You are on page 1of 497

A COMPILATION OF

2015-2016 TAXATION CASES

AGWILANG, LYLE MURTH


REYES, JEFFREY
BANDOY, MARY GRACE
BUGNAY, GRETCHEN
DINOS, AUREA VALERIE
LALTOOG, BEVERLY
MADRIAGA, MELISSA LEILA
MIRANDA, ALTHEA
ROMANO, GERLIANNE JOY
2015 CASES

JANUARY

G.R. No. 188016, January 14, 2015

REPUBLIC OF THE PHILIPPINES, REPRESENTED BY THE COMMISSIONER OF INTERNAL


REVENUE, Petitioner, v. TEAM (PHILS.) ENERGY CORPORATION (FORMERLY MIRANT (PHILS.) ENERGY
CORPORATION), Respondent.

DECISION

BERSAMIN, J.:

The Republic of the Philippines, represented by the Commissioner of Internal Revenue, appeals the decision
promulgated on April 15, 2009, whereby the Court of Tax Appeals En Banc (CTA En Banc) upheld the decision of
the CTA in Division rendered on May 15, 2008 ordering the Commissioner of Internal Revenue to refund or to issue
a tax credit certificate in favor of the respondent in the modified amount of P16,366,412.59 representing the
respondents excess and unutilized creditable withholding taxes for calendar years 2002 and 2003.

Antecedents

Respondent Mirant (Philippines) Energy Corporation, a domestic corporation, is primarily engaged in the business
of developing, designing, constructing, erecting, assembling, commissioning, owning, operating, maintaining,
rehabilitating, and managing gas turbine and other power generating plants and related facilities for conversion
into electricity, coal, distillate and other fuel provided by and under contract with the Government, or any
subdivision, instrumentality or agency thereof, or any government-owned or controlled corporations or any entity
engaged in the development, supply or distribution of energy. On August 16, 2001, the respondent filed with the
Securities and Exchange Commission (SEC) its Amended Articles of Incorporation stating its intent to change its
corporate name from Mirant (Philippines) Mobile Corporation to Mirant (Philippines) Energy Corporation; and to
include the business of supplying and delivering electricity and providing services necessary in connection with the
supply or delivery of electricity. The SEC approved the amendment on October 22, 2001.

The respondent filed its annual income tax return (ITR) for calendar years 2002 and 2003 on April 15, 2003 and
April 15, 2004, respectively, reflecting overpaid income taxes or excess creditable withholding taxes in the
amounts of P6,232,003.00 and P10,134,410.00 for taxable years 2002 and 2003, respectively. 4 It indicated in the
ITRs its option for the refund of the tax overpayments for calendar years 2002 and 2003.

On March 22, 2005, the respondent filed an administrative claim for refund or issuance of tax credit certificate
with the Bureau of Internal Revenue (BIR) in the total amount of P16,366,413.00, representing the overpaid
income tax or the excess creditable withholding tax of the respondent for calendar years 2002 and 2003.

Due to the inaction of the BIR and in order to toll the running of the two-year prescriptive period for claiming a
refund under Section 229 of the National Internal Revenue Code (NIRC) of 1997, the respondent filed a petition for
review in the Court of Tax Appeals (CTA) on April 14, 2005.

In the answer, the petitioner interposed the following special and affirmative defenses, to wit:

xxxx
3. He reiterates and repleads the preceding paragraphs of this answer as part of his Special and Affirmative
Defenses;

4. Petitioners claim for refund is still subject to the administrative routinary investigation/examination by the
respondent's Bureau;

5. Taxes paid and collected are presumed to have been made in accordance with law and implementing
regulations, hence, not refundable.

6. Petitioner's claim for refund/issuance of tax credit in the amount of P16,366,413.00, as alleged overpaid income
taxes or excess creditable withholding taxes for taxable year ended December 31, 2002 and December 31, 2003
were not fully substantiated by proper documentary evidence.

7. Petitioner failed to prove that the amount of P16,366,413.00 as alleged overpaid income taxes or excess
creditable withholding taxes for taxable year ended December 31, 2002 and December 31, 2003 were included as
part of its gross income for the said taxable years 2002 and 2003, and did not carry-over to the succeeding taxable
quarter/year the subject of its claim, and the same were not utilized in payment of its income tax liability for the
succeeding taxable quarter/year.

8. The filing of the instant petition for review with this Honorable Court was premature since respondent was not
given an ample opportunity to examine its claim for refund;

9. Assuming but without admitting that petitioner is entitled to tax refund, it is incumbent upon the latter to show
that it complied with the provisions of Sections 204 in relation to Section 230 (now 229) of the Tax Code.
Otherwise, its failure to prove the same is fatal to its claim for refund.

10. Claims for refund are construed strictly against the claimant for the same partake the nature of exemption
from taxation (Commissioner of Internal Revenue v. Ledesma, 31 SCRA 95) and as such, they are looked upon with
disfavor (Western Minolco Corp. v. Commissioner of Internal Revenue, 124 SCRA 121).

On May 15, 2008, the CTA in Division rendered its decision in favor of the respondent, disposing thusly:

WHEREFORE, the instant Petition for Review is hereby GRANTED. Accordingly, respondent is hereby ORDERED
TO REFUND or TO ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner in the modified amount of SIXTEEN
MILLION THREE HUNDRED SIXTY-SIX THOUSAND FOUR HUNDRED TWELVE AND 59/100 (P16,366,412.59),
representing petitioner's excess and unutilized creditable withholding taxes for calendar years 2002 and 2003.

SO ORDERED.

The CTA in Division found that the respondent had signified in its ITRs for the same years its intent to have its
excess creditable tax withheld for calendar years 2002 and 2003 be refunded; that the respondents administrative
and judicial claims for refund had been timely filed within the two-year prescriptive period under Section 204 (C) in
relation to Section 229 of the NIRC; that the fact of withholding had been established by the respondent because it
had submitted its certificate of creditable tax withheld at source showing that the aggregate amount of
P17,168,749.60 constituted the CWT withheld by the respondent on its services to Republic Cement Corporation,
Mirant (Philippines) Industrial Power Corporation and Solid Development Corporation for taxable years 2002 and
2003; and that the income from which the CWT had been withheld was duly declared as part of the respondents
income in its annual ITRs for 2002 and 2003.

The petitioner then filed a motion for reconsideration, but the CTA in Division denied the motion on September 5,
2008.

The petitioner brought a petition for review before the CTA En Banc raising two issues, namely:

I.

THE SECOND DIVISION OF THIS HONORABLE COURT ERRED IN HOLDING THAT RESPONDENT IS ENTITLED TO ITS
CLAIMED REFUND OF EXCESS AND UNUTILIZED CREDITABLE WITHHOLDING TAXES FOR CALENDAR YEARS 2002
AND 2003, SINCE THERE WAS A VIOLATION ON THE PART OF THE RESPONDENT TO FULLY COMPLY WITH THE
REQUIREMENTS UNDER SECTION 76 OF THE 1997 TAX CODE.

II.

THE SECOND DIVISION OF THIS HONORABLE COURT ERRED IN NOT APPLYING THE RULE THAT TAX REFUNDS BEING
IN THE NATURE OF TAX EXEMPTION ARE CONSTRUED STRICTISSIMI JURIS AGAINST THE PERSON OR ENTITY
CLAIMING THE EXEMPTION.

On April 15, 2009, however, the CTA En Banc rendered its assailed judgment, disposing thus:

WHEREFORE, the instant petition is hereby DISMISSED. Accordingly, the assailed Decision and Resolution are
hereby AFFIRMED.

SO ORDERED.

The CTA En Banc held that the defenses raised by the petitioner were general and standard arguments to oppose
any claim for refund by a taxpayer; that the trial proper was conducted in the CTA in Division, during which the
respondent presented evidence of its entitlement to the refund and in negation of the defenses of the petitioner;
and that the petitioner raised the issue on the non-presentment of the respondents quarterly returns for 2002
and 2003 only in the petition for review, which was not allowed, stating thusly:chanroblesvirtuallawlibrary

This cannot be allowed. Petitioner had the opportunity to raise this issue either during the trial or at the latest, in
his Motion for Reconsideration of the assailed Decision of the Court in Division but he cited only the following
grounds in his motion: x x x

xxxx

In its assailed Resolution, the Court in Division reiterated its finding that respondent had complied with the
substantiation requirements for its entitlement to refund. It also ruled that the alleged under-declaration of
respondent cannot be determined by the Court since it is the duty of the BIR to investigate and confirm the
truthfulness of each and every item in the ITR. It finally declared that respondent, by presenting copies of CWT
certificates of unutilized CWT, sufficiently complied with the requirements of the fact of withholding.

Thus, petitioner's averment that Section 76 of the NIRC speaks of quarterly income tax payments which
consequently requires the offer in evidence of quarterly income tax returns is raised for the first time on appeal
with the Court En Banc. It is a well-settled rule that points of law, theories, issues and arguments not adequately
brought to the attention of the lower court need not be considered by the reviewing court as they cannot be
raised for the first time on appeal. x x x

xxxx

In the present case, petitioner could have simply exercised his power to examine and verify respondent's claim for
refund by presenting the latter's quarterly income tax returns. The BIR ought to have on file the originals or copies
of respondent's quarterly income tax returns for the subject years, on the basis of which it could rebut
respondent's claim that it did not carry-over its unutilized and excess creditable withholding taxes for taxable years
2002 and 2003 to the succeeding taxable quarters of taxable years 2003 and 2004. Petitioner's failure to present
these vital documents before the Court in Division to support his contention against the grant of a tax refund to
respondent, is fatal.

At any rate, Section 76 of the 1997 NIRC speaks only of the filing of the Final Adjusted Return and as held by the
Supreme Court, the Annual ITR or (t)he Final Adjustment Return is the most reliable firsthand evidence of
corporate acts pertaining to income taxes. In it are found the itemization and summary of additions to and
deductions from income taxes due. These entries are not without rhyme or reason. They are required, because
they facilitate the tax administration process. And in this case, respondent offered in evidence its Annual ITRs for
calendar years 2002, 2003, and 2004.

As to whether the respondent proved its entitlement to the refund, the CTA En Banc declared:

However, petitioner's entitlement to refund is still subject to the satisfaction of the requirements laid down by the
NIRC of 1997, as amended, namely:

1. That the claim for refund was filed within the two-year reglamentary period pursuant to Section 230 of the Tax
Code, as amended;

2. That the fact of withholding is established by a copy of the statement duly issued by the payor to the payee
showing the amount paid and the amount withheld therefrom; and

3. That the income upon which the taxes were withheld is included as part of the gross income declared in the
income tax return of the recipient.

Petitioner complied with the first requisite. The subject claim involves calendar years 2002 and 2003. Petitioner
filed its Annual Income Tax Returns on April 15, 2003 and April 15, 2004. Counting from these dates, petitioner had
until April 15, 2005 and April 15, 2006 within which to file its administrative and judicial claims for refund.
Petitioner filed with the BIR its administrative claim for refund on March 22, 2005. The instant petition was filed on
April 15, 2005. Hence, both the administrative and judicial claims for refund were timely filed within the two-year
prescriptive period.
Anent the second requirement, the Supreme Court enunciated in the case of Banco Filipino Savings and Mortgage
Bank v. Court of Appeals, Court of Tax Appeals and Commissioner of Internal Revenue that the fact of withholding
is established by a copy of the statement duly issued by the payor to the payee through the Certificates of
Creditable Taxes Withheld at Source. In the present case, petitioner submitted to this Court as part of its
documentary evidence ten (10) Certificates of Creditable Taxes Withheld at Source. x x x

xxxx

The aggregate amount of P17,168,749.60 constitutes the creditable withholding taxes withheld from the
Certificates of Creditable Tax Withheld at Source on its services to Republic Cement Corporation, Mirant
(Philippines) Industrial Power Corporation and Solid Development Corporation for taxable years 2002 and 2003.

Regarding the third requisite, the income from which the creditable taxes were withheld were duly declared as part
of petitioner's income in its Annual Income Tax Returns for 2002 and 2003. x x x

Aggrieved, the petitioner has brought this appeal.

Issue

The issue is whether or not the respondent proved its entitlement to the refund.

The petitioner asserts the necessity of submission of the quarterly return of the respondent to prove its
entitlement to the refund pursuant to Sec. 76 of the NIRC because such quarterly returns would establish the
correctness of the total amount of payments made and the taxes due as reported on the adjusted return at the
end of the year. The petitioner insists that the amount claimed for refund was not carried over to the succeeding
year; that the submission of the quarterly return would prevent the possibility of a claimant carrying over the
excess credit and then claiming a refund for it; that the final adjustment return was not sufficient to establish the
respondents claim for refund because it only reflected the sum of the payments made and the taxes due for the
year; that the quarterly return was necessary to prove that the sum, as stated in the adjusted return, was correct;
and that should the respondent chose to carry over the previous years excess credit, the quarterly returns would
prove that the carrying-over was properly done during the succeeding year.

In its comment/opposition, the respondent, while admitting having the burden of proving the factual basis for its
claim for refund, contends that it discharged its burden. It counters that with the presentation of its annual ITRs for
the years 2002, 2003 and 2004, it already properly established that its excess creditable withholding taxes for
taxable years 2002 and 2003 were not carried over to succeeding taxable periods.

In its reply, the petitioner states that the issue on the respondents failure to present its quarterly income tax
returns for taxable years 2002 and 2003, even if not raised by the petitioner at the trial, could be raised before the
CTA En Banc, because it was interposed as a defense in the answer; and that every issue raised in an answer may
be raised on appeal even if it was not taken up in the court of original jurisdiction.

Ruling

The petition is without merit.


Section 76 of the NIRC outlines the mechanisms and remedies that a corporate taxpayer may opt to exercise, viz:

Section 76. Final Adjusted Return.- Every corporation liable to tax under Section 27 shall file a final adjustment
return covering the total taxable income for the preceding calendar of fiscal year. If the sum of the quarterly tax
payments made during the said taxable year is not equal to the total tax due on the entire taxable income of that
year, the corporation shall either:

(A) Pay the balance of the tax still due; or

(B) Carry over the excess credit; or

(C) Be credited or refunded with the excess amount paid, as the case may be.

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

The two options are alternative and not cumulative in nature, that is, the choice of one precludes the other. The
logic behind the rule, according to Philam Asset Management, Inc. v. Commissioner of Internal Revenue,14 is to
ease tax administration, particularly the self-assessment and collection aspects. In Philam Asset Management, Inc.,
the Court expounds on the two alternative options of a corporate taxpayer on how the choice of one option
precludes the other, viz:

The first option is relatively simple. Any tax on income that is paid in excess of the amount due the government
may be refunded, provided that a taxpayer properly applies for the refund.

The second option works by applying the refundable amount, as shown on the FAR of a given taxable year, against
the estimated quarterly income tax liabilities of the succeeding taxable year.

These two options under Section 76 are alternative in nature. The choice of one precludes the other. Indeed,
in Philippine Bank of Communications v. Commissioner of Internal Revenue, the Court ruled that a corporation
must signify its intention whether to request a tax refund or claim a tax credit by marking the corresponding
option box provided in the FAR. While a taxpayer is required to mark its choice in the form provided by the BIR,
this requirement is only for the purpose of facilitating tax collection.

One cannot get a tax refund and a tax credit at the same time for the same excess income taxes paid. x x x

In Commissioner of Internal Revenue v. Bank of the Philippine Islands, the Court, citing the pronouncement in
Philam Asset Management, Inc., points out that Section 76 of the NIRC of 1997 is clear and unequivocal in
providing that the carry-over option, once actually or constructively chosen by a corporate taxpayer,
becomes irrevocable. The Court explains:
Hence, the controlling factor for the operation of the irrevocability rule is that the taxpayer chose an option; and
once it had already done so, it could no longer make another one. Consequently, after the taxpayer opts to carry-
over its excess tax credit to the following taxable period, the question of whether or not it actually gets to apply
said tax credit is irrelevant. Section 76 of the NIRC of 1997 is explicit in stating that once the option to carry over
has been made, no application for tax refund or issuance of a tax credit certificate shall be allowed therefor.

The last sentence of Section 76 of the NIRC of 1997 reads: Once the option to carry-over and apply the excess
quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been
made, such option shall be considered irrevocable for that taxable period and no application for tax refund or
issuance of a tax credit certificate shall be allowed therefor. The phrase for that taxable period merely identifies
the excess income tax, subject of the option, by referring to the taxable period when it was acquired by the
taxpayer. In the present case, the excess income tax credit, which BPI opted to carry over, was acquired by the said
bank during the taxable year 1998. The option of BPI to carry over its 1998 excess income tax credit is irrevocable;
it cannot later on opt to apply for a refund of the very same 1998 excess income tax credit.

The Court of Appeals mistakenly understood the phrase for that taxable period as a prescriptive period for
the irrevocability rule. This would mean that since the tax credit in this case was acquired in 1998, and BPI opted to
carry it over to 1999, then the irrevocability of the option to carry over expired by the end of 1999, leaving BPI free
to again take another option as regards its 1998 excess income tax credit. This construal effectively renders
nugatory the irrevocability rule. The evident intent of the legislature, in adding the last sentence to Section 76 of
the NIRC of 1997, is to keep the taxpayer from flip-flopping on its options, and avoid confusion and complication as
regards said taxpayer's excess tax credit. The interpretation of the Court of Appeals only delays the flip-flopping to
the end of each succeeding taxable period.

The Court similarly disagrees in the declaration of the Court of Appeals that to deny the claim for refund of BPI,
because of the irrevocability rule, would be tantamount to unjust enrichment on the part of the government. The
Court addressed the very same argument in Philam, where it elucidated that there would be no unjust enrichment
in the event of denial of the claim for refund under such circumstances, because there would be no forfeiture of
any amount in favor of the government. The amount being claimed as a refund would remain in the account of the
taxpayer until utilized in succeeding taxable years, as provided in Section 76 of the NIRC of 1997. It is worthy to
note that unlike the option for refund of excess income tax, which prescribes after two years from the filing of the
FAR, there is no prescriptive period for the carrying over of the same. Therefore, the excess income tax credit of
BPI, which it acquired in 1998 and opted to carry over, may be repeatedly carried over to succeeding taxable years,
i.e., to 1999, 2000, 2001, and so on and so forth, until actually applied or credited to a tax liability of BPI.

In the instant case, the respondent opted to be refunded or to be issued a tax credit certificate, not to carry over
the excess withholding tax for taxable year 2002 to the following taxable year. The taking of the option was duly
noted by the CTA En Banc, citing the decision of the CTA in Division, as follows:chanroblesvirtuallawlibrary

Under Line 30 of the 2002 Annual ITR, petitioner marked x the box To be refunded. In order to prove that
petitioner did not carry-over its 2002 excess withholding tax, petitioner presented its 2003 Annual ITR which does
not have any entry in Line 27A Prior Year's Excess Credits. Under Line 31 of the same 2003 Annual ITR, petitioner
marked x the box To be refunded and petitioner presented its 2004 Annual ITR, showing no entry in Line 27A
Prior Year's Excess Credit to prove that it did not carry-over its 2003 excess withholding tax.

Consequently, the only issue that remains is whether the respondent was entitled to the refund of excess
withholding tax.

The requirements for entitlement of a corporate taxpayer for a refund or the issuance of tax credit certificate
involving excess withholding taxes are as follows:
1. That the claim for refund was filed within the two-year reglementary period pursuant to Section 229 of
the NIRC;

2. When it is shown on the ITR that the income payment received is being declared part of the taxpayers
gross income; and

3. When the fact of withholding is established by a copy of the withholding tax statement, duly issued by the
payor to the payee, showing the amount paid and income tax withheld from that amount.

We do not expound anymore on the first requirement because even the petitioner does not contest that the
respondent filed its administrative and judicial claim for refund within the statutory period.

With regard to the second requirement, it is fundamental that the findings of fact by the CTA in Division are not to
be disturbed without any showing of grave abuse of discretion considering that the members of the Division are in
the best position to analyze the documents presented by the parties. 19Consequently, we adopt the findings of the
CTA in Division, which the CTA En Banc cited, as follows.

The abovementioned declarations are further supported by the testimonies of Ms. Imelda Dela Cruz Tagama,
petitioners Accounting Manager and Mr. Ruben R. Rubio, the Independent Certified Public Accountant (ICPA) duly
commissioned by the Court, proving that the total amount of Creditable Withholding Tax per petitioner's Annual
ITRs for calendar years ended December 31, 2002 and December 31, 2003 agrees with the total amount of
Creditable Withholding Tax presented on petitioners Schedule of Creditable Withholding Tax Certificates for the
calendar years ended December 31, 2002 and December 31, 2003. Moreover, the total amount of gross
sales/revenue reported in the Annual ITRs for calendar years 2002 and 2003 is equal to the amounts recorded in
the General Ledger Listing of the Creditable Withholding Tax on the Transfer of Real Property and Sale of
Electricity, 2002 Reconciliation of Revenue per ITR and per General Ledger. Hence, the third requirement is
satisfied.

With respect to the third requirement, the respondent proved that it had met the requirement by presenting the
10 certificates of creditable taxes withheld at source. The petitioner did not challenge the respondents compliance
with the requirement.

We are likewise unmoved by the assertion of the petitioner that the respondent should have submitted the
quarterly returns of the respondent to show that it did not carry-over the excess withholding tax to the succeeding
quarter. When the respondent was able to establish prima facie its right to the refund by testimonial and object
evidence, the petitioner should have presented rebuttal evidence to shift the burden of evidence back to the
respondent. Indeed, the petitioner ought to have its own copies of the respondents quarterly returns on file, on
the basis of which it could rebut the respondents claim that it did not carry over its unutilized and excess
creditable withholding taxes for the immediately succeeding quarters. The BIRs failure to present such vital
document during the trial in order to bolster the petitioners contention against the respondents claim for the tax
refund was fatal.

WHEREFORE, we DENY the petition for review on certiorari, and AFFIRM the decision promulgated on April 15,
2009.

SO ORDERED.
TOPIC: VALUE ADDED TAX (VAT); THE CIRS INACTION IS THE DECISION ITSELF AND NOT
MERELY AN INACTION THAT IS DEEMED A DENIAL

G.R. No. 168950 January 14, 2015

ROHM APOLLO SEMICONDUCTOR PHILIPPINES, Petitioner,


vs.
COMMISSIONER OF INTERNAL REVENUE, Respondents.

DECISION

SERENO, CJ:

This Rule 45 Petition requires this Court to address the question of timeliness with respect to petitioner's judicial
claim for refund or credit of unutilized input Value-Added Tax (VAT) under Sections 112(A) and 112(D) of the 1997
Tax Code. Petitioner Rohm Apollo Semiconductor Philippines., Inc. (Rohm Apollo) assails the Decision and
Resolution of the Court of Tax Appeals En Banc (CTA En Banc) in CTA En Banc Case No. 59, affirming the Decision in
CTA Case No. 6534 of the CTA First Division. 5 The latter denied the claim for the refund or issuance of a tax credit
certificate filed by petitioner Rohm Apollo in the amount of P30,359,615.40 representin& unutilized input VAT paid
on capital goods purchased for the months of July and August 2000.

FACTS

Petitioner Rohm Apollo is a domestic corporation registered with the Securities and Exchange Commission. It is
also registered with the Philippine Economic Zone Authority as an Ecozone Export Enterprise. Rohm Apollo is in the
business of manufacturing semiconductor products, particularly microchip transistors and tantalium capacitors at
the Peoples Technology Complex Special Economic Zone, Barangay Maduya, Carmona Cavite. Further, it is
registered with the Bureau of Internal Revenue (BIR) as a value-added taxpayer.

Sometime in June 2000, prior to the commencement of its operations on 1 September 2001, Rohm Apollo engaged
the services of Shimizu Philippine Contractors, Inc. (Shimizu) for the construction of a factory. For services
rendered by Shimizu, petitioner made initial payments of P198,551,884.28 on 7 July 2000 and P132,367,923.58 on
3 August 2000.

It should be noted at this point that Section 112(B), in relation to Section 112(A) of the 1997 Tax Code, allows a
taxpayer to file an application for the refund or tax credit of unutilized input VAT when it comes to the purchase of
capital goods. The provision sets a time frame for the filing of the application at two years from the close of the
taxable quarter when the purchase was made.

Going back to the case, petitioner treated the payments as capital goods purchases and thus filed with the BIR an
administrative claim for the refund or credit of accumulated unutilized creditable input taxes on 11 December
2000. As the close of the taxable quarter when the purchases were made was 30 September 2000, the
administrative claim was filed well within the two-year prescriptive period.

Pursuant to Section 112(D) of the 1997 Tax Code, the Commissioner of Internal Revenue (CIR) had a period of 120
days from the filing of the application for a refund or credit on 11 December 2000, or until 10 April 2001, to act on
the claim. The waiting period, however, lapsed without any action by the CIR on the claim.

Instead of filing a judicial claim within 30 days from the lapse of the 120-day period on 10 April, or until 10 May
2001, Rohm Apollo filed a Petition for Review with the CTA docketed as CTA Case No. 6534 on 11 September 2002.
It was under the belief that a judicial claim had to be filed within the two-year prescriptive period ending on 30
September 2002.

On 27 May 2004, the CTA First Division rendered a Decisiondenying the judicial claim for a refund or tax credit. In
support of its ruling, the CTA First Division held, among others, that petitioner must have at least submitted its VAT
return for the third quarter of 2001, since it was in that period that it began its business operations. The purpose
was to verify if indeed petitioner did not carry over the claimed input VAT to the third quarter or the succeeding
quarters.

On 14 July 2004, petitioner RohmApollo filed a Motion for Reconsideration, but the tax court stood by its Decision.

On 18 January 2005, the taxpayer elevated the case to the CTA En Bancvia a Petition for Review.

On 22 June 2005, the CTA En Bancrendered its Decision denying Rohm Apollos Petition for Review. The appellate
tax court held that the failure to present the VAT returns for the subsequent taxable year proved to be fatal to the
claim for a refund/tax credit, considering that it could not be determined whether the claimed amount to be
refunded remained unutilized. Petitioner filed a Motion for Reconsideration of the Decision, but it was denied for
lack of merit.

Persistent, the taxpayer filed this Rule 45 Petition, arguing that it has satisfied all the legal requirements for a valid
claim for refund or tax credit of unutilized input VAT.

ISSUE

The threshold question to be resolved is whether the CTA acquired jurisdiction over the claim for the refund or tax
credit of unutilized input VAT.

THE COURTS RULING

We deny the Petition on the ground that the taxpayers judicial claim for a refund/tax credit was filed beyond the
prescriptive period.

The judicial claim was filed out of time.

Section 112(D) of the 1997 Tax Code states the time requirements for filing a judicial claim for the refund or tax
credit of input VAT. The legal provision speaks of two periods: the period of 120 days, which serves as a waiting
period to give time for the CIR to act on the administrative claim for a refund or credit; and the period of 30 days,
which refers to the period for filing a judicial claim with the CTA. It is the 30-day period that is at issue in this case.

The landmark case of Commissioner of Internal Revenue v. San Roque Power Corporation 21 has interpreted Section
112 (D). The Court held that the taxpayer can file an appeal in one of two ways: (1) file the judicial claim within 30
days after the Commissioner denies the claim within the 120-day waiting period, or (2) file the judicial claim within
30 days from the expiration of the 120-day period if the Commissioner does not act within that period.

In this case, the facts are not up for debate. On 11 December 2000, petitioner filed with the BIR an application for
the refund or credit of accumulated unutilized creditable input taxes. Thus, the CIR had a period of 120 days from
11 December 2000, or until 10 April 2001, to act on the claim. It failed to do so, however. Rohm Apollo should then
have treated the CIRs inaction as a denial of its claim. Petitioner would then have had 30 days, or until 10 May
2001, to file a judicial claim withthe CTA. But Rohm Apollo filed a Petition for Review with the CTA only on 11
September 2002. The judicial claim was thus filed late.
The error of the taxpayer lies in the fact that it had mistakenly believed that a judicial claim need not be filed
within 30 days from the lapse of the 120-day period. It had believed that the only requirement is that the judicial
claim must be filed withinthe two-year period under Sections 112(A) and (B) of the 1997 Tax Code. In other words,
Rohm Apollo erroneously thought that the 30-day period does not apply to cases of the CIRs inaction after the
lapse of the 120-day waiting period, and that a judicial claim is seasonably filed so long as it is done within the two
year period. Thus, it filed the Petition for Review with the CTA only on 11 September 2002.

These mistaken notions have already been dispelled by Commissioner of Internal Revenue v. Aichi Forging
Company of Asia, Inc. (Aichi) and San Roque. Aichi clarified that it is only the administrative claim that must be filed
within the two-year prescriptive period. San Roque, on the other hand, has ruled that the 30-day period always
applies, whether there is a denial or inaction on the part of the CIR.

Justice Antonio Carpio, writing for the Court in San Roque, explained that the 30-day period is a 1997 Tax Code
innovation that does away with the old rule where the taxpayer could file a judicial claim when there is inaction on
the part of the CIR and the two-year statute of limitations is about to expire. Justice Carpio stated:

The old rule that the taxpayer may file the judicial claim, without waiting for the Commissioner's decision if the
two-year prescriptive period is about to expire, cannot apply because that rule was adopted before the enactment
of the 30-day period. The 30-day period was adopted precisely to do away with the old rule, so that under the VAT
System the taxpayer will always have 30 days to file the judicial claim even if the Commissioner acts only on the
120th day, or does not act at all during the 120-day period.With the 30-day period always available to the
taxpayer, the taxpayer can no longer file a judicial claim for refund or credit of input VAT without waiting for the
Commissioner to decide until the expiration of the 120-day period.25 (Emphases supplied) The 30-day period to
appeal is mandatory and jurisdictional.

As a general rule, the 30-day period to appeal is both mandatory and jurisdictional. The only exception to the
general rule is when BIR Ruling No. DA-489-03 was still in force, thatis, between 10 December 2003 and 5 October
2010, The BIR Ruling excused premature filing, declaring that the taxpayer-claimant need not wait for the lapse of
the 120-day period before it could seek judicial relief with the CTA by way of Petition for Review. In San Roque, the
High Court explained boththe general rule and the exception:

To repeat, a claim for tax refund or credit, like a claim for tax exemption, is construed strictly against the
taxpayer.1wphi1 One of the conditions for a judicial claim of refund or credit under the VAT System is with the
120+30 day mandatory and jurisdictional periods. Thus, strict compliance with the 120+30 day periods is necessary
for such a claim to prosper, whether before, during, or after the effectivity of the Atlas doctrine, except for the
period from the issuance of BIR Ruling No. DA-489-03 on 10 December 2003 to 6 October 2010 when the
Aichidoctrine was adopted, which again reinstated the 120+30 day periods as mandatory and
jurisdictional. (Emphases supplied)

San Roque likewise ruled out the application of the BIR ruling to cases of late filing. The Court held that the BIR
ruling, as an exception to the mandatory and jurisdictional nature of the 120+30 day periods, is limited to
premature filing and does not extend to the late filing of a judicial claim.

In sum, premature filing is allowed for cases falling during the time when BIR Ruling No. DA-489-03 was in force;
nevertheless, late filing is absolutely prohibited even for cases falling within that period.

As mentioned above, the taxpayer filed its judicial claim with the CTA on 11 September 2002. This was before the
issuance of BIR Ruling No. DA-489-03 on 10 December 2003. Thus, Rohm Apollo could not have benefited from the
BIR Ruling. Besides, its situation was not a case of premature filing of its judicial claim but one of late filing. To
repeat, its judicial claim was filed on 11 September 2002 long after 10 May 2001, the last day of the 30-day
period for appeal. The case thus falls under the general rule the 30-day period is mandatory and jurisdictional.
CONCLUSION

In fine, our finding is that the judicial claim for the refund or credit of unutilized input VAT was belatedly filed.
Hence, the CTA lost jurisdiction over Rohm Apollos claim for a refund or credit. The foregoing considered, there is
no need to go into the merits of this case.

A final note, the taxpayers are reminded that that when the 120-day period lapses and there is inaction on the part
of the CIR, they must no longer wait for it to come up with a decision thereafter. The CIRs inaction is the decision
itself. It is already a denial of the refund claim. Thus, the taxpayer must file an appeal within 30 days from the lapse
of the 120-day waiting period.

WHEREFORE, the Petition is DENIEDfor lack of merit.

SO ORDERED.
TOPIC: TAX TREATY, ITAD RULING, TAX REFUND

G.R. Nos. 193383-84 January 14, 2015

CBK POWER COMPANY LIMITED, Petitioner,


vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

x-----------------------x

G.R. Nos. 193407-08

COMMISSIONER OF INTERNAL REVENUE, Petitioner,


vs.
CBK POWER COMPANY LIMITED, Respondent.

DECISION

PERLAS-BERNABE, J.:

Assailed in these consolidated petitions for review on certiorari are the Decision dated March 29, 2010 and the
Resolution dated August 16, 2010 of the Court ofTax Appeals (CTA) En Bancin C.T.A. E.B. Nos. 469 and 494, which
affirmed the Decision dated August 28, 2008, the Amended Decision dated February 12, 2009, and the
Resolution dated May 7, 2009 of the CTA First Division in CTA Case Nos. 6699, 6884,and 7166 granting CBK Power
Company Limited (CBK Power) a refund of its excess final withholding tax for the taxable years 2001 to 2003.

The Facts

CBK Power is a limited partnership duly organized and existing under the laws of the Philippines, and primarily
engaged in the development and operation of the Caliraya, Botocan, and Kalayaan hydro electric power generating
plants in Laguna (CBK Project). It is registered with the Board of Investments (BOI) as engaged in a preferred
pioneer area of investment under the Omnibus Investment Code of 1987.

To finance the CBK Project, CBK Power obtained in August 2000 a syndicated loan from several foreign banks, i.e.,
BNP Paribas, Dai-ichi Kangyo Bank, Limited, Industrial Bank of Japan, Limited, and Societe General (original
lenders), acting through an Inter-Creditor Agent, Dai-ichi Kangyo Bank, a Japanesebank that subsequently merged
with the Industrial Bank of Japan, Limited (Industrial Bank of Japan) and the Fuji Bank, Limited (Fuji Bank), with the
mergedentity being named as Mizuho Corporate Bank (Mizuho Bank). One of the merged banks, Fuji Bank, had a
branch in the Philippines, which became a branch of Mizuho Bank as a result of the merger. The Industrial Bank of
Japan and Mizuho Bank are residents of Japan for purposes of income taxation, and recognized as such under the
relevant provisions of the income tax treaties between the Philippines and Japan.

Certain portions of the loan were subsequently assigned by the original lenders to various other banks, including
Fortis Bank (Nederland) N.V. (Fortis-Netherlands) and Raiffesen Zentral Bank Osterreich AG (Raiffesen Bank).
Fortis-Netherlands, in turn, assigned its portion of the loan to Fortis Bank S.A./N.V. (Fortis-Belgium), a resident of
Belgium. Fortis Netherlands and Raiffesen Bank, on the other hand, are residents of Netherlands and Austria,
respectively.

In February 2001, CBK Power borrowed money from Industrial Bank of Japan, Fortis-Netherlands, Raiffesen Bank,
Fortis-Belgium, and Mizuho Bank for which it remitted interest payments from May 2001 to May 2003. It allegedly
withheld final taxes from said payments based on the following rates, and paid the same to the Revenue District
Office No. 55 of the Bureau of Internal Revenue (BIR): (a) fifteen percent (15%) for Fortis-Belgium, Fortis-
Netherlands, and Raiffesen Bank; and (b) twenty percent (20%) for Industrial Bank of Japan and Mizuho Bank.

However, according to CBK Power, under the relevant tax treaties between the Philippines and the respective
countries in which each of the banks is a resident, the interest income derived by the aforementioned banks are
subject only to a preferential tax rate of 10%, viz.:

1wphi1

COUNTRY OF PREFERENTIAL RATE


BANK
RESIDENCE UNDER THE RELEVANT TAX TREATY

Fortis Bank S.A./N.V. Belgium 10% (Article 11[1], RP-Belgium


Tax Treaty)

Industrial Bank of Japan 10% (Article 11[3], RP-Japan Tax Treaty)


Japan

Raiffesen Zentral Bank Austria 10% (Article 11[3], RP-Austria Tax Treaty)
Osterreich AG

Mizuho Corporate Bank Japan 10% (Article 11[3], RP-Japan Tax Treaty)

Accordingly, on April 14, 2003, CBK Power filed a claim for refund of its excess final withholding taxes allegedly
erroneously withheld and collected for the years 2001 and 2002 with the BIR Revenue Region No. 9. The claim for
refund of excess final withholding taxes in 2003 was subsequently filed on March 4, 2005.

The Commissioner of Internal Revenues (Commissioner) inaction on said claims prompted CBK Power to file
petitions for review before the CTA, viz.:

(1) CTA Case No. 6699 was filed by CBK Power on June 6, 2003 seeking the refund of excess final
withholding tax in the total amount of P6,393,267.20 covering the year 2001 with respect to interest
income derived by [Fortis-Belgium], Industrial Bank of Japan, and [Raiffesen Bank]. An Answer was filed by
the Commissioner on July 25, 2003.

(2) CTA Case No. 6884was filed by CBK Power on March 5, 2004 seeking for the refund of the amount of
8,136,174.31 covering [the] year 2002 with respect to interest income derived by [Fortis- Belgium],
Industrial Bank of Japan, [Mizuho Bank], and [Raiffesen Bank]. The Commissioner filed his Answer on May
7, 2004.

xxxx

(3) CTA Case No. 7166was filed by CBK [Power] on March 9, 2005 seeking for the refund of [the amount
of] P1,143,517.21covering [the] year 2003 with respect to interest income derived by [Fortis Belgium],
and [Raiffesen Bank]. The Commissioner filed his Answer on May 9, 2005. (Emphases supplied)
CTA Case Nos. 6699 and 6884 were consolidated first on June 18, 2004. Subsequently, however, all three cases
CTA Case Nos. 6699, 6884, and 7166 were consolidated in a Resolution dated August 3, 2005.

The CTA First Division Rulings

In a Decision dated August 28, 2008, the CTA First Division granted the petitions and ordered the refund of the
amount of 15,672,958.42 upon a finding that the relevant tax treaties were applicable to the case. It cited DA-ITAD
Ruling No. 099-03 dated July 16, 2003, issued by the BIR, confirming CBK Powers claim that the interest payments
it made to Industrial Bank of Japan and Raiffesen Bank were subject to a final withholding tax rate of only 10%of
the gross amount of interest, pursuant to Article 11 of the Republic of the Philippines (RP)-Austria and RP-Japan tax
treaties. However, in DA-ITAD Ruling No. 126-03 dated August 18, 2003, also issued by the BIR, interest payments
to Fortis-Belgium were likewise subjected to the same rate pursuant to the Protocol Amending the RP-Belgium Tax
Treaty, the provisions of which apply on income derived or which accrued beginning January 1, 2000. With respect
to interest payments made to Fortis-Netherlands before it assigned its portion of the loan to Fortis-Belgium, the
CTA First Division likewise granted the preferential rate.

The CTA First Division categorically declared in the August 28, 2008 Decision that the required International Tax
Affairs Division (ITAD) ruling was not a condition sine qua non for the entitlement of the tax relief sought by CBK
Power, however, upon motion for reconsideration filed by the Commissioner, the CTA First Division amendedits
earlier decision by reducing the amount of the refund from P15,672,958.42 to P14,835,720.39 on the ground that
CBK Power failed to obtain an ITAD ruling with respect to its transactions with Fortis-Netherlands. In its Amended
Decision dated February 12, 2009, the CTA First Division adopted the ruling in the case of Mirant (Philippines)
Operations Corporation (formerly: Southern Energy Asia-Pacific Operations [Phils.], Inc.) v. Commissioner of
Internal Revenue (Mirant), cited by the Commissioner in his motion for reconsideration, where the Court
categorically pronounced in its Resolution dated February 18, 2008 that an ITAD ruling must be obtained prior to
availing a preferential tax rate.

CBK Power moved for the reconsideration of the Amended Decision dated February 12, 2009, arguing in the main
that the Mirantcase, which was resolved in a minute resolution, did not establish a legal precedent. The motion
was denied, however, in a Resolution dated May 7, 2009 for lack of merit.

Undaunted, CBK Power elevated the matter to the CTA En Bancon petition for review, docketed as C.T.A E.B. No.
494. The Commissioner likewise filed his own petition for review, which was docketed as C.T.A. E.B. No. 469. Said
petitions were subsequently consolidated.

CBK Power raised the lone issue of whether or not an ITAD ruling is required before it can avail of the preferential
tax rate. On the other hand, the Commissioner claimed that CBK Power failed to exhaust administrative remedies
when it filed its petitions before the CTA First Division, and that said petitions were not filed within the two-year
prescriptive period for initiating judicial claims for refund.

The CTA En Banc Ruling

In a Decision dated March 29, 2010, the CTA En Banc affirmed the ruling of the CTA First Division that a prior
application with the ITAD is indeed required by Revenue Memorandum Order (RMO) 1-2000, which administrative
issuance has the force and effect of law and is just as binding as a tax treaty. The CTA En Banc declared the Mirant
case as without any binding effect on CBK Power, having been resolved by this Court merely through minute
resolutions, and relied instead on the mandatory wording of RMO 1-2000, as follows:

III. Policies:

xxxx
2. Any availment of the tax treaty relief shall be preceded by an application by filing BIR Form No. 0901
(Application for Relief from Double Taxation) with ITAD at least 15 days before the transaction i.e. payment of
dividends, royalties, etc., accompanied by supporting documents justifying the relief. x x x.

The CTA En Banc further held that CBK Powers petitions for review were filed within the two-year prescriptive
period provided under Section 229 of the National Internal Revenue Code of 1997 (NIRC), and that it was proper
for CBK Power to have filed said petitions without awaiting the final resolution of its administrative claims for
refund before the BIR; otherwise, it would have completely lost its right to seek judicial recourse if the two-year
prescriptive period lapsed with no judicial claim filed.

CBK Powers motion for partial reconsideration and the Commissioners motion for reconsideration of the
foregoing Decision were both deniedin a Resolution dated August 16, 2010 for lack of merit; hence, the present
consolidated petitions.

The Issues Before the Court

In G.R. Nos. 193383-84, CBK Power submits the sole legal issue of whether the BIR may add a requirement prior
application for an ITAD ruling that is not found in the income tax treaties signed by the Philippines before a
taxpayer can avail of preferential tax rates under said treaties.

On the other hand, in G.R. Nos. 193407-08, the Commissioner maintains that CBK Power is not entitled to a refund
in the amount of P1,143,517.21 for the period covering taxable year 2003 as it allegedly failed to exhaust
administrative remedies before seeking judicial redress.

The Courts Ruling

The Court resolves the foregoing in seriatim.

A. G.R. Nos. 193383-84

The Philippine Constitution provides for adherence to the general principles of international law as part of the law
of the land. The time honored international principle of pacta sunt servanda demands the performance in good
faith of treaty obligations on the part of the states that enter into the agreement. In this jurisdiction, treaties have
the force and effect of law.42 The issue of whether the failure to strictly comply with RMO No. 1-2000 will deprive
persons or corporations of the benefit of a tax treaty was squarely addressed in the recent case of Deutsche Bank
AG Manila Branch v. Commissioner of Internal Revenue43 (Deutsche Bank), where the Court emphasized that the
obligation to comply with a tax treaty must take precedence over the objective of RMO No. 1-2000, viz.:

We recognize the clear intention of the BIR in implementing RMO No. 1-2000, but the CTAs outright denial of a tax
treaty relief for failure to strictly comply with the prescribed period is not in harmony with the objectives of the
contracting state to ensure that the benefits granted under tax treaties are enjoyed by duly entitled persons or
corporations.

Bearing in mind the rationale of tax treaties, the period of application for the availment of tax treaty relief as
required by RMO No. 1-2000 should not operate to divestentitlement to the reliefas it would constitute a violation
of the duty required by good faith in complying with a tax treaty. The denial of the availment of tax relief for the
failure of a taxpayer to apply within the prescribed period under the administrative issuance would impair the
value of the tax treaty. At most, the application for a tax treaty relief from the BIR should merely operate to
confirm the entitlement of the taxpayer to the relief.
The obligation to comply with a tax treaty must take precedence over the objective of RMO No. 1-2000. Logically,
noncompliance with tax treaties has negative implications on international relations, and unduly discourages
foreign investors. While the consequences sought to be prevented by RMO No. 1-2000 involve an administrative
procedure, these may be remedied through other system management processes, e.g., the imposition of a fine or
penalty. But we cannot totally deprive those who are entitled to the benefit of a treaty for failure to strictly comply
with an administrative issuance requiring prior application for tax treaty relief. (Emphases and underscoring
supplied)

The objective of RMO No. 1-2000 inrequiring the application for treaty relief with the ITAD before a partys
availment of the preferential rate under a tax treaty is to avert the consequences of any erroneous interpretation
and/or application of treaty provisions, such as claims for refund/credit for overpayment of taxes, or deficiency tax
liabilities for underpayment. However, as pointed out in Deutsche Bank, the underlying principle of prior
application with the BIR becomes moot in refund cases as in the present case where the very basis of the claim
is erroneous or there is excessive payment arising from the non-availment of a tax treaty relief at the first
instance.Just as Deutsche Bank was not faulted by the Court for not complying with RMO No. 1-2000 prior to the
transaction, so should CBK Power. In parallel, CBK Power could not have applied for a tax treaty relief 15 days prior
to its payment of the final withholding tax on the interest paid to its lenders precisely because it erroneously paid
said tax on the basis of the regular rate as prescribed by the NIRC, and not on the preferential tax rate provided
under the different treaties. As stressed by the Court, the prior application requirement under RMO No. 1-2000
then becomes illogical.

Not only is the requirement illogical, butit is also an imposition that is not found at all in the applicable tax treaties.
In Deutsche Bank, the Court categorically held that the BIR should not impose additional requirements that would
negate the availment of the reliefs provided for under international agreements, especially since said tax treaties
do not provide for any prerequisite at all for the availment of the benefits under said agreements.

It bears reiterating that the application for a tax treaty relief from the BIR should merely operate to confirm the
entitlement of the taxpayer to the relief Since CBK Power had requested for confirmation from the ITAD on June 8,
2001 and October 28, 2002 before it filed on April 14, 2003 its administrative claim for refund of its excess final
withholding taxes, the same should be deemed substantial compliance with RMO No. 1-2000, as in Deutsche Bank.
To rule otherwise would defeat the purpose of Section 229 of the NIRC in providing the taxpayer a remedy for
erroneously paid tax solely on the ground of failure to make prior application for tax treaty relief. As the Court
exhorted in Republic v. GST Philippines, Inc., while the taxpayer has an obligation to honestly pay the right taxes,
the government has a corollary duty to implement tax laws in good faith; to discharge its duty to collect what is
due to it; and to justly return what has been erroneously and excessively given to it.

In view of the foregoing, the Court holds that the CTA En Banc committed reversible error in affirming the
reduction of the amount of refund to CBK Power from 15,672,958.42 to P14,835,720.39 to exclude its transactions
with Fortis-Netherlands for which no ITAD ruling was obtained. CBK Powers petition in G.R. Nos. 193383-84 is
therefore granted.

The opposite conclusion is, however, reached with respect to the Commissioners petition in G.R. Nos. 193407-08.

B. G.R. Nos. 193407-08

The Commissioner laments that he was deprived of the opportunity to act on the administrative claim for refund
of excess final withholding taxes covering taxable year 2003 which CBK Power filed on March 4, 2005, a Friday,
then the following Wednesday, March 9, 2005, the latter hastily elevated the case on petition for review before
the CTA. He argues that the failure on the part of CBK Power to give him a reasonable timeto act on said claim is
violative of the doctrines of exhaustion of administrative remedies and of primary jurisdiction.
For its part, CBK Power maintains that it would be prejudicial to wait for the Commissioners ruling beforeit files its
judicial claim since it only has 2 years from the payment of the tax within which to file both its administrative and
judicial claims.

The Court rules for CBK Power.

Sections 204 and 229 of the NIRC pertain to the refund of erroneously or illegally collected taxes. Section 204
applies to administrative claims for refund, while Section 229 to judicial claims for refund. In both instances, the
taxpayers claim must be filed within two (2) years from the date of payment of the tax or penalty. However,
Section 229 of the NIRC further states the condition that a judicial claim for refund may not be maintained until a
claim for refund or credit has been duly filed with the Commissioner. These provisions respectively read:

SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. The Commissioner
may -

xxxx

(C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value
of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion,
redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of
destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the
Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided,
however, That a return filed showing an overpayment shall be considered as a written claim for credit or refund.

xxxx

SEC. 229. Recovery of Tax Erroneously or Illegally Collected. No suit or proceeding shall be maintained in any
court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally
assessed or collected, or of any penalty claimed to have been collected without authority, of any sum alleged to
have been excessively or in any manner wrongfully collected without authority, or of any sum alleged to have been
excessively orin any manner wrongfully collected, until a claim for refund or credit has been duly filed with the
Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been
paid under protest or duress.

In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment
of the tax or penalty regardless of any supervening cause that may arise after payment: x x x. (Emphases and
underscoring supplied)

Indubitably, CBK Powers administrative and judicial claims for refund of its excess final withholding taxes covering
taxable year 2003 were filed within the two-year prescriptive period, as shown by the table below:

WHEN FINAL WHEN LAST DAY OF WHEN WHEN PETITION


INCOME REMITTANCE THE 2-YEAR ADMINISTRATIVE FOR REVIEW
TAXES WERE RETURN PRESCRIPTIVE CLAIM WAS FILED WAS FILED
WITHHELD FILED PERIOD

February 2003 03/10/03 03/10/05 March 4, 2005 03/09/05

May 2003 06/10/03 06/10/05 March 4, 2005 03/09/05


With respect to the remittance filed on March 10, 2003, the Court agrees with the ratiocination of the CTA En Banc
in debunking the alleged failure to exhaust administrative remedies. Had CBK Power awaited the action of the
Commissioner on its claim for refund prior to taking court action knowing fully well that the prescriptive period
was about to end, it would have lost not only its right to seek judicial recourse but its right to recover the final
withholding taxes it erroneously paid to the government thereby suffering irreparable damage.

Also, while it may be argued that, for the remittance filed on June 10, 2003 that was to prescribe on June 10,2005,
CBK Power could have waited for, at the most, three (3) months from the filing of the administrative claim on
March 4, 2005 until the last day of the two-year prescriptive period ending June 10, 2005, that is, if only togive the
BIR at the administrative level an opportunity to act on said claim, the Court cannot, on that basis alone, deny a
legitimate claim that was, for all intents and purposes, timely filed in accordance with Section 229 of the NIRC.
There was no violation of Section 229 since the law, as worded, only requires that an administrative claim be
priorly filed.

In the foregoing instances, attention must be drawn to the Courts ruling in P.J. Kiener Co., Ltd. v. David (Kiener),
wherein it was held that in no wise does the law, i.e., Section 306 of the old Tax Code (now, Section 229 of the
NIRC), imply that the Collector of Internal Revenue first act upon the taxpayers claim, and that the taxpayer shall
not go to court before he is notified of the Collectors action. In Kiener, the Court went on to say that the claim
with the Collector of Internal Revenue was intended primarily as a notice of warning that unless the tax or penalty
alleged to have been collected erroneously or illegally is refunded, court action will follow, viz.: The controversy
centers on the construction of the aforementioned section of the Tax Code which reads:

SEC. 306. Recovery of tax erroneously or illegally collected. No suit or proceeding shall be maintained in any
court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally
assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to
have been excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed
with the Collector of Internal Revenue; but such suit or proceeding may be maintained, whether or not such tax,
penalty, or sum has been paid under protest or duress. In any case, no such suit or proceeding shall be begun after
the expiration of two years from the date of payment of the tax or penalty. The preceding provisions seem at first
blush conflicting. It will be noticed that, whereas the first sentence requires a claim to be filed with the Collector of
Internal Revenue before any suit is commenced, the last makes imperative the bringing of such suit within two
years from the date of collection. But the conflict is only apparent and the two provisions easily yield to
reconciliation, which it is the office of statutory construction to effectuate, where possible, to give effect to the
entire enactment.

To this end, and bearing in mind that the Legislature is presumed to have understood the language it used and to
have acted with full idea of what it wanted to accomplish, it is fair and reasonable to say without doing violence to
the context or either of the two provisions, that by the first is meant simply that the Collector of Internal Revenue
shall be given an opportunity to consider his mistake, if mistake has been committed, before he is sued, but not, as
the appellant contends that pending consideration of the claim, the period of two years provided in the last clause
shall be deemed interrupted. Nowhere and in no wise does the law imply that the Collector of Internal Revenue
must act upon the claim, or that the taxpayer shall not go to court before he is notified of the Collectors action. x x
x. We understand the filing of the claim with the Collector of Internal Revenue to be intended primarily as a notice
of warning that unless the tax or penalty alleged to have been collected erroneously or illegally is refunded, court
action will follow. x x x. (Emphases supplied)

That being said, the foregoing refund claims of CBK Power should all be granted, and, the petition of the
Commissioner in G.R. Nos. 193407-08 be denied for lack of merit.

WHEREFORE, the petition in G.R. Nos. 193383-84 is GRANTED. The Decision dated March 29, 2010 and the
Resolution dated August 16, 2010 of the Court of Tax Appeals (CTA) En Banc in C.T.A. E.B. Nos. 469 and 494 are
hereby REVERSED and SET ASIDE and a new one entered REINSTATING the Decision of the CTA First Division dated
August 28, 2008 ordering the refund in favor of CBK Power Company Limited the amount of PlS,672,958.42
representing its excess final withholding taxes for the taxable years 2001 to 2003. On the other hand, the petition
in G.R. Nos. 193407-08 is DENIED for lack of merit. SO ORDERED
TOPIC: TAXPAYER-CLAIMANT NEED NOT WAIT FOR THE LAPSE OF THE 120-DAY PERIOD
BEFORE IT COULD SEEK JUDICIAL RELIEF WITH THE CTA BY WAY OF PETITION FOR REVIEW.

G.R. No. 203351, January 21, 2015

PANAY POWER CORPORATION (FORMERLY AVON RIVER POWER HOLDINGS


CORPORATION), Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondents.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari1 are the Decision2 dated May 17, 2012 and the Resolution3 dated
August 29, 2012 of the Court of Tax Appeals (CTA) En Banc in CTA EB No. 709, which affirmed the Amended
Decision4 dated December 6, 2010 of the CTA Special First Division (CTA Division)in CTA Case No. 7402and
dismissed the claim for refund/credit of excess input value-added tax (VAT) of petitioner Panay Power Corporation,
formerly Avon River Power Holdings Corporation (petitioner), for being prematurely filed.

The Facts

Petitioner is a domestic corporation organized and existing under and by virtue of Philippine laws and a VAT-
registered entity with Tax Identification No. 223-606-641-000. It is engaged in the business of acquiring, holding,
owning, and operating power generation assets for lighting and power purposes and whole selling the electric
power to the National Power Corporation, private electric utilities and electric cooperatives, and for the carrying
on of all business incident thereto.5chanroblesvirtuallawlibrary

On January 26, 2004, petitioner filed its quarterly VAT return6 for the fourth quarter of 2003. Subsequently,
petitioner filed two (2) amendments to its quarterly VAT return for the said period on January 28, 2005 7 and
January 19, 2006,8 respectively, with the latter amendment reflecting a total unutilized input VAT amounting to
P14,122,347.21.9 According to petitioner, the aforesaid amount pertains to the input VAT that it paid on its
purchases of capital goods and services consisting of power generation assets located in Iloilo City (subject
purchases)which input VAT has not been utilized against any output VAT liability for the fourth quarter of 2003 or
even for subsequent quarters.

On December 29, 2005, petitioner filed an administrative claim for refund/credit of its unutilized input VAT in the
amount of P14,122,347.21 before the Revenue District Office No. 51 of the Bureau of Internal Revenue (BIR).
Thereafter, on January 20, 2006, petitioner filed a judicial claim for tax refund/credit by way of a petition for
review before the CTA, docketed as CTA Case No. 7402.11chanroblesvirtuallawlibrary

For its part, respondent Commissioner of Internal Revenue (CIR) averred, inter alia, that the amount being claimed
by petitioner as the alleged unutilized input VAT for the fourth quarter of 2003 must be denied for not being
properly documented.

The CTA Division Ruling

In a Decision13 dated February 18, 2010, the CTA Division denied petitioners claim for tax refund/credit for lack of
merit.14 The CTA Division found that while petitioner presented the testimony of its Senior Accounting Manager
stating that the subject purchases were for capital goods and services which were capitalized and reflected in
petitioners books as depreciable assets, it nevertheless failed to submit any evidence to corroborate the same
since petitioner did not submit its books of accounts and audited financial statements for the calendar year 2003.
Hence, on account of such failure, the input VAT arising therefrom cannot be recovered thru a tax refund/credit or
an issuance of tax credit certificates in favor of petitioner.

Aggrieved, petitioner moved for reconsideration, as well as for leave of court to present supplemental evidence to
bolster its claim for tax refund/credit.16 The CTA Division granted petitioners leave of court. 17 After the
presentation of the supplemental evidence, the CTA Division, in an Amended Decision 18 dated December 6, 2010,
denied petitioners motion for reconsideration and dismissed its claim for tax refund/credit outright albeit on a
different ground. It found that petitioner filed its judicial claim for tax refund/credit on January 20, 2006, or a mere
22 days after it filed its administrative claim on December 29, 2005.19 Citing the case of CIR v. Aichi Forging
Company of Asia, Inc. (Aichi),20the CTA Division held that the observance of the 120-day period provided under
Section 112(D) of the National Internal Revenue Code (NIRC) is mandatory and jurisdictional to the filing of a
judicial claim for tax refund/credit, thus concluding that petitioners judicial claim for tax refund/credit must be
dismissed for being prematurely filed.

Dissatisfied, the CIR appealed to the CTA En Banc.

The CTA En Banc Ruling

In a Decision22 dated May 17, 2012, the CTA En Banc affirmed the Amended Decision of the CTA Division.23 Also
citing Aichi, it held that the CTA did not acquire jurisdiction over petitioners judicial claim for tax refund/credit,
since the latter failed to comply with the aforesaid 120-day period. As such, petitioners claim was correctly
dismissed for being prematurely filed.

Aggrieved, petitioner moved for reconsideration,25 which was, however, denied in a Resolution26dated August 29,
2012, hence, this petition.27chanroblesvirtuallawlibrary

The Issue Before the Court

The primordial issue for the Courts resolution is whether or not the CTA En Banc correctly affirmed the CTA
Divisions outright dismissal of petitioners claim for tax refund/credit on the ground of prematurity.

The Courts Ruling

The petition is partly meritorious.

Section 112 of the NIRC, as amended by RA 9337,

SEC. 112. Refunds or Tax Credits of Input Tax.

(A) Zero-Rated or Effectively Zero-Rated Sales. any VAT-registered person, whose sales are zero-rated or
effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made,
apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such
sales, except transitional input tax, to the extent that such input tax has not been applied against output tax: x x x.

xxxx
(C) Period within which Refund or Tax Credit of Input Taxes shall be Made. In proper cases, the Commissioner
shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120)
days from the date of submission of complete documents in support of the application filed in accordance with
Subsection (A)hereof

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within
thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred
twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals.

x x x x (Emphases and underscoring supplied)

In the Aichi case cited by both the CTA Division and the CTA En Banc, the Court held that the observance of the
120-day period is a mandatory and jurisdictional requisite to the filing of a judicial claim for refund before the CTA.
Consequently, its non-observance would lead to the dismissal of the judicial claim on the ground of lack of
jurisdiction. Aichi also clarified that the two (2)-year prescriptive period applies only to administrative claims and
not to judicial claims.29 Succinctly put, once the administrative claim is filed within the two (2)-year prescriptive
period, the claimant must wait for the 120-day period to end and, thereafter, he is given a 30-day period to file his
judicial claim before the CTA, even if said 120-day and 30-day periods would exceed the aforementioned two (2)-
year prescriptive period.30chanroblesvirtuallawlibrary

However, in CIR v. San Roque Power Corporation (San Roque),31 the Court recognized an exception to the
mandatory and jurisdictional nature of the 120-day period. It ruled that BIR Ruling No. DA-489-03 dated December
10, 2003 provided a valid claim for equitable estoppel under Section 24632 of the NIRC. In essence, the aforesaid
BIR Ruling stated that the taxpayer-claimant need not wait for the lapse of the 120-day period before it could
seek judicial relief with the CTA by way of Petition for Review.

Recently, in Taganito Mining Corporation v. CIR,34 the Court reconciled the pronouncements in the Aichi and San
Roque cases in the following manner:

Reconciling the pronouncements in the Aichi and San Roque cases, the rule must therefore be that during the
period December 10, 2003(when BIR Ruling No. DA-489-03 was issued) to October 6, 2010 (when the Aichi case
was promulgated), taxpayers-claimants need not observe the 120-day period before it could file a judicial claim for
refund of excess input VAT before the CTA. Before and after the aforementioned period (i.e., December 10, 2003
to October 6, 2010), the observance of the 120-day period is mandatory and jurisdictional to the filing of such
claim.

In this case, records disclose that petitioner filed its administrative and judicial claims for refund/credit of its input
VAT on December 29, 2005 and January 20, 2006, respectively, or during the period when BIR Ruling No. DA-489-
03 was in place, i.e., from December 10, 2003 to October 6, 2010. As such, it need not wait for the expiration of
the 120-day period before filing its judicial claim before the CTA, and hence, is deemed timely filed. In view of the
foregoing, the CTA En Banc erred in dismissing outright petitioners claim on the ground of prematurity.

Be that as it may, the Court is not inclined to grant outright petitioners claim of tax refund/credit in the amount of
p14,122,347.21 representing unutilized input VAT for the fourth quarter of 2003. This is because the
determination of petitioners entitlement to such claim would necessarily involve questions of fact, which are not
reviewable and cannot be passed upon by the Court in the exercise of its power to review under Rule 45 of the
Rules of Court.36 Hence, the Court deems it prudent to remand the case to the CTA Division for resolution of the
instant case on the merits.

WHEREFORE, the petition is PARTLY GRANTED. Accordingly, the Decision dated May 17, 2012 and the Resolution
dated August 29, 2012 of the Court of Tax Appeals (CTA) En Banc in CTA EB Case No. 709 are hereby SET ASIDE. The
instant case is REMANDED to the CTA Special First Division for its resolution on the merits.

SO ORDERED.
TOPIC: PROVING THAT NO CARRY-OVER HAS BEEN MADE DOES NOT ABSOLUTELY REQUIRE
THE PRESENTATION OF THE QUARTERLY ITRS

G.R. No. 206526 January 28, 2015

WINEBRENNER & IIGO INSURANCE BROKERS, INC., Petitioner,


vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

MENDOZA, J.:

In this petition for review under Rule 45 of the Rules of Court and Rule 16 of the Revised Rules of the Court of Tax
Appeals, Winebrenner & Ifiigo Insurance Brokers, Inc. (petitioner) seeks the review of the March 22, 2013
Decision1 of the Court of Tax Appeals En Banc (CTA-En Banc). In the said decision, the CTA-En Banc affirmed the
denial of petitioner's judicial claim for refund or issuance of tax credit certificate for excess and unutilized
creditable withholding tax (CWT) for the 1st to 4th quarter of calendar year (CJ} 2003 amounting to P4,073,954.00.
In denying the refund, the CTA-En Banc held that petitioner failed to prove that the excess CWT for CY 2003 was
not carried over to the succeeding quarters of the subject taxable year. Under the 1997 National Internal Revenue
Code (NJRC), a taxpayer must not have exercised the option to carryover the excess CWT for a particular taxable
year in order to qualify for refund.

The Factual Antecedents

On April 15, 2004, petitioner filed itsAnnual Income Tax Return for CY 2003.

About two years thereafter or on April 7, 2006, petitioner applied for the administrative tax credit/refund claiming
entitlement to the refund of its excess or unutilized CWT for CY 2003, by filing BIR Form No. 1914 with the Revenue
District Office No. 50 of the Bureau of Internal Revenue (BIR).

There being no action taken on the said claim, a petition for review was filed by petitioner before the CTA on April
11, 2006. The case was docketed as CTA Case No. 7440 and was raffled to the Special First Division (CTA Division).

On April 13, 2010, CTA Division partially granted petitioners claim for refund of excess and unutilized CWT for CY
2003 in the reduced amount of P2,737,903.34 in its April 13, 2010 Decision2 (original decision). The dispositive
portion of the decision reads:

In view of the foregoing, the Petition for Review is hereby PARTIALLY GRANTED. Accordingly, respondent is hereby
ORDERED to REFUND or ISSUE A TAX CREDIT CERTIFICATE in favor of the petitioner in the reduced amount
of P2,737,903.34 representing its excess/unutilized creditable withholding taxes for the year 2003.

SO ORDERED.3

Petitioner filed a Motion for Partial Reconsideration with Leave to Submit Supplemental Evidence. It prayed that
an amended decision be issued granting the entirety of its claim for refund, or in the alternative, that it be allowed
to submit and offer relevant documents as supplemental evidence.

Respondent Commissioner of Internal Revenue (CIR) also moved for reconsideration, praying for the denial of the
entire amount of refund because petitioner failed to present the quarterly Income Tax Returns (ITRs) for CY 2004.
To the CIR, the presentation of the 2004 quarterly ITRs was indispensable in proving petitioners entitlement to the
claimed amount because it would prove that no carry-over of unutilized and excess CWT for the four (4) quarters
of CY 2003 to the succeeding four (4) quarters of CY 2004 was made. In the absence of said ITRs, no refund could
be granted. In the CIRs view, this was in accordance with the irrevocability rule under Section 76 of the NIRC which
reads:

SEC. 76. Final Adjustment Return. Every corporation liable to tax under Section 27 shall file an adjustment return
covering the total taxable income for the preceding calendar or fiscal year. If the sum of the quarterly tax
payments made during the said taxable year is not equal to the total tax due on the entire taxable income of that
year, the corporation shall either:

(A) Pay the balance of tax still due; or

(B) Carry-over the excess credits; or

(C) Be credited or refunded with the excess amount paid, as the case may be.

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

On July 27, 2011, the CTA-Division reversed itself. In an Amended Decision,4 it denied the entire claim of petitioner.
It reasoned out that petitioner should have presented as evidence its first, second and third quarterly ITRs for the
year 2004 to prove that the unutilized CWT being claimed had not been carried over to the succeeding quarters.
Thus:

WHEREFORE,in view of the foregoing, petitioners Motion for Partial Reconsideration is hereby DENIED while
respondents Motion for Reconsideration is hereby GRANTED. Accordingly, the Decision dated April 13, 2010
granting petitioners claim in the reduced amount of P2,737,903.34 is hereby REVERSED AND SET ASIDE.
Consequently, the instant Petition for Review is hereby DENIEDdue to insufficiency of evidence.

SO ORDERED.5

Aggrieved, petitioner elevated the case to the CTA En Bancpraying for the reversal of the Amended Decision of the
CTA Division.

In its March 22, 2013 Decision,6 the CTA-En Bancaffirmed the Amended Decision of the CTA-Division. It stated that
before a cash refund or an issuance of tax credit certificate for unutilized excess tax credits could be granted, it was
essential for petitioner to establish and prove, by presenting the quarterly ITRs of the succeeding years, that the
excess CWT was not carried over to the succeeding taxable quarters considering that the option to carry over in
the succeeding taxable quarters could not be modified in the final adjustment returns (FAR).Because petitioner did
not present the first, second and third quarterly ITRsfor CY 2004, despite having offered and submitted the Annual
ITR/FAR for the same year, the CTA-En Banc stated that the petitioner failed to discharge its burden, hence, no
refund could be granted. In justifying its conclusions, the CTA-En Banccited its own case of Millennium Business
Services, Inc.v. Commissioner of Internal Revenue (Millennium)7 wherein it held as follows:

Since the burden of proof is upon the claimant to show that the amount claimed was not utilized or carried over to
the succeeding taxable quarters, the presentation of the succeeding quarterly income tax return and final
adjustment return is indispensable to prove that it did not carry over or utilized the claimed excess creditable
withholding taxes. Absent thereof, there will be no basis for a taxpayers claim for refund since there will be no
evidence that the taxpayer did not carry over or utilize the claimed excess creditable withholding taxes to the
succeeding taxable quarters.

Significantly, a taxpayer may amend its quarterly income tax return or annual income tax return or Final
Adjustment Return, which in any case may modify the previous intention to carry-over, apply as tax credit
certificate or refund, as the case may be. But the option to carry over in the succeeding taxable quarters under the
irrevocability rule cannot be modified in its final adjustment return.

The presentation of the final adjustment return does not shift the burden of proof that the excess creditable
withholding tax was not utilized or carried overto the first three (3) taxable quarters. It remains with the taxpayer
claimant. It goes without saying that final adjustment returns of the preceding and the succeeding taxable years
are not sufficient to prove that the amount claimed was utilized or carried over to the first three (3) taxable
quarters.

The importance of the presentation of the succeeding quarterly income tax return and the annual income tax
return of the subsequent taxable year need not be overly emphasized. All corporations subject to income tax, are
required to file quarterly income tax returns, on a cumulative basis for the preceding quarters, upon which
payment of their income tax has been made. In addition to the quarterly income tax returns, corporations are
required to file a final or adjustment return on or before the fifteenth day of April. The quarterly income tax
return, like the final adjustment return, is the most reliable firsthand evidence of corporate acts pertaining to
income taxes, as it includes the itemization and summary of additions to and deductions from the income tax due.
These entries are not without rhyme or reason. They are required, because they facilitate the tax administration
process, and guide this Court to the veracity of a petitioners claim for refund without which petitioner could not
prove with certainty that the claimed amount was not utilized or carried over to the succeeding quarters or the
option to carry over and apply the excess was effectively chosen despite the intent to claim a refund.

In the same vein, if the government wants to disprove that the excess creditable withholding tax was not utilized
or carried over to the succeeding taxable quarters, the presentation of the succeeding quarterly income tax return
and the annual income tax return of the subsequent taxable year indicating utilization or carrying over are [sic]
indispensible. However, the claimant must first establish its claim for refund, such that it did not utilize or carry
over or that it opted to utilize and carry over to the 1 st, 2nd, 3rd quarters and final adjustment return of the
succeeding taxable year.

Concomitantly, the presentation of the quarterly income tax return and the annual income tax return to prove the
fact that excess creditable withholding tax was not utilized or carried over or opted to be utilized and carried over
to the 1st, 2nd, 3rd quarters and final adjustment return of the succeeding taxable quarter is not only for
convenience to facilitate the tax administration process but it is part of the requisites to establish the claim for
refund. Section 76 of the NIRC of 1997 provides that if the taxpayer claimant carries over and applies the excess
quarterly income tax against the income tax due for the taxable quarters of the succeeding taxable years, the same
is irrevocable and no application for cash refund or issuance of a tax credit certificate shall be allowed. 8

Hence, this petition.

Noteworthy is the fact that the CTA-En Bancruling was met with two dissents from Associate Justices Juanito C.
Castaeda (Justice Castaeda) and Esperanza R. Fabon-Victorino (Justice Fabon-Victorino).

In his Dissenting Opinion9 which was concurred in by Justice FabonVictorino, Justice Castaeda expressed the view
that the CTA-En Banc should have reinstated the CTA-Divisions original decision because in the cases of Philam
Asset Management Inc. v. Commissioner of Internal Revenue (Philam); 10 State Land Investment Corporation v.
Commissioner of Internal Revenue (State Land);11 Commissioner of Internal Revenue v. PERF Realty Corporation
(PERF Realty);12 and Commissioner of Internal Revenue v. Mirant (Philippines) Operations, Corporation
(Mirant),13 this Court already ruled that requiring the ITR or the FAR for the succeeding year in a claim for refund
had no basis in law and jurisprudence. According to him, the submission of the FAR of the succeeding taxable year
was not required under the law to prove the claimants entitlement to excess or unutilized CWT, and by following
logic, the submission of quarterly income tax returns for the subsequent taxable period was likewise unnecessary.
He found no justifiable reason not to follow the existing rulings of this Court. Petitioners reasoning in this petition
echoes the dissenting opinion of Justice Castaneda. It further submits that despite the non-presentation of the
quarterly ITRs, it has sufficiently shown that the excess CWT for CY 2003 was not carried over or applied to
itsincome tax liabilities for CY 2004, as shown in the Annual ITR for 2004 it submitted. Thus, petitioner insists that
its refund should have been granted. Petitioner further avers, in its Reply, 14that even if Millennium Business case
was applicable, such must be given prospective effect considering that this case was litigated on the basis of the
doctrines laid down in Philam, State Landand PERF Realty cases wherein the submission of quarterly ITRs in a case
for tax refund was held by this Court as not mandatory.

In its Comment,15 the CIR counters that even if the taxpayer signifies the option for either tax refund or carry-over
as tax credit, this does not ipso facto confer the right to avail of the option immediately. There is a need, according
to the CIR, for an investigation to ascertain the correctness of the corporate returns and the amount sought to be
credited; and part of which is to look into the quarterly returns so that it may be determined whether or not
excess and unutilized CWT was carried over into the succeeding quarters of the next taxable year. Because the
pertinent quarterly ITRs were not presented, the CIR submits that the petitioner failed to prove its right to a tax
refund.

Issue

The sole issue here is whether the submission and presentation of the quarterly ITRs of the succeeding quarters of
a taxable year is indispensable in a claim for refund.

