goods and 106(A)(2)(a)(1), (2) and (B) and Section 108 (B)(1)
its 12 March 2009 Resolution.24 services for the period commencing from 1 and (2), the acceptable foreign currency exchange
Accenture appealed to the CTA En Banc. There it July 2002 until 30 November 2002, and proceeds thereof had been duly accounted for in
argued that prior to the amendment introduced by applied the same fully to its output VAT accordance with the rules and regulations of the
Republic Act No. (R.A.) 9337, 25 there was no liability for the said period. Bangko Sentral ng Pilipinas (BSP): Provided, further,
That where the taxpayer is engaged in zero-rated or regulations of the Bangko Sentral ng rules and regulations of the Bangko Sentral
effectively zero-rated sale and also in taxable or Pilipinas (BSP)." ng Pilipinas (BSP);
exempt sale of goods of properties or services, and Essentially, Section 102(b) of the 1977 Tax Codeas "(2) Services other than those mentioned in
the amount of creditable input tax due or paid cannot amended by P.D. 1994, E.O. 273, and R.A. 7716 the preceding paragraph rendered to a
be directly and entirely attributed to any one of the provides that if the consideration for the services person engaged in business conducted
transactions, it shall be allocated proportionately on provided by a VAT-registered person is in a foreign outside the Philippines or to a nonresident
the basis of the volume of sales. Section 108(B) currency, then this transaction shall be subjected to person not engaged in business who is
referred to in the foregoing provision was first seen zero percent rate. outside the Philippines when the services are
when Presidential Decree No. (P.D.) 199431 amended The 1997 Tax Code reproduced Section 102(b) of the performed, the consideration for which is
Title IV of P.D. 1158,32 which is also known as the 1977 Tax Code in its Section 108(B), to wit: paid for in acceptable foreign currency and
National Internal Revenue Code of 1977. Several (B) Transactions Subject to Zero Percent (0%) Rate. - accounted for in accordance with the rules
Decisions have referred to this as the 1986 Tax Code, The following services performed in the Philippines and regulations of the Bangko Sentral ng
even though it merely amended Title IV of the 1977 by VAT- registered persons shall be subject to zero Pilipinas (BSP); x x x." (Emphasis supplied)
Tax Code. percent (0%) rate. The meat of Accentures argument is that nowhere
Two years thereafter, or on 1 January 1988, (1) Processing, manufacturing or repacking does Section 108(B) of the 1997 Tax Code state that
Executive Order No. (E.O.) 27333 further amended goods for other persons doing business services, to be zero-rated, should be rendered to
provisions of Title IV. E.O. 273 by transferring the outside the Philippines which goods are clients doing business outside the Philippines, the
old Title IV provisions to Title VI and filling in the subsequently exported, where the services requirement introduced by R.A. 9337.35 Required by
former title with new provisions that imposed a VAT. are paid for in acceptable foreign currency Section 108(B), prior to the amendment, is that the
The VAT system introduced in E.O. 273 was and accounted for in accordance with the consideration for the services rendered be in foreign
restructured through Republic Act No. (R.A.) rules and regulations of the Bangko Sentral currency and in accordance with the rules of the
7716.34 This law, which was approved on 5 May ng Pilipinas (BSP); Bangko Sentral ng Pilipinas (BSP). Since Accenture
1994, widened the tax base. Section 3 thereof reads: (2) Services other than those mentioned in has complied with all the conditions imposed in
SECTION 3. Section 102 of the National Internal the preceding paragraph, the consideration Section 108(B), it is entitled to the refund prayed for.
Revenue Code, as amended, is hereby further for which is paid for in acceptable foreign In support of its claim, Accenture cites Amex, in
amended to read as follows: currency and accounted for in accordance which this Court supposedly ruled that Section
"SEC. 102. Value-added tax on sale of services and with the rules and regulations of the Bangko 108(B) reveals a clear intent on the part of the
use or lease of properties. x x x Sentral ng Pilipinas (BSP); x x x. legislators not to impose the condition of being
xxx xxx xxx On 1 November 2005, Section 6 of R.A. 9337, which "consumed abroad" in order for the services
"(b) Transactions subject to zero-rate. The amended the foregoing provision, became effective. performed in the Philippines to be zero-rated.36
following services performed in the Philippines by It reads: The Division ruled that this Court, in Amex and
VAT-registered persons shall be subject to 0%: SEC. 6. Section 108 of the same Code, as amended, Burmeister, did not declare that the requirement
"(1) Processing, manufacturing or repacking is hereby further amended to read as follows: that the client must be doing business outside the
goods for other persons doing business "SEC. 108. Value-added Tax on Sale of Services and Philippinescan be disregarded, because this
outside the Philippines which goods are Use or Lease of requirement is expressly provided in Article 108(2) of
subsequently exported, where the services Properties. - the Tax Code.37
are paid for in acceptable foreign currency (B) Transactions Subject to Zero Percent (0%) Rate. - Accenture questions the Divisions application to this
and accounted for in accordance with the The following services performed in the Philippines case of the pronouncements made in Burmeister.
rules and regulations of the Bangko Sentral by VAT-registered persons shall be subject to zero According to petitioner, the provision applied to the
ng Pilipinas (BSP). percent (0%) rate: present case was Section 102(b) of the 1977 Tax
"(2) Services other than those mentioned in (1) Processing, manufacturing or repacking Code, and not Section 108(B) of the 1997 Tax Code,
the preceding sub-paragraph, the goods for other persons doing business which was the law effective when the subject
consideration for which is paid for in outside the Philippines which goods are transactions were entered into and a refund was
acceptable foreign currency and accounted subsequently exported, where the services applied for.
for in accordance with the rules and are paid for in acceptable foreign currency In refuting Accentures theory, the CTA En Banc
and accounted for in accordance with the ruled that since Section 108(B) of the 1997 Tax Code
was a mere reproduction of Section 102(b) of the We rule that the recipient of the service must be never put in question. In fact, the recipient of the
1977 Tax Code, this Courts interpretation of the doing business outside the Philippines for the service in Amex is a nonresident foreign client.
latter may be used in interpreting the former, viz: transaction to qualify for zero-rating under Section The aforementioned case explains how the credit card
In the Burmeister case, the Supreme Court 108(B) of the Tax Code. system works. The issuance of a credit card allows
harmonized both Sections 102(b)(1) and 102(b)(2) of This Court upholds the position of the CTA en banc the holder thereof to obtain, on credit, goods and
the 1977 Tax Code, as amended, pertaining to zero- that, because Section 108(B) of the 1997 Tax Code is services from certain establishments. As proof that
rated transactions. A parallel approach should be a verbatim copy of Section 102(b) of the 1977 Tax this credit is extended by the establishment, a credit
accorded to the renumbered provisions of Sections Code, any interpretation of the latter holds true for card draft is issued. Thereafter, the company issuing
108(B)(2) and 108(B)(1) of the 1997 NIRC. This the former. the credit card will pay for the purchases of the credit
means that Section 108(B)(2) must be read in Moreover, even though Accentures Petition was filed card holders by redeeming the drafts. The obligation
conjunction with Section 108(B)(1). Section 108(B) before Burmeister was promulgated, the to collect from the card holders and to bear the loss
(2) requires as follows: a) services other than pronouncements made in that case may be applied to in case they do not payrests on the issuer of the
processing, manufacturing or repacking rendered by the present one without violating the rule against credit card.
VAT registered persons in the Philippines; and b) the retroactive application. When this Court decides a The service provided by respondent in Amex
transaction paid for in acceptable foreign currency case, it does not pass a new law, but merely interprets consisted of gathering the bills and credit card drafts
duly accounted for in accordance with BSP rules and a preexisting one.42 When this Court interpreted from establishments located in the Philippines and
regulations. The same provision made reference to Section 102(b) of the 1977 Tax Code in Burmeister, forwarding them to its parent company's regional
Section 108(B)(1) further imposing the requisite c) this interpretation became part of the law from the operating centers outside the country. It facilitated in
that the recipient of services must be performing moment it became effective. It is elementary that the the Philippines the collection and payment of
business outside of Philippines. Otherwise, if both the interpretation of a law by this Court constitutes part receivables belonging to its Hong Kong-based
provider and recipient of service are doing business of that law from the date it was originally passed, foreign client.
in the Philippines, the sale transaction is subject to since this Court's construction merely establishes the The Court explained how the services rendered in
regular VAT as explained in the Burmeister case x x contemporaneous legislative intent that the Amex were considered to have been performed and
x. interpreted law carried into effect.43 consumed in the Philippines, to wit:
xxx xxx xxx Accenture questions the CTAs application of Consumption is "the use of a thing in a way that
Clearly, the Supreme Courts pronouncements in the Burmeister, because the provision interpreted therein thereby exhausts it." Applied to services, the term
Burmeister case requiring that the recipient of the was Section 102(b) of the 1977 Tax Code. In support means the performance or "successful completion of
services must be doing business outside the of its position that Section 108 of the 1997 Tax Code a contractual duty, usually resulting in the
Philippines as mandated by law govern the instant does not require that the services be rendered to an performers release from any past or future liability x
case.38 entity doing business outside the Philippines, x x." The services rendered by respondent are
Assuming that the foregoing is true, Accenture still Accenture invokes this Courts pronouncements in performed or successfully completed upon its
argues that the tax appeals courts cannot be allowed Amex. However, a reading of that case will readily sending to its foreign client the drafts and bills it has
to apply to Burmeister this Courts interpretation of reveal that the provision applied was Section 102(b) gathered from service establishments here. Its
Section 102(b) of the 1977 Tax Code, because the of the 1977 Tax Code, and not Section 108 of the services, having been performed in the Philippines,
Petition of Accenture had already been filed before 1997 Tax Code. As previously mentioned, an are therefore also consumed in the Philippines.44
the case was even promulgated on 22 January interpretation of Section 102(b) of the 1977 Tax Code The effect of the place of consumption on the zero-
2007,39 to wit: is an interpretation of Section 108 of the 1997 Tax rating of the transaction was not the issue in
x x x. While the Burmeister case forms part of the Code, the latter being a mere reproduction of the Burmeister.1wphi1 Instead, this Court addressed the
legal system and assumes the same authority as the former. squarely raised issue of whether the recipient of
statute itself, however, the same cannot be applied This Court further finds that Accentures reliance on services should be doing business outside the
retroactively against the Petitioner because to do so Amex is misplaced. Philippines for the transaction to qualify for zero-
will be prejudicial to the latter.40 We ruled in Amex that Section 102 of the 1977 Tax rating. We ruled that it should. Thus, another essential
The CTA en banc is of the opinion that Accenture Code does not require that the services be consumed condition for qualification for zero-rating under
cannot invoke the non-retroactivity of the rulings of abroad to be zero-rated. However, nowhere in that Section 102(b)(2) of the 1977 Tax Code is that the
the Supreme Court, whose interpretation of the law is case did this Court discuss the necessary qualification recipient of the business be doing that business
part of that law as of the date of its enactment.41 of the recipient of the service, as this matter was outside the Philippines. In clarifying that there is no
conflict between this pronouncement and that laid Section 102 (b) (2) to apply to a payer-recipient of Accentures clients have not established any
down in Amex, we ruled thus: services doing business in the Philippines is to make branch office in which to do business in the
x x x. As the Court held in Commissioner of Internal the payment of the regular VAT under Section 102 (a) Philippines.
Revenue v. American Express International, Inc. dependent on the generosity of the taxpayer. The 2. For these services, Accenture bills another
(Philippine Branch), the place of payment is provider of services can choose to pay the regular corporation, Accenture Participations B.V.
immaterial, much less is the place where the output VAT or avoid it by stipulating payment in foreign (APB), which is likewise a foreign
of the service is ultimately used. An essential currency inwardly remitted by the payer-recipient. corporation with no "presence in the
condition for entitlement to 0% VAT under Section Such interpretation removes Section 102 (a) as a tax Philippines."
102 (b) (1) and (2) is that the recipient of the services measure in the Tax Code, an interpretation this Court 3. Only those not doing business in the
is a person doing business outside the Philippines. In cannot sanction. A tax is a mandatory exaction, not a Philippines can be required under BSP rules
this case, the recipient of the services is the voluntary contribution. to pay in acceptable currency for their
Consortium, which is doing business not outside, but xxx xxx xxx purchase of goods and services from the
within the Philippines because it has a 15-year Further, when the provider and recipient of services Philippines. Thus, in a domestic transaction,
contract to operate and maintain NAPOCORs two are both doing business in the Philippines, their where the provider and recipient of services
100-megawatt power barges in Mindanao. (Emphasis transaction falls squarely under Section 102 (a) are both doing business in the Philippines,
in the original)45 governing domestic sale or exchange of services. the BSP cannot require any party to make
In Amex we ruled that the place of performance Indeed, this is a purely local sale or exchange of payment in foreign currency.48
and/or consumption of the service is immaterial. In services subject to the regular VAT, unless of course Accenture claims that these documentary pieces of
Burmeister, the Court found that, although the place the transaction falls under the other provisions of evidence are supported by the Report of Emmanuel
of the consumption of the service does not affect the Section 102 (b). Mendoza, the Court-commissioned Independent
entitlement of a transaction to zero-rating, the place Thus, when Section 102 (b) (2) speaks of "services Certified Public Accountant. He ascertained that
where the recipient conducts its business does. other than those mentioned in the preceding Accentures gross billings pertaining to zero-rated
Amex does not conflict with Burmeister. In fact, to subparagraph," the legislative intent is that only the sales were all supported by zero-rated Official
fully understand how Section 102(b)(2) of the 1977 services are different between subparagraphs 1 and 2. Receipts and Billing Statements. These documents
Tax Codeand consequently Section 108(B)(2) of The requirements for zero-rating, including the show that these zero-rated sales were paid in foreign
the 1997 Tax Codewas intended to operate, the two essential condition that the recipient of services is exchange currency and duly accounted for in the
aforementioned cases should be taken together. The doing business outside the Philippines, remain the rules and regulations of the BSP.49
zero-rating of the services performed by respondent same under both subparagraphs. (Emphasis in the In the CTAs opinion, however, the documents
in Amex was affirmed by the Court, because although original)46 presented by Accenture merely substantiate the
the services rendered were both performed and Lastly, it is worth mentioning that prior to the existence of the sales, receipt of foreign currency
consumed in the Philippines, the recipient of the promulgation of Burmeister, Congress had already payments, and inward remittance of the proceeds of
service was still an entity doing business outside the clarified the intent behind Sections 102(b)(2) of the these sales duly accounted for in accordance with
Philippines as required in Burmeister. 1977 Tax Code and 108(B)(2) of the 1997 Tax Code BSP rules. Petitioner presented no evidence
That the recipient of the service should be doing amending the earlier provision. R.A. 9337 added the whatsoever that these clients were doing business
business outside the Philippines to qualify for zero- following phrase: "rendered to a person engaged in outside the Philippines.50
rating is the only logical interpretation of Section business conducted outside the Philippines or to a Accenture insists, however, that it was able to
102(b)(2) of the 1977 Tax Code, as we explained in nonresident person not engaged in business who is establish that it had rendered services to foreign
Burmeister: outside the Philippines when the services are corporations doing business outside the Philippines,
This can only be the logical interpretation of Section performed." unlike in Burmeister, which allegedly involved a
102 (b) (2). If the provider and recipient of the "other Accenture has failed to establish that the recipients of foreign corporation doing business in the
services" are both doing business in the Philippines, its services do business outside the Philippines. Philippines.51
the payment of foreign currency is irrelevant. Accenture argues that based on the documentary We deny Accentures Petition for a tax refund.
Otherwise, those subject to the regular VAT under evidence it presented,47 it was able to establish the The evidence presented by Accenture may have
Section 102 (a) can avoid paying the VAT by simply following circumstances: established that its clients are foreign.1wphi1 This
stipulating payment in foreign currency inwardly 1. The records of the Securities and fact does not automatically mean, however, that these
remitted by the recipient of services. To interpret Exchange Commission (SEC) show that clients were doing business outside the Philippines.
After all, the Tax Code itself has provisions for a services were clients doing business outside the
foreign corporation engaged in business within the Philippines.
Philippines and vice versa, to wit: As ruled by the CTA En Banc, the Official Receipts,
SEC. 22. Definitions - When used in this Title: Intercompany Payment Requests, Billing Statements,
xxx xxx xxx Memo Invoices-Receivable, Memo Invoices-Payable,
(H) The term "resident foreign corporation" and Bank Statements presented by Accenture merely
applies to a foreign corporation engaged in substantiated the existence of sales, receipt of foreign
trade or business within the Philippines. currency payments, and inward remittance of the
(I) The term nonresident foreign proceeds of such sales duly accounted for in
corporation applies to a foreign corporation accordance with BSP rules, all of these were devoid
not engaged in trade or business within the of any evidence that the clients were doing business
Philippines. (Emphasis in the original) outside of the Philippines.55
Consequently, to come within the purview of Section WHEREFORE, the instant Petition is DENIED. The
108(B)(2), it is not enough that the recipient of the 22 September 2009 Decision and the 23 October
service be proven to be a foreign corporation; rather, 2009 Resolution of the Court of Tax Appeals En
it must be specifically proven to be a nonresident Banc in C.T.A. EB No. 477, dismissing the Petition
foreign corporation. for the refund of the excess or unutilized input VAT
There is no specific criterion as to what constitutes credits of Accenture, Inc., are AFFIRMED.
"doing" or "engaging in" or "transacting" business. SO ORDERED.
We ruled thus in Commissioner of Internal Revenue
v. British Overseas Airways Corporation:52
x x x. There is no specific criterion as to what
constitutes "doing" or "engaging in" or "transacting"
business. Each case must be judged in the light of its
peculiar environmental circumstances. The term
implies a continuity of commercial dealings and
arrangements, and contemplates, to that extent, the
performance of acts or works or the exercise of some
of the functions normally incident to, and in
progressive prosecution of commercial gain or for the
purpose and object of the business organization. "In
order that a foreign corporation may be regarded as
doing business within a State, there must be
continuity of conduct and intention to establish a
continuous business, such as the appointment of a
local agent, and not one of a temporary character."53
A taxpayer claiming a tax credit or refund has the
burden of proof to establish the factual basis of that
claim.1wphi1 Tax refunds, like tax exemptions, are
construed strictly against the taxpayer.54
Accenture failed to discharge this burden. It alleged
and presented evidence to prove only that its clients
were foreign entities. However, as found by both the
CTA Division and the CTA En Banc, no evidence
was presented by Accenture to prove the fact that the
foreign clients to whom petitioner rendered its
SECOND DIVISION sub-assemblies, parts, and components. It is the petition. Panasonic filed a motion for
registered with the Board of Investments as a reconsideration of the en banc decision but this was
preferred pioneer enterprise under the Omnibus denied. Thus, petitioner filed the present petition in
Investments Code of 1987. It is also a registered accordance with R.A. 9282.[5]
value-added tax (VAT) enterprise.
The Issue Presented
From April 1 to September 30, 1998 and
PANASONIC COMMUNICATIONS G.R. No. from October 1, 1998 to March 31, 1999, petitioner The sole issue presented in this case is
178090 Panasonic generated export sales amounting to whether or not the CTA en banc correctly denied
IMAGING CORPORATION OF THE US$12,819,475.15 and US$11,859,489.78, petitioner Panasonics claim for refund of the VAT it
PHILIPPINES (formerly MATSUSHITA respectively, for a total of paid as a zero-rated taxpayer on the ground that its
BUSINESS MACHINE CORPORATION US$24,678,964.93. Believing that these export sales sales invoices did not state on their faces that its sales
OF THE PHILIPPINES), were zero-rated for VAT under Section 106(A)(2)(a) were zero-rated.
(1) of the 1997 National Internal Revenue Code as
Petitioner, Present: amended by Republic Act (R.A.) 8424 (1997 NIRC), The Courts Ruling
[2]
Panasonic paid input VAT of P4,980,254.26
- versus - and P4,388,228.14 for the two periods or a total The VAT is a tax on consumption, an
COMMISSIONER OF INTERNAL of P9,368,482.40 attributable to its zero-rated sales. indirect tax that the provider of goods or services
REVENUE, Promulgated: may pass on to his customers. Under the VAT method
Respondent. Claiming that the input VAT it paid of taxation, which is invoice-based, an entity can
February 8, 2010 remained unutilized or unapplied, on March 12, 1999 subtract from the VAT charged on its sales or outputs
x and July 20, 1999 petitioner Panasonic filed with the the VAT it paid on its purchases, inputs and imports.
[6]
---------------------------------------------------------------- Bureau of Internal Revenue (BIR) two separate For example, when a seller charges VAT on its sale,
----------------------- x applications for refund or tax credit of what it it issues an invoice to the buyer, indicating the
paid. When the BIR did not act on the amount of VAT he charged. For his part, if the buyer
same, Panasonic filed on December 16, 1999 a is also a seller subjected to the payment of VAT on
DECISION petition for review with the CTA, averring his sales, he can use the invoice issued to him by his
the inaction of the respondent Commissioner of Inter supplier to get a reduction of his own VAT
ABAD, J.: nal Revenue (CIR) on its applications. liability. The difference in tax shown on invoices
passed and invoices received is the tax paid to the
After trial or on August 22, 2006 the CTAs government. In case the tax on invoices received
This petition for review puts in issue First Division rendered judgment,[3] denying the exceeds that on invoices passed, a tax refund may be
the May 23, 2007 Decision[1] of the Court of Tax petition for lack of merit. The First Division said that, claimed.
Appeals (CTA) en banc in CTA EB while petitioner Panasonics export sales were subject
239, entitled Panasonic Communications Imaging to 0% VAT under Section 106(A)(2)(a)(1) of the 1997 Under the 1997 NIRC, if at the end of a
Corporation of the Philippines v. Commissioner of NIRC, the same did not qualify for zero-rating taxable quarter the seller charges output taxes [7] equal
Internal Revenue, which affirmed the denial of because the word zero-rated was not printed on to the input taxes[8] that his suppliers passed on to
petitioners claim for refund. Panasonics export invoices. This omission, said the him, no payment is required of him. It is when his
First Division, violates the invoicing requirements of output taxes exceed his input taxes that he has to pay
Section 4.108-1 of Revenue Regulations (RR) 7-95.[4] the excess to the BIR. If the input taxes exceed the
output taxes, however, the excess payment shall be
The Facts and the Case Its motion for reconsideration having been carried over to the succeeding quarter or
denied, on January 5, 2007 petitioner Panasonic quarters. Should the input taxes result from zero-
Petitioner Panasonic Communications appealed the First Divisions decision to the CTA en rated or effectively zero-rated transactions or from
Imaging Corporation of the Philippines (Panasonic) banc. On May 23, 2007 the CTA en banc upheld the the acquisition of capital goods, any excess over the
produces and exports plain paper copiers and their First Divisions decision and resolution and dismissed
output taxes shall instead be refunded to the taxpayer. customers does not depict its (4) The name, business
[9]
being a VAT-registered taxpayer style, if any, address and
whose sales are classified as zero- taxpayers identification number
Zero-rated transactions generally refer to the rated sales. Nonetheless, this (TIN) of the purchaser, customer
export sale of goods and services. The tax rate in this treatment is without prejudice to or client.
case is set at zero. When applied to the tax base or the the right of the taxpayer to
selling price of the goods or services sold, such zero charge the input taxes to the Petitioner Panasonic points out that Sections
rate results in no tax chargeable against the foreign appropriate expense account or 113 and 237 did not require the inclusion of the word
buyer or customer. But, although the seller in such asset account subject to zero-rated for zero-rated sales covered by its receipts
transactions charges no output tax, he can claim a depreciation, whichever is or invoices. The BIR incorporated this requirement
refund of the VAT that his suppliers charged him. The applicable. Moreover, the case only after the enactment of R.A. 9337 on November
seller thus enjoys automatic zero rating, which allows shall be referred by the 1, 2005, a law that did not yet exist at the time it
him to recover the input taxes he paid relating to the processing office to the concerned issued its invoices.
export sales, making him internationally competitive. BIR office for verification of
[10]
other tax liabilities of the But when petitioner Panasonic made the
taxpayer. export sales subject of this case, i.e., from April 1998
For the effective zero rating of such to March 1999, the rule that applied was Section
transactions, however, the taxpayer has to be VAT- Petitioner Panasonic points out, however, 4.108-1 of RR 7-95, otherwise known as the
registered and must comply with invoicing that in requiring the printing on its sales invoices of Consolidated Value-Added Tax Regulations, which
requirements.[11] Interpreting these requirements, the word zero-rated, the Secretary of Finance unduly the Secretary of Finance issued on December 9, 1995
respondent CIR ruled that under Revenue expanded, amended, and modified by a mere and took effect on January 1, 1996. It already
Memorandum Circular (RMC) 42-2003, the regulation (Section 4.108-1 of RR 7-95) the letter and required the printing of the word zero-rated on the
taxpayers failure to comply with invoicing spirit of Sections 113 and 237 of the 1997 invoices covering zero-rated sales. When R.A. 9337
requirements will result in the disallowance of his NIRC, prior to their amendment by R.A. 9337. amended the 1997 NIRC on November 1, 2005, it
[12]
claim for refund. RMC 42-2003 provides: Panasonic argues that the 1997 NIRC, which made this particular revenue regulation a part of the
applied to its paymentsspecifically Sections 113 and tax code. This conversion from regulation to law did
A-13. Failure by the 237required the VAT-registered taxpayers receipts or not diminish the binding force of such regulation
supplier to comply with the invoices to indicate only the following information: with respect to acts committed prior to the enactment
invoicing requirements on the of that law.
documents supporting the sale of (1) A statement that the
goods and services will result to seller is a VAT-registered person, Section 4.108-1 of RR 7-95 proceeds from
the disallowance of the claim for followed by his taxpayer's the rule-making authority granted to the Secretary of
input tax by the purchaser- identification number (TIN); Finance under Section 245 of the 1977 NIRC
claimant. (Presidential Decree 1158) for the efficient
(2) The total amount enforcement of the tax code and of course its
If the claim for which the purchaser pays or is amendments.[13] The requirement is reasonable and is
refund/TCC is based on the obligated to pay to the seller with in accord with the efficient collection of VAT from
existence of zero-rated sales by the indication that such amount the covered sales of goods and services. As aptly
the taxpayer but it fails to comply includes the value-added tax; explained by the CTAs First Division, the appearance
with the invoicing requirements of the word zero-rated on the face of invoices
in the issuance of sales invoices (3) The date of covering zero-rated sales prevents buyers from
(e.g., failure to indicate the TIN), transaction, quantity, unit cost falsely claiming input VAT from their purchases
its claim for tax credit/refund of and description of the goods or when no VAT was actually paid. If, absent such word,
VAT on its purchases shall be properties or nature of the a successful claim for input VAT is made, the
denied considering that the service; and government would be refunding money it did not
invoice it is issuing to its collect.[14]
This Court will not set aside lightly the
Further, the printing of the word zero-rated conclusions reached by the CTA which, by the very
on the invoice helps segregate sales that are subject to nature of its functions, is dedicated exclusively to the
10% (now 12%) VAT from those sales that are zero- resolution of tax problems and has accordingly
rated.[15] Unable to submit the proper invoices, developed an expertise on the subject, unless there
petitioner Panasonic has been unable to substantiate has been an abuse or improvident exercise of
its claim for refund. authority.[17] Besides, statutes that grant tax
exemptions are construed strictissimi juris against the
Petitioner Panasonics citation of Intel taxpayer and liberally in favor of the taxing
Technology Philippines, Inc. v. Commissioner of authority. Tax refunds in relation to the VAT are in
Internal Revenue[16] is misplaced. Quite the contrary, the nature of such exemptions. The general rule is
it strengthens the position taken by respondent that claimants of tax refunds bear the burden of
CIR. In that case, the CIR denied the claim for tax proving the factual basis of their claims. Taxes are the
refund on the ground of the taxpayers failure to lifeblood of the nation. Therefore, statutes that allow
indicate on its invoices the BIR authority to print. But exemptions are construed strictly against the grantee
Sec. 4.108-1 required only the following to be and liberally in favor of the government.[18]
reflected on the invoice:
WHEREFORE, the petition
1. The name, taxpayers is DENIED for lack of merit.
identification number (TIN) and
address of seller; Costs against petitioner.
2. Date of transaction;
3. Quantity, unit cost and SO ORDERED.
description of merchandise or
nature of service;
4. The name, TIN,
business style, if any, and address
of the VAT-registered purchaser,
customer or client;
5. The word zero-rated
imprinted on the invoice covering
zero-rated sales; and
6. The invoice value or
consideration.