The Courts Ruling

The Court recognizes, as it always has, that the burden of proof to establish entitlement to refund is on the
claimant taxpayer.16 Being in the nature of a claim for exemption, 17 refund is construed in strictissimi juris against
the entity claiming the refund and in favor of the taxing power. 18 This is the reason why a claimant must positively
show compliance with the statutory requirements provided for under the NIRC in order to successfully pursue
ones claim. As implemented by the applicable rules and regulations and as interpreted in a vast array of decisions,
a taxpayer who seeks a refund of excess and unutilized CWT must:

1) File the claim with the CIR within the two year period from the date of payment of the tax;

2) Show on the return that the income received was declared as part of the gross income; and

3) Establish the fact of withholding by a copy of a statement duly issued by the payor to the payee
showing the amount paid and the amount of tax withheld. 19

The original decision of the CTA-Division made plain that the petitioner complied with the above requisites in so
far as the reduced amount of P2,737,903.34 was concerned. In the amended decision, however, it was pointed out
that because petitioner failed to present the quarterly ITRs of the subsequent year, there was an impossibility of
determining compliance with the irrevocability rule under Section 76 of the NIRC as in those documents could be
found evidence of whether the excess CWT was applied to its income tax liabilities in the quarters of 2004. The
irrevocability rule under Section 76 of the NIRC means that once an option, either for refund or issuance of tax
credit certificate or carry-over of CWT has been exercised, the same can no longer be modified for the succeeding
taxable years.20 For said reason, the CTA-En Banc affirmed the conclusion in the amended decision that because of
the said impossibility, the claim for refund was not substantiated.

The CIR agrees with the disposition of the CTA-En Banc, stressing that the petitioner failed to carry out the burden
of showing that no carryover was made when it did not present the quarterly ITRs for CY 2004.

Petitioner disagrees, as the dissents did, that the non-submission of quarterly ITRs is fatal to its claim.

Hence, the issue on the indispensability of quarterly ITRs of the succeeding taxable year in a claim for refund.

The Court finds for the petitioner.

There is no question that those who claim must not only prove its entitlement to the excess credits, but likewise
must prove that no carry-over has been made in cases where refund is sought.

In this case, the fact of havingcarried over petitioners 2003 excess credits to succeeding taxable year isin issue.
According to the CTA-En Bancand the CIR, the only evidence that can sufficiently show that carrying over has been
made is to present the quarterly ITRs. Some members of this Court adhere to the same view.

The Court however cannot.

Proving that no carry-over has been made does not absolutely require the presentation of the quarterly ITRs.

In Philam, the petitioner therein sought for recognition of its right to the claimed refund of unutilized CWT. The CIR
opposed the claim, on the grounds similar to the caseat hand, that no proof was provided showing the non-carry
over of excess CWT to the subsequent quarters of the subject year. In a categorical manner, the Court ruled that
the presentation of the quarterly ITRs was not necessary. Therein, it was written:

Requiring that the ITR or the FAR of the succeeding year be presented to the BIR in requesting a tax refund has no
basis in law and jurisprudence.

First, Section 76 of the Tax Code does not mandate it. The law merely requires the filing of the FAR for the
preceding not the succeeding taxable year. Indeed, any refundable amount indicated in the FAR of the
preceding taxable year may be credited against the estimated income tax liabilities for the taxable quarters of the
succeeding taxable year. However, nowhere is there even a tinge of a hint in any provisions of the [NIRC] that the
FAR of the taxable year following the period to which the tax credits are originally being applied should also be
presented to the BIR.

Second, Section 5 of RR 12-94, amending Section 10(a) of RR 6-85, merely provides that claims for refund of
income taxes deducted and withheld from income payments shall be given due course only (1) when it is shown on
the ITR that the income payment received is being declared part of the taxpayers gross income; and (2) when the
fact of withholding is established by a copy of the withholding tax statement, duly issued by the payor to the
payee, showing the amount paid and the income tax withheld from that amount.

It has been submitted that Philam cannot be cited as a precedent to hold that the presentation of the quarterly
income tax return is not indispensable as it appears that the quarterly returns for the succeeding year were
presented when the petitioner therein filed an administrative claim for the refund of its excess taxes withheld in
1997.

It appears however that there is misunderstanding in the ruling of the Court in Philam. That factual distinction does
not negate the proposition that subsequent quarterly ITRs are not indispensable. The logic in not requiring
quarterly ITRs of the succeeding taxable years to be presented remains true to this day. What Section 76 requires,
just like in all civil cases, is to prove the prima facie entitlement to a claim, including the fact of not having carried
over the excess credits to the subsequent quarters or taxable year. It does not say that to prove such a fact,
succeeding quarterly ITRs are absolutely needed.

This simply underscores the rulethat any document, other than quarterly ITRs may be used to establish that indeed
the non-carry over clause has been complied with, provided that such is competent, relevant and part of the
records. The Court is thusnot prepared to make a pronouncement as to the indispensability of the quarterly ITRs in
a claim for refund for no court can limit a party to the means of proving a fact for as long as they are consistent
with the rules of evidence and fair play. The means of ascertainment of a fact is best left to the party that alleges
the same. The Courts power is limited only to the appreciation of that means pursuant to the prevailing rules of
evidence. To stress, what the NIRC merely requires is to sufficiently prove the existence of the non-carry over of
excess CWT in a claim for refund.

The implementing rules similarly support this conclusion, particularly Section 2.58.3 of Revenue Regulation No. 2-
98 thereof. There, it provides as follows:

SECTION 2.58.3. Claim for Tax Credit or Refund.

(A) The amount of creditable tax withheld shall be allowed as a tax credit against the income tax liability
of the payee in the quarter of the taxable year in which income was earned or received.

(B) Claims for tax credit or refund of any creditable income tax which was deducted and withheld on
income payments shall be given due course only when it is shown that the income payment has been
declared as part of the gross income and the fact of withholding is established bya copy of the
withholding tax statement duly issued by the payer to the payee showing the amount paid and the
amount of tax withheld therefrom.

xxx xxx xxx

Evident from the above is the absence of any categorical pronouncement of requiring the presentation of the
succeeding quarterly ITRs in order to prove the fact of non-carrying over. To say the least, the Court rules that as to
the means of proving it, Ithas no power to unduly restrict it.

In this case, it confounds the Court why the CTA did not recognize and discuss in detail the sufficiency of the
annual ITR for 2004,21 which was submitted by the petitioner. The CTA in fact said:

In the present case, while petitioner did offer its Annual ITR/Final Adjustment Return for taxable year 2004, it
appears that petitioner miserably failed to submit and offer as part of its evidence the first, second, and third
Quarterly ITRs for the year 2004. Consequently, petitioner was not able to prove that it did not exercise its option
to carry-over its excess CWT.22

Petitioner claims that the requirement of proof showing the non-carry over has been established in said document.

Indeed, an annual ITR contains the total taxable income earned for the four (4) quarters of a taxable year, as well
as deductions and tax credits previously reported or carried over in the quarterly income tax returns for the
subject period. A quick look atthe Annual ITR reveals this fact:

Aggregate Income Tax Due

Less Tax Credits/Payments


Prior Years excess Credits Taxes withheld

Tax Payment (s) for the Previous Quarter (s) of the same taxable year other than MCIT

xxx xxx xxx

Creditable Tax Withheld for the Previous Quarter (s)

Creditable Tax Withheld Per BIR Form No. 2307 for this Quarter

xxx xxx x x x23

It goes without saying that the annual ITR (including any other proof that may be sufficient to the Court)can
sufficiently reveal whether carry over has been made in subsequent quarters even if the petitioner has chosen the
option of tax credit or refund inthe immediately 2003 annual ITR. Section 76 of the NIRC requires a corporation to
file a Final Adjustment Return (or Annual ITR) covering the total taxable income for the preceding calendar or fiscal
year. The total taxable income contains the combined income for the four quarters of the taxable year, as well as
the deductions and excess tax credits carried over in the quarterly income tax returns for the same period.

If the excess tax credits of the preceding year were deducted, whether in whole or in part, from the estimated
income tax liabilities of any of the taxable quarters of the succeeding taxable year, the total amount of the tax
credits deducted for the entire taxable year should appear in the Annual ITR under the item "Prior Years Excess
Credits." Otherwise, or if the tax credits were carried over to the succeeding quarters and the corporation did not
report it in the annual ITR, there would be a discrepancy in the amounts of combined income and tax credits
carried over for all quarters and the corporation would end up shouldering a bigger tax payable. It must be
remembered that taxes computed in the quarterly returns are mere estimates. It is the annual ITR which shows
the aggregate amounts of income, deductions, and credits for all quarters of the taxable year. It is the final
adjustment return which shows whether a corporation incurred a loss or gained a profit during the taxable
quarter.24 Thus, the presentation of the annual ITR would suffice in proving that prior years excess credits were
not utilized for the taxable year in order to make a final determination of the total tax due.

In this case, petitioner reported an overpayment in the amount of P7,194,213.00 in its annual ITR for the year
ended December 2003:

Annual ITR 2003

Income Tax Due 1,259,259.00

Less: Prior Years Excess Credits (2002 Annual ITR) (4,379,518.00)

Creditable Tax Withheld for the 4th Quarter (4,073,954.00)

Tax Payable / (Overpayment) (7,194,213.00)

For the overpayment, petitioner chose the option "To be issued a Tax Credit Certificate." In its Annual ITR for the
year ended December 2004, petitioner did not report the Creditable Tax Withheld for the 4th quarter of 2003 in
the amount of P4,073,954.00 as prior years excess credits. As shown in the 2004 ITR:
Annual ITR 2004

Income Tax Due 1,321,409.00

Less: Prior Years Excess Credits -

Creditable Tax Withheld for the 4th (3,689,419.00)

Quarter

Tax Payable / (Overpayment) (2,368,010.00)

Verily, the absence of any amount written in the Prior Year excess Credit Tax Withheld portion of petitioners
2004 annual ITR clearly shows that no prior excess credits were carried over in the first four quarters of 2004. And
since petitioner was able to sufficiently prove that excess tax credits in 2003 were not carried over to taxable year
2004 by leaving the item "Prior Years Excess Credits" as blank in its 2004 annual ITR, then petitioner is entitled to a
refund. Unfortunately, the CTA, in denying entirely the claim, merely relied on the absence of the quarterly ITRs
despite being able to verify the truthfulness of the declaration that no carry over was indeed effected by simply
looking at the 2004 annual ITR.

At this point, worth mentioning is the fact that subsequent cases affirm the proposition as correctly pointed out by
petitioner. State Land, PERF and Mirantreiterated the rule that the presentation of the quarterly ITRs of the
subsequent year is not mandatory on the part of the claimant to prove its claims.

There are some who challenges the applicability of PERF in the case at bar. It is said that PERFis not in point
because the Annual ITR for the succeeding year had actually been attached to PERFs motion for reconsideration
with the CTA and had formed part of the records of the case. Clearly, if the Annual ITR has been recognized by this
Court in PERF, why then would the submitted 2004 Annual ITR in this case be insufficient despite the absence of
the quarterly ITRs? Why then would this Court require more than what is enough and deny a claim even if the
minimum burden has been overcome? At best, the existence of quarterly ITRs would have the effect of
strengthening a proven fact. And as such, may only be considered corroborative evidence, obviously not
indispensable in character. PERF simply affirms that quarterly ITRs are not indispensable, provided that there is
sufficient proof that carrying over excess CWT was not effected.

Stateland and Mirantare equally challenged. In all these cases however, the factual distinctions only serve to
bolster the proposition that succeeding quarterly ITRs are not indispensable. Implicit from all these cases is the
Courts recognition that proving carry-over is an evidentiary matter and that the submission of quarterly ITRs is but
a means to prove the fact of ones entitlement to a refund and not a condition sine qua non for the success of
refund. True, it would have been better, easier and more efficient for the CTA and the CIR to have as basis the
quarterly ITRs, but it is not the only way considering further that in this case, the Annual ITR for 2004 is sufficient.
Courts are here to painstakingly weigh evidence so that justice and equity in the end will prevail.

It must be emphasized that once the requirements laid down by the NIRC have been met, a claimant should be
considered successful in discharging its burden of proving its right to refund. Thereafter, the burden of going
forward with the evidence, as distinct from the general burden of proof, shifts to the opposing party, 25 that is, the
CIR. It is then the turn of the CIR to disprove the claim by presenting contrary evidence which could include the
pertinent ITRs easily obtainable from its own files.
All along, the CIR espouses the viewthat it must be given ample opportunity to investigate the veracity of the
claims. Thus, the Court asks: In the process of investigation at the administrative level to determine the right of the
petitioner to the claimed amount, did the CIR, with all its resources even attempt to verify the quarterly ITRsit had
in its files? Certainly, it did not as the application was met by the inaction of the CIR. And if desirous in its effort to
clearly verify petitioners claim, it should have had the time, resources and the liberty to do so. Yet, nothing was
produced during trial to destroy the prima facie right of the petitioner by counterchecking the claims with the
quarterly ITRs the CIR has on its file. To the Court, it seems that the CIR languished on its duties to ascertain the
veracity of the claims and just hoped that the burden would fall on the petitioners head once the issue reaches
the courts.

This mindset ignores the rule that the CIR has the equally important responsibility of contradicting petitioners
claim by presenting proof readily on hand once the burden of evidence shifts to its side. Claims for refund are civil
in nature and as such, petitioner, as claimant, though having a heavy burden of showing entitlement, need only
prove preponderance of evidence in order to recover excess credit in cold cash. To review, "[P]reponderance of
evidence is [defined as] the weight, credit, and value of the aggregate evidence on either sideand is usually
considered to be synonymous with the term greater weight of the evidence or greater weight of the credible
evidence. It is evidence which is more convincing to the court asworthy of belief than that which is offered in
opposition thereto.26

The CIR must then be reminded that in Philam, the CIRs "failure to present[the quarterly ITRs and AFR] to support
its contention against the grant of a tax refund to [a claimant] is certainly fatal." PERF reinforces this with a
sweeping statement holding that the verification process is not incumbent on PERF[or any claimant for that
matter]; [but] is the duty of the CIR to verify whether xxx excess incometaxes [have been carried over].

And should there be a possibility that a claimant may have violated the irrevocability rule and thereafter claim
twice from its credits, no one is to be blamed but the CIR for not discharging its burden of evidence to destroy a
claimants right to a refund. At any rate, a claimant who defrauds the government cannot escape liability be it
criminal or civil in nature.

Verily, with the petitioner having complied with the requirements for refund, and without the CIR showing
contrary evidence other than its bare assertion of the absence of the quarterly ITRs, copies of which are easily
verifiable by its very own records, the burden of proof of establishing the propriety of the claim for refund has
been sufficiently discharged. Hence, the grant of refund is proper.

The Court does not, and cannot, however, grant the entire claimed amount as it finds no error in the original
decision of the CTA Division granting refund to the reduced amount of P2,737,903.34. This finding of fact is given
respect, if not finality, as the CTA, 27 which by the very nature of its functions of dedicating itself exclusively to the
consideration of the tax problems has necessarily developed an expertise on the subject. 28 It being the case, the
Court partly grants this petition to the extent of reinstating the April 23, 2010 original decision of the CTA Division.

The Court reminds the CIR that substantial justice, equity and fair play take precedence over technicalities and
legalisms.1wphi1 The government must keep in mind that it has no right to keep the rponey not belonging to it,
thereby enriching itself at the expense of the law-abiding citizen29 or entities who have complied with the
requirements of the law in order to forward the claim for refund. Under the principle of solution ihdebiti provided
in Article 2154 of the Civil Code, the CIR must return anythihg it has received. 30

Finally, even assuming that the Court reverses itself and pronounces the indispensability of presenting the
quarterly ITRs to prove entitlement to the claimed refund, petitioner should not be Brejudiced for relying on
Philam. The CTA En Banc merely based its pronouncement on a case that does not enjoy the benefit of stare decis
et non quieta movere which means "to adhere to precedents, and not to unsettle things which are
established."31 As between a CTA En Banc Decision (Millennium) and this Court's Decision (Philam), it is elementary
that the latter should prevail.
WHEREFORE, the Court partly grants the petition. The March 22, 2013 Decision of the Court of Tax Appeals En
Banc is REVERSED. The April 13, 2010 Decision of the Court of Tax Appeals Special First Division is REINSTATED.
Respondent Commissioner of Internal Revenue is ordered to REFUND to petitioner the amount of P2,737,903.34 as
excess creditable withholding tax paid for taxable year 2003.

SO ORDERED.
FEBRUARY

TOPIC: THE VAT INVOICE IS THE SELLERS BEST PROOF OF THE SALE OF THE GOODS OR
SERVICES TO THE BUYER WHILE THE VAT RECE IPT IS THE BUYERS BEST EVIDENCE OF THE
PAYMENT OF GOODS OR SERVICES RECEIVED FROM THE SELLER.

G.R. No. 185666, February 04, 2015

NIPPON EXPRESS (PHILIPPINES) CORP., Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondents.

DECISION

PEREZ, J.:

Before the Court is a Petition for Review on Certiorari seeking to reverse and set aside the 20 August 2008
Decision1 and the 16 December 2008 Resolution2 of the Court of Tax Appeals (CTA) En Banc in C.T.A. E.B. No. 335
which affirmed in toto the Decision and Resolution dated 15 June 20073 and 13 November 2007,4respectively, of
the First Division of the CTA (CTA in Division)5 in C.T.A. Case No. 6464, denying due course petitioners claim for the
issuance of a Tax Credit Certificate (TCC) in the amount of P24,826,667.61 allegedly representing accumulated
excess or unutilized input taxes attributable to its zero-rated sales for the calendar year 2000, and therefore
dismissing the petition for failure to comply with the substantiation requirements.

The Facts

As aptly found by the CTA in Division, the factual antecedents of the case are undisputed:

Petitioner is a corporation duly organized and existing under the laws of the Republic of the Philippines, registered
with the Securities and Exchange Commission (SEC) under Certificate of Registration No. ASO95-005669, and with
principal office at U-2701 Yuchengco Tower, RCBC Plaza, 6819 Ayala Ave., Salcedo Village, Makati City.

Likewise, petitioner is registered with the Large Taxpayers District Office of the Bureau of Internal Revenue in
Makati City as, among others, a Value-Added Tax (VAT) taxpayer rendering freight forwarding services.

Respondent, on the other hand, is the duly appointed Commissioner of Internal Revenue vested with power to
decide, approve, and grant refunds or tax credits of overpaid internal revenue taxes as provided by law and holds
office and may be served with summons, orders, pleadings, and other processes at BIR Revenue Region 8, 5/F
Atrium Bldg., Makati Ave., Makati City.

The precedent facts, as culled from the records are as follows:

For the calendar year 2000, petitioners gross receipts were primarily derived from rendering its services to
Philippine Economic Zone Authority (PEZA)-registered clients. Likewise, it incurred total sales of
P1,063,357,608.74, which as shown in petitioners Amended Quarterly VAT Return, is made up of the following:
Taxable Sales

1st quarter (Annex B, Petition for Review) P19,416,405.90

2nd quarter (Annex C, Petition for Review) 21,727,369.30

3rd quarter (Annex D, Petition for Review) 25,478,221.80

4th quarter (Annex E, Petition for Review) 19,106,829.00 P85,728,826.00

Zero-Rated Sales

1st quarter (Annex B, Petition for Review) 163,837,757.11

2nd quarter (Annex C, Petition for Review) 189,237,849.49

3rd quarter (Annex D, Petition for Review) 228,507,608.58

4th quarter (Annex E, Petition for Review) 247,387,949.22 828,971,164.40

Exempt Sales

1st quarter (Annex B, Petition for Review) 45,234,485.51

2nd quarter (Annex C, Petition for Review) 27,632,934.35

3rd quarter (Annex D, Petition for Review) 49,971,632.54

4th quarter (Annex E, Petition for Review) 25,818,565.94 148,657,618.34

Grand Total P1,063,357,608.74

Also, for the same year, petitioner paid input taxes amounting to P31,846,253.57 and apportioning this amount
with its total sales above in accordance with Section 112 of the 1997 Tax Code, as amended; the amount of total
sales attributable to zero-rated sales would be P24,826,667.61.

Under the premise that it is entitled to a refund of the amount of P24,826,667.61, petitioner filed four separate
applications for tax credit/refund with the One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center of
the Department of Finance (OSSAC-DOF) on September 24, 2001.

Receiving no resolution from OSSAC-DOF, petitioner filed the instant petition for review on April 24, 2002 pursuant
to Section 112 in relation to Section 229 of the 1997 Tax Code, as amended. 6

Docketed as C.T.A. Case No. 6464, trial ensued having both parties submitted various documentary and testimonial
evidence during the proceedings, as well as rebuttal and sur-rebuttal evidence, in order to establish their
respective claim.

The Ruling of the CTA in Division


In a Decision dated 15 June 2007,7 the CTA in Division denied due course and accordingly dismissed petitioners
claim for the issuance of a TCC on the ground of its failure to comply with the substantiation requirements. It
explained that the sales invoices, transfer slips, and credit memos presented in support thereof did not comply
with the substantiation requirements provided for under Sections 106, 108, and 1138 of the National Internal
Revenue Code (NIRC) of 1997, as amended, considering that petitioners sales are sales of services which should
only be supported by official receipts. Consequently, without the VAT official receipts evidencing its zero-rated
revenues, the input VAT payment alleged to be directly attributable thereto cannot be refunded or a TCC cannot
be issued in its favor in accordance with Revenue Memorandum Circular (RMC) No. 42-2003. Having rendered
such ruling, the CTA in Division decided not to pass upon other incidental issues raised before it for being moot.

On 13 November 2007, the CTA in Division denied both petitioners Motion for Reconsideration and Supplemental
Motion for Reconsideration for lack of merit. 9chanr

Aggrieved, petitioner appealed to the CTA En Banc by filing a Petition for Review under Section 18 of Republic Act
(R.A.) No. 1125, as amended by R.A. No. 9282,10 on 21 December 2007, docketed as C.T.A. E.B. No. 335.

The Ruling of the CTA En Banc

The CTA En Banc affirmed in toto both the aforesaid Decision and Resolution rendered by the CTA in Division in
CTA Case No. 6464, pronouncing that although Sections 113 and 237 of the NIRC of 1997, as amended, and Section
4.108-1 of Revenue Regulations (RR) No. 7-95 use the words invoice and receipt without distinction,
nevertheless, the NIRC of 1997, as amended, provides separate provisions, which must be read in relation thereto:
Section 106 for VAT on sale of goods or properties, and Section 108 for VAT on sale of services and use or lease of
properties.11 Clearly therefore, the CTA En Banc agreed with the court a quos findings that the evidence
submitted by petitioner, i.e. sales invoices, transfer slips, credit memos, cargo manifests, and credit notes, as well
as formal report of the independent certified public accountant (ICPA), to prove its zero-rated sales, were
insufficient so as to entitle it to the issuance of a TCC since the aforesaid legal provisions do not provide for any
other document that can be used as an alternative to, or in lieu of an invoice and official receipts. 12 Ultimately, it
ruled that petitioners sales, being sales of services, shall properly be supported by VAT official receipts only, which
unfortunately were not presented and submitted as evidence by petitioner during trial.

Upon denial of petitioners Motion for Reconsideration thereof, it filed the instant Petition for Review
on Certiorari before this Court seeking the reversal of the aforementioned Decision and the 16 December 2008
Resolution13 rendered in C.T.A. E.B. No. 335, based on the following grounds:chanRoblesvirtualLawlibrary

1. That nowhere in the NIRC of 1997, as amended, and its regulations does it state that only official receipts
support the sale of services or that only sales invoices support the sale of goods;chanrobleslaw

2. That the NIRC of 1997, as amended, its implementing regulations, and well-established jurisprudence
allow other documentary evidence to prove the zero-rated sales;chanrobleslaw

3. That amendment in the law that requires the issuance of sales invoice for every sale of goods and the
issuance of official receipt for every sale of services cannot be given retroactive effect;chanrobleslaw

4. That the majority of the CTA En Banc committed grave abuse of discretion amounting to lack or want of
jurisdiction when they made an erroneous interpretation and application of the applicable law and
regulations;chanrobleslaw

5. That denial of petitioners just and valid claim constitutes unjust enrichment at the expense of the
taxpayer and should not be sustained;chanrobleslaw
6. That even assuming for the sake of argument that the majority of the CTA En Banc is correct, petitioner
should at least be allowed to introduce its existing official receipts in the interest of justice and equity;
and

7. That petitioner has fully complied with all requirements for its claim for refund or TCC considering
that:chanRoblesvirtualLawlibrary

a. Petitioner filed both administrative and judicial claims for refund/TCC within the two (2) year
prescriptive period;chanrobleslaw

b. Petitioners input taxes amounting to P31,846,253.87 were incurred for the period from January
1, 2000 to December 31, 2000 of which P24,826,667.61 remained unutilized and unapplied
against its output tax;chanrobleslaw

c. Petitioners input taxes subject of the present case were not applied against any of its output tax
liability;chanrobleslaw

d. Petitioners input taxes subject of the present case are directly attributable to zero-rated
sales;chanrobleslaw

e. Petitioners zero-rated sales are supported by documentary evidence in accordance with the
NIRC of 1997, as amended, and its implementing regulations; and

f. The input taxes being claimed are supported by VAT invoices or official receipts in accordance
with Section 4.108-5 of RR No. 7-95 in relation to Sections 110 and 237 of the NIRC of 1997, as
amended.14

The Issue

The sole issue for this Courts consideration is whether or not petitioner is entitled to a TCC in the amount of
P24,826,667.61 allegedly representing its excess and unutilized input VAT for the taxable year 2000, in accordance
with the provisions of the NIRC of 1997, as amended, other pertinent laws, and applicable jurisprudential
proclamations.

Our Ruling

At the outset, in a petition for review on certiorari under Rule 45 of the Rules of Court, only questions of law may
be raised.15 The Court is not a trier of facts and does not normally undertake the re-examination of the evidence
presented by the contending parties during the trial of the case considering that the findings of facts of the (CTA)
are conclusive and binding on the Court16 and they carry even more weight when the (CTA En Banc) affirms the
factual findings of the trial court.17 However, this Court had recognized several exceptions to this rule, 18 including
instances when the appellate court manifestly overlooked relevant facts not disputed by the parties, which, if
properly considered, would probably justify a different conclusion.

In Commissioner of Internal Revenue v. San Roque Power Corporation, Taganito Mining Corporation v.
Commissioner of Internal Revenue, and Philex Mining Corporation v. Commissioner of Internal Revenue (San Roque
case),19 this Court has finally settled the issue on proper observance of the prescriptive periods in claiming for
refund of creditable input tax due or paid attributable to any zero-rated or effectively zero-rates sales. In view of
the foregoing jurisprudential pronouncements, there appears to be an imperious need for this Court to review the
factual findings of the CTA in order to attain a complete determination of the issue presented.

Records reveal that the CTA in Division in C.T.A. Case No. 6464 merely focused on the compliance with the
substantiation requirements, which particularly ruled that the evidence submitted by petitioner to prove its zero-
rated sales were insufficient so as to entitle it to the issuance of a TCC. The same findings were adopted and
affirmed in toto by the CTA En Banc in the assailed 20 August 2008 Decision.

While it is true that the substantiation requirements in establishing a refund claim is a valid issue, the Court finds it
imperative to first and foremost determine whether or not the CTA properly acquired jurisdiction over petitioners
claim covering taxable year 2000, taking into consideration the timeliness of the filing of its judicial claim pursuant
to Section 112 of the NIRC of 1997, as amended, and consistent with the pronouncements made in the San
Roque case. Clearly, the claim of petitioner for the TCC can proceed only upon compliance with the aforesaid
jurisdictional requirement.

Relevant to the foregoing, Section 7 of R.A. No. 1125, 21 which was thereafter amended by R.A. No. 9282,22clearly
defined the appellate jurisdiction of the CTA, to wit:

Section 7. Jurisdiction. - The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to review by appeal,
as herein provided.

(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the
National Internal Revenue Code or other law or part of law administered by the Bureau of Internal Revenue;

x x x.23 (Emphasis supplied)

Moreover, Section 11 of the same law prescribes how the said appeal should be taken. It reads:c

Section 11. Who may appeal; effect of appeal. Any person, association or corporation adversely affected by a
decision or ruling of the Collector of Internal Revenue, the Collector of Customs or any provincial or city Board of
Assessment Appeals may file an appeal in the Court of Tax Appeals within thirty days after the receipt of such
decision or ruling.24x x x (Emphasis and underscoring supplied)

The timeliness in the administrative and judicial claims can be found in Section 112 of the NIRC of 1997, as
amended, which reads:

SEC. 112. Refunds or Tax Credits of Input Tax.

(A) Zero-rated or Effectively Zero-rated Sales. Any VAT-registered person, whose sales are zero-rated or
effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made,
apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such
sales, except transitional input tax, to the extent that such input tax has not been applied against output tax: x x x.

x x x x

(D)25Period within which Refund or Tax Credit of Input Taxes shall be Made. - In proper cases, the Commissioner
shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120)
days from the date of submission of complete documents in support of the application filed in accordance with
Subsections (A) hereof.

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within
thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred
twenty-day period, appeal the decision or the unacted claim with the Court of Tax Appeals.

x x x x. (Emphasis and underscoring supplied)

As mentioned earlier, the proper interpretation of the afore-quoted provision was finally settled in the San
Roque case26 by this Court sitting En Banc. The relevant portions of the discussion pertinent to the focal issue in
the present case are quoted hereunder as follows:

To repeat, a claim for tax refund or credit, like a claim for tax refund exemption, is construed strictly against the
taxpayer. One of the conditions for a judicial claim of refund or credit under the VAT System is compliance with
the 120+30 day mandatory and jurisdictional periods. Thus, strict compliance with the 120+30 day periods is
necessary for such a claim to prosper, whether before, during, or after the effectivity of the Atlas doctrine, except
for the period from the issuance of BIR Ruling No. DA-489-03 on 10 December 2003 to 6 October 2010 when the
Aichi doctrine was adopted, which again reinstated the 120+30 day periods as mandatory and jurisdictional.

The same disposition was declared in Mindanao II Geothermal Partnership v. Commissioner of Internal Revenue,
and Mindanao I Geothermal Partnership v. Commissioner of Internal Revenue, which, for emphasis, further
provided a Summary of Rules on Prescriptive Periods Involving VAT as a guide for all parties concerned, to wit:

We summarize the rules on the determination of the prescriptive period for filing a tax refund or credit
of unutilized input VAT as provided in Section 112 of the 1997 Tax Code, as follows:

(1) An administrative claim must be filed with the CIR within two years after the close of the taxable quarter when
the zero-rated or effectively zero-rated sales were made.

(2) The CIR has 120 days from the date of submission of complete documents in support of the administrative
claim within which to decide whether to grant a refund or issue a tax credit certificate. The 120-day period may
extend beyond the two-year period from the filing of the administrative claim if the claim is filed in the later part
of the two-year period. If the 120-day period expires without any decision from the CIR, then the administrative
claim may be considered to be denied by inaction.

(3) A judicial claim must be filed with the CTA within 30 days from the receipt of the CIRs decision denying the
administrative claim or from the expiration of the 120-day period without any action from the CIR.

(4) All taxpayers, however, can rely on BIR Ruling No. DA-489-03 from the time of its issuance on 10 December
2003 up to its reversal by this Court in Aichi on October 6, 2010, as an exception to the mandatory and
jurisdictional 120+30 day periods.

Certainly, it is evident from the foregoing jurisprudential pronouncements that a taxpayer-claimant only had a
limited period of thirty (30) days from the expiration of the one hundred twenty (120)-day period of inaction of the
Commissioner of Internal Revenue (CIR) to file its judicial claim with the CTA, with the exception of claims made
during the effectivity of Bureau of Internal Revenue (BIR) Ruling No. DA-489-03 (from 10 December 2003 to 5
October 2010). Failure to do so, the judicial claim shall prescribe or be considered as filed out of time.

Applying the foregoing discussion to the present case, although it appears that petitioner has indeed complied
with the required two-year period within which to file a refund/tax credit claim with the BIR (OSSAC-DOF in this
case) by filing all its administrative claims on 24 September 2001 (within the period from the close of the taxable
quarters for the year 2000, when the sales were made), this Court finds that petitioners corresponding judicial
claim was filed beyond the 30-day period, detailed hereunder as follows:

Taxable year 2000 Filing date of the Last day of the 120- Last day of the 30-day Filing date of the
(close of taxable administrative claim day period under period to judicially Petition for Review
quarters) (within the 2-year Section 112(D) from appeal said inaction
period) the date of submission
of complete
documents in support
of its application

1st Quarter
(31 March 2000)
2nd Quarter
(30 June 2000)
24 September 2001 22 September 2001 21 February 2002 24 April 2002
3rd Quarter
(30 September 2000)
4th Quarter
(31 December 2000)

Section 112(D) of the NIRC of 1997 categorically states that in case of failure on the part of the respondent to act
on the application within the 120-day period prescribed by law, petitioner only has 30 days after the expiration of
the 120-day period to appeal the unacted claim with the CTA. Since petitioners judicial claim for the
aforementioned quarters for taxable year 2000 was filed before the CTA only on 24 April 2002, 32which was way
beyond the mandatory 120+30 days to seek judicial recourse, such non-compliance with the mandatory period of
30 days is fatal to its refund claim on the ground of prescription. Consequently, the CTA had no jurisdiction over
the instant claim of petitioner as the petition was belatedly filed.

It must be emphasized that jurisdiction over the subject matter or nature of an action is fundamental for a court to
act on a given controversy,33 and is conferred only by law and not by the consent or waiver upon a court which,
otherwise, would have no jurisdiction over the subject matter or nature of an action. Lack of jurisdiction of the
court over an action or the subject matter of an action cannot be cured by the silence, acquiescence, or even by
express consent of the parties.34 If the court has no jurisdiction over the nature of an action, its only jurisdiction is
to dismiss the case. The court could not decide the case on the merits.

The CTA, even if vested with special jurisdiction, is, as courts of general jurisdiction can only take cognizance of
such matters as are clearly within its statutory authority. 36 Relative thereto, when it appears from the pleadings or
the evidence on record that the court has no jurisdiction over the subject matter, the court shall dismiss the claim.

Finally for academic discussion, as regards the substantiation requirements, it is worthy to mention that in Kepco
Philippines Corporation v. Commissioner of Internal Revenue,38 the High Court ruled that under the law, a VAT
invoice is necessary for every sale, barter or exchange of goods or properties while a VAT official receipt properly
pertains to every lease of goods or properties, and every sale, barter or exchange of services. In other words, the
VAT invoice is the sellers best proof of the sale of the goods or services to the buyer while the VAT receipt is the
buyers best evidence of the payment of goods or services received from the seller. Thus, the High Court
concluded that VAT invoice and VAT receipt should not be confused as referring to one and the same
thing. Certainly, neither does the law intend the two to be used interchangeably.

All told, the CTA has no jurisdiction over petitioners judicial appeal considering that its Petition for Review was
filed beyond the mandatory 30-day period pursuant to Section 112(D) of the NIRC of 1997, as amended, and
consistent with the ruling in the San Roque case. Consequently, petitioners instant claim for refund must be
denied.

WHEREFORE, the claim for refund is by prescription BARRED. Accordingly, the petition for review filed before the
Court of Tax Appeals docketed as CTA Case No. 6464 is DISMISSED for lack of jurisdiction and the issue on
substantiation requirements rendered MOOT and ACADEMIC. This petition is, for such reason, DISMISSED.

SO ORDERED.
TOPIC: SECTION 319 OF THE 1977 NIRC, ASSESSED TAX MUST BE COLLECTED BY
DISTRAINT OR LEVY AND/OR COURT PROCEEDING WITHIN 3 YEARS FROM THE DATE WHEN
THE BIR MAILS, RELEASE OR SEND THE ASSESSMENT NOTICE TO THE TAXPAYER

G.R. No. 172509, February 04, 2015

CHINA BANKING CORPORATION, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

SERENO, C.J.:

This Rule 45 Petition1 requires this Court to address the question of prescription of the governments right to
collect taxes. Petitioner China Banking Corporation (CBC) assails the Decision 2 and Resolution3 of the Court of Tax
Appeals (CTA) En Banc in CTA En Banc Case No. 109. The CTA En Banc affirmed the Decision4 in CTA Case No. 6379
of the CTA Second Division, which had also affirmed the validity of Assessment No. FAS-5-82/85-89-000586 and
FAS-5-86-89-00587. The Assessment required petitioner CBC to pay the amount of P11,383,165.50, plus
increments accruing thereto, as deficiency documentary stamp tax (DST) for the taxable years 1982 to 1986.

FACTS

Petitioner CBC is a universal bank duly organized and existing under the laws of the Philippines. For the taxable
years 1982 to 1986, CBC was engaged in transactions involving sales of foreign exchange to the Central Bank of the
Philippines (now Bangko Sentral ng Pilipinas), commonly known as SWAP transactions. Petitioner did not file tax
returns or pay tax on the SWAP transactions for those taxable years.

On 19 April 1989, petitioner CBC received an assessment from the Bureau of Internal Revenue (BIR) finding CBC
liable for deficiency DST on the sales of foreign bills of exchange to the Central Bank. The deficiency DST was
computed as follows:

Deficiency Documentary Stamp Tax

Amount

For the years 1982 to 1985 P 8,280,696.00

For calendar year 1986 P 2,481 ,975.60

Add : Surcharge P 620,493.90 P 3,102.469.50

P11 ,383,165.506

On 8 May 1989, petitioner CBC, through its vice-president, sent a letter of protest to the BIR. CBC raised the
following defenses: (1) double taxation, as the bank had previously paid the DST on all its transactions involving
sales of foreign bills of exchange to the Central Bank; (2) absence of liability, as the liability for the DST in a sale of
foreign exchange through telegraphic transfers to the Central Bank falls on the buyer in this case, the Central Bank;
(3) due process violation, as the banks records were never formally examined by the BIR examiners; (4) validity of
the assessment, as it did not include the factual basis therefore; (5) exemption, as neither the tax-exempt entity
nor the other party was liable for the payment of DST before the effectivity of Presidential Decree Nos. (PD) 1177
and 1931 for the years 1982 to 1986. In the protest, the taxpayer requested a reinvestigation so as to substantiate
its assertions.

On 6 December 2001, more than 12 years after the filing of the protest, the Commissioner of Internal Revenue
(CIR) rendered a decision reiterating the deficiency DST assessment and ordered the payment thereof plus
increments within 30 days from receipt of the Decision.

On 18 January 2002, CBC filed a Petition for Review with the CTA. On 11 March 2002, the CIR filed an Answer with
a demand for CBC to pay the assessed DST.

On 23 February 2005, and after trial on the merits, the CTA Second Division denied the Petition of CBC. The CTA
ruled that a SWAP arrangement should be treated as a telegraphic transfer subject to documentary stamp tax.

On 30 March 2005, petitioner CBC filed a Motion for Reconsideration, but it was denied in a Resolution dated 14
July 2005.

On 5 August 2005, petitioner appealed to the CTA En Banc. The appellate tax court, however, dismissed the
Petition for Review in a Decision dated 1 December 2005. CBC filed a Motion for Reconsideration on 21 December
2005, but it was denied in a 20 March 2006 Resolution.

The taxpayer now comes to this Court with a Rule 45 Petition, reiterating the arguments it raised at the CTA level
and invoking for the first time the argument of prescription. Petitioner CBC states that the government has three
years from 19 April 1989, the date the former received the assessment of the CIR, to collect the tax. Within that
time frame, however, neither a warrant of distraint or levy was issued, nor a collection case filed in court.

On 17 October 2006, respondent CIR submitted its Comment in compliance with the Courts Resolution dated 26
June 2006. The Comment did not have any discussion on the question of prescription.

On 21 February 2007, the Court issued a Resolution directing the parties to file their respective Memoranda.
Petitioner CBC filed its Memorandum on 26 April 2007. The CIR, on the other hand, filed on 17 April 2007 a
Manifestation stating that it was adopting the allegations and authorities in its Comment in lieu of the required
Memorandum.

ISSUE

Given the facts and the arguments raised in this case, the resolution of this case hinges on this issue: whether the
right of the BIR to collect the assessed DST from CBC is barred by prescription.

RULING OF THE COURT

We grant the Petition on the ground that the right of the BIR to collect the assessed DST is barred by the statute of
limitations.

Prescription Has Set In.

To recall, the Bureau of Internal Revenue (BIR) issued the assessment for deficiency DST on 19 April 1989, when
the applicable rule was Section 319(c) of the National Internal Revenue Code of 1977, as amended. In that
provision, the time limit for the government to collect the assessed tax is set at three years, to be reckoned from
the date when the BIR mails/releases/sends the assessment notice to the taxpayer. Further, Section 319(c) states
that the assessed tax must be collected by distraint or levy and/or court proceeding within the three-year period.
With these rules in mind, we shall now determine whether the claim of the BIR is barred by time.

In this case, the records do not show when the assessment notice was mailed, released or sent to CBC.
Nevertheless, the latest possible date that the BIR could have released, mailed or sent the assessment notice was
on the same date that CBC received it, 19 April 1989. Assuming therefore that 19 April 1989 is the reckoning date,
the BIR had three years to collect the assessed DST. However, the records of this case show that there was neither
a warrant of distraint or levy served on CBC's properties nor a collection case filed in court by the BIR within the
three-year period.

The attempt of the BIR to collect the tax through its Answer with a demand for CBC to pay the assessed DST in the
CTA on 11 March 2002 did not comply with Section 319(c) of the 1977 Tax Code, as amended. The demand was
made almost thirteen years from the date from which the prescriptive period is to be reckoned. Thus, the attempt
to collect the tax was made way beyond the three-year prescriptive period.

The BIRs Answer in the case filed before the CTA could not, by any means, have qualified as a collection case as
required by law. Under the rule prevailing at the time the BIR filed its Answer, the regular courts, and not the CTA,
had jurisdiction over judicial actions for collection of internal revenue taxes. It was only on 23 April 2004, when
Republic Act Number 9282 took effect,17 that the jurisdiction of the CTA was expanded to include, among others,
original jurisdiction over collection cases in which the principal amount involved is one million pesos or more.

Consequently, the claim of the CIR for deficiency DST from petitioner is forever lost, as it is now barred by time.
This Court has no other option but to dismiss the present case.

The running of the statute of


limitations was not suspended
by the request for reinvestigation.

The fact that the taxpayer in this case may have requested a reinvestigation did not toll the running of the three-
year prescriptive period. Section 320 of the 1977 Tax Code states:

Sec. 320. Suspension of running of statute.The running of the statute of limitations provided in Sections 318 or
319 on the making of assessment and the beginning of distraint or levy or a proceeding in court for collection, in
respect of any deficiency, shall be suspended for the period during which the Commissioner is prohibited from
making the assessment or beginning distraint or levy or a proceeding in court and for sixty days thereafter; when
the taxpayer requests for a re-investigation which is granted by the Commissioner; when the taxpayer cannot be
located in the address given by him in the return filed upon which a tax is being assessed or
collected: Provided, That if the taxpayer informs the Commissioner of any change in address, the running of the
statute of limitations will not be suspended; when the warrant of distraint and levy is duly served upon the
taxpayer, his authorized representative, or a member of his household with sufficient discretion, and no property
could be located; and when the taxpayer is out of the Philippines.

The provision is clear. A request for reinvestigation alone will not suspend the statute of limitations. Two things
must concur: there must be a request for reinvestigation and the CIR must have granted it. BPI v. Commissioner of
Internal Revenue18 emphasized this rule by statingchanroblesvirtuallawlibrary

In the case of Republic of the Philippines v. Gancayco, taxpayer Gancayco requested for a thorough reinvestigation
of the assessment against him and placed at the disposal of the Collector of Internal Revenue all the [evidence] he
had for such purpose; yet, the Collector ignored the request, and the records and documents were not at all
examined. Considering the given facts, this Court pronounced that
x x x. The act of requesting a reinvestigation alone does not suspend the period. The request should first be granted,
in order to effect suspension. (Collector v. Suyoc Consolidated, supra; also Republic v. Ablaza, supra). Moreover, the
Collector gave appellee until April 1, 1949, within which to submit his evidence, which the latter did one day
before. There were no impediments on the part of the Collector to file the collection case from April 1, 1949 x x x.

In Republic of the Philippines v. Acebedo, this Court similarly found that

. . . [T]he defendant, after receiving the assessment notice of September 24, 1949, asked for a reinvestigation
thereof on October 11, 1949 (Exh. A). There is no evidence that this request was considered or acted upon. In fact,
on October 23, 1950 the then Collector of Internal Revenue issued a warrant of distraint and levy for the full
amount of the assessment (Exh. D), but there was follow-up of this warrant. Consequently, the request for
reinvestigation did not suspend the running of the period for filing an action for collection. (Emphasis in the
original)

The Court went on to declare that the burden of proof that the request for reinvestigation had been actually
granted shall be on the CIR. Such grant may be expressed in its communications with the taxpayer or implied from
the action of the CIR or his authorized representative in response to the request for reinvestigation.

There is nothing in the records of this case which indicates, expressly or impliedly, that the CIR had granted the
request for reinvestigation filed by BPI. What is reflected in the records is the piercing silence and inaction of the
CIR on the request for reinvestigation, as he considered BPI's letters of protest to be.

In the present case, there is no showing from the records that the CIR ever granted the request for reinvestigation
filed by CBC. That being the case, it cannot be said that the running of the three-year prescriptive period was
effectively suspended.

Failure to raise prescription at the


administrative level/lower court as a
defense is of no moment.
When the pleadings or the evidence on record
show that the claim is barred by prescription,
the court must dismiss the claim even if prescription
is not raised as a defense.

We note that petitioner has raised the issue of prescription for the first time only before this Court. While we are
mindful of the established rule of remedial law that the defense of prescription must be raised at the trial court
that has also been applied for tax cases. Thus, as a rule, the failure to raise the defense of prescription at the
administrative level prevents the taxpayer from raising it at the appeal stage.

This rule, however, is not absolute.

The facts of the present case are substantially identical to those in the 2014 case, Bank of the Philippine Islands
(BPI) v. Commissioner of Internal Revenue.20 In that case, petitioner received an assessment notice from the BIR for
deficiency DST based on petitioners SWAP transactions for the year 1985 on 16 June 1989. On 23 June 1989, BPI,
through its counsel, filed a protest requesting the reinvestigation and/or reconsideration of the assessment for
lack of legal or factual bases. Almost ten years later, the CIR, in a letter dated 4 August 1998, denied the protest.
On 4 January 1999, BPI filed a Petition for Review with the CTA. On 23 February 1999, the CIR filed an Answer with
a demand for BPI to pay the assessed DST. It was only when the case ultimately reached this Court that the issue of
prescription was brought up. Nevertheless, the Court ruled that the CIR could no longer collect the assessed tax
due to prescription. Basing its ruling on Section 1, Rule 9 of the Rules of Court and on jurisprudence, the Court held
as follows:
In a Resolution dated 5 August 2013, the Court, through the Third Division, found that the assailed tax assessment
may be invalidated because the statute of limitations on the collection of the alleged deficiency DST had already
expired, conformably with Section 1, Rule 9 of the Rules of Court and the Bank of the Philippine Islands v.
Commissioner of Internal Revenue decision. However, to afford due process, the Court required both BPI and CIR
to submit their respective comments on the issue of prescription.

Only the CIR filed his comment on 9 December 2013. In his Comment, the CIR argues that the issue of prescription
cannot be raised for the first time on appeal. The CIR further alleges that even assuming that the issue of
prescription can be raised, the protest letter interrupted the prescriptive period to collect the assessed DST, unlike
in the Bank of the Philippine Islands case.

xxxx

We deny the right of the BIR to collect the assessed DST on the ground of prescription.

Section 1, Rule 9 of the Rules of Court expressly provides that:

Section 1. Defenses and objections not pleaded. - Defenses and objections not pleaded either in a motion to
dismiss or in the answer are deemed waived. However, when it appears from the pleadings or the evidence on
record that the court has no jurisdiction over the subject matter, that there is another action pending between the
same parties for the same cause, or that the action is barred by prior judgment or by the statute of limitations, the
court shall dismiss the claim.

If the pleadings or the evidence on record show that the claim is barred by prescription, the court is mandated to
dismiss the claim even if prescription is not raised as a defense. In Heirs of Valientes v. Ramas, we ruled that the CA
may motu proprio dismiss the case on the ground of prescription despite failure to raise this ground on appeal. The
court is imbued with sufficient discretion to review matters, not otherwise assigned as errors on appeal, if it finds
that their consideration is necessary in arriving at a complete and just resolution of the case. More so, when the
provisions on prescription were enacted to benefit and protect taxpayers from investigation after a reasonable
period of time.

Thus, we proceed to determine whether the period to collect the assessed DST for the year 1985 has prescribed.

To determine prescription, what is essential only is that the facts demonstrating the lapse of the prescriptive
period were sufficiently and satisfactorily apparent on the record either in the allegations of the plaintiffs
complaint, or otherwise established by the evidence. Under the then applicable Section 319(c) [now, 222(c)] of the
National Internal Revenue Code (NIRC) of 1977, as amended, any internal revenue tax which has been assessed
within the period of limitation may be collected by distraint or levy, and/or court proceeding within three years
following the assessment of the tax. The assessment of the tax is deemed made and the three-year period for
collection of the assessed tax begins to run on the date the assessment notice had been released, mailed or sent
by the BIR to the taxpayer.

In the present case, although there was no allegation as to when the assessment notice had been released, mailed
or sent to BPI, still, the latest date that the BIR could have released, mailed or sent the assessment notice was on
the date BPI received the same on 16 June 1989. Counting the three-year prescriptive period from 16 June 1989,
the BIR had until 15 June 1992 to collect the assessed DST. But despite the lapse of 15 June 1992, the evidence
established that there was no warrant of distraint or levy served on BPIs properties, or any judicial proceedings
initiated by the BIR.

The earliest attempt of the BIR to collect the tax was when it filed its answer in the CTA on 23 February 1999,
which was several years beyond the three-year prescriptive period. However, the BIRs answer in the CTA was not
the collection case contemplated by the law. Before 2004 or the year Republic Act No. 9282 took effect, the
judicial action to collect internal revenue taxes fell under the jurisdiction of the regular trial courts, and not the
CTA. Evidently, prescription has set in to bar the collection of the assessed DST.

BPI thus provides an exception to the rule against raising the defense of prescription for the first time on appeal:
the exception arises when the pleadings or the evidence on record show that the claim is barred by prescription.

In this case, the fact that the claim of the government is time-barred is a matter of record. As can be seen from the
previous discussion on the determination of the prescription of the right of the government to claim deficiency
DST, the conclusion that prescription has set in was arrived at using the evidence on record. The date of receipt of
the assessment notice was not disputed, and the date of the attempt to collect was determined by merely
checking the records as to when the Answer of the CIR containing the demand to pay the tax was filed.

Estoppel or waiver prevents the government from invoking the rule against raising the issue of prescription for the
first time on appeal.

In this case, petitioner may have raised the question of prescription only on appeal to this Court. The BIR could
have crushed the defense by the mere invocation of the rule against setting up the defense of prescription only at
the appeal stage. The government, however, failed to do so.

On the contrary, the BIR was silent despite having the opportunity to invoke the bar against the issue of
prescription. It is worthy of note that the Court ordered the BIR to file a Comment. The government, however, did
not offer any argument in its Comment about the issue of prescription, even if petitioner raised it in the latters
Petition. It merely fell silent on the issue. It was given another opportunity to meet the challenge when this Court
ordered both parties to file their respective memoranda. The CIR, however, merely filed a Manifestation that it
would no longer be filing a Memorandum and, in lieu thereof, it would be merely adopting the arguments raised in
its Comment. Its silence spoke loudly of its intent to waive its right to object to the argument of prescription.

We are mindful of the rule in taxation that estoppel does not prevent the government from collecting taxes; it is
not bound by the mistake or negligence of its agents. The rule is based on the political law concept the king can
do no wrong,21 which likens a state to a king: it does not commit mistakes, and it does not sleep on its rights. The
analogy fosters inequality between the taxpayer and the government, with the balance tilting in favor of the latter.
This concept finds justification in the theory and reality that government is necessary, and it must therefore collect
taxes if it is to survive. Thus, the mistake or negligence of government officials should not bind the state, lest it
bring harm to the government and ultimately the people, in whom sovereignty resides.

Republic v. Ker & Co. Ltd. involved a collection case for a final and executory assessment. The taxpayer
nevertheless raised the prescription of the right to assess the tax as a defense before the Court of First Instance.
The Republic, instead of objecting to the invocation of prescription as a defense by the taxpayer, litigated on the
issue and thereafter submitted it for resolution. The Supreme Court ruled for the taxpayer, treating the actuations
of the government as a waiver of the right to invoke the defense of prescription. Ker effectively applied to the
government the rule of estoppel. Indeed, the no-estoppel rule is not absolute.

The same ingredients in Ker - procedural matter and injustice - obtain in this case. The procedural matter consists
in the failure to raise the issue of prescription at the trial court/administrative level, and injustice in the fact that
the BIR has unduly delayed the assessment and collection of the DST in this case. The fact is that it took more than
12 years for it to take steps to collect the assessed tax. The BIR definitely caused untold prejudice to petitioner,
keeping the latter in the dark for so long, as to whether it is liable for DST and, if so, for how much.
CONCLUSION

Inasmuch as the governments claim for deficiency DST is barred by prescription, it is no longer necessary to dwell
on the validity of the assessment.

WHEREFORE, the Petition is GRANTED. The Court of Tax Appeals En Banc Decision dated 1 December 2005 and its
Resolution dated 20 March 2006 in CTA EB Case No. 109 are hereby REVERSED and SET ASIDE. A new ruling is
entered DENYING respondents claim for deficiency DST in the amount of P11,383,165.50.

SO ORDERED.
TOPIC: SECTION 113 OF THE NIRC OF 1997 PROVIDES THAT A VAT INVOICE IS NECESSARY
FOR EVERY SALE, BARTER OR EXCHANGE OF GOODS OR PROPERTIES, WHILE A VAT
OFFICIAL RECEIPT PROPERLY PERTAINS TO EVERY LEASE OF GOODS OR PROPERTIES; AS
WELL AS TO EVERY SAL E, BARTER OR EXCHANGE OF SERVICES.

G.R. No. 185115, February 18, 2015

NORTHERN MINDANAO POWER CORPORATION, Petitioner, v. COMMISSIONER OF INTERNAL


REVENUE, Respondents.

DECISION

SERENO, C.J.:

This is a Petition for Review on Certiorari1 under Rule 45 of the 1997 Rules of Civil Procedure filed by Northern
Mindanao Power Corporation (petitioner). The Petition assails the Decision dated 18 July 2008 and
Resolution dated 27 October 2008 issued by the Court of Tax Appeals En Banc (CTA En Banc) in C.T.A. EB No. 312.

The Facts

Petitioner is engaged in the production sale of electricity as an independent power producer and sells electricity to
National Power Corporation (NPC). It allegedly incurred input value-added tax (VAT) on its domestic purchases of
goods and services that were used in its production and sale of electricity to NPC. For the 3rd and the 4th quarters
of taxable year 1999, petitioners input VAT totaled to P2,490,960.29, while that incurred for all the quarters of
taxable year 2000 amounted to
P3,920,932.55.

Petitioner filed an administrative claim for a refund on 20 June 2000 for the 3rd and the 4th quarters of taxable year
1999, and on 25 July 2001 for taxable year 2000 in the sum of P6,411,892.84.

Thereafter, alleging inaction of respondent on these administrative claims, petitioner filed a Petition with the CTA
on 28 September 2001.

The CTA First Division denied the Petition and the subsequent Motion for Reconsideration for lack of merit. The
Court in Division found that the term zero-rated was not imprinted on the receipts or invoices presented by
petitioner in violation of Section 4.108-1 of Revenue Regulations No. 7-95. Petitioner failed to substantiate its
claim for a refund and to strictly comply with the invoicing requirements of the law and tax regulations. 7 In his
Concurring and Dissenting Opinion, however, then Presiding Justice Ernesto D. Acosta opined that the Tax Code
does not require that the word zero-rated be imprinted on the face of the receipt or invoice. He further pointed
out that the absence of that term did not affect the admissibility and competence of the receipt or invoice as
evidence to support the claim for a refund.

On appeal to the CTA En Banc, the Petition was likewise denied. The court ruled that for every sale of services, VAT
shall be computed on the basis of gross receipts indicated on the official receipt. Official receipts are proofs of sale
of services and cannot be interchanged with sales invoices as the latter are used for the sale of goods. Further, the
requirement of issuing duly registered VAT official receipts with the term zero-rated imprinted is mandatory
under the law and cannot be substituted, especially for input VAT refund purposes. Then Presiding Justice Acosta
maintained his dissent.
Hence, this appeal before us.

Issues

Petitioners appeal is anchored on the following grounds:

Section 4.108-1 of Revenue Regulations (RR) No. 7-95 which expanded the statutory requirements for the issuance
of official receipts and invoices found in Section 113 of the 1997 Tax Code by providing for the additional
requirement of the imprinting of the terms zero-rated is unconstitutional.

Company invoices are sufficient to establish the actual amount of sale of electric power services to the National
Power Corporation and therefore sufficient to substantiate Petitioners claim for refund.

The Courts Ruling

To start with, this Court finds it appropriate to first determine the timeliness of petitioners judicial claim in order
to determine whether the tax court properly acquired jurisdiction, although the matter was never raised as an
issue by the parties. Well-settled is the rule that the issue of jurisdiction over the subject matter may, at any time,
be raised by the parties or considered by the Court motu proprio.10 Therefore, the jurisdiction of the CTA over
petitioners appeal may still be considered and determined by this Court.

Section 112 of the National Internal Revenue Code (NIRC) of 1997 laid down the manner in which the refund or
credit of input tax may be made. For a VAT-registered person whose sales are zero-rated or effectively zero-rated,
Section 112(A) specifically provides for a two-year prescriptive period after the close of the taxable quarter when
the sales were made within which such taxpayer may apply for the issuance of a tax credit certificate or refund of
creditable input tax. In the consolidated tax cases Commissioner of Internal Revenue v. San Roque Power
Corporation, Taganito Mining Corporation v. Commissioner of Internal Revenue, and Philex Mining Corporation v.
Commissioner of Internal Revenue11 (hereby collectively referred to as San Roque), the Court clarified that the two-
year period refers to the filing of an administrative claim with the BIR.

In this case, petitioner had until 30 September 2001 and 31 December 2001 for the claims covering the 3rd and the
4th quarters of taxable year 1999; and 31 March, 30 June, 30 September and 31 December in 2002 for the claims
covering all four quarters of taxable year 2000 - or the close of the taxable quarter when the zero-rated sales were
made - within which to file its administrative claim for a refund. On this note, we find that petitioner had
sufficiently complied with the two-year prescriptive period when it filed its administrative claim for a refund on 20
June 2000 covering the 3rd and the 4thquarters of taxable year 1999 and on 25 July 2001 covering all the quarters of
taxable year 2000.

Pursuant to Section 112(D) of the NIRC of 1997, respondent had one hundred twenty (120) days from the date of
submission of complete documents in support of the application within which to decide on the administrative
claim. The burden of proving entitlement to a tax refund is on the taxpayer. Absent any evidence to the contrary, it
is presumed that in order to discharge its burden, petitioner attached to its applications complete supporting
documents necessary to prove its entitlement to a refund. 12Thus, the 120-day period for the CIR to act on the
administrative claim commenced on 20 June 2000 and 25 July 2001.
As laid down in San Roque, judicial claims filed from 1 January 1998 until the present should strictly adhere to the
120+30-day period referred to in Section 112 of the NIRC of 1997. The only exception is the period 10 December
2003 until 6 October 2010. Within this period, BIR Ruling No. DA-489-03 is recognized as an equitable estoppel,
during which judicial claims may be filed even before the expiration of the 120-day period granted to the CIR to
decide on a claim for a refund.

For the claims covering the 3rd and the 4th quarters of taxable year 1999 and all the quarters of taxable year 2000,
petitioner filed a Petition with the CTA on 28 September 2001.

Both judicial claims must be disallowed.

a) Claim for a refund of input VAT covering the 3rd and the 4th quarters of taxable year 1999

Counting 120 days from 20 June 2000, the CIR had until 18 October 2000 within which to decide on the claim of
petitioner for an input VAT refund attributable to its zero-rated sales for the period covering the 3rd and the
4th quarters of taxable year 1999. If after the expiration of that period respondent still failed to act on the
administrative claim, petitioner could elevate the matter to the court within 30 days or until 17 November 2000.

Petitioner belatedly filed its judicial claim with the CTA on 28 September 2001. Just like in Philex, this was a case of
late filing. The Court explained thus:

Unlike San Roque and Taganito, Philexs case is not one of premature filing but of late filing. Philex did not file any
petition with the CTA within the 120-day period. Philex did not also file any petition with the CTA within 30 days
after the expiration of the 120-day period. Philex filed its judicial claim long after the expiration of the 120-day
period, in fact 426 days after the lapse of the 120-day period. In any event, whether governed by jurisprudence
before, during, or after the Atlas case, Philexs judicial claim will have to be rejected because of late filing. Whether
the two-year prescriptive period is counted from the date of payment of the output VAT following
the Atlas doctrine, or from the close of the taxable quarter when the sales attributable to the input VAT were
made following the Mirant and Aichi doctrines, Philexs judicial claim was indisputably filed late.

The Atlas doctrine cannot save Philex from the late filing of its judicial claim. The inaction of the Commissioner on
Philexs claim during the 120-day period is, by express provision of law, deemed a denial of Philexs claim. Philex
had 30 days from the expiration of the 120-day period to file its judicial claim with the CTA. Philexs failure to do so
rendered the deemed a denial decision of the Commissioner final and inappealable. The right to appeal to the
CTA from a decision or deemed a denial decision of the Commissioner is merely a statutory privilege, not a
constitutional right. The exercise of such statutory privilege requires strict compliance with the conditions attached
by the statute for its exercise. Philex failed to comply with the statutory conditions and must thus bear the
consequences.

xxxx

Philexs situation is not a case of premature filing of its judicial claim but of late filing, indeed very late filing. BIR
Ruling No. DA-489-03 allowed premature filing of a judicial claim, which means non-exhaustion of the 120-day
period for the Commissioner to act on an administrative claim. Philex cannot claim the benefit of BIR Ruling No.
DA-489-03 because Philex did not file its judicial claim prematurely but filed it long after the lapse of the 30-day
period following the expiration of the 120-day period. In fact, Philex filed its judicial claim 426 days after the lapse
of the 30-day period.
Petitioners claim for the 3rd and the 4th quarters of taxable year 1999 was filed 319 days after the expiration of the
30-day period. To reiterate, the right to appeal is a mere statutory privilege that requires strict compliance with
the conditions attached by the statute for its exercise. Like Philex, petitioner failed to comply with the statutory
conditions and must therefore bear the consequences. It already lost its right to claim a refund or credit of its
alleged excess input VAT attributable to zero-rated or effectively zero-rated sales for the 3rd and the 4th quarters of
taxable year 1999 by virtue of its own failure to observe the prescriptive periods.

b) Claim for the refund of input VAT covering all quarters of taxable year 2000

For the year 2000, petitioner timely filed its administrative claim on 25 July 2001within the two-year period from
the close of the taxable quarter when the zero-rated sales were made. Pursuant to Section 112(D) of the NIRC of
1997, respondent had 120 days or until 22 November 2001 within which to act on petitioners claim. It is only
when respondent failed to act on the claim after the expiration of that period that petitioner could elevate the
matter to the tax court.

Records show, however, that petitioner filed its Petition with the CTA on 28 September 2001 without waiting for
the expiration of the 120-day period. Barely 64 days had lapsed when the judicial claim was filed with the CTA. The
Court in San Roque has already settled that failure of the petitioner to observe the mandatory 120-day period is
fatal to its judicial claim and renders the CTA devoid of jurisdiction over that claim. On 28 September 2001 the
date on which petitioner filed its judicial claim for the period covering taxable year 2000 - the 120+30 day
mandatory period was already in the law and BIR Ruling No. DA-489-03 had not yet been issued. Considering this
fact, petitioner did not have an excuse for not observing the 120+30 day period. Again, as enunciated in San
Roque, it is only the period between 10 December 2003 and 6 October 2010 that the 120-day period may not be
observed. While the ponente had disagreed with the majority ruling in San Roque, the latter is now the judicial
doctrine that will govern like cases.

The judicial claim was thus prematurely filed for failure of petitioner to observe the 120-day waiting period. The
CTA therefore did not acquire jurisdiction over the claim for a refund of input VAT for all the quarters of taxable
year 2000.

In addition, the issue of the requirement of imprinting the word zero-rated has already been settled by this Court
in a number of cases. In Western Mindanao Power Corporation v. CIR, we ruled:

RR 7-95, which took effect on 1 January 1996, proceeds from the rule-making authority granted to the Secretary of
Finance by the NIRC for the efficient enforcement of the same Tax Code and its amendments. In Panasonic
Communications Imaging Corporation of the Philippines v. Commissioner of Internal Revenue, we ruled that this
provision is reasonable and is in accord with the efficient collection of VAT from the covered sales of goods and
services. Moreover, we have held in Kepco Philippines Corporation v. Commissioner of Internal Revenue that the
subsequent incorporation of Section 4.108-1 of RR 7-95 in Section 113 (B) (2) (c) of R.A. 9337 actually confirmed
the validity of the imprinting requirement on VAT invoices or official receipts a case falling under the principle of
legislative approval of administrative interpretation by reenactment.

In fact, this Court has consistently held as fatal the failure to print the word zero-rated on the VAT invoices or
official receipts in claims for a refund or credit of input VAT on zero-rated sales, even if the claims were made prior
to the effectivity of R.A. 9337. Clearly then, the present Petition must be denied.
Finally, as regards the sufficiency of a company invoice to prove the sales of services to NPC, we find this claim is
without sufficient legal basis. Section 113 of the NIRC of 1997 provides that a VAT invoice is necessary for every
sale, barter or exchange of goods or properties, while a VAT official receipt properly pertains to every lease of
goods or properties; as well as to every sale, barter or exchange of services.

The Court has in fact distinguished an invoice from a receipt in Commissioner of Internal Revenue v. Manila Mining
Corporation:

A sales or commercial invoice is a written account of goods sold or services rendered indicating the prices
charged therefor or a list by whatever name it is known which is used in the ordinary course of business evidencing
sale and transfer or agreement to sell or transfer goods and services.

A receipt on the other hand is a written acknowledgment of the fact of payment in money or other settlement
between seller and buyer of goods, debtor or creditor, or person rendering services and client or customer.

A VAT invoice is the sellers best proof of the sale of goods or services to the buyer, while a VAT receipt is the
buyers best evidence of the payment of goods or services received from the seller. A VAT invoice and a VAT
receipt should not be confused and made to refer to one and the same thing. Certainly, neither does the law
intend the two to be used alternatively.

WHEREFORE, premises considered, the instant Petition is DENIED.

SO ORDERED.
MARCH

TOPIC: THE FIRST PETITION WAS FILED PREMATURELY WHILE THE SECOND PETITION WAS
PROPERLY FILED BECAUSE IT WAS EXEMPTED FROM THE MANDATORY 120-DAY PERIOD.

G.R. No. 203774, March 11, 2015

CARGILL PHILIPPINES, INC., Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari1 are the Decision2 dated June 18, 2012 and the Resolution3 dated
September 27, 2012 of the Court of Tax Appeals (CTA) En Banc in CTA EB Case No. 779, which affirmed the
Amended Decision4 dated April 20, 2011 of the CTA Special First Division (CTA Division) in CTA Case Nos. 6714 and
7262, dismissing petitioner Cargill Philippines, Inc.s (Cargill) claims for refund of unutilized input value-added tax
(VAT) for being prematurely filed.

The Facts

Cargill is a domestic corporation duly organized and existing under Philippine laws whose primary purpose is to
own, operate, run, and manage plants and facilities for the production, crushing, extracting, or otherwise
manufacturing and refining of coconut oil, coconut meal, vegetable oil, lard, margarine, edible oil, and other
articles of similar nature and their by-products. It is a VAT-registered entity with Tax Identification No./VAT
Registration No.000-110-659-000.5As such, it filed its quarterly VAT returns for the second quarter of calendar year
2001 up to the third quarter of fiscal year 2003, covering the period April 1, 2001 to February 28, 2003, which
showed an overpayment of P44,920,350.92 and, later, its quarterly VAT returns for the fourth quarter of fiscal year
2003 to the first quarter of fiscal year 2005, covering the period March 1, 2003 to August 31, 2004 which reflected
an overpayment of P31,915,642.26.6 Cargill maintained that said overpayments were due to its export sales of
coconut oil, the proceeds of which were paid for in acceptable foreign currency and accounted for in accordance
with the rules and regulations of the Bangko Sentralng Pilipinas and, thus, are zero-rated for VAT purposes.

On June 27, 2003, Cargill filed an administrative claim for refund of its unutilized input VAT in the amount of
P26,122,965.81 for the period of April 1, 2001 to February 28, 2003 (first refund claim) before the Bureau of
Internal Revenue (BIR). Thereafter, or on June 30, 2003, it filed a judicial claim for refund, by way of a petition for
review, before the CTA, docketed as CTA Case No. 6714. On September 29, 2003, it subsequently filed a
supplemental application with the BIR increasing its claim for refund of unutilized input VAT to the amount of
P27,847,897.72.

On May 31, 2005, Cargill filed a second administrative claim for refund of its unutilized input VAT in the amount of
P22,194,446.67 for the period of March 1, 2003 to August 31, 2004 (second refund claim) before the BIR. On even
date, it filed a petition for review before the CTA, docketed as CTA Case No. 7262.

For its part, respondent Commissioner of Internal Revenue (CIR) claimed, inter alia, that the amounts being
claimed by Cargill as unutilized input VAT in its first and second refund claims were not properly documented and,
hence, should be denied.
On Cargills motion for consolidation,11 the CTA Division, in a Resolution12 dated July 10, 2007, ordered the
consolidation of CTA Case No. 6714 with CTA Case No. 7262 for having common questions of law and facts.

The CTA Division Ruling

In a Decision dated August 24, 2010 (August 24, 2010 Decision), the CTA Division partially granted Cargills claims
for refund of unutilized input VAT and thereby ordered the CIR to issue a tax credit certificate in the reduced
amount of P3,053,469.99, representing Cargills unutilized input VAT attributable to its VAT zero-rated export sales
for the period covering April 1, 2001 to August 31, 2004.15 It found that while Cargill timely filed its administrative
and judicial claims within the two (2)-year prescriptive period,16 as held in the case of CIR v. Mirant Pagbilao
Corp.,17 it, however, failed to substantiate the remainder of its claims for refund of unutilized input VAT, resulting
in the partial denial thereof.

Dissatisfied, CIR respectively moved for reconsideration,1and for the dismissal of Cargills petitions,claiming that
they were prematurely filed due to its failure to exhaust administrative remedies. Cargill likewise sought for
reconsideration, maintaining that the CTA Division erred in disallowing the rest of its refund claims.

In an Amended Decision22dated April 20, 2011, the CTA Division preliminarily denied the individual motions of both
parties, to wit: (a) CIRs motion for reconsideration for lack of notice of hearing; (b) CIRs motion to dismiss on the
ground of estoppel; and (c) Cargills motion for reconsideration for lack of merit.

Separately, however, the CTA Division superseded and consequently reversed its August 24, 2010 Decision. Citing
the case of CIR v. Aichi Forging Company of Asia, Inc. (Aichi),24it held that the 120-day period provided under
Section 112(D) of the National Internal Revenue Code (NIRC) must be observed prior to the filing of a judicial claim
for tax refund.25As Cargill failed to comply therewith, the CTA Division, without ruling on the merits, dismissed the
consolidated cases for being prematurely filed.

Aggrieved, Cargill elevated its case to the CTA En Banc.

The CTA En Banc Ruling

In a Decision dated June 18, 2012, the CTA En Banc affirmed the CTA Divisions April 20, 2011 Amended Decision,
reiterating that Cargills premature filing of its claims divested the CTA of jurisdiction, and perforce, warranted the
dismissal of its petitions. To be specific, it highlighted that Cargills petition in CTA Case No. 6714 was filed on June
30, 2003, or after the lapse of three (3) days from the time it filed its administrative claim with the BIR; while its
petition in CTA Case No. 7672 was filed on the same date it filed its administrative claim with the BIR, i.e., on May
31, 2005. As such, the CTA En Banc ruled that Cargills judicial claims were correctly dismissed for being filed
prematurely.

Cargill moved for reconsideration which was, however, denied by the CTA En Banc in a Resolution dated
September 27, 2012, hence, this petition.

The Issue Before the Court

The core issue in this case is whether or not the CTA En Banc correctly affirmed the CTA Divisions outright
dismissal of Cargills claims for refund of unutilized input VAT on the ground of prematurity.

The Courts Ruling


The petition is partly meritorious.

Allowing the refund or credit of unutilized input VAT finds its genesis in Executive Order No. 273,series of 1987,
which is recognized as the Original VAT Law. Thereafter, it was amended through the passage of Republic Act No.
(RA) 7716, RA 8424, and, finally by RA 9337,34 which took effect on November 1, 2005. Considering that Cargills
claims for refund covered periods before the effectivity of RA 9337, Section 112 of the NIRC, as amended by RA
8424, should, therefore, be the governing law,35the pertinent portions of which read:

Section 112. Refunds or Tax Credits of Input Tax.

(A) Zero-rated or Effectively Zero-rated Sales. any VAT-registered person, whose sales are zero-rated or
effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made,
apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such
sales, except transitional input tax, to the extent that such input tax has not been applied against output tax: x x x.

xxxx

(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. In proper cases, the Commissioner
shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120)
days from the date of submission of complete documents in support of the application filed in accordance with
Subsections (A) and (B) hereof.

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within
thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred
twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals. (Emphases and
underscoring supplied)

xxxx

In the landmark case of Aichi, it was held that the observance of the 120-day period is a mandatory and
jurisdictional requisite to the filing of a judicial claim for refund before the CTA. As such, its non-observance would
warrant the dismissal of the judicial claim for lack of jurisdiction. It was, withal, delineated in Aichi that the two (2)-
year prescriptive period would only apply to administrative claims, and not to judicial claims. Accordingly, once the
administrative claim is filed within the two (2)-year prescriptive period, the taxpayer-claimant must wait for the
lapse of the 120-day period and, thereafter, he has a 30-day period within which to file his judicial claim before the
CTA, even if said 120-day and 30-day periods would exceed the aforementioned two (2)-year prescriptive period.

Nevertheless, the Court, in the case of CIR v. San Roque Power Corporation (San Roque), recognized an exception
to the mandatory and jurisdictional nature of the 120-day period. San Roque enunciated that BIR Ruling No. DA-
489-03 dated December 10, 2003, which expressly declared that the taxpayer-claimant need not wait for the
lapse of the 120-day period before it could seek judicial relief with the CTA by way of petition for review, provided
a valid claim for equitable estoppel under Section 246 of the NIRC.

In the more recent case of Taganito Mining Corporation v. CIR,41 the Court reconciled the pronouncements
in Aichi and San Roque, holding that from December 10, 2003 to October 6, 2010 which refers to the interregnum
when BIR Ruling No. DA-489-03 was issued until the date of promulgation of Aichi, taxpayer-claimants need not
observe the stringent 120-day period; but before and aftersaid window period, the mandatory and jurisdictional
nature of the 120-day period remained in force, viz.:

Reconciling the pronouncements in the Aichi and San Roque cases, the rule must therefore be that during the
period December 10, 2003 (when BIR Ruling No. DA-489-03 was issued) to October 6, 2010 (when the Aichi case
was promulgated), taxpayers-claimants need not observe the 120-day period before it could file a judicial claim for
refund of excess input VAT before the CTA. Before and after the aforementioned period (i.e., December 10, 2003
to October 6, 2010), the observance of the 120-day period is mandatory and jurisdictional to the filing of such
claim.

In this case, records disclose that anent Cargills first refund claim, it filed its administrative claim with the BIR on
June 27, 2003, and its judicial claim before the CTA on June 30, 2003, or before the period when BIR Ruling No. DA-
489-03 was in effect, i.e., from December 10, 2003 to October 6, 2010. As such, it was incumbent upon Cargill to
wait for the lapse of the 120-day period before seeking relief with the CTA, and considering that its judicial claim
was filed only after three (3) days later, the CTA En Banc, thus, correctly dismissed Cargills petition in CTA Case No.
6714for being prematurely filed.

In contrast, records show that with respect to Cargills second refund claim, its administrative and judicial claims
were both filed on May 31, 2005, or during the period of effectivity of BIR Ruling NO. DA-489-03, and, thus, fell
within the exemption window period contemplated in San Roque, i.e., when taxpayer-claimants need not wait for
the expiration of the 120-day period before seeking judicial relief. Verily, the CTA En Banc erred when it outrightly
dismissed CTA Case No. 7262on the ground of prematurity.

This notwithstanding, the Court finds that Cargills second refund claim in the amount of P22,194,446.67 which
allegedly represented unutilized input VAT covering the period March 1, 2003 to August 31, 2004 should not be
instantly granted. This is because the determination of Cargills entitlement to such claim, if any, would necessarily
involve factual issues and, thus, are evidentiary in nature which are beyond the pale of judicial review under a Rule
45 petition where only pure questions of law, not of fact, may be resolved. 43 Accordingly, the prudent course of
action is to remand CTA Case No. 7262 to the CTA Division for resolution on the merits, consistent with the Courts
ruling in Panay Power Corporation v. CIR.

WHEREFORE, the petition is PARTLY GRANTED. Accordingly, the Decision dated June 18, 2012 and the Resolution
dated September 27, 2012 of the Court of Tax Appeals (CTA) En Banc in CTA EB Case No. 779 are
hereby AFFIRMED only insofar as it dismissed CTA Case No. 6714. On the other hand, CTA Case No. 7262
is REINSTATED and REMANDED to the CTA Special First Division for its resolution on the merits.

SO ORDERED.
TOPIC: THE PROBATIVE VALUE OF BIR FORM 2307, WHICH IS BASICALLY A STATEMENT
SHOWING THE AMOUNT PAID FOR THE SUBJECT TRANSACTION AND THE AMOUNT OF TAX
WITHHELD THEREFROM, IS TO ESTABLISH ONLY THE FACT OF WITHHOL DING OF THE
CLAIMED CREDITABLE WITHHOLDING TAX.

G.R. No. 206019, March 18, 2015

PHILIPPINE NATIONAL BANK, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

VELASCO JR., J.:

Nature of the Case

This is an appeal via a Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking to reverse and
set aside the Court of Tax Appeals (CTA) En Banc September 12, 2012 Decision, as reiterated in a Resolution of
February 12, 2013 in CTA EB Case No. 762, affirming the earlier decision of its First Division denying petitioners
claim for there fund of excess creditable withholding tax which it allegedly erroneously paid the Bureau of Internal
Revenue (BIR) in the amount of Twelve Million Four Hundred Thousand and Four Pesos and Seventy-One Centavos
(P12,400,004.71).

The Facts

GotescoTyan Ming Development, Inc. (Gotesco), a Filipino corporation engaged in the real estate
business,1 entered on April 7, 1995 into a syndicated loan agreement with petitioner Philippine National Bank
(PNB) and three (3) other banks. To secure the loan, Gotesco mortgaged a six-hectare expanse known as the Ever
Ortigas Commercial Complex, under a mortgage trust indenture agreement in favor of PNB, through its Trust
Banking Group, as trustee.

Gotesco subsequently defaulted on its loan obligations. Thus, PNB foreclosed the mortgaged property through a
notarial foreclosure sale on July 30, 1999. On August 4, 1999, a certificate of sale was issued in favor of PNB,
subject to Gotescos right, as debtor and mortgagor, to redeem the property within one (1) year from the date of
inscription of the certificate of sale with the Register of Deeds of Pasig City on November 9, 1999.

On October 20, 2000, Gotesco filed a civil case against PNB before the Regional Trial Court of Pasig, Branch 168
(RTC) for the annulment of the foreclosure proceedings, specific performance and damages with prayer for
temporary restraining order (TRO) and/or preliminary injunction.
On November 9, 2000, the RTC issued a TRO enjoining PNB from consolidating ownership over the mortgaged
property, then on December 21, 2000, a writ of preliminary injunction. PNBs motion for reconsideration was
subsequently denied.

PNB went to the Court of Appeals (CA) via a Petition for Certiorari. The CA ruled in favor of PNB and issued an
Order reversing and setting aside the writ of preliminary injunction issued by the RTC. Gotescos Motion for
Reconsideration was denied on December 22, 2003.6 As Gotesco did not challenge the CA ruling, the setting aside
of the writ of preliminary injunction became final and executory.

As it prepared for the consolidation of its ownership over the foreclosed property, PNB paid the BIR Eighteen
Million Six Hundred Fifteen Thousand Pesos (P18,615,000) as documentary stamp tax (DST) on October 31, 2003.
PNB also withheld and remitted to the BIR withholding taxes equivalent to six percent (6%) of the bid price of One
Billion Two Hundred Forty Million Four Hundred Sixty-Nine Pesos and Eighty-Two Centavos (P1,240,000,469.82) or
Seventy-Four Million Four Hundred Thousand and Twenty-Eight Pesos and Forty-Nine Centavos(P74,400,028.49)
on October 31, 2003 and November 11, 2003.

Pending the issuance of the Certificate Authorizing Registration (CAR), the BIR informed PNB that it is imposing
interests, penalties and surcharges of Sixty-One Million Six Hundred Seventy-Eight Thousand Four Hundred Ninety
Pesos and Twenty-Eight Centavos(Php61,678,490.28) on captialgains tax and Fifteen Million Four Hundred Ninety-
Four Thousand and Sixty-Five Pesos (Php15,494,065) on DST. To facilitate the release of the CAR, petitioner paid all
the surcharges, interests and penalties assessed against it in the total amount of Seventy-Seven Million One
Hundred Seventy-Two Thousand Five Hundred Fifty-Five Pesos and Twenty-Eight Centavos (Php77,172,555.28) on
April 5, 2005.

On the claim that what it paid the BIR was not entirely due, PNB lost no time in instituting the necessary actions.
Thus, on October 27, 2005, it filed an administrative claim for the refund of excess withholding taxes with the BIR.
A day after, or on October 28, 2005, it filed its petition for review before the tax court,docketed thereat as CTA
Case No. 7355.

In its claim for refund, PNB explained that it inadvertently applied the six percent (6%) creditable withholding tax
rate on the sale of real property classified as ordinary asset, when it should have applied the five percent (5%)
creditable withholding tax rate on the sale of ordinary asset, as provided in Section 2.57.2 (J)(B) of Revenue
Regulation (RR) No. 2-98 as amended by RR No. 6-01, considering that Gotesco is primarily engaged in the real
estate business.The applicable creditable withholding tax rate of five percent (5%) of the bid price is equivalent to
the amount of Sixty-Two Million Twenty-Three Pesos and Forty-Nine Centavos (Php62,000,023.49). Therefore, PNB
claimed that it erroneously withheld and remitted to the BIR excess taxes of Twelve Million Four Hundred
Thousand and Four Pesos and Seventy-One Centavos (Php12,400,004.71).

On March 22, 2007, PNB filed another claim for refund claiming erroneous assessment and payment of the
surcharges, penalties and interests. Petitioner filed its corresponding Petition for Review on March 30, 2007,
docketed as CTA Case No. 7588.

Upon motion of petitioner, CTA Case Nos. 7355 and 7588 were consolidated. The consolidated cases were set for
pre-trial conference which CIR failed to attend despite several resetting. On September 21, 2007, CIR was declared
to be in default.

CTA Decision

In its July 12, 2010 consolidated Decision, the CTA Special First Division (First Division), in CTA Case No. 7588,
ordered the CIR to refund to PNB P77,172,555.28 representing its claim for refund of interests, surcharges and
penalties on capital gains taxes and documentary stamp taxes for the year 2003. 14chanroblesvirtuallawlibrary

In CTA Case No. 7355, however, the First Division denied PNBs claim for the refund of excess creditable
withholding taxes for insufficiency of evidence. The tax court agreed with PNB that the applicable withholding rate
was indeed five percent (5%) and not six percent (6%).15 Nevertheless, it held that PNB, while able to establish the
fact of tax withholding and the remittance thereof to the BIR, failed to present evidence to prove that Gotesco did
not utilize the withheld taxes to settle its tax liabilities. The First Division further stated that PNB should have
offered as evidence the 2003 Income Tax Return (2003 ITR) of Gotesco to show that the excess withholding tax
payments were not used by Gotesco to settle its tax liabilities for 2003. The First Division elucidated:

With the above proof of payments, this Court finds that the fact of withholding and payment of the withholding
tax due were properly established by petitioner. Xxx
However, it must be noted that although petitioner duly paid the withholding taxes, there was no evidence
presented to this Court showing that GOTESCO utilized the taxes withheld to settle its own tax liability for the year
2003. Being creditable in nature, petitioner should have likewise offered as evidence the 2003 Income Tax Return
of GOTESCO to convince the court that indeed the excess withholding tax payments were not used by GOTESCO.
The absence of such relevant evidence is fatal to petitioners action preventing this Court from granting its claim.
To allow petitioner its claim may cause jeopardy to the Government if it be required to refund the claim already
utilized.

On July 30, 2010, PNB filed a Motion for Reconsideration (MR), attaching therewith, among others, Gotescos 2003
ITR and the latters Schedule of Prepaid Tax, which the First Division admitted as part of the records.

On April 5, 2011, the First Division issued a Resolution17 denying PNBs MR mainly because there were no
documents or schedules to support the figures reported in Gotescos 2003 ITR to show that no part of the
creditable withholding tax sought to be refunded was used, in part, for the settlement of Gotescos tax liabilities
for the same year. It stated that PNB should have likewise presented the Certificate of Creditable Tax Withheld at
Source (BIR Form No. 2307) issued to Gotesco in relation to the creditable taxes withheld reported in its 2003 ITR.
BIR Form No. 2307, so declared in the Resolution, will confirm whether or not that the amount being claimed by
PNB was indeed not utilized by Gotesco to offset its taxes. In denying the MR, the First Division explained:

Petitioner attached to its Motion, income tax returns of GOTESCO for the taxable year 2003, to prove that the
latter did not utilize the taxes withheld by petitioner. The returns were submitted without any attachment
regarding its creditable taxes withheld. Except for GOTESCOs Unadjusted Schedule of Prepaid Tax for the taxable
year 2003, there were no other documents or schedules presented before this Court to support the figures
reported in the tax returns of GOTESCO for the same year under Lines 27 (C), (D) and (G) of the Creditable Taxes
Withheld.

We note that the amounts reported by GOTESCO as creditable taxes withheld for the year 2003 were just
P6,014,433.00 in total, which is less than P74,400,028.49, the creditable taxes withheld from it by the petitioner. In
fact, it is less than the P12,400,004.70 creditable taxes withheld being claimed by petitioner in its present motion.
However, this Court deemed that such observation alone, without any supporting document or schedule, is not
enough to convince us that no part of the creditable withholding tax sought to be refunded is included in the total
tax credits reported by GOTESCO in its tax returns for the taxable year 2003 which was used, in part, for the
settlement of its tax liabilities for the same year.

To sufficiently prove that GOTESCO did not utilize the creditable taxes withheld, petitioner should have likewise
presented BIR Forms No. 2307 issued to GOTESCO in relation to the creditable taxes withheld reported in its 2003
tax returns. Doing so will dispel any doubt as to the composition of GOTESCOs creditable taxes withheld for 2003.
This will settle once and for all that the amount being claimed by petitioner was not utilized by GOTESCO, and thus
the claim should be granted. Until then, this Court will stand by its decision and deny the claim. 18

In due time, PNB filed an appeal before the CTA En Banc by way of a Petition for Review, docketed as CTA EB Case
No. 762.19 PNB argued that its evidence confirms that Gotescos Six Million Fourteen Thousand and Four Hundred
Thirty-Three Pesos (P6,014,433) worth of tax credits, as reported and claimed in its 2003 ITR, did not form part of
the P74,400,028.49 equivalent to six percent (6%) creditable tax withheld. To support the foregoing position, PNB
highlighted the following:
1. Gotesco continues to recognize the foreclosed property as its own asset in its 2003 audited financial
statements. It did not recognize the foreclosure sale and has not claimed the corresponding creditable
withholding taxes withheld by petitioner on the foreclosure sale.

2. Gotesco testified that the P6,014,4333.00 tax credits claimed in the year 2003 does not include the
P74,400,028.49 withholding taxes withheld and paid by petitioner in the year 2003.

3. PNB presented BIR Form No. 1606, the withholding tax remittance return filed by PNB as withholding
agent, which clearly shows that the amount of P P74,400,028.49 was withheld and paid upon PNBs
foreclosure of Gotescos asset.

Finally, in its July 12, 2010 Decision, the First Division expressly provided that Gotescos2003 ITR was the only
evidence it needed to show that the excess withholding taxes paid and remitted to the BIR were not utilized by
Gotesco.

On September 12, 2012, the CTA En Banc, in the first assailed Decision, denied PNBs Petition for Review and held:

In this case, petitioner is counting on the Income Tax Returns of GOTESCO for the taxable year 2003 and on a
certain Unadjusted Schedule of Prepaid Tax for the same year to support its argument that GOTESCO did not utilize
the taxes withheld by petitioner; however, We are not persuaded.

To reiterate, since the claim for refund involves creditable taxes withheld from GOTESCO, it is necessary to prove
that these creditable taxes were not utilized by GOTESCO to pay for its liabilities. The income tax returns alone are
not enough to fully support petitioners contention that no part of the creditable withholding tax sought to be
refunded by petitioner was utilized by GOTESCO; first, there were no other relevant supporting documents or
schedules presented to delineate the figures constituting the creditable taxes withheld that was reported in
GOTESCOs 2003 tax returns; and second, this Court cannot give credence to the Unadjusted Schedule of Prepaid
Tax for the taxable year 2003 being referred to by petitioner as the same pertains merely to a list of GOTESCOs
creditable tax withheld for taxable year 2003 and was not accompanied by any attachment to support its contents;
also it is manifest from the records that petitioner failed to have this Schedule of Prepaid Tax offered in evidence,
and thus, was not admitted as part of the records of this case.

After the denial of PNBs Motion for Reconsideration on February 12, 2013,the bank filed this instant petition.

Issue

Whether or not PNB is entitled to the refund of creditable withholding taxes erroneously paid to the BIR.
Subsumed in this main issue is the evidentiary value under the premises of BIR Form No. 2307.

The Courts Ruling

The petition is impressed with merit. As PNB insists at every turn, it has presented sufficient evidence showing its
entitlement to the refund of the excess creditable taxes it erroneously withheld and paid to the BIR.

As earlier stated, the CTA predicated its denial action on the postulate that even if PNBs withholding and
remittance of taxes were undisputed, it was not able to prove that Gotesco did not utilize the taxes thuswithheld
to pay for its tax liabilities for the year 2003.
In its Decision, the First Division categorically stated, [P]etitioner should have likewise offered as evidence the
2003 Income Tax Return of GOTESCO to convince this Court that indeed the excess withholding tax payments were
not used by GOTESCO. The absence of such relevant evidence is fatal to petitioners action preventing this Court
from granting its claim.
Thus, apprised on what to do, and following the First Divisions advice, PNB presented Gotescos 2003 ITRs as an
attachment to its MR, which was subsequently denied however. In ruling on the MR, the First Division again
virtually required PNB to present additional evidence, specifically, Gotescos Certificates of Creditable Taxes
Withheld (BIR Form No. 2307) covering P6,014,433 tax credits claimed for year 2003, purportedly to show non-
utilization by Gotesco of the P74,400,028.49 withholding tax payments.

Although PNB was not able to submit Gotescos BIR Form No. 2307, the Court is persuaded and so declares that
PNB submitted evidence sufficiently showing Gotescos non-utilization of the taxes withheld subject of the refund.

First,Gotescos Audited Financial Statements for year 2003,25 which it subsequently filed with the BIR in 2004, still
included the foreclosed Ever Ortigas Commercial Complex, in the Asset account Property and Equipment. This
was explained on page 8, Note 5 of Gotescos 2003 Audited Financial Statements:

Commercial complex and improvements pertain to the Ever Pasig Mall. As discussed in Notes 1 and 7, the land and
the mall, which were used as collaterals for the Companys bank loans, were foreclosed by the lender banks in
1999. However, the lender banks have not been able to consolidate the ownership and take possession of these
properties pending decision of the case by the Court of Appeals. Accordingly, the properties are still carried in the
books of the Company. As of April 21, 2004, the Company continues to operate the said mall. Based on the
December 11, 2003 report of an independent appraiser, the fair market value of the land, improvements and
machinery and equipment would amount to about P2.9 billion.

Land pertains to the Companys properties in Pasig City where the Ever Pasig Mall is situated.

It is clear that as of year-end 2003, Gotesco had continued to assert ownership over the Ever Ortigas Commercial
Complex as evidenced by the following: (a) it persistently challenged the validity of the foreclosure sale which was
the transaction subject to the P74,400,028.49 creditable withholding tax; and (b) its 2003 Audited Financial
Statements declared said complex as one of its properties. Thus, it is reasonable to conclude that since Gotesco
vehemently refused to recognize the validity of the foreclosure sale, it stands to reason that it also refused to
recognize the payment of the creditable withholding tax that was due on the sale and most especially, claim the
same as a tax credit.

Certainly, Gotescos relentless refusal to transfer registered ownership of the Ever Ortigas Commercial Complex to
PNB constitutes proof enough that Gotesco will not do any act inconsistent with its claim of ownership over the
foreclosed asset, including claiming the creditable tax imposed on the foreclosure sale as tax credit and utilizing
such amount to offset its tax liabilities. To do such would run roughshod over Gotescos firm stance that PNBs
foreclosure on the mortgage was invalid and that it remained the owner of the subject property.

Several pieces of evidence likewise point to Gotescos non-utilization of the claimed creditable withholding tax.As
advised by the First Division, Gotesco presented its 2003 ITR 27along with its 2003 Schedule of Prepaid Tax 28 which
itemized in detail the withholding taxes claimed by Gotesco for the year 2003 amounting to P6,014,433. The
aforesaid schedule shows that the creditable withholding taxes Gotesco utilized to pay for its 2003 tax liabilities
came from the rental payments of its tenants in the Ever Ortigas Commercial Complex, not from the foreclosure
sale.
Further, Gotescos former accountant, Ma.Analene T. Roxas,stated in her Judicial Affidavit29 that the tax credits
claimed for year 2003 did not include any portion of the amount subject to the claim for refund. First, she
explained that Gotesco could not have possibly utilized the amount claimed for refund as it was not even aware
that PNB paid the six percent (6%) creditable withholding tax since no documents came to its attention which
showed such payment by PNB. As she also explained, had Gotesco claimed the entire or even any portion of
P74,400,028.49, corresponding to the six percent (6%) tax withheld by PNB, the amount appearing in Items
27D and 27C of Gotescos 2003 ITR should have reflected the additional amount of P74,400,028.49. The pertinent
portions of Roxas Judicial Affidavit read:

Q: In GOTESCOs 2003 ITRs, both Tentative and amended, the total tax credits/payments amounted to
Php6,014,433.00. Are you familiar with the composition or breakdown of this Php6,014,433.00?

A: Yes.

Q: May we know, for the record, if any part of this Php6,014,433.00 of GOTESCOs tax credits for year 2003
pertains to the 6% Creditable Tax Withheld by PNB amounting to Php74,400,028.49? To be more specific,
does any part of the Php6,014,433.00 of GOTESCOs tax credits for year 2003 pertain to the
Php12,400,004.70 amount subject to the present claim for refund before the Honorable Court of Tax
Appeals?

A: For the record and based on the ITRs of GOTESCO, the amount of Php6,014,433.00 tax credits for year 2003
did not encompass any portion of the Php74,400,028.49 representing 6% Creditable Tax Withheld, or to be
more specific, said Php6,014,433.00 tax credits of GOTESCO for year 2003 did not include any portion of the
Php12,400,004.70 amount subject to the present claim for refund.

Q: Why is this so, Ms.Analene? In theory, the Php74 million creditable withholding tax should have benefited
GOTESCO, right?

A: In theory, it is only proper for GOTESCO to claim and utilize the Php74 million creditable withholding tax.

However, GOTESCO was not aware that PNB paid 6% creditable withholding tax on behalf of GOTESCO.
There were no documents that came to GOTESCOs attention which showed such Php74 million creditable
tax was paid to the BIR on behalf of GOTESCO.

Q: Considering that you mentioned earlier that you helped prepare GOTESCOs 2003 ITR, do you have
documents to support your statement?

A: Yes. I have with me a document containing GOTESCOs Schedule of Prepaid Tax. However, this Schedule of
Prepaid Tax is still unadjusted. The final figure is properly reflected in GOTESCOS 2003 ITR in the column of
Total Tax Credits/Payments.

Q: How can this unadjusted Schedule of Prepaid Tax support your statement that GOTESCO did not utilize any
portion of the Php74,400,028.49 representing 6% creditable tax withheld by herein Petitioner PNB?

A: As you can see, based on this Schedule of Prepaid Tax, there is a comprehensive list of GOTESCO tenants and
breakdown of their prepaid tax or creditable tax withheld.

Although PNB was listed as a tenant of GOTESCO, the withholding tax of PNB for year 2003 (as reflected in
GOTESCOs Schedule of Prepaid Tax) only amounted to Php65,985.44 due to the lease contract between PNB
and GOTESCO. This amount is too small if you compare it with the Php74 million creditable tax withheld by
PNB based on their foreclosure of GOTESCOs Ortigas Mall Complex.

Q: Are you aware of any other document which would likewise confirm your conclusion that GOTESCO did not
utilize any portion of the Php74,400,004.70 subject of the present claim for refund?

A: Yes. The 2003 Tentative and Amended ITRs of GOTESCO would prove that GOTESCO did not utilize any
portion of the Php74,400,028.49 representing 6% creditable tax withheld by herein Petitioner PNB.

Had GOTESCO claimed the entire or even any portion of Php74,400,028.49, corresponding to the 6% tax
withheld by PNB, the amount appearing in Item 27D-Creditable Tax Withheld per BIR Form 2307 for the
Fourth Quarter should not only be Php1,362,965.00, but should have reflected the additional amount of
Php74,400,028.49.

The same observation can be applied in Item 27C Creditable Tax Withheld for the First Three Quarters, such
that the amount reflected should not only be Php4,651,568.00 but Php74,400,028.49 more. 32

All in all, the evidence presented by petitioner sufficiently proved its entitlement to the claimed refund. There is no
need for PNB to present Gotescos BIR Form No. 2307,as insisted by the First Division, because the information
contained in the said form may be very well gathered from other documents already presented by PNB. Thus, the
presentation of BIR Form No. 2307 would be in the final analysis a superfluity, of little or no value.

In claims for excess and unutilized creditable withholding tax, the submission of BIR Forms 2307 is to prove the fact
of withholding of the excess creditable withholding tax being claimed for refund. This is clear in the provision of
Section 58.3, RR 2-98, as amended, and in various rulings of the Court. 33 In the words of Section 2.58.3, RR 2-98,
That the fact of withholding is established by a copy of a statement duly issued by the payor (withholding agent)
to the payee showing the amount paid and the amount of tax withheld therefrom.

Hence, the probative value of BIR Form 2307, which is basically a statement showing the amount paid for the
subject transaction and the amount of tax withheld therefrom, is to establish only the fact of withholding of the
claimed creditable withholding tax. There is nothing in BIR Form No. 2307 which would establish either utilization
or non-utilization, as the case may be, of the creditable withholding tax.

It must be noted that PNB had already presented the Withholding Tax Remittance Returns (BIR Form No. 1606)
relevant to the transaction. The said forms show that the amount of P74,400,028.49 was withheld and paid by PNB
in the year 2003. It contains, among other data, the name of the payor and the payee, the description of the
property subject of the transaction, and the determination of the taxable base, and the tax rate applied. These are
the very same key information that would be gathered from BIR Form No. 2307.

While perhaps it may be necessary to prove that the taxpayer did not use the claimed creditable withholding tax to
pay for his/its tax liabilities, there is no basis in law or jurisprudence to say that BIR Form No. 2307 is the only
evidence that may be adduced to prove such non-use.

In this case, PNB was able to establish, through the evidence it presented, that Gotesco did not in fact use the
claimed creditable withholding taxes to settle its tax liabilities, to reiterate: (1) Gotescos 2003 Audited Financial
Statements, which still included the mortgaged property in the asset account Properties and Equipment, proving
that Gotesco did not recognize the foreclosure sale and therefore, the payment by PNB of the creditable
withholding taxes corresponding to the same; (2) Gotescos 2003 ITRs, which the CTA Special First Division
required to show that the excess creditable withholding tax claimed for refund was not used by Gotesco, along
with the 2003 Schedule of Prepaid Tax which itemized in detail the withholding taxes claimed by Gotesco for the
year 2003 amounting to P6,014,433.00; (3) the testimony of Gotescos former accountant, proving that the
amount subject of PNBs claim for refund was not included among the creditable withholding taxes stated in
Gotescos 2003 ITR; and(4) the Withholding Tax Remittance Returns (BIR Form 1606) proving that the amount of
P74,400,028.49 was withheld and paid by PNB in the year 2003.

Ergo, theevidence on record sufficiently proves that the claimed creditable withholding tax was withheld and
remitted to the BIR, that such withholding and remittance was erroneous, and that the claimed creditable
withholding tax was not used by Gotesco to settle its tax liabilities.

WHEREFORE, the Court resolves to GRANT the petition. The Decision of the Court of Tax Appeals En Banc dated
September 12, 2012 and its Resolution dated February 12, 2013 in CTA EB Case No. 762 are
hereby REVERSED and SET ASIDE, and a new one entered DIRECTING respondent Commissioner of Internal
Revenue to refund to petitioner Philippine National Bank, within thirty (30) days from the finality of this Decision,
the amount of Twelve Million Four Hundred Thousand and Four Pesos and Seventy-One
Centavos(Php12,400,004.71), representing excess creditable withholding taxes withheld and paid for the year
2003.
SO ORDERED.
TOPIC: The word zero-rated is required on the invoices or receipts issued by
VAT-registered taxpayers.

G.R. No. 183531, March 25, 2015

EASTERN TELECOMMUNICATIONS PHILIPPINES, INC., Petitioner, v. COMMISSIONER OF INTERNAL


REVENUE, Respondent.

DECISION

REYES, J.:

This is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court which seeks to reverse and set aside
the Decision2 dated April 30, 2008 and Resolution3 dated July 2, 2008 of the Court of Tax Appeals (CTA) en banc in
C.T.A. EB No. 327 affirming the denial of Eastern Telecommunications Philippines, Inc.s (ETPI) claim for refund of
its unutilized input value-added tax (VAT) in the amount of P9,265,913.42 allegedly attributable to ETPIs zero-
rated sales of services to non-resident foreign corporation for the taxable year 1998.

The Antecedents

ETPI is a domestic corporation located at the Telecoms Plaza Building, No. 316, Sen. Gil Puyat Avenue, Salcedo
Village, Makati City. It registered with the Bureau of Internal Revenue (BIR) as a VAT taxpayer with Certificate of
Registration bearing RDO Control No. 49-490-000205 dated June 10, 1994.4

As a telecommunications company, ETPI entered into various international service agreements with international
telecommunications carriers and handles incoming telecommunications services for non-resident foreign
telecommunication companies and the relay of said international calls within and around other places in the
Philippines. Consequently, to broaden its distribution coverage of telecommunications services throughout the
country, ETPI entered into various interconnection agreements with local
carriers that can readily relay the said foreign calls to the intended local end-receiver.

The non-resident foreign corporations pays ETPI in US dollars inwardly remitted through the Philippine local banks,
Metropolitan Banking Corporation, HongKong and Shanghai Banking Corporation and Citibank through the manner
and mode of payments based on an internationally established standard which is embodied in a Blue Book, or
Manual, prepared by the Consultative Commission of International Telegraph and Telephony and implemented
between the contracting parties in consonance with a set of procedural guidelines denominated as Traffic
Settlement Procedure.

ETPI seasonably filed its Quarterly VAT Returns for the year 1998 which were, however, simultaneously amended
on February 22, 2001 to correct its input VAT on domestic purchases of goods and services and on importation of
goods and to reflect its zero-rated and exempt sales for said year.

On January 25, 2000, ETPI filed an administrative claim with the BIR for the refund of the amount of P9,265,913.42
representing excess input tax attributable to its effectively zero-rated sales in 1998 pursuant to Section 1128 of the
Republic Act (R.A.) No. 8424, also known as the National Internal Revenue Code of 1997 (NIRC), as implemented by
Revenue Regulations (RR) No. 5-87 and as amended by RR No. 7-95.

Pending review by the BIR, ETPI filed a Petition for Review10 before the CTA on February 21, 2000 in order to toll
the two-year reglementary period under Section 22911 of the NIRC. The case was docketed as C.T.A. Case No.
6019. The BIR Commissioner opposed the petition and averred that no judicial action can be instituted by a
taxpayer unless a claim has been duly filed before it. Considering the importance of such procedural requirement,
the BIR stressed that ETPI did not file a formal/written claim for refund but merely submitted a quarterly VAT
return for the 4th quarter of 1998 contrary to what Section 229 of the NIRC prescribes.

In a Decision13 dated November 19, 2003, the CTA denied the petition because the VAT official receipts presented
by ETPI to support its claim failed to imprint the word zero-rated on its face in violation of the invoicing
requirements under Section 4.108-1 of RR No. 7-95 which reads:

Sec. 4.108-1. Invoicing Requirements. All VAT-registered persons shall, for every sale or lease of goods or
properties or services, issue duly registered receipts or sales or commercial invoices which must show:

1. the name, TIN and address of seller;


2. date of transaction;
3. quantity, unit cost and 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. x x x (Emphasis ours)

The CTA further mentioned that even if ETPI is entitled to a refund, it still failed to present sales invoices covering
its VATable and exempt sales for purposes of allocating its input taxes. It also criticized ETPI for filing its 1998
audited financial records on February 22, 2001 when the same should have been reported to the BIR as early as
February 22, 1999. It being so, the CTA ratiocinated that tax refunds, being in the nature of tax exemptions,
are construed in strictissimi juris against the taxpayer.14 Thus, ETPIs non-compliance with what the tax laws and
regulations require resulted to the denial of its claim for VAT refund.

ETPI moved for the CTAs reconsideration15 but it was denied in the Resolution16 dated March 19, 2004. It was
discussed: (1) that ETPIs failure to imprint the word zero-rated on the face of its receipts and invoices gives the
presumption that it is 10% VATable; (2) that its validly supported input VAT may still be claimed as an automatic
tax credit in payment of its future output VAT liability; (3) that the total sales appearing on its 1998 Quarterly
Return affects the determination of its allowable refund even if the amounts of the reported zero-rated sales
indicated in the amended Quarterly VAT Returns and company-provided zero-rated sales are the same; (4) that
there is a need to verify the truthfulness regarding ETPIs claim that the discrepancy in the sales was due to write
off accounts; and (5) that the denial of the claim for refund was based on the allocation it provided to its
independent certified public accountant (CPA) which it failed to support and which the independent CPA failed to
include in its audit.

Undaunted, ETPI filed a petition before the Court of Appeals (CA) which referred the case to the CTA en banc due
to the passage of R.A. No. 9282.

On April 30, 2008, the CTA en banc rendered a Decision18 which affirmed the decision of the old CTA. In its
disquisition, the CTA en banc stated that VAT-registered persons must comply with the invoicing requirements
prescribed in Sections 113(A) and 237 of the
NIRC. Moreover, the invoicing requirements enumerated in Section 4.108-1 of RR No. 7-95 are mandatory
due to the word shall and not may. Hence, non-compliance with any thereof would disallow any claim for tax
credit or VAT refund.

CTA Presiding Justice Ernesto Acosta (PJ Acosta) filed a Concurring and Dissenting Opinion wherein he disagreed
with the majoritys view regarding the supposed mandatory requirement of imprinting the term zero-rated
on official receipts or invoices. He stated that Section 113 in relation to Section 237 of the NIRC does not require
the imprinting of the phrase zero-rated on an invoice or official receipt for the document to be considered valid
for the purpose of claiming a refund or an issuance of a tax credit certificate. Hence, the absence of the term
zero-rated in an invoice or official receipt does not affect its admissibility or competency as evidence in support
of a refund claim. Assuming that stamping the term zero-rated on an invoice or official receipt is a requirement
of the current NIRC, the denial of a refund claim is not the imposable penalty for failure to comply with that
requirement. Nevertheless, PJ Acosta agreed with the majoritys decision to deny the claim due to ETPIs failure to
prove the input taxes it paid on its domestic purchases of goods and services during the period involved.

ETPI filed a motion for reconsideration which was denied in the Resolution 22 dated July 2, 2008. Hence, this
petition.

The Issue

Whether or not the CTA erred in denying ETPIs claim for refund of input taxes resulting from its zero-rated sales.

Ruling of the Court

The petition is bereft of merit.

Foremost, it should be noted that the CTA has developed an expertise on the subject of taxation because it is a
specialized court dedicated exclusively to the study and resolution of tax problems. As such, its findings of fact are
accorded the highest respect and are generally conclusive upon this Court, in the absence of grave abuse of
discretion or palpable error. Its decisions shall not be lightly set aside on appeal, unless this Court finds that the
questioned decision is not supported by substantial evidence or there is a showing of abuse or improvident
exercise of authority.

The word zero-rated is required on


the invoices or receipts issued by
VAT-registered taxpayers.

ETPI posits that the NIRC allows VAT-registered taxpayers to file a claim for refund of input taxes directly
attributable to zero-rated transactions subject to compliance with certain conditions. To bolster its averment, ETPI
pointed out that the imprint of the word zero-rated on the face of the sales invoice or receipt is merely required
in RR No. 7-95 which cannot prevail over a taxpayers substantive right to claim a refund or tax credit for its input
taxes. And, that the lack of the word zero-rated on its invoices and receipts does not justify an outright denial of
its claim for refund or tax credit considering that it has presented equally relevant and competent evidence to
prove its claim. Moreover, its clients are non-resident foreign corporations which are exempted from paying
VAT. Thus, it cannot take advantage of its omission to print the word zero-rated on its invoices and sales
receipts.

The Secretary of Finance has the authority to promulgate the necessary rules and regulations for the effective
enforcement of the provisions of the NIRC. Such rules and regulations are given weight and respect by the courts
in view of the rule-making authority given to those who formulate them and their specific expertise in their
respective fields.

An applicant for a claim for tax refund or tax credit must not only prove entitlement to the claim but also
compliance with all the documentary and evidentiary requirements. 25 Consequently, the old CTA, as affirmed by
the CTA en banc, correctly ruled that a claim for the refund of creditable input taxes must be evidenced by a VAT
invoice or official receipt in accordance with Section 110(A)(1) 26 of the NIRC. Sections 237 and 23827 of the same
Code as well as Section 4.108-1 of RR No. 7-95 provide for the invoicing requirements that all VAT-registered
taxpayers should observe, such as: (a) the BIR Permit to Print; (b) the Tax Identification Number of the VAT-
registered purchaser; and (c) the word zero-rated imprinted thereon. Thus, the failure to indicate the words
zero-rated on the invoices and receipts issued by a taxpayer would result in the denial of
the claim for refund or tax credit. Revenue Memorandum Circular No. 42-2003 on this point reads:

A-13: Failure by the supplier to comply with the invoicing requirements on the documents supporting the sale of
goods and services will result to the disallowance of the claim for input tax by the purchaser-claimant.

If the claim for refund/TCC is based on the existence of zero-rated sales by the taxpayer but it fails to comply with
the invoicing requirements in the issuance of sales invoices (e.g. failure to indicate the TIN), its claim for tax
credit/refund of VAT on its purchases shall be denied considering that the invoice it is issuing to its customers does
not depict its being a VAT-registered taxpayer whose sales are classified as zero-rated sales. Nonetheless, this
treatment is without prejudice to the right of the taxpayer to charge the input taxes to the appropriate expense
account or asset account subject to depreciation, whichever is applicable. Moreover, the case shall be referred by
the processing office to the concerned BIR office for verification of other tax liabilities of the taxpayer. (Emphasis
ours)

In this respect, the Court has consistently ruled on the denial of a claim for refund or tax credit whenever the word
zero-rated has been omitted on the invoices or sale receipts of the taxpayer-claimant as pronounced
in Panasonic Communications Imaging Corporation of the Philippines v. CIR28wherein it was ratiocinated, viz:

Section 4.108-1 of RR 7-95 proceeds from the rule-making authority granted to the Secretary of Finance under
Section 245 of the 1977 NIRC (Presidential Decree 1158) for the efficient enforcement of the tax code and of
course its amendments. The requirement is reasonable and is in accord with the efficient collection of VAT from
the covered sales of goods and services. As aptly explained by the CTAs First Division, the appearance of the word
zero-rated on the face of invoices covering zero-rated sales prevents buyers from falsely claiming input VAT from
their purchases when no VAT was actually paid. If, absent such word, a successful claim for input VAT is made, the
government would be refunding money it did not collect.

Further, the printing of the word zero-rated on the invoice helps segregate sales that are subject to 10% (now
12%) VAT from those sales that are zero-rated. Unable to submit the proper invoices, petitioner Panasonic has
been unable to substantiate its claim for refund.

ETPI failed to substantiate its claim


for refund or tax credit.

ETPI argues that its quarterly returns for the year 2008 substantiate the amounts of its taxable and exempt sales
which show the amounts of its taxable sales, zero-rated sales and exempt sales. Moreover, the submission of its
invoices and receipts including the verification of its independent CPA are all sufficient to support its claim.

The Court is not persuaded.

ETPI failed to discharge its burden to prove its claim. Tax refunds, being in the nature of tax exemptions, are
construed in strictissimi juris against the taxpayer and liberally in favor of the government. Accordingly, it is a
claimants burden to prove the factual basis of a claim for refund or tax credit. Considering that ETPI is engaged in
mixed transactions that cover its zero-rated sales, taxable and exempt sales, it is only appropriate and reasonable
for it to present competent evidence to validate all entries in its returns in order to properly determine which
transactions are zero-rated and which are taxable. Clearly, compliance with all the VAT invoicing requirements
provided by tax laws and regulations is mandatory. A claim for unutilized input taxes attributable to zero-rated
sales will be given due course; otherwise, the claim should be struck off for failure to do so, such as what ETPI did
in the present case.

As aptly discussed by the old CTA:

But even assuming that the VAT official receipts which failed to indicate the word zero-rated are accepted
because of the corroborating evidence, still we cannot grant petitioners claim for refund. This court noted that the
amounts of sales appearing on the 1998 quarterly returns differ from those of the amounts used by the
commissioned independent CPA as bases for the allocation of verified input taxes, to wit:

Per Per allocation


Amended Quarterly Provided byDiscrepancy
Type ofVAT Returns the Company (Over/Under)
Income (A) (B) A)-(B)

Taxable Sales P 8,594,177.20 P 59,584,311.25 P(50,990,134.05)

Zero-rated Sales 1,388,297,621.52 1,388,297,621.52 -

Exempt Sales 855,372,356.09 562,282,775.64 293,089,580.45

Total P2,252,264,154.81 P2,010,164,708.41 P242,099,446.40

============== ============== ============

The above table shows that [ETPI] adjusted its taxable sales by reducing the same to P8,594,177.20 or a reduction
of P50,990,134.05 while the amount of exempt sales was overstated by P293,089,580.45. The adjustments,
according to [ETPIs] Assistant Vice-President Finance Controllership Regina E. De Leon, were due to write-off of
accounts. Such being the case, the court believes that [ETPI] should have presented additional documents to prove
the accuracy of the adjustments made. Earlier, we have noted that petitioner failed to present its VAT official
receipts for taxable sales and non-VAT official receipts for its exempt sales. These documents are necessary to
verify the amounts of taxable and exempt sales and for the court to properly allocate the verified input taxes
among the taxable, zero-rated and exempt sales. It is pertinent to state that while a decrease in taxable sales will
not affect [ETPIs] claim for refund, the increase in the exempt sales has the effect of a proportionate reduction on
its claimed input VAT credits. Thus, in the absence of the aforementioned documents, the court has no basis in the
computation of the allowable refund that may be granted to [ETPI].

The disparity between the amounts declared as taxable or exempt sales by [ETPI] in its amended 1998 quarterly
VAT returns and the revenue allocation provided by petitioner has further created a doubt as to the accuracy of
[ETPIs] claim, considering further that the 1998 audited financial statements, which were the bases of the revenue
allocation, were already available as early as February 22, 1999 while [ETPI] filed its amended 1998 quarterly VAT
returns on February 22, 2001.30

Lastly, the old CTA and the CTA en banc, including PJ Acosta in his Concurring and Dissenting Opinion, both found
that ETPI failed to sufficiently substantiate the existence of its effectively zero-rated sales for taxable year 1998. It
is noteworthy to state that the CTA is a highly specialized court dedicated exclusively to the study and
consideration of revenue-related problems, in which it has necessarily developed an expertise. Hence, its factual
findings, when supported by substantial evidence, will not be disturbed on appeal. Verily, this Court finds no
sufficient reason to rule otherwise.

WHEREFORE, in view of the foregoing premises, the Decision dated April 30, 2008 and Resolution dated July 2,
2008 of the Court of Tax Appeals en banc in C.T.A. EB No. 327 are AFFIRMED.

SO ORDERED.
TOPIC: THE 120/30-DAY PRESCRIPTIVE PERIODS ARE MANDATORY AND JURISDICTIONAL,
AND THE MATTER OF JURISDICTION CANNOT BE WAIVED BECAUSE IT IS CONFERRED BY
LAW AND IS NOT DEPENDENT ON THE CONSENT OR OBJECTION OR THE ACTS OR
OMISSIONS OF THE PAR TIES OR ANY ONE OF T HEM.

G.R. No. 173241, March 25, 2015

SILICON PHILIPPINES, INC. (FORMERLY INTEL PHILIPPINES MANUFACTURING,


INC.), Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

LEONARDO-DE CASTRO, J.:

Before the Court is a Petition for Review on Certiorari filed by petitioner Silicon Philippines, Inc. (SPI) seeking the
reversal and setting aside of the following: (1) the Decision1 dated January 27, 2006 of the Court of Tax Appeals
(CTA) en banc in CTA EB Case No. 24, which affirmed the Decision 2 dated November 24, 2003 and
Resolution3 dated August 10, 2004 of the CTA Division in CTA Case No. 6170; and (2) Resolution dated June 26,
2006 of the CTA en banc also in CTA EB Case No. 24, which denied the Motion for Reconsideration of SPI. The CTA
Division only granted the claim of SPI for tax credit/refund of input Value-Added Tax (VAT) on its purchases of
capital goods, but not the input VAT attributable to its zero-rated sales.

SPI, formerly known as Intel Philippines Manufacturing, Inc., is a corporation duly organized and existing under
Philippine laws, and engaged in the business of designing, developing, manufacturing, and exporting advance and
large-scale integrated circuit components, commonly referred to in the industry as Integrated Circuits or ICs. It is
registered with the Bureau of Internal Revenue (BIR) as a VAT taxpayer and with the Board of Investments as a
preferred pioneer enterprise enjoying a six-year income holiday, in accordance with the provisions of the Omnibus
Investments Code.

SPI filed on May 6, 1999 with the One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center of the
Department of Finance an Application for Tax Credit/Refund of Value-Added Tax Paid covering the Third Quarter of
1998. SPI sought the tax credit/refund of input VAT for the said tax period in the sum of P25,531,312.83, broken
down as follows:

Amount

Tax paid on Imported/Locally Purchased Capital Equipment P 2,425,764.00

Total VAT Paid on Purchases per Invoices Received


During the Period for which this Application is Filed 23,105,548.83

Amount of Tax Credit/Refund Applied For P 25,531,312.83

When respondent Commissioner of Internal Revenue (CIR) failed to act upon its aforesaid Application for Tax
Credit/Refund, SPI filed on September 29, 2000 a Petition for Review before the CTA Division, which was docketed
as CTA Case No. 6170.
The CTA Division rendered a Decision on November 24, 2003 only partially granting the claim of SPI for tax
credit/refund. The CTA Division disallowed the claim of SPI for tax credit/refund of input VAT in the amount of
P23,105,548.83 for failure of SPI to properly substantiate the zero-rated sales to which it attributed said taxes. The
CTA Division particularly pointed out the failure of SPI to comply with invoicing requirements under Sections 113,
237, and 238 of the National Internal Revenue Code of 1997 (1997 Tax Code) and Section 4.108-1 of Revenue
Regulations No. 7-95, i.e., registration of receipts or sales or commercial invoices with the BIR; securing an
authority to print receipts or sales or commercial invoices from the BIR; and imprinting the words zero-rated on
the invoices covering zero-rated sales. As for the claim of SPI for tax credit/refund of input VAT on its purchases of
capital goods in the amount of P2,425,764.00, the CTA Division held that Section 112(B) of the 1997 Tax Code did
not require that such a claim be attributable to zero-rated sales; and that SPI was able to comply with all the
requirements under said provision. The CTA Division decreed in the end:

WHEREFORE, in view of the foregoing, the instant petition for review is hereby PARTIALLY GRANTED. [CIR]
is ORDERED to ISSUE A TAX CREDIT CERTIFICATE in favor of SPI in the amount of P2,425,764.00 representing input
VAT on importation of capital goods. However, the claim for refund of input VAT attributable to [SPIs] alleged
zero-rated sales in the amount of P23,105,548.83 is hereby DENIED for lack of merit.

SPI filed a Motion for Partial Reconsideration and Supplemental Motion for Partial Reconsideration of the
foregoing Decision dated November 24, 2003 of the CTA Division. In a Resolution dated August 10, 2004, the CTA
Division additionally noted that the claim of SPI covered the period of July 1, 1998 to September 30, 1998 and it
was issued a permit to generate computerized sales invoices and official receipts only on August 31, 2002. Hence,
the CTA Division resolved:

WHEREFORE, the instant motion of [SPI] is hereby DENIED for lack of merit. The pronouncement in the assailed
decision is REITERATED.

SPI sought recourse from the CTA en banc by filing a Petition for Review assailing the Decision dated November 24,
2003 and Resolution dated August 10, 2004 of the CTA Division. The Petition was docketed as CTA EB Case No. 24.

In its Decision dated January 27, 2006, the CTA en banc found no cogent justification to disturb the conclusion
spelled out in the assailed Decision dated November 24, 2003 and Resolution dated August 10, 2004 of the CTA
Division. The dispositive portion of the CTA en banc judgment reads:

WHEREFORE, the instant Petition is hereby DENIED DUE COURSE and DISMISSED for lack of merit.

SPI filed a Motion for Reconsideration but said Motion was denied for lack of merit by the CTA en banc in a
Resolution dated June 26, 2006.

SPI now comes before this Court via the instant Petition for Review, assigning three errors on the part of the
CTA en banc, to wit:

THE HONORABLE COURT OF TAX APPEALS EN BANC ERRED IN DENYING [SPIS] CLAIM FOR REFUND ON THE
GROUNDS THAT [SPI] FAILED TO IMPRINT [CIRS] BUREAUS PERMIT TO PRINT NUMBER AND THE WORDS ZERO-
RATED ON ITS SALES INVOICES THAT WERE PRESENTED AND FORMALLY OFFERED IN EVIDENCE[.]

II
THE HONORABLE COURT OF TAX APPEALS EN BANC ERRED IN DISREGARDING THE ENTIRE EVIDENCE OF [SPI] IN
PROVING ITS CLAIM FOR TAX CREDIT/REFUND[.]

III

THE HONORABLE COURT OF TAX APPEALS EN BANC ERRED IN NOT GRANTING THE WHOLE CLAIM OF [SPI] FOR
REFUND OF ITS EXCESS AND UNUTILIZED INPUT VAT FOR THE PERIOD JULY 1, 1998 TO SEPTEMBER 30, 1998 IN THE
TOTAL AMOUNT OF PhP25,531,312.83 BY DENYING ITS CLAIM ATTRIBUTABLE TO ZERO-RATED EXPORT SALES IN
THE AMOUNT OF PHP23,105,548.83[.]

During the pendency of the present Petition, this Court en banc promulgated on February 12, 2013 its Decision in
the consolidated cases of Commissioner of Internal Revenue v. San Roque Power Corporation, Taganito Mining
Corporation v. Commissioner of Internal Revenue, and Philex Mining Corporation v. Commissioner of Internal
Revenue10 (hereinafter collectively referred to as San Roque). In San Roque, the Court settled the rules on the
prescriptive periods for claiming credit/refund of input VAT under Section 112 of the 1997 Tax Code.

The pertinent provisions of the 1997 Tax Code provided:

SEC. 110. Tax Credits.

xxxx

(B) Excess Output or Input Tax. If at the end of any taxable quarter the output tax exceeds the input tax, the
excess shall be paid by the VAT-registered person. If the input tax exceeds the output tax, the excess shall be
carried over to the succeeding quarter or quarters. Any input tax attributable to the purchase of capital goods or
to zero-rated sales by a VAT-registered person may at his option be refunded or credited against other internal
revenue taxes, subject to the provisions of Section 112.

SEC. 112. Refunds or Tax Credits of Input Tax.

(A) Zero-Rated or Effectively Zero-Rated Sales. Any VAT-registered person, whose sales are zero-rated or
effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made,
apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such
sales, except transitional input tax, to the extent that such input tax has not been applied against output
tax: Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B) and Section
108(B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where
the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods or
properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely
attributed to any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales.

(B) Capital Goods. A VAT-registered person may apply for the issuance of a tax credit certificate or refund of
input taxes paid on capital goods imported or locally purchased, to the extent that such input taxes have not been
applied against output taxes. The application may be made only within two (2) years after the close of the taxable
quarter when the importation or purchase was made.

xxxx
(D) Period Within Which Refund or Tax Credit of Input Taxes Shall be Made. In proper cases, the Commissioner
shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120)
days from the date of submission of complete documents in support of the application filed in accordance with
Subsections (A) and (B) hereof.

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer affected may,
within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred
twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals. (Emphases supplied.)

The Court interpreted the aforequoted provisions, as well as the seemingly conflicting jurisprudence and
administrative rulings on the same provisions, in San Roque, thus:

At the time San Roque filed its petition for review with the CTA, the 120+30 day mandatory periods were already
in the law. Section 112(C) expressly grants the Commissioner 120 days within which to decide the taxpayers claim.
The law is clear, plain, and unequivocal: x x x the Commissioner shall grant a refund or issue the tax credit
certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of
complete documents. Following the verba legis doctrine, this law must be applied exactly as worded since it is
clear, plain, and unequivocal. The taxpayer cannot simply file a petition with the CTA without waiting for the
Commissioners decision within the 120-day mandatory and jurisdictional period. The CTA will have no jurisdiction
because there will be no decision or deemed a denial decision of the Commissioner for the CTA to review. In
San Roques case, it filed its petition with the CTA a mere 13 days after it filed its administrative claim with the
Commissioner. Indisputably, San Roque knowingly violated the mandatory 120-day period, and it cannot blame
anyone but itself.

Section 112(C) also expressly grants the taxpayer a 30-day period to appeal to the CTA the decision or inaction of
the Commissioner, thus:

x x x the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after
the expiration of the one hundred twenty day-period, appeal the decision or the unacted claim with the Court of
Tax Appeals.

This law is clear, plain, and unequivocal. Following the well-settled verba legis doctrine, this law should be applied
exactly as worded since it is clear, plain, and unequivocal. As this law states, the taxpayer may, if he wishes, appeal
the decision of the Commissioner to the CTA within 30 days from receipt of the Commissioners decision, or if the
Commissioner does not act on the taxpayers claim within the 120-day period, the taxpayer may appeal to the CTA
within 30 days from the expiration of the 120-day period.

xxxx

Section 112(A) and (C) must be interpreted according to its clear, plain, and unequivocal language. The taxpayer
can file his administrative claim for refund or credit at anytime within the two-year prescriptive period. If he files
his claim on the last day of the two-year prescriptive period, his claim is still filed on time. The Commissioner will
have 120 days from such filing to decide the claim. If the Commissioner decides the claim on the 120th day, or
does not decide it on that day, the taxpayer still has 30 days to file his judicial claim with the CTA. This is not only
the plain meaning but also the only logical interpretation of Section 112(A) and (C).
xxx

The Atlas doctrine, which held that claims for refund or credit of input VAT must comply with the two-year
prescriptive period under Section 229, should be effective only from its promulgation on 8 June 2007 until its
abandonment on 12 September 2008 in Mirant. The Atlas doctrine was limited to the reckoning of the two-year
prescriptive period from the date of payment of the output VAT. Prior to the Atlas doctrine, the two-year
prescriptive period for claiming refund or credit of input VAT should be governed by Section 112(A) following the
verba legis rule. The Mirant ruling, which abandoned the Atlas doctrine, adopted the verba legis rule, thus
applying Section 112(A) in computing the two-year prescriptive period in claiming refund or credit of input VAT.

xxxx

When Section 112(C) states that the taxpayer affected may, within thirty (30) days from receipt of the decision
denying the claim or after the expiration of the one hundred twenty-day period, appeal the decision or the
unacted claim with the Court of Tax Appeals, the law does not make the 120+30 day periods optional just because
the law uses the word may. The word may simply means that the taxpayer may or may not appeal the
decision of the Commissioner within 30 days from receipt of the decision, or within 30 days from the expiration of
the 120-day period. x x x.

xxxx

To repeat, a claim for tax refund or credit, like a claim for tax exemption, is construed strictly against the
taxpayer. One of the conditions for a judicial claim of refund or credit under the VAT System is compliance with
the 120+30 day mandatory and jurisdictional periods. Thus, strict compliance with the 120+30 day periods is
necessary for such a claim to prosper, whether before, during, or after the effectivity of the Atlas doctrine, except
for the period from the issuance of BIR Ruling No. DA-489-03 on 10 December 2003 to 6 October 2010 when
the Aichi doctrine was adopted, which again reinstated the 120+30 day periods as mandatory and jurisdictional.

xxxx

BIR Ruling No. DA-489-03 does provide a valid claim for equitable estoppel under Section 246 of the Tax Code. BIR
Ruling No. DA-489-03 expressly states that the taxpayer-claimant need not wait for the lapse of the 120-day
period before it could seek judicial relief with the CTA by way of Petition for Review. Prior to this ruling, the BIR
held, as shown by its position in the Court of Appeals, that the expiration of the 120-day period is mandatory and
jurisdictional before a judicial claim can be filed.

xxxx

Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, all taxpayers can rely on BIR Ruling No. DA-
489-03 from the time of its issuance on 10 December 2003 up to its reversal by this Court in Aichi on 6 October
2010, where this Court held that the 120+30 day periods are mandatory and jurisdictional. 12 (Emphasis supplied,
citations omitted.)

In the subsequent case of Commissioner of Internal Revenue v. Mindanao II Geothermal Partnership,13 the Court
summarized the rules on prescriptive periods for claiming credit/refund of input VAT, to wit:

SUMMARY OF RULES ON PRESCRIPTIVE PERIODS FOR


CLAIMING REFUND OR CREDIT OF INPUT VAT
The lessons of this case may be summed up as follows:

A. Two-Year Prescriptive Period

1. It is only the administrative claim that must be filed within the two-year prescriptive period. (Aichi)

2. The proper reckoning date for the two-year prescriptive period is the close of the taxable quarter when
the relevant sales were made. (San Roque)

3. The only other rule is the Atlas ruling, which applied only from 8 June 2007 to 12 September 2008. Atlas
states that the two-year prescriptive period for filing a claim for tax refund or credit of unutilized input
VAT payments should be counted from the date of filing of the VAT return and payment of the tax. (San
Roque)

B. 120+30 Day Period

1. The taxpayer can file an appeal in one of two ways: (1) file the judicial claim within thirty days after the
Commissioner denies the claim within the 120-day period, or (2) file the judicial claim within thirty days
from the expiration of the 120-day period if the Commissioner does not act within the 120-day period.

2. The 30-day period always applies, whether there is a denial or inaction on the part of the CIR.

3. As a general rule, the 30-day period to appeal is both mandatory and jurisdictional. (Aichi and San Roque)

4. As an exception to the general rule, premature filing is allowed only if filed between 10 December 2003
and 5 October 2010, when BIR Ruling No. DA-489-03 was still in force. (San Roque)

5. Late filing is absolutely prohibited, even during the time when BIR Ruling No. DA-489-03 was in force. (San
Roque)

The Court proceeds to apply the prescriptive periods set forth in Section 112 of the 1997 Tax Code, as construed by
the Court in the aforementioned cases.

SPI filed on May 6, 1999 its administrative claim for tax credit/refund of the input VAT attributable to its zero-rated
sales and on its purchases of capital goods for the Third Quarter of 1998. The two-year prescriptive period for
filing an administrative claim, reckoned from the close of the taxable quarter, prescribed on September 30,
2000. Therefore, the herein administrative claim of SPI was timely filed. For the 120/30-day prescriptive periods,
the relevant dates are presented in table form below:

Tax Period Date of End of 120-Day End of 30-day Date of Actual No. of Days:
1998 Filing of Period for CIR Period to File Filing of End of 120-day
Administrative to Decide Appeal with Judicial Claim Period to Filing
Claim CTA of Judicial
Claim

Third Quarter May 6, 1999 September 3, 1999 October 4, 199914 September 29, 391 days
2000

Evidently, SPI belatedly filed its judicial claim. It filed its Petition for Review with the CTA 391 days after the lapse
of the 120-day period without the CIR acting on its application for tax credit/refund, way beyond the 30-day period
under Section 112 of the 1997 Tax Code. SPI herein is in exactly the same position as Philex Mining in San
Roque. Thus, the declarations of the Court on the judicial claim of Philex Mining in San Roque are just as applicable
to that of SPI:

Philex timely filed its administrative claim on 20 March 2006, within the two-year prescriptive period. Even if the
two-year prescriptive period is computed from the date of payment of the output VAT under Section 229, Philex
still filed its administrative claim on time. Thus, the Atlas doctrine is immaterial in this case. The Commissioner
had until 17 July 2006, the last day of the 120-day period, to decide Philexs claim. Since the Commissioner did not
act on Philexs claim on or before 17 July 2006, Philex had until 17 August 2006, the last day of the 30-day period,
to file its judicial claim. The CTA EB held that 17 August 2006 was indeed the last day for Philex to file its judicial
claim. However, Philex filed its Petition for Review with the CTA only on 17 October 2007, or four hundred twenty-
six (426) days after the last day of filing. In short, Philex was late by one year and 61 days in filing its judicial
claim. As the CTA EB correctly found:

Evidently, the Petition for Review in C.T.A. Case No. 7687 was filed 426 days late. Thus, the Petition for Review in
C.T.A. Case No. 7687 should have been dismissed on the ground that the Petition for Review was filed way beyond
the 30-day prescribed period; thus, no jurisdiction was acquired by the CTA Division; x x x.

Unlike San Roque and Taganito, Philexs case is not one of premature filing but of late filing. Philex did not file any
petition with the CTA within the 120-day period. Philex did not also file any petition with the CTA within 30 days
after the expiration of the 120-day period. Philex filed its judicial claim long after the expiration of the 120-day
period, in fact 426 days after the lapse of the 120-day period. In any event, whether governed by jurisprudence
before, during, or after the Atlas case, Philexs judicial claim will have to be rejected because of late
filing. Whether the two-year prescriptive period is counted from the date of payment of the output VAT following
the Atlas doctrine, or from the close of the taxable quarter when the sales attributable to the input VAT were
made following the Mirant and Aichi doctrines, Philexs judicial claim was indisputably filed late.

The Atlas doctrine cannot save Philex from the late filing of its judicial claim. The inaction of the Commissioner on
Philexs claim during the 120-day period is, by express provision of law, deemed a denial of Philexs claim. Philex
had 30 days from the expiration of the 120-day period to file its judicial claim with the CTA. Philexs failure to do
so rendered the deemed a denial decision of the Commissioner final and inappealable. The right to appeal to
the CTA from a decision or deemed a denial decision of the Commissioner is merely a statutory privilege, not a
constitutional right. The exercise of such statutory privilege requires strict compliance with the conditions
attached by the statute for its exercise. Philex failed to comply with the statutory conditions and must thus bear
the consequences.

Because the 30-day period for filing its judicial claim had already prescribed by the time SPI filed its Petition for
Review with the CTA Division, the CTA Division never acquired jurisdiction over the said Petition. The CTA Division
had absolutely no jurisdiction to act upon, take cognizance of, and render judgment upon the Petition for Review
of SPI in CTA Case No. 6170, regardless of the merit of the claim of SPI. The Court stresses that the 120/30-day
prescriptive periods are mandatory and jurisdictional, and are not mere technical requirements. The Court should
not establish the precedent that noncompliance with mandatory and jurisdictional conditions can be excused if the
claim is otherwise meritorious, particularly in claims for tax refunds or credit. Such precedent will render
meaningless compliance with mandatory and jurisdictional requirements.
The Court reiterates its pronouncements in a previously decided case which also involved SPI and similar claims for
tax credit/refund but for different tax periods:

Courts are bound by prior decisions. Thus, once a case has been decided one way, courts have no choice but to
resolve subsequent cases involving the same issue in the same manner.

As this Court has repeatedly emphasized, a tax credit or refund, like tax exemption, is strictly construed against the
taxpayer. The taxpayer claiming the tax credit or refund has the burden of proving that he is entitled to the refund
by showing that he has strictly complied with the conditions for the grant of the tax refund or credit. Strict
compliance with the mandatory and jurisdictional conditions prescribed by law to claim such tax refund or credit is
essential and necessary for such claim to prosper. Noncompliance with the mandatory periods, nonobservance of
the prescriptive periods, and nonadherence to exhaustion of administrative remedies bar a taxpayers claim for tax
refund or credit, whether or not the CIR questions the numerical correctness of the claim of the taxpayer. For
failure of Silicon to comply with the provisions of Section 112(C) of the NIRC, its judicial claims for tax refund or
credit should have been dismissed by the CTA for lack of jurisdiction.

It is not lost upon the Court that the prescription of the judicial claim has not been raised as an issue by any of the
parties whether before the CTA Division, CTA en banc, or this Court. Nonetheless, the 120/30-day prescriptive
periods are mandatory and jurisdictional, and the matter of jurisdiction cannot be waived because it is conferred
by law and is not dependent on the consent or objection or the acts or omissions of the parties or any one of
them.18 In addition, when a case is on appeal, the Court has the authority to review matters not specifically raised
or assigned as error if their consideration is necessary in reaching a just conclusion of the case. More importantly,
courts have the power to motu proprio dismiss an action that already prescribed. According to Rule 9, Section 1 of
the Revised Rules of Court:

SECTION 1. Defenses and objections not pleaded. Defenses and objections not pleaded either in a motion to
dismiss or in the answer are deemed waived. However, when it appears from the pleadings or the evidence on
record that the court has no jurisdiction over the subject matter, that there is another action pending between the
same parties for the same cause, or that the action is barred by a prior judgment or by statute of limitations, the
court shall dismiss the claim.

The second sentence of the foregoing provision does not only supply exceptions to the rule that defenses not
pleaded either in a motion to dismiss or in the answer are deemed waived, it also allows courts to dismiss
cases motu proprio on any of the enumerated grounds (1) lack of jurisdiction over the subject matter; (2) litis
pendentia; (3) res judicata; and (4) prescription provided that the ground for dismissal is apparent from the
pleadings or the evidence on record.

WHEREFORE, premises considered, the Decision dated January 27, 2006 and Resolution dated June 26, 2006 of the
Court of Tax Appeals en banc in CTA EB Case No. 24, which affirmed the Decision dated November 24, 2003 and
Resolution dated August 10, 2004 of the Court of Tax Appeals Division in CTA Case No. 6170,
are REVERSED and SET ASIDE. The Petition for Review of Silicon Philippines, Inc. seeking tax credit/refund of the
input Value-Added Tax attributable to its zero-rated sales and on its purchases of capital goods for the Third
Quarter of 1998, docketed as CTA Case No. 6170 before the Court of Tax Appeals Division, is DISMISSED for being
filed out of time.

SO ORDERED.
APRIL

TOPIC / DOCTRINE: PAYMENT OF REALTY ON DISPUTED PROPERTIES; TAX RECEIPTS AS


EVIDENCE

THIRD DIVISION
G.R. No. 202950 April 6, 2015

BALTAZAR IBOT, Petitioner,


vs.
HEIRS OF FRANCISCO TAYCO, represented by FLORA TAYCO, WILLY TAYCO and MERLYN T. BULANTE,
Respondents.

This is a Petition for Review on Certiorari1 under Rule 45 of the 1997 Rules of Court, which seeks to annul
and set aside the Decision2 dated November 14, 2011 and Resolution3 dated July 16, 2012 of the Court of Appeals
(CA) in CA-G.R. CV No. 00377-MIN. The assailed decision reversed the Judgment4 dated March 31, 2005 of the
Regional Trial Court (RTC) of Midsayap, Cotabato, Branch 18, in Civil Case No. 99-028, which granted the
reconveyance of Lot No. 299 to Flora Tayco, Willy Tayco and Merlyn Tayco Bulante (respondents) and not to
Baltazar lbot (petitioner).

Facts of the Case

The dispute centers on the ownership of a residential land denominated as Lot No. 299, Bsd-101505
situated at Poblacion 2, Pigcawayan, Province of Cotabato, measuring 536 square meters, more or less, and
covered by Original Certificate of Title (OCT) No. P-62053.5

The respondents are the heirs of deceased Francisco Tayco (Francisco) who presently occupy Lot No. 299,
while the petitioner is the registered owner of Lot No. 299 in whose name OCT No. P-62053 was issued by the
Register of Deeds of the Province of Cotabato on October 23, 1997.6

On September 23, 1999, a complaint for reconveyance of real property, damages and attorneys fees was
filed before the RTC by the respondents against the petitioner grounded on their claim as owners of Lot No. 299
because of their actual, continuous, exclusive and notorious possession thereof since 1964 through their
predecessor-in-interest, Francisco.7

The respondents alleged that: in 1960, spouses Francisco and Flora Tayco (spouses Tayco) purchased Lot
No. 299 from Amelita Ibot (Amelita) for a consideration of P1,200.00 which was set forth in a Deed of Sale that was
prepared by an attorneys clerk named Fe Clamor;8 Francisco commenced his Sales Application of Lot No. 299 with
the Bureau of Lands (Bureau) but it was discontinued due to his sickness; Francisco lost the documents necessary
for his sales application including the Deed of Sale;9 their open, continuous, exclusive, and notorious possession
since 1964 and the introduction of improvements on Lot No. 299 entitles them to its reconveyance as owners; and
fraud attended the issuance of the petitioners OCT in 1998.10 In his answer,11 the petitioner denied the
allegations and unequivocally declared that the respondents cannot become owners of Lot No. 299 because his
predecessor-in-interest, Amelita, merely tolerated their occupation; that Calixta Tayco (Calixta), mother of
Francisco, sought permission for them to be allowed to relocate their nipa huton Lot No. 299 due to the
construction of Pigcawayans public market; that despite Franciscos marriage, Amelita continuously allowed them
to stay on the lot with his family;12 that in 1997, Amelita ceded to him all her rights on Lot No. 299; that his Free
Patent application to the Bureau was not fraudulent; that after complying with all legal requisites imposed by law,
he was issued OCT No. P-62053 by the Register of Deeds, Province of Cotabato on October 23, 1997;13 that the
respondents were allowed to remain in Lot No. 299 despite the death of Calixta and Francisco; that upon learning
about the respondents sale of a portion of Lot No. 299 to Freddie Rizardo, the petitioner formally demanded them
to vacate Lot No. 299; that the respondents did not heed his demand for them to vacate; that on August 20,1999,
the petitioner filed a complaint for unlawful detainer against the respondents but it was dismissed due to lack of
jurisdiction.14

During the pre-trial conference, both parties agreed to the statement of the issue as: "(w)hich prevails,
defendants title or plaintiffs occupation of the land since 1964 and up to the present?,"15 as well as the following
admissions, to wit:

1. The petitioner admitted that the respondents have been occupying Lot No. 299 since 1964 but he
denied that he had never occupied the same for any given period of time and that all existing improvements were
not all introduced by the respondents; and

2. The respondents admitted that the petitioner is the registered owner of Lot No. 299 and that he has
been paying the taxes due on Lot No. 299. They, however, contest the regularity in the issuance of the petitioners
OCT.16

Trial on the merits then ensued.

Ruling of the RTC

On March 31, 2005, the RTC rendered Judgment upholding the petitioners ownership of the subject
property, the decretal portion of which reads:

WHEREFORE, in the light of all the foregoing considerations, the court hereby renders judgment in favor
of the [petitioner] and against the [respondents]:

1. Denying the petition for reconveyance and dismissing the instant action;

2. Ordering the [respondents] to turn over the peaceful possession of Lot No. 299, Bsd-10105, [OCT] No.
P-62053, Register of Deeds of Cotabato unto and in favor of the defendant;

3. To remove all the structure that they have put up in the premises under pain of being removed at their
own expense.

4. No pronouncement as to cost.

IT IS SO DECIDED.

According to the RTC, the circumstances behind the issuance of the petitioners certificate of title clearly
established that he duly filed an application for registration of the property and complied with all the requirements
of the law. On the contrary, the respondents failed to present any document evidencing the alleged transfer of
rights from Amelita to the spouses Tayco in order to establish their claim of sale, and that what the respondents
presented were nothing more than mere allegations.19 The RTC further noted that the petitioners OCT No. P-
62053 was issued on October 23, 1997 while the respondents complaint for reconveyance was filed only on
September 23, 1999. Considering that more than a year had lapsed before the case was filed, the title had become
indefeasible and can no longer be subject to review.20

On appeal, the CA reversed21 the judgment of the RTC and the decretal portion of its decision reads:

WHEREFORE, the assailed Decision is hereby REVERSED and SET ASIDE.

Appellants, HEIRS OF FRANCISCO TAYCO, represented by FLORA TAYCO, WILLY TAYCO and MERLYN T.
BULANTE, are hereby declared as the legal owners of Lot No. 299, Bsd-101505.
Appellee Baltazar Ibot, Jr. is ORDERED to RECONVEY the property described in Original Certificate of Title
No. P-62053 in favor to [sic] appellants.

SO ORDERED.

The CA ratiocinated that respondents open, continuous, adverse and uninterrupted possession of Lot No.
299 for more than 30 years reckoned from 1964 remains uncontroverted while the Torrens title of the petitioner
was noticeably obtained only in 1997. Also, the long inaction or passivity of the petitioner or Amelita in asserting
rights over Lot No. 299 despite knowledge of the improvements introduced by the respondents precludes the
petitioner from recovering the same.23 The CA further stressed that land registration laws cannot give a person
any better title than what he actually has.24 The mere "[r]egistration of a piece of land under the Torrens System
does not create or vest title [to the registrant], because it is not a mode of acquiring ownership."25 Thus,
notwithstanding "the indefeasibility of the Torrens title, the registered owner may still be compelled to reconvey
the registered property to its true owners."26 Consequently, the decision of the RTC was reversed and set aside,
and Lot No. 299 was ordered reconveyed to the respondents.