This Court held that, since the BIR authority


to print is not one of the items required to be
indicated on the invoices or receipts, the BIR erred in
denying the claim for refund. Here, however, the
ground for denial of petitioner Panasonics claim for
tax refundthe absence of the word zero-rated on its
invoicesis one which is specifically and precisely
included in the above enumeration. Consequently, the
BIR correctly denied Panasonics claim for tax refund.
Republic of the Philippines On December 27, 2000, due to the inaction of the accepted by the government, which had
SUPREME COURT respondent, petitioner filed a Petition for Review therefor become part of the State moneys
Manila with the CTA Division, docketed as CTA Case No. subject to expenditure and perhaps already
FIRST DIVISION 6212. Petitioner alleged that for the 4th quarter of spent or appropriated; and
G.R. No. 172378 January 17, 2011 1998, it generated and recorded zero-rated export 13. Taxes paid and collected are presumed to
SILICON PHILIPPINES, INC., (Formerly sales in the amount of P3,027,880,818.42, paid to have been made in accordance with the law
INTEL PHILIPPINES MANUFACTURING, petitioner in acceptable foreign currency and and regulations, hence not refundable.11
INC.), Petitioner, accounted for in accordance with the rules and On November 18, 2003, the CTA Division rendered a
vs. regulations of the Bangko Sentral ng Pilipinas;7 and Decision12 partially granting petitioners claim for
COMMISSIONER OF INTERNAL that for the said period, petitioner paid input VAT in refund of unutilized input VAT on capital goods. Out
REVENUE, Respondent. the total amount of P31,902,507.50,8 which have not of the amount of P15,170,082.00, only P9,898,867.00
DECISION been applied to any output VAT.9 was allowed to be refunded because training
DEL CASTILLO, J.: To this, respondent filed an Answer10 raising the materials, office supplies, posters, banners, T-shirts,
The burden of proving entitlement to a refund lies following special and affirmative defenses, to wit: books, and other similar items purchased by
with the claimant. 8. The petition states no cause of action as it petitioner were not considered capital goods under
This Petition for Review on Certiorari under Rule 45 does not allege the dates when the taxes Section 4.106-1(b) of Revenue Regulations (RR) No.
of the Rules of Court seeks to set aside the September sought to be refunded/credited were actually 7-95 (Consolidated Value-Added Tax
30, 2005 Decision1 and the April 20, 2006 paid; Regulations).13 With regard to petitioners claim for
Resolution2 of the Court of Tax Appeals (CTA) En 9. It is incumbent upon herein petitioner to credit/refund of input VAT attributable to its zero-
Banc. show that it complied with the provisions of rated export sales, the CTA Division denied the same
Factual Antecedents Section 229 of the Tax Code as amended; because petitioner failed to present an Authority to
Petitioner Silicon Philippines, Inc., a corporation duly 10. Claims for refund are construed strictly Print (ATP) from the BIR;14 neither did it print on its
organized and existing under and by virtue of the against the claimant, the same being in the export sales invoices the ATP and the word "zero-
laws of the Republic of the Philippines, is engaged in nature of exemption from taxes rated."15 Thus, the CTA Division disposed of the case
the business of designing, developing, manufacturing (Commissioner of Internal Revenue vs. in this wise:
and exporting advance and large-scale integrated Ledesma, 31 SCRA 95; Manila Electric Co. WHEREFORE, in view of the foregoing the instant
circuit components or "ICs."3 Petitioner is registered vs. Commissioner of Internal Revenue, 67 petition for review is hereby PARTIALLY
with the Bureau of Internal Revenue (BIR) as a Value SCRA 35); GRANTED. Respondent is ORDERED to ISSUE A
Added Tax (VAT) taxpayer 4 and with the Board of 11. One who claims to be exempt from TAX CREDIT CERTIFICATE in favor of petitioner
Investments (BOI) as a preferred pioneer enterprise.5 payment of a particular tax must do so under in the reduced amount of P9,898,867.00 representing
On May 21, 1999, petitioner filed with the clear and unmistakable terms found in the input VAT on importation of capital goods. However,
respondent Commissioner of Internal Revenue (CIR), statute (Asiatic Petroleum vs. Llanes, 49 the claim for refund of input VAT attributable to
through the One-Stop Shop Inter-Agency Tax Credit Phil. 466; Union Garment Co. vs. Court of petitioner's alleged zero-rated sales in the amount of
and Duty Drawback Center of the Department of Tax Appeals, 4 SCRA 304); P16,732,425.50 is hereby DENIED for lack of merit.
Finance (DOF), an application for credit/refund of 12. In an action for refund, the burden is SO ORDERED.16
unutilized input VAT for the period October 1, 1998 upon the taxpayer to prove that he is entitled Not satisfied with the Decision, petitioner moved for
to December 31, 1998 in the amount thereto, and failure to sustain the same is reconsideration.17 It claimed that it is not required to
of P31,902,507.50, broken down as follows: fatal to the action for refund. Furthermore, secure an ATP since it has a "Permit to Adopt
as pointed out in the case of William Li Yao Computerized Accounting Documents such as Sales
Tax Paid on Imported/Locally Purchased vs. Collector (L-11875, December 28, Invoice and Official Receipts" from the
Capital Equipment 1963), amounts sought to be recovered or BIR.18 Petitioner further argued that because all its
Total VAT paid on Purchases per Invoices credited should be shown to be taxes which finished products are exported to its mother company,
Received During the Period for which are erroneously or illegally collected; that is Intel Corporation, a non-resident corporation and a
this Application is Filed to say, their payment was an independent non-VAT registered entity, the printing of the word
single act of voluntary payment of a tax "zero-rated" on its export sales invoices is not
Amount of Tax Credit/Refund Applied For
believed to be due and collectible and necessary.19
Proceedings before the CTA Division
On its part, respondent filed a Motion for Partial On September 30, 2005, the CTA En Banc issued the evidence. Well settled in our jurisprudence [is] that
Reconsideration20 contending that petitioner is not assailed Decision25 denying the petition for lack of tax refunds are in the nature of tax exemptions and as
entitled to a credit/refund of unutilized input VAT on merit. Pertinent portions of the Decision read: such, they are regarded as in derogation of sovereign
capital goods because it failed to show that the goods This Court notes that petitioner raised the same issues authority (Commissioner of Internal Revenue vs.
imported/purchased are indeed capital goods as which have already been thoroughly discussed in the Ledesma, 31 SCRA 95). Thus, tax refunds are
defined in Section 4.106-1 of RR No. 7-95.21 assailed Decision, as well as, in the Resolution construed in strictissimi juris against the person or
The CTA Division denied both motions in a denying petitioner's Motion for Partial entity claiming the same (Commissioner of Internal
Resolution22 dated August 10, 2004. It noted that: Reconsideration. Revenue vs. Procter & Gamble Philippines
[P]etitioners request for Permit to Adopt With regard to the first assigned error, this Court Manufacturing Corporation, 204 SCRA 377;
Computerized Accounting Documents such as Sales reiterates that, the requirement of [printing] the BIR Commissioner of Internal Revenue vs. Tokyo
Invoice and Official Receipt was approved on August permit to print on the face of the sales invoices and Shipping Co., Ltd., 244 SCRA 332).
31, 2001 while the period involved in this case was official receipts is a control mechanism adopted by In this case, not only should petitioner establish that
October 31, 1998 to December 31, 1998 x x x. While the Bureau of Internal Revenue to safeguard the it is entitled to the claim but it must most importantly
it appears that petitioner was previously issued a interest of the government. show proof of compliance with the substantiation
permit by the BIR Makati Branch, such permit was This requirement is clearly mandated under Section requirements as mandated by law or regulations.
only limited to the use of computerized books of 238 of the 1997 National Internal Revenue Code, The rest of the assigned errors pertain to the alleged
account x x x. It was only on August 31, 2001 that which provides that: errors of the First Division: in finding that the
petitioner was permitted to generate computerized SEC. 238. Printing of Receipts or Sales or petitioner failed to comply with the substantiation
sales invoices and official receipts [provided that the Commercial Invoice. All persons who are engaged requirements provided by law in proving its claim for
BIR Permit Number is printed] in the header of the in business shall secure from the Bureau of Internal refund; in reducing the amount of petitioners tax
document x x x. Revenue an authority to print receipts or sales or credit for input vat on importation of capital goods;
xxxx commercial invoices before a printer can print the and in denying petitioners claim for refund of input
Thus, petitioners contention that it is not required to same. vat attributable to petitioners zero-rated sales.
show its BIR permit number on the sales invoices The above mentioned provision seeks to eliminate the It is petitioners contention that it has clearly
runs counter to the requirements under the said use of unregistered and double or multiple sets of established its right to the tax credit or refund by way
"Permit." This court also wonders why petitioner was receipts by striking at the very root of the problem of substantial evidence in the form of material and
issuing computer generated sales invoices during the the printer (H. S. de Leon, The National Internal documentary evidence and it would be improper to
period involved (October 1998 to December 1998) Revenue Code Annotated, 7th Ed., p. 901). And what set aside with haste the claimed input VAT on capital
when it did not have an authority or permit. better way to prove that the required permit to print goods expended for training materials, office
Therefore, we are convinced that such documents was secured from the Bureau of Internal Revenue supplies, posters, banners, t-shirts, books and the like
lack probative value and should be treated as than to show or print the same on the face of the because Revenue Regulations No. 7-95 defines
inadmissible, incompetent and immaterial to prove invoices. There can be no other valid proof of capital goods as to include even those goods which
petitioners export sales transaction. compliance with the above provision than to show are indirectly used in the production or sale of taxable
xxxx the Authority to Print Permit number [printed] on the goods or services.
ACCORDINGLY, the Motion for Reconsideration sales invoices and official receipts. Capital goods or properties, as defined under Section
and the Supplemental Motion for Reconsideration With regard to petitioners failure to print the word 4.106-1(b) of Revenue Regulations No. 7-95, refer
filed by petitioner as well as the Motion for Partial "zero-rated" on the face of its export sales invoices, it "to goods or properties with estimated useful life
Reconsideration of respondent are hereby DENIED must be emphasized that Section 4.108-1 of Revenue greater than one year and which are treated as
for lack of merit. The pronouncement in the assailed Regulations No. 7-95 specifically requires that all depreciable assets under Section 29 (f), used directly
decision is REITERATED. value-added tax registered persons shall, for every or indirectly in the production or sale of taxable
SO ORDERED 23 sale or lease of goods or properties or services, issue goods or services."
Ruling of the CTA En Banc duly registered invoices which must show the word Considering that the items (training materials, office
Undaunted, petitioner elevated the case to the "zero-rated" [printed] on the invoices covering zero- supplies, posters, banners, t-shirts, books and the
CTA En Banc via a Petition for Review,24 docketed as rated sales. like) purchased by petitioner as reflected in the
EB Case No. 23. It is not enough that petitioner prove[s] that it is summary were not duly proven to have been used,
entitled to its claim for refund by way of substantial directly or indirectly[,] in the production or sale of
taxable goods or services, the same cannot be Commissioner of Internal Revenue,35 where Intels 3) the claim must be filed within two years
considered as capital goods as defined above[. failure to print the ATP on the sales invoices or after the close of the taxable quarter when
Consequently,] the same may not x x x then [be] receipts did not result in the outright denial of its such sales were made; and
claimed as such. claim for tax credit/refund.36 Although the cited case 4) the creditable input tax due or paid must
WHEREFORE, in view of the foregoing, this instant only dealt with the printing of the ATP, petitioner be attributable to such sales, except the
Petition for Review is hereby DENIED DUE submits that the reasoning in that case should also transitional input tax, to the extent that such
COURSE and hereby DISMISSED for lack of merit. apply to the printing of the word "zero- input tax has not been applied against the
This Court's Decision of November 18, 2003 and rated."37 Hence, failure to print of the word "zero- output tax.
Resolution of August 10, 2004 are hereby rated" on the sales invoices should not result in the To prove that it is engaged in zero-rated sales,
AFFIRMED in all respects. denial of a claim. petitioner presented export sales invoices,
SO ORDERED.26 As to the claim for refund of input VAT on capital certifications of inward remittance, export
Petitioner sought reconsideration of the assailed goods, petitioner insists that it has sufficiently proven declarations, and airway bills of lading for the fourth
Decision but the CTA En Banc denied the Motion27 in through testimonial and documentary evidence that quarter of 1998. The CTA Division, however, found
a Resolution28 dated April 20, 2006. all the goods purchased were used in the production the export sales invoices of no probative value in
Issues and manufacture of its finished products which were establishing petitioners zero-rated sales for the
Hence, the instant Petition raising the following sold and exported.38 purpose of claiming credit/refund of input VAT
issues for resolution: Respondents Arguments because petitioner failed to show that it has an ATP
(1) whether the CTA En Banc erred in To refute petitioners arguments, respondent asserts from the BIR and to indicate the ATP and the word
denying petitioners claim for credit/ refund that the printing of the ATP on the export sales "zero-rated" in its export sales invoices.44 The CTA
of input VAT attributable to its zero-rated invoices, which serves as a control mechanism for the Division cited as basis Sections 113,45 23746 and
sales in the amount of P16,732,425.00 due BIR, is mandated by Section 238 of the 23847 of the NIRC, in relation to Section 4.108-1 of
to its failure: NIRC;39 while the printing of the word "zero-rated" RR No. 7-95.48
(a) to show that it secured an ATP on the export sales invoices, which seeks to prevent We partly agree with the CTA.
from the BIR and to indicate the purchasers of zero-rated sales or services from Printing the ATP on the invoices or receipts is not
same in its export sales invoices; claiming non-existent input VAT credit/refund,40 is required
and required under RR No. 7-95, promulgated pursuant to It has been settled in Intel Technology Philippines,
(b) to print the word "zero-rated" in Section 244 of the NIRC.41 With regard to the Inc. v. Commissioner of Internal Revenue49 that the
its export sales invoices.29 unutilized input VAT on capital goods, respondent ATP need not be reflected or indicated in the invoices
(2) whether the CTA En Banc erred in ruling counters that petitioner failed to show that the goods or receipts because there is no law or regulation
that only the amount of P9,898,867.00 can it purchased/imported are capital goods as defined in requiring it.50 Thus, in the absence of such law or
be classified as input VAT paid on capital Section 4.106-1 of RR No. 7-95. 42 regulation, failure to print the ATP on the invoices or
goods.30 Our Ruling receipts should not result in the outright denial of a
Petitioners Arguments The petition is bereft of merit. claim or the invalidation of the invoices or receipts
Petitioner posits that the denial by the CTA En Banc Before us are two types of input VAT credits. One is a for purposes of claiming a refund.51
of its claim for refund of input VAT attributable to its credit/refund of input VAT attributable to zero-rated ATP must be secured from the BIR
zero-rated sales has no legal basis because the sales under Section 112 (A) of the NIRC, and the But while there is no law requiring the ATP to be
printing of the ATP and the word "zero-rated" on the other is a credit/refund of input VAT on capital goods printed on the invoices or receipts, Section 238 of the
export sales invoices are not required under Sections pursuant to Section 112 (B) of the same Code. NIRC expressly requires persons engaged in business
113 and 237 of the National Internal Revenue Code Credit/refund of input VAT on zero-rated sales to secure an ATP from the BIR prior to printing
(NIRC).31 And since there is no law requiring the In a claim for credit/refund of input VAT attributable invoices or receipts. Failure to do so makes the
ATP and the word "zero-rated" to be indicated on the to zero-rated sales, Section 112 (A)43 of the NIRC person liable under Section 26452 of the NIRC.
sales invoices,32 the absence of such information in lays down four requisites, to wit: This brings us to the question of whether a claimant
the sales invoices should not invalidate the 1) the taxpayer must be VAT-registered; for unutilized input VAT on zero-rated sales is
petition33 nor result in the outright denial of a claim 2) the taxpayer must be engaged in sales required to present proof that it has secured an ATP
for tax credit/refund.34 To support its position, which are zero-rated or effectively zero- from the BIR prior to the printing of its invoices or
petitioner cites Intel Technology Philippines, Inc. v. rated; receipts.
We rule in the affirmative. receipts, on the other hand, is not. In this case,
Under Section 112 (A) of the NIRC, a claimant must petitioner failed to present its ATP and to print the
be engaged in sales which are zero-rated or word "zero-rated" on its export sales invoices. Thus,
effectively zero-rated. To prove this, duly registered we find no error on the part of the CTA in denying
invoices or receipts evidencing zero-rated sales must outright petitioners claim for credit/refund of input
be presented. However, since the ATP is not indicated VAT attributable to its zero-rated sales.
in the invoices or receipts, the only way to verify Credit/refund of input VAT on capital goods
whether the invoices or receipts are duly registered is Capital goods are defined under Section 4.106-1(b)
by requiring the claimant to present its ATP from the of RR No. 7-95
BIR. Without this proof, the invoices or receipts To claim a refund of input VAT on capital goods,
would have no probative value for the purpose of Section 112 (B)56 of the NIRC requires that:
refund. In the case of Intel, we emphasized that: 1. the claimant must be a VAT registered
It bears reiterating that while the pertinent provisions person;
of the Tax Code and the rules and regulations 2. the input taxes claimed must have been
implementing them require entities engaged in paid on capital goods;
business to secure a BIR authority to print invoices or 3. the input taxes must not have been
receipts and to issue duly registered invoices or applied against any output tax liability; and
receipts, it is not specifically required that the BIR 4. the administrative claim for refund must
authority to print be reflected or indicated therein. have been filed within two (2) years after the
Indeed, what is important with respect to the BIR close of the taxable quarter when the
authority to print is that it has been secured or importation or purchase was made.
obtained by the taxpayer, and that invoices or receipts Corollarily, Section 4.106-1 (b) of RR No. 7-95
are duly registered.53 (Emphasis supplied) defines capital goods as follows:
Failure to print the word "zero-rated" on the sales "Capital goods or properties" refer to goods or
invoices is fatal to a claim for refund of input properties with estimated useful life greater that one
VAT1awphi1 year and which are treated as depreciable assets
Similarly, failure to print the word "zero-rated" on the under Section 29 (f),57 used directly or indirectly in
sales invoices or receipts is fatal to a claim for the production or sale of taxable goods or services.
credit/refund of input VAT on zero-rated sales. Based on the foregoing definition, we find no reason
In Panasonic Communications Imaging Corporation to deviate from the findings of the CTA that training
of the Philippines (formerly Matsushita Business materials, office supplies, posters, banners, T-shirts,
Machine Corporation of the Philippines) v. books, and the other similar items reflected in
Commissioner of Internal Revenue,54 we upheld the petitioners Summary of Importation of Goods are
denial of Panasonics claim for tax credit/refund due not capital goods. A reduction in the refundable input
to the absence of the word "zero-rated" in its VAT on capital goods from P15,170,082.00
invoices. We explained that compliance with Section to P9,898,867.00 is therefore in order.
4.108-1 of RR 7-95, requiring the printing of the WHEREFORE, the Petition is hereby DENIED. The
word "zero rated" on the invoice covering zero-rated assailed Decision dated September 30, 2005 and the
sales, is essential as this regulation proceeds from the Resolution dated April 20, 2006 of the Court of Tax
rule-making authority of the Secretary of Finance Appeals En Banc are hereby AFFIRMED.
under Section 24455 of the NIRC. SO ORDERED.
All told, the non-presentation of the ATP and the
failure to indicate the word "zero-rated" in the
invoices or receipts are fatal to a claim for
credit/refund of input VAT on zero-rated sales. The
failure to indicate the ATP in the sales invoices or
SECOND DIVISION production and sale of electricity as an independent attributable thereto. The tax court held that Kepco
power producer. It sells its electricity to the National failed to comply with the invoicing requirements in
Power Corporation (NPC). Kepco filed with clear violation of Section 4.108-1 of Revenue
KEPCO PHILIPPINES CORPORATION, respondent Commissioner of Internal Revenue (CIR) Regulations (R.R.) No. 7-95, implementing Section
Petitioner, an application for effective zero-rating of its sales of 108(B)(3) in conjunction with Section 113 of the
electricity to the NPC. 1997 NIRC.