The petitioner filed a motion for reconsideration27 but it was denied.28

Unsatisfied, the petitioner instituted the present appeal29 predicated on the following issues:

I
WHETHER THE [CA] MISAPPREHEND[ED] THE FACTS IN NOT ASSESSING CONSENT GIVEN TO RESPONDENTS BY
PETITIONERS PREDECESSORS-ININTEREST TO STAY ON THE DISPUTED PROPERTY IN FAVOR OF THE PETITIONER IN
DETERMINING THE [EXTRAORDINARY] PRESCRIPTION.
II
WHETHER THE [CA] ERRED IN NOT ASSESSING THE FINDING OF THE TRIAL COURT THAT RESPONDENTS, THEN
PLAINTIFFS COULD NOT EVEN SHOW ANY SEMBLANCE OF FRAUD IN THE MANNER THE CERTIFICATE OF TITLE WAS
ISSUED IN THE NAME OF THE DEFENDANT.
III
WHETHER THE [CA] ERRED IN APPLYING THE DOCTRINE IN "AZNAR BROTHERS REALTY COMPANY VERSUS AYING"
AND "NAVAL VERSUS COURT OF APPEALS["] IN FAVOR OF THE RESPONDENTS.
IV
WHETHER PRESCRIPTION AND EQUITABLE LACHES HAD SET IN AGAINST THE PETITIONER TO WARRANT
RECONVEYANCE OF THE DISPUTED PROPERTY TO RESPONDENTS.30

Foremost, it should be stressed that this Court is not a trier of facts. Only questions of law and not
questions of fact may be raised in a petition for review on certiorari under Rule 45.31 In the exercise of its power
of review, the factual findings of the CA are conclusive and binding on this Court and it is not our function to re-
evaluate evidence all over again. However, it is a recognized exception that when the CAs findings are incongruent
to those of the RTC, as in this case, there is a need to review the records to determine which of them should be
preferred as more conformable to evidentiary facts.32

Here, the RTC and the CA made contrasting conclusions on the issue of ownership. Hence, such issue is
now the subject of the Courts review.

To recapitulate, the respondents traced their claim of ownership of the subject property from the year
1960 when their parents, the spouses Tayco, allegedly purchased the lot from Amelita for P1,200.00. To support
their claim of ownership over Lot No. 299, the respondents presented uncertified photocopies of Franciscos
Miscellaneous Sales Application No. XII-12-94 dated September 8, 1986 and the Community of Environment and
Natural Resources Office Appraisal Report dated April 9, 198733 and the explanation that their father Francisco
lost the Deed of Sale and the other documents pertinent to his application as he would just normally insert them
all at the back of his pants.34
To debunk the respondents claim, the petitioner adduced certified copies of documents, such as: OCT No. P-62053
issued by the Office of the Register of Deeds, Province of Cotabato on October 23, 1997,35 a tax declaration dated
in 1998, his free patent application and Department of Environment and Natural Resources (DENR) order wherein
Amelita requested for the rejection of her free application in favor of the petitioner. According to the petitioner,
Lot No. 299 was registered in his name after Amelita, his aunt, transferred all her rights to him. Moreover, he
argued that the respondents cannot become owners of the lot because their stay is merely tolerated by his aunt
who consented to Calixta and Franciscos stay on the property in 1964. Thus, the respondents cannot become its
owners by acquisitive prescription.

Ruling of the Court

The petition is impressed with merit.

Burden of proof in reconveyance cases

Generally, "in civil cases, the burden of proof is on the plaintiff to establish his case by a preponderance of
evidence. If the plaintiff claims a right granted or created by law, the same must be proven by competent
evidence. The plaintiff must rely on the strength of his own evidence,"36 "or evidence which is of greater weight or
more convincing than that which is offered in opposition to it. Hence, parties who have the burden of proof must
produce such quantum of evidence, with plaintiffs having to rely on the strength of their own evidence, not on the
weakness of the defendants."37 In an action for reconveyance, however, a party seeking it should establish not
merely by a preponderance of evidence but by clear and convincing evidence that the land sought to be
reconveyed is his.38

In the case at bar, the respondents failed to dispense their burden of proving by clear and convincing
evidence that they are entitled to the reconveyance of Lot No. 299.

Requisites for the reconveyance of property

Article 434 of the Civil Code provides:

Art. 434. In an action to recover, the property must be identified, and the plaintiff must rely on the
strength of his title and not on the weakness of the defendants claim.

In order to successfully maintain an action to recover the ownership of a real property, the person who
claims a better right to it must prove two things: first, the identity of the land claimed; and second, his title
thereto.39

As to the first requisite, there is no doubt that the land sought to be reconveyed is Lot No. 299, a
residential lot located at Pigcawayan, Province of Cotabato. As to the second requisite on title of ownership, the
claims of the parties conflict.

An evaluation of the assailed CA decision

A reading of the assailed CA decision shows that it recognized the respondents failure to prove the sale
between Amelita and Francisco. According to the CA, the exhibits that the respondents offered in evidence, i.e.,
Miscellaneous Sale Application and Appraisal Report signed by Land Inspector Geminiano Oliva, are not deeds of
reconveyances or proofs of the alleged sale. The respondents, moreover, failed to prove that they have an open,
continuous, adverse and uninterrupted possession of the subject property for more than 30 years, there being no
document that would show that they, in the exercise of their claim as its owners, had and have been paying the
realty tax due on the subject property. As consistently held, tax receipts are not an evidence of ownership but
they are good indicia of possession in the concept of owner, for no one would ordinarily be paying taxes for a
property not in his actual or at least constructive possession.40

Nonetheless, the CA confirmed the respondents possession of the subject land for more than 30 years as
uncontroverted due to the improvements they introduced over the subject land since 1964, such as buildings and
concrete houses, among others. Applying the case of Heirs of Dela Cruz v. CA,41 the CA therefore concluded that
such acts could mean a clear exercise of ownership by the respondents.

Such analysis is inaccurate. The case of Dela Cruz does not apply in this case because of the varying factual
setting, to wit: (1) the respondents therein were able to prove the alleged sale to their predecessor-in-interest; and
(2) the defendant failed to send a demand letter or any form of dissent to the plaintiff to assert his claim of
ownership. Here, it is the reverse. The respondents failed to present any document to prove the alleged sale.
Moreover, the petitioner was able to assert his claim of ownership not only by sending a letter demanding for the
respondents to vacate the disputed property but he also filed an action for ejectment against them when his
demand to vacate was unheeded.

The CA also cited the case of Naval v. CA42 to emphasize the principle that the registration of a parcel of
land under the Torrens system does not vest or create ownership in favor of the registrant. It should be noted,
however, that in Naval, there was a sale of an unregistered land to different buyers at different times unlike in the
instant case. In Naval, the second buyer (who allegedly purchased the land in 1972) successfully had the disputed
land titled in her name upon which she based her claim of ownership. However, in that case, there was a prior sale
of the same unregistered land which was registered as early as 1969 coupled with the buyers immediate
possession thereof.

Here, the registration of Lot No. 299 was not preceded by a prior sale to the respondents predecessor-in-
interest. As above discussed, the respondents failed to substantiate their claim that the same land was sold to the
late Francisco because the documents they presented in evidence did not prove the alleged sale. It can, therefore,
be stated that the OCT issued in the name of the petitioner over Lot No. 299 cannot be assailed by the
respondents considering that their claim of ownership has not been duly proved. Therefore, the case of Navalis
also inapplicable.

Citing the case of Aznar Brothers Realty Company v. Aying,43 the CA also pointed out that a constructive
implied trust was constituted in favor of the respondents in view of the fraud employed by the petitioner when he
obtained title over Lot No. 299 by misrepresenting that he is in actual possession thereof at the time he applied for
its registration. Contrary to the CAs disquisition, however, the Court finds that no implied trust was created
between the petitioner and the respondents. In Aznar, there was determination of who among the heirs did not
sign the deed of sale. Therefore, the Torrens title issued in the name of the buyer holds the same in trust for their
benefit. Here, it is again worthy to stress that the respondents had nothing to support their claim of ownership
over that of the petitioner.

Therefore, the petitioner, being a registered owner of the disputed lot, cannot be considered as a trustee
in favor of the respondents as cestui quetrust.

Proof of Tolerance

The petitioner, on the other hand, unequivocally dispensed his burden of proving that the respondents
occupation of Lot No. 299 was through the mere tolerance of his aunt Amelita. Tolerance must be shown by some
overt act such as the permission accorded by the petitioner and his predecessors-in-interest to occupy the
disputed property in order for it to be well-taken. Mere tolerance always carries with it "permission" and not
merely silence or inaction for silence or inaction is negligence, not tolerance.44 It must also be shown "that the
supposed acts of tolerance have been present right from the very start of the possession from entry to the
property."45
To support his claim of ownership, the petitioner presented the following pieces of evidence, to wit: (1)
OCT No. P-6205346 dated October 23, 1997; (2) Tax Declaration No. 11-002-96-0077847 dated in 1998; (3)
demand letter48 to vacate dated May 25, 1999; (4) Barangay Certification to file action;49 (5)application50 and
notice51 to file for Free Patent dated July 7, and 24, 1987, respectively; (6) the Order of the DENR52 dated
December 11, 1996 wherein Amelita requested for the rejection of her free patent application in favor of the
petitioner; and the testimony of his aunt Amelita on how the respondents and their predecessors-in-interest
started to occupy Lot No. 299 and her acquiescence to their occupation until she transferred all her rights over Lot
No. 299 in favor of the petitioner. Hence, as compared to the evidence of the respondents, the evidence of the
petitioner clearly and convincingly prove his exercise of ownership over the disputed property.

Prescinding from the foregoing, it is clear mere claim of ownership will not suffice. An action for
reconveyance should be maintained by the true owner. It will not suffice that the respondents are in possession of
the land subject thereof.53 Thus, the scale of justice should tilt in favor of the petitioner and not the respondents.

WHEREFORE, in consideration of the foregoing premises, the Decision dated November 14, 2011 and
Resolution dated July 16, 2012 of the Court of Appeals in CA-G.R. CV No. 00377-MIN are REVERSED and SET ASIDE.
Accordingly, the Judgment dated March 31, 2005 of the

Regional Trial Court of Midsayap, Cotabato, Branch 18, in Civil Case No. 99-028, is REINSTATED.

SO ORDERED.
TOPIC / DCOTRINE: TAXPAYERS SUIT; LOCUS STANDI OF TAXPAYERS TO FILE SUIT

G.R. No. 212381 April 22, 2015

REYNALDO M. JACOMILLE, Petitioner,


vs.
HON. JOSEPH EMILIO A. ABAYA, in his capacity as Secretary of Transportation and Communications (DOTC);
ATTY. ALFONSO V. TAN, JR., in his capacity as Assistant Secretary of the Land Transportation Office (LTO); HON.
FLORENCIO ABAD, in his capacity as Secretary of Budget and Management (DBM); HON. ARSENIO M.
BALISACAN, in his capacity as Director General of the National Economic and Development Authority (NEDA);
HON. MARIA GRACIA M. PULIDO TAN, in her capacity as Chairperson of the Commission on Audit (COA) and
POWER PLATES DEVELOPMENT CONCEPTS, INC.,/J. KNIERIEM B.V. GOES (JKG) (Joint Venture) represented by its
Managing Director, CHRISTIANS. CALALANG, Respondents.

DECISION
MENDOZA, J.:

Government projects are the tangible manifestation of hard-earned public funds. These undertakings are
built brick-by-brick through the combined efforts of the nation's taxpayers. Our laws have ventured into great
lengths to establish the rigorous safeguards and procedures in the planning, procurement and implementation of
these projects, through robust policies on fiscal governance and public accountability. And the Judiciary must do its
part and carry out its duty to ensure that these projects do not result in regretful potholes, stale construction sites
and substandard products, looming into the memories of empty promises and generic assurances. Before this
Court is a petition for certiorari and prohibition under Rule 65 of the 1997 Revised Rules of Civil Procedure which
assails the legality of the procurement of the Land Transportation Office Motor Vehicle License Plate
Standardization Program.

The Antecedents

The Department of Transportation and Communications (DOTC) is the primary policy, planning, programming,
coordinating, implementing, regulating, and administrative entity of the Executive Branch of the government in the
promotion, development and regulation of dependable and coordinated networks of transportation and
communications systems as well as in the fast, safe, efficient, and reliable postal, transportation and
communication services. One of its line agencies is the Land Transportation Office (LTO) which is tasked, among
others, to register motor vehicles and regulate their operation.

In accordance with its mandate, the LTO is required to issue motor vehicle license plates which serve to identify
the registered vehicles as they ply the roads. These plates should at all times be conspicuously displayed on the
front and rear portions of the registered vehicles to assure quick and expedient identification should there be a
need, as in the case of motor vehicle accidents or infraction of traffic rules.

Recently, the LTO formulated the Motor Vehicle License Plate Standardization Program (MVPSP) to supply the new
license plates for both old and new vehicle registrants. On February 20, 2013, the DOTC published in newspapers
of general circulation the Invitation To Bid for the supply and delivery of motor vehicle license plates for the
MVPSP, to wit:

The Department of Transportation and Communications (DOTC)/ Land Transportation Office (LTO) are inviting bids
for its LTO MV Plate Standardization Program which involves the procurement, supply and delivery of Motor
Vehicle License Plates. The program shall run from July 2013 until June 2018. when the supply and delivery of the
Motor Vehicle License Plates of the LTO MV Plate Standardization program is completed.
The LTO, through the General Appropriations Act, intends to apply the sum of Three Billion Eight Hundred Fifty
One Million Six Hundred Thousand One Hundred Pesos (Php 3,851,600,100.00) being the Approved Budget for the
Contract (ABC), for payment of approximately 5,236,439 for Motor Vehicles (MV) and approximately 9,968,017 for
motorcycles (MC), under the contract for the Supply and Delivery of Motor Vehicle License Plate for the Land
Transportation Office Motor Vehicle License Plate Standardization Program or the "LTO MV Plate Standardization
Program.1

On February 25, 2013, the DOTC Bids and Awards Committee (BAC) issued BAC General Bid Bulletin No. 002-2013
setting the Submission and Opening of Bids on March 25, 2013. On February 28, 2013, the first Pre-Bid Conference
was held at the offices of the BAC.

On March 6, 2013, BAC General Bid Bulletin No. 003-2013 was issued, amending paragraph 1 of the Invitation to
Bid, to wit:

The Department of Transportation and Communication (DOTC) / Land Transportation Office (LTO), through the
General Appropriations Act, intends to apply the sum of Three Billion Eight Hundred Fifty One Million Six Hundred
Thousand One Hundred Pesos (Php 3,851,600,100.00) being the Approved Budget for the Contract (ABC), to
payments for:

a. Lot 1 - Motor Vehicle License Plates (MV): 5,236,439 pairs for MV amounting to Two Billion Three Hundred Fifty
Six Million Three Hundred Ninety Seven Thousand Five Hundred Fifty Pesos (Php2,356,397,550.00)

b. Lot 2 - Motorcycles Plates (MC): 9,968,017 pieces for MC amounting to One Billion Four Hundred Ninety Five
Million Two Hundred Two Thousand Five Hundred Fifty Pesos (Php1,495,202,550.00) under the contract for the
Supply and Delivery of Motor Vehicle License Plate for the Land Transportation Office Motor Vehicle License Piate
Standardization Program (herein after the "LTO MV Plate Standardization Program")."

On March 7, 2013, the second Pre-Bid Conference was held at the office of the BAC. On March 8, 2013, BAC
General Bid Bulletin No. 005-2013 extended the submission and opening of bids to April 8, 2013 to give the
prospective bidders ample time to prepare their bidding documents. On April 22, 2013, the BAC again rescheduled
the submission and opening of bids to May 6, 2013. On May 6 and 7, 2013, the BAC proceeded with the opening of
bids. After examining the eligibility documents and technical proposals submitted by eight (8) interested groups,
only two (2) were found eligible by the DOTC, to wit:

a. The joint venture of the Netherlands' J .. Knieriem B.V. Goes and local company Power Plates Development
Concepts, Inc. (JKG-Power Plates); and

b. The joint venture of Spain's Industrias Samar't and local company Datatrail Corporation (Industrias Samar't-
Datatrial).

As the only eligible bidders, their financial proposals were then opened to reveal that JKG-Power Plates made the
lowest offers. For Lot 1, JKG-Power Plates proposed to supply the MV License Plates for a total of Pl.98 Billion,
while Industrias Samar't-Datatrial offered it at P2.03 Billion.

On the other hand, for Lot 2, JKG-Power Plates aimed to supply the MC License Plates for a total of Pl.196 Billion,
while Industrias Samar't Datatrial's offer was at Pl.275 Billion. On July 22, 2013, the DOTC issued the Notice of
Award to JKGPowerPlates.2 It was only on August 8, 2013; however, when JKG-Power Plates signified its conforme
on the Notice of Award.3 On August 12, 2013, the Notice of Award was posted in the DOTC website; while the
Award Notice Abstract was posted in the Philippine Government Electronic Procurement System (PhilGEPS)
website on even date.
Despite the notice of award, the contract signing of the project was not immediately undertaken. On February 17,
2014, the DOTC issued the Notice to Proceed4 to JKG-Power Plates and directed it to commence delivery of the
items within seven (7) calendar days from the date of the issuance of the said notice.

On February 21, 2014, the contract for MVPSP was finally signed by Jose Perpetuo M. Lotilla, as DOTC
Undersecretary for Legal Affairs, and by Christian S. Calalang, as Chief Executive Officer of JKG-Power Plates. It was
approved by public respondent Joseph Emilio A. Abaya (Secretary Abaya), as DOTC Secretary.

On March 11, 2014, the Senate Committee on Public Services, pursuant to Resolution No. 31, conducted an
inquiry in aid of legislation on the reported delays in the release of motor vehicle license plates, stickers and tags
by the LTO. On April 4, 2014, JKG-Power Plates delivered the first batch of plates to the DOTC/LTO.6

On May 19, 2014, petitioner Reynaldo M. Jacomille (petitioner) filed this subject petition for certiorari and
prohibition, assailing the legality of MVPSP anchored on the following

GROUNDS

LACK OF ADEQUATE BUDGETARY APPROPRIATIONS IN THE GENERAL APPROPRIATIONS ACT OF 2013, WHEN THE
PROJECT WAS BIDDED;

II

FAILURE OF THE PROCURING ENTITY TO OBTAIN FIRST THE REQUIRED MULTI-YEAR OBLIGATION AUTHORITY
(MYOA) FROM THE DEPARTMENT OF BUDGET AND MANAGEMENT;

III

NON-REFERRAL OF THE MULTI~BILLION PROJECT TO THE INVESTMENT COORDINATION COMMITTEE/NATIONAL


ECONOMIC DEVELOPMENT AUTHORITY FOR ITS REVIEW AND APPROVAL.

Arguments of Petitioner

Petitioner, by counsel and assisted by Retired Justice Leonardo A. Quisumbing, instituted this taxpayer suit,
averring that he was a diligent citizen paying his correct taxes to the Philippine Government regularly; that he was
a registered vehicle owner, as evidenced by the Certificate of Registration of his motor vehicle and a registered
licensed driver; that he would be affected by the government issuance of vehicle plates thru its MVP SP upon his
renewal of the registration of his vehicle; that not being a participant to the bidding process, he could not avail of
the administrative remedies and procedure provided under Republic Act (R.A.) No. 9184 or the Government
Procurement Reform Act, and its Implementing Rules and Regulations (IRR); that as far as he was concerned, there
was no appeal or any plain or speedy remedy available to him; and that he firmly believed that the actuation of the
DOTC in proceeding with the bidding process and giving the award to JKG-Power Plates without the requisite
MYOA and adequate budgetary appropriations was null and void.

As to the substantive merits, petitioner raised several arguments. First, the procurement process of MVPSP
exceeded the mandatory periods prescribed by R.A. No. 9184 and its IRR. The notice of award was. issued by the
DOTC beyond the three (3)-month period set by law since the last day fell on August 7, 2013. The said notice was
posted in the PhilGEPS website only on August 12, 2013.

Moreover, with R.A. No. 9184 requiring that the contract signing be done within (10) calendar days from the
receipt of the winning bidder of the notice of award, which in this case was posted on August 12, 2013, the
contract was signed only on February 21, 2014, way beyond the required 10-day period, because MVPSP was not
adequately funded.

Second, when the procurement for MVPSP was commenced, there was no adequate funding. The invitation to bid
for MVPSP, published on February 20, 2013, stated that the source of funding in the amount of P3,851,600,100.00
would be the General Appropriations Act (GAA). A perusal of R.A. No. 10352 or the General Appropriations Act of
2013 '(GAA 2013), would show that Congress appropriated only the amount of P187,293,000.00 under the specific
heading of Motor Vehicle Plate-Making Project.8

Noticeably then, the DOTC bidded out MVPSP even while there was no sufficient funds legally appropriated for this
purpose under the GAA 2013. Petitioner saw this as a clear misrepresentation or even a deception by the said
office against the government and the general public as a whole. Petitioner also pointed to the Senate Committee
on Public Services Hearing on March 11, 2014, wherein it was admitted that there was no adequate budgetary
appropriation for MVPSP in GAA 2013.

In his Reply,9 dated October 16, 2014, petitioner claimed that the appropriation in the General Appropriations Act
of 2014 (GAA 2014) could not be applied to MVP SP. The said project, as contemplated in the invitation to bid, was
not the same as the "Motor Vehicle Registration and Driver's Licensing Regulatory Services" mentioned in GAA
2014.

Third, the DOTC failed to obtain the required Multi-Year Obligational Authority (MYOA) from the Department of
Budget and Management (DBM). The invitation to bid for MVPSP provided for the payment of license plates, which
would be delivered within a period of five (5) years. Section 33 of the General Provisions of R.A. No. 9206, or the
General Appropriations Act of 2009, states that "[i]n the implementation of multiyear projects, no agency shall
enter into a multi-year contract without a Multi-Year Obligational Authority issued by the DBM for the purpose."
This provision had been substantially re-enacted under the General Provisions of GAA 2013. Given that MVPSP
would entail the delivery of plates within a period of five (5) years, petitioner posited that it was a multiyear
project (MYP) which would necessitate a MYOA as a jurisdictional requirement.

Petitioner added that MVPSP involved a multi-year contract (MYC), requiring a MYOA, because at the time of its
implementation, the appropriation for it was not available under GAA 2013. The implementation was supposed to
have taken place in Fiscal Year 2013 when the notice of award was issued on July 22, 2013.

Lastly, the project had the proposed budget of P3,851,600,100.00 for the year 2013 when it was intended to be
bidded out and awarded to the lowest bidder. As required by law, particularly the IRR of R.A. No. 7718 or the Built-
Operate-Transfer Law, all projects with substantial investment must be reviewed and approved first by Investment
Coordination Committee (ICC) of the National Economic Development Authority (NEDA).

Arguments of Public Respondents

On August 15, 2014, the Office of the Solicitor General (OSG), as counsel for the public respondents, filed its
Comment.10

With respect to procedural matters, the OSG stated that the issues presented had been rendered moot and
academic as the gap in the budget of MVPSP was already bridged and covered by the full and specific funding by G
AA 2014 in the amount of P4,843,753,000.00 for the item "Motor Vehicle Registration and Driver's Licensing
Regulatory Services."11 With the signing of MVPSP on February 21, 2014, after the enactment of GAA 2014, the
OSG claimed that all objections that petitioner might have, whether right or wrong, had been rendered naught.
Assuming arguendo that the petition had not yet been rendered moot and academic, the OSG asserted that the
same must be dismissed on the ground of lack of locus standi because petitioner failed to prove that he had a
personal and substantial interest in the case at hand. According to petitioner, the government's implementation of
MVPSP would affect his interest when he would renew his vehicle's registration. Like petitioner, however, other
vehicle owners would also be affected by the implementation of MVPSP. The OSG opined that petitioner hardly
qualified as an interested party which would clothe him with standing to raise the particular issues in his petition.

On the merits, the OSG argued that, first, the timeline for the procurement activity under R.A. No. 9184 was not
mandatory. Notably, Section 38 of the said law states that the procurement activity shall be completed within a
reasonable period.

The notice of award of contract was issued by the DOTC to JKG Power Plates as early as July 22, 2013. The signing
of the contract with the winning bidder, however, was halted on August 15, 2013, when the DBM informed the
DOTC that they should have first secured a MYOA. On January 23, 2014, the Department of Justice (DOJ) issued a
resolution,12 finding that the conflict had been resolved by the enactment of GAA 2014. Finally, on February 21,
2014, the contract for MVPSP was signed. These events would show that, despite exceeding the 3-month period
under R.A. No. 9.184, the DOTC managed to conclude the procurement activity within a reasonable time.

Second, R.A. No. 9184 did not require that the allotment under the GAA be equivalent to the Approved Budget for
the Contract (ABC). During the Bicameral Conference Committee on the Disagreeing Provisions of Senate Bill No.
2248 and House Bill No. 4809, the members agreed that the proposed ABC need not be corresponding to the
allotment under the GAA of the procuring entity.

The OSG contended that Sec. 7 .5 of the IRR of R.A. No. 9184 highlighted that, in certain instances, a procuring
entity may be constrained to begin the procurement process even before the actual approval of the GAA. The
amount or budget appearing in the ABC for the project could be sourced - not from the GAA at the time of the
start of the procurement process - but from the GAA that was still waiting for approval.

Third, R.A. No. 9184 did not contemplate MYP. Instead, the GPPB, as the implementing body of R.A. No. 9184,
issued Circular No. 01-2009, which discussed the MYP and the MYC. The basis of the said circular was DBM Circular
Letter 2004-12, which defined the MYOA.

Under DBM Circular Letter 2004-12, only MYC would require a MYOA. In its definition of terms, MYC would not
include MYP with appropriations available in full during the first year of implementation. The OSG clarified that
MVPSP did not involve MYC because it had an appropriation available in full under GAA 2014. Logically, MVPSP did
not require MYOA.

Lastly, as to the allegation that MVPSP was covered by R.A. No. 7718, the OSG relayed that the DOTC and the L TO
secured the opinion of the NEDA. In a letter,13 dated December 23, 2012, the NEDA wrote that MVPSP neither
involved a capital investment nor would it be implemented through public-private partnership (PPP). Thus, the said
project was not covered by the review and approval process of the ICC.

Arguments of Private Respondent JKG-Power Plates

On July 24, 2014, JKG-Power Plates filed its Comment.14 JKG-Power Plates averred. that petitioner had no locus
standi. It pointed out that petitioner had admitted that he was not one of the bidders in MVPSP and so he would
not suffer any direct injury.

Likewise, the present case was not a proper subject of taxpayer suit because no taxes would be spent for this
project. The money to be paid for the plates would not come from taxes, but from payments of vehicle owners,
who would pay P450.00 for every pair of motor vehicle license plate, and P120.00 for every motorcycle license
plate. Out of the P450.00, the cost of the motor vehicle plate would only be P380.00. In effect, the government
would even earn P70.00 from every pair of plate.15

As to its substantial arguments, JKG-Power Plates submitted that there was nothing in R.A. No. 9184 which
required full budgetary approval prior to the commencement of the bidding. It also explained that the purpose of
MYOA was to ensure that the agency was committed to include the annual budgetary requirements of the project
in its budget proposal for the succeeding years while the project was being implemented. Thus, MYOA was not a
requirement for projects that already had full funding in the GAA in a specific year. The full budgetary requirement
of P3 .851 billion of MVPSP was already provided for in GAA 2014.

Moreover, JKG-Power Plates asserted that based on R.A. No. 7718, the ICC/NEDA did not have to review and
approve MVPSP because the law pertained to a private financing of the construction, operation and maintenance
of infrastructure projects. JKG-Power Plates explained that MVPSP was a public contract which supplied the plates
to the DOTC with no investment involved.

The Court's Ruling

Before resolving the petition on its merits, the Court shall first rule on the following procedural issues raised by the
respondents: (1) whether the issue had been rendered moot and academic; and (2) whether petitioner has a legal
standing or locus standi to file the present suit.

Procedural Matters

The case is already moot and academic; notwithstanding, the substantive issues needed to be resolved.

Petitioner assails the procurement process of MVPSP with a budget of P3,85,1,600,100.00 that was initiated even
though the corresponding line item in GAA 2013 only provided an appropriation oLP187,293,000.00. The OSG,
however, points out that GAA 2014 already provided for the full budget of MVPSP in the amount of
P4,843,753,000.00; hence, the present petition is moot and academic.

The rule is well-settled that for a court to exercise its power of adjudication, there must be an actual case or
controversy - one which involves a conflict of legal rights, an assertion of opposite legal claims susceptible of
judicial resolution. The case must not be moot or academic or based on extra-legal or other similar considerations
not cognizable by a court of justice. Where the issue has become moot and academic, there is no justiciable
controversy, and an adjudication thereon would be of no practical u se or value as courts do not sit to adjudicate
mere academic questions to satisfy scholarly interest, however intellectually challenging.16

The Court agrees with the OSG that the present controversy has been rendered moot by the passage of GAA 2014.
The essence of petitioner's case is that MVPSP was not sufficiently funded under GAA 2013. Because of GAA 2014,
however, the amount of P4,843,753,000.00 had been appropriated by Congress to MVPSP before the contract was
entered into on February 21, 2014.

By appropriating the amount of P4,843, 753,000.00 for MVPSP, Congress agreed with the DOTC and the L TO that
the said project should be funded and implemented. Verily, the Court cannot question the wisdom of the
legislative department in appropriating the full budget of MVPSP in GAA 2014.

Thus, it is settled that MVPSP was adequately funded before the contract was signed by the parties. Petitioner
even admits, and the Court takes judicial notice, that the new vehicle plates under MVPSP are being distributed by
the L TO and released to new vehicle owners. Nevertheless, there were occasions in the past when the Court
passed upon issues although supervening events had rendered those petitions moot and academic. After all, the
moot and academic principle is not a magical formula that can automatically dissuade the courts from resolving a
case. Courts will decide cases, otherwise moot and academic, if: first, there is a grave violation of the Constitution;
second, the exceptional character of the situation and the paramount public interest is involved; third, when the
constitutional issue raised requires formulation .of controlling principles to guide the bench, the bar, and the
public; and fourth, the case is capable of repetition yet evading review.17

In David v. Arroyo,18 for instance, several petitions assailed the constitutionality of the declaration of a state of
national emergency by then President Gloria Macapagal-Arroyo. During the pendency of the. suits, the said
declaration was lifted. Nonetheless, this Court still resolved the cases on the merits because the issues involved a
grave violation of the Constitution and affected the public interest.

Recently, there was Deutsche Bank AG v. CA,19 which involved the consolidation of different petitions for
certiorari before the CA assailing an order in the rehabilitation court. While the case was on going, the private
respondent therein moved to withdraw its earlier motion to consolidate the petitions. The Court ruled that the
issue of whether the CA could validly order the consolidation of cases, although rendered moot, was capable of
repetition. Thus, the Court proceeded to resolve the issues therein.

In the case at bench, the issues presented must still be passed upon because paramount public interest is involved
and the case is capable of repetition yet evading review. MVPSP is a nationwide project which affects new and old
registrants of motor vehicles and it involves P3,851,6.00,100.00 of the taxpayers' money. Also, the act complained
of is capable of repetition because the procurement process under R.A. No. 9184 is regularly made by various
government agencies. Hence, it is but prudent for the Court to rule on the substantial merits of the case. Petitioner
has locus standi to initiate the instant suit

Locus standi is defined as the right of appearance in a court of justice on a given question. The fundamental
question is whether a party alleges such personal stake in the outcome of the controversy as to assure that
concrete adverseness which sharpens the presentation of issues upon which the court depends for illumination of
difficult constitutional questions.

In the case of Aquino v. COMELEC,21 this Court resolved the issues raise4 by the petition due to their "far reaching
implications," even though the petitioner had no personality to file the suit. Consequently, the Court, in a catena of
cases, invariably adopted a liberal stance on locus standi, including those cases involving taxpayers.

In the present case, petitioner justifies his locus standi by claiming that the petition raises issues of transcendental
importance and that he institutes the same as a taxpayer's suit. It must be noted that the Court has provided the
following instructive guides to determine whether a matter is of transcendental importance, namely: "(1) the
character of the funds or other assets involved in the case; (2) the presence of a clear case of disregard of a
constitutional or statutory prohibition by the public respondent agency or instrumentality of the government; and
(3) the lack of any other party with a more direct and specific interest in the questions being raised."23

Petitioner sufficiently showed that his case presents a matter of transcendental importance based on the above-
cited determinants. He elucidated that, first, around P3.851 billion in public funds stood to be illegally disbursed;
second, the IRR of R.A. No. 9184 and R.A. No. 7718 were violated and the contract for MVPSP was awarded to
respondent JKG Power Plates despite the utter disregard of the said laws; third, there was no other party with a
more direct and specific interest who had raised the issues therein; and fourth, MVPSP had a wide range of impact
because all registered motor vehicles owners would be affected.24

Petitioner also established a valid taxpayer's suit. A person suing as a taxpayer must show that the act complained
of directly involves the illegal disbursement of public funds derived from taxation.25 Contrary to the assertion of
JKG-Power Plates, MVPSP clearly involves the expenditure of public funds. While the motor vehicle registrants will
pay for the license plates, the bid documents and contract for MVPSP26 indicate that the government shall bear
the burden of paying for the project. Every portion of the national treasury, when appropriated by Congress, must
be properly allocated and disbursed. Necessarily, an allegation that public funds in the amount of P3 .851 billion
shall be used in a project that has undergone an improper procurement process cannot be easily brushed off by
the Court.

Having passed the procedural barriers, the Court shall now discuss the substantive merits .of the petition on the
following issues: (1) whether the MVPSP followed the timelines in R.A. No. 9184 and its IRR; (2) whether MVPSP
was sufficiently funded when its procurement process began; (3) whether MYOA is required for MVPSP; and (4)
whether the ICC/NEDA is obliged to review and approve MVPSP under R.A. No. 7718.
Substantive Merits

The present petition revolves around the procurement of MVPSP. Currently, the law that governs the government
procurement processes would be R.A. No. 9184. As early as the year 1900, competitive public biddings were used
by the government to procure materials and to build public infrastructures. Back then, however, the provisions for
the procurement of public projects were to be found in different laws and regulations. Thus, R.A. No. 9184 was
specifically enacted to consolidate the rules on procurement.1wphi1

Public bidding, as a method of government procurement, is governed by the principles of transparency,


competitiveness, simplicity and accountability. These principles permeate the provisions of R.A. No. 9184 from the
procurement process to the implementation of awarded contracts.27 The declared policy of R.A. No. 9184 is to
promote the ideals of good governance in all government branches, departments, agencies, subdivisions, and
instrumentalities, including government-owned and/or -controlled corporations and local government units.28

Timeliness of the Procurement


Process for MVP SP

The first substantive argument against MVPSP would be the delay in the procurement process. R.A. No. 9184
provides the different periods within which certain stages of the procurement process must be completed,
especially in the awarding stage of the contract. The law provides:
Section 37. Notice and Execution of Award. -Within a period not exceeding fifteen (15) calendar days from the
determination and declaration by the BAC of the Lowest Calculated Responsive Bid or Highest Rated Responsive
Bid, and the recommendation of the award, the Head of the Procuring Entity or his duly authorized representative
shall approve or disapprove the said recommendation. In case of approval, the Head of the Procuring Entity or his
duly authorized representative shall immediately issue the Notice of Award to the bidder with the Lowest
Calculated Responsive Bid or Highest Rated Responsive Bid.

Within ten (10) calendar days from receipt of the Notice of Award, the winning bidder shall formally enter into
contract with the Procuring Entity. When further approval of higher authority is required, the approving authority
for the contract shall be given a maximum of twenty (20) calendar days to approve or disapprove it.

In the case of government owned and/ or controlled corporations, the concerned board shall take action on the
said recommendation within thirty (30) calendar days from receipt thereof.

The Procuring Entity shall issue the Notice to Proceed to the winning bidder not later than seven (7) calendar days
from the date of approval of the contract by the appropriate authority. All notices called for by the terms of the
contract shall be effective only at the time of receipt thereof by the contractor.

Section 38. Period of Action on Procurement Activities. - The procurement process from the opening of bids up to
the award of contract shall not exceed three (3) months, or a shorter period to be determined by the procuring
entity concerned. Without prejudice to the provisions of the preceding section, the different procurement
activities shall be completed within reasonable periods to be specified in the IRR.

If no action on the contract is taken by the head of the procuring entity, or by his duly authorized representative,
or by the concerned board, in the case of government owned and/ or controlled corporations, within the periods
specified in the preceding paragraph, the contract concerned shall be deemed approved. (Emphases supplied)

Petitioner contends that the public respondents failed to comply with the periods provided by law, specifically the
3-month period from the opening of the bids up to the award of the contract under Sec. 38 of R.A. No. 9184. The
OSG admits that the 3-month period was not complied with, but argues that it was not fatal because the provision
was only directory.
The Court does not agree with the OSG that the 3-month period is merely directory. The said provision contains
the word "shall" which is mandatory in character.1wphi1 Such period was placed in a separate provision under
Section 38, rather than compressed with Section 37, to emphasize its importance. There is nothing in the law
which states that the 3-month period can be disregarded. Non-compliance with the period will certainly affect the
validity of the bidding process. In fact, Section 38.1 of the IRR of R.A. No. 9184 reaffirms the obligatory 3-month
period:

The procurement process from the opening of bids up to the award of contract shall not exceed three (3) months,
or a shorter period to be determined by the procuring entity concerned. All members of the BAC shall be on a "jury
duty" type of assignment until the Notice of Award is issued by the Head of the Procuring Entity in order to
complete the entire procurement process at the earliest possible time. (Emphasis supplied)

Nevertheless, the mandatory period of three (3) months under Section 38 was complied with by the public
respondents. The law clearly refers to the period from the opening of the bids up to the award of the contract and
not, as petitioner claims, up to the posting of the notice .of award in the PhilGEPS website. The opening of the bids
was done on May 6 and 7, 2013, and the notice of award was issued after two and a half months, or on July 22,
2013.29

The specific periods of Section 3 7, however, were not observed. The said provision states that within ten (10)
calendar days from receipt of the notice of award, the winning bidder shall formally enter into a contract with the
procuring entity. It also provides that the procuring entity shall issue to the winning bidder the notice to proceed
not later than seven (7) calendar days from the date of approval of the contract by the appropriate authority.

Here, the notice of award was issued by the DOTC on July 22, 2013. Yet, the contract was signed only on February
21, 2014, or seven (7) months, thereafter. Also, the notice to proceed was issued on February 17, 2014, prior to
the signing of the contract.

The project was not sufficiently funded at the commencement of the procurement process.

Before the enactment of R.A. No. 9184, there were already laws that required sufficient appropriation before the
government could enter into a contract. The Administrative Code of 1987 expressly prohibits the entering into
contracts involving the expenditure of public funds unless two prior requirements are satisfied. First, there must be
an appropriation law authorizing the expenditure required in the contract. Second,. there must be a certification
by the proper accounting official and auditor, attached to the contract, attesting that funds have been
appropriated by law and such funds are available. Failure to comply with any of these two requirements renders
the contract void.30

The Government Auditing Code of the Philippines also provides for the same provisions.31 It further declares that
any contract entered into contrary to above-cited two requirements shall be void, and the officer or officers
entering into the contract shall be liable to the government for any consequent damage.32

These laws were applied by jurisprudence to invalidate government contracts without proper appropriations. In
Osmea v. COA,33 the Court invalidated a contract entered into by then Mayor Duterte because the agreed cost
for the project was way beyond the appropriated amount. It was stated therein that ''fund availability is, as it has
always been, an indispensable prerequisite to the execution of any government contract involving the expenditure
of public funds by all government agencies at all levels."

Recently, in PNR v. Kanlaon Construction Enterprise Co., Inc.,34 the Court invalidated three contracts between PNR
and Kanlaon because they did not comply with the requirement of a certification of appropriation and fund
availability. The clear purpose of these requirements is to insure that government contracts are never signed
unless supported by the corresponding appropriation law and fund availability.
The requirement of availability of funds before the execution of a government contract, however, has been
modified by R.A .. No. 9184. The said law presents a novel policy which requires, not only the sufficiency of funds
at the time of the signing of the contract, but also upon the commencement of the procurement process. This
progressive shift can be gleaned from several provisions of R.A. No. 9184, to wit:

Section 5. Definition of Terms.- xxx

(a) Approved Budget for the Contract (ABC) - refers to the budget for the contract duly approved by the Head of
the Procuring Entity, as provided for in the General Appropriations Act and/or continuing appropriations, in the
National Government Agencies; the Corporate Budget for the contract approved by the governing Boards,
pursuant to E.O.No.518, series of 1979, in the case of Government Financial Institutions and State Universities and
Colleges; and the Budget for the contract approved by the respective Sanggunian, in the case of Local Government
Units. xxxx

Section 7. Procurement Planning and Budgeting Linkage- All procurement should be within the approved budget of
the Procuring Entity and should be meticulously and judiciously planned by the Procuring Entity concerned.
Consistent with government fiscal discipline measures, only those considered crucial to the efficient discharge of
governmental functions shall be included in the Annual Procurement Plan to be specified in the IRR .

Section 20. Pre-Procurement Conference. - Prior to the issuance of the Invitation to Bid, the BAC is mandated to
hold a pre-procurement conference on each and every procurement, except those contracts below a certain level
or amount specified in the IRR, in which case, the holding of the same is optional.

The pre-procurement conference shall assess the readiness of the procurement in terms of confirming the
certification of availability of funds, as well as reviewing all relevant documents and the draft Invitation to Bid, as
well as consultants hired by the agency concerned and the representative of the end -user. (Emphases supplied)

The above-cited provisions of R.A. No. 9184 demonstrate that the law requires the availability of funds before the
procuring entity commences the procurement of a government project. As early as the conception of the ABC, the
procuring entity is mandated by law to ensure that its budget is within the GAA and/or continuing appropriation. In
the procurement planning stage, the procuring entity is again reminded that all procurement must be within its
approved budget. Also, even before the issuance of the invitation to bid, the law requires a pre-procurement
conference to confirm the certification that the funds for the government project are indeed available.

In the case at bench, the February 20, 2013 invitation to bid stated that the ABC for MVPSP was P3.851 billion and
to be funded through the GAA. Yet, GAA 2013 only provided an appropriation of P187,293,000.00. During the
Senate Committee on Public Works Hearing, it was recognized that the project was not amply covered by GAA
2013, but was funded by GAA 2014, as follows: THE CHAIRMAN: Hindi. So base din dun sa invitation to bid, ang
amount ng proyekto is 3.85 billion, tama, hindi ba?

MR. ABAYA: Yes, Your Honor.

THE CHAIRMAN: Ang nakalagay sa GAA of 2013 ay 187 million lang, saan po kukunin ang pondo nito?

MR. ABAYA: The GAA 2014 provides for the budget, Your Honor.

The OSG counters that the ABC for MVPSP was not required to be exactly equivalent with the line item in the GAA
2013. The OSG cites the discussion in the Bicameral Conference Committee on the Disagreeing Provisions of
Senate Bill No. 2248 and House Bill No. 4809, which eventually became R.A. No. 9184, to wit:

REP. ABAYA: Just for clarification, Mr. Chairman, 'yong definition natin ng "approved budget" particularly is defined
with reference to the General Appropriations Act.
THE CHAIRMAN (SEN. ANGARA): Yes.

REP. ABAYA: When we place the "approved budget" for a certain project, that includes usually other right-of-way is
included if we are referring to what is stated in the GAA. So, to be more specific, I propose that we amend this and
use the phrase "approved project estimate," not "approved budget," in the definition of terms.

THE CHAIRMAN (SEN. ANGARA): We'll consult the expert. Okay.

MR. ENCARNACION: 'Yong approved budget, as I said, sir, earlier, kasi modified the content 'no, otherwise what
appear in the GAA is approved budget for the project but that budget is broken down into - sa works 'no contract
works, right-of-way, supervision, etcetera. We're only talking of the important parts of the contract. Ito, sa ...

THE CHAIRMAN (SEN. ANGARA): And so, the definition ....

REP. ABAYA: Yeah, But in the definition of terms, "the approved budgets are the budget for the contract as
approved by the head of the procuring entity in accordance with the GAA.

MR. ENCARNACION: Oho. But for the contract lang. It is less - it could be less than the amount in the GAA. For
example, the GAA would be 10 million there, so the contract itself could be 9 million na kasi 9 million maaring
right-of-way. So pinag-uusapan natin ...

THE CHAIRMAN (SEN. ANGARA): At saka sigura nga Del, that differentiation in the IRR, puwede natin ilagay sa....

REP. ABAYA: Ilagay sa IRR na.

THE CHAIRMAN (SEN. ANGARA): Oo. It's minus the right-of-way, etcetera, etcetera.

The cited discussion does not support the position of the OSG. The recommendation to change the term
"approved budget for the contract" to "approved estimate for the project" was not adopted by Congress. Instead,
R.A. No. 9184 provides that the ABC refers to the budget for the contract duly approved by the head of the
procuring entity, as provided for in the GAA and/or continuing appropriations. Thus, when the budget for
government projects is prepared, it must have a basis in law, either in the current GAA, or in continuing
appropriations35 of previous. GAAs or other appropriation laws.

The OSG then contends that the IRR of R.A. No. 9184. allows a procuring entity to proceed with the procurement
activity even though the GAA, containing the budget of the project, has not been enacted. The IRR provides:

7.5. The ABC as reflected in the APP or PPMP shall be at all times consistent with the appropriations for the project
authorized in the GAA, continuing, and automatic appropriations, the corporate budget, and the appropriation
ordinance, as the case may be. For NGAs, to facilitate the immediate implementation of projects even pending
approval of the GAA, the ABC shall be based on the budget levels under the proposed national budget submitted
by the President to Congress. (Emphasis supplied)

The same provision in the IRR was extended in the GPPB Circular No. 01-2009, as follows:

4.2 To facilitate the immediate implementation of projects even pending approval of the GAA, the ABC shall be
based on the budget levels under the NEP submitted to Congress.

4.3 For specifically appropriated projects, agencies can proceed with the procurement activities prior to issuance
of the notice of award using as basis the NEP figures.36

Although the IRR allows a national government agency to implement a project even pending the approval of the
GAA, the contention of the OSG does not reinforce its position. The proposed national budget submitted by the
President to Congress is the National Expenditure Program (NEP). The OSG, however, failed to present the 2014
NEP to substantiate its claim that it contained the full budget for MVPSP. More so, the invitation to bid for MVPSP
was published on February 20, 2013, even before the 2014 NEP was submitted to Congress.37

Nevertheless, a copy of the 2014 NEP can be viewed through the DBM's website.38 Regrettably, the 2014 NEP
does not provide for the sufficient budget for the MVPSP, to wit:

PROPOSED 2014
Operations by MFO PS MOOE CO TOTAL
MFO 2: Motor vehicle registration and drivers licensing regulatory services 314,981,000 2,039,297,000
375,000 2,354,653,000
As can be gleaned from the 2014 NEP above, the proposed budget for the motor vehicle registration and driver's
licensing regulatory services was only P2,354,653,000.00, which was utterly short to cover the ABC of MVPSP in
the amount of P3.851 billion. Thus, the DOTC and the LTO cannot claim that they based the ABC of MVPSP on the
2014 NEP when the procurement was commenced.

Worse, on July 22, 2013, the DOTC issued the notice of award to JKG-Power Plates still without a corresponding
appropriation under GAA 2013 and, necessarily, without an allotment issued by the DBM. This was contrary to the
provisions of GPPB Circular No. 01-2009, to wit:

4. 7 The notice of award, regardless of whether the procurement is to be conducted through competitive bidding
or any of the alternative methods of procurement, shall only be made under the following instances:

4.7.1 Upon receipt of the ABM or SARO for the full cost of the project; and

4.7.2 Upon receipt of actual cash transfer for GOCCs/LGUs.

All told, the provisions of R.A. No. 9184 requiring a procuring agency to secure a corresponding appropriation
before engaging in the procurement process must be upheld. The law was so enacted to protect the welfare of the
prospective bidders and the general public. Unless R.A. No. 9184 is amended or repealed, all future government
projects must first have a sufficient appropriation before engaging the procurement activity.

MYOA must be secured before


the commencement of the
procurement process

MYOA or Multi-Year Obligational Authority is an authorization document issued by the DBM to government
agencies that undertake MYP with funding requirements spread over two (2) -years or more. Such projects are
evidenced by MYC entered into by the parties. In GAA 2013, the requirement of MYOA is stated as follows:

Sec. 21. Contracting Multi-Year Projects. In the implementation of multi-year projects where the total cost is not
provided in this Act, department, bureaus and offices shall request the DBM for the issuance of a Multi-Year
Obligational Authority following the guidelines under DBM Circular Letter No. 2004-12 dated October 27, 2004.
Notwithstanding the issuance of a Multi-Year Obligation Authority, the obligation to be incurred in any given year,
shall in no case exceed the allotment released for the purpose during the year.

As early as October 27, 2004, the DBM issued the DBM Circular No. 2004-12 to prescribe the guidelines and
procedure to implement the MYOA requirement. The circular defines the different terms affecting MYOA, such as:

3.1 Multi-Year Obligational Authority (MYOA) - refers to an authority issued by the Department of Budget and
Management (DBM) to enable an agency to enter into a multi-year contract whether for locally funded projects
(LFPs) or foreign assisted projects (FAPs).
3.2 Multi-Year Project (MYP) - refers to a program/project which will take more than one (1) year to complete
including suppliers' credit. These may be classified into:

a. MYPs with appropriations available in full during the first year of implementation

b. MYPs which require multi-year appropriations; and

c. Annual Recurring Projects/ Activities which require multiyear appropriations

3.3 Multi-Year Contract (MYC) - refers to a contract for MYPs the implementation of which will take more than one
year to complete, and require multi-year appropriations. Thus, contract executed for MYPs with appropriations
available in full during the first year of implementation, or those falling under 3.2.a above, do not' fall under this
definition. (Emphases supplied).

The GPPB, as the implementing body of R.A. No. 9184, considered the effects of MYOA on government
procurement and issued GPPB Circular No. 01-2009 on January 20, 2009, as follows:

4.5 For MYPs, for which the initial funding -- sourced from either the existing/current year's budget or the NEP --is
not sufficient to cover the total cost of the project, it is required that a MYOA must already have been issued in
accord with DBM Circular Letter 2004-12 prior to commencement of any procurement activity. Thus, the MYOA
shall be a pre-requisite for procurement of a multiyear contract. All procurement activities should be within the
total project cost and categories reflected in the MYOA issued by DBM for the said MYP. (Emphasis supplied)

The same policy was expounded in GPPB Circular No. 2010-9, issued on December 30, 2010, viz:

5.4 Consistent with DBM Circular Letter No. 2004-12, prior to the procurement of multi-year contracts for MYPs,
the procuring agency should first secure a MYOA from DBM. This pre-requisite shall ensure that funding of the
procurement activities of such MYP is within the total project cost and categories (e.g. civil work, vehicles,
equipment, materials, consultancy, training, operation and maintenance, taxes, loan charges, contingencies and
others) reflected in the MYOA. Consistent with the amended DBM Circular on the issuance of MYOA, the MYOA to
be issued shall be supported with the Project Evaluation Report (PER) of the Investment Coordination Committee -
Technical Board (ICC-TB). Upon approval of the projects by the ICC Cabinet Committee/BEDA Board, the same shall
be forwarded by the agency concerned to DBM for reference. (Emphasis supplied)

Likewise, Budget Secretary Florencio Abad issued a memorandum39 on October 18, 2010 as a Primer on MYOA. Its
salient provision reads:

Multi-Year Projects for which the initial funding.- sourced either from the existing/current year's budget or the
National Expenditure Program (NEP) - is not sufficient to cover the total cost of the project, it is required that
MYOA must already have been issued prior to the commencement of any procurement activity. (Emphasis and
underscoring supplied)

The DBM explained the nature of MYOA.40 When the government entered into MYC, it was committed to annually
pay a given amount to the contractor/supplier of the project, even without the government planning for its
payment. Thus, the imperative for MYOA arose, which gave an assurance that the financial commitments included
in MYC are considered in the succeeding proposed budget submitted to Congress. With the issuance of MYOA, the
DBM commits to recommend to Congress the funding of the MYP until its completion. Evidently, without MYOA,
the government runs the risk of breach of contractual obligations if its financial commitments are not met for lack
of funding.

The case of COMELEC v. Quijano-Padilla,41 involving the procurement of the Voter's Registration and Identification
System Project (VRIS Project), mentioned the requirement of MYOA. The said project was awarded to PHOTOKINA
on account of its bid in the amount of P6.588 billion. Under the GAA, however, the appropriated fund for the
project was only P1 billion. PHOTOKINA argued that the awarded project was only for the Phase I of the whole
VRIS Project and, thus, there was no need to allocate for the entire fund. The Court disagreed with such argument
because no MYOA was secured by the procuring agency. The Court held that not only was the arrangement
disallowed by our budgetary laws and practices, but it was also disadvantageous to the COMELEC because of the
uncertainty that loomed over its modernization project for an indefinite period of time.

Here, petitioner contends that MVPSP is MYP and it involves MYC, but the DOTC failed to secure the necessary
MYOA. The OSG, on the other hand, argues that although MVPSP is MYP, it does not involve MYC because the
appropriations for the project was available in full during its first year of implementation in 2014, thus, there was
no need to secure the MYOA.

Indeed, MVPSP falls within the definition of MYP because it is a project which will take more than one (1) year to
complete. Whether MVPSP involves MYC, however, depends on the determining factor of the availability of
appropriation in full during its first year of implementation. If in the affirmative, then the project is MYP that does
not involve MYC; otherwise, it is MYP that involves MYC. and necessarily requires MYOA.

The ultimate question, therefore, is: what is considered the first year of implementation of MVPSP?

Petitioner contends that the first year of implementation of the project was fiscal year 2013 when the notice of
award was issued to JKG-Power Plates on July 22, 2013, pursuant to the invitation to bid. The OSG, on the other
hand, avers that it was fiscal year 2014, after the contract was signed by the parties on February 21, 2014, citing
the DOJ Resolution.42

The Court holds that the first year of implementation of MVPSP was 2013 when the notice of award was issued on
July 22, 2013. The issuance of the notice of award ignites the implementation stage of a project, and the procuring
agency must ensure that funds are fully allotted therein. An agency can only issue a notice of award once the DBM
has released a SARO or ABM for the full cost of the project.43 If the funds are not fully allotted to the project at
the time the notice of award was issued, then MYOA will guarantee that the DBM commits to recommend to
Congress the funding of the project until its completion. Thus, MVPSP is MYP, which involves MYC and requires
MYOA.

This will prevent the scheme of delaying the project to circumvent the requirement of MYOA. As stated earlier,
Sec. 38 of R.A. No. 9184 provides that the procurement process, from the opening of bids up to the award of
contract, shall not exceed three (3) months. This is a mandatory provision and non-compliance thereto shall affect
the validity of the bidding process. Procuring agencies have no other option but to observe the 3-month period
and issue the notice of award on time. Thus, they will be forced to secure the MYOA from the DBM beforehand.

The Court cannot uphold the position of the OSG because of its detrimental implications. Like in the case at bench,
the procuring agencies that did not have the requisite MYOA could simply postpone the signing of the contract
until Congress appropriated the full amount of the project. It would defeat the very essence of MYOA which seeks
to prevent delays in the implementation of the project due to lack of budget.

As to the issue of when the MYOA should be secured by the procuring agency, DBM Circular No. 2004-12 does not
provide for a time period. GPPB Circular No. 01-2009, GPPB Circular No. 2010-9 and DBM Memorandum October
18, 2010, nonetheless; state that MYOA must be secured before the procurement begins. This is in line with the
policy of R.A. No. 9184 that a government project's budget must be fully appropriated at the start of the
procurement process. Based on the foregoing discussion, a procuring agency must ensure that it has a sufficient
appropriation for the project before commencing the procurement activity. If the procuring agency believes that
the project will not be given its full appropriation by the time the notice of award is to be issued, then the
procuring agency must also secure the MYOA from the DBM at the start of the procurement process. Hence, the
general public will be assured that the government projects are adequately funded and their implementation will
not be delayed. These are the practices that must be instilled to achieve effective fiscal governance.
The review and approval of the ICC/NEDA is not required for MVP SP

Petitioner alleges that MVPSP must be reviewed and approved by the ICC/NEDA under R.A. No. 7718. The OSG
counters that MVPSP is not covered by R.A. No. 7718 because it is neither an investment nor a BOT project.

The Court agrees with the OSG that MVPSP is not covered by R.A. No. 7718. The difference between R.A. No. 7718
and R.A. No. 9184 has been discussed in the case of Department of Foreign Affairs v. Judge Falcon,44 as follows:

Undeniably, under the BOT Law, wherein the projects are to be privately funded, the entire information
technology project, including the civil works component and the technological aspect thereof, is considered an
infrastructure or development project and treated similarly as traditional "infrastructure" projects. xxxx

In contrast, under Republic Act No. 9184 or the Government Procurement Reform Act, which contemplates
projects to be funded by public funds, the term "infrastructure project" was limited to only the "civil works
component" of information technology projects. xxx (Emphasis supplied)

Moreover, in a letter,45 dated December 13, 2012, the NEDA stated that MVPSP was part of the mandate of the
LTO; that it did not involve capital investment; and that it would be financed by the national government. It further
noted that the project was not covered by R.A. No. 7718, but by R.A. No. 9184. At this point, there is no need to
belabor on the other arguments of petitioner.

Conclusion

The Court concludes that MVPSP did not follow the timelines provided in Sec. 37 of R.A. No. 9184. As earlier
recited, the project did not have the adequate appropriation when its procurement was commenced on February
20, 2013, contrary to the provisions of Sections Sa, 7 and 20 of R.A. No. 9184. The DOTC and the LTO likewise failed
to secure the MYOA before the start of the procurement process even though MVPSP is MYP involving MYC. All
these irregularities tainted the earlier procurement process and rendered it null and void.

At the outset, however, the Court has stated that the present petition has been rendered moot and academic by
the appropriation for the full amount of the project fund in GAA 2014. Said appropriation "cured" whatever defect
the process had.

As to whether the responsible public officials should be held accountable for the irregularities in the procurement
process of MVP SP, the Court deems that it is not the proper forum to resolve the issue as it is not a trier of facts
and it cannot receive new evidence from the parties to aid it in the prompt resolution of the issue.46

WHEREFORE, the petition is DISMISSED for being moot and academic.


SO ORDERED.
JUNE

TOPIC/DOCTRINE: REAL ESTATE TAXES; SALE OF LEVIED PROPERTIES ON ACCOUNT OF


NON-PAYMENT OF REAL ESTATE TAXES; VALIDITY OF SALE AT PUBLIC AUCTION OF REAL
PROPERTY FROM UNPAID TAXES

G.R. No. 212246, June 22, 2015

OFELIA GAMILLA, Petitioner,


v. BURGUNDY REALTY CORPORATION, Respondent.

DECISION
MENDOZA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the
November 26, 2012 Decision1 and the April 22, 2014 Resolution2 of the Court of Appeals (CA), in CA-G.R. CV No.
95594, which reversed and set aside the June 23, 2010 Decision 3 of the Regional Trial Court, Branch 221, Quezon
City (RTC), in LRC Case No. Q-23701 (07), entitled "In Re: Petition for the Cancellation of Certificate of Title No. 5708
and the Issuance of a New Certificate of Title in Lieu thereof."

The Antecedents:

Respondent Burgundy Realty Corporation (BRC) was the registered owner of a condominium unit with a total floor
area of thirty (30) square meters, covered by Condominium Certificate of Title (CCT) No. 5708, located at B.
Gonzales, Loyola Heights, Diliman, Quezon City (subject property).

On May 10, 2005, the City Treasurer of Quezon City (City Treasurer) sent a Statement of Delinquency4 informing
BRC that the real estate tax on the subject property amounting to P36,323.38 had not been paid and requiring it to
pay the said amount within 10 days from receipt, otherwise, the said office would take the necessary legal action
to enforce its collection.

On July 28, 2005, the City Treasurer sent the Final Notice of Delinquency 5 to BRC as the real estate tax on the
subject property remained unpaid and had been included in the list of delinquent real properties. The City
Treasurer reiterated its demand that the real estate taxes be paid within five (5) days from receipt.

Thereafter, the Warrant of Levy6 was issued by the City Treasurer on the subject property and caused its
inscription and annotation on Tax Declaration No. D-056-08799.7 The Notice of Levy was then annotated on CCT
No. 5708 and registered with the Register of Deeds (RD).

The Notice of Sale of Delinquent Real Property was thereafter published in Manila Standard Today on September
5, 20059 and September 12, 2005,10 and in Manila Bulletin on September 11, 2005.11 The Notice, written in English
and Filipino, was also posted for two (2) consecutive weeks at the main entrance of the Quezon City Hall and in
public and conspicuous places and marketplaces in the Barangay where the subject property was located.

On September 15, 2005, the public auction was conducted and petitioner Ofelia Gamilla (Gamilla) was declared
the highest bidder. On September 30, 2005, a certificate of sale was issued in her favor. Subsequently, the City
Treasurer caused the annotation of the certificate of sale with the RD.

After one year, the City Treasurer executed the Final Bill of Sale in favor of Gamilla, who caused its annotation on
CCT No. 5708 with the RD.
Subsequently, Gamilla filed a petition for the cancellation of CCT No. 5708 with the RTC praying for the issuance of
a new CCT.

BRC opposed the petition contending that the auction sale failed to comply with the requirements of Section 176
of Republic Act (R.A.) No. 7160 otherwise known as the Local Government Code of 1991, and prayed that the
auction sale be declared null and void. BRC averred that there was no notice of levy made on the subject property
and that the statement of delinquency addressed to BRC was not the notice required by law. BRC further denied
having received the final notice of delinquency issued by the City Treasurer.

In her Comment,12 Gamilla countered that the opposition of BRC should not be entertained for its failure to
observe the requirements under Section 267 13 of R.A. No. 7160 among which was the deposit of the amount for
which the property was sold plus interest from the date of sale up to the institution of the action before the court.

Consequently, in its Order,14 dated November 10, 2008, the RTC directed BRC to deposit with the court the amount
for which the real property was sold as mandated by Section 267 of R.A. No. 7160.

BRC then filed a motion for clarification with alternative motion for extension to deposit the amount of purchase.

In the Order,16 dated May 22, 2009, the RTC granted the motion for clarification declaring the Opposition of the
BRC as an action contemplated under Section 267 of R.A. No. 7160 and directed BRC to make the necessary
deposit within thirty (30) days.

On November 27, 2009, for its failure to comply with the November 10, 2008 and May 22, 2009 Orders of the
Court, BRC was declared in default and its opposition to the petition was expunged from the records. All the
government agencies concerned which failed to file an opposition to the petition despite notice were likewise
declared in general default. Hence, Gamilla was allowed to present evidence exparte.

On June 23, 2010, the RTC rendered a decision in favor of Gamilla. The RTC found no irregularity in both the
procedural and substantive requirements of the auction sale. Considering that BRC failed to redeem the property
after one (1) year, the trial court ordered the cancellation of CCT No. 5708 and the issuance of a new one in
Gamilla's name. The dispositive portion reads:
WHEREFORE, in view of the foregoing, owner's duplicate copy of CCT No. 5708 is ordered annulled and the
Register of Deeds of Quezon City is directed to issue a new Condominium Certificate of Title in lieu thereof in the
name of herein petitioner. Such new condominium certificate and all duplicates thereof shall contain a
memorandum of the annulment of the outstanding duplicate.

SO ORDERED.17
Aggrieved, BRC elevated the matter to the CA.

In its assailed decision, the CA reversed and set aside the RTC decision. The CA wrote that the auction sale was
tainted with irregularity as no notice of delinquency and warrant of levy was given to BRC. The CA explained that
the allegation of Gamilla that a certain Eleonor Rulo (Rulo) received the Statement of Delinquency; and Arlene
Tayag (Tayag), the Final Notice of Delinquency and Warrant of Levy, for and on behalf of BRC, was unsubstantiated
because no evidence was presented to prove that these persons were authorized representatives or
administrators of BRC.

Gamilla filed a motion for reconsideration but it was denied in the assailed CA resolution.

Hence, this petition.

GROUNDS IN SUPPORT OF THE PETITION


THE COURT OF APPEALS GRAVELY ERRED IN ENTERTAINING AND GRANTING RESPONDENT'S APPEAL IN VIOLATION
OF SECTION 267 OF REPUBLIC ACT NO. 7160.
THE COURT OF APPEALS GRAVELY ERRED IN FAILING TO APPLY AND IN DISREGARDING THE LEGAL "PRESUMPTION
OF REGULARITY IN THE PERFORMANCE OF OFFICIAL DUTY" WITHOUT CLEAR AND CONVINCING EVIDENCE TO
OVERTURN SUCH PRESUMPTION.
THE COURT OF APPEALS ERRED IN APPLYING THE HOLDING IN TAN V. BANTEGUI AND IN FAILING TO APPLY SEC. 52
OF P.D. NO. 1529 AND APPLICABLE JURISPRUDENCE.
In her petition, Gamilla argues that the CA should not have taken cognizance of BRC's petition because of its failure
to deposit the amount for which the real property was sold pursuant to Section 267 of R.A. No. 7160. Gamilla
asserted that the condition under Section 267 was a jurisdictional requirement that should have been complied
with before an action assailing the validity of the public auction could be entertained.

Gamilla further stated that the presumption of regularity in the performance of official duty that the City Treasurer
sent, by personal delivery, the Statement of Delinquency, the Final Notice of Delinquency and the Warrant to Levy,
to BRC, which were received by Rulo and Tayag, was a conclusive presumption that could not be overturned by
mere denial.

In its Comment/Opposition, BRC reiterated its opposition before the RTC that the auction sale was void ab
initio because of procedural lapses as it failed to comply with the requirements mandated under Sections 176 and
178 of R.A. No. 7160.

The issues for resolution are: (1) whether or not the CA was correct in taking cognizant of the case despite failure
of BRC to comply with Section 267 of R.A. No. 7160; and (2) whether or not the auction sale of the subject property
should be annulled in view of the failure of the City Treasurer to send a notice of delinquency to BRC.

The Court's Ruling


The petition is meritorious.

On the first issue, the CA erred in taking cognizance of the case. Section 267 of R.A. No. 7160 explicitly provides
that a court shall not entertain any action assailing the validity or sale at public auction of real property unless the
taxpayer deposits with the court the amount for which the real property was sold, together with interest of two
percent (2%) per month from the date of sale to the time of the institution of the action. This condition is a
jurisdictional requirement, the nonpayment of which warrants the dismissal of the action. Considering that BRC did
not make such deposit, the RTC should not have acted on the opposition of BRC. Section 267 reads:
Section 267. Action Assailing Validity of Tax Sale. - No court shall entertain any action assailing the validity or any
sale at public auction of real property or rights therein under this Title until the taxpayer shall have deposited with
the court the amount for which the real property was sold, together with interest of two percent (2%) per month
from the date of sale to the time of the institution of the action. The amount so deposited shall be paid to the
purchaser at the auction sale if the deed is declared invalid but it shall be returned to the depositor if the action
fails.

Neither shall any court declare a sale at public auction invalid by reason or irregularities or informalities in the
proceedings unless the substantive rights of the delinquent owner of the real property or the person having legal
interest therein have been impaired.

On the second issue regarding the notice of delinquency, Sections 176 and 178 of R.A. No. 7160 provide:

Section 176. Levy on Real Property. - After the expiration of the time required to pay the delinquent tax, fee, or
charge, real property may be levied on before, simultaneously, or after the distraint of personal property
belonging to the delinquent taxpayer. To this end, the provincial, city or municipal treasurer, as the case may be,
shall prepare a duly authenticated certificate showing the name of the taxpayer and the amount of the tax, fee, or
charge, and penalty due from him. Said certificate shall operate with the force of a legal execution throughout the
Philippines. Levy shall be effected by writing upon said certificate the description of the property upon which levy
is made. At the same time, written notice of the levy shall be mailed to or served upon the assessor and the
Register of Deeds of the province or city where the property is located who shall annotate the levy on the tax
declaration and certificate of title of the property, respectively, and the delinquent taxpayer or, if he be absent
from the Philippines, to his agent or the manager of the business in respect to which the liability arose, or if there
be none, to the occupant of the property in question.

In case the levy on real property is not issued before or simultaneously with the warrant of distraint on personal
property, and the personal property of the taxpayer is not sufficient to satisfy his delinquency, the provincial, city
or municipal treasurer, as the case may be, shall within thirty (30) days after execution of the distraint, proceed
with the levy on the taxpayer's real property.

A report on any levy shall, within ten (10) days after receipt of the warrant, be submitted by the levying officer to
the sanggunian concerned.
xxxx
Section 178. Advertisement and Sale. - Within thirty (30) days after the levy, the local treasurer shall proceed to
publicly advertise for sale or auction the property or a usable portion thereof as may be necessary to satisfy the
claim and cost of sale; and such advertisement shall cover a period of at least thirty (30) days. It shall be effected
by posting a notice at the main entrance of the municipal building or city hall, and in a public and conspicuous
place in the barangay where the real property is located, and by publication once a week for three (3) weeks in a
newspaper of general circulation in the province, city or municipality where the property is located. The
advertisement shall contain the amount of taxes, fees or charges, and penalties due thereon, and the time and
place of sale, the name of the taxpayer against whom the taxes, fees, or charges are levied, and a short description
of the property to be sold. At any time before the date fixed for the sale, the taxpayer may stay the proceedings by
paying the taxes, fees, charges, penalties and interests. If he fails to do so, the sale shall proceed and shall be held
either at the main entrance of the provincial, city or municipal building, or on the property to be sold, or at any
other place as determined by the local treasurer conducting the sale and specified in the notice of sale.

Within thirty (30) days after the sale, the local treasurer or his deputy shall make a report of the sale to the
sanggunian concerned, and which shall form part of his records. After consultation with the sanggunian, the local
treasurer shall make and deliver to the purchaser a certificate of sale, showing the proceeding of the sale,
describing the property sold, stating the name of the purchaser and setting out the exact amount of all taxes, fees,
charges, and related surcharges, interests, or penalties: Provided, however, That any excess in the proceeds of the
sale over the claim and cost of sales shall be turned over to the owner of the property.

The local treasurer may, by ordinance duly approved, advance an amount sufficient to defray the costs of
collection by means of the remedies provided for in this Title, including the preservation or transportation in case
of personal property, and the advertisement and subsequent sale, in cases of personal and real property including
improvements thereon.
Evidently, it is incumbent upon the City Treasurer to convey the notice of delinquency to the taxpayer. 21 The strict
adherence to the notice requirement in tax sales is imperative not only for the protection of the taxpayers, but
also to allay any possible suspicion of collusion between the buyer and the public officials called upon to enforce
such laws.

In the present case, a perusal of the records would show that BRC was properly notified of its tax delinquency and
of the proceedings relative to the auction sale; hence, its right as a taxpayer and the owner of the subject property
was adequately protected.

The records bear out that the statement of delinquency was sent to BRC stating that the realty tax on the subject
property had not been paid from years 1997 to 2004 and including the computation of the amount of the taxes
due and penalties. BRC, in fact, acknowledged the receipt of this statement of delinquency in its opposition before
the RTC. It, however, contended that such statement was not the notice required by law.

The argument is not tenable. Though the statement of delinquency was not captioned as "Notice of Delinquency,"
its contents nonetheless sufficiently informed BRC of its deficiency in real property taxes and the penalty with a
reminder to settle its tax obligation immediately in order to avoid legal inconvenience. Furthermore, aside from
this statement of delinquency, the City Treasurer sent to BRC, through personal service, the Final Notice of
Delinquency, dated July 28, 2005. In the said notice, BRC was again reminded of its unpaid realty taxes and
penalties and was informed that the subject property was included in the list of delinquent real properties and was
scheduled for auction on September 15, 2005. This final notice was followed by the Warrant of Levy, both of which
were received by Tayag.

WHEREFORE, the petition is GRANTED. The November 26, 2012 Decision and the April 22, 2014 Resolution of the
Court of Appeals in CA-G.R. CV No. 95594 are REVERSED and SET ASIDE. The June 23, 2010 Decision of the Regional
Trial Court, Branch 221, Quezon City in LRC Case No. Q-23701(07) is REINSTATED.

SO ORDERED.
TOPIC / DOCTRINE: PROCEDURAL LAPSES IN TAX CASES; VALIDITY AND USE OF TAX
CREDIT CERTIFICATES AS PAYMENT FOR TAX LIABILITIES

G.R. No. 209830 June 17, 2015


MITSUBISHI MOTORS PHILIPPINES CORPORATION, Petitioner,
vs.
BUREAU OF CUSTOMS, Respondents.

Assailed in this petition for review on certiorari1 are the Resolutions dated June 7, 20132 and November
4, 20133 of the Court of Appeals (CA) in CA-G.R. CV No. 99594, which referred the records of the instant case to
the Court of Tax Appeals (CTA) for proper disposition of the appeal taken by respondent Bureau of Customs
(respondent).

The Facts
The instant case arose from a collection suit4 for unpaid taxes and customs duties in the aggregate
amount of P46,844,385.00 filed by respondent against petitioner Mitsubishi Motors Philippines Corporation
(petitioner) before the Regional Trial Court of Manila, Branch 17 (RTC), docketed as Civil Case No. 02-103763
(collection case).
Respondent alleged that from 1997 to1998, petitioner was able to secure tax credit certificates (TCCs)
from various transportation companies; after which, it made several importations and utilized said TCCs for the
payment of various customs duties and taxes in the aggregate amount of P46,844,385.00. Believing the
authenticity of the TCCs, respondent allowed petitioner to use the same for the settlement of such customs duties
and taxes. However, a post-audit investigation of the Department of Finance revealed that the TCCs were
fraudulently secured with the use of fake commercial and bank documents, and thus, respondent deemed that
petitioner never settled its taxes and customs duties pertaining to the aforesaid importations. Thereafter,
respondent demanded that petitioner pay its unsettled tax and customs duties, but to no avail. Hence, it was
constrained to file the instant complaint.
In its defense, petitioner maintained, inter alia, that it acquired the TCCs from their original holders in
good faith and that they were authentic, and thus, their remittance to respondent should be considered as proper
settlement of the taxes and customs duties it incurred in connection with the aforementioned importations.
Initially, the RTC dismissed the collection case due to the continuous absences of respondents counsel
during trial. On appeal to the CA, and eventually the Court, the said case was reinstated and trial on the merits
continued before the RTC.
After respondents presentation of evidence, petitioner filed a Demurrer to Plaintiffs Evidence on
February 10, 2012, essentially contending that respondent failed to prove by clear and convincing evidence that
the TCCs were fraudulently procured, and thus, prayed for the dismissal of the complaint. In turn, respondent filed
an Opposition dated March 7, 2012 refuting petitioners contentions.

The RTC Ruling


In an Order dated April 10, 2012, the RTC granted petitioners Demurrer to Plaintiffs Evidence, and
accordingly, dismissed respondents collection case on the ground of insufficiency of evidence. It found that
respondent had not shown any proof or substantial evidence of fraud or conspiracy on the part of petitioner in the
procurement of the TCCs. In this connection, the RTC opined that fraud is never presumed and must be established
by clear and convincing evidence, which petitioner failed to do, thus, necessitating the dismissal of the complaint.
Respondent moved for reconsideration, which was, however, denied in an Order dated August 3, 2012.
Dissatisfied, it appealed to the CA.

The CA Ruling
In a Resolution dated June 7, 2013, the CA referred the records of the collection case to the CTA for
proper disposition of the appeal taken by respondent. While the CA admitted that it had no jurisdiction to take
cognizance of respondents appeal, as jurisdiction is properly lodged with the CTA, it nevertheless opted to relax
procedural rules in not dismissing the appeal outright. Instead, the CA deemed it appropriate to simply refer the
matter to the CTA, considering that the government stands to lose the amount of P46,844,385.00 in taxes and
customs duties which can then be used for various public works and projects.
Aggrieved, petitioner filed a motion for reconsideration on June 23, 2013, arguing that since the CA does
not have jurisdiction over respondents appeal, it cannot perform any action on it except to order its dismissal. The
said motion was, however, denied in a Resolution dated November 4, 2013, hence, this petition.

The Issue Before the Court


The core issue for the Courts resolution is whether or not the CA correctly referred the records of the
collection case to the CTA for proper disposition of the appeal taken by respondent.

The Court's Ruling


The petition is meritorious.
Jurisdiction is defined as the power and authority of a court to hear, try, and decide a case. In order for
the court or an adjudicative body to have authority to dispose of the case on the merits, it must acquire, among
others, jurisdiction over the subject matter. It is axiomatic that jurisdiction over the subject matter is the power to
hear and determine the general class to which the proceedings in question belong; it is conferred by law and not
by the consent or acquiescence of any or all of the parties or by erroneous belief of the court that it exists. Thus,
when a court has no jurisdiction over the subject matter, the only power it has is to dismiss the action.
Guided by the foregoing considerations and as will be explained hereunder, the Court finds that the CA
erred in referring the records of the collection case to the CTA for proper disposition of the appeal taken by
respondent.
Section 7 of Republic Act No. (RA) 1125,36 as amended by RA 9282, reads:
Sec. 7. Jurisdiction. The CTA shall exercise:
xxxx
c. Jurisdiction over tax collection cases as herein provided:
xxxx
2. Exclusive appellate jurisdiction in tax collection cases:
a. Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax collection
cases originally decided by them in their respective territorial jurisdiction.
xxxx
Similarly, Section 3, Rule 4 of the Revised Rules of the Court of Tax Appeals, as amended, states:
Sec. 3. Cases within the jurisdiction of the Court in Divisions. The Court in Divisions shall exercise:
xxxx
c. Exclusive jurisdiction over tax collections cases, to wit:
xxxx
2. Appellate jurisdiction over appeals from the judgments, resolutions or orders of the Regional Trial
Courts in tax collection cases originally decided by them within their respective territorial jurisdiction.

Verily, the foregoing provisions explicitly provide that the CTA has exclusive appellate jurisdiction over tax
collection cases originally decided by the RTC.
In the instant case, the CA has no jurisdiction over respondents appeal; hence, it cannot perform any
action on the same except to order its dismissal pursuant to Section 2, Rule 5039 of the Rules of Court. Therefore,
the act of the CA in referring respondents wrongful appeal before it to the CTA under the guise of furthering the
interests of substantial justice is blatantly erroneous, and thus, stands to be corrected. In Anderson v. Ho, the
Court held that the invocation of substantial justice is not a magic wand that would readily dispel the application of
procedural rules, viz.:
x x x procedural rules are designed to facilitate the adjudication of cases. Courts and litigants alike are enjoined to
abide strictly by the rules. While in certain instances, we allow a relaxation in the application of the rules, we never
intend to forge a weapon for erring litigants to violate the rules with impunity. The liberal interpretation and
application of rules apply only in proper cases of demonstrable merit and under justifiable causes and
circumstances. While it is true that litigation is not a game of technicalities, it is equally true that every case must
be prosecuted in accordance with the prescribed procedure to ensure an orderly and speedy administration of
justice. Party litigants and their counsels are well advised to abide by rather than flaunt, procedural rules for these
rules illumine the path of the law and rationalize the pursuit of justice. (Emphasis and underscoring supplied)
Finally, in view of respondents availment of a wrong mode of appeal via notice of appeal stating that it
was elevating the case to the CA instead of appealing by way of a petition for review to the CTA within thirty (30)
days from receipt of a copy of the RTCs August 3, 2012 Order, as required by Section 11 of RA 1125, as amended
by Section 9 of RA 928243 the Court is constrained to deem the RTC's dismissal of respondent's collection case
against petitioner final and executory. It is settled that the perfection of an appeal in the manner and within the
period set by law is not only mandatory, but jurisdictional as well, and that failure to perfect an appeal within the
period fixed by law renders the judgment appealed from final and executory. The Court's pronouncement in Team
Pacific Corporation v. Daza is instructive on this matter, to wit:
Although appeal is an essential part of our judicial process, it has been held, time and again, that the right
thereto is not a natural right or a part of due process but is merely a statutory privilege. Thus, the perfection of an
appeal in the manner and within the period prescribed by law is not only mandatory but also jurisdictional and
failure of a party to conform to the rules regarding appeal will render the judgment final and executory. Once a
decision attains finality, it becomes the law of the case irrespective of whether the decision is erroneous or not
and no court - not even the Supreme Court - has the power to revise, review, change or alter the same. The basic
rule of finality of judgment is grounded on the fundamental principle of public policy and sound practice that, at
the risk of occasional error, the judgment of courts and the award of quasi-judicial agencies must become final at
some definite date fixed by law.
WHEREFORE, the petition is GRANTED. Accordingly, the Resolutions dated June 7, 2013 and November 4,
2013 of the Court of Appeals (CA) in CA-G.R. CV No. 99594 are hereby REVERSED and SET ASIDE. Accordingly, a
new one is entered DISMISSING the appeal of respondent Bureau of Customs to the Court of Appeals.
SO ORDERED.
TOPIC/DOCTRINE: CONSTITUTIONALITY OF TAXING POWER OF LOCAL GOVERNMENTS;
AMUSEMENT TAXES; TAX EXEMPTION FOR AMUSEMENT TAXES; TAX EXEMPTION FOR
GRADED FILMS

G.R. No. 203754 June 16, 2015


FILM DEVELOPMENT COUNCIL OF THE PHILIPPINES, Petitioner,
vs.
COLON HERITAGE REALTY CORPORATION, operator of Oriente Group Theaters, represented by ISIDORO A.
CANIZARES, Respondent.

x-----------------------x

FILM DEVELOPMENT COUNCIL OF THE PHILIPPINES, Petitioner,


vs.
CITY OF CEBU and SM PRIME HOLDINGS, INC., Respondents.

The Constitution is the basic law to which all laws must conform; no act shall be valid if it conflicts with
the Constitution. In the discharge of their defined functions, the three departments of government have no choice
but to yield obedience to the commands of the Constitution. Whatever limits it imposes must be observed.

The Case
Once again, We are called upon to resolve a clash between the Inherent taxing power of the legislature
and the constitutionally-delegated power to tax of local governments in these consolidated Petitions for Review on
Certiorari under Rule 45 of the Rules of Court seeking the reversal of the Decision dated September 25, 2012 of the
Regional Trial Court (RTC), Branch 5 in Cebu City, in Civil Case No. CEB-35601, entitled Colon Heritage Realty Corp.,
represented by Isidoro Canizares v. Film Development Council of the' Philippines, and Decision dated October 24,
2012 of the RTC, Branch 14 in Cebu City, in Civil Case No. CEB-35529, entitled City of Cebu v. Film Development
Council of the Philippines, collectively declaring Sections 13 and 14 of Republic Act No. (RA) 9167 invalid and
unconstitutional.

The Facts
The facts are simple and undisputed.
Sometime in 1993, respondent City of Cebu, in its exercise of its power to impose amusement taxes under
Section 140 of the Local Government Code2 (LGC) anchored on the constitutional policy on local autonomy, passed
City Ordinance No. LXIX otherwise known as the "Revised Omnibus Tax Ordinance of the City of Cebu (tax
ordinance)." Central to the case at bar are Sections 42 and 43, Chapter XI thereof which require proprietors,
lessees or operators of theatres, cinemas, concert halls, circuses, boxing stadia, and other places of amusement, to
pay an amusement tax equivalent to thirty percent (30%) of the gross receipts of admission fees to the Office of
the City Treasurer of Cebu City. Said provisions read:
CHAPTER XI - Amusement Tax
Section 42. Rate of Tax. - There shall be paid to the Office of the City Treasurer by the proprietors, lessees,
or operators of theaters, cinemas, concert halls, circuses, boxing stadia and other places of amusement, an
amusement tax at the rate of thirty percent (30%) of the gross receipts from admission fees.4
Section 43. Manner of Payment. - In the case of theaters or cinemas, the tax shall first be deducted and
withheld by their proprietors, lessees, or operators and paid to the city treasurer before the gross receipts are
divided between said proprietor, lessees, operators, and the distributors of the cinematographic films.
Almost a decade later, or on June 7, 2002, Congress passed RA 9167,5 creating the Film Development Council qf
the Philippines (FDCP) and abolishing the Film Development Foundation of the Philippines, Inc. and the Film Rating
Board. Secs. 13 and 14 of RA 9167 provided for the tax treatment of certain graded films as follows:
Section 13. Privileges of Graded Films. - Films which have obtained an "A" or "B" grading from the Council
pursuant to Sections 11 and 12 of this Act shall be entitled to the following privileges:
a. Amusement tax reward. - A grade "A" or "B" film shall entitle its producer to an incentive equivalent to
the amusement tax imposed and collected on the graded films by cities and municipalities in Metro Manila and
other highly urbanized and independent component cities in the Philippines pursuant to Sections 140 to 151 of
Republic Act No. 7160 at the following rates:
1. For grade "A" films - 100% of the amusement tax collected on such film; and
2. For grade "B" films - 65% of the amusement tax collected on such films. The remaining thirty-five (35%)
shall accrue to the funds of the Council.
Section 14. Amusement Tax Deduction and Remittance. - All revenue from the amusement tax on the
graded film which may otherwise accrue to the cities and municipalities in Metropolitan Manila and highly
urbanized and independent component cities in the Philippines pursuant to Section 140 of Republic Act. No. 7160
during the period the graded film is exhibited, shall be deducted and withheld by the proprietors, operators or
lessees of theaters or cinemas and remitted within thirty (30) days from the termination of the exhibition to the
Council which shall reward the corresponding amusement tax to the producers of the graded film within fifteen
(15) days from receipt thereof.
Proprietors, operators and lessees of theaters or cinemas who fail to remit the amusement tax proceeds within the
prescribed period shall be liable to a surcharge equivalent to five percent (5%) of the amount due for each month
of delinquency which shall be paid to the Council. (emphasis added)
According to petitioner, from the time RA 9167 took effect up to the present, all the cities and
municipalities in Metro Manila, as well as urbanized and independent component cities, with the sole exception of
Cebu City, have complied with the mandate of said law.
Accordingly, petitioner, through the Office of the Solicitor General, sent on January 2009 demand letters
for unpaid amusement tax reward (with 5% surcharge for each month of delinquency) due to the producers of the
Grade "A" or "B" films to the following cinema proprietors and operators in Cebu City.
In said letters, the proprietors and cinema operators, including private respondent Colon Heritage Realty
Corp. (Colon Heritage), operator of the Oriente theater, were given ten (10) days from receipt thereof to pay the
aforestated amounts to FDCP. The demand, however, fell on deaf ears.
Meanwhile, on March 25, 2009, petitioner received a letter from Regal Entertainment, Inc., inquiring on
the status of its receivables for tax rebates in Cebu cinemas for all their A and B rate films along with those which it
co-produced with GMA films. This was followed by a letter from Star Cinema ABS-CBN Film Productions, Inc.,
requesting the immediate remittance of its amusement tax rewards for its graded films for the years 2004-2008.
Because of the persistent refusal of the proprietors and cinema operators to remit the said amounts as
FDCP demanded, on one hand, and Cebu City's assertion of a claim on the amounts in question, the city finally filed
on May 18, 2009 before the RTC, Branch 14 a petition for declaratory relief with application for a writ of
preliminary injunction, docketed as Civil Case No. CEB-35529 (City of Cebu v. FDCP). In said petition, Cebu City
sought the declaration of Secs. 13 and 14 of RA 9167 as invalid and unconstitutional.
Similarly, Colon Heritage filed before the RTC, Branch 5 Civil Case No. CEB-35601 (Colon Heritage v. FDCP),
seeking to declare Sec. 14 of RA 9167 as unconstitutional.
On May 25, 2010, the RTC, Branch 14 issued a temporary restraining order (TRO) restraining and enjoining
FDCP, et al. from, inter alia:

(a) Collecting amusement tax incentive award in the City of Cebu and from imposing surcharges thereon;
(b) Demanding from the owners, proprietors, and lessees of theaters and cinemas located and operated
within Cebu City, payment of said amusement tax incentive award which should have been deducted, withheld,
and remitted to FDCP, etc. by the owners, etc., or being operated within Cebu City and imposing surcharges on the
unpaid amount; and
(c) Filing any suit due to or arising from the failure of the owners, etc., of theaters or cinemas within Cebu
City, to deduct, withhold, and remit the incentive to FDCP.
Meanwhile, on August 13, 2010, SM Prime Holdings, Inc. moved for leave to file and admit attached
comment-in-intervention and was later granted.6

Rulings of the Trial Courts


In City of Cebu v. FDCP, the RTC, Branch 14 issued the challenged Decision7 declaring Secs. 13 and 14 of
RA 9167 unconstitutional, disposing as follows:
WHEREFORE, in view of all the disquisitions, judgment is rendered in favor of petitioner City of Cebu
against respondent Film Development Council of the Philippines, as follows:
1. Declaring Sections 13 and 14 of the (sic) Republic Act No. 9167 otherwise known as an Act Creating the
Film Development Council of the Philippines, Defining its Powers and Functions, Appropriating Funds Therefor and
for other purposes, as violative of Section 5 Article X of the 1997 (sic) Philippine Constitution; Consequently
2. Declaring that defendant Film Development Council of the Philippines (FDCP) cannot collect under
Sections 13 and 14 of R.A. 9167 as of the finality of the decision in G.R. Nos. 203754 and 204418;
3. Declaring that Intervenor SM Cinema Corporation has the obligation to remit the amusement taxes,
withheld on graded cinema films to respondent FDCP under Sections 13 and 14 of R.A. 9167 for taxes due prior to
the finality of the decision in G.R. Nos. 203754 and 204418;
4. Declaring that after the finality of the decision in G.R. Nos. 203 754 and 204418, all amusement taxes
withheld and those which may be collected by Intervenor SM on graded films shown in SM Cinemas in Cebu City
shall be remitted to petitioner Cebu City pursuant to City Ordinance LXIX, Chapter XI, Section 42.
As to the sum of PhP 76,836,807.08 remitted by the Intervenor SM to petitioner City of Cebu, said amount
shall be remitted by the City of Cebu to petitioner FDCP within thirty (30) days from finality of this decision in G.R.
Nos. 203754 and 204418 without interests and surcharges.
SO ORDERED.
According to the court, what RA 9167 seeks to accomplish is the segregation of the amusement taxes
raised and collected by Cebu City and its subsequent transfer to FDCP. The court concluded that this arrangement
cannot be classified as a tax exemption but is a confiscatory measure where the national government extracts
money from the local government's coffers and transfers it to FDCP, a private agency, which in turn, will award the
money to private persons, the film producers, for having produced graded films.
The court further held that Secs. 13 and 14 of RA 9167 are contrary to the basic policy in local autonomy
that all taxes, fees, and charges imposed by the LGUs shall accrue exclusively to them, as articulated in A1iicle X,.
Sec. 5 of the 1987 Constitution. This edict, according to the court, is a limitation upon the rule-making power of
Congress when it provides guidelines and limitations on the local government unit's (LGU's) power of taxation.
Therefore, when Congress passed this "limitation," if went beyond its legislative authority, rendering the
questioned provisions unconstitutional.
By the same token, in Colon Heritage v. FDCP, the RTC, Branch 5, in its Decision of September 25, 2012, also ruled
against the constitutionality of said Secs. 13 and 14 of RA 9167 for the following reasons: (a) while Congress,
through the enactment of RA 9167, may have amended Secs. 140(a)8 and 1519 of the LGC, in the exercise of its
plenary power to amend laws, such power must be exercised within constitutional parameters; (b) the assailed
provision violates the constitutional directive that taxes should accrue exclusively to the LGU concerned; (c) the
Constitution, through its Art. X, Sec. 5,10 directly conferred LGUs with authority to levy taxes-the power is no
longer delegated by the legislature; (d) In CIR v. SM Prime Holdings,11 the Court ruled that amusement tax on
cinema/theater operators or proprietors remain with the LGU, amusement tax, being, by nature, a local tax. The
fallo of the questioned judgment reads:
WHEREFORE, in view of all the foregoing, Judgment is hereby rendered in favor ofpetitioner, as follows:
(1) Declaring Republic Act No. 9167 as invalid and unconstitutional;
(2) The obligation to remit amusement taxes for the graded films to respondent is ordered extinguished;
(3) Directing respondent to refund all the amounts paid by petitioner, by way of amusement tax, plus the
legal rate of interest thereof, until the whole amount is paid in full.
Notify parties and counsels of this order. SO ORDERED.

The Issue
Undeterred by two defeats, petitioner has come directly to this Court, presenting the singular issue:
whether or not the RTC (Branches 5 and 14) gravely erred in declaring Secs. 13 and 14 of RA 9167 invalid for being
unconstitutional.

Anent Sec. 13,12 FDCP concedes that the amusement taxes assessed in RA 9167 are to be given to the
producers of graded films who are private persons. Nevertheless, according to FDCP, this particular tax
arrangement is not a violation of the rule on the use of public funds for RA 9167 was enacted for a public purpose,
that is, the promotion and support of the "development and growth of the local film industry as a medium for the
upliftment of aesthetic, cultural, and social values for the better understanding and appreciation of the Filipino
identity" as well as the "encouragement of the production of quality films that will promote the growth and
development' of the local film industry."13 Moreover, FDCP suggests that "even if the resultant effect would be a
certain loss of revenue, [LGUs] do not feel deprived nor bitter for they realize that the benefits for the film
industry, the fortification of our values system, and the cultural boost for the nation as a whole, far outweigh the
pecuniary cost they would shoulder by backing this law."14 Finally, in support of its stance, FDCP invites attention
to the following words of former Associate Justice Isagani A. Cruz: "[t]he mere fact that the tax will be directly
enjoyed by a private individual does not make it invalid so long as some link to the public welfare is established."15
As regards Sec. 1416 of RA 9167, FDCP is of the position that Sec. 5, Article X of the Constitution does not
change the doctrine that municipal corporations only possess delegated, not inherent, powers of taxation and that
the power to tax is still primarily vested in the Congress. Thus, wielding its power to impose limitations on this
delegated power, Congress further restricted the LGU's power to impose amusement taxes via Secs. 13 and 14 of
RA 9167-an express and real intention of Congress to further contain the LGU's delegated taxing power. It,
therefore, cannot be construed as an undue limitation since it is well within the power of Congress to make such
restriction. Furthermore, the LGC is a mere statute which Congress can amend, which it in fact did when it enacted
RA 916417 and, later, the questioned law, RA 9167.18
This, according to FDCP, evinces the overriding intent of Congress to remove from the LGU' s delegated
taxing power all revenues from amusement taxes on grade "A" or "B" films which would otherwise accrue to the
cities and municipalities in Metropolitan Manila and highly urbanized and independent component cities in the
Philippines pursuant to Secs. 140 and 151 of the LGC.
In fine, it is petitioner's posture that the inclusion in RA 9167 of the questioned provisions was a valid
exercise of the legislature's power to amend laws and an assertion of its constitutional authority to set limitations
on the LGU' s authority to tax.

The Court's Ruling


We find no reason to disturb the assailed rulings.
Local fiscal autonomy and the constitutionally-delegated power to tax
The power of taxation, being an essential and inherent attribute of sovereignty, belongs, as a matter of right, to
every independent government, and needs no express conferment by the people before it can be exercised. It is
purely legislative and, thus, cannot be delegated to the executive and judicial branches of government without
running afoul to the theory of separation of powers. It, however, can be delegated to municipal corporations,
consistent with the principle that legislative powers may be delegated to local governments in respect of matters
of local concern.19 The authority of provinces, cities, and municipalities to create their own sources of revenue
and to levy taxes, therefore, is not inherent and may be exercised only to the extent that such power might be
delegated to them either by the basic law or by statute.20 Under the regime of the 1935 Constitution, there was
no constitutional provision on the delegation of the power to tax to municipal corporations. They only derived
such under a limited statutory authority, outside of which, it was deemed withheld.21 Local governments, thus,
had very restricted taxing powers which they derive from numerous tax laws. This highly-centralized government
structure was later seen to have arrested the growth and efficient operations of LG Us, paving the way for the
adoption of a more decentralized system which granted LGUs local autonomy, both administrative and fiscal
autonomy.22
Material to the case at bar is the concept and scope of local fiscal autonomy. In Pimentel v. Aguirre,23
fiscal autonomy was defined as "the power [of LGUs] to create their own sources of revenue in addition to their
equitable share in the national taxes released by the national government, as well as the power to allocate their
resources in accordance with their own priorities. It extends to the preparation of their budgets, and local officials
in tum have to work within the constraints thereof."
With the adoption of the 1973 Constitution,24 and later the 1987 Constitution, municipal corporations
were granted fiscal autonomy via a general delegation of the power to tax.25 Section 5, Article XI of the 1973
Constitution gave LGUs the "power to create its own sources of revenue and to levy taxes, subject to such
limitations as may be provided by law.'' This authority was further strengthened in the 1987 Constitution, through
the inclusion in Section 5, Article X thereof of the condition that " [s]uch taxes, fees, and charges shall accrue
exclusively to local governments."26
Accordingly, under the present Constitution, where there is neither a grant nor a prohibition by statute, the tax
power of municipal corporations must be deemed to exist although Congress may provide statutory limitations
and guidelines.27 The basic rationale for the current rule on local fiscal autonomy is the strengthening of LGUs and
the safeguarding of their viability and self-sufficiency through a direct grant of general and broad tax powers.
Nevertheless, the fundamental law did not intend the delegation to be absolute and unconditional. The legislature
must still see to it that (a) the taxpayer will not be over-burdened or saddled with multiple and unreasonable
impositions; (b) each LGU will have its fair share of available resources; ( c) the resources of the national
government will not be unduly disturbed; and ( d) local taxation will be fair, uniform, and just.28
In conformity to the dictate of the fundamental law for the legislature to "enact a local government code
which shall provide for a more responsive and accountable local government structure instituted through a system
of decentralization,"29 consistent with the basic policy of local autonomy, Congress enacted the LGC, Book II of
which governs local taxation and fiscal matters and sets forth the guidelines and limitations for the exercise of this
power. In Pelizloy Realty Corporation v. The Province of Benguet,30 the Court alluded to the fundamental
principles governing the taxing powers of LGUs as laid out in Section 130 of the LGC, to wit:
1. Taxation shall be uniform in each LGU.
2. Taxes, fees, charges and other impositions shall:
a. be equitable and based as far as practicable on the taxpayer's ability to pay;
b. be levied and collected only for public purposes;
c. not be unjust, excessive, oppressive, or confiscatory;
d. not be contrary to law, public policy, national economic policy, or in the restraint of trade.
3. The collection of local taxes, fees, charges and other impositions shall in no case be let to any private
person.
4. The revenue collected pursuant to the provisions of the LGC shall inure solely to the benefit of, and be
subject to the disposition by, the LGU levying the tax, fee, charge or other imposition unless otherwise specifically
provided by the LGC.
5. Each LGU shall, as far as practicable, evolve a progressive system of taxation.
It is in the application of the adverted fourth rule, that is-all revenue collected pursuant to the provisions of the
LGC shall inure solely to the benefit of, and be subject to the disposition by, the LGU levying the tax, fee, charge or
other imposition unless otherwise specifically provided by the LGC-upon which the present controversy grew.
RA 9167 violates local fiscal autonomy
It is beyond cavil that the City of Cebu had the authority to issue its City Ordinance No. LXIX and impose
an amusement tax on cinemas pursuant to Sec. 140 in relation to Sec. 151 of the LGC. Sec. 140 states, among other
things, that a "province may levy an amusement tax to be collected from the proprietors, lessees, or operators of
theaters, cinemas, concert halls, circuses, boxing stadia, and other places of amusement at a rate of not more than
thirty percent (30%) of the gross receipts from admission fees." By operation of said Sec. 151,31 extending to them
the authority of provinces and municipalities to levy certain taxes, fees, and charges, cities, such as respondent city
government, may therefore validly levy amusement taxes subject to the parameters set forth under the law. Based
on this authority, the City of Cebu passed, in 1993, its Revised Omnibus Tax Ordinance,32 Chapter XI, Secs. 42 and
43 of which reads:
CHAPTER XI - Amusement Tax
Section 42. Rate of Tax. - There shall be paid to the Office of the City Treasurer by the proprietors, lessees,
or operators of theaters, cinemas, concert halls, circuses, boxing stadia and other places of amusement, an
amusement tax at the rate of thirty percent (30%) of the gross receipts from admission fees.33
Section 43. Manner of Payment. - In the case of theaters or cinemas, the tax shall first be deducted and
withheld by their proprietors, lessees, or operators and paid to the city treasurer before the gross receipts are
divided between said proprietor, lessees, operators, and the distributors of the cinematographic films.
Then, after almost a decade of cities reaping benefits from this imposition, Congress, through RA 9167, amending
Section 140 of the LGC,34 among others, transferred this income from the cities and municipalities in Metropolitan
Manila and highly urbanized and independent component cities, such as respondent City of Cebu, to petitioner
FDCP, which proceeds will ultimately be rewarded to the producers of graded films. We reproduce anew Secs. 13
and 14 of RA 9167, thus:
Section 13. Privileges of Graded Films. - Films which have obtained an "A" or "B" grading from the Council
pursuant to Sections 11 and 12 of this Act shall be entitled to the following privileges: a. Amusement tax reward. -
A grade "A" or "B" film shall entitle its producer to an incentive equivalent to the amusement tax imposed and
collected on the graded films by cities and municipalities in Metro Manila and other highly urbanized and
independent component cities in the Philippines pursuant to Sections 140 to 151 of Republic Act No. 7160 at the
following rates:
1. For grade "A" films - 100% of the amusement tax collected on such film; and
2. For grade "B" films - 65% of the amusement tax collected on such films. The remaining thirty-five (35%) shall
accrue to the funds of the Council.
Section 14. Amusement Tax Deduction and Remittance. -All revenue from the amusement tax on the
graded film which may otherwise accrue to the cities and municipalities in Metropolitan Manila and highly
urbanized and independent component cities in the Philippines pursuant to Section 140 of Republic Act. No. 7160
during the period the graded film is exhibited, shall be deducted and withheld by the proprietors, operators or
lessees of theaters or cinemas and remitted within thirty (30) days from the termination of the exhibition to the
Council which shall reward the corresponding amusement tax to the producers of the graded film within fifteen
(15) days from receipt thereof.
Proprietors, operators and lessees of theaters or cinemas who fail to remit the amusement tax proceeds within the
prescribed period shall be liable to a surcharge equivalent to five percent (5%) of the amount due for each month
of delinquency which shall be paid to the Council.
Considering the amendment, the present rule is that ALL amusement taxes levied by covered cities and
municipalities shall be 2iven by proprietors, operators or lessees of theatres and cinemas to FDCP, which shall then
reward said amount to the producers of graded films in this wise:
1. For grade "A" films, ALL amusement taxes collected by ALL covered LGUs on said films shall be given to
the producer thereof. The LGU, therefore, is entitled to NOTHING from its own imposition.
2. For grade "B" films, SIXTY FIVE PERCENT (65%) of ALL amusement taxes derived by ALL covered LGUs on
said film shall be given to the producer thereof. In this case, however, the LGU is still NOT entitled to any portion of
the imposition, in view of Sec. 16 of RA 9167 which provides that the remaining 35% may be expended for the
Council's operational expenses. Thus: Section 16. Funding. - The Executive Secretary shall immediately include in
the Office of the President's program the implementation of this Act, the funding of which shall be included in the
annual General Appropriations Act.
To augment the operational expenses of the Council, the Council may:
a. Utilize the remaining thirty-five (35%) percent of the amusement tax collected during the period of
grade "B" film is exhibited, as provided under Sections 13 and 14 hereof x x x.
For petitioner, the amendment is a valid legislative manifestation of the intention to remove from the grasp of the
taxing power of the covered LGUs all revenues from amusement taxes on grade "A" or "B" films which would
otherwise accrue to them. An evaluation of the provisions in question, however, compels Us to disagree.
RA 9167, Sec. 14 states:
Section 14. Amusement Tax Deduction and Remittance. - All revenue from the amusement tax on the
graded film which may otherwise accrue to the cities and municipalities in Metropolitan Manila and highly
urbanized and independent component cities in the Philippines pursuant to Section 140 of Republic Act. No. 7160
during the period the graded film is exhibited, shall be deducted and withheld by the proprietors, operators or
lessees of theaters or cinemas and remitted within thirty (30) days from the termination of the exhibition to the
Council which shall reward the corresponding amusement tax to the producers of the graded film within fifteen
(15) days from receipt thereof.
A reading of the challenged provision reveals that the power to impose amusement taxes was NOT
removed from the covered LGUs, unlike what Congress did for the taxes enumerated in Sec. 133, Article X of the
LGC,35 which lays down the common limitations on the taxing powers of LGUs. Thus:
Section 133. Common Limitations on the Taxing Powers of Local Government Units. -Unless otherwise
provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not
extend to the levy of the following:
(a) Income tax, except when levied on banks and other financial institutions;
(b) Documentary stamp tax;
(c) Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa, except as otherwise
provided herein;
(d) Customs duties, registration fees of vessel and wharfage on wharves, tonnage dues, and all other kinds
of customs fees, charges and dues except wharfage on wharves constructed and maintained by the local
government unit concerned;
(e) Taxes, fees, and charges and other impositions upon goods carried into or out of, or passing through,
the territorial jurisdictions of local government units in the guise of charges for wharfage, tolls for bridges or
otherwise, or other taxes, fees, or charges in any form whatsoever upon such goods or merchandise;
(f) Taxes, fees or charges on agricultural and aquatic products when sold by marginal farmers or
fishermen;
(g) Taxes on business enterprises certified to by the Board of Investments as pioneer or non-pioneer for a
period of six (6) and four (4) years, respectively from the date of registration;
(h) Excise taxes on articles enumerated under the national Internal Revenue Code, as amended, and taxes,
fees or charges on petroleum products;
(i) Percentage or value-added tax (VAT) on sales, barters or exchanges or similar transactions on goods or
services except as otherwise provided herein;
(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of
passengers or freight by hire and common carriers by air, land or water, except as provided in this Code;
(k) Taxes on premiums paid by way or reinsurance or retrocession;
(l) Taxes, fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses
or permits for the driving thereof, except tricycles;
(m) Taxes, fees, or other charges on Philippine products actually exported, except as otherwise provided
herein;
(n) Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and cooperatives duly
registered under R.A. No. 6810 and Republic Act Numbered Sixty-nine hundred thirty-eight (R.A. No. 6938)
otherwise known as the "Cooperative Code of the Philippines" respectively; and
(o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, and
local government units. (emphasis ours)
From the above, the difference between Sec. 133 and the questioned amendment of Sec. 140 of the LGC
by RA 9167 is readily revealed. In Sec. 133, what Congress did was to prohibit the levy by LGUs of the enumerated
taxes. For RA 9167, however, the covered LGUs were deprived of the income which they will otherwise be
collecting should they impose amusement taxes, or, in petitioner's own words, "Section 14 of [RA 9167] can be
viewed as an express and real intention on the part of Congress to remove from the LGU's delegated taxing power,
all revenues from the amusement taxes on graded films which would otherwise accrue to [them] pursuant to
Section 140 of the [LGC]."36
In other words, per RA 9167, covered LGUs still have the power to levy amusement taxes, albeit at the
end of the day, they will derive no revenue therefrom. The same, however, cannot be said for FDCP and the
producers of graded films since the amounts thus levied by the LGUs which should rightfully accrue to them, they
being the taxing authority-will be going to their coffers. As a matter of fact, it is only through the exercise by the
LGU of said power that the funds to be used for the amusement tax reward can be raised. Without said imposition,
the producers of graded films will receive nothing from the owners, proprietors and lessees of cinemas operating
within the territory of the covered LGU.
Taking the resulting scheme into consideration, it is apparent that what Congress did in this instance was
not to exclude the authority to levy amusement taxes from the taxing power of the covered LGUs, but to earmark,
if not altogether confiscate, the income to be received by the LGU from the taxpayers in favor of and for
transmittal to FDCP, instead of the taxing authority. This, to Our mind, is in clear contravention of the
constitutional command that taxes levied by LGUs shall accrue exclusively to said LGU and is repugnant to the
power of LGUs to apportion their resources in line with their priorities.
It is a basic precept that the inherent legislative powers of Congress, broad as they may be, are limited
and confined within the four walls of the Constitution.37 Accordingly, whenever the legislature exercises its power
to enact, amend, and repeal laws, it should do so without going beyond the parameters wrought by the organic
law.
In the case at bar, through the application and enforcement of Sec. 14 of RA 9167, the income from the
amusement taxes levied by the covered LGUs did not and will under no circumstance accrue to them, not even
partially, despite being the taxing authority therefor. Congress, therefore, clearly overstepped its plenary
legislative power, the amendment being violative of the fundamental law's guarantee on local autonomy, as
echoed in Sec. 130(d) of the LGC, thus:
Section 130. Fundamental Principles. - The following fundamental principles shall govern the exercise of
the taxing and other revenue-raising powers of local government units:
xxxx
(d) The revenue collected pursuant to the provisions of this Code shall inure solely to the benefit of, and
be subject to the disposition by, the local government unit levying the tax, fee, charge or other imposition unless
otherwise specifically provided herein x x x.
Moreover, in Pimentel,38 the Court elucidated that local fiscal autonomy includes the power of LGUs to
allocate their resources in accordance with their own priorities. By earmarking the income on amusement taxes
imposed by the LGUs in favor of FDCP and the producers of graded films, the legislature appropriated and
distributed the LGUs' funds-as though it were legally within its control-under the guise of setting a limitation on
the LGUs' exercise of their delegated taxing power. This, undoubtedly, is a usurpation of the latter's exclusive
prerogative to apportion their funds, an impermissible intrusion into the LGUs' constitutionally-protected domain
which puts to naught the guarantee of fiscal autonomy to municipal corporations enshrined in our basic law.
Grant of amusement tax reward incentive:
not a tax exemption
It was argued that subject Sec. 13 is a grant by Congress of an exemption from amusement taxes in favor
of producers of graded films. Without question, this Court has previously upheld the power of Congress to grant
exemptions over the power of LGUs to impose taxes.39 This amusement tax reward, however, is not, as the lower
court posited, a tax exemption. Exempting a person or entity from tax is to relieve or to excuse that person or
entity from the burden of the imposition. Here, however, it cannot be said that an exemption from amusement
taxes was granted by Congress to the producers of graded films. Take note that the burden of paying the
amusement tax in question is on the proprietors, lessors, and operators of the theaters and cinemas that showed
the graded films. Thus, per City Ordinance No. LXIX: CHAPTER XI - Amusement Tax
Section 42. Rate of Tax. - There shall be paid to the Office of the City Treasurer by the proprietors, lessees,
or operators of theaters, cinemas, concert halls,, circuses, boxing stadia and other places of amusement, an
amusement tax at the rate of thirty percent (30%) of the gross receipts from admission fees.
Section 43. Manner of Payment. - In the case of theaters or cinemas, the tax shall first be deducted and
withheld by their proprietors, lessees, or operators and paid to the city treasurer before the gross receipts are
divided between said proprietor, lessees, operators, and the distributors of the cinematographic films.
Similarly, the LGC provides as follows:
Section 140. Amusement Tax.
(a) The province may levy an amusement tax to be collected from the proprietors, lessees, or operators of
theaters, cinemas, concert halls, circuses, boxing stadia, and other places of amusement at a rate of not more than
thirty percent (30%) of the gross receipts from admission fees.
(b) In the case of theaters or cinemas, the tax shall first be deducted and withheld by their proprietors,
lessees, or operators and paid to the provincial treasurer before the gross receipts are divided between said
proprietors, lessees, or operators and the distributors of the cinematographic films.
Simply put, both the burden and incidence of the amusement tax are borne by the proprietors, lessors, and
operators, not by the producers of the graded films. The transfer of the amount to the film producers is actually a
monetary reward given to them for having produced a graded film, the funding for which was taken by the
national government from the coffers of the covered LGUs. Without a doubt, this is not an exemption from
payment of tax.
Declaration by the RTC, Branch 5 of the entire RA 9167 as unconstitutional
Noticeably, the RTC, Branch 5, in its September 25, 2012 Decision in Colon Heritage v. FDCP, ruled against
the constitutionality of the entire law, not just the assailed Sec. 14. The fallo of the judgment reads:
WHEREFORE, in view of all the foregoing, Judgment is hereby rendered in favor of petitioner, as follows:
(1) Declaring Republic Act No. 9167 as invalid and unconstitutional;
(2) The obligation to remit amusement taxes for the graded films to respondent is ordered extinguished;
(3) Directing respondent to refund all the amounts paid by petitioner, by way of amusement tax, plus the
legal rate of interest thereof, until the whole amount is paid in full.
In this regard, it is well to emphasize that if it appears that the rest of the law is free from the taint of
unconstitutionality, then it should remain in force and effect if said law contains a separability clause. A
separability clause is a legislative expression of intent that the nullity of one provision shall not invalidate the other
provisions of the act. Such a clause is not, however, controlling and the courts, in spite of it, may invalidate the
whole statute where what is left, after the void part, is not complete and workable.40
In this case, not only does RA 9167 have a separability clause, contained in Section 23 thereof which
reads:
Section 23. Separability Clause. -If, for any reason, any provision of this Act, or any part thereof, is
declared invalid or unconstitutional, all other sections or provisions not affected thereby shall remain in force and
effect. it is also true that the constitutionality of the entire law was not put m question in any of the said cases.
Moreover, a perusal of RA 9167 easily reveals that even with the removal of Secs. 13 and 14 of the law,
the remaining provisions can survive as they mandate other matters like a cinema evaluation system, an incentive
and reward system, and local and international film festivals and activities that "will promote the growth and
development of the local film industry and promote its participation in both domestic and foreign markets," and to
"enhance the skills and expertise of Filipino talents."41
Where a part of a statute is void as repugnant to the Constitution, while another part is valid, the valid
portion, if separable from the invalid, may stand-and be enforced. The exception to this is when the parts of a
statute are so mutually dependent and connected, as conditions, considerations, inducements, or compensations
for each other, as to warrant a belief that the legislature intended them as a whole, in which case, the nullity of
one part will vitiate the rest.42
Here, the constitutionality of the rest of the provisions of RA 9167 was never put in question. Too,
nowhere in the assailed judgment of the RTC was it explicated why the entire law was being declared as
unconstitutional.
It is a basic tenet that courts cannot go beyond the issues in a case,43 which the RTC, Branch 5 did when it
declared RA 9167 unconstitutional. This being the case, and in view of the elementary rule that every statute is
presumed valid,44 the declaration by the R TC, Branch 5 of the entirety of RA 9167 as unconstitutional, is
improper.
Amounts paid by Colon Heritage need not be returned
Having ruled that the questioned provisions are unconstitutional, the RTC, Branch 5, in Colon Heritage v.
FDCP, ordered the return of all amounts paid by respondent Colon Heritage to FDCP by way of amusement tax.
Thus:
WHEREFORE, in view of all the foregoing, Judgment is hereby rendered in favor of petitioner, as follows:
(1) Declaring Republic Act No. 9167 as invalid and unconstitutional;
(2) The obligation to remit amusement taxes for the graded films to respondent is ordered extinguished;
(3) Directing respondent to refund all the amounts paid by petitioner, by way of amusement tax, plus the
legal rate of interest thereof, until the whole amount is paid in full.
As regards the refund, the Court cannot subscribe to this position.
It is a well-settled rule that an unconstitutional act is not a law; it confers no rights; it imposes no duties; it affords
no protection; it creates no office; it is inoperative as if it has not been passed at all. Applying this principle, the
logical conclusion would be to order the return of all the amounts remitted to FDCP and given to the producers of
graded films, by all of the covered cities, which actually amounts to hundreds of millions, if not billions. In fact, just
for Cebu City, the aggregate deficiency claimed by FDCP is ONE HUNDRED FIFTY NINE MILLION THREE HUNDRED
SEVENTY SEVEN THOUSAND NINE HUNDRED EIGHTY-EIGHT PESOS AND FIFTY FOUR CENTAVOS (P159,377,988.54).
Again, this amount represents the unpaid amounts to FDCP by eight cinema operators or proprietors in only one
covered city.
An exception to the above rule, however, is the doctrine of operative fact, which applies as a matter of
equity and fair play. This doctrine nullifies the effects of an unconstitutional law or an executive act by recognizing
that the existence of a statute prior to a determination of unconstitutionality is an operative fact and may have
consequences that cannot always be ignored. It applies when a declaration of unconstitutionality will impose an
undue burden on those who have relied on the invalid law.45
In Hacienda Luisita v. PARC, the Court elucidated the meaning and scope of the operative fact doctrine,
viz:
The "operative fact" doctrine is embodied in De Agbayani v. Court of Appeals, wherein it is stated that a
legislative or executive act, prior to its being declared as unconstitutional by the courts, is valid and must be
complied with, thus:
xxx xxx xx
This doctrine was reiterated in the more recent case of City of Makati v. Civil Service Commission, wherein
we ruled that:
Moreover, we certainly cannot nullify the City Government's order of suspension, as we have no reason
to do so, much less retroactively apply such nullification to deprive private respondent of a compelling and valid
reason for not filing the leave application. For as we have held, a void act though in law a mere scrap of paper
nonetheless confers legitimacy upon past acts or omissions done in reliance thereof. Consequently, the existence
of a statute or executive order prior to its being adjudged void is an operative fact to which legal consequences are
attached. It would indeed be ghastly unfair to prevent private respondent from relying upon the order of
suspension in lieu of a formal leave application.
The applicability of the operative fact doctrine to executive acts was further explicated by this Court in
Rieta v. People, thus:
Petitioner contends that his arrest by virtue of Arrest . Search and Seizure Order (ASSO) No. 4754 was
invalid, as the law upon which it was predicated-General Order No. 60, issued by then President Ferdinand E.
Marcos - was subsequently declared by the Court, in Tanada v. Tuvera, 33 to have no force and effect. Thus, he
asserts, any evidence obtained pursuant thereto is inadmissible in evidence.
We do not agree.
In Tanada, the Court addressed the possible effects of its declaration of the invalidity of various
presidential issuances. Discussing therein how such a declaration might affect acts done on a presumption of their
validity, the Court said:
" ... In similar situations in the past this Court had taken the pragmatic and realistic course set forth in
Chicot County Drainage District vs. Baxter Bank to wit:
'The courts below have proceeded on the theory that the Act of Congress, having been found to be
unconstitutional, was not a law; that it was inoperative, conferring no rights and imposing no duties, and hence
affording no basis for the challenged decree. . . . It is quite clear, however, that such broad statements as to the
effect of a determination of unconstitutionality must be taken with qualifications. The actual existence of a statute,
prior to [the determination of its invalidity], is an operative fact and may have consequences which cannot justly
be ignored. The past cannot always be erased by a new judicial declaration. The effect of the subsequent ruling as
to invalidity may have to be considered in various aspects with respect to particular conduct, private and official.
Questions of rights claimed to have become vested, of status, of prior determinations deemed to have finality and
acted upon accordingly, of public policy in the light of the nature both of the statute and of its previous
application, demand examination. These questions are among the most difficult of those which have engaged the
attention of courts, state and federal, and it is manifest from numerous decisions that an all-inclusive statement of
a principle of absolute retroactive invalidity cannot be justified.'
xxx xxx xxx
"Similarly, the implementation/ enforcement of presidential decrees prior to their publication in the
Official Gazette is 'an operative fact which may have consequences which cannot be justly ignored. The past
cannot always be erased by a new judicial declaration ... that an all-inclusive statement of a principle of absolute
retroactive invalidity cannot be justified."
The Chicot doctrine cited in Tanada advocates that, prior to the nullification of a statute, there is an
imperative necessity of taking into account its actual existence as an operative fact negating the acceptance of "a
principle of absolute retroactive invalidity." Whatever was done while the legislative or the executive act was in
operation should be duly recognized and presumed to be valid in all respects. The ASSO that was issued in 1979
under General Order No. 60 - long before our Deeision n Taiiada and the arrest of petitioner - is an operative fact
that can no longer be disturbed or simply ignored. (citations omitted; emphasis in the original.)
Bearing in mind that PARC Resolution No. 89-12-2-an executive act-was declared invalid in the instant
case, the operative fact doctrine is clearly applicable.46
Here, to order FDCP and the producers of graded films which may have already received the amusement
tax incentive reward pursuant to the questioned provisions of RA 9167, to return the amounts received to the
respective taxing authorities would certainly impose a heavy, and possibly crippling, financial burden upon them
who merely, and presumably in good faith, complied with the legislative fiat subject of this case. For these reasons,
We are of the considered view that the application of the doctrine of operative facts in the case at bar is proper so
as not to penalize FDCP for having complied with the legislative command in RA 9167, and the producers of graded
films who have already received their tax cut prior to this Decision for having produced top-quality films.
With respect to the amounts retained by the cinema proprietors due to petitioner FDCP, said proprietors
are required under the law to remit the same to petitioner. Obeisance to the rule of law must always be protected
and preserved at all times and the unjustified refusal of said proprietors cannot be tolerated. The operative fact
doctrine equally applies to the non-remittance by said proprietors since the law produced legal effects prior to the
declaration of the nullity of Secs. 13 and 14 in these instant petitions. It can be surmised, however, that the
proprietors were at a loss whether or not to remit said amounts to FDCP considering the position of the City of
Cebu for them to remit the amusement taxes directly to the local government. For this reason, the proprietors
shall not be liable for surcharges.
In view of the declaration of nullity of unconstitutionality of Secs. 13 and 14 of RA 9167, all amusement
taxes remitted to petitioner FDCP prior to the date of the finality of this decision shall remain legal and valid under
the operative fact doctrine. Amusement taxes due to petitioner but unremitted up to the finality of this decision
shall be remitted to petitioner within thirty (30) days from date of finality. Thereafter, amusement taxes previously
covered by RA 9167 shall be remitted to the local governments.
WHEREFORE, premises considered, the consolidated petitions are hereby PARTIALLY GRANTED. The
questioned Decision of the RTC, Branch 5 of Cebu City in Civil Case No. CEB-35601 dated September 25, 2012 and
that of the R TC, Branch 14, Cebu City in Civil Case No. CEB-35529 dated October 24, 2012, collectively declaring
Sections 13 and 14 of Republic Act No. 9167 invalid and unconstitutional, are hereby AFFIRMED with
MODIFICATION.
As modified, the decisions of the lower courts shall read:
1. Civil Case No. CEB-35601 entitled Colon Heritage Realty Corp. v. Film Development Council of the
Philippines:
WHEREFORE, in view of all the foregoing, Judgment is hereby rendered in favor of Colon Heritage Realty
Corp. and against the Film Development council of the Philippines, as follows: 1. Declaring Sections 13 and 14 of
Republic Act No. 9167 otherwise known as an Act Creating the Film Development Council of the Philippines,
Defining its Powers and Functions, Appropriating Funds therefor arid for other purposes, as invalid and
unconstitutional;
2. Declaring that the Film Development Council of the Philippines cannot collect under Sections 13 and 14
of R.A. 9167 as of the finality of the decision in G.R. Nos. 203754 and 204418;
3. Declaring that Colon Heritage Realty Corp. has the obligation to remit the amusement taxes withheld
on graded cinema films to FDCP under Sections 13 and 14 of R.A. 9167 for taxes due prior to the finality of this
Decision, without surcharges;
4. Declaring that upon the finality of this decision, all amusement taxes withheld and those which may be
collected by Colon Heritage Realty Corp. on graded films shown in its cinemas in Cebu City shall be remitted to
Cebu City pursuant to City Ordinance LXIX, Chapter XI, Section 42.
2. Civil Case No. CEB-35529 entitled City of Cebu v. Film Development Council of the Philippines:
WHEREFORE, in view of all the disquisitions, judgment is rendered in favor of the City of Cebu against the Film
development Council of the Philippines, as follows:
1. Declaring Sections 13 and 14 of Republic Act No. 9167 otherwise known as an Act Creating the Film
Development Council of the Philippines, Defining its Powers and Functions, Appropriating Funds therefor and for
other purposes, void and unconstitutional;
2. Declaring that the Film Development Council of the Philippines cannot collect under Sections 13 and 14
of R.A. 9167 as of the finality of this Decision;
3. Declaring that Intervenor SM Cinema Corporation has the obligation to remit the amusement taxes,
withheld on graded cinema films to respondent FDCP under Sections 13 and 14 of R.A. 9167 for taxes due prior to
the finality of this Decision, without surcharges;
4. Declaring that after the finality of this Decision, all amusement taxes withheld and those which may be
collected by Intervenor SM on graded films shown in SM Cinemas in Cebu City shall be remitted to petitioner Cebu
City pursuant to City Ordinance LXIX, Chapter XI, Section 42.
As to the sum of PhP 76,836,807.08 remitted by the Intervenor SM to petitioner City of Cebu, said amount
shall be remitted by the City of Cebu to petitioner FDCP within thirty (30) days from finality of this decision in G.R.
Nos. 203754 and 204418 without interests and surcharges. Since Sections 13 and 14 of Republic Act No. 9167 were
declared void and unconstitutional, all remittances of amusement taxes pursuant to said Sections 13 and 14 of said
law prior to the date of finality of this Decision shall remain valid and legal. Cinema proprietors who failed to remit
said amusement taxes to petitioner FDCP prior to the date of finality of this Decision are obliged to remit the same,
without surcharges, to petitioner FDCP under the doctrine of operative fact. SO ORDERED.
TOPIC / DOCTRINE: POWER OF LOCAL GOVERNMENT UNITS TO COLLECT REAL PROPERTY
TAXES; TAX EXEMPTIONS ON REAL PROPERTY TAX; TAX EXEMPTIONS; LEVY AND SALE OF
PROPERTIES FROM NON-PAYMENT OF REAL PROPERTY TAXES

G.R. No. 181756 June 15, 2015

MACTAN-CEBU INTERNATIONAL AIRPORT AUTHORITY (MCIAA), Petitioner,


vs.
CITY OF LAPU-LAPU and ELENA T. PACALDO, Respondents.

DECISION
LEONARDO-DE CASTRO, J.:

This is a clear opportunity for this Court to clarify the effects of our two previous decisions, issued a decade apart,
on the power of local government units to collect real property taxes from airport authorities located within their
area, and the nature or the juridical personality of said airport authorities.

Before us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure seeking to
reverse and set aside the October 8, 2007 Decision1 of the Court of Appeals (Cebu City) in CA-G.R. SP No. 01360
and the February 12, 2008 Resolution2 denying petitioner's motion for reconsideration.

THE FACTS

Petitioner Mactan-Cebu International Airport Authority (MCIAA) was created by Congress on July 31, 1990 under
Republic Act No. 69583 to "undertake the economical, efficient and effective control, management and
supervision of the Mactan International Airport in the Province of Cebu and the Lahug Airport in Cebu City x x x
and such other airports as may be established in the Province of Cebu." It is represented in this case by the Office
of the Solicitor General. Respondent City of Lapu-Lapu is a local government unit and political subdivision, created
and existing under its own charter with capacity to sue and be sued. Respondent Elena T. Pacaldo was impleaded
in her capacity as the City Treasurer of respondent City.

Upon its creation, petitioner enjoyed exemption from realty taxes under the following provision of Republic Act
No. 6958:

Section 14. Tax Exemptions. The Authority shall be exempt from realty taxes imposed by the National
Government or any of its political subdivisions, agencies and instrumentalities: Provided, That no tax exemption
herein granted shall extend to any subsidiary which may be organized by the Authority.

On September 11, 1996, however, this Court rendered a decision in Mactan-Cebu International Airport Authority v.
Marcos4 (the 1996 MCIAA case) declaring that upon the effectivity of Republic Act No. 7160 (The Local
Government Code of 1991), petitioner was no longer exempt from real estate taxes. The Court held:

Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the LGC, exemptions from
payment of real property taxes granted to natural or juridical persons, including government-owned or controlled
corporations, except as provided in the said section, and the petitioner is, undoubtedly, a government-owned
corporation, it necessarily follows that its exemption from such tax granted it in Section 14 of its Charter, R.A. No.
6958, has been withdrawn. x x x.

On January 7, 1997, respondent City issued to petitioner a Statement of Real Estate Tax assessing the lots
comprising the Mactan International Airport in the amount of P162,058,959.52. Petitioner complained that there
were discrepancies in said Statement of Real Estate Tax as follows:
(a) [T]he statement included lots and buildings not found in the inventory of petitioners real properties;

(b) [S]ome of the lots were covered by two separate tax declarations which resulted in double assessment;

(c) [There were] double entries pertaining to the same lots; and

(d) [T]he statement included lots utilized exclusively for governmental purposes.5

Respondent City amended its billing and sent a new Statement of Real Estate Tax to petitioner in the amount of
P151,376,134.66. Petitioner averred that this amount covered real estate taxes on the lots utilized solely and
exclusively for public or governmental purposes such as the airfield, runway and taxiway, and the lots on which
they are situated.6

Petitioner paid respondent City the amount of four million pesos (P4,000,000.00) monthly, which was later
increased to six million pesos (P6,000,000.00) monthly. As of December 2003, petitioner had paid respondent City
a total of P275,728,313.36.7

Upon request of petitioners General Manager, the Secretary of the Department of Justice (DOJ) issued Opinion
No. 50, Series of 1998,8 and we quote the pertinent portions of said Opinion below:

You further state that among the real properties deemed transferred to MCIAA are the airfield, runway, taxiway
and the lots on which the runway and taxiway are situated, the tax declarations of which were transferred in the
name of the MCIAA. In 1997, the City of Lapu-Lapu imposed real estate taxes on these properties invoking the
provisions of the Local Government Code.

It is your view that these properties are not subject to real property tax because they are exclusively used for
airport purposes. You said that the runway and taxiway are not only used by the commercial airlines but also by
the Philippine Air Force and other government agencies. As such and in conjunction with the above interpretation
of Section 15 of R.A. No. 6958, you believe that these properties are considered owned by the Republic of the
Philippines. Hence, this request for opinion.

The query is resolved in the affirmative. The properties used for airport purposes (i.e. airfield, runway, taxiway and
the lots on which the runway and taxiway are situated) are owned by the Republic of the Philippines.

xxxx

Under the Law on Public Corporations, the legislature has complete control over the property which a municipal
corporation has acquired in its public or governmental capacity and which is devoted to public or governmental
use. The municipality in dealing with said property is subject to such restrictions and limitations as the legislature
may impose. On the other hand, property which a municipal corporation acquired in its private or proprietary
capacity, is held by it in the same character as a private individual. Hence, the legislature in dealing with such
property, is subject to the constitutional restrictions concerning property (Martin, Public Corporations [1997], p.
30; see also Province of Zamboanga del [Norte] v. City of Zamboanga [131 Phil. 446]). The same may be said of
properties transferred to the MCIAA and used for airport purposes, such as those involved herein. Since such
properties are of public dominion, they are deemed held by the MCIAA in trust for the Government and can be
alienated only as may be provided by law.

Based on the foregoing, it is our considered opinion that the properties used for airport purposes, such as the
airfield, runway and taxiway and the lots on which the runway and taxiway are located, are owned by the State or
by the Republic of the Philippines and are merely held in trust by the MCIAA, notwithstanding that certificates of
titles thereto may have been issued in the name of the MCIAA. (Emphases added.)
Based on the above DOJ Opinion, the Department of Finance issued a 2nd Indorsement to the City Treasurer of
Lapu-Lapu dated August 3, 1998,9 which reads:

The distinction as to which among the MCIAA properties are still considered "owned by the State or by the
Republic of the Philippines," such as the resolution in the above-cited DOJ Opinion No. 50, for purposes of real
property tax exemption is hereby deemed tenable considering that the subject "airfield, runway, taxiway and the
lots on which the runway and taxiway are situated" appears to be the subject of real property tax assessment and
collection of the city government of Lapu-Lapu, hence, the same are definitely located within the jurisdiction of
Lapu-Lapu City. Moreover, then Undersecretary Antonio P. Belicena of the Department of Finance, in his 1st
Indorsement dated May 18, 1998, advanced that "this Department (DOF) interposes no objection to the request of
Mactan Cebu International Airport Authority for exemption from payment of real property tax on the property
used for airport purposes" mentioned above.

The City Assessor, therefore, is hereby instructed to transfer the assessment of the subject airfield, runway,
taxiway and the lots on which the runway and taxiway are situated, from the "Taxable Roll" to the "Exempt Roll" of
real properties.

The City Treasurer thereat should be informed on the action taken for his immediate appropriate action.
(Emphases added.)

Respondent City Treasurer Elena T. Pacaldo sent petitioner a Statement of Real Property Tax Balances up to the
year 2002 reflecting the amount of P246,395,477.20. Petitioner claimed that the statement again included the lots
utilized solely and exclusively for public purpose such as the airfield, runway, and taxiway and the lots on which
these are built. Respondent Pacaldo then issued Notices of Levy on 18 sets of real properties of petitioner.10

Petitioner filed a petition for prohibition11 with the Regional Trial Court (RTC) of Lapu-Lapu City with prayer for the
issuance of a temporary restraining order (TRO) and/or a writ of preliminary injunction, docketed as SCA No. 6056-
L. Branch 53 of RTC Lapu-Lapu City then issued a 72-hour TRO. The petition for prohibition sought to enjoin
respondent City from issuing a warrant of levy against petitioners properties and from selling them at public
auction for delinquency in realty tax obligations. The petition likewise prayed for a declaration that the airport
terminal building, the airfield, runway, taxiway and the lots on which they are situated are exempted from real
estate taxes after due hearing. Petitioner based its claim of exemption on DOJ Opinion No. 50.

The RTC issued an Order denying the motion for extension of the TRO. Thus, on December10, 2003, respondent
City auctioned 27 of petitioners properties. As there was no interested bidder who participated in the auction
sale, respondent City forfeited and purchased said properties. The corresponding Certificates of Sale of Delinquent
Property were issued to respondent City.12

Petitioner claimed before the RTC that it had discovered that respondent City did not pass any ordinance
authorizing the collection of real property tax, a tax for the special education fund (SEF), and a penalty interest for
its nonpayment. Petitioner argued that without the corresponding tax ordinances, respondent City could not
impose and collect real property tax, an additional tax for the SEF, and penalty interest from petitioner.13

The RTC issued an Order14 on December 28, 2004 granting petitioners application for a writ of preliminary
injunction. The pertinent portions of the Order are quoted below:

The supervening legal issue has rendered it imperative that the matter of the consolidation of the ownership of the
auctioned properties be placed on hold. Furthermore, it is the view of the Court that great prejudice and damage
will be suffered by petitioner if it were to lose its dominion over these properties now when the most important
legal issue has still to be resolved by the Court. Besides, the respondents and the intervenor have not sufficiently
shown cause why petitioners application should not be granted.
WHEREFORE, the foregoing considered, petitioners application for a writ of preliminary injunction is granted.
Consequently, upon the approval of a bond in the amount of one million pesos (P1,000,000.00), let a writ of
preliminary injunction issue enjoining the respondents, the intervenor, their agents or persons acting in [their]
behalf, to desist from consolidating and exercising ownership over the properties of the petitioner.

However, upon motion of respondents, the RTC lifted the writ of preliminary injunction in an Order15 dated
December 5, 2005. The RTC reasoned as follows:

The respondent City, in the courseof the hearing of its motion, presented to this Court a certified copy of its
Ordinance No. 44 (Omnibus Tax Ordinance of the City of Lapu-Lapu), Section 25 whereof authorized the collection
of a rate of one and one-half (1 1/2) [per centum] from owners, executors or administrators of any real estate lying
within the jurisdiction of the City of Lapu-Lapu, based on the assessed value as shown in the latest revision.

Though this ordinance was enacted prior to the effectivity of Republic Act No. 7160 (Local Government Code of
1991), to the mind of the Court this ordinance is still a valid and effective ordinance in view of Sec. 529 of RA 7160
x x x [and the] Implementing Rules and Regulations of RA 7160 x x x.

xxxx

The tax collected under Ordinance No. 44 is within the rates prescribed by RA 7160, though the 25% penalty
collected is higher than the 2% interest allowed under Sec. 255 of the said law which provides:

In case of failure to pay the basic real property tax or any other tax levied under this Title upon the expiration of
the periods as provided in Section 250, or when due, as the case may be, shall subject the taxpayer to the payment
of interest at the rate of two percent (2%) per month on the unpaid amount or a fraction thereof, until the
delinquent tax shall have been fully paid: Provided, however, That in no case shall the total interest on the unpaid
tax or portion thereof exceed thirty-six (36) months.

This difference does not however detract from the essential enforceability and effectivity of Ordinance No. 44
pursuant to Section 529 of RA 7160 and Article 278 of the Implementing Rules and Regulations. The outcome of
this disparity is simply that respondent City can only collect an interest of 2% per month on the unpaid tax.
Consequently, respondent City [has] to recompute the petitioners tax liability.

It is also the Courts perception that respondent City can still collect the additional 1% tax on real property without
an ordinance to this effect. It may be recalled that Republic Act No. 5447 has created the Special Education Fund
which is constituted from the proceeds of the additional tax on real property imposed by the law. Respondent City
has collected this tax as mandated by this law without any ordinance for the purpose, as there is no need for it.
Even when RA 5447 was amended by PD 464 (Real Property Tax Code), respondent City had continued to collect
the tax, as it used to.

It is true that RA 7160 has repealed RA 5447, but what has been repealed are only Section 3, a(3) and b(2) which
concern the allocation of the additional tax, considering that under RA 7160, the proceeds of the additional 1% tax
on real property accrue exclusively to the Special Education Fund. Nevertheless, RA 5447 has not been totally
repealed; there is only a partial repeal.

It may be observed that there is no requirement in RA 7160 that an ordinance be enacted to enable the collection
of the additional 1% tax. This is so since RA 5447 is still in force and effect, and the declared policy of the
government in enacting the law, which is to contribute to the financial support of the goals of education as
provided in the Constitution, necessitates the continued and uninterrupted collection of the tax. Considering that
this is a tax of far-reaching importance, to require the passage of an ordinance in order that the tax may be
collected would be to place the collection of the tax at the option of the local legislature. This would run counter to
the declared policy of the government when the SEF was created and the tax imposed.
As regards the allegation of respondents that this Court has no jurisdiction to entertain the instant petition, the
Court deems it proper, at this stage of the proceedings, not to treat this issue, as it involves facts which are yet to
be established.

x x x [T]he Courts issuance of a writ of preliminary injunction may appear to be a futile gesture in the light of
Section 263 of RA 7160. x x x.

xxxx

It would seem from the foregoing provisions, that once the taxpayer fails to redeem within the one-year period,
ownership fully vests on the local government unit concerned. Thus, when in the present case petitioner failed to
redeem the parcels of land acquired by respondent City, the ownership thereof became fully vested on respondent
City without the latter having to perform any other acts to perfect its ownership. Corollary thereto, ownership on
the part of respondent City has become a fait accompli.

WHEREFORE, in the light of the foregoing considerations, respondents motion for reconsideration is granted, and
the order of this Court dated December 28, 2004 is hereby reconsidered. Consequently, the writ of preliminary
injunction issued by this Court is hereby lifted.

Aggrieved, petitioner filed a petition for certiorari16 with the Court of Appeals (Cebu City), with urgent prayer for
the issuance of a TRO and/or writ of preliminary injunction, docketed as CA-G.R. SP No. 01360. The Court of
Appeals (Cebu City) issued a TRO17 on January 5, 2006 and shortly thereafter, issued a writ of preliminary
injunction18 on February 17, 2006.

RULING OF THE COURT OF APPEALS

The Court of Appeals (Cebu City) promulgated the questioned Decision on October 8, 2007, holding that petitioner
is a government-owned or controlled corporation and its properties are subject to realty tax. The dispositive
portion of the questioned Decision reads:

WHEREFORE, in view of the foregoing, judgment is hereby rendered by us as follows:

a. We DECLARE the airport terminal building, the airfield, runway, taxiway and the lots on which they are situated
NOT EXEMPT from the real estate tax imposed by the respondent City of Lapu-Lapu;

b. We DECLARE the imposition and collection of the real estate tax, the additional levy for the Special Education
Fund and the penalty interest as VALID and LEGAL. However, pursuant to Section 255 of the Local Government
Code, respondent city can only collect an interest of 2% per month on the unpaid tax which total interest shall, in
no case, exceed thirty-six (36) months; c. We DECLARE the sale in public auction of the aforesaid properties and
the eventual forfeiture and purchase of the subject property by the respondent City of Lapu-Lapu as NULL and
VOID. However, petitioner MCIAAs property is encumbered only by a limited lien possessed by the respondent
City of Lapu-Lapu in accord with Section 257 of the Local Government Code.19 Petitioner filed a Motion for Partial
Reconsideration20 of the questioned Decision covering only the portion of said decision declaring that petitioner is
a GOCC and, therefore, not exempt from the realty tax and special education fund imposed by respondent City.
Petitioner cited Manila International Airport Authority v. Court of Appeals21 (the 2006 MIAA case) involving the
City of Paraaque and the Manila International Airport Authority. Petitioner claimed that it had been described by
this Court as a government instrumentality, and that it followed "as a logical consequence that petitioner is
exempt from the taxing powers of respondent City of Lapu-Lapu."22 Petitioner alleged that the 1996 MCIAA case
had been overturned by the Court in the 2006 MIAA case. Petitioner thus prayed that it be declared exempt from
paying the realty tax, special education fund, and interest being collected by respondent City.
On February 12, 2008, the Court of Appeals denied petitioners motion for partial reconsideration in the
questioned Resolution.

The Court of Appeals followed and applied the precedent established in the 1996 MCIAA case and refused to apply
the 2006 MIAA case. The Court of Appeals wrote in the questioned Decision: "We find that our position is in line
with the coherent and cohesive interpretation of the relevant provisions of the Local Government Code on local
taxation enunciated in the [1996 MCIAA] case which to our mind is more elegant and rational and provides
intellectual clarity than the one provided by the Supreme Court in the [2006] MIAA case."23

In the questioned Decision, the Court of Appeals held that petitioners airport terminal building, airfield, runway,
taxiway, and the lots on which they are situated are not exempt from real estate tax reasoning as follows:

Under the Local Government Code (LGC for brevity), enacted pursuant to the constitutional mandate of local
autonomy, all natural and juridical persons, including government-owned or controlled corporations (GOCCs),
instrumentalities and agencies, are no longer exempt from local taxes even if previously granted an exemption.
The only exemptions from local taxes are those specifically provided under the Code itself, or those enacted
through subsequent legislation.

Thus, the LGC, enacted pursuant to Section 3, Article X of the Constitution, provides for the exercise by local
government units of their power to tax, the scope thereof or its limitations, and the exemptions from local
taxation.

Section 133 of the LGC prescribes the common limitations on the taxing powers of local government units. x x x.

xxxx

The above-stated provision, however, qualified the exemption of the National Government, its agencies and
instrumentalities from local taxation with the phrase "unless otherwise provided herein."

Section 232 of the LGC provides for the power of the local government units (LGUs for brevity) to levy real
property tax. x x x.

xxxx

Section 234 of the LGC provides for the exemptions from payment of real property taxes and withdraws previous
exemptions granted to natural and juridical persons, including government-owned and controlled corporations,
except as provided therein. x x x.

xxxx

Section 193 of the LGC is the general provision on withdrawal of tax exemption privileges. x x x.24 (Citations
omitted.)

The Court of Appeals went on to state that contrary to the ruling of the Supreme Court in the 2006 MIAA case, it
finds and rules that:

a) Section 133 of the LGC is not an absolute prohibition on the power of the LGUs to tax the National Government,
its agencies and instrumentalities as the same is qualified by Sections 193, 232 and 234 which "otherwise
provided"; and

b) Petitioner MCIAA is a GOCC.25 (Emphasis ours.)

The Court of Appeals ratiocinated in the following manner:


Pursuant to the explicit provision of Section 193 of the LGC, exemptions previously enjoyed by persons, whether
natural or juridical, like the petitioner MCIAA, are deemed withdrawn upon the effectivity of the Code. Further, the
last paragraph of Section 234 of the Code also unequivocally withdrew, upon the Codes effectivity, exemptions
from payment of real property taxes previously granted to natural or juridical persons, including government-
owned or controlled corporations, except as provided in the said section. Petitioner MCIAA, undoubtedly a juridical
person, it follows that its exemption from such tax granted under Section 14 of R.A. 6958 has been withdrawn.

xxxx

From the [1996 MCIAA] ruling, it is acknowledged that, under Section 133 of the LGC, instrumentalities were
generally exempt from all forms of local government taxation, unless otherwise provided in the Code. On the other
hand, Section 232 "otherwise provided" insofar as it allowed local government units to levy an ad valorem real
property tax, irrespective of who owned the property. At the same time, the imposition of real property taxes
under Section 232 is, in turn, qualified by the phrase "not hereinafter specifically exempted." The exemptions from
real property taxes are enumerated in Section 234 of the Code which specifically states that only real properties
owned by the Republic of the Philippines or any of its political subdivisions are exempted from the payment of the
tax. Clearly, instrumentalities or GOCCs do not fall within the exceptions under Section 234 of the LGC.

Thus, as ruled in the [1996 MCIAA] case, the prohibition on taxing the national government, its agencies and
instrumentalities under Section 133 is qualified by Sections 232 and 234, and accordingly, the only relevant
exemption now applicable to these bodies is what is now provided under Section 234(a) of the Code. It may be
noted that the express withdrawal of previously granted exemptions to persons from the payment of real property
tax by the LGC does not even make any distinction as to whether the exempt person is a governmental entity or
not. As Sections 193 and 234 of the Code both state, the withdrawal applies to "all persons, including GOCCs," thus
encompassing the two classes of persons recognized under our laws, natural persons and juridical persons.

xxxx

The question of whether or not petitioner MCIAA is an instrumentality or a GOCC has already been lengthily but
soundly, cogently and lucidly answered in the [1996 MCIAA] case x x x.

xxxx

Based on the foregoing, the claim of the majority of the Supreme Court in the [2006 MIAA] case that MIAA (and
also petitioner MCIAA) is not a government-owned or controlled corporation but an instrumentality based on
Section 2(10) of the Administrative Code of 1987 appears to be unsound. In the [2006 MIAA] case, the majority
justifies MIAAs purported exemption on Section 133(o)of the Local Government Code which places "agencies and
instrumentalities: as generally exempt from the taxation powers of the LGUs. It further went on to hold that "By
express mandate of the Local Government Code, local governments cannot impose any kind of tax on national
government instrumentalities like the MIAA." x x x.26 (Citations omitted.)

The Court of Appeals further cited Justice Tingas dissent in the 2006 MIAA case as well as provisions from
petitioner MCIAAs charter to show that petitioner is a GOCC.27 The Court of Appeals wrote:

These cited provisions establish the fitness of the petitioner MCIAA to be the subject of legal relations. Under its
charter, it has the power to acquire, possess and incur obligations. It also has the power to contract in its own
name and to acquire title to movable or immovable property. More importantly, it may likewise exercise powers of
a corporation under the Corporation Code. Moreover, based on its own allegation, it even recognized itself as a
GOCC when it alleged in its petition for prohibition filed before the lower court that it "is a body corporate
organized and existing under Republic Act No. 6958 x x x."
We also find to be not meritorious the assertion of petitioner MCIAA that the respondent city can no longer
challenge the tax-exempt character of the properties since it is estopped from doing so when respondent City of
Lapu-Lapu, through its former mayor, Ernest H. Weigel, Jr., had long ago conceded that petitioners properties are
exempt from real property tax.

It is not denied by the respondent city that it considered, through its former mayor, Ernest H. Weigel, Jr.,
petitioners subject properties, specifically the runway and taxiway, as exempt from taxes. However, as astutely
pointed out by the respondent city it "can never be in estoppel, particularly in matters involving taxes. It is a well-
known rule that erroneous application and enforcement of the law by public officers do not preclude subsequent
correct application of the statute, and that the Government is never estopped by mistake or error on the part of its
agents."28 (Citations omitted.)