Kepco alleged that for the taxable year 1999, In view of the denial of its motion for
- versus - it incurred input VAT in the amount reconsideration, Kepco filed an appeal via petition
of P10,527,202.54 on its domestic purchases of for review before the CTA En Banc, on the ground
goods and services that were used in its production that the CTA Second Division erred in not
and sale of electricity to NPC for the same period. In considering the amount of P10,514,023.92 as
its 1999 quarterly VAT returns filed with the Bureau refundable tax credit and in failing to appreciate that
COMMISSIONER OF INTERNAL of Internal Revenue (BIR) on March 30, 2000, Kepco it was exclusively selling electricity to NPC, a tax
REVENUE, declared the said input VAT as follows: exempt entity.
Respondent.
INPUT TAX On May 17, 2007, the CTA En
X Exhibit 1999 Carried-over from This quarter Carried Banc dismissed the petition, reasoning out that
---------------------------------------------------------------- over previous quarter to next quarter Kepcos failure to comply with the requirement of
---------------------- X A 1st qtr 100,564,209.14 4,804,974.70 105,369,183.8 imprinting the words zero-rated on its official
4 receipts resulted in non-entitlement to the benefit of
DECISION B 2nd qtr 105,369,183.84 1,461,960.38 106,831,144.2 VAT zero-rating and denial of its claim for refund of
2 input tax. The decision reads in part:
C 3rd qtr 106,831,144.22 2,563,288.00 109,394,432.2
MENDOZA, J.: 2
D 4th qtr 109,394,432.22 1,696,979.46 111,091,411.6 In sum, the Court En
This is a petition for review on certiorari 8 Banc finds no cogent justification
under Rule 45 of the 1997 Rules of Civil Procedure _____________ to disturb the findings and
assailing the May 17, 2007 Decision [1] of the Court of TOTAL P10,527,202.54:[2] conclusion spelled out in the
Tax Appeals En Banc (CTA), in C.T.A. E.B. No. 186 assailed August 31, 2005 Decision
entitled KEPCO Philippines Corporation v. Thus, on January 29, 2001, Kepco filed an and May 4, 2006 Resolution of the
Commissioner of Internal Revenue, which denied administrative claim for refund corresponding to its CTA Second Division. What the
petitioners claim for refund or issuance of tax credit reported unutilized input VAT for the four quarters of instant petition seeks is for the
certificate for the unapplied input value-added taxes 1999 in the amount of P10,527,202.54. Thereafter, Court En Banc to view and
attributable to zero-rated sales of services for taxable on April 24, 2001, Kepco filed a petition for review appreciate the evidence in their
year 1999, as well as its Resolution, dated September before the CTA pursuant to Section 112(A) of the own perspective of things, which
28, 2007, which denied the motion for 1997 National Internal Revenue Code (NIRC), which unfortunately had already been
reconsideration of the said decision. grants refund of unutilized input taxes attributable to considered and passed upon.
zero-rated or effectively zero-rated sales. This was
THE FACTS docketed as CTA Case No. 6287. WHEREFORE, the
On August 31, 2005, the CTA Second instant Petition is hereby DENIED
Petitioner Kepco Philippines Corporation Division rendered a decision[3] denying Kepcos claim DUE
(Kepco) is a domestic corporation duly organized and for refund for failure to properly substantiate its COURSE and DISMISSED for
existing under and by virtue of the laws of the effectively zero-rated sales for the taxable year 1999 lack of merit.
Republic of the Philippines.It is a value-added in the total amount of P860,340,488.96, with the
tax (VAT) registered taxpayer engaged in the alleged input VAT of P10,527,202.54 directly SO ORDERED.[4]
AMOUNT OF PHP10,514,023.92.
[7]
Presiding Justice Ernesto D. Acosta agreed
with the majority that services rendered by a VAT- Moreover, granting for the From the foregoing arguments, the principal
registered entity to the NPC, a tax-exempt entity, sake of argument that the Revenue issue to be resolved is whether Kepcos failure to
were effectively zero-rated.He was likewise of the Regulations above cited may imprint the words zero-rated on its official receipts
view that Kepcos claim could not be granted because validly impose such requirements, issued to NPC justifies an outright denial of its claim
it presented official receipts which were not in no provision allows the outright for refund of unutilized input tax credits.
sequence indicating, that it might have sold rejection of a refund claim as
electricity to entities other than NPC. But, he strongly penalty for a tax-payers failure to Kepco contends that the provisions of the
dissented on the outright rejection of Kepcos refund abide by the requirements laid 1997 Tax Code, specifically Section 113 in relation to
claim for failure to comply with the imprinting down in the said regulations.[5] Section 237, do not mention the mandatory
requirements. His dissenting opinion states in part: requirement of imprinting the words zero-rated to
Kepco filed a motion for reconsideration of purchases covering zero-rated transactions. The only
However, I dissent to the the decision but it was denied for lack of merit by the provision which requires the imprinting of the word
majoritys finding that imprinting CTA En Banc in its Resolution[6] dated September 28, zero-rated on VAT invoice or official receipt is
the term zero-rated as well as the 2007. Section 4.108-1 of R.R. No. 7-95. Kepco argues that
BIR authority to print or BIR the condition imposed by the said administrative
Permit marker on duly registered Hence, Kepco interposes this petition issuance should not be controlling over Section 113
Value Added Tax (VAT) official praying for the reversal and setting aside of the May of the 1997 Tax Code, considering the long-settled
receipts/invoices is necessary such 17, 2007 CTA Decision anchored on the following rule that administrative rules and regulations cannot
that non-compliance would result expand the letter and spirit of the law they seek to
to the outright denial of petitioners GROUNDS: enforce.
claim.
(I) Kepco further argues that there is no law or
Xxxx regulation which imposes automatic denial of
THE COURT OF TAX taxpayers refund claim for failure to comply with the
Clearly, the applicable APPEALS EN BANC invoicing requirements. No jurisprudence sanctions
provisions of the Tax Code does COMMITTED SERIOUS the same, not even the Atlas case,[8] cited by the
not require the word zero-rated or ERROR OF LAW WHEN IT CTA En Banc. According to Kepco, although it
the other information required by RULED THAT PETITIONERS agrees with the CTA ruling that administrative
the majority in the invoice/official FAILURE TO IMPRINT THE issuances, like BIR regulations, requiring an
receipt.The requirement of WORDS ZERO-RATED ON ITS imprinting of zero-rated on zero-rating transactions
imprinting the questioned VAT OFFICIAL RECEIPTS should be strictly complied with, it opposes the
information on the VAT invoice or ISSUED TO NPC IS FATAL TO outright denial of refund claim for non-compliance
receipt can be found in Section ITS CLAIM FOR REFUND OF thereof. It insists that such automatic denial is too
4.108-1 of Revenue Regulations UNUTILIZED INPUT TAX harsh a penalty and runs counter to the doctrine
No. 7-95 (The Implementing Rules CREDITS. of solutio indebiti under Article 2154 of the New
and Regulations of the VAT Civil Code.
law). Then again, the said provision (II)
is merely a regulation created for The CIR, in his Comment,[9] counters that
the sole and limited purpose of PETITIONER HAS Kepco is not entitled to a tax refund because it was
implementing an otherwise very SUFFICIENTLY PROVEN not able to substantiate the amount of P10,514,023.92
exact law. THAT IT IS RIGHTFULLY representing zero-rated transactions for failure to
ENTITLED TO A REFUND OR submit VAT official receipts and invoices imprinted
ISSUANCE OF TAX CREDIT with the wordings zero-rated in violation of Section
CERTIFICATE IN THE 4.108-1 of R.R. 7-95.
subjects the Sec. 113. Invoicing and
The petition is bereft of merit. supply of such Accounting Requirements for
services to zero VAT-Registered Persons.
The pertinent laws governing the present case is percent (0%)
Section 108(B)(3) of the NIRC of 1997 in relation to rate; (A) Invoicing Requirements. A
Section 13 of Republic Act (R.A.) No. 6395 (The xxx VAT-registered person shall, for
Revised NPC Charter), as amended by Presidential Sec. 13. Non-profit every sale, issue an invoice or
Decree (P.D.) Nos. 380 and 938, which provide as Character of the Corporation; receipt. In addition to the
follows: Exemption from All Taxes, information required under Section
Sec. 108. Value-added Duties, Fees, Imposts and Other 237, the following information
Tax on Sale of Services and Use Charges by the Government and shall be indicated in the invoice or
or Lease of Properties. Government receipt:
(A) Rate and Instrumentalities. The
Base of Corporation shall be non-profit and (1) A statement
Tax. x x x shall devote all its return from its that the seller is a
(B) Transaction capital investment as well as excess VAT-registered
s Subject to revenues from its operation, for person, followed
Zero expansion. To enable the by his taxpayers
Percent Corporation to pay its indebtedness identification
(0%) Rate. and obligations and in furtherance number; and
The and effective implementation of the
following policy enunciated in Section One of (2) The total
services this Act, the Corporation, including amount which the
performed its subsidiaries, is hereby declared purchaser pays or
in exempt from the payment of all is obligated to
the Philippi forms of taxes, duties, fees, imposts pay to the seller
nes by VAT- as well as costs and service fees with the
registered including filing fees, appeal bonds, indication that
persons supersedeas bonds, in any court or such amount
shall be administrative proceedings. includes the
subject to value-added tax.
zero percent
(0%) rate: Based on the afore-quoted provisions, there (B) Accounting Requirements.
xxx is no doubt that NPC is an entity with a special Notwithstanding the provisions of
(3) Services charter and exempt from payment of all forms of Section 233, all persons subject to
rendered to taxes, including VAT. As such, services rendered by the value-added tax under Sections
persons or any VAT-registered person/entity, like Kepco, to NPC 106 and 108 shall, in addition to the
entities whose are effectively subject to zero percent (0%) rate. regular accounting records
exemption under required, maintain a subsidiary
special laws or For the effective zero rating of such services, sales journal and subsidiary
international however, the VAT-registered taxpayer must comply purchase journal on which the daily
agreements to with invoicing requirements under Sections 113 and sales and purchases are
which the 237 of the 1997 NIRC as implemented by Section recorded. The subsidiary journals
Philippines is a 4.108-1 of R.R. No. 7-95, thus: shall contain such information as
signatory may be required by the Secretary of
effectively Finance.[10] (Emphasis supplied)
or receipt was issued, while the considered as "VAT Invoice." All
Sec. 237. Issuance of duplicate shall be kept and purchases covered by
Receipts or Sales or Commercial preserved by the issuer, also in his invoices other than "VAT Invoice"
Invoices. All persons subject to an place of business, for a like period. shall not give rise to any input tax.
internal revenue tax shall, for each If the taxable person is
sale or transfer of merchandise or The Commissioner may, in also engaged in exempt operations,
for services rendered valued at meritorious cases, exempt any he should issue separate invoices or
Twenty-five pesos (P25.00) or person subject to an internal receipts for the taxable and exempt
more, issue duly registered receipts revenue tax from compliance with operations. A "VAT Invoice" shall
or sales or commercial invoices, the provisions of this Section.[11] be issued only for sales of goods,
prepared at least in duplicate, Section 4.108-1. properties or services subject to
showing the date of transaction, Invoicing Requirements. All VAT- VAT imposed in Sections 100 and
quantity, unit cost and description registered persons shall, for every 102 of the code.
of merchandise or nature of sale or lease of goods or properties The invoice or receipt
service: Provided, however, That in or services, issue duly registered shall be prepared at least in
the case of sales, receipts or receipts or sales or commercial duplicate, the original to be given
transfers in the amount of One invoices which must show: to the buyer and the duplicate to be
Hundred Pesos (P100.00) or more, 1. The name, TIN and retained by the seller as part of his
or regardless of amount, where the address of seller; accounting records. (Emphases
sale or transfer is made by a person 2. Date of transaction; supplied)
liable to value-added tax to another 3. Quantity, unit cost and Also, as correctly noted by the CTA En
person also liable to value-added description of Banc, in Kepcos approved Application/Certificate for
tax; or where the receipt is issued merchandise or nature of Zero Rate issued by the CIR on January 19, 1999, the
to cover payment made as rentals, service; imprinting requirement was likewise specified, viz:
commissions, compensations or 4. The name, TIN,
fees, receipts or invoices shall be business style, if any, and Valid only for sale of services
issued which shall show the name, address of the VAT- from Jan. 19, 1999 up to December
business style, if any, and address registered purchaser, 31, 1999 unless sooner revoked.
of the purchaser, customer or customer or client;
client; Provided, further, That 5. The word "zero- Note: Zero-Rated Sales must be
where the purchaser is a VAT- rated" imprinted on the indicated in the invoice/receipt.[12]
registered person, in addition to the invoice covering zero-
information herein required, the rated sales;
invoice or receipt shall further 6. The invoice value or Indeed, it is the duty of Kepco to comply
show the Taxpayer Identification consideration. with the requirements, including the imprinting of the
Number (TIN) of the purchaser. In the case of sale of real words zero-rated in its VAT official receipts and
The original of each receipt or property subject to VAT and where invoices in order for its sales of electricity to NPC to
invoice shall be issued to the the zonal or market value is higher qualify for zero-rating.
purchaser, customer or client at the than the actual consideration, the
time the transaction is effected, VAT shall be separately indicated in It must be emphasized that the requirement
who, if engaged in business or in the invoice or receipt. of imprinting the word zero-rated on the invoices or
the exercise of profession, shall Only VAT-registered receipts under Section 4.108-1 of R.R. No. 7-95 is
keep and preserve the same in his persons are required to print mandatory as ruled by the CTA En Banc,
place of business for a period of their TIN followed by the word citing Tropitek International, Inc. v. Commissioner of
three (3) years from the close of the "VAT" in their invoices or Internal Revenue.[13] In Kepco Philippines
taxable year in which such invoice receipts and this shall be Corporation v. Commissioner of Internal Revenue,
[14]
the CTA En Banc explained the rationale behind 1997 Tax Code, is unavailing. Indubitably, said Further, the printing of the
such requirement in this wise: revenue regulation is merely a precautionary measure word "zero-rated" on the invoice
to ensure the effective implementation of the Tax helps segregate sales that are
The imprinting of zero- Code. It was not used by the CTA to expound the subject to 10% (now 12%) VAT
rated is necessary to distinguish meaning of Sections 113 and 237 of the NIRC. As a from those sales that are zero-rated.
sales subject to 10% VAT, those matter of fact, the provision of Section 4.108-1 of Unable to submit the proper
that are subject to 0% VAT (zero- R.R. 7-95 was incorporated in Section 113 (B)(2)(c) invoices, petitioner Panasonic has
rated) and exempt sales, to enable of R.A. No. 9337,[15] which states that if the sale is been unable to substantiate its
the Bureau of Internal Revenue to subject to zero percent (0%) value-added tax, the claim for refund.
properly implement and enforce the term zero-rated sale shall be written or printed
other provisions of the 1997 NIRC prominently on the invoice or receipt. This, in effect, To bolster its claim for tax refund or credit,
on VAT, namely: and as correctly concluded by the CIR, confirms the Kepco cites the case of Intel Technology Philippines,
validity of the imprinting requirement on VAT Inc. v. Commissioner of Internal Revenue.[17] Kepcos
1. Zero-rated invoices or official receipts even prior to the reliance on the said case is misplaced because the
sales [Sec. enactment of R.A. No. 9337 under the principle of factual milieu there is quite different from that of the
106(A)(2) legislative approval of administrative interpretation case at bench. In the Intel case, the claim for tax
and Sec. by reenactment. refund or issuance of a tax credit certificate was
108(B)]; denied due to the taxpayers failure to reflect or
2. Exempt Quite significant is the ruling handed down indicate in the sales invoices the BIR authority to
transactions in the case of Panasonic Communications Imaging print. The Court held that the BIR authority to print
[Sec. 109] in Corporation of the Philippines v. Commissioner of was not one of the items required by law or BIR
relation to Internal Revenue, [16] to wit: regulation to be indicated or reflected in the invoices
Sec. 112(A); Section 4.108-1 of RR 7- or receipts, hence, the BIR erred in denying the claim
3. Tax Credits 95 proceeds from the rule-making for refund. In the present case, however, the principal
[Sec. 110]; authority granted to the Secretary ground for the denial was the absence of the word
and of Finance under Section 245 of the zero-rated on the invoices, in clear violation of the
4. Refunds or 1977 NIRC (Presidential Decree invoicing requirements under Section 108(B)(3) of
tax credits of 1158) for the efficient enforcement the 1997 NIRC, in conjunction with Section 4.108-1
input tax of the tax code and of course its of R.R. No. 7-95.
[Sec. 112] amendments. The requirement is Regarding Kepcos contention, that non-
reasonable and is in accord with the compliance with the requirement of invoicing would
xxx efficient collection of VAT from the only subject the non-complying taxpayer to penalties
covered sales of goods and of fine and imprisonment under Section 264 of the
services. As aptly explained by the Tax Code, and not to the outright denial of the claim
Records disclose, as correctly found by the CTAs First Division, the for tax refund or credit, must likewise fail. Section
CTA that Kepco failed to substantiate the claimed appearance of the word "zero- 264 categorically provides for penalties in case of
zero-rated sales of P10,514,023.92. The wordings rated" on the face of invoices Failure or Refusal to Issue Receipts or Sales or
zero-rated sales were not imprinted on the VAT covering zero-rated sales prevents Commercial Invoices, Violations related to the
official receipts presented by Kepco (marked as buyers from falsely claiming input Printing of such Receipts or Invoices and Other
Exhibits S to S-11) for taxable year 1999, in clear VAT from their purchases when no Violations, but not to penalties for failure to comply
violation of Section 4.108-1 of R.R. No. 7-95 and the VAT was actually paid. If, absent with the requirement of invoicing. As recently held
condition imposed under its approved such word, a successful claim for in Kepco Philippines Corporation v. Commissioner
Application/Certificate for Zero-rate as well. input VAT is made, the government of Internal Revenue,[18] Section 264 of the 1997 NIRC
would be refunding money it did was not intended to excuse the compliance of the
Kepcos claim that Section 4.108-1 of R.R. not collect. substantive invoicing requirement needed to justify a
7-95 expanded the letter and spirit of Section 113 of claim for refund on input VAT payments.
Thus, for Kepcos failure to substantiate its
effectively zero-rated sales for the taxable year 1999,
the claimed P10,527,202.54 input VAT cannot be
refunded.
Indeed, in a string of recent decisions on this
matter, to wit: Panasonic Communications Imaging
Corporation of the Philippines v. Commissioner of
Internal Revenue,[19]J.R.A. Philippines, Inc. v.
Commissioner of Internal Revenue,[20] Hitachi Global
Storage Technologies Philippines Corp. (formerly
Hitachi Computer Products (Asia) Corporations) v.
Commissioner of Internal Revenue,[21] and Kepco
Philippines Corporation v. Commissioner of Internal
Revenue,[22] this Court has consistently held that
failure to print the word zero-rated on the invoices or
receipts is fatal to a claim for refund or credit of input
VAT on zero-rated sales.

Contrary to Kepcos view, the denial of its


claim for refund of input tax is not a harsh
penalty. The invoicing requirement is reasonable and
must be strictly complied with, as it is the only way
to determine the veracity of its claim.

Well-settled in this jurisdiction is the


fact that actions for tax refund, as in this case, are in
the nature of a claim for exemption and the law is
construed in strictissimi juris against the
taxpayer. The pieces of evidence presented entitling a
taxpayer to an exemption are
also strictissimi scrutinized and must be duly proven.
[23]

WHEREFORE, the petition is DENIED.