The Court of Appeals established the following:

a) [R]espondent City was able to prove and establish that it has a valid and existing ordinance for the imposition of
realty tax against petitioner MCIAA;

b) [T]he imposition and collection of additional levy of 1% Special Education Fund (SEF) is authorized by law,
Republic Act No. 5447; and

c) [T]he collection of penalty interest for delinquent taxes is not only authorized by law but is likewise [sanctioned]
by respondent Citys ordinance.29

The Court of Appeals likewise held that respondent City has a valid and existing local tax ordinance, Ordinance No.
44, or the Omnibus Tax Ordinance of Lapu-Lapu City, which provided for the imposition of real property tax. The
relevant provision reads:

Chapter 5 Tax on Real Property Ownership

Section 25. RATE OF TAX. - A rate of one and one-half (1 1/2) percentum shall be collected from owners, executors
or administrators of any real estate lying within the territorial jurisdiction of the City of Lapu-Lapu, based on the
assessed value as shown in the latest revision.30

The Court of Appeals found that even if Ordinance No. 44 was enacted prior to the effectivity of the LGC, it
remained in force and effect, citing Section 529 of the LGC and Article 278 of the LGCs Implementing Rules and
Regulations.31

As regards the Special Education Fund, the Court of Appeals held that respondent City can still collect the
additional 1% tax on real property even without an ordinance to this effect, as this is authorized by Republic Act
No. 5447, as amended by Presidential Decree No. 464 (the Real Property Tax Code), which does not require an
enabling tax ordinance. The Court of Appeals affirmed the RTCs ruling that Republic Act No. 5447 was still in force
and effect notwithstanding the passing of the LGC, as the latter only partially repealed the former law. What
Section 534 of the LGC repealed was Section 3 a(3) and b(2) of Republic Act No. 5447, and not the entire law that
created the Special Education Fund.32 The repealed provisions referred to allocation of taxes on Virginia type
cigarettes and duties on imported leaf tobacco and the percentage remittances to the taxing authority concerned.
The Court of Appeals, citing The Commission on Audit of the Province of Cebu v. Province of Cebu,33 held that
"[t]he failure to add a specific repealing clause particularly mentioning the statute to be repealed indicates that the
intent was not to repeal any existing law on the matter, unless an irreconcilable inconsistency and repugnancy
exists in the terms of the new and the old laws."34 The Court of Appeals quoted the RTCs discussion on this issue,
which we reproduce below:

It may be observed that there is no requirement in RA 7160 that an ordinance be enacted to enable the collection
of the additional 1% tax. This is so since R.A. 5447 is still in force and effect, and the declared policy of the
government in enacting the law, which is to contribute to the financial support of the goals of education as
provided in the Constitution, necessitates the continued and uninterrupted collection of the tax. Considering that
this is a tax of far-reaching importance, to require the passage of an ordinance in order that the tax may be
collected would be to place the collection of the tax at the option of the local legislature. This would run counter to
the declared policy of the government when the SEF was created and the tax imposed.35 Regarding the penalty
interest, the Court of Appeals found that Section 30 of Ordinance No. 44 of respondent City provided for a penalty
surcharge of 25% of the tax due for a given year. Said provision reads:

Section 30. PENALTY FOR FAILURE TO PAY TAX. Failure to pay the tax provided for under this Chapter within
the time fixed in Section 27, shall subject the taxpayer to a surcharge of twenty-five percent (25%), without
interest.36

The Court of Appeals however declared that after the effectivity of the Local Government Code, the respondent
City could only collect penalty surcharge up to the extent of 72%, covering a period of three years or 36 months,
for the entire delinquent property.37 This was lower than the 25% per annum surcharge imposed by Ordinance
No. 44.38 The Court of Appeals affirmed

the findings of the RTC in the decision quoted below:

The tax collected under Ordinance No. 44 is within the rates prescribed by RA 7160, though the 25% penalty
collected is higher than the 2% allowed under Sec. 255 of the said law which provides:

xxxx

This difference does not however detract from the essential enforceability and effectivity of Ordinance No. 44
pursuant to Section 529 of RA No. 7160 and Article 278 of the Implementing Rules and Regulations. The outcome
of this disparity is simply that respondent City can only collect an interest of 2% per month on the unpaid tax.
Consequently, respondent city will have to [recompute] the petitioners tax liability.39

It is worthy to note that the Court of Appeals nevertheless held that even if it is clear that respondent City has the
power to impose real property taxes over petitioner, "it is also evident and categorical that, under Republic Act No.
6958, the properties of petitioner MCIAA may not be conveyed or transferred to any person or entity except to the
national government."40 The relevant provisions of the said law are quoted below:

Section 4. Functions, Powers and Duties. The Authority shall have the following functions, powers and duties:

xxxx

(e) To acquire, purchase, own, administer, lease, mortgage, sell or otherwise dispose of any land, building, airport
facility, or property of whatever kind and nature, whether movable or immovable, or any interest therein:
Provided, That any asset located in the Mactan International Airport important to national security shall not be
subject to alienation or mortgage by the Authority nor to transfer to any entity other than the National
Government[.]

Section 13. Borrowing Power. The Authority may, in accordance with Section 21, Article XII of the Constitution
and other existing laws, rules and regulations on local or foreign borrowing, raise funds, either from local or
international sources, by way of loans, credit or securities, and other borrowing instruments with the power to
create pledges, mortgages and other voluntary liens or encumbrances on any of its assets or properties, subject to
the prior approval of the President of the Philippines.

All loans contracted by the Authority under this section, together with all interests and other sums payable in
respect thereof, shall constitute a charge upon all the revenues and assets of the Authority and shall rank equally
with one another, but shall have priority over any other claim or charge on the revenue and assets of the
Authority: Provided, That this provision shall not be construed as a prohibition or restriction on the power of the
Authority to create pledges, mortgages and other voluntary liens or encumbrances on any asset or property of the
Authority. The payment of the loans or other indebtedness of the Authority may be guaranteed by the National
Government subject to the approval of the President of the Philippines.

The Court of Appeals concluded that "it is clear that petitioner MCIAA is denied by its charter the absolute right to
dispose of its property to any person or entity except to the national government and it is not empowered to
obtain loans or encumber its property without the approval of the President."41 The questioned Decision
contained the following conclusion:

With the advent of RA 7160, the Local Government Code, the power to tax is no longer vested exclusively on
Congress. LGUs, through its local legislative bodies, are now given direct authority to levy taxes, fees and other
charges pursuant to Article X, Section 5 of the 1987 Constitution. And one of the most significant provisions of the
LGC is the removal of the blanket inclusion of instrumentalities and agencies of the national government from the
coverage of local taxation. The express withdrawal by the Code of previously granted exemptions from realty taxes
applied to instrumentalities and government-owned or controlled corporations (GOCCs) such as the petitioner
Mactan-Cebu International Airport Authority. Thus, petitioner MCIAA became a taxable person in view of the
withdrawal of the realty tax exemption that it previously enjoyed under Section 14 of RA No. 6958 of its charter. As
expressed and categorically held in the Mactan case, the removal and withdrawal of tax exemptions previously
enjoyed by persons, natural or juridical, are consistent with the State policy to ensure autonomy to local
governments and the objective of the Local Government Code that they enjoy genuine and meaningful local
autonomy to enable them to attain their fullest development as self-reliant communities and make them effective
partners in the attainment of national goals.

However, in the case at bench, petitioner MCIAAs charter expressly bars the alienation or mortgage of its property
to any person or entity except to the national government. Therefore, while petitioner MCIAA is a taxable person
for purposes of real property taxation, respondent City of Lapu-Lapu is prohibited from seizing, selling and owning
these properties by and through a public auction in order to satisfy petitioner MCIAAs tax liability.42 (Citations
omitted.)

In the questioned Resolution that affirmed its questioned Decision, the Court of Appeals denied petitioners
motion for reconsideration based on the following grounds:

First, the MCIAA case remains the controlling law on the matter as the same is the established precedent; not the
MIAA case but the MCIAA case since the former, as keenly pointed out by the respondent City of Lapu-Lapu, has
not yet attained finality as there is still yet a pending motion for reconsideration filed with the Supreme Court in
the aforesaid case.

Second, and more importantly, the ruling of the Supreme Court in the MIAA case cannot be similarly invoked in the
case at bench. The said case cannot be considered as the "law of the case." The "law of the case" doctrine has
been defined as that principle under which determinations of questions of law will generally be held to govern a
case throughout all its subsequent stages where such determination has already been made on a prior appeal to a
court of last resort. It is merely a rule of procedure and does not go to the power of the court, and will not be
adhered to where its application will result in an unjust decision. It relates entirely to questions of law, and is
confined in its operation to subsequent proceedings in the same case. According to said doctrine, whatever has
been irrevocably established constitutes the law of the case only as to the same parties in the same case and not
to different parties in an entirely different case. Besides, pending resolution of the aforesaid motion for
reconsideration in the MIAA case, the latter case has not irrevocably established anything.

Thus, after a thorough and judicious review of the allegations in petitioners motion for reconsideration, this Court
resolves to deny the same as the matters raised therein had already been exhaustively discussed in the decision
sought to be reconsidered, and that no new matters were raised which would warrant the modification, much less
reversal, thereof.43 (Emphasis added, citations omitted.)
PETITIONERS THEORY

Petitioner is before us now claiming that this Court, in the 2006 MIAA case, had expressly declared that petitioner,
while vested with corporate powers, is not considered a government-owned or controlled corporation, but is a
government instrumentality like the Manila International Airport Authority (MIAA), Philippine Ports Authority
(PPA), University of the Philippines, and Bangko Sentral ng Pilipinas (BSP). Petitioner alleges that as a government
instrumentality, all its airport lands and buildings are exempt from real estate taxes imposed by respondent City.44
Petitioner alleges that Republic Act No. 6958 placed "a limitation on petitioners administration of its assets and
properties" as it provides under Section 4(e) that "any asset in the international airport important to national
security cannot be alienated or mortgaged by petitioner or transferred to any entity other than the National
Government."45

Thus, petitioner claims that the Court of Appeals (Cebu City) gravely erred in disregarding the following:

PETITIONER IS A GOVERNMENT INSTRUMENTALITY AS EXPRESSLY DECLARED BY THE HONORABLE COURT IN THE


MIAA CASE. AS SUCH, IT IS EXEMPT FROM PAYING REAL ESTATE TAXES IMPOSED BY RESPONDENT CITY OF
LAPULAPU.

II

THE PROPERTIES OF PETITIONER CONSISTING OF THE AIRPORT TERMINAL BUILDING, AIRFIELD, RUNWAY,
TAXIWAY, INCLUDING THE LOTS ON WHICH THEY ARE SITUATED, ARE EXEMPT FROM REAL PROPERTY TAXES.

III

RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE REAL PROPERTY TAX WITHOUT ANY APPROPRIATE
ORDINANCE.

IV

RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE AN ADDITIONAL 1% TAX FOR THE SPECIAL EDUCATION FUND
IN THE ABSENCE OF ANY CORRESPONDING ORDINANCE.

RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE ANY INTEREST SANS ANY ORDINANCE MANDATING ITS
IMPOSITION.

Petitioner claims the following similarities with MIAA:

1. MCIAA belongs to the same class and performs identical functions as MIAA;

2. MCIAA is a public utility like MIAA;

3. MIAA was organized to operate the international and domestic airport in Paranaque City for public use, while
MCIAA was organized to operate the international and domestic airport in Mactan for public use.

4. Both are attached agencies of the Department of Transportation and Communications.47

Petitioner compares its charter (Republic Act No. 6958) with that of MIAA (Executive Order No. 903).
Section 3 of Executive Order No. 903 provides:

Sec. 3. Creation of the Manila International Airport Authority. There is hereby established a body corporate to be
known as the Manila International Airport Authority which shall be attached to the Ministry of Transportation and
Communications. The principal office of the Authority shall be located at the New Manila International Airport. The
Authority may establish such offices, branches, agencies or subsidiaries as it may deem proper and necessary; x x x.

Section 2 of Republic Act No. 6958 reads:

Section 2. Creation of the Mactan-Cebu International Airport Authority. There is hereby established a body
corporate to be known as the Mactan-Cebu International Airport Authority which shall be attached to the
Department of Transportation and Communications. The principal office of the Authority shall be located at the
Mactan International Airport, Province of Cebu.

The Authority may have such branches, agencies or subsidiaries as it may deem proper and necessary.

As to MIAAs purposes and objectives, Section 4 of Executive Order No. 903 reads:

Sec. 4. Purposes and Objectives. The Authority shall have the following purposes and objectives:

(a) To help encourage and promote international and domestic air traffic in the Philippines as a means of making
the Philippines a center of international trade and tourism and accelerating the development of the means of
transportation and communications in the country;

(b) To formulate and adopt for application in the Airport internationally acceptable standards of airport
accommodation and service; and

(c) To upgrade and provide safe, efficient, and reliable airport facilities for international and domestic air travel.

Petitioner claims that the above purposes and objectives are analogous to those enumerated in its charter,
specifically Section 3 of Republic Act No. 6958, which reads:

Section 3. Primary Purposes and Objectives. The Authority shall principally undertake the economical, efficient
and effective control, management and supervision of the Mactan International Airport in the Province of Cebu
and the Lahug Airport in Cebu City, hereinafter collectively referred to as the airports, and such other airports as
may be established in the Province of Cebu. In addition, it shall have the following objectives:

(a) To encourage, promote and develop international and domestic air traffic in the central Visayas and Mindanao
regions as a means of making the regions centers of international trade and tourism, and accelerating the
development of the means of transportation and communications in the country; and

(b) To upgrade the services and facilities of the airports and to formulate internationally acceptable standards of
airport accommodation and service.

The powers, functions and duties of MIAA under Section 5 of Executive Order No. 903 are:

Sec. 5. Functions, Powers and Duties. The Authority shall have the following functions, powers and duties:

(a) To formulate, in coordination with the Bureau of Air Transportation and other appropriate government
agencies, a comprehensive and integrated policy and program for the Airport and to implement, review and
update such policy and program periodically;
(b) To control, supervise, construct, maintain, operate and provide such facilities or services as shall be necessary
for the efficient functioning of the Airport;

(c) To promulgate rules and regulations governing the planning, development, maintenance, operation and
improvement of the Airport, and to control and/or supervise as may be necessary the construction of any structure
or the rendition of any services within the Airport;

(d) To sue and be sued in its corporate name;

(e) To adopt and use a corporate seal;

(f) To succeed by its corporate name;

(g) To adopt its by-laws, and to amend or repeal the same from time to time;

(h) To execute or enter into contracts of any kind or nature;

(i) To acquire, purchase, own, administer, lease, mortgage, sell or otherwise dispose of any land, building, airport
facility, or property of whatever kind and nature, whether movable or immovable, or any interest therein;

(j) To exercise the power of eminent domain in the pursuit of its purposes and objectives;

(k) To levy, and collect dues, charges, fees or assessments for the use of the Airport premises, works, appliances,
facilities or concessions or for any service provided by the Authority, subject to the approval of the Minister of
Transportation and Communications in consultation with the Minister of Finance, and subject further to the
provisions of Batas Pambansa Blg. 325 where applicable;

(l) To invest its idle funds, as it may deem proper, in government securities and other evidences of indebtedness of
the government;

(m) To provide services, whether on its own or otherwise, within the Airport and the approaches thereof, which
shall include but shall not be limited to, the following:

(1) Aircraft movement and allocation of parking areas of aircraft on the ground;

(2) Loading or unloading of aircrafts;

(3) Passenger handling and other services directed towards the care, convenience and security of passengers,
visitors and other airport users; and

(4) Sorting, weighing, measuring, warehousing or handling of baggage and goods.

(n) To perform such other acts and transact such other business, directly or indirectly necessary, incidental or
conducive to the attainment of the purposes and objectives of the Authority, including the adoption of necessary
measures to remedy congestion in the Airport; and

(o) To exercise all the powers of a corporation under the Corporation Law, insofar as these powers are not
inconsistent with the provisions of this Executive Order.

Petitioner claims that MCIAA has related functions, powers and duties under Section 4 of Republic Act No. 6958, as
shown in the provision quoted below:

Section 4. Functions, Powers and Duties. The Authority shall have the following functions, powers and duties:
(a) To formulate a comprehensive and integrated development policy and program for the airports and to
implement, review and update such policy and program periodically;

(b) To control, supervise, construct, maintain, operate and provide such facilities or services as shall be necessary
for the efficient functioning of the airports;

(c) To promulgate rules and regulations governing the planning, development, maintenance, operation and
improvement of the airports, and to control and supervise the construction of any structure or the rendition of any
service within the airports;

(d) To exercise all the powers of a corporation under the Corporation Code of the Philippines, insofar as those
powers are not inconsistent with the provisions of this Act;

(e) To acquire, purchase, own, administer, lease, mortgage, sell or otherwise dispose of any land, building, airport
facility, or property of whatever kind and nature, whether movable or immovable, or any interest therein:
Provided, That any asset located in the Mactan International Airport important to national security shall not be
subject to alienation or mortgage by the Authority nor to transfer to any entity other than the National
Government;

(f) To exercise the power of eminent domain in the pursuit of its purposes and objectives;

(g) To levy and collect dues, charges, fees or assessments for the use of airport premises, works, appliances,
facilities or concessions, or for any service provided by the Authority;

(h) To retain and appropriate dues, fees and charges collected by the Authority relative to the use of airport
premises for such measures as may be necessary to make the Authority more effective and efficient in the
discharge of its assigned tasks;

(i) To invest its idle funds, as it may deem proper, in government securities and other evidences of indebtedness;
and

(j) To provide services, whether on its own or otherwise, within the airports and the approaches thereof as may be
necessary or in connection with the maintenance and operation of the airports and their facilities.

Petitioner claims that like MIAA, it has police authority within its premises, as shown in their respective charters
quoted below:

EO 903, Sec. 6. Police Authority. The Authority shall have the power to exercise such police authority as may be
necessary within its premises to carry out its functions and attain its purposes and objectives, without prejudice to
the exercise of functions within the same premises by the Ministry of National Defense through the Aviation
Security Command (AVSECOM) as provided in LOI 961: Provided, That the Authority may request the assistance of
law enforcement agencies, including request for deputization as may be required. x x x.

R.A. No. 6958, Section 5. Police Authority. The Authority shall have the power to exercise such police authority as
may be necessary within its premises or areas of operation to carry out its functions and attain its purposes and
objectives: Provided, That the Authority may request the assistance of law enforcement agencies, including
request for deputization as may be required. x x x.

Petitioner pointed out other similarities in the two charters, such as:

1. Both MCIAA and MIAA are covered by the Civil Service Law, rules and regulations (Section 15, Executive Order
No. 903; Section 12, Republic Act No. 6958);
2. Both charters contain a proviso on tax exemptions (Section 21, Executive Order No. 903; Section 14, Republic
Act No. 6958);

3. Both MCIAA and MIAA are required to submit to the President an annual report generally dealing with their
activities and operations (Section 14, Executive Order No. 903; Section 11, Republic Act No. 6958); and

4. Both have borrowing power subject to the approval of the President (Section 16, Executive Order No. 903;
Section 13, Republic Act No. 6958).48

Petitioner suggests that it is because of its similarity with MIAA that this Court, in the 2006 MIAA case, placed it in
the same class as MIAA and considered it as a government instrumentality. Petitioner submits that since it is also a
government instrumentality like MIAA, the following conclusion arrived by the Court in the 2006 MIAA case is also
applicable to petitioner:

Under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code, which governs the legal
relation and status of government units, agencies and offices within the entire government machinery, MIAA is a
government instrumentality and not a government-owned or controlled corporation. Under Section 133(o) of the
Local Government Code, MIAA as a government instrumentality is not a taxable person because it is not subject to
"[t]axes, fees or charges of any kind" by local governments. The only exception is when MIAA leases its real
property to a "taxable person" as provided in Section 234(a) of the Local Government Code, in which case the
specific real property leased becomes subject to real estate tax. Thus, only portions of the Airport Lands and
Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Paraaque.

Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being devoted to public use, are
properties of public dominion and thus owned by the State or the Republic of the Philippines. Article 420
specifically mentions "ports x x x constructed by the State," which includes public airports and seaports, as
properties of public dominion and owned by the Republic. As properties of public dominion owned by the
Republic, there is no doubt whatsoever that the Airport Lands and Buildings are expressly exempt from real estate
tax under Section 234(a) of the Local Government Code. This Court has also repeatedly ruled that properties of
public dominion are not subject to execution or foreclosure sale.49 (Emphases added.)

Petitioner insists that its properties consisting of the airport terminal building, airfield, runway, taxiway and the
lots on which they are situated are not subject to real property tax because they are actually, solely and exclusively
used for public purposes.50 They are indispensable to the operation of the Mactan International Airport and by
their very nature, these properties are exempt from tax. Said properties belong to the State and are merely held by
petitioner in trust. As earlier mentioned, petitioner claims that these properties are important to national security
and cannot be alienated, mortgaged, or transferred to any entity except the National Government.

Petitioner prays that judgment be rendered:

a) Declaring petitioner exempt from paying real property taxes as it is a government instrumentality;

b) Declaring respondent City of Lapu-Lapu as bereft of any authority to levy and collect the basic real property tax,
the additional tax for the SEF and the penalty interest for its failure to pass the corresponding tax ordinances; and

c) Declaring, in the alternative, the airport lands and buildings of petitioner as exempt from real property taxes as
they are used solely and exclusively for public purpose.51

In its Consolidated Reply filed through the OSG, petitioner claims that the 2006 MIAA ruling has overturned the
1996 MCIAA ruling. Petitioner cites Justice Dante O. Tingas dissent in the MIAA ruling, as follows:
[The] ineluctable conclusion is that the majority rejects the rationale and ruling in Mactan. The majority provides
for a wildly different interpretation of Section 133, 193 and 234 of the Local Government Code than that employed
by the Court in Mactan. Moreover, the parties in Mactan and in this case are similarly situated, as can be obviously
deducted from the fact that both petitioners are airport authorities operating under similarly worded charters.
And the fact that the majority cites doctrines contrapuntal to the Local Government Code as in Basco and Maceda
evinces an intent to go against the Courts jurisprudential trend adopting the philosophy of expanded local
government rule under the Local Government Code.

x x x The majority is obviously inconsistent with Mactan and there is no way these two rulings can stand together.
Following basic principles in statutory construction, Mactan will be deemed as giving way to this new ruling.

xxxx

There is no way the majority can be justified unless Mactan is overturned. The MCIAA and the MIAA are similarly
situated. They are both, as will be demonstrated, GOCCs, commonly engaged in the business of operating an
airport. They are the owners of airport properties they respectively maintain and hold title over these properties in
their name. These entities are both owned by the State, and denied by their respective charters the absolute right
to dispose of their properties without prior approval elsewhere. Both of them are not empowered to obtain loans
or encumber their properties without prior approval the prior approval of the President.52 (Citations omitted.)

Petitioner likewise claims that the enactment of Ordinance No. 070-2007 is an admission on respondent Citys part
that it must have a tax measure to be able to impose a tax or special assessment. Petitioner avers that assuming
that it is a non-exempt entity or that its airport lands and buildings are not exempt, it was only upon the effectivity
of Ordinance No. 070-2007 on January 1,2008 that respondent City could properly impose the basic real property
tax, the additional tax for the SEF, and the interest in case of nonpayment.53

Petitioner filed its Memorandum54 on June 17, 2009.

RESPONDENTS THEORY

In their Comment,55 respondents point out that petitioner partially moved for a reconsideration of the questioned
Decision only as to the issue of whether petitioner is a GOCC or not. Thus, respondents declare that the other
portions of the questioned decision had already attained finality and ought not to be placed in issue in this petition
for certiorari. Thus, respondents discussed the other issues raised by petitioner with reservation as to this
objection. Respondents summarized the issues and the grounds relied upon as follows:

STATEMENT OF THE ISSUES

WHETHER OR NOT PETITIONER IS A GOVERNMENT INSTRUMENTALITY EXEMPT FROM PAYING REAL PROPERTY
TAXES

WHETHER OR NOT RESPONDENT CITY CAN [IMPOSE] REALTY TAX, SPECIAL EDUCATION FUND AND PENALTY
INTEREST

WHETHER OR NOT THE AIRPORT TERMINAL BUILDING, AIRFIELD, RUNWAY, TAXIWAY INCLUDING THE LOTS ON
WHICH THEY ARE SITUATED ARE EXEMPT FROM REALTY TAXES

GROUNDS RELIED UPON

1. PETITIONER IS A GOCC HENCE NOT EXEMPT FROM REALTY TAXES

2. TERMINAL BUILDING, RUNWAY, TAXIWAY ARE NOT EXEMPT FROM REALTY TAXES
3. ESTOPPEL DOES NOT LIE AGAINST GOVERNMENT

4. CITY CAN COLLECT REALTY TAX AND INTEREST

5. CITY CAN COLLECT SEF

6. MCIAA HAS NOT SHOWN ANY IRREPARABLE INJURY WARRANTING INJUNCTIVE RELIEF

7. MCIAA HAS NOT COMPLIED WITH PROVISION OF THE LGC56

Respondents claim that "the mere mention of MCIAA in the MIAA v. [Court of Appeals] case does not make it the
controlling case on the matter."57 Respondents further claim that the 1996 MCIAA case where this Court held that
petitioner is a GOCC is the controlling jurisprudence. Respondents point out that petitioner and MIAA are two very
different entities. Respondents argue that petitioner is a GOCC contrary to its assertions, based on its Charter and
on DOJ Opinion No. 50.

Respondents contend that if petitioner is not a GOCC but an instrumentality of the government, still the following
statement in the 1996 MCIAA case applies:

Besides, nothing can prevent Congress from decreeing that even instrumentalities or agencies of the Government
performing governmental functions may be subject to tax. Where it is done precisely to fulfill a constitutional
mandate and national policy, no one can doubt its wisdom.58 Respondents argue that MCIAA properties such as
the terminal building, taxiway and runway are not exempt from real property taxation. As discussed in the 1996
MCIAA case, Section 234 of the LGC omitted GOCCs such as MCIAA from entities enjoying tax exemptions. Said
decision also provides that the transfer of ownership of the land to petitioner was absolute and petitioner cannot
evade payment of taxes.59

Even if the following issues were not raised by petitioner in its motion for reconsideration of the questioned
Decision, and thus the ruling pertaining to these issues in the questioned decision had become final, respondents
still discussed its side over its objections as to the propriety of bringing these up before this Court.

1. Estoppel does not lie against the government.

2. Respondent City can collect realty taxes and interest.

a. Based on the Local Government Code (Sections 232, 233, 255) and its IRR (Sections 241, 247).

b. The City of Lapu-Lapu passed in1980 Ordinance No. 44, or the Omnibus Tax Ordinance, wherein the imposition
of real property tax was made. This Ordinance was in force and effect by virtue of Article 278 of the IRR of Republic
Act No. 7160.60

c. Ordinance No. 070-2007, known as the Revised Lapu-Lapu City Revenue Code, imposed real property taxes,
special education fund and further provided for the payment of interest and surcharges. Thus, the issue is pass
and is moot and academic.

3. Respondent City can collect Special Education Fund.

a. The LGC does not require the enactment of an ordinance for the collection of the SEF.

b. Congress did not entirely repeal the SEF law, hence, its levy, imposition and collection need not be covered by
ordinance. Besides, the City has enacted the Revenue Code containing provisions for the levy and collection of the
SEF.61
Furthermore, respondents aver that:

1. Collection of taxes is beyond the ambit of injunction.

a. Respondents contend that the petition only questions the denial of the writ of preliminary injunction by the RTC
and the Court of Appeals. Petitioner failed to show irreparable injury.

b. Comparing the alleged damage that may be caused petitioner and the direct affront and challenge against the
power to tax, which is an attribute of sovereignty, it is but appropriate that injunctive relief should be denied.

2. Petitioner did not comply with LGC provisions on payment under protest.

a. Petitioner should have protested the tax imposition as provided in Article 285 of the IRR of Republic Act No.
7160. Section 252 of Republic Act No. 716062 requires that the taxpayers protest can only be entertained if the
tax is first paid under protest.63

Respondents submitted their Memorandum64 on June 30, 2009, wherein they allege that the 1996 MCIAA case is
still good law, as shown by the following cases wherein it was quoted:

1. National Power Corporation v. Local Board of Assessment Appeals of Batangas [545 Phil. 92 (2007)];

2. Mactan-Cebu International Airport Authority v. Urgello [549 Phil. 302 (2007)];

3. Quezon City v. ABS-CBN Broadcasting Corporation[588 Phil. 785 (2008)]; and

4. The City of Iloilo v. Smart Communications, Inc. [599 Phil. 492 (2009)].

Respondents assert that the constant reference to the 1996 MCIAA case "could hardly mean that the doctrine has
breathed its last" and that the 1996 MCIAA case stands as precedent and is controlling on petitioner MCIAA.65

Respondents allege that the issue for consideration is whether it is proper for petitioner to raise the issue of
whether it is not liable to pay real property taxes, special education fund (SEF), interests and/or surcharges.66
Respondents argue that the Court of Appeals was correct in declaring petitioner liable for realty taxes, etc., on the
terminal building, taxiway, and runway. Respondent City relies on the following grounds:

1. The case of MCIAA v. Marcos, et al., is controlling on petitioner MCIAA;

2. MCIAA is a corporation;

3. Section 133 in relation to Sections 232 and 234 of the Local Government Code of 1991 authorizes the collection
of real property taxes (etc.) from MCIAA;

4. Terminal Building, Runway & Taxiway are not of the Public Dominion and are not exempt from realty taxes,
special education fund and interest;

5. Respondent City can collect realty tax, interest/surcharge, and Special Education Fund from MCIAA; [and]

6. Estoppel does not lie against the government.67

THIS COURTS RULING

The petition has merit. The petitioner is an instrumentality of the government; thus, its properties actually, solely
and exclusively used for public purposes, consisting of the airport terminal building, airfield, runway, taxiway and
the lots on which they are situated, are not subject to real property tax and respondent City is not justified in
collecting taxes from petitioner over said properties.

DISCUSSION

The Court of Appeals (Cebu City) erred in declaring that the 1996 MCIAA case still controls and that petitioner is a
GOCC. The 2006 MIAA case governs.

The Court of Appeals reliance on the 1996 MCIAA case is misplaced and its staunch refusal to apply the 2006 MIAA
case is patently erroneous. The Court of Appeals, finding for respondents, refused to apply the ruling in the 2006
MIAA case on the premise that the same had not yet reached finality, and that as far as MCIAA is concerned, the
1996 MCIAA case is still good law.68

While it is true, as respondents allege, that the 1996 MCIAA case was cited in a long line of cases,69 still, in 2006,
the Court en banc decided a case that in effect reversed the 1996 Mactan ruling. The 2006 MIAA case had, since
the promulgation of the questioned Decision and Resolution, reached finality and had in fact been either affirmed
or cited in numerous cases by the Court.70 The decision became final and executory on November 3, 2006.71
Furthermore, the 2006 MIAA case was decided by the Court en banc while the 1996 MCIAA case was decided by a
Division. Hence, the 1996 MCIAA case should be read in light of the subsequent and unequivocal ruling in the 2006
MIAA case.

To recall, in the 2006 MIAA case, we held that MIAAs airport lands and buildings are exempt from real estate tax
imposed by local governments; that it is not a GOCC but an instrumentality of the national government, with its
real properties being owned by the Republic of the Philippines, and these are exempt from real estate tax.
Specifically referring to petitioner, we stated as follows:

Many government instrumentalities are vested with corporate powers but they do not become stock or non-stock
corporations, which is a necessary condition before an agency or instrumentality is deemed a government-owned
or controlled corporation. Examples are the Mactan International Airport Authority, the Philippine Ports Authority,
the University of the Philippines and Bangko Sentral ng Pilipinas. All these government instrumentalities exercise
corporate powers but they are not organized as stock or non-stock corporations as required by Section 2(13) of the
Introductory Provisions of the Administrative Code. These government instrumentalities are sometimes loosely
called government corporate entities. However, they are not government-owned or controlled corporations in the
strict sense as understood under the Administrative Code, which is the governing law defining the legal
relationship and status of government entities.72 (Emphases ours.)

In the 2006 MIAA case, the issue before the Court was "whether the Airport Lands and Buildings of MIAA are
exempt from real estate tax under existing laws."73 We quote the extensive discussion of the Court that led to its
finding that MIAAs lands and buildings were exempt from real estate tax imposed by local governments:

First, MIAA is not a government-owned or controlled corporation but an instrumentality of the National
Government and thus exempt from local taxation. Second, the real properties of MIAA are owned by the Republic
of the Philippines and thus exempt from real estate tax.

1. MIAA is Not a Government-Owned or Controlled Corporation

xxxx

There is no dispute that a government-owned or controlled corporation is not exempt from real estate tax.
However, MIAA is not a government-owned or controlled corporation. Section 2(13) of the Introductory Provisions
of the Administrative Code of 1987 defines a government-owned or controlled corporation as follows:
SEC. 2. General Terms Defined. - x x x (13) Government-owned or controlled corporation refers to any agency
organized as a stock or non-stock corporation, vested with functions relating to public needs whether
governmental or proprietary in nature, and owned by the Government directly or through its instrumentalities
either wholly, or, where applicable as in the case of stock corporations, to the extent of at least fifty-one (51)
percent of its capital stock: x x x.

A government-owned or controlled corporation must be "organized as a stock or non-stock corporation." MIAA is


not organized as a stock or non-stock corporation. MIAA is not a stock corporation because it has no capital stock
divided into shares. MIAA has no stockholders or voting shares. x x x

xxxx

Clearly, under its Charter, MIAA does not have capital stock that is divided into shares.

Section 3 of the Corporation Code defines a stock corporation as one whose "capital stock is divided into shares
and x x x authorized to distribute to the holders of such shares dividends x x x." MIAA has capital but it is not
divided into shares of stock. MIAA has no stockholders or voting shares. Hence, MIAA is not a stock corporation.

MIAA is also not a non-stock corporation because it has no members. Section 87 of the Corporation Code defines a
non-stock corporation as "one where no part of its income is distributable as dividends to its members, trustees or
officers." A non-stock corporation must have members. Even if we assume that the Government is considered as
the sole member of MIAA, this will not make MIAA a non-stock corporation. Non-stock corporations cannot
distribute any part of their income to their members. Section 11 of the MIAA Charter mandates MIAA to remit 20%
of its annual gross operating income to the National Treasury. This prevents MIAA from qualifying as a non-stock
corporation.

Section 88 of the Corporation Code provides that non-stock corporations are "organized for charitable, religious,
educational, professional, cultural, recreational, fraternal, literary, scientific, social, civil service, or similar
purposes, like trade, industry, agriculture and like chambers." MIAA is not organized for any of these purposes.
MIAA, a public utility, is organized to operate an international and domestic airport for public use.

Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a government-owned or
controlled corporation. What then is the legal status of MIAA within the National Government?

MIAA is a government instrumentality vested with corporate powers to perform efficiently its governmental
functions. MIAA is like any other government instrumentality, the only difference is that MIAA is vested with
corporate powers. Section 2(10) of the Introductory Provisions of the Administrative Code defines a government
"instrumentality" as follows:

SEC. 2. General Terms Defined. - x x x

(10) Instrumentality refers to any agency of the National Government, not integrated within the department
framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational autonomy, usually through a charter. x x x.

When the law vests in a government instrumentality corporate powers, the instrumentality does not become a
corporation. Unless the government instrumentality is organized as a stock or non-stock corporation, it remains a
government instrumentality exercising not only governmental but also corporate powers. Thus, MIAA exercises
the governmental powers of eminent domain, police authority and the levying of fees and charges. At the same
time, MIAA exercises "all the powers of a corporation under the Corporation Law, insofar as these powers are not
inconsistent with the provisions of this Executive Order."
Likewise, when the law makes a government instrumentality operationally autonomous, the instrumentality
remains part of the National Government machinery although not integrated with the department framework. The
MIAA Charter expressly states that transforming MIAA into a "separate and autonomous body" will make its
operation more "financially viable."

Many government instrumentalities are vested with corporate powers but they do not become stock or non-stock
corporations, which is a necessary condition before an agency or instrumentality is deemed a government-owned
or controlled corporation. Examples are the Mactan International Airport Authority, the Philippine Ports Authority,
the University of the Philippines and Bangko Sentral ng Pilipinas. All these government instrumentalities exercise
corporate powers but they are not organized as stock or non-stock corporations as required by Section 2(13) of the
Introductory Provisions of the Administrative Code. These government instrumentalities are sometimes loosely
called government corporate entities. However, they are not government-owned or controlled corporations in the
strict sense as understood under the Administrative Code, which is the governing law defining the legal
relationship and status of government entities.74 (Emphases ours, citations omitted.)

The Court in the 2006 MIAA case went on to discuss the limitation on the taxing power of the local governments as
against the national government or its instrumentality:

A government instrumentality like MIAA falls under Section 133(o) of the Local Government Code, which states:

SEC. 133. Common Limitations on the Taxing Powers of Local Government Units.- Unless otherwise provided
herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the
levy of the following:

xxxx

(o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities and local
government units. x x x.

Section 133(o) recognizes the basic principle that local governments cannot tax the national government, which
historically merely delegated to local governments the power to tax. While the 1987 Constitution now includes
taxation as one of the powers of local governments, local governments may only exercise such power "subject to
such guidelines and limitations as the Congress may provide."

When local governments invoke the power to tax on national government instrumentalities, such power is
construed strictly against local governments. The rule is that a tax is never presumed and there must be clear
language in the law imposing the tax. Any doubt whether a person, article or activity is taxable is resolved against
taxation. This rule applies with greater force when local governments seek to tax national government
instrumentalities.

Another rule is that a tax exemption is strictly construed against the taxpayer claiming the exemption. However,
when Congress grants an exemption to a national government instrumentality from local taxation, such exemption
is construed liberally in favor of the national government instrumentality. x x x.

xxxx

There is, moreover, no point in national and local governments taxing each other, unless a sound and compelling
policy requires such transfer of public funds from one government pocket to another.

There is also no reason for local governments to tax national government instrumentalities for rendering essential
public services to inhabitants of local governments. The only exception is when the legislature clearly intended to
tax government instrumentalities for the delivery of essential public services for sound and compelling policy
considerations. There must be express language in the law empowering local governments to tax national
government instrumentalities. Any doubt whether such power exists is resolved against local governments.

Thus, Section 133 of the Local Government Code states that "unless otherwise provided" in the Code, local
governments cannot tax national government instrumentalities. x x x.75 (Emphases ours, citations omitted.)

The Court emphasized that the airport lands and buildings of MIAA are owned by the Republic and belong to the
public domain. The Court said:

The Airport Lands and Buildings of MIAA are property of public dominion and therefore owned by the State or the
Republic of the Philippines. x x x.

xxxx

No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code, like "roads,
canals, rivers, torrents, ports and bridges constructed by the State," are owned by the State. The term "ports"
includes seaports and airports. The MIAA Airport Lands and Buildings constitute a "port" constructed by the State.
Under Article 420 of the Civil Code, the MIAA Airport Lands and Buildings are properties of public dominion and
thus owned by the State or the Republic of the Philippines.

The Airport Lands and Buildings are devoted to public use because they are used by the public for international
and domestic travel and transportation. The fact that the MIAA collects terminal fees and other charges from the
public does not remove the character of the Airport Lands and Buildings as properties for public use. x x x.

xxxx

The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to airlines, constitute the
bulk of the income that maintains the operations of MIAA. The collection of such fees does not change the
character of MIAA as an airport for public use. Such fees are often termed users tax. This means taxing those
among the public who actually use a public facility instead of taxing all the public including those who never use
the particular public facility. A users tax is more equitable - a principle of taxation mandated in the 1987
Constitution.

The Airport Lands and Buildings of MIAA x x x are properties of public dominion because they are intended for
public use. As properties of public dominion, they indisputably belong to the State or the Republic of the
Philippines.76 (Emphases supplied, citations omitted.)

The Court also held in the 2006 MIAA case that airport lands and buildings are outside the commerce of man.

As properties of public dominion, the Airport Lands and Buildings are outside the commerce of man. The Court has
ruled repeatedly that properties of public dominion are outside the commerce of man. As early as 1915, this Court
already ruled in Municipality of Cavite v. Rojas that properties devoted to public use are outside the commerce of
man, thus:

xxxx

The Civil Code, Article 1271, prescribes that everything which is not outside the commerce of man may be the
object of a contract, x x x.

xxxx

The Court has also ruled that property of public dominion, being outside the commerce of man, cannot be the
subject of an auction sale.
Properties of public dominion, being for public use, are not subject to levy, encumbrance or disposition through
public or private sale. Any encumbrance, levy on execution or auction sale of any property of public dominion is
void for being contrary to public policy. Essential public services will stop if properties of public dominion are
subject to encumbrances, foreclosures and auction sale. This will happen if the City of Paraaque can foreclose and
compel the auction sale of the 600-hectare runway of the MIAA for non-payment of real estate tax.

Before MIAA can encumber the Airport Lands and Buildings, the President must first withdraw from public use the
Airport Lands and Buildings. x x x.

xxxx

Thus, unless the President issues a proclamation withdrawing the Airport Lands and Buildings from public use,
these properties remain properties of public dominion and are inalienable. Since the Airport Lands and Buildings
are inalienable in their present status as properties of public dominion, they are not subject to levy on execution or
foreclosure sale. As long as the Airport Lands and Buildings are reserved for public use, their ownership remains
with the State or the Republic of the Philippines.

The authority of the President to reserve lands of the public domain for public use, and to withdraw such public
use, is reiterated in Section 14, Chapter 4, Title I, Book III of the Administrative Code of 1987, which states:

SEC. 14. Power to Reserve Lands of the Public and Private Domain of the Government. - (1) The President shall
have the power to reserve for settlement or public use, and for specific public purposes, any of the lands of the
public domain, the use of which is not otherwise directed by law. The reserved land shall thereafter remain subject
to the specific public purpose indicated until otherwise provided by law or proclamation;

xxxx

There is no question, therefore, that unless the Airport Lands and Buildings are withdrawn by law or presidential
proclamation from public use, they are properties of public dominion, owned by the Republic and outside the
commerce of man.77

Thus, the Court held that MIAA is "merely holding title to the Airport Lands and Buildings in trust for the Republic.
[Under] Section 48, Chapter 12, Book I of the Administrative Code [which] allows instrumentalities like MIAA to
hold title to real properties owned by the Republic."

The Court in the 2006 MIAA case cited Section 234(a) of the Local Government Code and held that said provision
exempts from real estate tax any "[r]eal property owned by the Republic of the Philippines."79 The Court
emphasized, however, that "portions of the Airport Lands and Buildings that MIAA leases to private entities are not
exempt from real estate tax." The Court further held:

This exemption should be read in relation with Section 133(o) of the same Code, which prohibits local
governments from imposing "[t]axes, fees or charges of any kind on the National Government, its agencies and
instrumentalities x x x." The real properties owned by the Republic are titled either in the name of the Republic
itself or in the name of agencies or instrumentalities of the National Government. The Administrative Code allows
real property owned by the Republic to be titled in the name of agencies or instrumentalities of the national
government. Such real properties remain owned by the Republic and continue to be exempt from real estate tax.

The Republic may grant the beneficial use of its real property to an agency or instrumentality of the national
government. This happens when title of the real property is transferred to an agency or instrumentality even as
the Republic remains the owner of the real property. Such arrangement does not result in the loss of the tax
exemption. Section 234(a) of the Local Government Code states that real property owned by the Republic loses its
tax exemption only if the "beneficial use thereof has been granted, for consideration or otherwise, to a taxable
person." MIAA, as a government instrumentality, is not a taxable person under Section 133(o) of the Local
Government Code. Thus, even if we assume that the Republic has granted to MIAA the beneficial use of the Airport
Lands and Buildings, such fact does not make these real properties subject to real estate tax.

However, portions of the Airport Lands and Buildings that MIAA leases to private entities are not exempt from real
estate tax. For example, the land area occupied by hangars that MIAA leases to private corporations is subject to
real estate tax. In such a case, MIAA has granted the beneficial use of such land area for a consideration to a
taxable person and therefore such land area is subject to real estate tax. x x x.80

Significantly, the Court reiterated the above ruling and applied the same reasoning in Manila International Airport
Authority v. City of Pasay,81 thus:

The only difference between the 2006 MIAA case and this case is that the 2006 MIAA case involved airport lands
and buildings located in Paraaque City while this case involved airport lands and buildings located in Pasay City.
The 2006 MIAA case and this case raised the same threshold issue: whether the local government can impose real
property tax on the airport lands, consisting mostly of the runways, as well as the airport buildings, of MIAA. x x x.

xxxx

The definition of "instrumentality" under Section 2(10) of the Introductory Provisions of the Administrative Code of
1987 uses the phrase "includes x x x government-owned or controlled corporations" which means that a
government "instrumentality" may or may not be a "government-owned or controlled corporation." Obviously, the
term government "instrumentality" is broader than the term "government-owned or controlled corporation." x x x.

xxxx

The fact that two terms have separate definitions means that while a government "instrumentality" may include a
"government-owned or controlled corporation," there may be a government "instrumentality" that will not qualify
as a "government-owned or controlled corporation."

A close scrutiny of the definition of "government-owned or controlled corporation" in Section 2(13) will show that
MIAA would not fall under such definition. MIAA is a government "instrumentality" that does not qualify as a
"government-owned or controlled corporation." x x x.

xxxx

Thus, MIAA is not a government-owned or controlled corporation but a government instrumentality which is
exempt from any kind of tax from the local governments. Indeed, the exercise of the taxing power of local
government units is subject to the limitations enumerated in Section 133 of the Local Government Code. Under
Section 133(o) of the Local Government Code, local government units have no power to tax instrumentalities of
the national government like the MIAA. Hence, MIAA is not liable to pay real property tax for the NAIA Pasay
properties. Furthermore, the airport lands and buildings of MIAA are properties of public dominion intended for
public use, and as such are exempt from real property tax under Section 234(a) of the Local Government Code.
However, under the same provision, if MIAA leases its real property to a taxable person, the specific property
leased becomes subject to real property tax. In this case, only those portions of the NAIA Pasay properties which
are leased to taxable persons like private parties are subject to real property tax by the City of Pasay. (Emphases
added, citations omitted.)

The Court not only mentioned petitioner MCIAA as similarly situated as MIAA. It also mentioned several other
government instrumentalities, among which was the Philippine Fisheries Development Authority. Thus, applying
the 2006 MIAA ruling, the Court, in Philippine Fisheries Development Authority v. Court of Appeals,82 held:
On the basis of the parameters set in the MIAA case, the Authority should be classified as an instrumentality of the
national government. As such, it is generally exempt from payment of real property tax, except those portions
which have been leased to private entities.

In the MIAA case, petitioner Philippine Fisheries Development Authority was cited as among the instrumentalities
of the national government. x x x.

xxxx

Indeed, the Authority is not a GOCC but an instrumentality of the government. The Authority has a capital stock
but it is not divided into shares of stocks. Also, it has no stockholders or voting shares. Hence, it is not a stock
corporation. Neither [is it] a non-stock corporation because it has no members.

The Authority is actually a national government instrumentality which is defined as an agency of the national
government, not integrated within the department framework, vested with special functions or jurisdiction by law,
endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy,
usually through a charter. When the law vests in a government instrumentality corporate powers, the
instrumentality does not become a corporation. Unless the government instrumentality is organized as a stock or
non-stock corporation, it remains a government instrumentality exercising not only governmental but also
corporate powers.

Thus, the Authority which is tasked with the special public function to carry out the governments policy "to
promote the development of the countrys fishing industry and improve the efficiency in handling, preserving,
marketing, and distribution of fish and other aquatic products," exercises the governmental powers of eminent
domain, and the power to levy fees and charges. At the same time, the Authority exercises "the general corporate
powers conferred by laws upon private and government-owned or controlled corporations."

xxxx

In light of the foregoing, the Authority should be classified as an instrumentality of the national government which
is liable to pay taxes only with respect to the portions of the property, the beneficial use of which were vested in
private entities. When local governments invoke the power to tax on national government instrumentalities, such
power is construed strictly against local governments. The rule is that a tax is never presumed and there must be
clear language in the law imposing the tax. Any doubt whether a person, article or activity is taxable is resolved
against taxation. This rule applies with greater force when local governments seek to tax national government
instrumentalities.

Thus, the real property tax assessments issued by the City of Iloilo should be upheld only with respect to the
portions leased to private persons.1wphi1 In case the Authority fails to pay the real property taxes due thereon,
said portions cannot be sold at public auction to satisfy the tax delinquency. x x x.

xxxx

In sum, the Court finds that the Authority is an instrumentality of the national government, hence, it is liable to pay
real property taxes assessed by the City of Iloilo on the IFPC only with respect to those portions which are leased to
private entities. Notwithstanding said tax delinquency on the leased portions of the IFPC, the latter or any part
thereof, being a property of public domain, cannot be sold at public auction. This means that the City of Iloilo has
to satisfy the tax delinquency through means other than the sale at public auction of the IFPC. (Citations omitted.)
Another government instrumentality specifically mentioned in the 2006 MIAA case was the Philippine Ports
Authority (PPA). Hence, in Curata v. Philippine Ports Authority,83 the Court held that the PPA is similarly situated
as MIAA, and ruled in this wise:
This Courts disquisition in Manila International Airport Authority v. Court of Appeals ruling that MIAA is not a
government-owned and/or controlled corporation (GOCC), but an instrumentality of the National Government and
thus exempt from local taxation, and that its real properties are owned by the Republic of the Philippines is
instructive. x x x. These findings are squarely applicable to PPA, as it is similarly situated as MIAA. First, PPA is
likewise not a GOCC for not having shares of stocks or members. Second, the docks, piers and buildings it
administers are likewise owned by the Republic and, thus, outside the commerce of man. Third, PPA is a mere
trustee of these properties. Hence, like MIAA, PPA is clearly a government instrumentality, an agency of the
government vested with corporate powers to perform efficiently its governmental functions.

Therefore, an undeniable conclusion is that the funds of PPA partake of government funds, and such may not be
garnished absent an allocation by its Board or by statutory grant. If the PPA funds cannot be garnished and its
properties, being government properties, cannot be levied via a writ of execution pursuant to a final judgment,
then the trial court likewise cannot grant discretionary execution pending appeal, as it would run afoul of the
established jurisprudence that government properties are exempt from execution. What cannot be done directly
cannot be done indirectly. (Citations omitted.)

In Government Service Insurance System v. City Treasurer and City Assessor of the City of Manila84 the Court
found that the GSIS was also a government instrumentality and not a GOCC, applying the 2006 MIAA case even
though the GSIS was not among those specifically mentioned by the Court as similarly situated as MIAA. The Court
said:

GSIS an instrumentality of the National Government

Apart from the foregoing consideration, the Courts fairly recent ruling in Manila International Airport Authority v.
Court of Appeals, a case likewise involving real estate tax assessments by a Metro Manila city on the real
properties administered by MIAA, argues for the non-tax liability of GSIS for real estate taxes. x x x.

xxxx

While perhaps not of governing sway in all fours inasmuch as what were involved in Manila International Airport
Authority, e.g., airfields and runways, are properties of the public dominion and, hence, outside the commerce of
man, the rationale underpinning the disposition in that case is squarely applicable to GSIS, both MIAA and GSIS
being similarly situated. First, while created under CA 186 as a non-stock corporation, a status that has remained
unchanged even when it operated under PD 1146 and RA 8291, GSIS is not, in the context of the aforequoted Sec.
193 of the LGC, a GOCC following the teaching of Manila International Airport Authority, for, like MIAA, GSISs
capital is not divided into unit shares. Also, GSIS has no members to speak of. And by members, the reference is to
those who, under Sec. 87 of the Corporation Code, make up the non-stock corporation, and not to the compulsory
members of the system who are government employees. Its management is entrusted to a Board of Trustees
whose members are appointed by the President.

Second, the subject properties under GSISs name are likewise owned by the Republic. The GSIS is but a mere
trustee of the subject properties which have either been ceded to it by the Government or acquired for the
enhancement of the system. This particular property arrangement is clearly shown by the fact that the disposal or
conveyance of said subject properties are either done by or through the authority of the President of the
Philippines. x x x. (Emphasis added, citations omitted.)

All the more do we find that petitioner MCIAA, with its many similarities to the MIAA, should be classified as a
government instrumentality, as its properties are being used for public purposes, and should be exempt from real
estate taxes. This is not to derogate in any way the delegated authority of local government units to collect realty
taxes, but to uphold the fundamental doctrines of uniformity in taxation and equal protection of the laws, by
applying all the jurisprudence that have exempted from said taxes similar authorities, agencies, and
instrumentalities, whether covered by the 2006 MIAA ruling or not.
To reiterate, petitioner MCIAA is vested with corporate powers but it is not a stock or non-stock corporation,
which is a necessary condition before an agency or instrumentalityis deemed a government-owned or controlled
corporation. Like MIAA, petitioner MCIAA has capital under its charter but it is not divided into shares of stock. It
also has no stockholders or voting shares. Republic Act No. 6958 provides:

Section 9. Capital. The [Mactan-Cebu International Airport] Authority shall have an authorized capital stock equal
to and consisting of:

(a) The value of fixed assets (including airport facilities, runways and equipment) and such other properties,
movable and immovable, currently administered by or belonging to the airports as valued on the date of the
effectivity of this Act;

(b) The value of such real estate owned and/or administered by the airports; and

(c) Government contribution in such amount as may be deemed an appropriate initial balance.1wphi1 Such initial
amount, as approved by the President of the Philippines, which shall be more or less equivalent to six (6) months
working capital requirement of the Authority, is hereby authorized to be appropriated in the General
Appropriations Act of the year following its enactment into law. Thereafter, the government contribution to the
capital of the Authority shall be provided for in the General Appropriations Act.

Like in MIAA, the airport lands and buildings of MCIAA are properties of public dominion because they are
intended for public use. As properties of public dominion, they indisputably belong to the State or the Republic of
the Philippines, and are outside the commerce of man. This, unless petitioner leases its real property to a taxable
person, the specific property leased becomes subject to real property tax; in which case, only those portions of
petitioners properties which are leased to taxable persons like private parties are subject to real property tax by
the City of Lapu-Lapu.

We hereby adopt and apply to petitioner MCIAA the findings and conclusions of the Court in the 2006 MIAA case,
and we quote:

To summarize, MIAA is not a government-owned or controlled corporation under Section 2(13) of the Introductory
Provisions of the Administrative Code because it is not organized as a stock or non-stock corporation. Neither is
MIAA a government-owned or controlled corporation under Section 16, Article XII of the 1987 Constitution
because MIAA is not required to meet the test of economic viability. MIAA is a government instrumentality vested
with corporate powers and performing essential public services pursuant to Section 2(10) of the Introductory
Provisions of the Administrative Code. As a government instrumentality, MIAA is not subject to any kind of tax by
local governments under Section 133(o) of the Local Government Code. The exception to the exemption in Section
234(a) does not apply to MIAA because MIAA is not a taxable entity under the Local Government Code. Such
exception applies only if the beneficial use of real property owned by the Republic is given to a taxable entity.

Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use and thus are properties of
public dominion. Properties of public dominion are owned by the State or the Republic. x x x.

xxxx

The term "ports x x x constructed by the State" includes airports and seaports. The Airport Lands and Buildings of
MIAA are intended for public use, and at the very least intended for public service. Whether intended for public
use or public service, the Airport Lands and Buildings are properties of public dominion. As properties of public
dominion, the Airport Lands and Buildings are owned by the Republic and thus exempt from real estate tax under
Section 234(a) of the Local Government Code.

4. Conclusion
Under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code, which governs the legal
relation and status of government units, agencies and offices within the entire government machinery, MIAA is a
government instrumentality and not a government-owned or controlled corporation. Under Section 133(o) of the
Local Government Code, MIAA as a government instrumentality is not a taxable person because it is not subject to
"[t]axes, fees or charges of any kind" by local governments. The only exception is when MIAA leases its real
property to a "taxable person" as provided in Section 234(a) of the Local Government Code, in which case the
specific real property leased becomes subject to real estate tax. Thus, only portions of the Airport Lands and
Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Paraaque.

Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being devoted to public use, are
properties of public dominion and thus owned by the State or the Republic of the Philippines. Article 420
specifically mentions "ports x x x constructed by the State," which includes public airports and seaports, as
properties of public dominion and owned by the Republic. As properties of public dominion owned by the
Republic, there is no doubt whatsoever that the Airport Lands and Buildings are expressly exempt from real estate
tax under Section 234(a) of the Local Government Code. This Court has also repeatedly ruled that properties of
public dominion are not subject to execution or foreclosure sale.85 (Emphases added.) WHEREFORE, we hereby
GRANT the petition. We REVERSE and SET ASIDE the Decision dated October 8, 2007 and the Resolution dated
February 12, 2008 of the Court of Appeals (Cebu City) in CA-G.R. SP No. 01360. Accordingly, we DECLARE:

1. Petitioner's properties that are actually, solely and exclusively used for public purpose, consisting of the airport
terminal building, airfield, runway, taxiway and the lots on which they are situated, EXEMPT from real property tax
imposed by the City of Lapu-Lapu.

2. VOID all the real property tax assessments, including the additional tax for the special education fund and the
penalty interest, as well as the final notices of real property tax delinquencies, issued by the City of Lapu-Lapu on
petitioner's properties, except the assessment covering the portions that petitioner has leased to private parties.

3. NULL and VOID the sale in public auction of 27 of petitioner's properties and the eventual forfeiture and
purchase of the said properties by respondent City of Lapu-Lapu. We likewise declare VOID the corresponding
Certificates of Sale of Delinquent Property issued to respondent City of Lapu-Lapu.

SO ORDERED.
JULY

TOPIC/DOCTRINE: TAX REFUND/ TAX CREDIT

Republic of the Philippines


SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 204117, July 01, 2015

CHINA BANKING CORPORATION, Petitioner, v. CITY TREASURER OF MANILA, Respondent.

DECISION

MENDOZA, J.:

Before this Court is a petition for review on certiorari1 under Rule 45 of the Rules of Court filed by petitioner China
Banking Corporation (CBC), assailing the April 17, 2012 Decision2 and the October 18, 2012 Resolution3 of the Court
of Tax Appeals En Banc (CTA En Banc), in CTA EB Case No. 738, which affirmed the October 1, 2010 Decision 4 and
the February 22, 2011 Resolution5 of the Third Division of the Court of Tax Appeals (CTA Division) in CTA AC No. 66.
Through the assailed rulings, the claim by petitioner CBC for the refund of P154,398.50 collected by respondent
City

Treasurer of Manila (City Treasurer) under Section 216 of Ordinance Nos. 79887 and 80118 was dismissed.

The facts, as chronicled by the CTA Division, are undisputed:

On January 2007, on the basis of the reported income of respondent CBC's Sto. Cristo Branch, Binondo, Manila,
amounting to P34,310,777.34 for the year ending December 31, 2006, respondent CBC was assessed the amount
of P267,128.70 by petitioner City Treasurer of Manila, consisting of local business tax, business permits, and other
fees for taxable year 2007, broken down as follows:LawlibraryofCRAlaw
ChanRoblesVirtualawlibrary

Particulars Amount of Taxes and Fees Discount Amount Due

Tax on Coml Bank P102,932.33 P10,293.33 P92,639.10

Tax on Rentals of Equipt 54.00 5.40 48.60

Business Permit Fee (0801) 3,215.00 - 3,215.00

Business Permit Fee (079926) 1,200.00 - 1,200.00

Business Permit Fee (0802) 3,000.00 - 3,000.00

Sanitary Inspection Fee 400.00 - 400.00


Garbage Svcs Charges 3,500.00 - 3,500.00

Occupational Tax 2,880.00 - 2,880.00

OCC/PC/HC 5,640.00 - 5,640.00

Plumbing Insp Fee 7.50 - 7.50

Electrical Insp Fee 50.00 - 50.00

Building Insp Fee 50.00 - 50.00

Signboard Insp Fee 40.00 - 40.00

SEC 21 171,553.89 17,155.39 154,398.50

Business Registration Stick 60.00 - 60.00

TOTAL P294,582.72 P27,454.02 P267,128.70

On January 15, 2007, respondent CBC paid the amount of P267,128.70 and protested, thru a Letter dated January
12, 2007, the imposition of business tax under Section 21 of the Manila Revenue Code in the amount of
P154,398.50, on the ground that it is not liable of said additional business tax and the same constitutes double
taxation.

On February 8, 2007, petitioner acknowledged receipt of respondent CBC 's payment under protest of the assessed
amount and further informed respondent that she will await for respondents formal protest.

On March 27, 2007, respondent CBC wrote a letter-reply to [respondent's] petitioners Letter dated February 8,
2007, reiterating that respondent already protested the additional assessment under Section 21 of the Manila
Revenue Code in its Letter dated January 12, 2007. In the same Letter, respondent averred that pursuant to
Section 195 of the Local Government Code ("LGC ''), petitioner had until March 16, 2007 within which to decide
the protest, and considering that respondent received the Letter dated February 8, 2007, four days after the
deadline to decide and petitioner did not even resolve the protest, respondent formally demanded the refund of
the amount of P154,398.50, representing the business tax collected under Section 21 of the Manila Revenue Code.

On April 17, 2007, respondent CBC filed a Petition for Review with the RTC of Manila, Branch 173, entitled "China
Banking Corporation vs. Hon. Liberty M. Toledo in her capacity as City Treasurer of Manila," docketed as Civil Case
No. 07-117075, raising the sole issue of whether or not respondent is subject to the local business tax imposed
under Section 21 of the Manila Revenue Code.

Decision of the Regional Trial Court

On August 28, 2008, the Regional Trial Court, Branch 173, Manila (RTC), rendered its decision 9granting the petition
filed by CBC and ordered the City Treasurer to refund the amount of P154,398.50, representing the assessment
paid by it under Section 21 of Manila Ordinance No. 7988, as amended by Tax Ordinance No. 8011.edarclaw

The RTC found that the City Treasurer had no basis to collect the amount of P154,398.50 because the Department
of Justice (DOJ) was of the opinion that Ordinance Nos. 7988 and 8011 were unconstitutional. It also considered
the decision in the case of Coca-Cola Bottlers Philippines, Inc. v. City of Manila,12 (Coca-Cola) and the Memorandum
of Rafaelito M. Garayblas,13 Secretary of the then Mayor of Manila, noting the unconstitutionality of Ordinance
Nos. 7988 and 8011 and directing the City Treasurer to cease and desist from assessing and collecting the imposed
taxes under Section 21 of the said ordinances.

On March 29, 2010, the RTC resolved to deny the motion for reconsideration filed by the City Treasurer.edarclaw

Decision of the CTA Division

On October 1, 2010, the CTA Division15reversed the decision of the RTC, effectively dismissing CBCs protest against
the disputed assessment. Although the CTA Division dismissed the City Treasurers contention that CBCs petition
for review should have been filed with the Metropolitan Trial Court (MeTC), nevertheless it found that the RTC did
not have jurisdiction over the said petition for because it was filed out of time. The CTA Division noted that the
petition for review was filed one (1) day beyond the reglementary period allowed by Section 195 of the Local
Government Code16 (LGC) to taxpayers who wished to appeal a denial of a protest due to the inaction of the City
Treasurer. Consequently, the CTA Division ruled that the City Treasurers assessment against CBC had attained
finality.

CBC sought reconsideration of the decision, but its motion was denied by the CTA Division.17redarclaw

Aggrieved, CBC elevated the matter to the CTA En Banc.

Decision of the CTA En Banc

On appeal, the CTA En Banc affirmed the ruling of the CTA Division in toto, reiterating that the petition for review
was filed out of time. It explained that from January 15, 2007, the date when CBC filed its protest, it had sixty (60)
days or until March 16, 2007 to await the decision of the City Treasurer. Considering that no action was taken by
the City Treasurer, CBC had until April 16, 2007 or 30 days from March 16, 2007, (April 15, 2007 being a Sunday),
within which to appeal the inaction of the City Treasurer with the RTC, pursuant to Section 195 of the LGC. Upon
examination, however, the CTA En Banc found that when CBC filed its petition for review before the RTC, it was
already one day late. Thus, it lost its right to appeal and the assessment, dated January 11, 2007, became
conclusive and unappealable. The CTA En Banc then concluded that CBC was precluded from interposing the
defense of legality or validity of the assessment.

CBC filed its motion for reconsideration of the said decision but the CTA En Banc denied the same.

On January 30, 2013, the Court denied the petition.18 Upon motion for reconsideration by CBC, the Court
reinstated the petition.19 Eventually, it was given due course and the parties were directed to file their respective
memoranda.
Hence, this petition.

ISSUE

THE HONORABLE COURT OF TAX APPEALS GRAVELY ERRED IN DISREGARDING THE LAW AND INTEREST OF
SUBSTANTIAL JUSTICE BY REVERSING THE RULING OF THE TRIAL COURT SOLELY BECAUSE OF ITS ASSUMED
PRONOUNCEMENT THAT THE ORIGINAL PETITION WAS FILED ONE (1) DAY BEYOND THE REGLEMENTARY
PERIOD?

CBC asserts that it filed the proper written protest but for lack of any action from the City Treasurer, it was
prompted to file its petition for review with the RTC.22 The petitioner insists on the invalidity of the City Treasurers
assessment. It pointed out that the basis of the assessment, Ordinance Nos. 7988 and 8011, had been declared
unconstitutional by the Court in Coca-Cola, and that the Office of the Mayor of Manila even directed the City
Treasurer to cease and desist from assessing and imposing Section 21 of the said ordinances.
For CBC, its one (1) day delay in filing its appeal with the RTC should have been excused by the CTA because the
delay was not much of a heavy harm and was due to [the] honest mistake and excusable negligence of its former
counsel.

In its Memorandum,25 CBC insisted on the invalidity of the City Treasurers assessment, this time, claiming that its
petition for review filed with the RTC was timely filed. It explained that the 60-day period within which the City
Treasurer should have acted on the protest, and the consequent 30-day period within which it had to appeal the
inaction of the City Treasurer should have been reckoned not from January 15, 2007, when it filed its letter
questioning the imposition and paid the assessed amount, but from March 27, 2007, the day it filed the letter
reiterating its objection to the City Treasurer imposition of P154,398.50 and demanding the return of the said
amount. With the reckoning point being March 27, 2007, CBC argued that the petition for review was filed well
within the reglementary period because it had until June 25, 2007 to file the said appeal.

CBC then reiterated its contention that even if it was guilty of delay, the same should have been excused because
the basis of the City Treasurers assessment, Ordinance Nos. 7988 and 8011, had been declared unconstitutional
by the Court in its decision in Coca-Cola.

For her part, the City Treasurer filed her Memorandum for the Respondent 26 where she contended that CBC never
filed a formal letter of protest to state the grounds for its objection while admitting that it had paid the assessed
amount under protest. She claimed that CBC simply filed a petition for review with the RTC without filing a formal
letter of protest. Without a formal letter of protest, the City Treasurer argued that its claim for refund should be
dismissed because Section 195 of the Local Government Code stated that "No case or proceeding shall be
maintained in any court for recovery of any tax, fee or charged erroneously or illegally collected until a written
claim for refund has been filed with the local treasurer."

The City Treasurer also questioned the jurisdiction of the RTC in entertaining the petition for review filed before it
as well as the timeliness of the filing of the petitioners appeal.

The Courts Ruling

Protest validly filed

The petition lacks merit.

Under the current state of law, there can be no doubt that the law does not prescribe any formal requirement to
constitute a valid protest. To constitute a valid protest, it is sufficient if what has been filed contains the
spontaneous declaration made to acquire or keep some right or to prevent an impending damage. 27 Accordingly, a
protest is valid so long as it states the taxpayers objection to the assessment and the reasons therefor.

In this case, the Court finds that the City Treasurers contention that CBC was not able to properly protest the
assessment to be without merit. The Court is of the view that CBC was able to properly file its protest against the
assessment of the City Treasurer when it filed its letter on January 15, 2007, questioning the imposition while
paying the assessed amount. In the said letter, the petitioner was unequivocal in its objection, stating that it took
exception to the assessment made by the City Treasurer under Section 21 of the citys revenue code, arguing that
it was not liable to pay the additional tax imposed under the subject ordinance and that the imposition
constitute[d] double taxation and, for said reason, invalid. Despite its objection, it remitted the total amount of
P267,128.70 under protest to avoid penalties/surcharges and any threat of closure.

The Court, however, is of the view that the period within which the City Treasurer must act on the protest, and the
consequent period to appeal a denial due to inaction, should be reckoned from January 15, 2007, the date CBC
filed its protest, and not March 27, 2007. Consequently, the Court finds that the CTA En Banc did not err in ruling
that CBC had lost its right to challenge the City Treasurers denial due to inaction. On this matter, Section 195 of
the LGC is clear:

SECTION 195. Protest of Assessment. - When the local treasurer or his duly authorized representative finds that
correct taxes, fees, or charges have not been paid, he shall issue a notice of assessment stating the nature of the
tax, fee or charge, the amount of deficiency, the surcharges, interests and penalties. Within sixty (60) days from
the receipt of the notice of assessment, the taxpayer may file a written protest with the local treasurer contesting
the assessment; otherwise, the assessment shall become final and executory. The local treasurer shall decide the
protest within sixty (60) days from the time of its filing. If the local treasurer finds the protest to be wholly or partly
meritorious, he shall issue a notice canceling wholly or partially the assessment. However, if the local treasurer
finds the assessment to be wholly or partly correct, he shall deny the protest wholly or partly with notice to the
taxpayer. The taxpayer shall have thirty (30) days from the receipt of the denial of the protest or from the lapse
of the sixty (60)-day period prescribed herein within which to appeal with the court of competent jurisdiction
otherwise the assessment becomes conclusive and unappealable.

[Emphasis Supplied]

Time and again, it has been held that the perfection of an appeal in the manner and within the period laid down by
law is not only mandatory but also jurisdictional. The failure to perfect an appeal as required by the rules has the
effect of defeating the right to appeal of a party and precluding the appellate court from acquiring jurisdiction over
the case. At the risk of being repetitious, the Court declares that the right to appeal is not a natural right nor a part
of due process. It is merely a statutory privilege, and may be exercised only in the manner and in accordance with
the provisions of the law.

CBCs Inconsistent
Position on Late Filing

It bears pointing that when CBC first sought aid from this Court, it recognized the belated filing of its appeal with
the RTC when it sought the Courts leniency in the application of the rules on appeal. In its petition for review
before this Court, CBC posited that under the circumstances obtaining in this case, the rules on appeal should not
have been applied so rigorously, especially since the delay of one (1) day was due solely to the honest mistake
and excusable negligence of its former counsel.

As stated above, however, CBC, in its Memorandum, now asserts that its appeal was filed on time. The Court
cannot help but frown upon CBCs vain attempt to confuse the Court, by varying its position and raising the
argument for the first time in its memorandum that its appeal was timely filed.

RTC has no jurisdiction

At any rate, even if the Court considers CBCs appeal from the denial due to inaction by the City Treasurer to
have been timely filed, the same must be dismissed because it was not filed with a court of competent jurisdiction.
In its decision, it appears that the CTA Division relied heavily on the case of Yamane v. BA Lepanto Condominium
Corporation31 (Yamane) in sustaining CBCs assertion that the RTC had jurisdiction to entertain its appeal. A reading
of the Courts decision in Yamane discloses that it cannot be cited as authority.

In Yamane, respondent BA Lepanto Condominium Corporation (BLCC) sought to recover P1,601,013.77 (within the
jurisdictional amount of the RTC), representing the amount it paid to petitioner Luz R. Yamane (petitioner
Yamane), the City Treasurer of Makati for city business taxes, fees and charges it owed for the years 1995 to 1997.
With the rejection by petitioner Yamane and the RTC of its claim, BLCC appealed to the CA via a petition for review
under Rule 42. As petitioner Yamane questioned the mode of appeal taken by BLCC, one of the issues raised
before this Court was the nature of the jurisdiction of the RTC over appeals from decisions of the city treasurer
involving assessments imposed by the latter. Explaining the nature of the jurisdiction of the RTC, the Court,
in Yamane explained:

First, we dispose of the procedural issue, which essentially boils down to whether the RTC, in deciding an appeal
taken from a denial of a protest by a local treasurer under Section 195 of the Local Government Code, exercises
original jurisdiction or appellate jurisdiction. The question assumes a measure of importance to this petition,
for the adoption of the position of the City Treasurer that the mode of review of the decision taken by the RTC is
governed by Rule 41 of the Rules of Civil Procedure means that the decision of the RTC would have long become
final and executory by reason of the failure of the Corporation to file a notice of appeal.

There are discernible conflicting views on the issue. The first, as expressed by the Court of Appeals, holds that the
RTC, in reviewing denials of protests by local treasurers, exercises appellate jurisdiction. This position is anchored
on the language of Section 195 of the Local Government Code which states that the remedy of the taxpayer whose
protest is denied by the local treasurer is to appeal with the court of competent jurisdiction. Apparently though,
the Local Government Code does not elaborate on how such appeal should be undertaken.

The other view, as maintained by the City Treasurer, is that the jurisdiction exercised by the RTC is original in
character. This is the first time that the position has been presented to the court for adjudication. Still, this
argument does find jurisprudential mooring in our ruling in Garcia v. De Jesus, where the Court proffered the
following distinction between original jurisdiction and appellate jurisdiction: Original jurisdiction is the power of
the Court to take judicial cognizance of a case instituted for judicial action for the first time under conditions
provided by law. Appellate jurisdiction is the authority of a Court higher in rank to re-examine the final order or
judgment of a lower Court which tried the case now elevated for judicial review.

The quoted definitions were taken from the commentaries of the esteemed Justice Florenz Regalado. With the
definitions as beacon, the review taken by the RTC over the denial of the protest by the local treasurer would fall
within that courts original jurisdiction. In short, the review is the initial judicial cognizance of the matter.
Moreover, labelling the said review as an exercise of appellate jurisdiction is inappropriate, since the denial of the
protest is not the judgment or order of a lower court, but of a local government official.

The stringent concept of original jurisdiction may seemingly be neutered by Rule 43 of the 1997 Rules of Civil
Procedure, Section 1 of which lists a slew of administrative agencies and quasi-judicial tribunals or their officers
whose decisions may be reviewed by the Court of Appeals in the exercise of its appellate jurisdiction. However, the
basic law of jurisdiction, Batas Pambansa Blg. 129 (B.P. 129), ineluctably confers appellate jurisdiction on the Court
of Appeals over final rulings of quasi-judicial agencies, instrumentalities, boards or commission, by explicitly using
the phrase appellate jurisdiction. The power to create or characterize jurisdiction of courts belongs to the
legislature. While the traditional notion of appellate jurisdiction connotes judicial review over lower court
decisions, it has to yield to statutory redefinitions that clearly expand its breadth to encompass even review of
decisions of officers in the executive branches of government.

Yet significantly, the Local Government Code, or any other statute for that matter, does not expressly confer
appellate jurisdiction on the part of regional trial courts from the denial of a tax protest by a local treasurer. On the
other hand, Section 22 of B.P. 129 expressly delineates the appellate jurisdiction of the Regional Trial Courts,
confining as it does said appellate jurisdiction to cases decided by Metropolitan, Municipal, and Municipal
Circuit Trial Courts. Unlike in the case of the Court of Appeals, B.P. 129 does not confer appellate jurisdiction on
Regional Trial Courts over rulings made by non-judicial entities.redarclaw

[Emphasis Supplied]

Thus, although the Court in Yamane recognized that the RTC exercised its original jurisdiction over cases decided
by a local treasurer, it was quick to point out that with the advent of Republic Act (R.A.) No. 9282, the jurisdiction
of the RTC over such cases is no longer simply original and exclusive. The Court explained:
From these premises, it is evident that the stance of the City Treasurer is correct as a matter of law, and that the
proper remedy of the Corporation from the RTC judgment is an ordinary appeal under Rule 41 to the Court of
Appeals. However, we make this pronouncement subject to two important qualifications. First, in this particular
case there are nonetheless significant reasons for the Court to overlook the procedural error and ultimately uphold
the adjudication of the jurisdiction exercised by the Court of Appeals in this case. Second, the doctrinal weight of
the pronouncement is confined to cases and controversies that emerged prior to the enactment of Republic Act
No. 9282, the law which expanded the jurisdiction of the Court of Tax Appeals (CTA).

Republic Act No. 9282 definitively proves in its Section 7(a)(3) that the CTA exercises exclusive appellate
jurisdiction to review on appeal decisions, orders or resolutions of the Regional Trial Courts in local tax cases
original decided or resolved by them in the exercise of their original or appellate jurisdiction. Moreover, the
provision also states that the review is triggered by filing a petition for review under a procedure analogous to
that provided for under Rule 42 of the 1997 Rules of Civil Procedure.

Republic Act No. 9282, however, would not apply to this case simply because it arose prior to the effectivity of that
law. To declare otherwise would be to institute a jurisdictional rule derived not from express statutory grant, but
from implication. The jurisdiction of a court to take cognizance of a case should be clearly conferred and should
not be deemed to exist on mere implications, and this settled rule would be needlessly emasculated should we
declare that the Corporations position is correct in law.33redarclaw

[Emphases and Underscoring Supplied]

Clearly, with the passage of R.A. No. 9282, the authority to exercise either original or appellate jurisdiction over
local tax cases depended on the amount of the claim. In cases where the RTC exercises appellate jurisdiction, it
necessarily follows that there must be a court capable of exercising original jurisdiction otherwise there would be
no appeal over which the RTC would exercise appellate jurisdiction. The Court cannot consider the City Treasurer
as the entity that exercises original jurisdiction not only because it is not a court within the context of Batas
Pambansa (B.P.) Blg. 129, but also because, as explained above, B.P. 129 expressly delineates the appellate
jurisdiction of the Regional Trial Courts, confining as it does said appellate jurisdiction to cases decided by
Metropolitan, Municipal, and Municipal Circuit Trial Courts. Verily, unlike in the case of the CA, B.P. 129 does not
confer appellate jurisdiction on the RTC over rulings made by non-judicial entities. The RTC exercises appellate
jurisdiction only from cases decided by the Metropolitan, Municipal, and Municipal Circuit Trial Courts in the
proper cases. The nature of the jurisdiction exercised by these courts is original, considering it will be the first time
that a court will take judicial cognizance of a case instituted for judicial action.

Indeed, in cases where the amount sought to be refunded is below the jurisdictional amount of the RTC, the
Metropolitan, Municipal, and Municipal Circuit Trial Courts are clothed with ample authority to rule on such
claims. As Section 33(1),34 B.P. 129, as amended provides:

Sec. 33. Jurisdiction of Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts in Civil
Cases. Metropolitan Trial Courts, Municipal Trial Courts, and Municipal Circuit Trial Courts shall
exercise:LawlibraryofCRAlaw

(1) Exclusive original jurisdiction over civil actions and probate proceedings, testate and intestate, including the
grant of provisional remedies in proper cases, where the value of the personal property, estate, or amount of the
demand does not exceed One hundred thousand pesos (P100,000.00) or, in Metro Manila where such personal
property, estate, or amount of the demand does not exceed Two hundred thousand pesos (P200,000.00) x x x x

The fact that the Metropolitan, Municipal, and Municipal Circuit Trial Courts exercise jurisdiction is one that even
petitioner CBC recognizes. As aptly pointed by the City Treasurer, in several claims below the jurisdictional amount
of the RTC, the petitioners had sought relief by filing their claim for refund with the first level courts:

Civil Case No. Court Amount Claimed by Petitioner


183817-CV35 MeTC Manila, Branch 30 P342,350.77

175168-CV36 MeTC Manila, Branch 25 3,000.00

175169-CV37 MeTC Manila, Branch 25 10,844.92

175171-CV38 MeTC Manila, Branch 28 18,947.67

175172-CV39 MeTC Manila, Branch 28 72,693.55

175175-CV40 MeTC Manila, Branch 1 41,536.48

175178-CV41 MeTC Manila, Branch 23 26,782.06

In all, the Court finds that the claim of petitioner CBC for refund should be dismissed not only for being filed out of
time but also for not being filed before a court of competent jurisdiction.

Lest it be misunderstood, this Court is not reversing its pronouncements in Coca-Cola Bottlers Philippines, Inc. v.
City of Manila,42The City of Manila v. Coca-Cola Bottlers, Inc.43 and City of Manila v. Coca-Cola Bottlers, Inc.44 that
Ordinance Nos. 7988 and 8011 are invalid. This Court is simply pointing out the rule that claims for refunds are the
exception, rather than the rule, and that each claim for refund, in order to be granted, must be proceeded in
accordance with the manner set forth by law. After all, in every claim for refund of taxes paid, the burden is on the
taxpayer to show that he has strictly complied with the conditions for the grant of the tax refund or credit.

WHEREFORE, the petition is DENIED.

SO ORDERED.
TOPIC/DOCTRINE: TAX REFUND/ TAX EXEMPTION

Republic of the Philippines


SUPREME COURT
Manila

FIRST DIVISION

G.R. Nos. 209353-54, July 06, 2015

REPUBLIC OF THE PHILIPPINES, REP. BY THE COMMISSIONER OF CUSTOMS, Petitioner, v.PHILIPPINE AIRLINES,
INC. (PAL), Respondent.

[G.R. Nos. 211733-34]

COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. PHILIPPINE AIRLINES, INC. (PAL), Respondent.

RESOLUTION

SERENO, C.J.:

Before the Court are consolidated Petitions for Review on certiorari assailing the Decision of the Court of Tax
Appeals en banc (CTA en banc) dated 9 September 20131 in C.T.A. EB Nos. 920 and 922. Petitioner Commissioner of
Internal Revenue (CIR) also assailed the appellate court's Resolution dated 10 March 2014 in the same
consolidated cases.

The Facts

The case stemmed from a claim for a refund by respondent Philippine Airlines, Inc. (PAL) of the amount of
P4,469,199.98 representing the alleged erroneously paid excise tax for the period covering July 2005 to February
2006. On 18 January 2007, PAL filed written claims for a refund with the Bureau of Internal Revenue (BIR). For
failure of the BIR to act on the administrative claim, PAL filed two separate Petitions for Review with the CTA on 30
July 2007 and 21 December 2007, docketed as C.T.A. Case Nos. 7665 and 7713, respectively.

The CTA consolidated the two Petitions and tried them jointly. On 17 April 2012, the CTA Second Division rendered
a Decision granting the Petitions and ordered the CIR and the Commissioner of Customs (COC) to refund PAL in the
total amount of P4,469,199.98.

On 23 April 2012 and 4 May 2012, the CIR and the COC filed their respective Motions for Reconsideration, which
were both denied in a Resolution dated 28 June 2012.

C.T.A. EB No. 920

The CIR, in its Petition for Review before the CTA en banc, raised the issue of whether PAL is entitled to a tax
refund of the alleged erroneously paid excise tax. The CIR argued that Presidential Decree (P.D.) No.
1590, particularly Section 13 thereof, had already been expressly amended by Republic Act (R.A.) No.
9334. Moreover, PAL failed to prove that the alleged commissary supplies were not locally available in reasonable
quantity, quality and price considering that no independent credible evidence was presented but merely PAL's own
employee where testimony was self-serving and not comprehensive.

C.T.A. EB No. 922

A separate Petition for Review was filed before the CTA en banc by the COC. The latter argued that the case should
have been dismissed outright, as it stated no cause of action against petitioner, which merely acted as a collecting
agent for the CIR. The COC further alleged that PAL had also failed to exhaust the latter's administrative remedies
with the former. Finally, like the CIR, the COC maintained that Sections 6 and 10 of R.A. 9334 had repealed Sections
13 and 24 of P.D. 1590.

THE RULING OF THE CTA En Banc

The appeals were consolidated. The CTA en banc denied both Petitions and ruled that R.A. 9334 was not expressly
repealed by P.D. 1590. The tax court also emphasized that P.D. 1590 is a special law that governs the franchise of
PAL, while R.A. 9334 is a general law, and therefore P.D. 1590 must prevail. The CTA held that reliance by
petitioners on Cagayan Electric Power Light Co. Inc. v. CIR5 is also misplaced. In that case, there was an express
repeal of R.A. 5431, as all corporate taxpayers not expressly exempted under that law and under Section 27 of the
Tax Code were subjected to income tax.

The CTA ruled that respondent PAL was entitled to a refund of excise taxes paid on the latter's commissary
supplies. The appellate court explained that the exemption granted to PAL under P.D. 1590 was not expressly
repealed by R.A. 9334. The CTA found that PAL had opted to pay the latter's basic corporate income tax for the
fiscal year ending 31 March 2006. The court also found that the articles imported were intended for the operations
of PAL and were not locally available in reasonable quantity, quality or price. The latter is therefore entitled to a
refund of erroneously paid excise tax in the total amount of P4,469,199.98.

The Petitions

The COC, instead of filing a motion for reconsideration with the CTA, directly filed a Petition before this Court. The
COC assailed the Decision of the CTA en banc in C.T.A. EB Nos. 920 and 922, herein docketed as G.R. Nos. 209353-
54.

On the other hand, the CIR appealed the Decision dated 9 September 2013 and Resolution dated 10 March 2014
on its Motion for Reconsideration herein docketed as G.R. Nos. 211733-34.

Issue

Both Petitions raise similar issues, which boil down to the principal one of whether Sections 6 and 10 of R.A. 9334
repealed Section 13 of P.D. 1590.

The Court's Ruling

We find no merit in the Petitions.

The controversy before the Court is not novel. In CIR v. PAL, the Court has already passed upon the very same
issues raised by the same petitioners. The only differences are the taxable period involved and the amount of
refundable tax.

We have held in that case that it is a basic principle in statutory construction that a later law, general in terms and
not expressly repealing or amending a prior special law, will not ordinarily affect the special provisions of the
earlier statute. A reading of the pertinent provisions of P.D. 1590 and R.A. 9334 shows that there was no express
repeal of the grant of exemption:

PRESIDENTIAL DECREE NO. 15907

xxxx

SECTION 13. In consideration of the franchise and rights hereby granted, the grantee shall pay to the Philippine
Government during the life of this franchise whichever of subsections (a) and (b) hereunder will result in a lower
tax:
(a) The basic corporate income tax based on the grantee's annual net taxable income computed in accordance
with the provisions of the National Internal Revenue Code; or

b) A franchise tax of two per cent (2%) of the gross revenues derived by the grantee from all sources, without
distinction as to transport or nontransport operations; provided, that with respect to international airtransport
service, only the gross passenger, mail, and freight revenues from its outgoing flights shall be subject to this tax.

The tax paid by the grantee under either of the above alternatives shall be in lieu of all other taxes, duties,
royalties, registration, license, and other fees and charges of any kind, nature, or description, imposed, levied,
established, assessed, or collected by any municipal, city, provincial, or national authority or government
agency, now or in the future, including but not limited to the following:

xxxx

(2) All taxes, including compensating taxes, duties, charges, royalties, or fees due on all importations by the
grantee of aircraft, engines, equipment, machinery, spare parts, accessories, commissary and catering supplies,
aviation gas, fuel, and oil, whether refined or in crude form and other articles, supplies, or materials; provided,
that such articles or supplies or materials are imported for the use of the grantee in its transport and
nontransport operations and other activities incidental thereto and are not locally available in reasonable
quantity, quality, or price;

xxxx

SECTION 24. This franchise, as amended, or any section or provision hereof may only be modified, amended, or
repealed expressly by a special law or decree that shall specifically modify, amend, or repeal this franchise or any
section or provision thereof. (Emphasis supplied)

REPUBLIC ACT NO. 93348

xxxx

SECTION 6. Section 131 of the National Internal Revenue Code of 1997, is amended, is hereby amended to read as
follows:

SEC. 131. Payment of Excise Taxes on Imported Articles.

(A) Persons Liable. Excise taxes on imported articles shall be paid by the owner or importer to the Customs
Officers, conformably with the regulations of the Department of Finance and before the release of such articles
from the customs house, or by the person who is found in possession of articles which are exempt from excise
taxes other than those legally entitled to exemption.

In the case of tax-free articles brought or imported into the Philippines by persons, entities, or agencies exempt
from tax which are subsequently sold, transferred or exchanged in the Philippines to non-exempt persons or
entities, the purchasers or recipients shall be considered the importers thereof, and shall be liable for the duty and
internal revenue tax due on such importation.

The provision of any special or general law to the contrary notwithstanding, the importation of cigars and
cigarettes, distilled spirits, fermented liquors and wines into the Philippines, even if destined for tax and duty-
free shops, shall be subject to all applicable taxes, duties, charges, including excise taxes due thereon. This shall
apply to cigars and cigarettes, distilled spirits, fermented liquors and wines brought directly into the duly chartered
or legislated freeports of the Subic Special Economic and Freeport Zone, created under Republic Act No. 7227; the
Cagayan Special Economic Zone and Freeport, created under Republic Act No. 7922; and the Zamboanga City
Special Economic Zone, created under Republic Act No. 7903, and such other freeports as may hereafter be
established or created by law: Provided, further, That importations of cigars and cigarettes, distilled spirits,
fermented liquors and wines made directly by a government-owned and operated duty-free shop, like the Duty-
Free Philippines (DFP), shall be exempted from all applicable duties only: Provided, still further, That such articles
directly imported by a government-owned and operated duty-free shop, like the Duty-Free Philippines, shall be
labeled 'duty-free' and 'not for resale': Provided, finally, That the removal and transfer of tax and duty-free goods,
products, machinery, equipment and other similar articles other than cigars and cigarettes, distilled spirits,
fermented liquors and wines, from one freeport to another freeport, shall not be deemed on introduction into the
Philippine customs territory.

xxxx

SECTION 10. Repealing Clause. All laws, decrees, ordinances, rules and regulations, executive or administrative
orders, and such other presidential issuances as are inconsistent with any of the provisions of this Act are hereby
repealed, amended or otherwise modified accordingly. (Emphasis supplied)

The Court has exhaustively discussed all issues similar to those in the present case in this wise:

Indeed, as things stand, PD 1590 has not been revoked by the NIRC of 1997, as amended. Or to be more precise,
the tax privilege of PAL provided in Sec. 13 of PD 1590 has not been revoked by Sec. 131 of the NIRC of 1997, as
amended by Sec. 6 of RA 9334. We said as much in Commissioner of Internal Revenue v. Philippine Air Lines, Inc.,

That the Legislature chose not to amend or repeal [PD] 1590 even after PAL was privatized reveals the intent of the
Legislature to let PAL continue to enjoy, as a private corporation, the very same rights and privileges under the
terms and conditions stated in said charter, x x x

To be sure, the manner to effectively repeal or at least modify any specific provision of PAL's franchise under PD
1590, as decreed in the aforequoted Sec. 24, has not been demonstrated. And as aptly held by the CTA en banc,
borrowing from the same Commissioner of Internal Revenue case: While it is true that Sec. 6 of RA 9334 as
previously quoted states that "the provisions of any special or general law to the contrary notwithstanding," such
phrase left alone cannot be considered as an express repeal of the exemptions granted under PAL's franchise
because it fails . to specifically identify PD 1590 as one of the acts intended to be repealed. . . . (Emphasis supplied)

Noteworthy is the fact that PD 1590 is a special law, which governs the franchise of PAL. Between the provisions
under PD 1590 as against the provisions under the NIRC of 1997, as amended by 9334, which is a general law, the
former necessary prevails. This is in accordance with the rule that on a specific matter, the special law shall prevail
over the general law, which shall be resorted only to supply deficiencies in the former. In addition, where there are
two statutes, the earlier special and the later general the terms of the general broad enough to include the
matter provided for in the special the fact that one is special and other general creates a presumption that the
special is considered as remaining an exception to the general, one as a general law of the land and the other as
the law of a particular case

In other words, the franchise of PAL remains the governing law on its exemption from taxes. Its payment of either
basic corporate income tax or franchise tax - whichever is lower - shall be in lieu of all other taxes, duties, royalties,
registrations, licenses, and other fees and charges, except only real property tax. The phrase "in lieu of all other
taxes" includes but is not limited to taxes, duties, charges, royalties, or fees due on all importations by the grantee
of the commissary and catering supplies, provided that such articles or supplies or materials are imported for the
use of the grantee in its transport and nontransport operations and other activities incidental thereto and are not
locally available in reasonable quantity, quality, or price.

However, upon the amendment of the 1997 NIRC, Section 22 11 of R.A. 933712 abolished the franchise tax and
subjected PAL and similar entities to corporate income tax and value-added tax (VAT). PAL nevertheless remains
exempt from taxes, duties, royalties, registrations, licenses, and other fees and charges, provided it pays corporate
income tax as granted in its franchise agreement. Accordingly, PAL is left with no other option but to pay its basic
corporate income tax, the payment of which shall be in lieu of all other taxes, except VAT, and subject to certain
conditions provided in its charter.

In this case, the CTA found that PAL had paid basic corporate income tax for fiscal year ending 31 March 2006.
Consequently, PAL may now claim exemption from taxes, duties, charges, royalties, or fees due on all importations
of its commissary and catering supplies, provided it shows that 1) such articles or supplies or materials are
imported for use in its transport and nontransport operations and other activities incidental thereto; and 2) they
are not locally available in reasonable quantity, quality, or price.

As to the issue of PAL's noncompliance with the conditions set by Section 13 of P.D. 1509 for the imported supplies
to be exempt from excise tax, it must be noted that these are factual determinations that are best left to the CTA.
The appellate court found that PAL had complied with these conditions. 14 The CTA is a highly specialized body that
reviews tax cases and conducts trial de novo. Therefore, without any showing that the findings of the CTA are
unsupported by substantial evidence, its findings are binding on this Court. In view thereof, we find no cogent
reason to reverse or modify the findings of the CTA en banc.

WHEREFORE, premises considered, both Petitions are DENIED for lack of merit.

SO ORDERED.
TOPIC/DOCTRINE: POWER TO TAX

Republic of the Philippines


SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 187631, July 08, 2015

BATANGAS CITY, MARIA TERESA GERON, IN HER CAPACITY AS CITY TREASURER OF BATANGAS CITY AND
TEODULFO A. DEGUITO, IN HIS CAPACITY AS CITY LEGAL OFFICER OF BATANGAS CITY, Petitioners, v. PILIPINAS
SHELL PETROLEUM CORPORATION, Respondent.

DECISION

PERALTA, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the
Decision1 dated January 22, 2009 and Resolution2 dated April 13, 2009 of the Court of Tax Appeals (CTA) En Banc in
CTA EB No. 350 which affirmed in toto the Amended Decision3 dated July 31, 2007 and Resolution4 dated
November 21, 2007 of the CTA Second Division in CTA AC Case No. 10.

The facts follow.

Petitioner Batangas City is a local government unit (LGU) with the capacity to sue and be sued under its Charter
and Section 22(a)(2) of the Local Government Code (LGC) of 1991. Petitioners Teodulfo A. Deguito and Benjamin E.
Pargas are the City Legal Officer and City Treasurer, respectively, of Batangas City.

Respondent Pilipinas Shell Petroleum Corporation operates an oil refinery and depot in Tabagao, Batangas City,
which manufactures and produces petroleum products that are distributed nationwide.

In 2002, respondent was only paying the amount of P98,964.71 for fees and other charges which include the
amount of P1,180.34 as Mayor's Permit. However, on February 20, 2001, petitioner Batangas City, through its City
Legal Officer, sent a notice of assessment to respondent demanding the payment of P92,373,720.50 and
P312,656,253.04 as business taxes for its manufacture and distribution of petroleum products. In addition,
respondent was also required and assessed to pay the amount of P4,299,851.00 as Mayor's Permit Fee based on
the gross sales of its Tabagao Refinery. The assessment was allegedly pursuant of Section 134 of the LGC of 1991
and Section 23 of its Batangas City Tax Code of 2002.

In response, respondent filed a protest on April 17, 2002 contending among others that it is not liable for the
payment of the local business tax either as a manufacturer or distributor of petroleum products. It further argued
that the Mayor's Permit Fees are exorbitant, confiscatory, arbitrary, unreasonable and not commensurable with
the cost of issuing a license.

On May 13, 2002, petitioners denied respondent's protest and declared that under Section 14 of the Batangas City
Tax Code of 2002, they are empowered to withhold the issuance of the Mayor's Permit for failure of respondent to
pay the business taxes on its manufacture and distribution of petroleum products.
On June 17, 2002, respondent filed a Petition for Review pursuant to Section 195 of the LGC of 1991 before the
Regional Trial Court (RTC) of Batangas City.

In its petition, respondent maintained that petitioners have no authority to impose the said taxes and fees, and
argued that the levy of local business taxes on the business of manufacturing and distributing gasoline and other
petroleum products is contrary to law and against national policy. It further contended that the Mayor's Permit
Fee levied by petitioners were unreasonable and confiscatory.

In its Answer, petitioners contended that the City of Batangas can legally impose taxes on the business of
manufacturing and distribution of petroleum products, including the Mayor's Permit Fees upon respondent.

Trial thereafter ensued.

In the interim, respondent paid under protest the Mayor's Permit Fees for the year 2003 amounting to
P774,840.50 as manufacturer and P3,525,010.50 as distributor. When respondent applied for the issuance of the
Mayor's Permit in 2004, it offered the amount of PI50,000.00 as compromise Mayor's Permit Fee without
prejudice to the outcome of the case then pending, which was rejected by petitioners.

On October 29, 2004, the RTC of Batangas City rendered a Decision 5 sustaining the imposition of business taxes by
petitioners upon the manufacture and distribution of petroleum products by respondent. However, the RTC
withheld the imposition of Mayor's Permit Fee in deference to the provisions of Section 147 of the LGC, in relation
to Section 143(h) of the same Code, which imposed a limit to the power of petitioners to collect the said business
taxes. The fallo of said decision reads:

WHEREFORE, in view of the foregoing premises, this Court hereby renders judgment as follows:

1. The taxes on the privilege of engaging in the business of manufacturing, distribution or dealing in
petroleum products in the amount of P92,373,750.50 and P312,656,253.04, respectively, imposed by
Batangas City on Pilipinas Shell, is VALID.

2. Declaring the Mayor's Permit Fee in the amount of P4,299,851.00 based on gross receipts/sales as grossly
excessive and unreasonable considering the aforesaid business taxes.

ACCORDINGLY, THE PETITIONER, PILIPINAS SHELL PETROLEUM CORPORATION (PSPC), IS HEREBY ORDERED TO PAY
THE AMOUNT OF PHP405,030,003.54 AS TAX ON ITS BUSINESS OF ENGAGING IN THE MANUFACTURE AND
DISTRIBUTION OF PETROLEUM PRODUCTS, WHILE THE ASSESSMENT OF PHP4,299,851.00 AS MAYOR'S PERMIT FEE
IS HEREBY ORDERED REVOKED WITHOUT PREJUDICE TO ITS MODIFICATION BY THE RESPONDENTS, BATANGAS
CITY, ET AL.

SO ORDERED.

Unsatisfied, respondent filed a "Motion for Partial Reconsideration."

In an Order7 dated February 28, 2005, the RTC denied respondent's motion for lack of merit.

Hence, respondent filed a Petition for Review with Extremely Urgent Application for a Temporary Restraining
Order and/or a Writ of Preliminary Injunction with the CTA Second Division on April 27, 2005.

Considering the urgency of the resolution of respondent's Application for the Issuance of a Writ of Preliminary
Injunction, the CTA Second Division granted the said application and ordered petitioners to hold in abeyance the
collection of the questioned manufacturer and distributor's taxes, conditioned upon the filing of respondent of a
surety bond in the amount of P500,000,000.00.
In a Decision dated June 21, 2007, the CTA Second Division granted respondent's petition. It held that respondent
is not subject to the business taxes on the manufacture and distribution of petroleum products because of the
express limitation provided under Section 133(h) of the LGC. The dispositive portion of said Decision reads:

WHEREFORE, premises considered, the judgment/order of the RTC Branch II of Batangas City is hereby MODIFIED.
As to the business taxes on the manufacture and distribution of petroleum products, We find the [respondent] not
liable for the same. As to the Mayor's permit, We find that it is excessive. Accordingly, the [petitioner] is hereby (a)
declared legally proscribed from imposing business taxes on the manufacture and distribution of petroleum
products and (b) to refund in the form of tax credit the excessive mayor's permit in the amount of THREE MILLION
FIVE HUDNRED TWENTY-FIVE THOUSAND TEN PESOS and FIFTY CENTAVOS (P3,525,010.50)

SO ORDERED.

On July 13, 2007, respondent filed a "Motion for Clarification" on the exact amount to be refunded by petitioners
as regards the Mayor's Permit Fees. After a perusal of the "Motion for Clarification," the CTA Second Division
found the motion partly meritorious. Thus:

Indeed, there is a discrepancy in the amount to be refunded and to clarify, the amount should be P3,870,860.00 as
written in the body of the decisions as follows:

Since [petitioners] failed to modify the computation of the mayor's permit fee and based on justice and equity,
[respondent] should be refunded with the mayor's permit fees ordered revoked by the court a quo.

The details of the additional amount of P4,299,851.00 mayor's permit fees are as follows:

Manufacturer Distributor

Mayor's Permit Fee P704,305.00 P3,166,555.00

License Fee 70,535.50

Prof. Fee Res/Bus 25,000.00 Fire Insp. Fee 1,000.00

Occ./Prof.Tax San Permit & San Insp. Fee 12,000.00

Fire Code Fee 320,455.00

Total Amount P774,840.50 P3,525,010.50

The amount to be refunded is not the full amount of P4,299,851.00 but the excessive mayor's permit for
manufacturing and distributing in the amount of P704,305.00 and P3,166,555.00, respectively, or in the total
amount of P3,870,860.00.

To conform to this aforequoted pronouncement, the dispositive portion of the assailed decision should be
amended so that the exact amount of the Mayor's Permit Fees to be refunded be changed from P3,525,010.50 to
P3,870.860.00.

Section 2, Rule 36 of the Rules of Court reads as follows:

SEC. 2. Entry of Judgments and final orders.- If no appeal or motion for new trial or reconsideration is filed within
the time provided in these Rules, the judgment or final order shall forthwith be entered by the clerk in the book of
entries of judgments. The date of finality of the judgment or final order shall be deemed to be the date of its entry.
In this case, PSPC received the Decision on June 28, 2007 and it filed its motion for clarification (treated as a
motion for reconsideration) on July 13, 2007 which is within the period allowed by law. In effect, our Decision has
not yet become final and executory. Hence, our Decision may be amended.

Moreover, pursuant to Section 5(g), Rule 135 of the Revised Rules of Court that every court shall have the power
to amend or control its process and orders so as to make them conformable to law and justice, the Second Division
of this Court resolves to amend its Decision dated June 21, 2007 by making the necessary corrections.

WHEREFORE, in view of the foregoing, [respondent] 's Motion for Clarification is partly GRANTED. Accordingly, the
dispositive portion of this Court's Decision dated June 21, 2007 is hereby AMENDED as follows:

WHEREFORE, premises considered, the judgment/order of the RTC Branch II of Batangas City is hereby MODIFIED.
As to the business taxes on the manufacture and distribution of petroleum products, We find the [respondent] not
liable for the same. As to the mayor's permit, We find that it is excessive. Accordingly, the [petitioner] is hereby (a)
declared legally proscribed from imposing business taxes on the manufacture and distribution of petroleum
products and (b) to refund in the form of tax credit the excessive mayor's permit in the amount of THREE MILLION
EIGHT HUNDRED SEVENTY THOUSAND EIGHT HUDNRED SIXTY PESOS (P3,870,860.00)

SO ORDERED.

SO ORDERED.

Petitioners filed a motion for reconsideration against said decision but the same was denied by the CTA Second
Division in a Resolution dated November 21, 2007.

Not satisfied, petitioners filed a Petition for Review praying for the reversal of the Amended Decision and
Resolution of the CTA Second Division.

On January 22, 2009, the CTA En Banc promulgated a Decision affirming in toto the Amended Decision of the CTA
Second Division. The CTA En Banc found no cogent reason to disturb the findings and conclusions of the CTA
Second Division. The dispositive portion of said Decision reads:

WHEREFORE, the instant Petition for Review is hereby DENIED DUE COURSE and DISMISSED for lack of merit.
Accordingly, the July 31, 2007 Amended Decision and November 21, 2007 Resolution of the CTA Second Division in
CTA AC Case No. 10 entitled, "PILIPINAS SFIELL PETROLEUM CORPORATION, petitioner vs. BATANGAS CITY,
BENJAMIN E. PARGAS in his capacity as CITY TREASURER and TEODULFO A. DEGUITO in his capacity as CITY LEGAL
OFFICER OF BATANGAS CITY, [petitioners]," are hereby AFFIRMED in toto.

SO ORDERED.

Unfazed, petitioners filed a motion for reconsideration.

In a Resolution dated April 13, 2009, the CTA En Bane denied petitioners' motion for reconsideration for lace of
merit.

Hence, this petition.

Petitioner raises the following assignment of errors:

THE COURT OF TAX APPEALS EN BANC ERRED IN NOT RULING THAT THE POWER OF LOCAL GOVERNMENT UNITS
TO TAX BUSINESS IS SOLELY GOVERNED BY SEC. 143 AND 143(h) OF THE LOCAL GOVENRMENT CODE OF 1991.

1. THE COURT OF TAX APPEALS EN BANC ERRED IN NOT RULING THAT THE WORD "TAXES" IN SEC. 133(h)
DOES NOT INCLUDE BUSINESS TAXES.
2. THE COURT OF TAX APPEALS EN BANC ERRED IN DISREGARDING THE DISTINCTION BETWEEN TAXES ON
ARTICLES AND TAXES ON BUSINESS.

3. THE COURT OF TAX APPEALS EN BANC INCORRECTLY CONSTRUED A CLEAR PROVISION OF LAW,
SPECIFICALLY SECTION 133(h) OF THE LOCAL GOVERNMENT CODE OF 1991, AS AN EXPRESS LIMITATION
ON THE POWER OF LOCAL GOVENRMENT UNITS TO IMPOSE TAXES ON THE BUSINESS OF MANUFACTURE
AND DISTRIBUTION OF PETROLEUM PRODUCTS."11

In essence, the issue is whether a LGU is empowered under the LGC to impose business taxes on persons or
entities engaged in the business of manufacturing and distribution of petroleum products.

It its petition, petitioners assert that any activity that involves the production or manufacture and the distribution
or selling of any kind or nature as a means of livelihood or with a view to profit can be taxed by the LGUs. They
posit that the authority granted to them by Section 143(h) of the LGC is so broad that it practically covers any
business that the sanggunian concerned may deem proper to tax, even including businesses which are already
subject to excise, value-added or percentage tax under the National Internal Revenue Code (NIRC) provided that
the same shall not exceed two percent of the gross sales or receipts of the preceding calendar year.

We do not agree.

At the outset, it must be emphasized that although the power to tax is inherent in the State, the same is not true
for LGUs because although the mandate to impose taxes granted to LGUs is categorical and long established in the
1987 Philippine Constitution, the same is not all encompassing as it is subject to limitations as explicitly stated in
Section 5, Article X of the 1987 Constitution, viz.:

SECTION 5. Each local government unit shall have the power to create its own sources of revenues and to levy
taxes, fees, and charges subject to such guidelines and limitations as the Congress may provide, consistent with
the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local governments.

In the consolidated cases of City of Manila, et al. v. Hon. Colet and Malaysian Airline system; Maersk-Filipinas, Inc.,
et al. v. City of Manila, et al,; Eastern Shipping Lines, Inc. v. City Council of Manila, et al; William Lines, Inc., et al. v.
Regional Trial Court of Manila, et al.; PNOC Shipping and Transport Corporation v. Hon. Nabong, et al.; Maersk-
Filipinas, Inc., et al. v. City of Manila, et al, and with Intervenors William Lines, Inc., et al; Cosco Container Lines and
HEUNG-A Shipping Co., Ltd., et al. v. City of Manila; Sulpicio Lines, Inc. v. Regional Trial Court of Manila, et al;
Association of International Shipping Lines, Inc. v. City of Manila, et al; Dongnama Shipping Co., Ltd., et al. v. Court
of Appeals, et al.,12 this Court expounded that the LGUs' power to tax is subject to the limitations set forth under
Section 133 of the LGC. Thus:

It is already well-settled that although the power to tax is inherent in the State, the same is not true for the LGUs
to whom the power must be delegated by Congress and must be exercised within the guidelines and limitations
that Congress may provide. The Court expounded in Pelizloy Realty Corporation v. The Province of Benguet that:

The power to tax "is an attribute of sovereignty," and as such, inheres in the State. Such, however, is not true for
provinces, cities, municipalities and barangays as they are not the sovereign; rather, there are mere "territorial and
political subdivisions of the Republic of the Philippines."

The rule governing the taxing power of provinces, cities, municipalities and barangays is summarized in Icard v. City
Council of Baguio:

It is settled that a municipal corporation unlike a sovereign state is clothed with no inherent power of
taxation. The charter or statute must plainly show an intent to confer that power or the municipality, cannot
assume it. And the power when granted is to be construed in strictissimi juris. Any doubt or ambiguity arising out
of the term used in granting that power must be resolved against the municipality. Inferences, implication,
deductions - all these- have no place in the interpretation of the taxing power of a municipal corporation.
Therefore, the power of a province to tax is limited to the extent that such power is delegated to it either by the
Constitution or by statute. Section 5, Article X of the 1987 Constitution is clear on this point:

xxxx

Per Section 5, Article X of the 1987 Constitution, "the power to tax is no longer vested exclusively on Congress;
local legislative bodies are now given direct authority to levy taxes, fees and other charges." Nevertheless, such
authority is "subject to such guidelines and limitations as the Congress may provide."

In conformity with Section 3, Article X of the 1987 Constitution, Congress enacted Republic Act No. 7160,
otherwise known as the local Government Code of 1991. Book II of the LGC governs local taxation and fiscal
matters.

Relevant provisions of Book II of the LGC establish the parameters of the taxing powers of LGUs found below.

First, Section 130 provides for the following fundamental principles governing the taxing powers of LGUs:

1. Taxation shall be uniform in each LGU.


2. Taxes, fees, charges and other impositions shall:
a. be equitable and based as far as practicable on the taxpayer's ability to pay;
b. be levied and collected only for public purposes;
c. not be unjust, excessive, oppressive or confiscatory;
d. not be contrary to law, public policy, national economic policy, or in the restraint of trade.

3. The collection of local taxes, fees, charges and other impositions shall in no case be left to any private
person.
4. The revenue collected pursuant to the provisions of the LGC shall inure solely to the benefit of, and be
subject to the disposition by, the LGU levying the tax, fee, charge or other imposition unless otherwise
specifically provided by the LGC.
5. Each LGU shall, as far as practicable, evolve a progressive system of taxation.

Second, Section 133 provides for the common limitations on the taxing powers of LGUs.

Among the common limitations on the taxing powers of LGUs under Section 133 of the LGC is paragraph (h) which
states:

SECTION 133. Common Limitations on the Taxing Powers of Local Government Units. - Unless otherwise provided
herein, the exercise of taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy
of the following:

XXXX

(h) Excise taxes on articles enumerated under the National Internal Revenue Code, as amended, and taxes, fees or
charges on petroleum products.;13

From the foregoing, Section 133(h) clearly specifies the two kinds of taxes which cannot be imposed by LGUs: (1)
excise taxes on articles enumerated under the NIRC, as amended; and (2) taxes, fees or charges on petroleum
products.

Indisputably, the power of LGUs to impose business taxes derives from Section 143 of the LGC. However, the same
is subject to the explicit
statutory impediment provided for under Section 133(h) of the same Code which prohibits LGUs from imposing
"taxes, fees or charges on petroleum products." It can, therefore, be deduced that although petroleum products
are subject to excise tax, the same is specifically excluded from the broad power granted to LGUs under Section
143(h) of the LGC to impose business taxes.

Additionally, Section 133(h) of the LGC makes plain that the prohibition with respect to petroleum products
extends not only to excise taxes thereon, but all "taxes, fees or charges." The earlier reference in paragraph 143(h)
to excise taxes comprehends a wider range of subject of taxation: all articles already covered by excise taxation
under the NIRC, such as alcohol products, tobacco products, mineral products, automobiles, and such non-
essential goods as jewelry, goods made of precious metals, perfumes, and yachts and other vessels intended for
pleasure or sports. In contrast, the later reference to "taxes, fees and charges" pertains only to one class of articles
of the many subjects of excise taxes, specifically, "petroleum products." While LGUs are authorized to burden all
such other class of goods with "taxes, fees and charges," excepting excise taxes, a specific prohibition is imposed
barring the levying of any other type of taxes with respect to petroleum products.

It is likewise irrefutable that the specific exemption provided under Section 133 of the LGC prevails over Section
143 of the same Code.

First, Section 133 of the LGC is a specific provision that explicitly withhold from LGUs the power to impose taxes,
fees and charges on petroleum products.

Strictly speaking, as long as the subject matter of the taxing powers of the LGUs is the petroleum products per
se or even the activity or privilege related to the petroleum products, such as manufacturing and distribution of
said products, it is covered by the said limitation and thus, no levy can be imposed.

On the contrary, Section 143 of the LGC defines the general power of LGUs to tax businesses within its jurisdiction.
Thus, the omnibus grant of power to LGUs under Section 143(h) of the LGC cannot overcome the specific exception
or exemption in Section 133(h) of the same Code. This is in accord with the rule on statutory construction that
specific provisions must prevail over general ones. A special and specific provision prevails over a general provision
irrespective of their relative positions in the statute. Generalia specialibus non derogant. Where there is in the
same statute a particular enactment and also a general one which in its most comprehensive sense would include
what is embraced in the former, the particular enactment must be operative, and the general enactment must be
taken to affect only such cases within its general language as are not within the provisions of the particular
enactment.17chanrobleslaw

Second, Article 232(h) of the Implementing Rules and Regulations (IRR) of the LGC of 1991 states:

ARTICLE 232. Tax on Business. - The Municipality may impose taxes on the following businesses: x x x x

(h) On any business not otherwise specified in the preceding paragraphs which the sanggunian concerned
may deem proper to tax provided that that on any business subject to the excise tax. VAT or
percentage tax under the NIRC, as amended, the rate of tax shall not exceed two percent (2%) of gross
sales or receipts of the preceding calendar year and provided further, that in line with existing
national policy, any business engaged in the production, manufacture, refining, distribution or sale of
oil, gasoline, and other petroleum products shall not be subject to any local tax imposed in this
Article.18

Article 232 defines with more particularity the capacity of a municipality to impose taxes on businesses. However,
it admits of certain exceptions, specifically, that businesses engaged in the production, manufacture, refining,
distribution or sale of oil, gasoline, and other petroleum products, shall not be subject to any local tax imposed by
Article 232.

WHEREFORE, in view of the foregoing, the Court hereby resolves to DENY present petition. The Decision dated
January 22, 2009 and Resolution dated April 13, 2009 of the Court of Tax Appeals En Banc in CTAEB No. 350
are AFFIRMED.

SO ORDERED.

TOPIC/DOCTRINE: THE COURT OF TAX APPEALS SHALL EXERCISE EXCLUSIVE APPELLATE


JURISDICTION TO REVIEW BY APPEAL DECISIONS OF COMMISSION OF CUSTOMS IN CASES
PROVIDED BY LAW

Republic of the Philippines


SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 160206, July 15, 2015

M/V "DON MARTIN" VOY 047 AND ITS CARGOES OF 6,500 SACKS OF IMPORTED RICE, PALACIO SHIPPING, INC.,
AND LEOPOLDO "JUNIOR" PAMULAKLAKIN, Petitioners, v. HON. SECRETARY OF FINANCE, BUREAU OF CUSTOMS,
AND THE DISTRICT COLLECTOR OF CAGAYAN DE ORO CITY, Respondents.

DECISION

BERSAMIN, J.:

This case involves the seizure and forfeiture of the rice cargo and its carrying vessel on the ground that the rice
cargo had been smuggled.

The Case

Under review is the decision promulgated on July 29, 2003, 1 and the resolution promulgated on September 25,
2003,2 both in CA-G.R. SP No. 66725, whereby the Court of Appeals (CA) reversed and set aside the ruling rendered
on May 22, 20013 and the resolution issued on August 30, 20014 by the Court of Tax Appeals (CTA) in C.T.A. Case
No. 5890 respectively affirming the forfeiture by the customs authorities of the vessel M/V Don Martin Voy 047
(M/V Don Martin) and its cargo of 6,500 sacks of rice, and denying the petitioners' Motion for Reconsideration.

Antecedents

Petitioner Palacio Shipping, Inc. (Palacio) was the owner of the M/V Don Martin, a vessel of Philippine registry
engaged in coastwise trade.5 On January 25, 1999, the M/V Don Martin docked at the port of Cagayan de Oro City
with its cargo of 6,500 sacks of rice consigned to petitioner Leopoldo "Junior" Pamulaklakin
(Pamulaklakin).6 According to the petitioners, the vessel left Calbayog City on January 24, 1999 loaded with the
6,500 sacks of rice purchased in Sablayan, Occidental Mindoro.
Based on an intelligence report to the effect that the cargo of rice being unloaded from the M/V Don Martin had
been smuggled, the Economic Intelligence and Investigation Bureau (EIIB), with the assistance of the Bureau of
Customs (BOC), apprehended and seized the vessel and its entire rice cargo on January 26, 1999. The District
Collector of Customs in Cagayan de Oro City then issued a warrant of seizure and detention pursuant to Section
2301 of the Tariff and Customs Code of the Philippines (TCCP).

At the hearing on the seizure, the petitioners represented that the vessel was a common carrier; and that the
6,500 sacks of rice had been locally produced and acquired.10 In substantiation, they submitted several documents,
as follows:

1. Certificate of Ownership - to prove that Palacio Shipping, Inc. is the owner of M/V "Don Martin",

2. Coastwise License - to prove that Palacio Shipping, Inc. is duly licensed to engage in coastwise Trading and
as such, is a common carrier and is financially capable to engage in shipping business;

3. Mintu Rice Mill Official Receipt No. 2753 dated January 18, 1999 - to prove that the origin of the rice is
Sablayan, Occidental Mindoro and also to show that the rice is of regular mill and not smuggled;

4. NFA, Sablayan, Occidental Mindoro Clearance - to show that the bags of rice purchased under Exhibit "3"
has been cleared for shipment by the National Food Authority of Sablayan, Occidental Mindoro;

5. Old NFA License of Godofredo Mintu

5-A - Renewal of the NFA License of Godofredo Mintu expiring May 31, 1999 - to show that the purchased
rice came from a duly licensed Grains Trader;

6. NFA License of Florentino J. Palacio, owner of the EMP Commercial, the shipper - to prove that the
shipper is a duly Licensed NFA wholesaler;

6-1 Renewal Receipt for NFA License for Fiscal Year 1998-1999;ChanRoblesVirtualawlibrary

7. NFA Clearance of Catbalogan, Western Samar to prove that the cargo of M/V "DON MARTIN" was
cleared for Cagayan de Oro City;

8. 7-1 PPASeal

7-2 Coast Guard Seal

7-3 Page 2 of NFA Clearance

9. Bill of Lading - to prove that the cargo was duly covered with a Bill of Lading, a requirement in coastwise
shipping;

10. Coasting Manifest - to prove that the cargo of rice was duly reflected in its manifest - also a requirement
for coastwise shipping;

11. Birth Certificate and photo of Leopoldo "Junior" Pamulaklakin

10-A Residence Certificate of Leopoldo "Junior" Pamulaklakin - to prove that the consignee is a living
person and not fictitious person.

10-B Picture of Leopoldo "Junior" Pamulaklakin - to prove that the consignee is a living person and not a
fictitious person.11
On March 24, 1999, District Collector of Customs Marietta Z. Pacasum rendered her ruling whereby she concluded
that in the absence of a showing of lawful entry into the country the 6,500 sacks of rice were of foreign origin and
thus subject to seizure and forfeiture for violation of Section 2530 (f) and (1) No. 1 of the TCCP, as amended; that
the presentation of the supporting documents by the claimants was a strategy to conceal the true nature and
origin of the rice cargo in order to mislead the Customs authorities into believing that the rice was locally produced
and locally purchased; and that considering that the evidence to support the seizure and forfeiture of the carrying
vessel was insufficient, the release of the vessel was to be ordered. Pertinent portions of the ruling follow:

The results of the Laboratory Analysis of samples of the subject rice by the NFA and the Philippine Rice Institute
reveal that the grain length is unusually long with 7.2 mm. for both Orion and Platinum 2000 rice samples as
compared to the grain length of most Philippine Varieties which ranges from 5.8 to 6.9 mm. only. It was also found
out that rice with grain length of more than 7.0 mm. are more common in the countries of Brazil, Bolivia,
Guatamala and Thailand, (Exhibit "J-3" and "K-l"), although the said imported variety could be purchased locally
through the NFA.

Furthermore, it also appears that some white sacks/containers were marked with Premium Rice whereas per
Philippine Grains Standardization, yellow color is for premium while white color is for ordinary rice. (Exhibit I).

On the basis of the above findings, it can be safely concluded that the 6,500 sacks of rice subject of this
proceedings are of foreign origin and therefore subject to seizure and forfeiture for violation of Section 2530 (f)
and (1) no. 1 of the TCCP, as amended, in the absence of showing of its lawful entry into the country. The
presentation of the supporting documents by respondents/claimants was a strategy to conceal the true nature and
origin of the cargoes and to mislead the Customs Authorities into believing that subject rice are locally produced
and locally purchased. Hence, said documents have no probative value whatsoever insofar as the subject cargoes
are concerned.

Section 2530 provides: Property Subject to Forfeiture Under Tariff and Customs Law. x x x

(L) Any article sought to be imported or exported:

1. Without going through a Customhouse, whether the act was consummated, frustrated or attempted.

Since the subject rice was established to be of the imported variety and considering that the said cargoes are not
covered by proper import documents, the importation of the same fall squarely on the above quoted provision of
the TCCP.

With respect to the carrying vessel, MV "DON MARTIN", which is a common carrier, no evidence sufficient enough
to warrant its forfeiture in favor of the government was presented to satisfy the provision of Section 2530
paragraph a and k of the TCCP. On the other hand, respondent/claimant was able to show proof to defeat a
forfeiture decree, by presentation of pertinent documents relative to the following requirements, viz:

1. That the owner is engaged in the business for which the conveyance is generally used;

2. That the owner is financially in a position to own such conveyance and

3. That the vessel has not been used for smuggling at least twice before. (Exhibit 1 & 2) in compliance with
the provision of Section 2531 oftheTCCP.

WHEREFORE, in light of the foregoing and by virtue of the authority vested in the undersigned under Section 2312
of the Tariff and Customs Code of the Philippines, as amended, it is hereby ordered and decreed that the 6,500
sacks of imported rice subject of this seizure proceedings be, as they are hereby decreed forfeited in favor of the
Government of the Republic of the Philippines to be disposed of in the manner provided by law. It is further
ordered and decreed that the carrying vessel MV "DON MARTIN" be released to the owner/claimant and be
cleared for its next destination, for insufficiency of evidence.

xxxx

SO ORDERED.

Pamulaklakin appealed, but BOC Deputy Commissioner Emma M. Rosqueta, in her decision dated April 19, 1999,
upheld District Collector Pacasum, holding thusly:

This Office is convinced that the 6,500 sacks of rice subject matter of this case are of foreign growth and origin. No
evidence of lawful entry of the said rice into the country as well as payment of duties and taxes has been
presented, hence, the said cargo is liable to forfeiture under Section 2530 (a), (f) and (I) - 1 of the Tariff and
Customs Code.

WHEREFORE, the decision of the District Collector of Customs, Port of Cagayan de Oro, ordering the forfeiture of
the 6,500 sacks of rice discharge (sic)/ seized from the M/V "DON MARTIN" is AFFIRMED. It is further ordered and
decreed that the said rice be immediately disposed of in accordance with law.

xxxx

SO ORDERED.

Meanwhile, the order to release the vessel, being adverse to the interest of the Government, was elevated to the
Secretary of Finance for automatic review pursuant to Section 2313 of the TCCP. In his 3rd Indorsement dated May
11, 1999, then Secretary of Finance Edgardo B. Espiritu reversed the order for the release of the vessel based on
the finding that "the operator of the vessel is the shipper of the smuggled goods. 14

Consequently, on June 21, 1999, the petitioners brought a petition for review in the CTA (CTA Case No. 5890) to
seek the nullification of the May 11, 1999 3rd Indorsement of the Secretary of Finance,15and to obtain the release
of the rice shipment and the vessel.16

Pending the resolution of the appeal, the CTA issued its resolution dated November 8, 1999 ordering the release of
the vessel and the rice cargo upon the petitioners' filing of GSIS Surety Bond 032899 and GSIS Surety Bond 032900
in the respective amounts of P5,550,000.00 and P6,682,000.00 in favor of the BOC. 17

On May 22, 2001, the CTA rendered its decision in favor of the petitioners, disposing thusly:

IN LIGHT OF ALL THE FOREGOING, the decisions of the Respondents are hereby REVERSED and SET ASIDE.
Accordingly, the GSIS Surety Bonds in the total amount of PI2,232,000.00, which were earlier posted by Petitioners
for the release of the subject cargo of rice and its carrying vessel are hereby ORDERED RELEASED for reasons
aforestated. No costs.

SO ORDERED.18chanrobleslaw

The respondents filed their Motion for Partial Reconsideration,19 citing the sole ground that the April 19, 1999
decision by BOC Deputy Commissioner Rosqueta upholding the forfeiture of the 6,500 sacks of rice had already
attained finality; and arguing that the CTA lacked the jurisdiction to resolve the issue on the forfeiture of the 6,500
sacks of rice because the appeal to the CTA had been limited to the forfeiture of the vessel.

After the CTA denied the Motion for Partial Reconsideration on August 30, 2001,20 the respondents appealed to
the CA, reiterating that the CTA did not acquire jurisdiction over the issue of the forfeiture of the 6,500 sacks of
rice.

The petitioners countered that the April 19, 1999 decision of BOC Deputy Commissioner Rosqueta did not yet
attain finality because they had been belatedly furnished a copy of it; and that the respondents raised the issue of
jurisdiction only after receiving the adverse decision of the CTA.

Pending resolution of the appeal, the CTA issued its resolution dated February 19, 2003 granting the
petitioners' Manifestation and Motion to Release/Cancel GSIS Surety Bonds. 22 Upon motion of the respondents,
however, the CA issued a 60-day temporary restraining order to enjoin the CTA from implementing its February 19,
2003 resolution.

On July 29, 2003, the CA promulgated its assailed decision,24 disposing:

WHEREFORE, finding merit in the instant petition, the same is GIVEN DUE COURSE. The Decision and the
Resolution of the Court of Tax Appeals ordering the release of the 6,500 sacks of rice and its carrying vessel M/V
"Don Martin" is REVERSED and SET ASIDE and the same is hereby ORDERED forfeited in favor of the Government.
Costs against private respondents.

SO ORDERED.

On September 25, 2003, the CA denied the petitioners' Motion for Reconsideration .26

Issues

In this appeal, the petitioners focus on the following issues, namely:

A.

WHETHER OR NOT THE COURT OF APPEALS ERRED IN DECLARING THE SUBJECT ARTICLES FORFEITED IN FAVOR OF
THE GOVERNMENT CONSIDERING THAT RICE SHIPMENT WAS PRODUCED AND PURCHASED LOCALLY.

B.

WHETHER OR NOT THE FACTUAL DETERMINATION OF THE COURT OF TAX APPEALS CAN BE REVERSED BY THE
COURT OF APPEALS DESPITE THE FACT THAT THE DECISION OF THE TAX COURT IS SUPPORTED BY SUBSTANTIAL
EVIDENCE.27chanrobleslaw

In other words, to be determined are the following legal questions, namely: (1) the jurisdiction of the CTA on the
forfeiture of the 6,500 sacks of rice; and (2) the propriety of the forfeiture of the 6,500 sacks of rice and its carrying
vessel.

Ruling
The appeal is meritorious.

1.

The CTA had jurisdiction to resolve the issue on the


forfeiture of the 6,500 sacks of rice and of the vessel

At the time of the filing on June 21, 1999 in the CTA of the petition for review, 28 the jurisdiction of the CTA was
defined and governed by Section 7 of Republic Act No. 1125 (An Act Creating the Court of Tax Appeals), which
relevantly states:

Section 7. Jurisdiction. - The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to review by appeal,
as herein provided.

xxxx

2. Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees or other money
charges; seizure, detention or release of property affected fines, forfeitures or other penalties imposed in relation
thereto or other matters arising under the Customs Law or other law or part of law administered by the Bureau of
Customs

xxxx

The TCCP contained a counterpart provision that reads:

Section 2402. Review by Court of Tax Appeals. - The party aggrieved by a ruling of the Commissioner in any matter
brought before him upon protest or by his action or ruling in any case of seizure may appeal to the Court of Tax
Appeals, in the manner and within the period prescribed by law and regulations.

Unless an appeal is made to the Court of Tax Appeals in the manner and within the period prescribed by laws and
regulations, the action or ruling of the Commissioner shall be final and conclusive.

Conformably with the foregoing provisions, the action of the Collector of Customs was appealable to the
Commissioner of Customs, whose decision was subject to the exclusive appellate jurisdiction of the CTA, whose
decision was in turn appealable to the CA.29

Nonetheless, the respondents contend that the petitioners did not appeal the April 19, 1999 decision of BOC
Deputy Commissioner Rosqueta on the forfeiture of the 6,500 sacks of rice; and that in accordance with Section 11
of R.A. No. 1125 the decision consequently became final and executory 30 days from their receipt of the decision.

The respondents' contention is bereft of merit.

The April 19, 1999 decision of BOC Deputy Commissioner Rosqueta on the forfeiture of the 6,500 sacks of rice
would become final and immutable if the petitioners did not appeal it in the CTA within 30 days from receipt
thereof. Such period of appeal was expressly set in Section 11 of R.A. No. 1125, which relevantly declares:

Section 11. Who may appeal; effect of appeal. Any person, association or corporation adversely affected by a
decision or ruling of the Collector of Internal Revenue, the Collector of Customs or any provincial or city Board of
Assessment Appeals may file an appeal in the Court of Tax Appeals within thirty days after the receipt of such
decision or ruling.

xxx

The petitioners insisted in their Comment/Opposition (To Respondents Motion for Partial Reconsideration),
however, that they were not furnished a copy of the decision of BOC Deputy Commissioner Rosqueta; and that
they only learned of the decision on June 1, 1999 after the issuance of the May 11, 1999 3 rd Indorsement of the
Secretary of Finance.30 Considering that the respondents did not dispute such insistence of the petitioners, and did
not present evidence showing the contrary, the 30-day period for filing the appeal in the CTA commenced to run
for the petitioners only after June 1, 1999, which was the date when they unquestionably acquired notice of the
adverse decision. Accordingly, they had until July 1, 1999 within which to appeal. With their petition for review
being filed on June 21, 1999, which was well within the 30-day period provided in Section 11, supra, their appeal
was timely.

Moreover, the records indicated that the petitioners' appeal in the CTA raised the following issues, to wit:

It is respectfully submitted that respondents erred:

A.

IN DECLARING THAT THE SUBJECT VESSEL M/V "DON MARTIN" BE FORFEITED IN FAVOR OF THE GOVERNMENT
FOR VIOLATION OF SECTION 2530 (a) and (k) (sic) THE TARIFF AND CUSTOMS CODE OF THE PHILIPPINES.

B.

IN DECLARING THAT THE SUBJECT CARGO OF RICE BE FORFEITED IN FAVOR OF THE GOVERNMENT DESPITE THE
TESTIMONIAL AND DOCUMENTARY EVIDENCE OF PETITIONERS INDISPUTABLY SHOWING THAT THE SAME WAS
PRODUCED AND ACQUIRED LOCALLY.

and that they prayed for the release of both the vessel and its cargo of rice. They also extensively presented in
their petition for review their arguments on the illegality of the forfeiture of the rice. 32Under the circumstances,
the issue on the legality of the forfeiture of the rice was fully raised and submitted in the CTA, which thus had
adequate basis to resolve it.

Lastly, under Section 2530 (a) and (k) of the TCCP, the forfeiture of a vehicle, vessel or aircraft is anchored on its
being used unlawfully in the transport of contraband or smuggled articles into or from any Philippine port.
Consequently, the determination of the legality of the forfeiture of the M/V Don Martin was necessarily contingent
on whether the customs authorities had validly and properly seized the shipment of 6,500 sacks of rice on account
of the rice being smuggled. Given this logical correlation, the CTA could not be divested of its jurisdiction to
determine the legality of the forfeiture of the rice.

In this regard, we hold it fitting to reiterate that:

Once a court acquires jurisdiction over a case, it has wide discretion to look upon matters which, although not
raised as an issue, would give life and meaning to the law. Indeed, the Rules of Court recognize the broad
discretionary power of an appellate court to consider errors not assigned.

xxxx
Thus, an appellate court is clothed with ample authority to review rulings even if they are not assigned as errors
in the appeal in these instances: (a) grounds not assigned as errors but affecting jurisdiction over the subject
matter; (b) matters not assigned as errors on appeal but are evidently plain or clerical errors within contemplation
of law; (c) matters not assigned as errors on appeal but consideration of which is necessary in arriving at a just
decision and complete resolution of the case or to serve the interests of justice or to avoid dispensing piecemeal
justice; (d) matters not specifically assigned as errors on appeal but raised in the trial court and are matters of
record having some bearing on the issue submitted which the parties failed to raise or which the lower court
ignored; (e) matters not assigned as errors on appeal but closely related to an error assigned; and (f) matters not
assigned as errors on appeal but upon which the determination of a question properly assigned, is
dependent.34 (Emphasis supplied.)

2.
The CA did not reverse the
factual findings of the CTA

The petitioners argue that the CA should not have reversed the factual findings of the CTA because such findings
were supported by substantial evidence; that the CA should not have favored the assumption by the Secretary of
Finance that the operator of the vessel was also the shipper of the smuggled goods; and that the cargo of rice
should not have been found as unlawfully imported considering that all the documents they had presented to
prove the contrary had been verified and uncontested.

The petitioners' arguments are unfounded.

It is true that the CTA is a highly specialized body specifically created for the purpose of reviewing tax cases; hence,
its findings of fact are to be accorded utmost respect. 35 Indeed, the factual findings of the CTA, when supported by
substantial evidence, are not to be disturbed on appeal unless there is a showing that the CTA committed gross
error or abuse in the appreciation of facts.

Here, however, it was obvious that the CA did not modify or alter any of the factual findings of the CTA, but only
re-assessed the findings because of the conflicting conclusions reached by the CTA and the BOC. After its re-
assessment, the CA declared that the conclusions by the BOC and the Secretary of Finance were more sustainable
and convincing than those of the CTA.37 By so declaring, the CA did not change the factual findings of the CTA but
only arrived at a different interpretation of the findings that tilted its appellate resolution in favor of the
respondents. The CA thereby simply exercised its power of appellate review. Indeed, the CA, as the appellate
court, had the authority to either affirm, or reverse, or modify the appealed decision of the CTA. To withhold from
the CA its power to render an entirely new decision would trench on its power of review, and would, in effect,
render it incapable of correcting the patent errors of the lower court. 38

3.
The 6,500 sacks of rice were not unlawfully imported
Into the Philippines; hence, there was no legal ground
for the forfeiture of the rice and its carrying vessel

In resolving the issue whether the rice shipment constituted smuggling or unlawful importation, the CTA observed
that
xxx [I]n order that a shipment be liable (to) forfeiture, it must be proved that fraud has been committed by the
consignee/importer to evade the payment of the duties due. This is clear under Section 2530 (1) and (1) of the
TCCP. To establish the existence of fraud, the onus probandi rests on the Respondents who ordered the forfeiture
of the shipment of rice and its carrying vessel M/V "DON MARTIN."

xxxx

The Special and Affirmative Defenses of the Respondents generally averred that the subject 6,500 bags of rice are
of imported variety which are not covered by proper import documents, hence should be declared forfeited in
favor of the government.

We do not agree. The said ratiocination of Respondents did not clearly indicate any actual commission of fraud or
any attempt or frustration thereof. As defined, actual or intentional fraud consist of deception wilfully and
deliberately done or resorted to in order to induce another to give up some right (Hon Farolan, Jr. vs. Court of Tax
Appeals, 217 SCRA 293). It must amount to intentional wrong-doing with the sole object of avoiding the tax. (Aznar
vs. Court of Tax Appeals, 58 SCRA 543).

The circumstances presented by the Respondents in their Answer do not reveal to us any kind of deception
committed by Petitioners. Such circumstances are nothing more than mere half-baked premises that fail to
support the proposition sought to be established which is the commission of fraud in accordance with Section
2530 (f) and (1) of the TCCP, as amended.

xxxx

The Court is in total acquiescence with the argument of Petitioners that it is non sequitur to conclude that the
subject rice was imported simply because its grain length is more common in other foreign countries. Firstly, the
said laboratory analysis by both the NFA and Philippine Rice Research Institute are not conclusive. In fact, the Head
of the Rice Chemistry and Food Science Division of the Philippine Rice Research Institute, Mr. James
Patindol, admitted that it is premature to conclude that the samples are indeed imported by simply relying on
the grain length (Annex "H"). Secondly, these inconclusive findings do not and cannot overcome the documentary
evidence of Petitioners that show that said rice was produced, milled and acquired locally. And thirdly, at the time
the vessel M/V "DON MARTIN" and its cargo of rice were seized on 26 January 1999, the agents of the EIIB and the
Bureau of Customs never had a probable cause that would warrant the filing of the seizure proceedings. The
Government agents only made their inquiries about the alleged smuggling only three (3) days after the seizure.
This is a gross violation of Section 2535 in relation to Section 2531 of the Tariff and Customs Code of the
Philippines x x x.

The CA reversed the CTA, and adopted the findings by the District Collector Pacasum and the Secretary of Finance
to buttress its conclusion that the rice was of imported variety and origin; that there were no proper import
documents that accompanied the importation as required by law; and that the forfeiture of the vessel was in order
because its operator was also the shipper of the 6,500 sacks of rice.

To warrant forfeiture, Section 2530(a) and (f) of the TCCP requires that the importation must have been unlawful
or prohibited. According to Section 3601 of the TCCP: "[a]ny person who shall fraudulently import or bring into the
Philippines, or assist in so doing, any article, contrary to law, or shall receive, conceal, buy, sell, or in any manner
facilitate the transportation, concealment, or sale of such article after importation, knowing the same to have been
imported contrary to law, shall be guilty of smuggling."

Was the rice cargo the product of smuggling or unlawful importation?

The resolution of this query requires the re-examination of the evidence. Ordinarily, the Court, not being a trier of
facts, does not do the re-examination, but in view of the conflicting conclusions reached by the CTA and the CA on
the matter, the Court should review and re-assess the evidence in order to resolve the issues submitted in this
appeal.

After careful review, the Court upholds the CTA.

To warrant the forfeiture of the 6,500 sacks of rice and the carrying vessel, there must be a prior showing of
probable cause that the rice cargo was smuggled.43 Once probable cause has been shown, the burden of proof is
shifted to the claimant.

The M/V Don Martin and its cargo of rice were seized and forfeited for allegedly violating Section 2530 (a), (f), (k)
and (1), paragraph (1), of the TCCP, to wit:

Section 2530. Properly Subject to Forfeiture Under Tariff and Customs Laws. - Any vehicle, vessel or aircraft, cargo,
articles and other objects shall, under the following conditions, be subject to forfeiture:

a. Any vehicle, vessel or aircraft, including cargo, which shall be used unlawfully in the importation or exportation
of articles or in conveying and/or transporting contraband or smuggled articles in commercial quantities into or
from any Philippine port or place. The mere carrying or holding on board of contraband or smuggled articles in
commercial quantities shall subject such vessel, vehicle, aircraft or any other craft to forfeiture; Provided, That the
vessel, or aircraft or any other craft is not used as duly authorized common carrier and as such a carrier it is not
chartered or leased; x x x

xxxx

f. Any article the importation or exportation of which is effected or attempted contrary to law, or any article of
prohibited importation or exportation, and all other articles, which, in the opinion of the Collector have been used,
are or were entered to be used as instruments in the importation or exportation of the former; x x x

xxxx

k. Any conveyance actually being used for the transport of articles subject to forfeiture under the tariff and
customs laws, with its equipage or trappings, and any vehicle similarly used, together with its equipage and
appurtenances including the beast, steam or other motive power drawing or propelling the same. The mere
conveyance of contraband or smuggled articles by such beast or vehicle shall be sufficient cause for the outright
seizure and confiscation of such beast or vehicle, but the forfeiture shall not be effected if it is established that the
owner or the means of conveyance used as aforesaid, is engaged as common carrier and not chartered or leased,
or his agent in charge thereof at the time has no knowledge of the unlawful act;

1. Any article sought to be imported or exported:

(1) Without going through a customhouse, whether the act was consummated, frustrated or attempted; x x x.

xxx

Conformably with the foregoing, therefore, the respondents should establish probable cause prior to forfeiture by
proving: (1) that the importation or exportation of the 6,500 sacks of rice was effected or attempted contrary to
law, or that the shipment of the 6,500 sacks of rice constituted prohibited importation or exportation; and (2) that
the vessel was used unlawfully in the importation or exportation of the rice, or in conveying or transporting the
rice, if considered as contraband or smuggled articles in commercial quantities, into or from any Philippine port or
place.
A review of the records discloses that no probable cause existed to justify the forfeiture of the rice cargo and the
vessel.

To prove that the rice shipment was imported, rice samples were submitted to and examined by the Philippine
Rice Research Institute (PRRI), which, however, could not reach a definitive conclusion on the origin of the rice
shipment, and even deemed itself inadequate to reach such conclusion, opining that: "It is premature to conclude
though that your samples are indeed imported, by simply relying on the grain length data. More thorough analyses
need to be done." PRRI explained:

xxx We are sorry to inform you, however, that our institute does not have the capability yet to identify local milled
rice from imported ones. Routine grain quality analysis in our institute only includes: grain size and shape, % chalky
grains, % amylose, % protein, gel consistency, gelatinization temperature, and cooked rice texture. Based on
experience, these parameters are not reliable enough to be used as criteria in identifying local from imported
cultivars.

The samples submitted to us are indica types. This further complicates the identification since our local cultivars
are indica types as well. However, based on our initial analysis, we noticed that the grain length of your samples is
unusually long. It is 7.2 mm for both Orion and Platinum 2000. Milled rice grain length of most Philippine varities
(sic) usually ranges from 5.8 to 6.9 mm only. We seldom encounter local cultivars with milled rice grain length of
more than 7.0 mm. I tried to browse the Handbook on Grain Quality of World Rices (by Juliano and Villareal, 1993)
and I found out that cultivars with grain length above 7.0 mm are more common in the countries of Brazil, Bolivia,
Guatemala, and Thailand. It is premature to conclude though that your samples are indeed imported, by simply
relying on the grain length data. More thorough analyses need to be done.45 (Emphasis supplied.)

The National Food Authority (NFA) made a separate laboratory analysis of the rice grain samples, and concluded
that the samples resembled "NFA imported rice."46 It issued a certification dated January 29, 199947 to the effect
that

xxx per Philippine Grains Standardization Program there was a mislabelling of the rice stocks samples confiscated
by Economic Intelligence and Investigation Bureau (EIIB) last January 27, 1999 unloaded from MV Don Martin at
Cagayan de Oro City port.

Observed defeciencies (sic) are as follows:

1. Some white sacks/containers were marked with Premium Rice (per PGS yellow color is for premium
variety while white color is for ordinary rice).

2. No information available on the quality parameters such as classification, grade, milling degree, date of
milling and its miller/packer on all containers used (with logo, Platinum 2000 and Orion).

The results of the laboratory analyses of the rice samples were rendered by the PRRI and the NFA only on February
4, 1999 and February 5, 1999, respectively.48 It is clear, therefore, that the evidence offered by the respondents to
establish that the 6,500 sacks of rice were smuggled or were the subject of illegal importation was obtained only
after the forfeiture of the 6,500 sacks of rice had been effected on January 26, 1999.

Moreover, there is no question that the proof of the rice being smuggled or the subject of illegal importation was
patently insufficient. Although the rice samples from the shipment dominantly bore foreign rice characteristics as
compared with the Philippine varieties, the PRRI itself opined that further analysis was necessary to turn up with a
more concrete result. But no additional analysis was made. There was also no proof to establish that the
petitioners had been responsible for the mislabelling in the packaging of the rice shipment, or that the mislabelling
had been intentionally done to evade the payment of customs duties.

In contrast, the records showed that the 6,500 sacks of rice were of local origin, having been purchased from
Sablayan, Occidental Mindoro from a licensed grains dealer. The local origin was substantiated by the official
receipts, business license and certificate of registration issued by the NFA in favor of the source in Sablayan,
Occidental Mindoro, Mintu Rice Mill, and its proprietor, Godofredo Mintu.

The petitioners likewise submitted a copy of the Coastwise License50 issued to the M/V Don Martin, proving that
the vessel had been registered only for coastwise trade. A craft engaged in the coastwise and interisland trade was
one that carried passengers and/or merchandise for hire between ports and places in the Philippine
Islands51 Under Section 902 of the TCCP, the right to engage in the Philippine coastwise trade was limited to
vessels carrying a certificate of Philippine registry,52 like the M/V Don Martin.53 To legally engage in coastwise
trade, the vessel owner must further submit other documents, like the bill of lading and coastwise
manifest,54 documents that were also presented by the petitioners during the forfeiture proceedings. 55 In the
absence of any showing by the respondents that the vessel was licensed to engage in trade with foreign countries
and was not limited to coastwise trade, the inference that the shipment of the 6,500 sacks of rice was transported
only between Philippine ports and not imported from a foreign country became fully warranted.

Here, the importation of rice was not among the prohibited importations provided under Section 101 56 of the
TCCP. Nor was there any other law that prohibited the importation of rice.

Still, the respondents insist that the 6,500 sacks of rice were unlawfully imported because the shipment was not
accompanied by the necessary import documents.

The insistence was unreasonable and unwarranted.

The law penalizes the importation of any merchandise in any manner contrary to law. 57 Yet, the shipment of the
6,500 sacks of rice was clearly not contrary to law; hence, it did not constitute unlawful importation as defined
under Section 3601 of the TCCP. The phrase contrary to law in Section 3601 qualifies the phrases imports or brings
into the Philippines and assists in so doing, not the word article.

The respondents' insistence was based on the premise that the rice shipment was imported. The premise was
plainly erroneous. With the petitioners having convincingly established that the 6,500 sacks of rice were of local
origin, the shipment need not be accompanied by import documents. Nor was it shown that the shipment did not
meet other legal requirements. There were no other circumstances that indicated that the 6,500 sacks of rice were
fraudulently transported into the Philippines; on the contrary, the petitioners submitted documents supporting the
validity and regularity of the shipment.

It then becomes unavoidable to address the fate of the M/V Don Martin. The penalty of forfeiture could be
imposed on any vessel engaged in smuggling, provided that the following conditions were present, to wit:

(1) The vessel is "used unlawfully in the importation or exportation of articles into or from" the Philippines;

(2) The articles are imported to or exported from "any Philippine port or place, except a port of entry"; or

(3) If the vessel has a capacity of less than 30 tons and is "used in the importation of articles into any Philippine
port or place other than a port of the Sulu Sea, where importation in such vessel may be authorized by the
Commissioner, with the approval of the department head."