SO ORDERED.
Republic of the Philippines make a true and complete return of the The petitioner appealed to this Court. Its position is
SUPREME COURT amount of his, her, or its gross monthly that it is not liable for the payment of tax on the sales
Manila sales, receipts or earnings, or gross value of it made to the NPC and the VOA because both
EN BANC output actually removed from the factory or entities are exempt from taxation.
G.R. No. L-19707 August 17, 1967 mill warehouse and within twenty days after I
PHILIPPINE ACETYLENE CO., the end of each month, pay the tax due The NPC enjoys tax exemption by virtue of an act2 of
INC., petitioner, thereon: Provided, That any person retiring Congress which provides as follows:
vs. from a business subject to the percentage tax Sec. 2. To facilitate the payment of its
COMMISSIONER OF INTERNAL REVENUE shall notify the nearest internal revenue indebtedness, the National Power
and COURT OF TAX APPEALS, respondents. officer thereof, file his return or declaration Corporation shall be exempt from all taxes,
Ponce Enrile, Siguion Reyna, Montecillo and Belo, and pay the tax due thereon within twenty except real property tax, and from all duties,
for petitioner. days after closing his business. fees, imposts, charges, and restrictions of the
Office of the Solicitor General for respondents. If the percentage tax on any business is not Republic of the Philippines, its provinces,
CASTRO, J.: paid within the time specified above, the cities and municipalities.
The petitioner is a corporation engaged in the amount of the tax shall be increased by It is contended that the immunity thus given to the
manufacture and sale of oxygen and acetylene gases. twenty-five per centum, the increment to be NPC would be impaired by the imposition of a tax on
During the period from June 2, 1953 to June 30, a part of the tax. sales made to it because while the tax is paid by the
1958, it made various sales of its products to the The petitioner denied liability for the payment of the manufacturer or producer, the tax is ultimately shifted
National Power Corporation, an agency of the tax on the ground that both the NPC and the VOA are by the latter to the former. The petitioner invokes in
Philippine Government, and to the Voice of America exempt from taxation. It asked for a reconsideration support of its position a 1954 opinion of the Secretary
an agency of the United States Government. The of the assessment and, failing to secure one, appealed of Justice which ruled that the NPC is exempt from
sales to the NPC amounted to P145,866.70, while to the Court of Tax Appeals. the payment of all taxes "whether direct or indirect."
those to the VOA amounted to P1,683, on account of The court ruled that the tax on the sale of articles or We begin with an analysis of the nature of the
which the respondent Commission of Internal goods in section 186 of the Code is a tax on the percentage (sales) tax imposed by section 186 of the
Revenue assessed against, and demanded from, the manufacturer and not on the buyer with the result that Code. Is it a tax on the producer or on the purchaser?
petitioner the payment of P12,910.60 as deficiency the "petitioner Philippine Acetylene Company, the Statutes of the type under consideration, which
sales tax and surcharge, pursuant to the following- manufacturer or producer of oxygen and acetylene impose a tax on sales, have been described as "act[s]
provisions of the National Internal Revenue Code: gases sold to the National Power Corporation, cannot with schizophrenic symptoms,"3 as they apparently
Sec. 186. Percentage tax on sales of other claim exemption from the payment of sales tax have two faces one that of a vendor tax, the other,
articles.There shall be levied, assessed simply because its buyer the National Power a vendee tax. Fortunately for us the provisions of the
and collected once only on every original Corporation is exempt from the payment of all Code throw some light on the problem. The Code
sale, barter, exchange, and similar taxes." With respect to the sales made to the VOA, states that the sales tax "shall be paid by the
transaction either for nominal or valuable the court held that goods purchased by the American manufacturer or producer,"4 who must "make a true
considerations, intended to transfer Government or its agencies from manufacturers or and complete return of the amount of his, her or its
ownership of, or title to, the articles not producers are exempt from the payment of the sales gross monthly sales, receipts or earnings or gross
enumerated in sections one hundred and tax under the agreement between the Government of value of output actually removed from the factory or
eighty-four and one hundred and eighty-five the Philippines and that of the United States, mill warehouse and within twenty days after the end
a tax equivalent to seven per centum of the provided the purchases are supported by certificates of each month, pay the tax due thereon."5
gross selling price or gross value in money of exemption, and since purchases amounting to only But it is argued that a sales tax is ultimately passed
of the articles so sold, bartered exchanged, P558, out of a total of P1,683, were not covered by on to the purchaser, and that, so far as the purchaser
or transferred, such tax to be paid by the certificates of exemption, only the sales in the sum of is an entity like the NPC which is exempt from the
manufacturer or producer: . . . . P558 were subject to the payment of tax. payment of "all taxes, except real property tax," the
Sec. 183. Payment of percentage taxes. Accordingly, the assessment was revised and the tax cannot be collected from sales.
(a) In general.It shall be the duty of every petitioner's liability was reduced from P12,910.60, as Many years ago, Mr. Justice Oliver Wendell Holmes
person conducting business on which a assessed by the respondent commission, to expressed dissatisfaction with the use of the phrase
percentage tax is imposed under this Title, to P12,812.16.1 "pass the tax on." Writing the opinion of the U.S.
Supreme Court in Lash's Products v. United have nothing to say. It could take the but which he was required to collect from the buyer,
States,6 he said: "The phrase 'passed the tax on' is gasoline or leave it but it could not require in respect of materials purchased by a contractor with
inaccurate, as obviously the tax is laid and remains the seller to abate his charge even if it had the United States on a cost-plus basis for use in
on the manufacturer and on him alone. The purchaser been arbitrarily increased in the hope of carrying out its contract, despite the fact that the
does not really pay the tax. He pays or may pay the getting more from the government than economic burden of the tax was borne by the United
seller more for the goods because of the seller's could be got from the public at large. . . . It States.
obligation, but that is all. . . . The price is the sum does not appear that the government would The asserted right of the one to be free of
total paid for the goods. The amount added because have refused to pay a price that included the taxation by the other does not spell
of the tax is paid to get the goods and for nothing tax if demanded, but if the government had immunity from paying the added costs,
else. Therefore it is part of the price . . .". refused it would not have exonerated the attributable to the taxation of those who
It may indeed be that the incidence of the tax seller. . . . furnish supplies to the Government and who
ultimately settles on the purchaser, but it is not for . . . I am not aware that the President, the have been granted no tax immunity. So far
that reason alone that one may validly argue that it is Members of the Congress, the Judiciary or as a different view has prevailed, see
a tax on the purchaser. The exemption granted to the to come nearer to the case at hand, the Coast Panhandle Oil Co. v. Mississippi and Graves
NPC may be likened to the immunity of the Federal Guard or the officials of the Veterans' v. Texas Co., supra, we think it no longer
Government from state taxation and vice versa in the Hospital [to which the sales were made], tenable.
federal system of government of the United States. In because they are instrumentalities of Further inroads into the doctrine of Panhandle were
the early case of Panhandle Oil Co. v. government and cannot function naked and made in 1943 when the U.S. Supreme Court held that
Mississippi7 the doctrine of intergovernment mental unfed, hitherto have been held entitled to immunity from state regulation in the performance of
tax immunity was held as prohibiting the imposition have their bills for food and clothing cut governmental functions by Federal officers and
of a tax on sales of gasoline made to the Federal down so far as their butchers and tailors agencies did not extend to those who merely
Government. Said the Supreme court of the United have been taxed on their sales; and I had not contracted to furnish supplies or render services to
States: supposed that the butchers and tailors could the government even though as a result of an increase
A charge at the prescribed. rate is made on omit from their tax returns all receipts from in the price of such supplies or services attributable to
account of every gallon acquired by the the large class of customers to which I have the state regulation, its ultimate effect may be to
United States. It is immaterial that the seller referred. The question of interference with impose an additional economic burden on the
and not the purchaser is required to report Government, I repeat, is one of Government.10
and make payment to the state. Sale and reasonableness and degree and it seems to But if a complete turnabout from the rule announced
purchase constitute a transaction by which me that the interference in this case is too in Panhandle was yet to be made, it was so made in
the tax is measured and on which the burden remote. 1952 in Esso Standard Oil v. Evans11 which held that
rests. . . . The necessary operation of these But time was not long in coming to confirm the a contractor is not exempt from the payment of a
enactments when so construed is directly to soundness of Holmes' position. Soon it became state privilege tax on the business of storing gasoline
retard, impede and burden the exertion by obvious that to test the constitutionality of a statute simply because the Federal Government with which
the United States, of its constitutional by determining the party on which the legal incidence it has a contract for the storage of gasoline is immune
powers to operate the fleet and hospital. . . . of the tax fell was an unsatisfactory way of doing from state taxation.
To use the number of gallons sold the United things. The fall of the bastion was signalled by Chief This tax was imposed because Esso stored
States as a measure of the privilege tax is in Justice Hughes' statement in James v. Dravo gasoline. It is not . . . based on the worth of
substance and legal effect to tax the sale. . . . Constructing Co.8 that "These cases [referring to the government property. Instead, the
And that is to tax the United States to Panhandle and Indian Motorcycle Co. v. United amount collected is graduated in accordance
exact tribute on its transactions and apply States, 283 U.S. 570 (1931)] have been distinguished with the exercise of Esso's privilege to
the same to the support of the and must be deemed to be limited to their particular engage in such operations; so it is not "on"
state.1wph1.t facts." the federal property. . . . Federal ownership
Justice Holmes did not agree. In a powerful dissent In 1941, Alabama v. King & Boozer9 held that the of the fuel will not immunize such a private
joined by Justices Brandeis and Stone, he said: constitutional immunity of the United States from contractor from the tax on storage. It may
If the plaintiff in error had paid the tax and state taxation was not infringed by the imposition of a generally, as it did here, burden the United
added it to the price the government would state sales tax with which the seller was chargeable States financially. But since James vs. Dravo
Contracting Co., 302 U.S. 134, 151, 82 L. billed as tax to the purchaser. The method of listing The circular referred to reads:
ed. 155, 167, 58 S. Ct. 208, 114 ALR 318, the price and the tax separately and defining taxable Goods purchased locally by U.S. civilian
this has been no fatal flaw. . . . 12 gross receipts as the amount received less the amount agencies directly from manufacturers,
We have determined the current status of the doctrine of the tax added, merely avoids payment by the seller producers or importers shall be exempt from
of intergovernmental tax immunity in the United of a tax on the amount of the tax. The effect is still the sales tax.
States, by showing the drift of the decisions the same, namely, that the purchaser does not pay the It was issued purportedly to implement the
following announcement of the original rule, to point tax. He pays or may pay the seller more for the goods Agreement between the Republic of the Philippines
up the that fact that even in those cases where because of the seller's obligation, but that is all and and the United States of America Concerning
exemption from tax was sought on the ground of state the amount added because of the tax is paid to get the Military Bases,16 but we find nothing in the language
immunity, the attempt has not met with success. goods and for nothing else.14 of the Agreement to warrant the general exemption
As Thomas Reed Powell noted in 1945 in reviewing But the tax burden may not even be shifted to the granted by that circular.
the development of the doctrine: purchaser at all. A decision to absorb the burden of The pertinent provisions of the Agreement read:
Since the Dravo case settled that it does not the tax is largely a matter of economics.15 Then it can ARTICLE V. Exemption from Customs
matter that the economic burden of the gross no longer be contended that a sales tax is a tax on the and Other Duties
receipts tax may be shifted to the purchaser. No import, excise, consumption or other tax,
Government, it could hardly matter that the We therefore hold that the tax imposed by section duty or impost shall be charged on material,
shift comes about by explicit agreement 186 of the National Internal Revenue Code is a tax on equipment, supplies or goods, including
covering taxes rather than by being absorbed the manufacturer or producer and not a tax on the food stores and clothing, for exclusive use in
in a higher contract price by bidders for a purchaser except probably in a very remote and the construction, maintenance, operation or
contract. The situation differed from that in inconsequential sense. Accordingly its levy on the defense of the bases, consigned to, or
the Panhandle and similar cases in that they sales made to tax-exempt entities like the NPC is destined for, the United States authorities
involved but two parties whereas here the permissible. and certified by them to be for such
transaction was tripartite. These cases are II purposes.
condemned in so far as they rested on the This conclusion should dispose of the same issue ARTICLE XVIII.Sales and Services
economic ground of the ultimate incidence with respect to sales made to the VOA, except that a Within the Bases
of the burden being on the Government, but claim is here made that the exemption of such sales 1. It is mutually agreed that the United
this condemnation still leaves open the from taxation rests on stronger grounds. Even the States Shall have the right to establish on
question whether either the state or the Court of Tax Appeals appears to share this view as is bases, free of all licenses; fees; sales, excise
United States when acting in governmental evident from the following portion of its decision: or other taxes, or imposts; Government
matters may be made legally liable to the With regard to petitioner's sales to the Voice agencies, including concessions, such as
other for a tax imposed on it as vendee. of America, it appears that the petitioner and sales commissaries and post exchanges,
The carefully chosen language of the Chief the respondent are in agreement that the messes and social clubs, for the exclusive
Justice keeps these cases from foreclosing Voice of America is an agency of the United use of the United States military forces and
the issue. . . . Yet at the time it would have States Government and as such, all goods authorized civilian personnel and their
been a rash man who would find in this a purchased locally by it directly from families. The merchandise or services sold
dictum that a sales tax clearly on the manufacturers or producers are exempt from or dispensed by such agencies shall be free
Government as purchaser is invalid or a the payment of the sales tax under the of all taxes, duties and inspection by the
dictum that Congress may immunize its provisions of the agreement between the Philippine authorities. . . .
contractors.13 Government of the Philippines and the Thus only sales made "for exclusive use in the
If a claim of exemption from sales tax based on state Government of the United States, (See construction, maintenance, operation or defense of
immunity cannot command assent, much less can a Commonwealth Act No. 733) provided such the bases," in a word, only sales to the quartermaster,
claim resting on statutory grant. purchases are supported by serially are exempt under article V from taxation. Sales of
It may indeed be that the economic burden of the tax numbered Certificates of Tax Exemption goods to any other party even if it be an agency of the
finally falls on the purchaser; when it does the tax issued by the vendee-agency, as required by United States, such as the VOA, or even to the
becomes a part of the price which the purchaser must General Circular No. V-41, dated October quartermaster but for a different purpose, are not free
pay. It does not matter that an additional amount is 16, 1947. . . . from the payment of the tax.
On the other hand, article XVIII exempts from the
payment of the tax sales made within the base by (not
sales to) commissaries and the like in recognition of
the principle that a sales tax is a tax on the seller and
not on the purchaser.
It is a familiar learning in the American law of
taxation that tax exemption must be strictly construed
and that the exemption will not be held to be
conferred unless the terms under which it is granted
clearly and distinctly show that such was the
intention of the parties.17 Hence, in so far as the
circular of the Bureau of Internal Revenue would
give the tax exemptions in the Agreement an
expansive construction it is void.
We hold, therefore, that sales to the VOA are subject
to the payment of percentage taxes under section 186
of the Code. The petitioner is thus liable for
P12,910.60, computed as follows:
Sales to NPC P145,866.70
Sales to VOA P 1,683.00

Total sales subject to tax P147,549.70

7% sales tax due thereon P 10,328.48


Add: 25% surcharge P 2,582.12

Total amount due and collectible P 12,910.60

Accordingly, the decision a quo is modified by


ordering the petitioner to pay to the respondent
Commission the amount of P12,910.60 as sales tax
and surcharge, with costs against the petitioner.
Republic of the Philippines A restudy of P.D. [No.] 114 shows that the covering the first calendar quarter of 1991
SUPREME COURT principal activity of pawnshops is lending has already lapsed, taxpayers are given up to
Manila money at interest and incidentally accepting June 30, 1991 within which to pay the said
a "pawn" of personal property delivered by tax without penalty. If the tax is paid after
FIRST DIVISION the pawner to the pawnee as security for the June 30, 1991, the corresponding penalties
loan.(Sec. 3, Ibid). Clearly, this makes shall be assessed and computed from April
G.R. No. 150947 July 15, 2003 pawnshop business akin to lending 21, 1991.
investors business activity which is broad
COMMISSIONER OF INTERNAL enough to encompass the business of Since pawnshops are considered as lending investors
REVENUE, petitioner, lending money at interest by any person effective January 1, 1991, they also become subject
vs. whether natural or juridical. Such being the to documentary stamp taxes prescribed in Title VII of
MICHEL J. LHUILLIER PAWNSHOP, case, pawnshops shall be subject to the 5% the Tax Code. BIR Ruling No. 325-88 dated July 13,
INC., respondent. lending investors tax based on their gross 1988 is hereby revoked.
income pursuant to Section 116 of the Tax
DAVIDE, JR., C.J.: Code, as amended. On 11 September 1997, pursuant to these issuances,
the Bureau of Internal Revenue (BIR) issued
Are pawnshops included in the term lending investors This RMO was clarified by Revenue Memorandum Assessment Notice No. 81-PT-13-94-97-9-118
for the purpose of imposing the 5% percentage tax Circular (RMC) No. 43-91 on 27 May 1991, which against Lhuillier demanding payment of deficiency
under then Section 116 of the National Internal reads: percentage tax in the sum of P3,360,335.11 for 1994
Revenue Code (NIRC) of 1977, as amended by inclusive of interest and surcharges.
Executive Order No. 273? 1. RM[O] 15-91 dated March 11, 1991.
On 3 October 1997, Lhuillier filed an administrative
Petitioner Commissioner of Internal Revenue (CIR) This Circular subjects to the 5% lending protest with the Office of the Revenue Regional
filed the instant petition for review to set aside the investors tax the gross income of Director contending that (1) neither the Tax Code nor
decision1 of 20 November 2001 of the Court of pawnshops pursuant to Section 116 of the the VAT Law expressly imposes 5% percentage tax
Appeals in CA G.R. SP No. 62463, which affirmed Tax Code, and it thus revokes BIR Ruling on the gross income of pawnshops; (2) pawnshops
the decision of 13 December 2000 of the Court of No[]. 6-90, and VAT Ruling Nos. 22-90 and are different from lending investors, which are
Tax Appeals (CTA) in CTA Case No. 5690 cancelling 67-90. In order to have a uniform cut-off subject to the 5% percentage tax under the specific
the assessment issued against respondent Michel J. date, avoid unfairness on the part of tax- provision of the Tax Code; (3) RMO No. 15-91 is not
Lhuillier Pawnshop, Inc. (hereafter Lhuillier) in the payers if they are required to pay the tax on implementing any provision of the Internal Revenue
amount of P3,360,335.11 as deficiency percentage past transactions, and so as to give meaning laws but is a new and additional tax measure on
tax for 1994, inclusive of interest and surcharges. to the express provisions of Section 246 of pawnshops, which only Congress could enact; (4)
the Tax Code, pawnshop owners or RMO No. 15-91 impliedly amends the Tax Code and
The facts are as follows: operators shall become liable to the lending is therefore taxation by implication, which is
investors tax on their gross income proscribed by law; and (5) RMO No. 15-91 is a
On 11 March 1991, CIR Jose U. Ong issued beginning January 1, 1991. Since the "class legislation" because it singles out pawnshops
Revenue Memorandum Order (RMO) No. deadline for the filing of percentage tax among other lending and financial operations.
15-91 imposing a 5% lending investors tax return (BIR Form No. 2529A-0) and the
on pawnshops; thus: payment of the tax on lending investors
On 12 October 1998, Deputy BIR Commissioner be enjoined from enforcing the warrant of subject to the 5% lending investors tax. He invokes
Romeo S. Panganiban issued Warrant of Distraint distraint and levy. then Section 116 of the Tax Code, which imposed a
and/or Levy No. 81-043-98 against Lhuilliers 5% percentage tax on lending investors. He argues
property for the enforcement and payment of the For Lhuilliers failure to appear on the that the legal definition of lending investors provided
assessed percentage tax. scheduled date of hearing, the CTA denied in Section 157 (u) of the Tax Code is broad enough to
the motion for the issuance of a writ of include pawnshop operators. Section 3 of Presidential
Its protest having been unacted upon, Lhuillier, in a preliminary injunction. However, on Decree No. 114 states that the principal business
letter dated 3 March 1998, elevated the matter to the Lhuilliers motion for reconsideration, said activity of a pawnshop is lending money; thus, a
CIR. Still, the protest was not acted upon by the CIR. denial was set aside and a hearing on the pawnshop easily falls under the legal definition of
Thus, on 11 November 1998, Lhuillier filed a "Notice motion for the issuance of a writ of lending investors. RMO No. 15-91 and RMC No. 43-
and Memorandum on Appeal" with the Court of Tax preliminary injunction was set. 91, which subject pawnshops to the 5% lending
Appeals invoking Section 228 of Republic Act No. investors tax based on their gross income, are valid.
8424, otherwise known as the Tax Reform Act of On 30 June 1999, after due hearing, the CTA Being mere interpretations of the NIRC, they need
1997, which provides: denied the CIRs motion to dismiss and not be published. Lastly, the CIR invokes the case of
granted Lhuilliers motion for the issuance Commissioner of Internal Revenue vs. Agencia
Section 228. Protesting of Assessment. of a writ of preliminary injunction. Exquisite of Bohol, Inc.,3 where the Court of
Appeals Special Fourteenth Division ruled that a
If the protest is denied in whole or in part, or On 13 December 2000, the CTA rendered a pawnshop is subject to the 5% lending investors tax.4
is not acted upon within one hundred eighty decision declaring (1) RMO No. 15-91 and
(180) days from submission of documents, RMC No. 43-91 null and void insofar as Lhuillier, on the other hand, maintains that before and
the taxpayer adversely affected by the they classify pawnshops as lending investors after the amendment of the Tax Code by E.O. No.
decision or inaction may appeal to the Court subject to 5% percentage tax; and (2) 273, which took effect on 1 January 1988, pawnshops
of Tax Appeals within thirty (30) days from Assessment Notice No. 81-PT-13-94-97-9- and lending investors were subjected to different tax
receipt of the said decision, or from the 118 as cancelled, withdrawn, and with no treatments. Pawnshops were required to pay an
lapse of the one hundred eighty (180)-day force and effect.2 annual fixed tax of only P1,000, while lending
period; otherwise, the decision shall become investors were subject to a 5% percentage tax on their
final, executory and demandable. Dissatisfied, the CIR filed a petition for review with gross income in addition to their fixed annual taxes.
the Court of Appeals praying that the aforesaid Accordingly, during the period from April 1982 up to
The case was docketed as CTA Case No. decision be reversed and set aside and another one be December 1990, the CIR consistently ruled that a
5690. rendered ordering Lhuillier to pay the 5% lending pawnshop is not a lending investor and should not
investors tax for 1994 with interests and surcharges. therefore be required to pay percentage tax on its
On 19 November 1998, the CIR filed with gross income.
the CTA a motion to dismiss Lhuilliers Upon due consideration of the issues presented by the
petition on the ground that it did not state a parties in their respective memoranda, the Court of Lhuillier likewise asserts that RMO No. 15-91 and
cause of action, as there was no action yet Appeals affirmed the CTA decision on 20 November RMC No. 43-91 are not implementing rules but are
on the protest. 2001. new and additional tax measures, which only
Congress is empowered to enact. Besides, they are
Lhuillier opposed the motion to dismiss and The CIR is now before this Court via this petition for invalid because they have never been published in the
moved for the issuance of a writ of review on certiorari, alleging that the Court of Official Gazette or any newspaper of general
preliminary injunction praying that the BIR Appeals erred in holding that pawnshops are not circulation.
Lhuillier further points out that pawnshops are RMO No. 15-91 and RMC No. 43-91 were issued in For clarity, it must be pointed out that the NIRC of
strictly regulated by the Central Bank pursuant to accordance with the power of the CIR to make 1977 as renumbered and rearranged by E.O. No. 273
P.D. No. 114, otherwise known as The Pawnshop rulings and opinions in connection with the is a later law than the NIRC of 1986, as amended by
Regulation Act. On the other hand, there is no special implementation of internal revenue laws, which was P.D. Nos. 1991, 1994, 2006 and 2031. The citation of
law governing lending investors. Due to the wide bestowed by then Section 245 of the NIRC of 1977, the specific Code is important for us to determine the
differences between the two, pawnshops had never as amended by E.O. No. 273.6 Such power of the CIR intent of the law.
been considered as lending investors for tax cannot be controverted. However, the CIR cannot, in
purposes. In fact, in 1994, Congress passed House the exercise of such power, issue administrative Under Section 157(u) of the NIRC of 1986, as
Bill No. 11197,5 which attempted to amend Section rulings or circulars not consistent with the law sought amended, the term lending investor includes "all
116 of the NIRC, as amended, to include owners of to be applied. Indeed, administrative issuances must persons who make a practice of lending money for
pawnshops as among those subject to percentage tax. not override, supplant or modify the law, but must themselves or others at interest." A pawnshop, on the
However, the Senate Bill and the subsequent remain consistent with the law they intend to carry other hand, is defined under Section 3 of P.D. No.
Bicameral Committee version, which eventually out. Only Congress can repeal or amend the law.7 114 as "a person or entity engaged in the business of
became the E-VAT Law, did not incorporate such lending money on personal property delivered as
proposed amendment. The CIR argues that both issuances are mere rules security for loans and shall be synonymous, and may
and regulations implementing then Section 116 of the be used interchangeably, with pawnbroker or pawn
Lastly, Lhuillier argues that following the maxim in NIRC, as amended, which provided: brokerage."
statutory construction "expressio unius est exclusio
alterius," it was not the intention of the Legislature to SEC. 116. Percentage tax on dealers in While it is true that pawnshops are engaged in the
impose percentage taxes on pawnshops because if it securities; lending investors. - Dealers in business of lending money, they are not considered
were so, pawnshops would have been included as securities and lending investors shall pay a "lending investors" for the purpose of imposing the
among the businesses subject to the said tax. tax equivalent to six (6) per centum of their 5% percentage taxes for the following reasons:
Inasmuch as revenue laws impose special burdens gross income. Lending investors shall pay a
upon taxpayers, the enforcement of such laws should tax equivalent to five (5%) percent of their First. Under Section 192, paragraph 3, sub-
not be extended by implication beyond the clear gross income. paragraphs (dd) and (ff), of the NIRC of
import of the language used. 1977, prior to its amendment by E.O. No.
It is clear from the aforequoted provision that 273, as well as Section 161, paragraph 2,
We are therefore called upon to resolve the issue of pawnshops are not specifically included. Thus, the sub-paragraphs (dd) and (ff), of the NIRC of
whether pawnshops are subject to the 5% lending question is whether pawnshops are considered 1986, pawnshops and lending investors were
investors tax. Corollary to this issue are the lending investors for the purpose of imposing subjected to different tax treatments; thus:
following questions: (1) Are RMO No. 15-91 and percentage tax.
RMC No. 43-91 valid? (2) Were they issued to (3) Other Fixed Taxes. The following
implement Section 116 of the NIRC of 1977, as We rule in the negative. fixed taxes shall be collected as follows, the
amended? (3) Are pawnshops considered "lending amount stated being for the whole year,
investors" for the purpose of the imposition of the Incidentally, we observe that both parties, as well as when not otherwise specified:
lending investors tax? (4) Is publication necessary the Court of Tax Appeals and the Court of Appeals,
for the validity of RMO No. 15-91 and RMC No. 43- refer to the National Internal Revenue Code as the .
91. Tax Code. They did not specify whether the
provisions they cited were taken from the NIRC of (dd) Lending investors
1977, as amended, or the NIRC of 1986, as amended.
1. In chartered cities and first class and lending investors differently. Verily then, it was "SEC. 116. Percentage tax on
municipalities, one thousand pesos; the intent of Congress to deal with both subjects dealers in securities; lending
differently. Hence, we must likewise interpret the investors; OWNERS OF
2. In second and third class municipalities, statute to conform with such legislative intent. PAWNSHOPS; FOREIGN
five hundred pesos; CURRENCY DEALERS AND/OR
Third. Section 116 of the NIRC of 1977, as amended MONEY CHANGERS. Dealers
3. In fourth and fifth class municipalities and by E.O. No. 273, subjects to percentage tax dealers in in securities shall pay a tax
municipal districts, two hundred fifty pesos: securities and lending investors only. There is no equivalent to Six (6%) per centum
Provided, That lending investors who do mention of pawnshops. Under the maxim expressio of their gross income. Lending
business as such in more than one province unius est exclusio alterius, the mention of one thing investors, OWNERS OF
shall pay a tax of one thousand pesos. implies the exclusion of another thing not mentioned. PAWNSHOPS AND FOREIGN
Thus, if a statute enumerates the things upon which it CURRENCY DEALERS AND/OR
. is to operate, everything else must necessarily and by MONEY CHANGERS shall pay a
implication be excluded from its operation and tax equivalent to Five (5%) percent
(ff) Pawnshops, one thousand pesos effect.9 This rule, as a guide to probable legislative of their gross income."
(underscoring ours) intent, is based upon the rules of logic and natural
workings of the human mind.10 If pawnshops were covered within the term lending
Second. Congress never intended pawnshops to be investor, there would have been no need to introduce
treated in the same way as lending investors. Section Fourth. The BIR had ruled several times prior to the such amendment to include owners of pawnshops. At
116 of the NIRC of 1977, as renumbered and issuance of RMO No. 15-91 and RMC 43-91 that any rate, such proposed amendment was not adopted.
rearranged by E.O. No. 273, was basically lifted from pawnshops were not subject to the 5% percentage tax Instead, the approved bill which became R.A. No.
Section 1758 of the NIRC of 1986, which treated both imposed by Section 116 of the NIRC of 1977, as 771611 repealed Section 116 of NIRC of 1977, as
tax subjects differently. Section 175 of the latter Code amended by E.O. No. 273. This was even admitted amended, which was the basis of RMO No. 15-91
read as follows: by the CIR in RMO No. 15-91 itself. Considering and RMC No. 43-91; thus:
that Section 116 of the NIRC of 1977, as amended,
Sec. 175. Percentage tax on dealers in was practically lifted from Section 175 of the NIRC SEC. 20. Repealing Clauses. -- The
securities, lending investors. -- Dealers in of 1986, as amended, and there being no change in provisions of any special law relative to the
securities shall pay a tax equivalent to six the law, the interpretation thereof should not have rate of franchise taxes are hereby expressly
(6%) percent of their gross income. Lending been altered. repealed. Sections 113, 114 and 116 of the
investors shall pay a tax equivalent to five National Internal Revenue Code are hereby
(5%) percent of their gross income. (As It may not be amiss to state that, as pointed out by the repealed.
amended by P.D. No. 1739, P.D. No. 1959 respondent, pawnshops was sought to be included as
and P.D. No. 1994). among those subject to 5% percentage tax by House Section 21 of the same law provides that the
Bill No. 11197 in 1994. Section 13 thereof reads: law shall take effect fifteen (15) days after
We note that the definition of lending investors found its complete publication in the Official
in Section 157 (u) of the NIRC of 1986 is not found Section 13. Section 116 of the National Gazette or in at least two (2) national
in the NIRC of 1977, as amended by E.O. No. 273, Internal Revenue Code, as amended, is newspapers of general circulation whichever
where Section 116 invoked by the CIR is found. hereby further amended to read as follows: comes earlier. R.A. No. 7716 was published
However, as emphasized earlier, both the NIRC of in the Official Gazette on 1 August 199412;
1986 and the NIRC of 1977 dealt with pawnshops in the Journal and Malaya newspapers, on
12 May 1994; and in the Manila Bulletin, on Public Participation. - If not otherwise specifically included in Section 116 of the NIRC of
5 June 1994. Thus, R.A. No. 7716 is deemed required by law, an agency shall, as far as 1977, as amended. In so doing, the CIR did not
effective on 27 May 1994. practicable, publish or circulate notices of simply interpret the law. The due observance of the
proposed rules and afford interested parties requirements of notice, hearing, and publication
Since Section 116 of the NIRC of 1977, which the opportunity to submit their views prior should not have been ignored.
breathed life on the questioned administrative to the adoption of any rule.
issuances, had already been repealed, RMO 15-91 There is no need for us to discuss the ruling in CA-
and RMC 43-91, which depended upon it, are (2) In the fixing of rates, no rule or final G.R. SP No. 59282 entitled Commissioner of Internal
deemed automatically repealed. Hence, even granting order shall be valid unless the proposed rates Revenue v. Agencia Exquisite of Bohol Inc., which
that pawnshops are included within the term lending shall have been published in a newspaper of upheld the validity of RMO No. 15-91 and RMC No.
investors, the assessment from 27 May 1994 onward general circulation at least two weeks before 43-91. Suffice it to say that the judgment in that case
would have no leg to stand on. the first hearing thereon. cannot be binding upon the Supreme Court because it
is only a decision of the Court of Appeals. The
Adding to the invalidity of the RMC No. 43-91 and (3) In case of opposition, the rules on Supreme Court, by tradition and in our system of
RMO No. 15-91 is the absence of publication. While contested cases shall be observed. judicial administration, has the last word on what the
the rule-making authority of the CIR is not doubted, law is; it is the final arbiter of any justifiable
like any other government agency, the CIR may not In addition, such rule must be published. controversy. There is only one Supreme Court from
disregard legal requirements or applicable principles whose decisions all other courts should take their
in the exercise of quasi-legislative powers. When an administrative rule is merely interpretative bearings.16
in nature, its applicability needs nothing further than
Let us first distinguish between two kinds of its bare issuance, for it gives no real consequence In view of the foregoing, RMO No. 15-91 and RMC
administrative issuances: the legislative rule and the more than what the law itself has already prescribed. No. 43-91 are hereby declared null and void.
interpretative rule. A legislative rule is in the nature When, on the other hand, the administrative rule goes Consequently, Lhuillier is not liable to pay the 5%
of subordinate legislation, designed to implement a beyond merely providing for the means that can lending investors tax.
primary legislation by providing the details thereof. facilitate or render least cumbersome the
An interpretative rule, on the other hand, is designed implementation of the law but substantially increases WHEREFORE, the petition is hereby DISMISSED
to provide guidelines to the law which the the burden of those governed, it behooves the agency for lack of merit. The decision of the Court of
administrative agency is in charge of enforcing.13 to accord at least to those directly affected a chance Appeals of 20 November 2001 in CA-G.R. SP No.
to be heard, and thereafter to be duly informed, 62463 is AFFIRMED.
In Misamis Oriental Association of Coco Traders, before that new issuance is given the force and effect
Inc. vs. Department of Finance Secretary,14 this of law.15 SO ORDERED.
Tribunal ruled:
RMO No. 15-91 and RMC No. 43-91 cannot be
In the same way that laws must have the viewed simply as implementing rules or corrective
benefit of public hearing, it is generally measures revoking in the process the previous rulings
required that before a legislative rule is of past Commissioners. Specifically, they would have
adopted there must be hearing. In this been amendatory provisions applicable to
connection, the Administrative Code of 1987 pawnshops. Without these disputed CIR issuances,
provides: pawnshops would not be liable to pay the 5%
percentage tax, considering that they were not
Republic of the Philippines To consolidate the laws pertaining to the
Supreme Court franchise and powers of PAGCOR, P.D. No.
Manila 1869[6] was issued. Section 13 thereof reads as
follows:
EN BANC
PERALTA, J.:

PHILIPPINE AMUSEMENT AND GAMING


CORPORATION (PAGCOR), Sec. 13. Exemptions. x x x
For resolution of this Court is the Petition
Petitioner, for Certiorari and Prohibition[1] with prayer for the
issuance of a Temporary Restraining Order and/or
Preliminary Injunction, dated April 17, 2006, of (1) Customs Duties, taxes
petitioner Philippine Amusement and Gaming and other imposts on importations.
Corporation (PAGCOR), seeking the declaration of - All importations of equipment,
nullity of Section 1 of Republic Act (R.A.) No. 9337 vehicles, automobiles, boats, ships,
- versus - insofar as it amends Section 27 (c) of the National barges, aircraft and such other
Internal Revenue Code of 1997, by excluding gambling paraphernalia, including
petitioner from exemption from corporate income tax accessories or related facilities, for
THE BUREAU OF INTERNAL REVENUE for being repugnant to Sections 1 and 10 of Article III the sole and exclusive use of the
(BIR), represented herein by HON. JOSE MARIO of the Constitution. Petitioner further seeks to casinos, the proper and efficient
BUAG, in his official capacity as COMMISSIONER OF prohibit the implementation of Bureau of Internal management and administration
INTERNAL REVENUE, Revenue (BIR) Revenue Regulations No. 16-2005 for thereof and such other clubs,
Public Respondent, being contrary to law. recreation or amusement places to
JOHN DOE and JANE DOE, who are persons acting for, be established under and by virtue
in behalf, or under the authority of Respondent. of this Franchise shall be exempt
Public and Private Respondents. from the payment of duties, taxes
The undisputed facts follow. and other imposts, including all
kinds of fees, levies, or charges of
any kind or nature.

PAGCOR was created pursuant to Vessels and/or accessory


x--------------------------------------------------------------- Presidential Decree (P.D.) No. 1067-A[2] on January ferry boats imported or to be
--------------------------x imported by any corporation
1, 1977. Simultaneous to its creation, P.D. No. 1067-
B[3] (supplementing P.D. No. 1067-A) was issued having existing contractual
exempting PAGCOR from the payment of any type arrangements with the Corporation,
of tax, except a franchise tax of five percent (5%) of for the sole and exclusive use of the
the gross revenue.[4] Thereafter, on June 2, 1978, P.D. casino or to be used to service the
No. 1399 was issued expanding the scope of operations and requirements of the
DECISION PAGCOR's exemption.[5] casino, shall likewise be totally
exempt from the payment of all
customs duties, taxes and other form of charges, fees or levies, income; provided, however, that
imposts, including all kinds of fees, shall inure to the benefit of and such dividend income shall be
levies, assessments or charges of extend to corporation(s), totally exempted from income or
any kind or nature, whether association(s), agency(ies), or other form of taxes if invested
National or Local. individual(s) with whom the within six (6) months from the date
Corporation or operator has any the dividend income is received in
contractual relationship in the following:
connection with the operations of
(2) Income and other the casino(s) authorized to be
taxes. - (a) Franchise Holder: No conducted under this Franchise and
tax of any kind or form, income to those receiving compensation or (a) operation of
or otherwise, as well as fees, other remuneration from the the casino(s) or
charges, or levies of whatever Corporation as a result of essential investments in any affiliate
nature, whether National or facilities furnished and/or technical activity that will ultimately
Local, shall be assessed and services rendered to redound to the benefit of
collected under this Franchise the Corporation or operator. the Corporation; or any
from the Corporation; nor shall other corporation with
any form of tax or charge attach whom the Corporation has
in any way to the earnings of the any existing arrangements
Corporation, except a Franchise The fee or remuneration of in connection with or
Tax of five percent (5%)of the foreign entertainers contracted by related to the operations of
gross revenue or earnings derived the Corporation or operator in the casino(s);
by the Corporation from its pursuance of this provision shall be
operation under this Franchise. free of any tax. (b) Government
Such tax shall be due and bonds, securities, treasury
payable quarterly to the National notes, or government
Government and shall be in lieu debentures; or
of all kinds of taxes, levies, fees or (3) Dividend Income.
assessments of any kind, nature Notwithstanding any provision of (c) BOI-registered
or description, levied, law to the contrary, in the event the or export-oriented
established, or collected by any Corporation should declare a cash corporation(s).[7]
municipal, provincial or national dividend income corresponding to
government authority. the participation of the private
sector shall, as an incentive to the
(b) Others: The exemption beneficiaries, be subject only to a PAGCOR's tax exemption was removed in
herein granted for earnings derived final flat income rate of ten percent June 1984 through P.D. No. 1931, but it was later
from the operations conducted (10%) of the regular income tax restored by Letter of Instruction No. 1430, which was
under the franchise, specifically rates. The dividend income shall issued in September 1984.
from the payment of any tax, not in such case be considered as
income or otherwise, as well as any part of the beneficiaries' taxable
On January 1, 1998, R.A. No. 8424, Section 1 of R.A. No. 9337, which amended Section 1) Section 4, which imposes a 10% Value
[8]
otherwise known as the National Internal Revenue 27 (c) of the National Internal Revenue Code of 1997 Added Tax (VAT) on sale of goods and properties;
Code of 1997, took effect. Section 27 (c) of R.A. No. by excluding PAGCOR from the enumeration of Section 5, which imposes a 10% VAT on importation
8424 provides that government-owned and controlled GOCCs that are exempt from payment of corporate of goods; and Section 6, which imposes a 10% VAT
corporations (GOCCs) shall pay corporate income income tax, thus: on sale of services and use or lease of properties, all
tax, except petitioner PAGCOR, the Government contain a uniform proviso authorizing the President,
Service and Insurance Corporation, the Social upon the recommendation of the Secretary of
Security System, the Philippine Health Insurance Finance, to raise the VAT rate to 12%. The said
Corporation, and the Philippine Charity Sweepstakes (c) Government-owned or provisions were alleged to be violative of Section 28
Office, thus: Controlled Corporations, Agencies (2), Article VI of the Constitution, which section
or Instrumentalities. - The vests in Congress the exclusive authority to fix the
(c) Government-owned or provisions of existing special rate of taxes, and of Section 1, Article III of the
Controlled Corporations, Agencies general laws to the contrary Constitution on due process, as well as of Section 26
or Instrumentalities. - The notwithstanding, all corporations, (2), Article VI of the Constitution, which section
provisions of existing special agencies, or instrumentalities owned provides for the "no amendment rule" upon the last
general laws to the contrary and controlled by the reading of a bill;
notwithstanding, all corporations, Government, except the
agencies or instrumentalities owned Government Service and
and controlled by the Insurance Corporation (GSIS),
Government, except the the Social Security System (SSS), 2) Sections 8 and 12 were alleged to be
Government Service and the Philippine Health Insurance violative of Section 1, Article III of the Constitution,
Insurance Corporation (GSIS), Corporation (PHIC), and the or the guarantee of equal protection of the laws, and
the Social Security System (SSS), Philippine Charity Sweepstakes Section 28 (1), Article VI of the Constitution; and
the Philippine Health Insurance Office (PCSO), shall pay such rate
Corporation (PHIC), the of tax upon their taxable income as
Philippine Charity Sweepstakes are imposed by this Section upon
Office (PCSO), and the corporations or associations 3) other technical aspects of the passage of
Philippine Amusement and engaged in similar business, the law, questioning the manner it was passed.
Gaming Corporation industry, or activity.
(PAGCOR), shall pay such rate of
tax upon their taxable income as
are imposed by this Section upon On September 1, 2005, the Court dismissed
corporations or associations Different groups came to this Court via all the petitions and upheld the constitutionality of
engaged in similar business, petitions for certiorari and prohibition[11] assailing R.A. No. 9337.[12]
industry, or activity.[9] the validity and constitutionality of R.A. No. 9337,
in particular: On the same date, respondent BIR issued
With the enactment of R.A. No. 9337[10] on Revenue Regulations (RR) No. 16-2005,
May 24, 2005, certain sections of the National [13]
specifically identifying PAGCOR as one of the
Internal Revenue Code of 1997 were amended. The franchisees subject to 10% VAT imposed under
particular amendment that is at issue in this case is Section 108 of the National Internal Revenue Code
of 1997, as amended by R.A. No. 9337. The said WHETHER OR NOT RR 16-2005,
revenue regulation, in part, reads: SECTION 4.108-3, PARAGRAPH
(H) IS NULL AND VOID AB
INITIO FOR BEING BEYOND
PAGCOR raises the following THE SCOPE OF THE BASIC
issues: LAW, RA 8424, SECTION 108,
INSOFAR AS THE SAID
Sec. 4. 108-3. Definitions REGULATION IMPOSED VAT
and Specific Rules on Selected ON THE SERVICES OF THE
Services. PETITIONER AS WELL AS
PETITIONERS LICENSEES OR
I FRANCHISEES WHEN THE
BASIC LAW, AS INTERPRETED
xxxx WHETHER OR NOT RA 9337, BY APPLICABLE
SECTION 1 (C) IS NULL AND JURISPRUDENCE, DOES NOT
VOID AB INITIO FOR BEING IMPOSE VAT ON PETITIONER
REPUGNANT TO THE EQUAL OR ON PETITIONERS
PROTECTION [CLAUSE] LICENSEES OR FRANCHISEES.
(h) x x x [14]
EMBODIED IN SECTION 1,
ARTICLE III OF THE 1987
CONSTITUTION. The BIR, in its Comment[15] dated December
29, 2006, counters:
Gross Receipts of all other
franchisees, other than those
covered by Sec. 119 of the Tax
Code, regardless of how their II
franchisees may have been granted,
shall be subject to the 10% VAT WHETHER OR NOT RA 9337,
imposed under Sec.108 of the Tax SECTION 1 (C) IS NULL AND I
Code. This includes, among others, VOID AB INITIO FOR BEING
the Philippine Amusement and REPUGNANT TO THE NON- SECTION 1 OF R.A. NO. 9337
Gaming Corporation (PAGCOR), IMPAIRMENT [CLAUSE] AND SECTION 13 (2) OF P.D.
and its licensees or franchisees. EMBODIED IN SECTION 10, 1869 ARE BOTH VALID AND
ARTICLE III OF THE 1987 CONSTITUTIONAL
CONSTITUTION. PROVISIONS OF LAWS THAT
SHOULD BE HARMONIOUSLY
CONSTRUED TOGETHER SO
AS TO GIVE EFFECT TO ALL
III OF THEIR PROVISIONS
Hence, the present petition
WHENEVER POSSIBLE.
for certiorari.
I The main issue is whether or not PAGCOR responsibilities imposed. Similar
I is still exempt from corporate income tax and VAT subjects, in other words, should not
with the enactment of R.A. No. 9337. be treated differently, so as to give
SECTION 1 OF R.A. NO. 9337 IS undue favor to some and unjustly
NOT VIOLATIVE OF SECTION 1 discriminate against others. The
AND SECTION 10, ARTICLE III guarantee means that no person or
OF THE 1987 CONSTITUTION. After a careful study of the positions class of persons shall be denied the
presented by the parties, this Court finds the petition same protection of laws which is
I partly meritorious. enjoyed by other persons or other
I classes in like circumstances. The
I Under Section 1 of R.A. No. 9337, "equal protection of the laws is a
amending Section 27 (c) of the National Internal pledge of the protection of equal
BIR REVENUE REGULATIONS Revenue Code of 1977, petitioner is no longer laws." It limits governmental
ARE PRESUMED VALID AND exempt from corporate income tax as it has been discrimination. The equal protection
CONSTITUTIONAL UNTIL effectively omitted from the list of GOCCs that are clause extends to artificial persons but
STRICKEN DOWN BY LAWFUL exempt from it. Petitioner argues that such omission only insofar as their property is
AUTHORITIES. is unconstitutional, as it is violative of its right to concerned.
equal protection of the laws under Section 1, Article
III of the Constitution: xxxx

The Office of the Solicitor General (OSG), Sec. 1. No person shall be Legislative bodies are
by way of Manifestation In Lieu of Comment, deprived of life, liberty, or property allowed to classify the subjects of
[16]
concurred with the arguments of the petitioner. It without due process of law, nor legislation. If the classification is
added that although the State is free to select the shall any person be denied the reasonable, the law may operate only
subjects of taxation and that the inequity resulting equal protection of the laws. on some and not all of the people
from singling out a particular class for taxation or without violating the equal protection
exemption is not an infringement of the . clause. The classification must, as an
constitutional limitation, a tax law must operate with indispensable requisite, not be
the same force and effect to all persons, firms and In City of Manila v. Laguio, Jr.,[17] this Court arbitrary. To be valid, it must conform
corporations placed in a similar situation. expounded the meaning and scope of equal to the following requirements:
Furthermore, according to the OSG, public protection, thus:
respondent BIR exceeded its statutory authority 1) It must be based on
when it enacted RR No. 16-2005, because the latter's substantial distinctions.
provisions are contrary to the mandates of P.D. No.
1869 in relation to R.A. No. 9337. Equal protection requires 2) It must be germane to
that all persons or things similarly the purposes of the law.
situated should be treated alike, both
as to rights conferred and
3) It must not be limited to that the exemption of PAGCOR from the payment CHAIRMAN
existing conditions of corporate income tax was due to the ENRILE. No, we removed the ---
only. acquiescence of the Committee on Ways on Means
to the request of PAGCOR that it be exempt from
4) It must apply equally to such tax.[20] The records of the Bicameral Conference
all members of the Meeting reveal: HON. R. DIAZ. I . . .
class.[18] (inaudible) natin yong lotto?

It is not contested that before the enactment


of R.A. No. 9337, petitioner was one of the five
GOCCs exempted from payment of corporate income CHAIRMAN
tax as shown in R.A. No. 8424, Section 27 (c) of HON. R. DIAZ. The other ENRILE. Pati PAGCOR tinangga
which, reads: thing, sir, is we --- I noticed we l upon request.
imposed a tax on lotto winnings.
(c) Government-owned or
Controlled Corporations, Agencies CHAIRMAN
or Instrumentalities. - The ENRILE. Wala na, tinanggal na CHAIRMAN
provisions of existing special or namin yon. JAVIER. Yeah, Philippine
general laws to the contrary Insurance Commission.
notwithstanding, all corporations,
agencies or instrumentalities owned
and controlled by the Government, HON. R.
except the Government Service and DIAZ. Tinanggal na ba natin yon? CHAIRMAN
Insurance Corporation (GSIS), the ENRILE. Philippine Insurance ---
Social Security System (SSS), the Health, health ba. Yon
Philippine Health Insurance ang request ng Chairman, I will
Corporation (PHIC), the Philippine CHAIRMAN accept. (laughter) Pag-Pag-ibig
Charity Sweepstakes Office ENRILE. Oo. yon, maliliit na sa tao yon.
(PCSO), and the Philippine
Amusement and Gaming
Corporation (PAGCOR), shall
pay such rate of tax upon their
HON. R. DIAZ. Because I HON. ROXAS. Mr.
taxable income as are imposed by
was wondering whether we covered Chairman, I wonder if in the
this Section upon corporations or
the tax on --- Whether on a revenue gainers if we factored in an
associations engaged in similar
universal basis, we included a tax amount that would reflect the VAT
business, industry, or activity.[19]
on cockfighting winnings. and other sales taxes---

A perusal of the legislative records of the


Bicameral Conference Meeting of the Committee on
Ways on Means dated October 27, 1997 would show
CHAIRMAN circulating in the economy which is With the subsequent enactment of R.A. No.
ENRILE. No, were talking of this unrealistic. 9337, amending R.A. No. 8424, PAGCOR has been
measure only. We will not --- excluded from the enumeration of GOCCs that are
(discontinued) exempt from paying corporate income tax. The
records of the Bicameral Conference Meeting dated
CHAIRMAN ENRILE. It April 18, 2005, of the Committee on the Disagreeing
does, it does, because this is taken Provisions of Senate Bill No. 1950 and House Bill
HON. ROXAS. No, no, and spent by government, No. 3555, show that it is the legislative intent that
no, no, from the --- arising from the somebody receives it in the form of PAGCOR be subject to the payment of corporate
exemption. Assuming that when we wages and supplies and other income tax, thus:
release the money into the hands of services and other goods. They are
the public, they will not use that to not being taken from the public and THE CHAIRMAN (SEN.
--- for wallpaper.They will spend stored in a vault. RECTO). Yes, Osmea, the
that eh, Mr. Chairman. So when proponent of the amendment.
they spend that---
SEN. OSMEA. Yeah. Mr.
Chairman, one of the reasons
CHAIRMAN why we're even considering this
JAVIER. That 7.7 loss because of VAT bill is we want to show the
CHAIRMAN tax exemption. That will be extra world who our creditors, that we
ENRILE. Theres a VAT. income for the taxpayers. are increasing official revenues
that go to the national budget.
Unfortunately today, Pagcor is
unofficial.

HON. ROXAS. There will HON. ROXAS. Precisely, so they Now, in 2003, I took a quick look
be a VAT and there will be other will be spending it.[21] this morning, Pagcor had a net
sales taxes no. Is there a income of 9.7 billion after paying
some small taxes that they are
quantification? Is there an subjected to. Of the 9.7 billion,
approximation? they claim they remitted to
national government seven
billion. Pagkatapos, there are
The discussion above bears out that under other specific remittances like to
the Philippine Sports
CHAIRMAN R.A. No. 8424, the exemption of PAGCOR from
Commission, etc., as mandated
JAVIER. Not anything. paying corporate income tax was not based on a by various laws, and then about
classification showing substantial distinctions which 400 million to the President's
make for real differences, but to reiterate, the Social Fund. But all in all, their
exemption was granted upon the request of PAGCOR net profit today should be about
HON. ROXAS. So, in that it be exempt from the payment of corporate 12 billion. That's why I am
income tax. questioning this two
effect, we have sterilized that entire
billion. Because while
seven billion. In effect, it is not essentially they claim that the
money goes to government, and
I will accept that just for the of services on the government MR. PURISIMA. Thank you, Mr.
sake of argument. It does not side. Chair.
pass through the appropriation
process. And I think that at THE CHAIRMAN (REP. Yes, from definitely improving
least if we can capture 35 LAPUS). Mr. Chair, Mr. Chair. the collection, it will help us
percent or 32 percent through because it will then enter as an
the budgetary process, first, it SEN. OSMEA. It goes from official revenue although when
is reflected in our official pocket to the other, Monico. dividends declare it also goes in
income of government which is as other income. (sic)
applied to the national budget, REP. PUENTEBELLA. I know
and secondly, it goes through that. But I wanted to ask them, xxxx
what is constitutionally Mr. Senator, because you may
mandated as Congress have your own pre-judgment on REP. TEVES. Mr. Chairman.
appropriating and defining this and I don't blame you. I don't
where the money is spent and blame you. And I know you have xxxx
not through a board of your own research. But will this
directors that has absolutely no not affect a lot, the disbursements THE CHAIRMAN (REP.
accountability. on social services and other? LAPUS). Congressman Teves.

REP. PUENTEBELLA. Well, REP. LOCSIN. Mr. REP. TEVES. Yeah. Pagcor is
with all due respect, Mr. Chairman. Mr. Chairman, if I can controlled under Section 27,
Chairman, follow up lang. add to that question that is on income tax. Now, we
also. Wouldn't it be easier for you are talking here on value-added
There is wisdom in the comments to explain to, say, tax. Do you mean to say we are
of my good friend from Cebu, foreign creditors, how do you going to amend it from income
Senator Osmea. explain to them that if there is a tax to value-added tax, as far as
fiscal gap some of our richest Pagcor is concerned?
SEN. OSMEA. And Negros. corporations has [been] spared
[from] taxation by the THE CHAIRMAN (SEN.
REP. PUENTEBELLA. And government which is one rich RECTO). No. We are just
Negros at the same time ay source of revenues. Now, why do amending that section with
Kasimanwa. But I would not you save, why do you spare regard to the exemption from
want to put my friends from the certain government corporations income tax of Pagcor.
Department of Finance in a on that, like Pagcor? So, would it
difficult position, but may we be easier for you to make an xxxx
know your comments on this argument if everything was
knowing that as Senator Osmea exposed to taxation? REP. NOGRALES. Mr.
just mentioned, he said, I accept Chairman, Mr. Chairman. Mr.
that that a lot of it is going to REP. TEVES. Mr. Chair, please. Chairman.
spending for basic services, you
know, going to most, I think, THE CHAIRMAN (REP.
supposedly a lot or most of it LAPUS). Can we ask the DOF to THE CHAIRMAN (REP.
should go to government respond to those before we call LAPUS). Congressman Nograles.
spending, social services and the Congressman Teves?
like. What is your comment on REP. NOGRALES. Just a point
this? This is going to affect a lot of inquiry from the Chair. What
exactly are the functions of In this case, PAGCOR failed to prove that it PAGCOR cannot find support in the equal
Pagcor that are VATable? What is still exempt from the payment of corporate income protection clause of the Constitution, as the
will we VAT in Pagcor? tax, considering that Section 1 of R.A. No. 9337 legislative records of the Bicameral Conference
amended Section 27 (c) of the National Internal Meeting dated October 27, 1997, of the Committee
THE CHAIRMAN (REP.
LAPUS). This is on own income Revenue Code of 1997 by omitting PAGCOR from on Ways and Means, show that PAGCORs exemption
tax. This is Pagcor income tax. the exemption. The legislative intent, as shown by the from payment of corporate income tax, as provided in
discussions in the Bicameral Conference Meeting, is Section 27 (c) of R.A. No. 8424, or the National
REP. NOGRALES. No, that's to require PAGCOR to pay corporate income tax; Internal Revenue Code of 1997, was not made
why. Anong i-va-Vat natin sa hence, the omission or removal of PAGCOR from pursuant to a valid classification based on substantial
kanya. Sale of what? exemption from the payment of corporate income distinctions and the other requirements of a
tax. It is a basic precept of statutory construction that reasonable classification bylegislative bodies, so that
xxxx
the express mention of one person, thing, act, or the law may operate only on some, and not all,
REP. VILLAFUERTE. Mr. consequence excludes all others as expressed in the without violating the equal protection clause. The
Chairman, my question is, what familiar maxim expressio unius est exclusio alterius. legislative records show that the basis of the grant of
are we VATing Pagcor with, is it [27]
Thus, the express mention of the GOCCs exemption to PAGCOR from corporate income tax
the . . . exempted from payment of corporate income tax was PAGCORs own request to be exempted.
excludes all others. Not being excepted, petitioner
REP. NOGRALES. Mr.
PAGCOR must be regarded as coming within the
Chairman, this is a secret
agreement or the way they craft purview of the general rule that GOCCs shall pay
their contract, which basis? corporate income tax, expressed in the Petitioner further contends that Section 1 (c)
maxim: exceptio firmat regulam in casibus non of R.A. No. 9337 is null and void ab initio for
THE CHAIRMAN (SEN. exceptis.[28] violating the non-impairment clause of the
RECTO). Congressman Constitution. Petitioner avers that laws form part of,
Nograles, the Senate version
and is read into, the contract even without the parties
does not discuss a VAT on
Pagcor but it just takes away expressly saying so. Petitioner states that the private
their exemption from non- parties/investors transacting with it considered the tax
payment of income tax.[22] exemptions, which inure to their benefit, as the main
consideration and inducement for their decision to
transact/invest with it. Petitioner argues that the
withdrawal of its exemption from corporate income
Taxation is the rule and exemption is the tax by R.A. No. 9337 has the effect of changing the
exception.[23] The burden of proof rests upon the party main consideration and inducement for the
claiming exemption to prove that it is, in fact, transactions of private parties with it; thus, the
covered by the exemption so claimed.[24] As a rule, amendatory provision is violative of the non-
tax exemptions are construed strongly against the impairment clause of the Constitution.
claimant.[25] Exemptions must be shown to exist
clearly and categorically, and supported by clear legal
provision.[26]
Petitioners contention lacks merit.
The non-impairment clause is contained in strictly contractual in
Section 10, Article III of the Constitution, which nature. Contractual tax exemptions,
provides that no law impairing the obligation of in the real sense of the term and In this case, PAGCOR was granted a
contracts shall be passed. The non-impairment clause where the non-impairment clause franchise to operate and maintain gambling casinos,
is limited in application to laws that derogate from of the Constitution can rightly be clubs and other recreation or amusement places,
prior acts or contracts by enlarging, abridging or in invoked, are those agreed to by the sports, gaming pools, i.e., basketball, football,
any manner changing the intention of the parties. taxing authority in contracts, such lotteries, etc., whether on land or sea, within the
[29]
There is impairment if a subsequent law changes as those contained in government territorial jurisdiction of the Republic of the
the terms of a contract between the parties, imposes bonds or debentures, lawfully Philippines.[36] Under Section 11, Article XII of the
new conditions, dispenses with those agreed upon or entered into by them under Constitution, PAGCORs franchise is subject to
withdraws remedies for the enforcement of the rights enabling laws in which the amendment, alteration or repeal by Congress such as
of the parties.[30] government, acting in its private the amendment under Section 1 of R.A. No.
capacity, sheds its cloak of 9377. Hence, the provision in Section 1 of R.A. No.
As regards franchises, Section 11, Article authority and waives its 9337, amending Section 27 (c) of R.A. No. 8424
XII of the Constitution[31] provides that no franchise governmental immunity. Truly, tax by withdrawing the exemption of PAGCOR from
or right shall be granted except under the exemptions of this kind may not be corporate income tax, which may affect any benefits
condition that it shall be subject to amendment, revoked without impairing the to PAGCORs transactions with private parties, is not
alteration, or repeal by the Congress when the obligations of contracts. These violative of the non-impairment clause of the
common good so requires.[32] contractual tax exemptions, Constitution.
however, are not to be confused
with tax exemptions granted under Anent the validity of RR No. 16-2005, the
franchises. A franchise partakes Court holds that the provision subjecting PAGCOR to
In Manila Electric Company v. Province of the nature of a grant which is 10% VAT is invalid for being contrary to R.A. No.
Laguna,[33] the Court held that a franchise partakes beyond the purview of the non- 9337. Nowhere in R.A. No. 9337 is it provided that
the nature of a grant, which is beyond the purview impairment clause of the petitioner can be subjected to VAT. R.A. No. 9337 is
of the non-impairment clause of the Constitution. Constitution. Indeed, Article XII, clear only as to the removal of petitioner's exemption
[34]
The pertinent portion of the case states: Section 11, of the 1987 from the payment of corporate income tax, which
Constitution, like its precursor was already addressed above by this Court.
provisions in the 1935 and the
1973 Constitutions, is explicit
that no franchise for the
operation of a public utility shall As pointed out by the OSG, R.A. No. 9337
While the Court has, not be granted except under the itself exempts petitioner from VAT pursuant to
too infrequently, referred to tax condition that such privilege shall Section 7 (k) thereof, which reads:
exemptions contained in special be subject to amendment,
franchises as being in the nature of alteration or repeal by Congress
contracts and a part of the as and when the common good so
inducement for carrying on the requires.[35] Sec. 7. Section 109 of the
franchise, these exemptions, same Code, as amended, is hereby
nevertheless, are far from being further amended to read as follows:
Section or lease of
109. Exempt properties: x x x
Transactions. - Moreover, the exemption of PAGCOR from
(1) Subject to the VAT is supported by Section 6 of R.A. No. 9337, xxxx
provisions of which retained Section 108 (B) (3) of R.A. No. 8424,
Subsection (2) thus:
hereof, the
following (B) Tra
transactions shall nsactions
be exempt from [R.A. No. 9337], SEC. Subject to Zero
the value-added 6. Section 108 of the same Code Percent (0%)
tax: (R.A. No. 8424), as amended, is Rate. The
hereby further amended to read as following
xxxx follows: services
performed in the
Philippines by
VAT-registered
(k) Tra SEC. persons shall be
nsactions which 108. Value- subject to zero
are exempt under Added Tax on percent (0%)
international Sale of Services rate;
agreements to and Use or Lease
which the of Properties.
Philippines is a
signatory xxxx
or under special
laws, except (A) Rate
Presidential and Base of
Decree No. 529. Tax. There shall (3) Serv
[37]
be levied, ices rendered to
assessed and persons or
collected, a entities whose
value-added tax exemption
equivalent to ten under special
percent (10%) of laws or
Petitioner is exempt from the payment of gross receipts international
VAT, because PAGCORs charter, P.D. No. 1869, is a derived from the agreements to
special law that grants petitioner exemption from sale or exchange which the
taxes. of services, Philippines is a
including the use signatory
effectively subje to April 1997. Acesite tried to shift the said Sec.
cts the supply of taxes to PAGCOR by incorporating it in the 13. Exemptions.
such services to amount assessed to PAGCOR. However,
zero percent PAGCOR refused to pay the taxes because
(0%) rate; of its tax-exempt status. PAGCOR paid
only the amount due to Acesite minus VAT xxxx
in the sum of P30,152,892.02. Acesite paid
VAT in the amount of P30,152,892.02 to
x x x x[38] the Commissioner of Internal Revenue,
fearing the legal consequences of its non- (2) Inco
payment. In May 1998, Acesite sought the me and other
taxes. - (a)
refund of the amount it paid as VAT on the
Franchise Holder:
ground that its transaction with PAGCOR
No tax of any
was subject to zero rate as it was rendered
As pointed out by petitioner, although R.A. kind or form,
to a tax-exempt entity. The Court ruled
No. 9337 introduced amendments to Section 108 of income or
that PAGCOR and Acesite were both
R.A. No. 8424 by imposing VAT on other services otherwise, as well
exempt from paying VAT, thus: as fees, charges
not previously covered, it did not amend the portion
of Section 108 (B) (3) that subjects to zero percent or levies of
rate services performed by VAT-registered persons to whatever nature,
persons or entities whose exemption under special whether National
laws or international agreements to which the or Local, shall be
Philippines is a signatory effectively subjects the assessed and
supply of such services to 0% rate. xxxx collected under
this Franchise
from the
Corporation; nor
Petitioner's exemption from VAT PAGCOR is exempt from payment of shall any form of
under Section 108 (B) (3) of R.A. No. indirect taxes tax or charge
8424 has been thoroughly and extensively attach in any way
discussed in Commissioner of Internal to the earnings of
the Corporation,
Revenue v.Acesite (Philippines) Hotel
It is undisputed that P.D. except a
Corporation.[39] Acesite was the owner and
1869, the charter creating Franchise Tax of
operator of the Holiday Inn Manila Pavilion
PAGCOR, grants the latter five (5%) percent
Hotel. It leased a portion of the hotels
an exemption from the payment of of the gross
premises to PAGCOR. It incurred VAT revenue or
taxes. Section 13 of P.D. 1869
amounting to P30,152,892.02 from its earnings derived
pertinently provides:
rental income and sale of food and by the
beverages to PAGCOR from January 1996 Corporation from
its operation or levies, shall We disagree.
under this inure to the
Franchise. Such benefit of and
tax shall be due extend to
and payable corporation(s), A close scrutiny of the
quarterly to the association(s), above provisos clearly gives
National agency(ies), or PAGCOR a blanket exemption to
Government and individual(s) with taxes with no distinction on
shall be in lieu of whom the whether the taxes are direct or
all kinds of taxes, Corporation or indirect. We are one with the CA
levies, fees or operator has any ruling that PAGCOR is also exempt
assessments of contractual from indirect taxes, like VAT, as
any kind, nature relationship in follows:
or description, connection with
levied, the operations of Under
established or the casino(s) the above
collected by any authorized to be provision
municipal, conducted under [Section 13 (2)
provincial, or this Franchise (b) of P.D. 1869],
national and to those the term
government receiving "Corporation" or
authority. compensation or operator refers to
other PAGCOR.
remuneration Although the law
from the does not
(b) Othe Corporation or specifically
rs: The operator as a mention
exemptions result of essential PAGCOR's
herein granted for facilities exemption from
earnings derived furnished and/or indirect
from the technical services taxes, PAGCOR
operations rendered to the is undoubtedly
conducted under Corporation or exempt from
the franchise operator. such taxes
specifically from because the law
the payment of Petitioner contends that the exempts from
any tax, income above tax exemption refers only to taxes persons or
or otherwise, as PAGCOR's direct tax liability and entities
well as any form not to indirect taxes, like the VAT. contracting with
of charges, fees PAGCOR in
casino It must be noted that the indirect
operations. tax of VAT, as in the instant case,
Although, can be shifted or passed to the Thus, while it was proper
differently buyer, transferee, or lessee of the for PAGCOR not to pay the 10%
worded, the goods, properties, or services VAT charged by Acesite, the latter
provision clearly subject to VAT. Thus, by is not liable for the payment of it as
exempts extending the tax exemption to it is exempt in this particular
PAGCOR from entities or individuals dealing transaction by operation of law to
indirect taxes. In with PAGCOR in casino pay the indirect tax. Such
fact, it goes one operations, it is exempting exemption falls within the former
step further by PAGCOR from being liable to Section 102 (b) (3) of the 1977 Tax
granting tax indirect taxes. Code, as amended (now Sec. 108
exempt status to [b] [3] of R.A. 8424), which
persons dealing The manner of charging VAT provides:
with PAGCOR does not make PAGCOR liable to
in casino said tax. Section
operations. The 102. Value-added
unmistakable tax on sale of
conclusion is that services.- (a) Rate
PAGCOR is not It is true that VAT can and base of tax -
liable for the P30, either be incorporated in the value There shall be
152,892.02 VAT of the goods, properties, or services levied, assessed
and neither is sold or leased, in which case it is and collected, a
Acesite as the computed as 1/11 of such value, or value-added tax
latter is charged as an additional 10% to the equivalent to 10%
effectively value. Verily, the seller or lessor of gross receipts
subject to zero has the option to follow either way derived by any
percent rate in charging its clients and customer. person engaged in
under Sec. 108 B In the instant case, Acesite the sale of services
(3), R.A. 8424. followed the latter method, that is, x x x; Provided,
(Emphasis charging an additional 10% of the that the following
supplied.) gross sales and rentals. Be that as it services performed
may, the use of either method, and in the Philippines
in particular, the first method, does by VAT registered
not denigrate the fact that persons shall be
Indeed, by extending the PAGCOR is exempt from an subject to 0%.
exemption to entities or individuals indirect tax, like VAT.
dealing with PAGCOR, the xxxx
legislature clearly granted VAT exemption extends to Acesite
exemption also from indirect taxes.
(3) Serv constructed the building owned by WHEREFORE, the petition
ices rendered to contractee WHO, and such does not is PARTLY GRANTED. Section 1 of Republic Act
persons or violate the rule that tax exemptions No. 9337, amending Section 27 (c) of the National
entities whose are personal because the manifest Internal Revenue Code of 1997, by excluding
exemption intention of the agreement is to petitioner Philippine Amusement and Gaming
under special exempt the contractor so that no Corporation from the enumeration of government-
laws or contractor's tax may be shifted to owned and controlled corporations exempted from
international the contractee WHO. Thus, the corporate income tax is valid and constitutional,
agreements to proviso in P.D. 1869, extending while BIR Revenue Regulations No. 16-2005 insofar
which the the exemption to entities or as it subjects PAGCOR to 10% VAT is null and void
Philippines is a individuals dealing with for being contrary to the National Internal Revenue
signatory PAGCOR in casino operations, is Code of 1997, as amended by Republic Act No.
effectively clearly to proscribe any indirect 9337.
subjects the tax, like VAT, that may be shifted
supply of such to PAGCOR.[40]
services to zero
(0%) rate No costs.
(emphasis
supplied). Although the basis of the exemption of
PAGCOR and Acesite from VAT in the case of The
Commissioner of Internal Revenue v. Acesite SO ORDERED.
(Philippines) Hotel Corporationwas Section 102 (b)
The rationale for the of the 1977 Tax Code, as amended, which section
exemption from indirect taxes was retained as Section 108 (B) (3) in R.A. No.
provided for in P.D. 1869 and the 8424,[41] it is still applicable to this case, since the
extension of such exemption to provision relied upon has been retained in R.A. No.
entities or individuals dealing with 9337.[42]
PAGCOR in casino operations are
best elucidated from the 1987 case It is settled rule that in case of discrepancy
of Commissioner of Internal between the basic law and a rule or regulation issued
Revenue v. John Gotamco & Sons, to implement said law, the basic law prevails,
Inc., where the absolute tax because the said rule or regulation cannot go beyond
exemption of the World Health the terms and provisions of the basic law.[43] RR No.
Organization (WHO) upon an 16-2005, therefore, cannot go beyond the provisions
international agreement was of R.A. No. 9337. Since PAGCOR is exempt from
upheld. We held in said case that VAT under R.A. No. 9337, the BIR exceeded its
the exemption of contractee WHO authority in subjecting PAGCOR to 10% VAT under
should be implemented to mean RR No. 16-2005; hence, the said regulatory provision
that the entity or person exempt is is hereby nullified.
the contractor itself who
Republic of the Philippines When the WHO decided to construct a building to tax is an indirect tax on the assets and income of the
SUPREME COURT house its own offices, as well as the other United Organization, the gross receipts derived by
Manila Nations offices stationed in Manila, it entered into a contractors from their contracts with the WHO for the
further agreement with the Govermment of the construction of its new building, are exempt from tax
FIRST DIVISION Republic of the Philippines on November 26, 1957. in accordance with . . . the Host Agreement."
This agreement contained the following provision Subsequently, however, on June 3, 1958, the
G.R. No. L-31092 February 27, 1987 (Article III, paragraph 2): Commissioner of Internal Revenue reversed his
opinion and stated that "as the 3% contractor's tax is
COMMISSIONER OF INTERNAL The Organization may import into not a direct nor an indirect tax on the WHO, but a tax
REVENUE, petitioner, the country materials and fixtures that is primarily due from the contractor, the same is
vs. required for the construction free not covered by . . . the Host Agreement."
JOHN GOTAMCO & SONS, INC. and THE from all duties and taxes and agrees
COURT OF TAX APPEALS, respondents. not to utilize any portion of the On January 2, 1960, the WHO issued a certification
international reserves of the state 91 inter alia,:
Government.
When the request for bids for the
YAP, J.: Article VIII of the above-mentioned agreement construction of the World Health
referred to the Host Agreement concluded on July 22, Organization office building was
The question involved in this petition is whether 1951 which granted the Organization exemption from called for, contractors were
respondent John Gotamco & Sons, Inc. should pay all direct and indirect taxes. informed that there would be no
the 3% contractor's tax under Section 191 of the taxes or fees levied upon them for
National Internal Revenue Code on the gross receipts In inviting bids for the construction of the building, their work in connection with the
it realized from the construction of the World Health the WHO informed the bidders that the building to be construction of the building as this
Organization office building in Manila. constructed belonged to an international organization will be considered an indirect tax to
with diplomatic status and thus exempt from the the Organization caused by the
The World Health Organization (WHO for short) is payment of all fees, licenses, and taxes, and that increase of the contractor's bid in
an international organization which has a regional therefore their bids "must take this into account and order to cover these taxes. This was
office in Manila. As an international organization, it should not include items for such taxes, licenses and upheld by the Bureau of Internal
enjoys privileges and immunities which are defined other payments to Government agencies." Revenue and it can be stated that
more specifically in the Host Agreement entered into the contractors submitted their bids
between the Republic of the Philippines and the said The construction contract was awarded to respondent in good faith with the exemption in
Organization on July 22, 1951. Section 11 of that John Gotamco & Sons, Inc. (Gotamco for short) on mind.
Agreement provides, inter alia, that "the February 10, 1958 for the stipulated price of
Organization, its assets, income and other properties P370,000.00, but when the building was completed The undersigned, therefore,
shall be: (a) exempt from all direct and indirect taxes. the price reached a total of P452,544.00. certifies that the bid of John
It is understood, however, that the Organization will Gotamco & Sons, made under the
not claim exemption from taxes which are, in fact, no Sometime in May 1958, the WHO received an condition stated above, should be
more than charges for public utility services; . . . opinion from the Commissioner of the Bureau of exempted from any taxes in
Internal Revenue stating that "as the 3% contractor's connection with the construction of
the World Health Organization its purview. Petitioner's position is that the cannot be said that 'this tax has no
office building. contractor's tax "is in the nature of an excise tax bearing upon the World Health
which is a charge imposed upon the performance of Organization.
On January 17, 1961, the Commissioner of Internal an act, the enjoyment of a privilege or the engaging
Revenue sent a letter of demand to Gotamco in an occupation. . . It is a tax due primarily and Petitioner claims that under the authority of the
demanding payment of P 16,970.40, representing the directly on the contractor, not on the owner of the Philippine Acetylene Company versus Commissioner
3% contractor's tax plus surcharges on the gross building. Since this tax has no bearing upon the of Internal Revenue, et al., 3 the 3% contractor's tax
receipts it received from the WHO in the construction WHO, it cannot be deemed an indirect taxation upon fans directly on Gotamco and cannot be shifted to the
of the latter's building. it." WHO. The Court of Tax Appeals, however, held that
the said case is not controlling in this case, since the
Respondent Gotamco appealed the Commissioner's We agree with the Court of Tax Appeals in rejecting Host Agreement specifically exempts the WHO from
decision to the Court of Tax Appeals, which after trial this contention of the petitioner. Said the respondent "indirect taxes." We agree. The Philippine
rendered a decision, in favor of Gotamco and court: Acetylene case involved a tax on sales of goods
reversed the Commissioner's decision. The Court of which under the law had to be paid by the
Tax Appeal's decision is now before us for review on In context, direct taxes are those manufacturer or producer; the fact that the
certiorari. that are demanded from the very manufacturer or producer might have added the
person who, it is intended or amount of the tax to the price of the goods did not
In his first assignment of error, petitioner questions desired, should pay them; while make the sales tax "a tax on the purchaser." The
the entitlement of the WHO to tax exemption, indirect taxes are those that are Court held that the sales tax must be paid by the
contending that the Host Agreement is null and void, demanded in the first instance from manufacturer or producer even if the sale is made to
not having been ratified by the Philippine Senate as one person in the expectation and tax-exempt entities like the National Power
required by the Constitution. We find no merit in this intention that he can shift the Corporation, an agency of the Philippine
contention. While treaties are required to be ratified burden to someone else. (Pollock Government, and to the Voice of America, an agency
by the Senate under the Constitution, less formal vs. Farmers, L & T Co., 1957 US of the United States Government.
types of international agreements may be entered into 429, 15 S. Ct. 673, 39 Law. Ed.
by the Chief Executive and become binding without 759.) The contractor's tax is of The Host Agreement, in specifically exempting the
the concurrence of the legislative body. 1 The Host course payable by the contractor WHO from "indirect taxes," contemplates taxes
Agreement comes within the latter category; it is a but in the last analysis it is the which, although not imposed upon or paid by the
valid and binding international agreement even owner of the building that Organization directly, form part of the price paid or to
without the concurrence of the Philippine Senate. shoulders the burden of the tax be paid by it. This is made clear in Section 12 of the
because the same is shifted by the Host Agreement which provides:
The privileges and immunities granted to the WHO contractor to the owner as a matter
under the Host Agreement have been recognized by of self-preservation. Thus, it is an While the Organization will not, as
this Court as legally binding on Philippine indirect tax. And it is an indirect tax a general rule, in the case of minor
authorities. 2 on the WHO because, although it is purchases, claim exemption from
payable by the petitioner, the latter excise duties, and from taxes on the
Petitioner maintains that even assuming that the Host can shift its burden on the WHO. In sale of movable and immovable
Agreement granting tax exemption to the WHO is the last analysis it is the WHO that property which form part of the
valid and enforceable, the 3% contractor's tax will pay the tax indirectly through price to be paid, nevertheless, when
assessed on Gotamco is not an "indirect tax" within the contractor and it certainly the Organization is
making important purchases for
official use of property on which
such duties and taxes have been
charged or are chargeable the
Government of the Republic of the
Philippines shall make appropriate
administrative arrangements for
the remission or return of the
amount of duty or tax. (Emphasis
supplied).

The above-quoted provision, although referring only


to purchases made by the WHO, elucidates the clear
intention of the Agreement to exempt the WHO from
"indirect" taxation.

The certification issued by the WHO, dated January


20, 1960, sought exemption of the contractor,
Gotamco, from any taxes in connection with the
construction of the WHO office building. The 3%
contractor's tax would be within this category and
should be viewed as a form of an "indirect tax" On
the Organization, as the payment thereof or its
inclusion in the bid price would have meant an
increase in the construction cost of the building.

Accordingly, finding no reversible error committed


by the respondent Court of Tax Appeals, the appealed
decision is hereby affirmed.

SO ORDERED.
Republic of the Philippines respondents that their respective positions are for the decided by the NPC Board. 6 The provision on tax
SUPREME COURT benefit of the Filipino people. exemption in relation to the issuance of the NPC
Manila bonds was neither amended nor deleted.
I
EN BANC On September 30, 1939, C.A. No. 495 was enacted
A Chronological review of the relevant NPC laws, removing the provision on the payment of the bond's
specially with respect to its tax exemption provisions, principal and interest in "gold coins" but adding that
at the risk of being repetitious is, therefore, in order. payment could be made in United States
G.R. No. 88291 June 8, 1993 dollars. 7 The provision on tax exemption in relation
On November 3, 1936, Commonwealth Act No. 120 to the issuance of the NPC bonds was neither
ERNESTO M. MACEDA, petitioner, was enacted creating the National Power amended nor deleted.
vs. Corporation, a public corporation, mainly to develop
HON. CATALINO MACARAIG, JR., in his hydraulic power from all water sources in the On June 4, 1949, Republic Act No. 357 was enacted
capacity as Executive Secretary, Office of the Philippines. 2 The sum of P250,000.00 was authorizing the President of the Philippines to
President, HON. VICENTE JAYME, ETC., ET appropriated out of the funds in the Philippine guarantee, absolutely and unconditionally, as primary
AL., respondents. Treasury for the purpose of organizing the NPC and obligor, the payment of any and all NPC loans. 8 He
conducting its preliminary work. 3 The main source of was also authorized to contract on behalf of the NPC
Angara, Abello, Concepcion & Cruz for respondent funds for the NPC was the flotation of bonds in the with the International Bank for Reconstruction and
Pilipinas Shell Petroleum Corporation. capital markets 4and these bonds Development (IBRD) for NPC loans for the
accomplishment of NPC's corporate objectives 9 and
Siguion Reyna, Montecillo & Ongsiako for Caltex. . . . issued under the authority of for the reconstruction and development of the
this Act shall be exempt from the economy of the country. 10 It was expressly stated
payment of all taxes by the that:
Commonwealth of the Philippines,
NOCON, J.: or by any authority, branch, Any such loan or loans shall be
division or political subdivision exempt from taxes, duties, fees,
Just like lightning which does strike the same place thereof and subject to the imposts, charges, contributions and
twice in some instances, this matter of indirect tax provisions of the Act of Congress, restrictions of the Republic of the
exemption of the private respondent National Power approved March 24, 1934, Philippines, its provinces, cities and
Corporation (NPC) is brought to this Court a second otherwise known as the Tydings municipalities. 11
time. Unfazed by the Decision We promulgated on McDuffle Law, which facts shall be
May 31, 1991 1 petitioner Ernesto Maceda asks this stated upon the face of said bonds. . On the same date, R.A. No. 358 was enacted
Court to reconsider said Decision. Lest We be . . .5 expressly authorizing the NPC, for the first time, to
criticized for denying due process to the petitioner. incur other types of indebtedness, aside from
We have decided to take a second look at the issues. On June 24, 1938, C.A. No. 344 was enacted indebtedness incurred by flotation of bonds. 12 As to
In the process, a hearing was held on July 9, 1992 increasing to P550,000.00 the funds needed for the the pertinent tax exemption provision, the law stated
where all parties presented their respective initial operations of the NPC and reiterating the as follows:
arguments. Etched in this Court's mind are the provision of the flotation of bonds as soon as the first
paradoxical claims by both petitioner and private construction of any hydraulic power project was to be
To facilitate payment of its On June 13, 1958, R.A. No. 2055 was enacted comprehensive development,
indebtedness, the National Power increasing the total amount of foreign loans NPC was utilization and conservation of
Corporation shall be exempt from authorized to incur to US$100,000,000.00 from the Philippine water resources for all
all taxes, duties, fees, imposts, US$50,000,000.00 ceiling in R.A. No. 357. 17 The tax beneficial uses, including power
charges, and restrictions of the provision related to the repayment of these loans was generation, and (2) the total
Republic of the Philippines, its not amended nor deleted. electrification of the Philippines
provinces, cities and through the development of power
municipalities. 13 On June 13, 1958, R.A. No. 2058 was enacting fixing from all sources to meet the needs
the corporate life of NPC to December 31, of industrial development and
On July 10, 1952, R.A. No. 813 was enacted 2000. 18 All laws or provisions of laws and executive dispersal and the needs of rural
amending R.A. No. 357 in that, aside from the IBRD, orders contrary to said R.A. No. 2058 were expressly electrification are primary
the President of the Philippines was authorized to repealed. 19 objectives of the nation which shall
negotiate, contract and guarantee loans with the be pursued coordinately and
Export-Import Bank of of Washigton, D.C., U.S.A., On June 18, 1960, R.A. No 2641 was enacted supported by all instrumentalities
or any other international financial institution. 14 The converting the NPC from a public corporation into a and agencies of the government,
tax provision for repayment of these loans, as stated stock corporation with an authorized capital stock of including the financial
in R.A. No. 357, was not amended. P100,000,000.00 divided into 1,000.000 shares institutions. 23
having a par value of P100.00 each, with said capital
On June 2, 1954, R.A. No. 987 was enacted stock wholly subscribed to by the Government. 20 No Section 4 of C.A. No. 120, was renumbered as
specifically to withdraw NPC's tax exemption for real tax exemption was incorporated in said Act. Section 8, and divided into sections 8 (a) (Authority
estate taxes. As enacted, the law states as follows: to incur Domestic Indebtedness) and Section 8 (b)
On June 17, 1961, R.A. No. 3043 was enacted (Authority to Incur Foreign Loans).
To facilitate payment of its increasing the above-mentioned authorized capital
indebtedness, the National Power stock to P250,000,000.00 with the increase to be As to the issuance of bonds by the NPC, Paragraph
Corporation shall be exempt from wholly subscribed by the Government. 21 No tax No. 3 of Section 8(a), states as follows:
all taxes, except real property tax, provision was incorporated in said Act.
and from all duties, fees, imposts, The bonds issued under the
charges, and restrictions of the On June 17, 1967, R.A. No 4897 was enacted. NPC's authority of this subsection shall be
Republic of the Philippines, its capital stock was increased again to exempt from the payment of all
provinces, cities, and P300,000,000.00, the increase to be wholly taxes by the Republic of the
municipalities. 15 subscribed by the Government. No tax provision was Philippines, or by any authority,
incorporated in said Act. 22 branch, division or political
On September 8, 1955, R.A. No. 1397 was enacted subdivision thereof which facts
directing that the NPC projects to be funded by the On September 10, 1971, R.A. No. 6395 was enacted shall be stated upon the face of said
increased indebtedness 16 should bear the National revising the charter of the NPC, C.A. No. 120, as bonds. . . . 24
Economic Council's stamp of approval. The tax amended. Declared as primary objectives of the
exemption provision related to the payment of this nation were: As to the foreign loans the NPC was authorized to
total indebtedness was not amended nor deleted. contract, Paragraph No. 5, Section 8(b), states as
Declaration of Policy. Congress follows:
hereby declares that (1) the
The loans, credits and indebtedness Philippines, its provinces, cities, Luzon, Mindanao and major
contracted under this subsection and municipalities and other islands of the country, including the
and the payment of the principal, government agencies and Visayas, shall be the responsibility
interest and other charges thereon, instrumentalities; of the National Power Corporation
as well as the importation of (NPC) as the authorized
machinery, equipment, materials (b) From all income taxes, implementing agency of the
and supplies by the Corporation, franchise taxes and realty taxes to State. 27
paid from the proceeds of any loan, be paid to the National
credit or indebtedeness incurred Government, its provinces, cities, xxx xxx xxx
under this Act, shall also be exempt municipalities and other
from all taxes, fees, imposts, other government agencies and It is the ultimate objective of the
charges and restrictions, including instrumentalities; State for the NPC to own and
import restrictions, by the Republic operate as a single integrated
of the Philippines, or any of its (c) From all import duties, system all generating facilities
agencies and political compensating taxes and advanced supplying electric power to the
subdivisions. 25 sales tax, and wharfage fees on entire area embraced by any grid
import of foreign goods required set up by the NPC. 28
A new section was added to the charter, now known for its operations and projects; and
as Section 13, R.A. No. 6395, which declares the On January 22, 1974, P.D. No. 380 was issued giving
non-profit character and tax exemptions of NPC as (d) From all taxes, duties, fees, extra powers to the NPC to enable it to fulfill its role
follows: imposts and all other charges its under aforesaid P.D. No. 40. Its authorized capital
provinces, cities, municipalities and stock was raised to P2,000,000,000.00, 29 its total
The Corporation shall be non-profit other government agencies and domestic indebtedness was pegged at a maximum of
and shall devote all its returns from instrumentalities, on all petroleum P3,000,000,000.00 at any one time, 30 and the NPC
its capital investment, as well as products used by the Corporation in was authorized to borrow a total of
excess revenues from its operation, the generation, transmission, US$1,000,000,000.00 31 in foreign loans.
for expansion. To enable the utilization, and sale of electric
Corporation to pay its indebtedness power. 26 The relevant tax exemption provision for these
and obligations and in furtherance foreign loans states as follows:
and effective implementation of the On November 7, 1972, Presidential
policy enunciated in Section one of Decree No. 40 was issued declaring The loans, credits and indebtedness
this Act, the Corporation is hereby that the electrification of the entire contracted under this subsection
declared exempt: country was one of the primary and the payment of the principal,
concerns of the country. And in interest and other charges thereon,
(a) From the payment of all taxes, connection with this, it was as well as the importation of
duties, fees, imposts, charges costs specifically stated that: machinery, equipment, materials,
and service fees in any court or supplies and services, by the
administrative proceedings in The setting up of transmission line Corporation, paid from the
which it may be a party, restrictions grids and the construction of proceeds of any loan, credit or
and duties to the Republic of the associated generation facilities in indebtedness incurred under this
Act, shall also be exempt from all imposed directly or indirectly by (I)n the application of the tax
direct and indirect taxes, fees, the Republic of the Philippines, its exemption provisions of the
imposts, other charges and provinces, cities, municipalities and Revised Charter, the non-profit
restrictions, including import other government agencies and character of NPC has not been fully
restrictions previously and instrumentalities, on all petroleum utilized because of restrictive
presently imposed, and to be products used by the Corporation in interpretation of the taxing agencies
imposed by the Republic of the the generation, transmission, of the government on said
Philippines, or any of its agencies utilization and sale of electric provisions; 37
and political power. 33 (Emphasis supplied)
subdivisions. 32 (Emphasis xxx xxx xxx
supplied) On February 26, 1970, P.D. No. 395 was issued
removing certain restrictions in the NPC's sale of (I)n order to effect the accelerated
Section 13(a) and 13(d) of R.A. No 6395 were electricity to its different customers. 34 No tax expansion program and attain the
amended to read as follows: exemption provision was amended, deleted or added. declared objective of total
electrification of the country,
(a) From the payment of all taxes, On July 31, 1975, P.D. No. 758 was issued directing further amendments of certain
duties, fees, imposts, charges and that P200,000,000.00 would be appropriated annually sections of Republic Act No. 6395,
restrictions to the Republic of the to cover the unpaid subscription of the Government as amended by Presidential Decrees
Philippines, its provinces, cities, in the NPC authorized capital stock, which amount Nos. 380, 395 and 758, have
municipalities and other would be taken from taxes accruing to the General become imperative; 38
government agencies and Funds of the Government, proceeds from loans,
instrumentalities including the issuance of bonds, treasury bills or notes to be issued Thus NPC's capital stock was raised to
taxes, duties, fees, imposts and by the Secretary of Finance for this particular P8,000,000,000.00, 39 the total domestic indebtedness
other charges provided for under purpose. 35 ceiling was increased to P12,000,000,000.00, 40 the
the Tariff and Customs Code of the total foreign loan ceiling was raised to
Philippines, Republic Act On May 27, 1976 P.D. No. 938 was issued US$4,000,000,000.00 41 and Section 13 of R.A. No.
Numbered Nineteen Hundred 6395, was amended to read as follows:
Thirty-Seven, as amended, and as (I)n view of the accelerated
further amended by Presidential expansion programs for generation The Corporation shall be non-profit
Decree No. 34 dated October 27, and transmission facilities which and shall devote all its returns from
1972, and Presidential Decree No. includes nuclear power generation, its capital investment as well as
69, dated November 24, 1972, and the present capitalization of excess revenues from its operation,
costs and service fees in any court National Power Corporation (NPC) for expansion. To enable the
or administrative proceedings in and the ceilings for domestic and Corporation to pay to its
which it may be a party; foreign borrowings are deemed indebtedness and obligations and in
insufficient; 36 furtherance and effective
xxx xxx xxx implementation of the policy
xxx xxx xxx enunciated in Section one of this
(d) From all taxes, duties, fees, Act, the Corporation, including its
imposts, and all other charges subsidiaries, is hereby declared
exempt from the payment of all corporations which are exempt manufacturer or business firm
forms of taxes, duties, fees, imposts from the payment of customs duties adversely affected by any decision
as well as costs and service fees and internal revenue taxes, shall be or ruling of the Inter-Agency
including filing fees, appeal bonds, subject to the prior approval of an Committee may file an appeal with
supersedeas bonds, in any court or Inter-Agency Committee which the Office of the President within
administrative proceedings. 42 shall insure compliance with the ten days from the date of notice
following conditions: thereof. . . . .
II
(a) That no such article of local xxx xxx xxx
On the other hand, the pertinent tax laws involved in manufacture are available in
this controversy are P.D. Nos. 882, 1177, 1931 and sufficient quantity and comparable Sec. 6. . . . . Section 13 of Republic
Executive Order No. 93 (S'86). quality at reasonable prices; Act No. 6395; . . .. and all similar
provisions of all general and
On January 30, 1976, P.D. No. 882 was issued (b) That the articles to be imported special laws and decrees are hereby
withdrawing the tax exemption of NPC with regard are directly and actually needed amended accordingly.
to imports as follows: and will be used exclusively by the
grantee of the exemption for its xxx xxx xxx
WHEREAS, importations by operations and projects or in the
certain government agencies, conduct of its functions; and On July 30, 1977, P.D. 1177 was issued as it was
including government-owned or
controlled corporation, are exempt (c) The shipping documents . . . declared the policy of the State
from the payment of customs duties covering the importation are in the to formulate and implement a
and compensating tax; and name of the grantee to whom the National Budget that is an
goods shall be delivered directly by instrument of national
WHEREAS, in order to reduce customs authorities. development, reflective of national
foreign exchange spending and to objectives, strategies and plans.
protect domestic industries, it is xxx xxx xxx The budget shall be supportive of
necessary to restrict and regulate and consistent with the socio-
such tax-free importations. Sec. 3. The Committee shall have economic development plan and
the power to regulate and control shall be oriented towards the
NOW THEREFORE, I, the tax-free importation of achievement of explicit objectives
FERDINAND E. MARCOS, government agencies in accordance and expected results, to ensure that
President of the Philippines, by with the conditions set forth in funds are utilized and operations
virtue of the powers vested in me Section 1 hereof and the are conducted effectively,
by the Constitution, and do hereby regulations to be promulgated to economically and efficiently. The
decree and order the following: implement the provisions of this national budget shall be formulated
Decree. Provided, however, That within a context of a regionalized
Sec. 1. All importations of any any government agency or government structure and of the
government agency, including government-owned or controlled totality of revenues and other
government-owned or controlled corporation, or any local receipts, expenditures and
borrowings of all levels of to any government-owned or 1) The effect on the relative price
government-owned or controlled controlled corporation and all other levels;
corporations. The budget shall units of government; 46
likewise be prepared within the 2) The relative contribution of the
context of the national long-term and since there was a corporation to the revenue
plan and of a long-term budget generation effort;
program. 43 . . . need for government-owned or
controlled corporations and all 3) The nature of the activity in
In line with such policy, the law decreed that other units of government enjoying which the corporation is engaged
tax privileges to share in the in; or
All units of government, including government- requirements of development, fiscal
owned or controlled corporations, shall pay income or otherwise, by paying the duties, 4) In general the greater national
taxes, customs duties and other taxes and fees are taxes and other charges due from interest to be served.
imposed under revenues laws: provided, that them. 47
organizations otherwise exempted by law from the xxx xxx xxx
payment of such taxes/duties may ask for a subsidy it was decreed that:
from the General Fund in the exact amount of Sec. 5. The provisions of
taxes/duties due: provided, further, that a procedure Sec. 1. The provisions of special on Presidential Decree No. 1177 as
shall be established by the Secretary of Finance and general law to the contrary well as all other laws, decrees,
the Commissioner of the Budget, whereby such notwithstanding, all exemptions executive orders, administrative
subsidies shall automatically be considered as both from the payment of duties, taxes, orders, rules, regulations or parts
revenue and expenditure of the General Fund. 44 fees, imposts and other charges thereof which are inconsistent with
heretofore granted in favor of this Decree are hereby repealed,
The law also declared that government-owned or controlled amended or modified accordingly.
corporations including their
[A]ll laws, decrees, executive subsidiaries, are hereby withdrawn. On December 17, 1986, E.O. No. 93 (S'86) was
orders, rules and regulations or issued with a view to correct presidential restoration
parts thereof which are inconsistent Sec. 2. The President of the or grant of tax exemption to other government and
with the provisions of the Decree Philippines and/or the Minister of private entities without benefit of review by the
are hereby repealed and/or Finance, upon the recommendation Fiscal Incentives Review Board, to wit:
modified accordingly. 45 of the Fiscal Incentives Review
Board created under Presidential WHEREAS, Presidential Decree
On July 11, 1984, most likely due to the economic Decree No. 776, is hereby Nos. 1931 and 1955 issued on June
morass the Government found itself in after the empowered to restore, partially or 11, 1984 and October 14, 1984,
Aquino assassination, P.D. No. 1931 was issued to totally, the exemptions withdrawn respectively, withdrew the tax and
reiterate that: by Section 1 above, any applicable duty exemption privileges,
tax and duty, taking into account, including the preferential tax
WHEREAS, Presidential Decree among others, any or all of the treatment, of government and
No. 1177 has already expressly following: private entities with certain
repealed the grant of tax privileges exceptions, in order that the
requirements of national economic a) those covered by the non- d) those enjoyed by the copper
development, in terms of fiscals impairment clause of the mining industry pursuant to the
and other resources, may be met Constitution; provisions of Letter of Instructions
more adequately; No. 1416;
b) those conferred by effective
xxx xxx xxx internation agreement to which the e) those conferred under the four
Government of the Republic of the basic codes namely:
WHEREAS, in addition to those Philippines is a signatory;
tax and duty exemption privileges (i) the Tariff and
were restored by the Fiscal c) those enjoyed by enterprises Customs Code, as
Incentives Review Board (FIRB), a registered with: amended;
number of affected entities,
government and private, had their (i) the Board of (ii) the National
tax and duty exemption privileges Investment Internal Revenue
restored or granted by Presidential pursuant to Code, as
action without benefit or review by Presidential amended;
the Fiscal Incentives Review Board Decree No. 1789,
(FIRB); as amended; (iii) the Local
Tax Code, as
xxx xxx xxx (ii) the Export amended;
Processing Zone
Since it was decided that: Authority, (iv) the Real
pursuant to Property Tax
[A]ssistance to government and Presidential Code, as
private entities may be better Decree No. 66 as amended;
provided where necessary by amended;
explicit subsidy and budgetary f) those approved
support rather than tax and duty (iii) the by the President
exemption privileges if only to Philippine upon the
improve the fiscal monitoring Veterans recommendation
aspects of government operations. Investment of the Fiscal
Development Incentives
It was thus ordered that: Corporation Review Board.
Industrial
Sec. 1. The Provisions of any Authority Sec. 2. The Fiscal Incentives
general or special law to the pursuant to Review Board created under
contrary notwithstanding, all tax Presidential Presidential Decree No. 776, as
and duty incentives granted to Decree No. 538, amended, is hereby authorized to:
government and private entities are was amended.
hereby withdrawn, except:
a) restore tax and/or duty a) the effect on relative price levels; a. Direct Tax the where the
exemptions withdrawn hereunder person supposed to pay the tax
in whole or in part; b) relative contribution of the really pays
beneficiary to the revenue it. WITHOUT transferring the
b) revise the scope and coverage of generation effort; burden to someone else.
tax and/or duty exemption that may
be restored; c) nature of the activity the Examples: Individual income tax,
beneficiary is engaged; and corporate income tax, transfer taxes
c) impose conditions for the (estate tax, donor's tax), residence
restoration of tax and/or duty d) in general, the greater national tax, immigration tax
exemption; interest to be served.
b. Indirect Tax that where the
d) prescribe the date of period of xxx xxx xxx tax is imposed upon
effectivity of the restoration of tax goods BEFORE reaching the
and/or duty exemption; Sec. 5. All laws, orders, issuances, consumer who ultimately pays for
rules and regulations or parts it, not as a tax, but as a part of the
e) formulate and submit to the thereof inconsistent with this purchase price.
President for approval, a complete Executive Order are hereby
system for the grant of subsidies to repealed or modified accordingly. Examples: the internal revenue
deserving beneficiaries, in lieu of indirect taxes (specific tax,
or in combination with the E.O. No. 93 (S'86) was decreed to be percentage taxes, (VAT) and the
restoration of tax and duty effective 48 upon the promulgation of the rules and tariff and customs indirect taxes
exemptions or preferential regulations, to be issued by the Ministry of (import duties, special import tax
treatment in taxation, indicating the Finance. 49 Said rules and regulations were and other dues) 52
source of funding therefor, eligible promulgated and published in the Official Gazette
beneficiaries and the terms and on February 23, 1987. These became effective on the IV
conditions for the grant thereof 15th day after promulgation 50 in the Official
taking into consideration the Gasetter, 51 which 15th day was March 10, 1987. To simply matter, the issues raised by petitioner in his
international commitment of the motion for reconsideration can be reduced to the
Philippines and the necessary III following:
precautions such that the grant of
subsidies does not become the basis Now to some definitions. We refer to the very (1) What kind of tax exemption privileges did NPC
for countervailing action. simplistic approach that all would-be lawyers, learn have?
in their TAXATION I course, which fro convenient
Sec. 3. In the discharge of its reference, is as follows: (2) For what periods in time were these privileges
authority hereunder, the Fiscal being enjoyed?
Incentives Review Board shall take Classifications or kinds of Taxes:
into account any or all of the (3) If there are taxes to be paid, who shall pay for
following considerations: According to Persons who pay or these taxes?
who bear the burden:
V bone of contention among the parties. For easy The Corporation shall be non-profit
reference, it is reproduced as follows: and shall devote all its returns from
Petitioner contends that P.D. No. 938 repealed the its capital investment as well as
indirect tax exemption of NPC as the phrase "all [T]he Corporation is hereby excess revenues from its operation,
forms of taxes etc.," in its section 10, amending declared exempt: for expansion. To enable the
Section 13, R.A. No. 6395, as amended by P.D. No. Corporation to pay its indebtedness
380, does not expressly include "indirect taxes." xxx xxx xxx and obligations and in furtherance
and effective implementation of the
His point is not well-taken. (d) From all taxes, duties, fees, policy enunciated in Section one of
imposts and all other charges this Act, the Corporation, including
A chronological review of the NPC laws will show imposed by the Republic of the its subsidiaries, is hereby declared
that it has been the lawmaker's intention that the NPC Philippines, its provinces, cities, exempt from the payment of ALL
was to be completely tax exempt from all forms of municipalities and other FORMS OF taxes, duties, fees,
taxes direct and indirect. government agencies and imposts as well as costs and service
instrumentalities, on all petroleum fees including filing fees, appeal
NPC's tax exemptions at first applied to the bonds it products used by the Corporation in bonds, supersedeas bonds, in any
was authorized to float to finance its operations upon the generation, transmission, court or administrative
its creation by virtue of C.A. No. 120. utilization, and sale of electric proceedings. (Emphasis supplied)
power.
When the NPC was authorized to contract with the Petitioner reminds Us that:
IBRD for foreign financing, any loans obtained were P.D. No. 380 added phrase "directly or indirectly" to
to be completely tax exempt. said Section 13(d), which now reads as follows: [I]t must be borne in mind that
Presidential Decree Nos. 380
After the NPC was authorized to borrow from other xxx xxx xxx and 938 were issued by one man,
sources of funds aside issuance of bonds it was acting as such the Executive and
again specifically exempted from all types of taxes (d) From all taxes, duties, fees, Legislative. 53
"to facilitate payment of its indebtedness." Even imposts, and all other charges
when the ceilings for domestic and foreign imposed directly or indirectly by xxx xxx xxx
borrowings were periodically increased, the tax the Republic of the Philippines, its
exemption privileges of the NPC were maintained. provinces, cities, municipalities and [S]ince both presidential decrees
other government agencies and were made by the same person, it
NPC's tax exemption from real estate taxes was, instrumentalities, on all petroleum would have been very easy for him
however, specifically withdrawn by Rep. Act No. products used by the Corporation in to retain the same or similar
987, as above stated. The exemption was, however, the generation, transmission, language used in P.D. No. 380 P.D.
restored by R.A. No. 6395. utilization and sale of electric No. 938 if his intention were to
power. (Emphasis supplied) preserve the indirect tax exemption
Section 13, R.A. No. 6395, was very comprehensive of NPC. 54
in its enumeration of the tax exemptions allowed Then came P.D. No. 938 which amended Sec. 13(a),
NPC. Its section 13(d) is the starting point of this (b), (c) and (d) into one very simple paragraph as Actually, P.D. No. 938 attests to the ingenuousness of
follows: then President Marcos no matter what his fault were.
It should be noted that section 13, R.A. No. 6395, By virtue of P.D. No. 938 NPC's capital stock was The loans, credits and indebtedness
provided for tax exemptions for the following items: raised to P8 Billion. It must be remembered that to contracted under this subsection
pay the government share in its capital stock P.D. No. and the payment of the principal,
13(a) : court or administrative 758 was issued mandating that P200 Million would interest and other charges thereon,
proceedings; be appropriated annually to cover the said unpaid as well as the importation of
subscription of the Government in NPC's authorized machinery, equipment, materials
13(b) : income, franchise, realty capital stock. And significantly one of the sources of and supplies by the Corporation,
taxes; this annual appropriation of P200 million is TAX paid from the proceeds of any loan,
MONEY accruing to the General Fund of the credit or indebtedness incurred
13(c) : import of foreign goods Government. It does not stand to reason then that under this Act, shall also be exempt
required for its operations and former President Marcos would order P200 Million from all taxes, fees, imposts, other
projects; to be taken partially or totally from tax money to be charges and restrictions, including
used to pay the Government subscription in the NPC, import restrictions, by the Republic
13(d) : petroleum products used in on one hand, and then order the NPC to pay all its of the Philippines, or any of its
generation of electric power. indirect taxes, on the other. agencies and political
subdivisions. 57
P.D. No. 938 lumped up 13(b), 13(c), and 13(d) into The above conclusion that then President Marcos
the phrase "ALL FORMS OF TAXES, ETC.,", lumped up Sections 13 (b), 13 (c) and (d) into the The same was amended by P.D. No. 380 as follows:
included 13(a) under the "as well as" clause and phrase "All FORMS OF" is supported by the fact that
added PNOC subsidiaries as qualified for tax he did not do the same for the tax exemption The loans, credits and indebtedness
exemptions. provision for the foreign loans to be incurred. contracted this subsection and the
payment of the principal, interest
This is the only conclusion one can arrive at if he has The tax exemption on foreign loans found in Section and other charges thereon, as well
read all the NPC laws in the order of enactment or 8(b), R.A. No. 6395, reads as follows: as the importation of machinery,
issuance as narrated above in part I hereof. President equipment, materials, supplies and
Marcos must have considered all the NPC statutes services, by the Corporation, paid
from C.A. No. 120 up to its latest amendments, P.D. from the proceeds of any loan,
No. 380, P.D. No. 395 and P.D. No. 759, AND came credit or indebtedness incurred
up 55 with a very simple Section 13, R.A. No. 6395, under this Act, shall also be exempt
as amended by P.D. No. 938. from all direct and indirect taxes,
fees, imposts, other charges and
One common theme in all these laws is that the NPC restrictions, including import
must be enable to pay its indebtedness 56 which, as of restrictions previously and
P.D. No. 938, was P12 Billion in total domestic presently imposed, and to be
indebtedness, at any one time, and U$4 Billion in imposed by the Republic of the
total foreign loans at any one time. The NPC must be Philippines, or any of its agencies
and has to be exempt from all forms of taxes if this and political
goal is to be achieved. subdivisions. 58(Emphasis supplied)
P.D. No. 938 did not amend the same 59 and so the tax that the NPC, being the special creation of the State, Section 16 of P.D. No. 1177, NPC had to submit to
exemption provision in Section 8 (b), R.A. No. 6395, was allowed to continue its tax-free importations. the Office of the President its request for the P200
as amended by P.D. No. 380, still stands. Since the million mandated by P.D. No. 758 to be appropriated
subject matter of this particular Section 8 (b) had to This Court notes that petitioner brought to the annually by the Government to cover its unpaid
do only with loans and machinery imported, paid for attention of this Court, the matter of the abolition of subscription to the NPC authorized capital stock and
from the proceeds of these foreign loans, THERE NPC's tax exemption privileges by P.D. No. that under Section 22, of the same P.D. No. NPC had
WAS NO OTHER SUBJECT MATTER TO LUMP IT 1177 61 only in his Common Reply/Comment to to likewise submit to the Office of the President its
UP WITH, and so, the tax exemption stood as is private Respondents' "Opposition" and "Comment" to internal operating budget for review due to capital
with the express mention of "direct Motion for Reconsideration, four (4) months AFTER inputs of the government (P.D. No. 758) and to the
and indirect" tax exemptions. And this "direct and the motion for Reconsideration had been filed. national government's guarantee of the domestic and
indirect" tax exemption privilege extended to "taxes, During oral arguments heard on July 9, 1992, he foreign indebtedness of the NPC, it is clear that NPC
fees, imposts, other charges . . . to be imposed" in the proceeded to discuss this tax exemption withdrawal was covered by P.D. No. 1177.
future surely, an indication that the lawmakers as explained by then Secretary of Justice Vicente
wanted the NPC to be exempt from ALL FORMS of Abad Santos in opinion No. 133 (S '77). 62 A careful There is reason to believe that NPC availed of
taxes direct and indirect. perusal of petitioner's senate Blue Ribbon Committee subsidy granted to exempt GOCC's that suddenly
Report No. 474, the basis of the petition at bar, fails found themselves having to pay taxes. It will be
It is crystal clear, therefore, that NPC had been to yield any mention of said P.D. No. 1177's effect on noted that Section 23, P.D. No. 1177, mandated that
granted tax exemption privileges for both direct and NPC's tax exemption privileges. 63 Applying by the Secretary of Finance and the Commissioner of the
indirect taxes under P.D. No. 938. analogy Pulido vs. Pablo, 64 the court declares that Budget had to establish the necessary procedure to
the matter of P.D. No. 1177 abolishing NPC's tax accomplish the tax payment/tax subsidy scheme of
VI exemption privileges was not seasonably the Government. In effect, NPC, did not put any cash
invoked 65 by the petitioner. to pay any tax as it got from the General Fund the
Five (5) years on into the now discredited New amounts necessary to pay different revenue collectors
Society, the Government decided to rationalize Be that as it may, the Court still has to discuss the for the taxes it had to pay.
government receipts and expenditures by formulating effect of P.D. No. 1177 on the NPC tax exemption
and implementing a National Budget. 60 The NPC, privileges as this statute has been reiterated twice in In his memorandum filed July 16, 1992, petitioner
being a government owned and controlled P.D. No. 1931. The express repeal of tax privileges of submits:
corporation had to be shed off its tax exemption any government-owned or controlled corporation
status privileges under P.D. No. 1177. It was, (GOCC). NPC included, was reiterated in the fourth [T]hat with the enactment of P.D.
however, allowed to ask for a subsidy from the whereas clause of P.D. No. 1931's preamble. The No. 1177 on July 30, 1977, the
General Fund in the exact amount of taxes/duties due. subsidy provided for in Section 23, P.D. No. 1177, NPC lost all its duty and tax
being inconsistent with Section 2, P.D. No. 1931, was exemptions, whether direct or
Actually, much earlier, P.D. No. 882 had already deemed repealed as the Fiscal Incentives Revenue indirect. And so there was nothing
repealed NPC's tax-free importation privileges. It Board was tasked with recommending the partial or to be withdrawn or to be restored
allowed, however, NPC to appeal said repeal with the total restoration of tax exemptions withdrawn by under P.D. No. 1931, issued on
Office of the President and to avail of tax-free Section 1, P.D. No. 1931. June 11, 1984. This is evident from
importation privileges under its Section 1, subject to sections 1 and 2 of said P.D. No.
the prior approval of an Inter-Agency Committed The records before Us do not indicate whether or not 1931, which reads:
created by virtue of said P.D. No. 882. It is presumed NPC asked for the subsidy contemplated in Section
23, P.D. No. 1177. Considering, however, that under
"Section 1. The section 1 above. . taken to be a continuation of the
provisions of .. former act or acts, although the
special or general former act or acts may be expressly
law to the Hence, P.D. No. 1931 did not have repealed by the revised and
contrary any effect or did it change NPC's consolidated act; and all rights
notwithstanding, status. Since it had already lost all and liabilities under the former act
all exemptions its tax exemptions privilege with or acts are preserved and may be
from the payment the issuance of P.D. No. 1177 seven enforced. 66
of duties, taxes, (7) years earlier or on July 30,
fees, imports and 1977, there were no tax exemptions the Court rules that when P.D. No. 1931 basically
other charges to be withdrawn by section 1 which reenacted in its Section 1 the first half of Section 23,
heretofore could later be restored by the P.D. No. 1177, on withdrawal of tax exemption
granted in favor Minister of Finance upon the privileges of all GOCC's said Section 1, P.D. No.
of government- recommendation of the FIRB under 1931 was deemed to be a continuation of the first half
owned or Section 2 of P.D. No. 1931. of Section 23, P.D. No. 1177, although the second
controlled Consequently, FIRB resolutions half of Section 23, P.D. No. 177, on the subsidy
corporations No. 10-85, and 1-86, were all scheme for former tax exempt GOCCs had been
including their illegally and validly issued since expressly repealed by Section 2 with its institution of
subsidiaries are FIRB acted beyond their statutory the FIRB recommendation of partial/total restoration
hereby authority by creating and not of tax exemption privileges.
withdrawn." merely restoring the tax exempt
status of NPC. The same is true for The NPC tax privileges withdrawn by Section 1. P.D.
Sec. 2. The FIRB Res. No. 17-87 which No. 1931, were, therefore, the same NPC tax
President of the restored NPC's tax exemption exemption privileges withdrawn by Section 23, P.D.
Philippines under E.O. No. 93 which likewise No. 1177. NPC could no longer obtain a subsidy for
and/or the abolished all duties and tax the taxes it had to pay. It could, however, under P.D.
Minister of exemptions but allowed the No. 1931, ask for a total restoration of its tax
Finance, upon the President upon recommendation of exemption privileges, which, it did, and the same
recommendation the FIRB to restore those abolished. were granted under FIRB Resolutions Nos. 10-
of the Fiscal 85 67 and 1-86 68 as approved by the Minister of
Incentives The Court disagrees. Finance.
Review Board
created under Applying by analogy the weight of authority that: Consequently, contrary to petitioner's submission,
P.D. No. 776, is FIRB Resolutions Nos. 10-85 and 1-86 were both
hereby When a revised and consolidated legally and validly issued by the FIRB pursuant to
empowered to act re-enacts in the same or P.D. No. 1931. FIRB did not created NPC's tax
restore partially substantially the same terms the exemption status but merely restored it. 69
or totally, the provisions of the act or acts so
exemptions revised and consolidated, the Some quarters have expressed the view that P.D. No.
withdrawn by revision and consolidation shall be 1931 was illegally issued under the now rather
infamous Amendment No. 6 70 as there was no Under E.O No. 93 (S'86) NPC's tax exemption In the case of the tax exemption restoration of NPC,
showing that President Marcos' encroachment on privileges were again clipped by, this time, President there is no other comparable entity not even a
legislative prerogatives was justified under the then Aquino. Its section 2 allowed the NPC to apply for single public or private corporation whose rights
prevailing condition that he could legislate "only if the restoration of its tax exemption privileges. The would be violated if NPC's tax exemption privileges
the Batasang Pambansa 'failed or was unable to act same was granted under FIRB Resolution No. 17- were to be restored. While there might have been a
inadequately on any matter that in his judgment 87 78 dated June 24, 1987 which restored NPC's tax MERALCO before Martial Law, it is of public
required immediate action' to meet the 'exigency'. 71 exemption privileges effective, starting March 10, knowledge that the MERALCO generating plants
1987, the date of effectivity of E.O. No. 93 (S'86). were sold to the NPC in line with the State policy that
Actually under said Amendment No. 6, then NPC was to be the State implementing arm for the
President Marcos could issue decrees not only when FIRB Resolution No. 17-87 was approved by the electrification of the entire country. Besides,
the Interim Batasang Pambansa failed or was unable President on October 5, 1987. 79 There is no MERALCO was limited to Manila and its environs.
to act adequately on any matter for any reason that in indication, however, from the records of the case And as of 1984, there was no more MERALCO as
his (Marcos') judgment required immediate action, whether or not similar approvals were given by then a producer of electricity which could have
but also when there existed a grave emergency or a President Marcos for FIRB Resolutions Nos. 10-85 objected to the restoration of NPC's tax exemption
threat or thereof. It must be remembered that said and 1- 86. This has led some quarters to believe that a privileges.
Presidential Decree was issued only around nine (9) "travesty of justice" might have occurred when the
months after the Philippines unilaterally declared a Minister of Finance approved his own It should be noted that NPC was not asking to be
moratorium on its foreign debt payments 72 as a result recommendation as Chairman of the Fiscal Incentives granted tax exemption privileges for the first time. It
of the economic crisis triggered by loss of confidence Review Board as what happened in Zambales was just asking that its tax exemption privileges be
in the government brought about by the Aquino Chromate vs. Court of Appeals 80 when the Secretary restored. It is for these reasons that, at least in NPC's
assassination. The Philippines was then trying to of Agriculture and Natural Resources approved a case, the recommendation and approval of NPC's tax
reschedule its debt payments. 73 One of the big decision earlier rendered by him when he was the exemption privileges under FIRB Resolution Nos.
borrowers was the NPC 74 which had a US$ 2.1 Director of Mines, 81 and in Anzaldo vs. 10-85 and 1-86, done by the same person acting in
billion white elephant of a Bataan Nuclear Power Clave 82 where Presidential Executive Assistant Clave his dual capacities as Chairman of the Fiscal
Plant on its back. 75 From all indications, it must have affirmed, on appeal to Malacaang, his own decision Incentives Review Board and Minister of Finance,
been this grave emergency of a debt rescheduling as Chairman of the Civil Service Commission. 83 respectively, do not violate procedural due process.
which compelled Marcos to issue P.D. No. 1931,
under his Amendment 6 power. 76 Upon deeper analysis, the question arises as to While as above-mentioned, FIRB Resolution No. 17-
whether one can talk about "due process" being 87 was approved by President Aquino on October 5,
The rule, therefore, that under the 1973 Constitution violated when FIRB Resolutions Nos. 10-85 and 1-86 1987, the view has been expressed that President
"no law granting a tax exemption shall be passed were approved by the Minister of Finance when the Aquino, at least with regard to E.O. 93 (S'86), had no
without the concurrence of a majority of all the same were recommended by him in his capacity as authority to sub-delegate to the FIRB, which was
members of the Batasang Pambansa" 77 does not Chairman of the Fiscal Incentives Review Board. 84 allegedly not a delegate of the legislature, the power
apply as said P.D. No. 1931 was not passed by the delegated to her thereunder.
Interim Batasang Pambansa but by then President In Zambales Chromite and Anzaldo, two (2) different
Marcos under His Amendment No. 6 power. parties were involved: mining groups and scientist- A misconception must be cleared up.
doctors, respectively. Thus, there was a need for
P.D. No. 1931 was, therefore, validly issued by then procedural due process to be followed. When E.O No. 93 (S'86) was issued, President
President Marcos under his Amendment No. 6 Aquino was exercising both Executive and
authority. Legislative powers. Thus, there was no power
delegated to her, rather it was she who was delegating IN MUCH THE SAME MANNER, it is clear that To limit the exemption granted the
her power. She delegated it to the FIRB, which, for private respondents-oil companies have to absorb the National Power Corporation to
purposes of E.O No. 93 (S'86), is a delegate of the taxes they add to the bunker fuel oil they sell to NPC. direct taxes notwithstanding the
legislature. Clearly, she was not sub-delegating her general and broad language of the
power. It should be stated at this juncture that, as early as statue will be to thwrat the
May 14, 1954, the Secretary of Justice renders an legislative intention in giving
And E.O. No. 93 (S'86), as a delegating law, was opinion, 90wherein he stated and We quote: exemption from all forms of taxes
complete in itself it set forth the policy to be and impositions without
carried out 85 and it fixed the standard to which the xxx xxx xxx distinguishing between those that
delegate had to conform in the performance of his are direct and those that are not.
functions, 86 both qualities having been enunciated by Republic Act No. 358 exempts the (Emphasis supplied)
this Court in Pelaez vs. Auditor General. 87 National Power Corporation from
"all taxes, duties, fees, imposts, In view of all the foregoing, the Court rules and
Thus, after all has been said, it is clear that the NPC charges, and restrictions of the declares that the oil companies which supply bunker
had its tax exemption privileges restored from June Republic of the Philippines and its fuel oil to NPC have to pay the taxes imposed upon
11, 1984 up to the present. provinces, cities, and said bunker fuel oil sold to NPC. By the very nature
municipalities." This exemption is of indirect taxation, the economic burden of such
VII broad enough to include all taxes, taxation is expected to be passed on through the
whether direct or indirect, which channels of commerce to the user or consumer of the
The next question that projects itself is who pays the National Power Corporation goods sold. Because, however, the NPC has been
the tax? may be required to pay, such as the exempted from both direct and indirect taxation, the
specific tax on petroleum products. NPC must beheld exempted from absorbing the
The answer to the question could be gleamed from That it is indirect or is of no economic burden of indirect taxation. This means, on
the manner by which the Commissaries of the Armed amount [should be of no moment], the one hand, that the oil companies which wish to
Forces of the Philippines sell their goods. for it is the corporation that sell to NPC absorb all or part of the economic burden
ultimately pays it. The view which of the taxes previously paid to BIR, which could they
By virtue of P.D. No. 83, 88 veterans, members of the refuses to accord the exemption shift to NPC if NPC did not enjoy exemption from
Armed of the Philippines, and their defendants but because the tax is first paid by the indirect taxes. This means also, on the other hand,
groceries and other goods free of all taxes and duties seller disregards realities and gives that the NPC may refuse to pay the part of the
if bought from any AFP Commissaries. more importance to form than to "normal" purchase price of bunker fuel oil which
substance. Equity and law always represents all or part of the taxes previously paid by
In practice, the AFP Commissary suppliers probably exalt substance over from. the oil companies to BIR. If NPC nonetheless
treat the unchargeable specific, ad valorem and other purchases such oil from the oil companies because
taxes on the goods earmarked for AFP Commissaries xxx xxx xxx to do so may be more convenient and ultimately less
as an added cost of operation and distribute it over costly for NPC than NPC itself importing and hauling
the total units of goods sold as it would any other Tax exemptions are undoubtedly to and storing the oil from overseas NPC is entitled
cost. Thus, even the ordinary supermarket buyer be construed strictly but not so to be reimbursed by the BIR for that part of the
probably pays for the specific, ad valorem and other grudgingly as knowledge that many buying price of NPC which verifiably represents the
taxes which theses suppliers do not charge the AFP impositions taxpayers have to pay tax already paid by the oil company-vendor to the
Commissaries. 89 are in the nature of indirect taxes. BIR.
It should be noted at this point in time that the whole having more or less the same was only on May 8, 1985 when the BIR issues its
issue of who WILL pay these indirect taxes HAS generating power 0% letter authority to the NPC authorizing it to withdraw
BEEN RENDERED moot and academic by E.O. No. tax-free bunker fuel oil from the oil companies
195 issued on June 16, 1987 by virtue of which xxx xxx xxx pursuant to FIRB Resolution No. 10-85. 92 Since the
the ad valorem tax rate on bunker fuel oil was tax exemption restoration was retroactive to June 11,
reduced to ZERO (0%) PER CENTUM. Said E.O. Sec. 3. This Executive Order shall 1984 there was a need. therefore, to recover said
no. 195 reads as follows: take effect immediately. amount as Caltex (PhiIs.) Inc. had already paid the
BIR the specific and ad valorem taxes on the bunker
EXECUTIVE ORDER NO. 195 Done in the city of Manila, this oil it sold NPC during the period above indicated and
17th day of June, in the year of Our had billed NPC correspondingly. 93 It should be noted
AMENDING PARAGRAPH (b) Lord, nineteen hundred and eighty- that the NPC, in its letter-claim dated September 11,
OF SECTION 128 OF THE seven. (Emphasis supplied) 1985 to the Commissioner of the Bureau of Internal
NATIONAL INTERNAL Revenue DID NOT CATEGORICALLY AND
REVENUE CODE, AS The oil companies can now deliver bunker fuel oil to UNEQUIVOCALLY STATE that itself paid the
AMENDED BY REVISING THE NPC without having to worry about who is going to P58.020,110.79 as part of the bunker fuel oil price it
EXCISE TAX RATES OF bear the economic burden of the ad valorem taxes. purchased from Caltex (Phils) Inc. 94
CERTAIN PETROLEUM What this Court will now dispose of are petitioner's
PRODUCTS. complaints that some indirect tax money has been The law governing recovery of erroneously or
illegally refunded by the Bureau of Internal Revenue illegally, collected taxes is section 230 of the
xxx xxx xxx to the NPC and that more claims for refunds by the National Internal Revenue Code of 1977, as amended
NPC are being processed for payment by the BIR. which reads as follows:
Sec. 1. Paragraph (b) of Section
128 of the National Internal A case in point is the Tax Credit Memo issued by the Sec. 230. Recover of tax
Revenue Code, as amended, is Bureau of Internal Revenue in favor of the NPC last erroneously or illegally collected.
hereby amended to read as follows: July 7, 1986 for P58.020.110.79 which were for No suit or proceeding shall be
"erroneously paid specific and ad valorem taxes maintained in any court for the
Par. (b) For products subject during the period from October 31, 1984 to April 27, recovery of any national internal
to ad valorem tax only: 1985. 91 Petitioner asks Us to declare this Tax Credit revenue tax hereafter alleged to
Memo illegal as the PNC did not have indirect tax have been erroneously or illegally
PRODUCT AD VALOREM TAX exemptions with the enactment of P.D. No. 938. As assessed or collected, or of any
RATE We have already ruled otherwise, the only questions penalty claimed to have been
left are whether NPC Is entitled to a tax refund for collected without authority, or of
1. . . . the tax component of the price of the bunker fuel oil any sum alleged to have been
purchased from Caltex (Phils.) Inc. and whether the excessive or in any Manner
2. . . . Bureau of Internal Revenue properly refunded the wrongfully collected. until a claim
amount to NPC. for refund or credit has been duly
filed with the Commissioner; but
3. . . .
After P.D. No. 1931 was issued on June 11, 1984 such suit or proceeding may be
withdrawing the maintained, whether or not such
4. Fuel oil, commercially known as
bunker oil and on similar fuel oils tax exemptions of all GOCCs NPC included, it
tax, penalty, or sum has been paid A careful examination of petitioner's pleadings and In any case, no such suit or
under protest or duress. annexes attached thereto does not reveal when the proceeding shall be begun after the
alleged claim for a P410,580,000.00 tax refund was expiration of two years from the
In any case, no such suit or filed. It is only stated In paragraph No. 2 of the Deed date of payment of the tax or
proceeding shall be begun after the of Assignment 97 executed by and between NPC and penalty REGARDLESS of any
expiration of two years from the Caltex (Phils.) Inc., as follows: supervening cause that may arise
date of payment of the tax or after payment. . . . (Emphasis
penalty regardless of any That the ASSIGNOR(NPC) has a supplied)
supervening cause that may arise pending tax credit claim with the
after payment; Provided, however, Bureau of Internal Revenue The date of the Deed of Assignment is June 6. 1986.
That the Commissioner may, even amounting to P442,887,716.16. Even if We were to assume that payment by NPC for
without a written claim therefor, P58.020,110.79 of which is due to the amount of P410,580,000.00 had been made on
refund or credit any tax, where on Assignor's oil purchases from the said date. it is clear that more than two (2) years had
the face of the return upon which Assignee (Caltex [Phils.] Inc.) already elapsed from said date. At the same time, We
payment was made, such payment should note that there is no legal obstacle to the BIR
appears clearly, to have been Actually, as the Court sees it, this is a clear case of a granting, even without a suit by NPC, the tax credit
erroneously paid. "Mexican standoff." We cannot restrain the BIR from or refund claimed by NPC, assuming that NPC's
refunding said amount because of Our ruling that claim had been made seasonably, and assuming the
xxx xxx xxx NPC has both direct and indirect tax exemption amounts covered had actually been paid previously
privileges. Neither can We order the BIR to refund by the oil companies to the BIR.
Inasmuch as NPC filled its claim for P58.020,110.79 said amount to NPC as there is no pending petition
on September 11, 1985, 95 the Commissioner for review on certiorari of a suit for its collection WHEREFORE, in view of all the foregoing, the
correctly issued the Tax Credit Memo in view of before Us. At any rate, at this point in time, NPC can Motion for Reconsideration of petitioner is hereby
NPC's indirect tax exemption. no longer file any suit to collect said amount EVEN DENIED for lack of merit and the decision of this
IF lt has previously filed a claim with the BIR Court promulgated on May 31, 1991 is hereby
Petitioner, however, asks Us to restrain the because it is time-barred under Section 230 of the AFFIRMED.
Commissioner from acting favorably on NPC's claim National Internal Revenue Code of 1977. as
for P410.580,000.00 which represents specific amended, which states: SO ORDERED.
and ad valorem taxes paid by the oil companies to the
BIR from June 11, 1984 to the early part of 1986. 96