With the absence of the first and second conditions, the M/V Don Martin must be released.
WHEREFORE, the Court GRANTS the petition for review on certiorari; REVERSES and SETS ASIDE the decision
promulgated on July 29, 2003 by the Court of Appeals in CA-G.R. SP No. 66725; REINSTATES the decision rendered
on May 22, 2001 by the Court of Tax Appeals; RELEASES and DISCHARGES GSIS Surety Bond 032899 and GSIS
Surety Bond 032900 in the total amount of P12,232,000.00; and CONSIDERS this case CLOSED AND TERMINATED,
without pronouncement on costs of suit.

SO ORDERED.

TOPIC/DOCTRINE: TAX LAWS MUST BE CONSTRUED STRICTLY AGAINST THE STATE AND
LIBERALLY IN FAVOR OF THE TAXPAYER

Republic of the Philippines


SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 175188 July 15, 2015

COMMISSIONER OF INTERNAL REVENUE, Petitioner,


vs.
LA TONDENA DISTILLERS, INC. (LTDI [now GINEBRA SAN MIGUEL], Respondent.

DECISION

DEL CASTILLO, J.:

The transfer of real property to a surviving corporation pursuant to a merger is not subject to Documentary Stamp
Tax (DST).1

This Petition for Review on Certiorari2 under Rule 45 of the Rules of Court assails the September 26, 2006
Decision3 and the October 31, 2006 Resolution4 of the Court of Tax Appeals (CTA) in C.T.A. EB No. 178.

Factual Antecedents

On September 17, 2001, respondent La Tondea Distillers, Inc. entered into a Plan of Merger5 with Sugarland
Beverage Corporation (SBC), SMC Juice, Inc. (SMCJI), and Metro Bottled Water Corporation (MBWC). 6 As a result of
the merger, the assets and liabilities of the absorbed corporations were transferred to respondent, the surviving
corporation.7 Respondent later changed its corporate name to Ginebra San Miguel, Inc. (GSMI). 8

On September 26, 2001, respondent requested for a confirmation of the tax-free nature of the said merger from
the Bureau of Internal Revenue (BIR).9

On November 5, 2001, the BIR issued a ruling stating that pursuant to Section 40(C)(2) 10 and (6)(b)11 of the 1997
National Internal Revenue Code (NIRC), no gain or loss shall be recognized by the absorbed corporations as
transferors of all assets and liabilities.12 However, the transfer of assets, such as real properties, shall be subject to
DST imposed under Section 19613 of the NIRC.14

Consequently, on various dates from October 31, 2001 to November 15, 2001, respondent paid to the BIR the
following DST, to wit:
DST
Property Locations Total Assets
Payments

A. Metro Bottled Water Corp.

General Trias, Cavite 326,508,953.0015 4,897,635.00

Mandaue City, Cebu 14,078,381.00 211,185.00

Pavia, Iloilo 10,644,861.00 159,675.00

B. Sugarland Beverage Corp.

Navotas, Metro Manila 171,790,790.00 2,576,865.00

Imus, Cavite 218,114,261.00 3,272,175.00

Pine Street, Mandaluyong 201,562,148.00 3,023,445.00

16
Totals 942,729,393.00 14,140,980.00

On October 14, 2003, claiming that it is exempt from paying DST, respondent filed with petitioner Commissioner of
Internal Revenue (CIR) an administrative claim for tax refund or tax credit in the amount of 14,140,980.00,
representing the DST it allegedly erroneously paid on the occasion of the merger. 17

On the same day, respondent filed with the CTA a Petition for Review, docketed as C.T.A. Case No. 6796 and
raffled to the Second (2nd) Division of the CTA.18

Ruling of the Court of Tax Appeals Division

On January 6, 2006, the 2nd Division of the CTA rendered a Decision 19 finding respondent entitled to its claim for
tax refund or tax credit in the amount of 14,140,980.00, representing its erroneously paid DST for the taxable year
2001.20 The 2nd Division of the CTA ruled that Section 196 of the NIRC does not apply because there is no
purchaser or buyer in the case of a merger. 21 Citing Section 8022 of the Corporation Code of the Philippines, the
2nd Division of the CTA explained that the assets of the absorbed corporations were not bought or purchased by
respondent but were transferred to and vested in respondent as an inherent legal consequence of the merger,
without any further act or deed.23 It also noted that any doubts as to the tax-free nature of the merger had been
already removed by the subsequent enactment of Republic Act No. (RA) 9243, 24 which amended Section 19925 of
the NIRC by specifically exempting from the payment of DST the transfer of property pursuant to a
merger.26Aggrieved, petitioner moved for reconsideration but the 2nd Division of the CTA denied the same in a
Resolution dated April 4, 2006.27

Unfazed, petitioner elevated the matter to the CTA En Banc via a Petition for Review, docketed as C.T.A.EB No.
178.

Ruling of the Court of Tax Appeals En Banc

On September 26, 2006, the CTA En Banc rendered the assailed Decision, finding no reversible error on the part of
the 2nd Division of the CTA in granting respondents claim for tax refund or tax credit. 28 The CTA En Banc opined
that Section 196 of the NIRC does not apply to a merger as the properties subject of a merger are not sold, but are
merely absorbed by the surviving corporation.29 In other words, the properties are transferred by operation of law,
without any further act or deed.30

Petitioner sought reconsideration of the assailed Decision.

On October 31, 2006, the CTA En Banc issued the assailed Resolution, denying petitioners motion for
reconsideration.31

Issue

Hence, petitioner filed the instant Petition for Review on Certiorari raising the sole issue of whether the CTA En
Banc erred in ruling that respondent is exempt from payment of DST. 32 Petitioners Arguments

Petitioner posits that DST is levied on the exercise of the privilege to convey real property regardless of the
manner of conveyance.33 Thus, it is imposed on all conveyances of realty, including realty transfer during a
corporate merger.34 As to the subsequent enactment of RA 9243, petitioner claims that respondent cannot benefit
from it as laws apply prospectively.35 Respondents Arguments

Respondent, on the other hand, contends that DST is imposed only on conveyances, deeds, instruments, or
writing, where realty sold shall be conveyed to a purchaser or buyer. 36 In this case, there is no purchaser or buyer
as a merger is neither a sale nor a liquidation of corporate property but a consolidation of properties, powers, and
facilities of the constituent companies.37

Our Ruling

The Petition must fail.

In Commissioner of Internal Revenue v. Pilipinas Shell Petroleum Corporation, 38 the Supreme Court already ruled
that Section 196of the NIRC does not include the transfer of real property from one corporation to another
pursuant to a merger. It explained that:

[W]e do not find merit in petitioners contention that Section 196 covers all transfers and conveyances of real
property for a valuable consideration. A perusal of the subject provision would clearly show it pertains only to sale
transactions where real property is conveyed to a purchaser for a consideration. The phrase "granted, assigned,
transferred or otherwise conveyed" is qualified by the word "sold" which means that documentary stamp tax
under Section 196 is imposed on the transfer of realty by way of sale and does not apply to all conveyances of real
property. Indeed, as correctly noted by the respondent, the fact that Section 196 refers to words "sold",
"purchaser" and "consideration" undoubtedly leads to the conclusion that only sales of real property are
contemplated therein.

Thus, petitioner obviously erred when it relied on the phrase "granted, assigned, transferred or otherwise
conveyed" in claiming that all conveyances of real property regardless of the manner of transfer are subject to
documentary stamp tax under Section 196. It is not proper to construe the meaning of a statute on the basis of
one part. x x x

xxxx

It should be emphasized that in the instant case, the transfer of SPPCs real property to respondent was pursuant
to their approved plan of merger.1wphi1 In a merger of two existing corporations, oneof the corporations
survives and continues the business, while the other is dissolved, and all its rights, properties, and liabilities are
acquired by the surviving corporation. Although there is a dissolution of the absorbed or merged corporations,
there is no winding up of their affairs or liquidation of their assets because the surviving corporation automatically
acquires all their rights, privileges, and powers, as well as their liabilities. Here, SPPC ceased to have any legal
personality and respondent PSPC stepped into everything that was SPPCs, pursuant to the law and the terms of
their Plan of Merger.

Pertinently, a merger of two corporations produces the following effects, among others:

Sec. 80. Effects of merger or consolidation. x x x

xxxx

4. The surviving or the consolidated corporation shall thereupon and thereafter possess all the rights, privileges,
immunities and franchises of each of the constituent corporations; and all property, real or personal, and all
receivables due on whatever account, including subscriptions to shares and other choses in action, and all and
every other interest of, or belonging to, or due to each constituent corporations, shall be taken and deemed to be
transferred to and vested in such surviving or consolidated corporation without further act or deed;

In a merger, the real properties are not deemed "sold" to the surviving corporation and the latter could not be
considered as "purchaser" of realty since the real properties subject of the merger were merely absorbed by the
surviving corporation by operation of law and these properties are deemed automatically transferred to and
vested in the surviving corporation without further act or deed. Therefore, the transfer of real properties to the
surviving corporation in pursuance of a merger is not subject to documentary stamp tax. As stated at the outset,
documentary stamp tax is imposed only on all conveyances, deeds, instruments or writing where realty sold shall
be conveyed to a purchaser or purchasers. The transfer of SPPCs real property to respondent was neither a sale
nor was it a conveyance of real property for a consideration contracted to be paid as contemplated under Section
196 of the Tax Code. Hence, Section 196 of the Tax Code is inapplicable and respondent is not liable for
documentary stamp tax.39 (Emphasis in the original)

Following the doctrine of stare decisis, which dictates that when a court has reached a conclusion in one case, it
should be applied to those that follow if the facts are substantially the same, even though the parties may be
different,40 we find that respondent is not liable for DST as the transfer of real properties from the absorbed
corporations to respondent was pursuant to a merger. And having complied with the provisions of Sections
204(C)41 and 22942 of the NIRC, we agree with the CTA that respondent is entitled to a refund of the DST it
erroneously paid on various dates between October 31, 2001 to November 15, 2001 in the total amount of
14,140,980.00.

Likewise without merit is petitioners contention that respondent cannot claim exemption under RA 9243 as this
was enacted only in 2004 or after respondents tax liability accrued. To be clear, respondent did not file its claim
for tax refund or tax credit based on the exemption found in RA 9243. Rather, it filed a claim for tax refund or tax
credit on the ground that Section 196 of the NIRC does not include the transfer of real property pursuant to a
merger. In fact, the ratio decidendi (or reason for the decision) in Pilipinas Shell Petroleum Corporation43 was
based on Section 196 of the NIRC, in relation to Section 80 of the Corporation Code, not RA 9243. In that case, RA
9243 was mentioned only to emphasize that "the enactment of the said law now removes any doubt and had
made clear that the transfer of real properties as a consequence of merger or consolidation is not subject to
[DST]."44

All told, we find no error on the part of the CTA in granting respondent's claim for tax refund or tax credit in the
amount of P14,140,980.00, representing its erroneously paid DST for the taxable year 2001.
In closing, we must stress that taxes must not be imposed beyond what the law expressly and clearly declares as
tax laws must be construed strictly against the State and liberally in favor of the taxpayer. 45

WHEREFORE, the Petition is hereby DENIED. The assailed September 26, 2006 Decision and the October 31, 2006
Resolution of the Court of Tax Appeals in C.T.A. EB No. 178 are hereby AFFIRMED.

SO ORDERED.

TOPIC/DOCTRINE: REFUNDS OR TAX CREDITS OF INPUT TAX

Republic of the Philippines


SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 207575 July 15, 2015

HEDCOR, INC., Petitioner,


vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

RESOLUTION

SERENO, CJ:

This is a Petition for Review filed by Hedcor, Inc. (petitioner) assailing the Court of Tax Appeals (CTA) en bane
Decision 1dated 1 October 2012 and Resolution 2dated 28 May 2013 in C.T.A.EB No. 785. The CT A en bane
affirmed the CT A Second Division Resolutions dated 19 January 2011 3and 12 May 2011 4of the in C.T.A. Case No.
8129. The latter granted the Motion to Dismiss filed by the Commissioner of Internal Revenue (CIR) and dismissed
the Petition for being filed out of time.

THE FACTS

The facts, as culled from the records, are as follows:

Petitioner is a domestic corporation primarily engaged in the operation of hydro-electric power plants and the
generation of hydro-electric

Power. It is a value-added tax (VAT) payer duly registered with the Bureau of Internal Revenue (BIR).

Petitioner alleged that in the course of operating its business, it purchased domestic goods and services, as well as
capital goods, and paid the corresponding VAT as part of the purchase price. For the period covering taxable year
2008, its purchases amounted to ?35,467,773.00 on which the corresponding input VAT was P4,256, 132.80.
However, after deductions of output tax due from the accumulated input tax, petitioner still had an unused or
excess input VAT in the total amount of P4,217,955.84.
Being in the business of generating of renewable sources of energy through hydro power, petitioner maintained
that it was entitled to zero-percent (0%) VAT, as the sales of electric power to National Power Corporation (NPC)
qualified as zero-rated sales pursuant to Section 108(B) (7) of the National Internal Revenue Code (NIRC).

Thus, on 28 December 2009, petitioner filed with the BIR an administrative claim for the refund of excess and
unused input VAT in the amount of ?4,217,955.84 for the second quarter of taxable year 2008. On 23 March 2010,
it admittedly received from the BIR a Letter of Authority or request for the presentation of records. 5Nevertheless,
petitioner filed on 6 July 2010 a Petition for Review docketed as CT A Case No. 8129 because of its apprehension
that the two (2) years provided by law to file a judicial claim would lapse on 21 July 2010 in view of Atlas. 6

Petitioner filed on 29 October 2010 a Motion for Leave to File Supplemental Petition for Review. In its motion, it
manifested that it had submitted to the BIR on 20 September 2010 the last set of supporting documents related to
its administrative claim for a refund. The motion was granted by the CT A Division, which then required petitioner
to file the Supplemental Petition for Review and respondent, a Supplemental Answer. 7

Meanwhile, respondent CIR filed a Motion to Dismiss on 8 November 2010 on the ground of lack of jurisdiction.
The CTA Second Division granted the motion and dismissed the Petition for being filed out of time.

On appeal, following this Court's disposition in Aichi,8 the CTA en bane denied the Petition and ruled that the
judicial claim had been filed out of time. It held that, under Section 112( C) of the NIRC, the 120-day period for the
BIR to act on the claim should be reckoned from 28 December 2009 or the date of filing of petitioner's
administrative claim with the tax agency. Counting 120 days from 28 December 2009, the BIR had until 27 April
2010 to decide the administrative claim. Thereafter, petitioner had until 27 May 2010 or 30 days to appeal to the
CTA either the decision or the

Inaction of the BIR. Thus, the filing of the Petition for Review with the CTA Division on 6 July 2010 was clearly
beyond the period allowed by law.9

The Motion for Reconsideration filed by petitioner was also denied by the CTA en bane for lack of merit. 10

Hence, this Petition.

THE ISSUES

Petitioner's appeal is anchored on the following grounds:

1. That the CT A gravely erred and has no authority to deviate from the clear and literal meaning of
Section 112 (D) of the NIRC by counting the 120-day period from the filing of the administrative claim and
not from the last submission of complete documents in the administrative proceedings with the BIR;

2. That the CTA gravely erred when it dismissed CTA Case No. 8129/CTA EB No. 785 and granted
respondent's motion to dismiss on ground of insufficiency of evidence although trial proceedings have not
even started; and

3. That the CT A gravely erred when it dismissed its petition for insufficiency of evidence and on ground of
prescription when there is no such allegation in the pleading which would support such conclusion. 11

THE COURT'S RULING

The Petition lacks merit.


The requirements for a taxpayer be able to claim a refund or credit of its input tax are found in Section 112 of the
NIRC, as amended, the relevant portions of which read:

Sec. 112. Refunds or Tax Credits of Input Tax.-

xxxx

(C) Period within which Refund or Tax Credit of Input Taxes shall be made. In proper cases, the Commissioner
shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120)
days from the date of submission of complete documents in support of the application filed in accordance with
Subsection (A) hereof. In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the
part of the Commissioner to act on the

application within the period prescribed above, the taxpayer affected may, within thirty (30) days from the receipt
of the decision denying the claim or after the expiration of the one hundred twenty day period, appeal the decision
or the unacted claim with the Court of Tax Appeals.

Pursuant to Section 112(C) of the NIRC, respondent had 120 days from the date of submission of complete
documents in support of the application within which to decide on the administrative claim. Thereafter, the
taxpayer affected by the CIR' s decision or inaction may appeal to the CTA within 30 days from the receipt of the
decision or from the expiration of the 120-day period. Compliance with both periods is jurisdictional, considering
that the 30-day period to appeal to the CTA is dependent on the 120-day period. The period of 120 days is a
prerequisite for the commencement of the 30-day period to appeal.

Strict compliance with the 120+30 day period is necessary for a claim for a refund or credit of input VAT to prosper.
An exception to that mandatory period was, however, recognized in San Roque 12 during the period between 10
December 2003, when BIR Ruling No. DA-489-03 was issued, and 6 October 2010, when the Court promulgated
Aichi declaring the 120+ 30 day period mandatory and jurisdictional, thus reversing BIR Ruling No.DA-489-03.

Since the claim of petitioner fell within the exception period, it did not have to observe the 120+30 day mandatory
period under the San Roquedoctrine. The present case, though, is not a case of premature filing.

The CTA here found that the judicial claim was filed beyond the mandatory 120+30 d.ay prescriptive period; hence,
it did not acquire jurisdiction over the case. Petitioner is similarly situated as Philex, which is also a case of late
filing:

Unlike San Roque and Taganito, Philex's case is not one of premature filing but of late filing. Philex did not file any
petition with the CTA within the 120-day period. Philex did not also file any petition with the CTA within 30 days
after the expiration of the 120-day period. Philex filed its judicial claim long after the expiration of the 120-day
period, in fact 426 days after the lapse of the 120-day period. In any event, whether governed by jurisprudence
before, during, or after the Atlas case, Philex's judicial claim will have to be rejected because of late filing. Whether
the two-year prescriptive period is counted from the date of payment of the output VAT following the Atlas
doctrine, or from the close of the taxable quarter when the sales attributable to the input VAT were made
following the Mirant and Aichi doctrines, Philex's judicial claim was indisputably filed late.

The Atlas doctrine cannot save Philex from the late filing of its judicial claim. The inaction of the Commissioner on
Philex's claim during

The 120-day period is, by express provision of law, "deemed a denial" of Philex's claim. Philex had 30 days from the
expiration of the 120-day period to file its judicial claim with the CTA. Philex's failure to do so rendered the
"deemed a denial" decision of the Commissioner final and inappealable.The right to appeal to the CT A from a
decision or "deemed a denial" decision of the Commissioner is merely a statutory privilege, not a constitutional
right. The exercise of such statutory privilege requires strict compliance with the conditions attached by the
statute for its exercise. Philex failed to comply with the statutory conditions and must thus bear the consequences.

xxxx

Philex's situation is not a case of premature filing of its judicial claim but of late filing, indeed very late filing. BIR
Ruling No. DA-489-03 allowed premature filing of a judicial claim, which means non exhaustion of the 120-day
period for the Commissioner to act on an administrative claim. Philex cannot claim the benefit of BIR Ruling No.
DA-489-03 because Philex did not file its judicial claim prematurely but filed it long after the lapse of the 30-day
period following the expiration of the 120-day period. In fact, Philex filed its judicial claim 426 days after the lapse
of the 30-day period. 13 (Emphasis in the original)

Considering that the administrative claim was filed on 28 December 2009, petitioner had only until 27 May 2010
(counting 120+30 days) to appeal to the CTA the decision or inaction of the BIR. Petitioner belatedly filed its
judicial claim with the CTA on 6 July 2010.

Petitioner insists, though, that it filed on 20 September 2010 the complete documents supporting its
administrative claim; the 120-day period should then be counted from that date. To prove its assertion, it attached
to the Supplemental Petition for Review a Transmittal Letter marked as Annex "A." 14 Based on this letter,
petitioner contends that its judicial claim was filed within the allowable period set by law.

We do not agree.

The Court finds that the Transmittal Letter submitted by petitioner is not a substantial submission that would
warrant a change in the reckoning date for the 120-day period for the BIR to act on the claim for refund. As aptly
found by the CT A, the letter does not even bear any stamp marking that would show that it was legitimately
received by the BIR.15 The only proof of receipt was a signature, which was not even identified by petitioner.

To allow petitioner's allegations to prevail would set a dangerous precedent, as the reckoning period for the 120
days would be at the mercy of taxpayers.1wphi1 They will then submit complete supporting documents even
after the two-year prescriptive period for filing an administrative claim has lapsed. This is obviously not the
intention of the law.

It is worth emphasizing at this point that the burden of proving entitlement to a tax refund is on the taxpayer. It is
logical to assume that in order to discharge this burden, the law intends the filing of an application for a refund to
necessarily include the filing of complete supporting documents to prove entitlement for the refund. Otherwise,
the mere filing of an application without any supporting document would be as good as filing a mere scrap of
paper. Besides, the taxpayer was already given two (2) years to determine its refundable taxes and complete the
documents necessary to prove its claim. The alleged completion of supporting documents after the filing of an
application for an administrative claim - and worse, after the filing of a judicial claim - is tantamount to legal
maneuvering, which this Court will not tolerate.

What is peculiar to this case is that prior to the alleged completion of its supporting documents, petitioner had
already filed its judicial claim with the CTA.

Petitioner contends that pursuant to Revenue Memorandum Circular (RMC) No. 49-2003, the 120 day period must
be counted from receipt of the complete documents.

Granting arguendo that the 120-day period should commence to run only upon receipt of the Transmittal Letter,
petitioner's judicial claim must still fail. RMC No. 49-2003 provides:
A-18 xxx

For claims to be filed by claimants with the respective investigating/processing office of the administrative agency,
the same shall be officially received only upon submission of complete documents.

If we follow the assumptions of petitioner, its administrative claim would only be considered as officially received
on 20 September 2010, when it allegedly filed its complete supporting documents. By that time, the period for
filing an administrative application for a refund would have already prescribed on 30 June 2010, or two (2) years
from the close of the taxable quarter when the relevant sales were made.

To reiterate, the right to appeal is a mere statutory privilege that requires strict compliance with the conditions
attached by the statute for its exercise. Like Phi/ex, petitioner failed to comply with the statutory conditions and
must therefore bear- the consequences. It has already lost its right to claim a refund or credit of its alleged excess
input VAT attributable to zero-rated or effectively zero-rated sales for the second quarter of taxable year 2008 by
virtue of its own failure to observe the prescriptive period.

WHEREFORE, premises considered, the instant Petition is DENIED.

SO ORDERED.

TOPIC/DOCTRINE: EXCLUSIVE APPELLATE JURISDICTION OF THE CTA

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 207843 July 15, 2015

COMMISSION OF INTERNAL REVENUE, Petitioner,


vs.
COURT OF TAX APPEALS (SECOND DIVISION) and PETRON CORPORATION,* Respondents.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for certiorari1 are the Resolutions dated February 13, 20132 and May 8, 20133 of the Court
of Tax Appeals, Second Division (CTA) in CTA Case No. 8544 reversing and setting aside the earlier dismissal of the
petition for review filed by private respondent Petron Corporation (Petron) in the said case on the bases of
prematurity and lack of jurisdiction.

The Facts

Petron, which is engaged in the manufacture and marketing of petroleum products, imports alkylate as a raw
material or blending component for the manufacture of ethanol-blended motor gasoline.4 For the period January
2009 to August 2011, as well as for the month of April 2012, Petron transacted an aggregate of 22 separate
importations for which petitioner the Commissioner of Internal Revenue (CIR) issued Authorities to Release
Imported Goods (ATRIGs), categorically stating that Petron's importation of alkylate is exempt from the payment
of the excise tax because it was not among those articles enumerated as subject to excise tax under Title VI of
Republic Act No. (RA) 8424,5 as amended, or the 1997 National Internal Revenue Code (NIRC). With respect,
however, to Petron's alkylate importations covering the period September 2011 to June 2012 (excluding April
2012), the CIR inserted, without prior notice, a reservation for all ATRIGs issued,6 stating that:

This is without prejudice to the collection of the corresponding excise taxes, penalties and interest depending on
the final resolution of the Office of the Commissioner on the issue of whether this item is subject to the excise
taxes under the National Internal Revenue Code of 1997, as amended. 7

In June 2012, Petron imported 12,802,660 liters of alkylate and paid value-added tax (VAT) in the total amount of
?41,657,533.00 as evidenced by Import Entry and Internal Revenue Declaration (IEIRD) No. SN 122406532. Based
on the Final Computation, said importation was subjected by the Collector of Customs of Port Limay, Bataan, upon
instructions of the Commissioner of Customs (COC), to excise taxes of P4.35 per liter, or in the aggregate amount
of P55,691,571.00, and consequently, to an additional VAT of 12% on the imposed excise tax in the amount
of P6,682,989.00.8 The imposition of the excise tax was supposedly premised on Customs Memorandum Circular
(CMC) No. 164-2012 dated July 18, 2012, implementing the Letter dated June 29, 2012 issued by the CIR, which
states that:

[A]lkylate which is a product of distillation similar to that of naphta, is subject to excise tax under Section 148( e) of
the National Internal Revenue Code (NIRC) of 1997. 9

In view of the CIR's assessment, Petron filed before the CTA a petition for review, 10 docketed as CTA Case No.
8544, raising the issue of whether its importation of alkylate as a blending component is subject to excise tax as
contemplated under Section 148 (e) of the NIRC.

On October 5, 2012, the CIR filed a motion to dismiss on the grounds of lack of jurisdiction and prematurity. 11

Initially, in a Resolution12 dated November 15, 2012, the CTA granted the CIR's motion and dismissed the case.
However, on Petron's motion for reconsideration,13 it reversed its earlier disposition in a Resolution 14 dated
February 13, 2013, and eventually denied the CIR's motion for reconsideration 15 therefrom in a Resolution16dated
May 8, 2013. In effect, the CTA gave due course to Petron's petition, finding that: (a) the controversy was not
essentially for the determination of the constitutionality, legality or validity of a law, rule or regulation but a
question on the propriety or soundness of the CIR's interpretation of Section 148 (e) of the NIRC which falls within
the exclusive jurisdiction of the CTA under Section 4 thereof, particularly under the phrase "other matters arising
under [the NIRC]";17 and (b) there are attending circumstances that exempt the case from the rule on non-
exhaustion of administrative remedies, such as the great irreparable damage that may be suffered by Petron from
the CIR's final assessment of excise tax on its importation.18

Aggrieved, the CIR sought immediate recourse to the Court, through the instant petition, alleging that the CTA
committed grave abuse of discretion when it assumed authority to take cognizance of the case despite its lack of
jurisdiction to do so.19

The Issue Before the Court

The core issue to be resolved is whether or not the CTA properly assumed jurisdiction over the petition assailing
the imposition of excise tax on Petron's importation of alkylate based on Section 148 (e) of the NIRC.

The Court's Ruling

The petition is meritorious.


The CIR asserts that the interpretation of the subject tax provision, i.e., Section 148 (e) of the NIRC, embodied in
CMC No. 164-2012, is an exercise of her quasi-legislative function which is reviewable by the Secretary of Finance,
whose decision, in turn, is appealable to the Office of

the President and, ultimately, to the regular courts, and that only her quasi-judicial functions or the authority to
decide disputed assessments, refunds, penalties and the like are subject to the exclusive appellate jurisdiction of
the CTA.20 She likewise contends that the petition suffers from prematurity due to Petron 's failure to exhaust all
available remedies within the administrative level in accordance with the Tariff and Customs Code (TCC). 21

The CIR's position is well-grounded.

Section 4 of the NIRC confers upon the CIR both: (a) the power to interpret tax laws in the exercise of her quasi-
legislative function; and (b) the power to decide tax cases in the exercise of her quasi-judicial function. It also
delineates the jurisdictional authority to review the validity of the CIR's exercise of the said powers, thus:

SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. - The power to interpret the
provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the
Commissioner, subject to review by the Secretary of Finance.

The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties
imposed in relation thereto, or other matters arising under this Code or other laws or portions thereof
administered by the Bureau of Internal Revenue is vested in the Commissioner, subject to the exclusive appellate
jurisdiction of the Court of Tax Appeals. (Emphases and underscoring supplied)

The CTA is a court of special jurisdiction, with power to review by appeal decisions involving tax disputes rendered
by either the CIR or the COC.1wphi1 Conversely, it has no jurisdiction to determine the validity of a ruling issued
by the CIR or the COC in the exercise of their quasi-legislative powers to interpret tax laws. These observations
may be deduced from a reading of Section 7 of RA 1125, 22 as amended by RA 9282,23 entitled "An Act Creating the
Court of Tax Appeals," enumerating the cases over which the CT A may exercise its jurisdiction:

Sec. 7. Jurisdiction. -The CTA shall exercise:

a. Exclusive appellate jurisdiction to review by appeal, as herein provided:

1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments,


refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other
matters arising under the National Internal Revenue or other laws administered by the Bureau of
Internal Revenue;

2. Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments,


refunds of internal revenue taxes, fees or other charges, penalties in relations thereto, or other
matters arising under the National Internal Revenue Code or other laws administered by the
Bureau of Internal Revenue, where the National Internal Revenue Code provides a specific period
of action, in which case the inaction shall be deemed a denial;

3. Decisions, orders or resolutions of the Regional Trial Comis in local tax cases originally decided
or resolved by them in the exercise of their original or appellate jurisdiction;

4. Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees
or other money charges, seizure, detention or release of property affected, fines, forfeitures or
other penalties in relation thereto, or other matters arising under the Customs Law or other laws
administered by the Bureau of Customs;

5. Decisions of the Central Board of Assessment Appeals in the exercise of its appellate
jurisdiction over cases involving the assessment and taxation of real property originally decided
by the provincial or city board of assessment appeals;

6. Decisions of the Secretary of Finance on customs cases elevated to him automatically for
review from decisions of the Commissioner of Customs which are adverse to the Government
under Section 2315 of the Tariff and Customs Code;

7. Decisions of the Secretary of Trade and Industry, in the case of nonagricultural product,
commodity or article, and the Secretary of Agriculture in the case of agricultural product,
commodity or article, involving dumping and countervailing duties under Section 301 and 302,
respectively, of the Tariff and Customs Code, and safeguard measures under Republic Act No.
8800, where either party may appeal the decision to impose or not to impose said duties.

b. Jurisdiction over cases involving criminal offenses as herein provided:

1. Exclusive original jurisdiction over all criminal offenses arising from violations of the National
Internal Revenue Code or Tariff and Customs Code and other laws administered by the Bureau of
Internal Revenue or the Bureau of Customs: Provided, however, That offenses or felonies
mentioned in this paragraph where the principal amount of taxes and fees, exclusive of charges
and penalties, claimed is less than One million pesos (P1,000,000.00) or where there is no
specified amount claimed shall be tried by the regular Courts and the jurisdiction of the CTA shall
be appellate. Any provision of law or the Rules of Court to the contrary notwithstanding, the
criminal action and the corresponding civil action for the recovery of civil liability for taxes and
penalties shall at all times be simultaneously instituted with, and jointly determined in the same
proceeding by the CT A, the filing of the criminal action being deemed to necessarily carry with it
the filing of the civil action, and no right to reserve the filling of such civil action separately from
the criminal action will be recognized.

2. Exclusive appellate jurisdiction in criminal offenses:

a. Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in
tax cases originally decided by them, in their respective territorial jurisdiction.

b. Over petitions for review of the judgments, resolutions or orders of the Regional Trial
Courts in the exercise of their appellate jurisdiction over tax cases originally decided by
the Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts in
their respective jurisdiction.

c. Jurisdiction over tax collection cases as herein provided:

1. Exclusive original jurisdiction in tax collection cases involving final and executory assessments for taxes,
fees, charges and penalties: Provided, however, That collection cases where the principal amount of taxes
and fees, exclusive of charges and penalties, claimed is less than One million pesos (P1,000,000.00) shall
be tried by the proper Municipal Trial Court, Metropolitan Trial Court and Regional Trial Court.

2. Exclusive appellate jurisdiction in tax collection cases:


a. Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax
collection cases originally decided by them, in their respective territorial jurisdiction.

b. Over petitions for review of the judgments, resolutions or orders of the Regional Trial Courts in
the exercise of their appellate jurisdiction over tax collection cases originally decided by the
Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts, in their
respective jurisdiction. (Emphasis supplied)

In this case, Petron's tax liability was premised on the COC's issuance of CMC No. 164-2012, which gave effect to
the CIR's June 29, 2012 Letter interpreting Section 148 (e) of the NIRC as to include alkyl ate among the articles
subject to customs duties, hence, Petron's petition before the CTA ultimately challenging the legality and
constitutionality of the CIR's aforesaid interpretation of a tax provision. In line with the foregoing discussion,
however, the CIR correctly argues that the CT A had no jurisdiction to take cognizance of the petition as its
resolution would necessarily involve a declaration of the validity or constitutionality of the CIR's interpretation of
Section 148 (e) of the NIRC, which is subject to the exclusive review by the Secretary of Finance and ultimately by
the regular courts. In British American Tobacco v. Camacho, 24 the Court ruled that the CTA's jurisdiction to resolve
tax disputes excludes the power to rule on the constitutionality or validity of a law, rule or regulation, to wit:

While the above statute confers on the CTA jurisdiction to resolve tax disputes in general, this does not include
cases where the constitutionality of a law or rule is challenged. Where what is assailed is the validity or
constitutionality of a law, or a rule or regulation issued by the administrative agency in the performance of its
quasi-legislative function, the regular courts have jurisdiction to pass upon the same. x x x.25

In asserting its jurisdiction over the present case, the CTA explained that Petron's petition filed before it "simply
puts in question" the propriety or soundness of the CIR's interpretation and application of Section 148 (e) of the
NIRC (as embodied in CMC No. 164-2012) "in relation to" the imposition of excise tax on Petron's importation of
alkylate; thus, the CTA posits that the case should be regarded as "other matters arising under [the NIRC]" under
the second paragraph of Section 4 of the NIRC, therefore falling within the CTA's jurisdiction: 26

SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. - The power to interpret the
provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the
Commissioner, subject to review by the Secretary of Finance.

The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties
imposed in relation thereto, or other matters arising under this Code or other laws or portions thereof
administered by the Bureau of Internal Revenue is vested in the commissioner, subject to the exclusive appellate
jurisdiction of the Court of Tax Appeals. (Emphases and underscoring supplied)

The Court disagrees.

As the CIR aptly pointed out, the phrase "other matters arising under this Code," as stated in the second paragraph
of Section 4 of the NIRC, should be understood as pertaining to those matters directly related to the preceding
phrase "disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in
relation thereto" and must therefore not be taken in isolation to invoke the jurisdiction of the CTA. 27 In other
words, the subject phrase should be used only in reference to cases that are, to begin with, subject to the exclusive
appellate jurisdiction of the CTA, i.e., those controversies over which the CIR had exercised her quasi-judicial
functions or her power to decide disputed assessments, refunds or internal revenue taxes, fees or other charges,
penalties imposed in relation thereto, not to those that involved the CIR's exercise of quasi-legislative powers.

In Enrile v. Court of Appeals,28 the Court, applying the statutory construction principle of ejusdem
generis,29explained the import of using the general clause "other matters arising under the Customs Law or other
law or part of law administered by the Bureau of Customs" in the enumeration of cases subject to the exclusive
appellate jurisdiction of the CTA, saying that: [T]he 'other matters' that may come under the general clause should
be of the same nature as those that have preceded them applying the rule of construction known as ejusdem
generis.30(Emphasis and underscoring supplied)

Hence, as the CIR's interpretation of a tax provision involves an exercise of her quasi-legislative functions, the
proper recourse against the subject tax ruling expressed in CMC No. 164-2012 is a review by the Secretary of
Finance and ultimately the regular courts. In Commissioner of Customs v. Hypermix Feeds Corporation, 31 the Court
has held that:

The determination of whether a specific rule or set of rules issued by an administrative agency contravenes the law
or the constitution is within the jurisdiction of the regular courts. Indeed, the Constitution vests the power of
judicial review or the power to declare a law, treaty, international or executive agreement, presidential decree,
order, instruction, ordinance, or regulation in the courts, including the regional trial courts. This is within the scope
of judicial power, which includes the authority of the courts to determine in an appropriate action the validity of
the acts of the political departments. x x x. 32

Besides, Petron prematurely invoked the jurisdiction of the CT A. Under Section 7 of RA 1125, as amended by RA
9282, what is appealable to the CT A is the decision of the COC over a customs collector's adverse ruling on a
taxpayer's protest:

SEC. 7. Jurisdiction. -The CTA shall exercise:

a. Exclusive appellate jurisdiction to review by appeal, as herein provided:

1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National
Internal Revenue or other laws administered by the Bureau of Internal Revenue;

xxxx

4. Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees or other money
charges, seizure, detention or release of property affected, fines, forfeitures or other penalties in relation thereto,
or other matters arising under the Customs Law or other laws administered by the Bureau of Customs;

xxxx

Section 11 of the same law is no less categorical in stating that what may be the subject of an appeal to the CT A is
a decision, ruling or inaction of the CIR or the COC, among others:

SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. Any party adversely affected by a decision, ruling or
inaction of the Commissioner of Internal Revenue, the Commissioner of Customs, the Secretary of Finance, the
Secretary of Trade and Industry or the Secretary of Agriculture or the Central Board of Assessment Appeals or the
Regional Trial Courts may file an appeal with the CTA within thirty (30) days after the receipt of such decision or
ruling or after the expiration of the period fixed by law for action as referred to in Section 7(a)(2) herein.

xxxx

In this case, there was even no tax assessment to speak of. While customs collector Federico Bulanhagui himself
admitted during the CTA's November 8, 2012 hearing that the computation he had written at the back page of the
IEIRD served as the final assessment imposing excise tax on Petron's importation of alkylate, 33 the Court concurs
with the CIR's stance that the subject IEIRD was not yet the customs collector's final assessment that could be the
proper subject of review. And even if it were, the same should have been brought first for review before the COC
and not directly to the CTA. It should be stressed that the CTA has no jurisdiction to review by appeal, decisions of
the customs collector.34 The TCC prescribes that a party adversely affected by a ruling or decision of the customs
collector may protest such ruling or decision upon payment of the amount due 35 and, if aggrieved by the action of
the customs collector on the matter under protest, may have the same reviewed by the COC. 36 It is only after the
COC shall have made an adverse ruling on the matter may the aggrieved party file an

appeal to the CT A.37

Notably, Petron admitted to not having filed a protest of the assessment before the customs collector and
elevating a possible adverse ruling therein to the COC, reasoning that such a procedure would be costly and
impractical, and would unjustly delay the resolution of the issues which, being purely legal in nature anyway, were
also beyond the authority of the customs collector to resolve with finality. 38 This admission is at once decisive of
the issue of the CTA's jurisdiction over the petition. There being no protest ruling by the customs collector that was
appealed to the COC, the filing of the petition before the CTA was premature as there was nothing yet to review. 39

Verily, the fact that there is no decision by the COC to appeal from highlights Petron's failure to exhaust
administrative remedies prescribed by law. Before a party is allowed to seek the intervention of the courts, it is a
pre-condition that he avail of all administrative processes afforded him, such that if a remedy within the
administrative machinery can be resorted to by giving the administrative officer every opportunity to decide on a
matter that comes within his jurisdiction, then such remedy must be exhausted first before the court's power of
judicial review can be sought, otherwise, the premature resort to the court is fatal to one's cause of action. 40 While
there are exceptions to the principle of exhaustion of administrative remedies, it has not been sufficiently shown
that the present case falls under any of the exceptions.

WHEREFORE, the petition is GRANTED. The Resolutions dated February 13, 2013 and May 8, 2013 of the Court of
Tax Appeals (CTA), Second Division in CTA Case No. 8544 are hereby REVERSED and SET ASIDE. The petition for
review filed by private respondent Petron Corporation before the CTA is DISMISSED for lack of jurisdiction and
prematurity.

SO ORDERED.
TOPIC/DOCTRINE: WITHHOLDING OF TAX ON COMPENSATION

Republic of the Philippines


SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 167679 July 22, 2015

ING BANK N.V., engaged in banking operations in the Philippines as ING BANK N.V. MANILA BRANCH,Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

LEONEN, J.:

Qualified taxpayers with pending tax cases may still avail themselves of the tax amnesty program under Republic
Act No. 9480,1 otherwise known as the 2007 Tax Amnesty Act. Thus, the provision in BIR Revenue Memorandum
Circular No. 19-2008 excepting "[i]ssues and cases which were ruled by any court (even without finality) in favor of
the BIR prior to amnesty availment of the taxpayer" from the benefits of the law is illegal, invalid, and null and
void.2 The duty to withhold the tax on compensation arises upon its accrual.

This is a Petition for Review3 appealing the April 5, 2005 Decision4 of the Court of Tax Appeals En Banc, which in
turn affirmed the August 9, 2004 Decision 5 and November 12, 2004 Resolution6 of the Court of Tax Appeals Second
Division. The August 9, 2004 Decision held petitioner ING Bank, N.V. Manila Branch (ING Bank) liable for (a)
deficiency documentary stamp tax for the taxable years 1996 and 1997 in the total amount of P238,545,052.38
inclusive of surcharges; (b) deficiency onshore tax for the taxable year 1996 in the total amount of P997,333.89
inclusive of surcharges and interest; and (c) deficiency withholding tax on compensation for the taxable years 1996
and 1997 in the total amount of P564,542.67 inclusive of interest. The Resolution denied ING Banks Motion for
Reconsideration.7

While this case was pending before this court, ING Bank filed a Manifestation and Motion 8 stating that it availed
itself of the governments tax amnesty program under Republic Act No. 9480 with respect to its deficiency
documentary stamp tax and deficiency onshore tax liabilities.9 What is at issue now is whether ING Bank is entitled
to the immunities and privileges under Republic Act No. 9480,and whether the assessment for deficiency
withholding tax on compensation is proper.

ING Bank, "the Philippine branch of Internationale Nederlanden Bank N.V., a foreign banking corporation
incorporated in the Netherlands[,] is duly authorized by the Bangko Sentral ng Pilipinas to operate as a branch with
full banking authority in the Philippines."10

On January 3, 2000, ING Bank received a Final Assessment Notice11 dated December 3, 1999.12 The Final
Assessment Notice also contained the Details of Assessment13 and 13 Assessment Notices "issued by the
Enforcement Service of the Bureau of Internal Revenue through its Assistant Commissioner Percival T.
Salazar[.]"14 The Final Assessment Notice covered the following deficiency tax assessments for taxable years 1996
and 1997:15
Particulars Basic Tax( ) Surcharge( ) Interest( ) Total( )

Deficiency Income Tax

1996 (ST-INC-96-0174-99) 20,916,785.03 11,346,639.55 32,263,424.58

1997 (ST-INC-97-0185-99) 133,533,114.54 45,730,518.68 179,263,633.22

Deficiency Withholding Tax


on Compensation

1996 (ST-WC-96-0175-99) 1,027,267.20 602,288.17 1,629,555.37

1997 (ST-WC-97-0184-99) 2,505,925.25 968,042.36 3,473,967.61

Deficiency Onshore Tax

1996 (ST-OT-96-0176-99) 8,267,437.54 4,847,209.95 13,114,647.49

Deficiency Branch Profit


Remittance Tax

1996 (ST-RT-96-0177-99) 39,215,700.00 22,992,218[.]63 62,207,918.63

1997 (ST-RT-97-0181-99) 92,587,381.60 6,729,180.18 40,799,690.39 140,116,252.17

Deficiency Documentary
Stamp Tax

1996 (ST-DST-96-0178-99 3,838,753.06 959,688.27 4,798,441.33

1997 (ST-DST-97-0181-99) 1,569,990.18 392,497.55 1,962,487.73

1997 (ST-DST-97-0180-99) 186,997,288.84 46,749,322.21 233,746,611.05

Compromise Penalty

1996 (ST-CP-96-0179-99) 1,000.00 1,000.00

1997 (ST-CP-97-0186-99) 1,000.00 1,000.00

Deficiency Final Tax

1997 (ST-FT-97-0183-99) 53,200.89 20,551.58 73,752.47

TOTALS 490,514,844.13 54,830,688.21 127,307,159.31 672,652,691.65


============= ============= ============= =============
On February 2, 2000, ING Bank "paid the deficiency assessments for [the] 1996 compromise penalty, 1997
deficiency documentary stamp tax and 1997 deficiency final tax in the respective amounts of P1,000.00, P1,000.00
and P75,013.25 [the original amount of P73,752.47 plus additional interest]."16 ING Bank, however, "protested [on
the same day] the remaining ten (10) deficiency tax assessments in the total amount of P672,576,939.18."17

ING Bank filed a Petition for Review before the Court of Tax Appeals on October 26, 2000. This case was docketed
as C.T.A. Case No. 6187.18 The Petition was filed to seek "the cancellation and withdrawal of the deficiency tax
assessments for the years 1996 and 1997, including the alleged deficiency documentary stamp tax on special
savings accounts, deficiency onshore tax, and deficiency withholding tax on compensation mentioned above." 19

After trial, the Court of Tax Appeals Second Division rendered its Decision on August 9, 2004, with the following
disposition:

WHEREFORE, the assessments for 1996 and 1997 deficiency income tax, 1996 and 1997 deficiency branch profit
remittance tax and 1997 deficiency documentary stamp tax on IBCLs exceeding five days are hereby CANCELLED
and WITHDRAWN. However, the assessments for 1996 and 1997 deficiency withholding tax on compensation,
1996 deficiency onshore tax and 1996 and 1997 deficiency documentary stamp tax on special savings accounts are
hereby UPHELD in the following amounts:

Particulars Basic Tax Surcharge Interest Total

Deficiency Withholding Tax


on Compensation

1996 (ST-WC-96-0175-99) P 105,939.86 P 61,445.11 P 167,384.97

1997 (ST-WC-97-0184-99) 287,795.44 109,362.26 397,157.70

Deficiency Onshore Tax

1996 (ST-OT-96-0176-99) 544,991.20 P 136,247.80 316,094.89 997,333.89

Deficiency Documentary
Stamp Tax

1996 (ST-DST-96-0178-99) 3,838,753.06 959,688.27 4,798,441.33

1997 (ST-DST-97-0180-99) 186,997,288.84 46,749,322.21 233,746,611.05

TOTALS P191,774,768.40 P47,845,258.28 P 486,902.26 P240,106,928.94

Accordingly, petitioner is ORDERED to PAY the respondent the aggregate amount of P240,106,928.94, plus 20%
delinquency interest per annum from February 3, 2000 until fully paid, pursuant to Section 249(C) of the National
Internal Revenue Code of 1997.

SO ORDERED.20 (Emphasis in the original)


Both the Commissioner of Internal Revenue and ING Bank filed their respective Motions for
Reconsideration.21Both Motions were denied through the Second Divisions Resolution dated November 12, 2004,
as follows:

WHEREFORE, the respondents Motion for Partial Reconsideration and the petitioners Motion for Reconsideration
are hereby DENIED for lack of merit. The pronouncement reached in the assailed decision is REITERATED.

SO ORDERED.22

On December 8, 2004, ING Bank filed its appeal before the Court of Tax Appeals En Banc.23 The Court of Tax
Appeals En Banc denied due course to ING Banks Petition for Review and dismissed the same for lack of merit in
the Decision promulgated on April 5, 2005.24

Hence, ING Bank filed its Petition for Review25 before this court. The Commissioner of Internal Revenue filed its
Comment26 on October 5, 2005 and ING Bank its Reply27 on December 14, 2005. Pursuant to this courts
Resolution28 dated January 25, 2006, the Commissioner of Internal Revenue filed its Manifestation and Motion 29on
February 14, 2006, stating that it is adopting its Comment as its Memorandum, and ING Bank filed its
Memorandum30 on March 9, 2006.

On December 20, 2007, ING Bank filed a Manifestation and Motion 31 informing this court that it had availed itself
of the tax amnesty authorized and granted under Republic Act No. 9480 covering "all national internal revenue
taxes for the taxable year 2005 and prior years, with or without assessments duly issued therefor, that have
remained unpaid as of December 31, 2005[.]"32 ING Bank stated that it filed before the Bureau of Internal Revenue
its Notice of Availment of Tax Amnesty Under Republic Act No. 948033 on December 14, 2007, together with the
following documents:

(1) Statement of Assets, Liabilities and Net Worth (SALN) as of December 31, 2005 (original and amended
declarations);34

(2) Tax Amnesty Return For Taxable Year 2005 and Prior Years (BIR Form No. 2116);35 and (3) Tax Amnesty
Payment Form (Acceptance of Payment Form) for Taxable Year 2005 and Prior Years (BIR Form No.
0617)36 showing payment of the amnesty tax in the amount of P500,000.00.

ING Bank prayed that this court issue a resolution taking note of its availment of the tax amnesty, and confirming
its entitlement to all the immunities and privileges under Section 6 of Republic Act No. 9480, particularly with
respect to the "payment of deficiency documentary stamp taxes on its special savings accounts for the taxable
years 1996 and 1997 and deficiency tax on onshore interest income derived under the foreign currency deposit
system for taxable year 1996[.]"37

Pursuant to this courts Resolution38 dated January 23, 2008, the Commissioner of Internal Revenue filed its
Comment39 and ING Bank, its Reply.40

Originally, ING Bank raised the following issues in its pleadings:

First, whether "[t]he Court of Tax Appeals En Banc erred in concluding that petitioners Special Saving Accounts are
subject to documentary stamp tax (DST) as certificates of deposit under Section 180 of the 1977 Tax Code"; 41

Second, whether "[t]he Court of Tax Appeals En Banc erred in holding petitioner liable for deficiency onshore tax
considering that under the 1977 Tax Code and the pertinent revenue regulations, the obligation to pay the ten
percent (10%) final tax on onshore interest income rests on the payors-borrowers and not on petitioner as payee-
lender";42 and
Third, whether "[t]he Court of Tax Appeals En Banc erred in holding petitioner liable for deficiency withholding tax
on compensation for the accrued bonuses in the taxable years 1996 and 1997 considering that these were not
distributed to petitioners officers and employees during those taxable years, hence, were not yet subject to
withholding tax."43

However, ING Bank availed itself of the tax amnesty under Republic Act No. 9480, with respect to its liabilities for
deficiency documentary stamp taxes on its special savings accounts for the taxable years 1996 and 1997 and
deficiency tax on onshore interest income under the foreign currency deposit system for taxable year 1996.

Consequently, the issues now for resolution are:

First, whether petitioner ING Bank may validly avail itself of the tax amnesty granted by Republic Act No. 9480; and

Second, whether petitioner ING Bank is liable for deficiency withholding tax on accrued bonuses for the taxable
years 1996 and 1997.

Tax amnesty availment

Petitioner ING Bank asserts that it is "qualified to avail of the tax amnesty under Section 5 [of Republic Act No.
9480] and . . . not disqualified under Section 8 [of the same law]." 44 Respondent Commissioner of Internal
Revenue, for its part, does not deny the authenticity of the documents submitted by petitioner ING Bank or
dispute the payment of the amnesty tax. However, respondent Commissioner of Internal Revenue claims that
petitioner ING Bank is not qualified to avail itself of the tax amnesty granted under Republic Act No. 9480 because
both the Court of Tax Appeals En Banc and Second Division ruled in its favor that confirmed the liability of
petitioner ING Bank for deficiency documentary stamp taxes, onshore taxes, and withholding taxes. 45

Respondent Commissioner of Internal Revenue asserts that BIR Revenue Memorandum Circular No. 19-2008
specifically excludes "cases which were ruled by any court (even without finality) in favor of the BIR prior to
amnesty availment of the taxpayer" from the coverage of the tax amnesty under Republic Act No. 9480.46 In any
case, respondent Commissioner of Internal Revenue argues that petitioner ING Banks availment of the tax
amnesty is still subject to its evaluation,47 that it is "empowered to exercise [its] sound discretion . . . in the
implementation of a tax amnesty in favor of a taxpayer,"48 and "petitioner cannot presume that its application . . .
would be granted[.]"49 Accordingly, respondent Commissioner of Internal Revenue prays that "petitioner [ING
Banks] motion be denied for lack of merit."50

Petitioner ING Bank counters that BIR Revenue Memorandum Circular No. 19-2008 cannot override Republic Act
No. 9480 and its Implementing Rules and Regulations, which only exclude from tax amnesty "tax cases subject of
final and [executory] judgment by the courts."51 Petitioner ING Bank asserts that its full compliance with the
conditions prescribed in Republic Act No. 9480 (the conditions being submission of the requisite documents and
payment of the amnesty tax), which respondent Commissioner of Internal Revenue does not dispute, confirms that
it is "qualified to avail itself, and has actually availed itself, of the tax amnesty." 52 It argues that there is nothing in
the law that gives respondent Commissioner of Internal Revenue the discretion to rescind or erase the legal effects
of its tax amnesty availment.53 Thus, the issue is no longer about whether "[it] is entitled to avail itself of the tax
amnesty[,]"54 but rather whether the effects of its tax amnesty availment extend to the assessments of deficiency
documentary stamp taxes on its special savings accounts for 1996 and 1997 and deficiency tax on onshore interest
income for 1996.55

Petitioner ING Bank points out the Court of Tax Appeals ruling in Metropolitan Bank and Trust Company v.
Commissioner of Internal Revenue,56 to the effect that full compliance with the requirements of the tax amnesty
law extinguishes the tax deficiencies subject of the amnesty availment. 57 Thus, with its availment of the tax
amnesty and full compliance with all the conditions prescribed in the statute, petitioner ING Bank asserts that it is
entitled to all the immunities and privileges under Section 6 of Republic Act No. 9480.58

Withholding tax on compensation

Petitioner ING Bank claims that it is not liable for withholding taxes on bonuses accruing to its officers and
employees during taxable years 1996 and 1997.59 It maintains its position that the liability of the employer to
withhold the tax does not arise until such bonus is actually distributed. It cites Section 72 of the 1977 National
Internal Revenue Code, which states that "[e]very employer making payment of wages shall deduct and withhold
upon such wages a tax," and BIR Ruling No. 555-88 (November 23, 1988) declaring that "[t]he withholding tax on
the bonuses should be deducted upon the distribution of the same to the officers and employees[.]" 60 Since the
supposed bonuses were not distributed to the officers and employees in 1996 and 1997 but were distributed in
the succeeding year when the amounts of the bonuses were finally determined, petitioner ING Bank asserts that
its duty as employer to withhold the tax during these taxable years did not arise. 61

Petitioner ING Bank further argues that the Court of Tax Appeals discussion on Section 29(j) of the 1993 National
Internal Revenue Code and Section 3 of Revenue Regulations No. 8-90 is not applicable because the issue in this
case "is not whether the accrued bonuses should be allowed as deductions from petitioners taxable income but,
rather, whether the accrued bonuses are subject to withholding tax on compensation in the respective years of
accrual[.]"62 Respondent Commissioner of Internal Revenue counters that petitioner ING Banks application of BIR
Ruling No. 555-88 is misplaced because as found by the Second Division of the Court of Tax Appeals, the factual
milieu is different:63

In that ruling, bonuses are determined and distributed in the succeeding year "[A]fter [sic] the audit of each
company is completed (on or before April 15 of the succeeding year)". The withholding and remittance of income
taxes were also made in the year they were distributed to the employees. . . .

In petitioners case, bonuses were determined during the year but were distributed in the succeeding year. No
withholding of income tax was effected but the bonuses were claimed as an expense for the year. . . .

Since the bonuses were not subjected to withholding tax during the year they were claimed as an expense, the
same should be disallowed pursuant to the above-quoted law.64

Respondent Commissioner of Internal Revenue contends that petitioner ING Banks act of "claim[ing] [the] subject
bonuses as deductible expenses in its taxable income although it has not yet withheld and remitted the
[corresponding withholding] tax"65 to the Bureau of Internal Revenue contravened Section 29(j) of the 1997
National Internal Revenue Code, as amended. 66 Respondent Commissioner of Internal Revenue claims that
"subject bonuses should also be disallowed as deductible expenses of petitioner." 67

Taxpayers with pending tax cases may avail themselves of the tax amnesty program under Republic Act No. 9480.

In CS Garment, Inc. v. Commissioner of Internal Revenue,68 this court has "definitively declare[d] . . . the exception
[i]ssues and cases which were ruled by any court (even without finality) in favor of the BIR prior to amnesty
availment of the taxpayer under BIR [Revenue Memorandum Circular No.] 19-2008 [as] invalid, [for going] beyond
the scope of the provisions of the 2007 Tax Amnesty Law." 69 Thus:

[N]either the law nor the implementing rules state that a court ruling that has not attained finality would preclude
the availment of the benefits of the Tax Amnesty Law. Both R.A. 9480 and DOF Order No. 29-07 are quite precise in
declaring that "[t]ax cases subject of final and executory judgment by the courts" are the ones excepted from the
benefits of the law. In fact, we have already pointed out the erroneous interpretation of the law in Philippine
Banking Corporation (Now: Global Business Bank, Inc.) v. Commissioner of Internal Revenue, viz:

The BIRs inclusion of "issues and cases which were ruled by any court (even without finality) in favor of the BIR
prior to amnesty availment of the taxpayer" as one of the exceptions in RMC 19-2008 is misplaced. RA 9480 is
specifically clear that the exceptions to the tax amnesty program include "tax cases subject of final and executory
judgment by the courts." The present case has not become final and executory when Metrobank availed of the tax
amnesty program.70 (Emphasis in the original, citation omitted)

Moreover, in the fairly recent case of LG Electronics Philippines, Inc. v. Commissioner of Internal Revenue, 71 we
confirmed that only cases that involve final and executory judgments are excluded from the tax amnesty program
as explicitly provided under Section 8 of Republic Act No. 9480.72

Thus, petitioner ING Bank is not disqualified from availing itself of the tax amnesty under the law during the
pendency of its appeal before this court.

II

Petitioner ING Bank showed that it complied with the requirements set forth under Republic Act No. 9480.
Respondent Commissioner of Internal Revenue never questioned or rebutted that petitioner ING Bank fully
complied with the requirements for tax amnesty under the law. Moreover, the contestability period of one (1) year
from the time of petitioner ING Banks availment of the tax amnesty law on December 14, 2007 lapsed.
Correspondingly, it is fully entitled to the immunities and privileges mentioned under Section 6 of Republic Act No.
9480. This is clear from the following provisions:

SEC. 2. Availment of the Amnesty. - Any person, natural or juridical, who wishes to avail himself of the tax amnesty
authorized and granted under this Act shall file with the Bureau of Internal Revenue (BIR) a notice and Tax
Amnesty Return accompanied by a Statement of Assets, Liabilities and Networth (SALN) as of December 31, 2005,
in such form asmay be prescribed in the implementing rules and regulations (IRR) of this Act, and pay the
applicable amnesty tax within six months from the effectivity of the IRR.

....

SEC. 4. Presumption of Correctness of the SALN. - The SALN as of December 31, 2005 shall be considered as true
and correct except where the amount of declared networth is understated to the extent of thirty percent (30%) or
more as may be established in proceedings initiated by, or at the instance of, parties other than the BIR or its
agents: Provided, That such proceedings must be initiated within one year following the date of the filing of the tax
amnesty return and the SALN. Findings of or admission in congressional hearings, other administrative agencies of
government, and/or courts shall be admissible to prove a thirty percent (30%) under-declaration. . . . .

SEC. 6. Immunities and Privileges. - Those who availed themselves of the tax amnesty under Section 5 hereof, and
have fully complied with all its conditions shall be entitled to the following immunities and privileges:

a. The taxpayer shall be immune from the payment of taxes, as well as addition thereto, and the
appurtenant civil, criminal or administrative penalties under the National Internal Revenue Code of 1997,
as amended, arising from the failure to pay any and all internal revenue taxes for taxable year 2005 and
prior years.

b. The taxpayers Tax Amnesty Returns and the SALN as of December 31, 2005 shall not be admissible as
evidence in all proceedings that pertain to taxable year 2005 and prior years, insofar as such proceedings
relate to internal revenue taxes, before judicial, quasi-judicial or administrative bodies in which he is a
defendant or respondent, and except for the purpose of ascertaining the networth beginning January 1,
2006, the same shall not be examined, inquired or looked into by any person or government office.
However, the taxpayer may use this as a defense, whenever appropriate, in cases brought against him.

c. The books of accounts and other records of the taxpayer for the years covered by the tax amnesty
availed of shall not be examined: Provided, That the Commissioner of Internal Revenue may authorize in
writing the examination of the said books of accounts and other records to verify the validity or
correctness of a claim for any tax refund, tax credit (other than refund or credit of taxes withheld on
wages), tax incentives, and/or exemptions under existing laws. (Emphasis supplied)

Contrary to respondent Commissioner of Internal Revenues stance, Republic Act No. 9480 confers no discretion
on respondent Commissioner of Internal Revenue. The provisions of the law are plain and simple. Unlike the power
to compromise or abate a taxpayers liability under Section 20473 of the 1997 National Internal Revenue Code that
is within the discretion of respondent Commissioner of Internal Revenue, 74 its authority under Republic Act No.
9480 is limited to determining whether (a) the taxpayer is qualified to avail oneself of the tax amnesty; (b) all the
requirements for availment under the law were complied with; and (c) the correct amount of amnesty tax was
paid within the period prescribed by law. There is nothing in Republic Act No. 9480 which can be construed as
authority for respondent Commissioner of Internal Revenue to introduce exceptions and/or conditions to the
coverage of the law nor to disregard its provisions and substitute his own personal judgment.

Republic Act No. 9480 provides a general grant of tax amnesty subject only to the cases specifically excepted by it.
A tax amnesty "partakes of an absolute. . . waiver by the Government of its right to collect what otherwise would
be due it[.]"75 The effect of a qualified taxpayers submission of the required documents and the payment of the
prescribed amnesty tax was immunity from payment of all national internal revenue taxes as well as all
administrative, civil, and criminal liabilities founded upon or arising from non-payment of national internal revenue
taxes for taxable year 2005 and prior taxable years.76

Finally, the documentary stamp tax and onshore income tax are covered by the tax amnesty program under
Republic Act No. 9480 and its Implementing Rules and Regulations.77 Moreover, as to the deficiency tax on
onshore interest income, it is worthy to state that petitioner ING Bank was assessed by respondent Commissioner
of Internal Revenue, not as a withholding agent, but as one that was directly liable for the tax on onshore interest
income and failed to pay the same.

Considering petitioner ING Banks tax amnesty availment, there is no more issue regarding its liability for
deficiency documentary stamp taxes on its special savings accounts for 1996 and 1997 and deficiency tax on
onshore interest income for 1996, including surcharge and interest. III.

The Court of Tax Appeals En Banc affirmed the factual finding of the Second Division that accrued bonuses were
recorded in petitioner ING Banks books as expenses for taxable years 1996 and 1997, although no withholding of
tax was effected:

With the preceding defense notwithstanding, petitioner now maintained that the portion of the disallowed
bonuses in the amounts of P3,879,407.85 and P9,004,402.63 for the respective years 1996 and 1997, were actually
payments for reimbursements of representation, travel and entertainment expenses of its officers. These expenses
according to petitioner are not considered compensation of employees and likewise not subject to withholding tax.

In order to prove that the discrepancy in the accrued bonuses represents reimbursement of expenses, petitioner
availed of the services of an independent CPA pursuant to CTA Circular No. 1-95, as amended. As a consequence,
Mr. Ruben Rubio was commissioned by the court to verify the accuracy of petitioners position and to check its
supporting documents.
In a report dated January 29, 2002, the commissioned independent CPA noted the following pertinent findings: . . .

Findings and Observations 1997 1996

Supporting document is under the P 930,307.56 P 1,849,040.70


name of the employee

Supporting document is not under 537,456.37 53,384.80


the name of the Bank nor its
employees (addressee is
"cash"/blank)

Supporting document is under the 7,039,976.36 1,630,292.14


name of the Bank

Supporting document is in the name 362,919.59 62,615.91


of another person (other than the
employee claiming the expense)

Supporting document is not dated 13,404.00 423,199.07


within the period (i.e., 1996 and
1997)

Date/year of transaction is not 31,510.00 26,126.49


Indicated

Amount is not supported by 313,319.09 935,044.28


liquidation document(s)

TOTAL P9,228,892.97 P4,979,703.39

Based on the above report, only the expenses in the name of petitioners employee and those under its name can
be given credence. Therefore, the following expenses are valid expenses for income tax purposes:

1996 1997

Supporting document is under the P1,849,040.70 P 930,307.56


name of the employee

Supporting document is under the 1,630,292.14 7,039,976.36


name of the Bank

TOTAL P3,479,332.84 P 7,970,283.92


Consequently, petitioner is still liable for the amounts of P167,384.97 and P397,157.70 representing deficiency
withholding taxes on compensation for the respective years of 1996 and 1997, computed as follows:

1996 1997

Total Disallowed Accrued Bonus P 3,879,407.85 P 9,004,402.63

Less: Substantiated

Reimbursement of Expense 3,479,332.84 7,970,283.92

Unsubstantiated P 400,075.01 P 1,034,119.43

Tax Rate 26.48% 27.83%

Basic Withholding Tax Due

Thereon P 105,939.86 P 287,795.44

Interest (Sec. 249) 61,445.11 109,362.26

Deficiency Withholding Tax on

78
Compensation P 167,384.97 P 397,157.70

An expense, whether the same is paid or payable, "shall be allowed as a deduction only if it is shown that the tax
required to be deducted and withheld therefrom [was] paid to the Bureau of Internal Revenue[.]"79

Section 29(j) of the 1977 National Internal Revenue Code80 (now Section 34(K) of the 1997 National Internal
Revenue Code) provides:

Section 29. Deductions from gross income. In computing taxable income subject to tax under Sec. 21(a); 24(a),
(b) and (c); and 25(a) (1), there shall be allowed as deductions the items specified in paragraphs (a) to (i) of this
section: . . . .

....

(a) Expenses. (1) Business expenses. (A) In general. All ordinary and necessary expenses paid or incurred
during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other
compensation for personal services actually rendered; travelling expenses while away from home in the pursuit of
a trade, profession or business, rentals or other payments required to be made as a condition to the continued use
or possession, for the purpose of the trade, profession or business, of property to which the taxpayer has not
taken or is not taking title or in which he has no equity.

....

(j) Additional requirement for deductibility of certain payments. Any amount paid or payable which is otherwise
deductible from, or taken into account in computing gross income for which depreciation or amortization may be
allowed under this section, shall be allowed as a deduction only if it is shown that the tax required to be deducted
and withheld therefrom has been paid to the Bureau of Internal Revenue in accordance with this section, Sections
5181 and 7482 of this Code. (Emphasis supplied)

Section 3 of Revenue Regulations No. 8-90 (now Section 2.58.5 of Revenue Regulations No. 2-98) provides:

Section 3. Section 9 of Revenue Regulations No. 6-85 is hereby amended to read as follows:

Section 9. (a) Requirement for deductibility. Any income payment, which is otherwise deductible under Sections 29
and 54 of the Tax Code, as amended, shall be allowed as a deduction from the payors gross income only if it is
shown that the tax required to be withheld has been paid to the Bureau of Internal Revenue in accordance with
Sections 50, 51, 72, and 74 also of the Tax Code.(Emphasis supplied)

Under the National Internal Revenue Code, every form of compensation for personal services is subject to income
tax and, consequently, to withholding tax. The term "compensation" means all remunerations paid for services
performed by an employee for his or her employer, whether paid in cash or in kind, unless specifically excluded
under Sections 32(B)83 and 78(A)84 of the 1997 National Internal Revenue Code. 85 The name designated to the
remuneration for services is immaterial. Thus, "salaries, wages, emoluments and honoraria, bonuses, allowances
(such as transportation, representation, entertainment, and the like), [taxable] fringe benefits[,] pensions and
retirement pay, and other income of a similar nature constitute compensation income"86 that is taxable.

Hence, petitioner ING Bank is liable for the withholding tax on the bonuses since it claimed the same as expenses
in the year they were accrued.

Petitioner ING Bank insists, however, that the bonus accruals in 1996 and 1997 were not yet subject to withholding
tax because these bonuses were actually distributed only in the succeeding years of their accrual (i.e., in 1997 and
1998) when the amounts were finally determined.

Petitioner ING Banks contention is untenable.

The tax on compensation income is withheld at source under the creditable withholding tax system wherein the
tax withheld is intended to equal or at least approximate the tax due of the payee on the said income. It was
designed to enable (a) the individual taxpayer to meet his or her income tax liability on compensation earned; and
(b) the government to collect at source the appropriate taxes on compensation.87 Taxes withheld are creditable in
nature.88 Thus, the employee is still required to file an income tax return to report the income and/or pay the
difference between the tax withheld and the tax due on the income. 89 For over withholding, the employee is
refunded.90 Therefore, absolute or exact accuracy in the determination of the amount of the compensation income
is not a prerequisite for the employers withholding obligation to arise.

It is true that the law and implementing regulations require the employer to deduct and pay the income tax on
compensation paid to its employees, either actually or constructively.
Section 72 of the 1977 National Internal Revenue Code, as amended,91 states:

SECTION 72. Income tax collected at source. (a) Requirement of withholding. Every employer making
payment of wages shall deduct and withhold upon such wages a tax determined in accordance with regulations to
be prepared and promulgated by the Minister of Finance. (Emphasis supplied)

Sections 7 and 14 of Revenue Regulations No. 6-82,92 as amended,93 relative to the withholding of tax on
compensation income, provide:

Section 7. Requirement of withholding. Every employer or any person who pays or controls the payment of
compensation to an employee, whether resident citizen or alien, non-resident citizen, or nonresident alien
engaged in trade or business in the Philippines, must withhold from such compensation paid, an amount
computed in accordance with these regulations.

I. Withholding of tax on compensation paid to resident employees. (a)In general, every employer making
payment of compensation shall deduct and withhold from such compensation income for the entire calendar year,
a tax determined in accordance with the prescribed new Withholding Tax Tables effective January 1, 1992 (ANNEX
"A").

....

Section 14. Liability for the Tax. The employer is required to collect the tax by deducting and withholding the
amount thereof from the employees compensation as when paid, either actually or constructively. An employer is
required to deduct and withhold the tax notwithstanding that the compensation is paid in something other than
money (for example, compensation paid in stocks or bonds) and to pay the tax to the collecting officer. If
compensation is paid in property other than money, the employer should make necessary arrangements to ensure
that the amount of the tax required to be withheld is available for payment to the collecting officer.

Every person required to deduct and withhold the tax from the compensation of an employee is liable for the
payment of such tax whether or not collected from the employee. If, for example, the employer deducts less than
the correct amount of tax, or if he fails to deduct any part of the tax, he is nevertheless liable for the correct
amount of the tax. However, if the employer in violation of the provisions of Chapter XI, Title II of the Tax Code
fails to deduct and withhold and thereafter the employee pays the tax, it shall no longer be collected from the
employer. Such payment does not, however, operate to relieve the employer from liability for penalties or
additions to the tax for failure to deduct and withhold within the time prescribed by law or regulations. The
employer will not be relieved of his liability for payment of the tax required to be withheld unless he can show that
the tax has been paid by the employee.

The amount of any tax withheld/collected by the employer is a special fund in trust for the Government of the
Philippines.

When the employer or other person required to deduct and withhold the tax under this Chapter XI, Title II of the
Tax Code has withheld and paid such tax to the Commissioner of Internal Revenue or to any authorized collecting
officer, then such employer or person shall be relieved of any liability to any person. (Emphasis supplied)

Constructive payment of compensation is further defined in Revenue Regulations No. 6-82:

Section 25. Applicability; constructive receipt of compensation.

....
Compensation is constructively paid within the meaning of these regulations when it is credited to the account of
or set apart for an employee so that it may be drawn upon by him at any time although not then actually reduced
to possession. To constitute payment in such a case, the compensation must be credited or set apart for the
employee without any substantial limitation or restriction as to the time or manner of payment or condition upon
which payment is to be made, and must be made available to him so that it may be drawn upon at any time, and
its payment brought within his control and disposition. (Emphasis supplied)

On the other hand, it is also true that under Section 45 of the 1997 National Internal Revenue Code (then Section
39 of the 1977 National Internal Revenue Code, as amended), deductions from gross income are taken for the
taxable year in which "paid or accrued" or "paid or incurred" is dependent upon the method of accounting income
and expenses adopted by the taxpayer.

In Commissioner of Internal Revenue v. Isabela Cultural Corporation, 94 this court explained the accrual method of
accounting, as against the cash method:

Accounting methods for tax purposes comprise a set of rules for determining when and how to report income and
deductions. . . .

Revenue Audit Memorandum Order No. 1-2000, provides that under the accrual method of accounting, expenses
not being claimed as deductions by a taxpayer in the current year when they are incurred cannot be claimed as
deduction from income for the succeeding year. Thus, a taxpayer who is authorized to deduct certain expenses
and other allowable deductions for the current year but failed to do so cannot deduct the same for the next year.

The accrual method relies upon the taxpayers right to receive amounts or its obligation to pay them, in opposition
to actual receipt or payment, which characterizes the cash method of accounting. Amounts of income accrue
where the right to receive them become fixed, where there is created an enforceable liability. Similarly, liabilities
are accrued when fixed and determinable in amount, without regard to indeterminacy merely of time of payment.

For a taxpayer using the accrual method, the determinative question is, when do the facts present themselves in
such a manner that the taxpayer must recognize income or expense? The accrual of income and expense is
permitted when the all-events test has been met. This test requires: (1) fixing of a right to income or liability to
pay; and (2) the availability of the reasonable accurate determination of such income or liability.

The all-events test requires the right to income or liability be fixed, and the amount of such income or liability be
determined with reasonable accuracy.1wphi1 However, the test does not demand that the amount of income or
liability be known absolutely, only that a taxpayer has at his disposal the information necessary to compute the
amount with reasonable accuracy. The all-events test is satisfied where computation remains uncertain, if its basis
is unchangeable; the test is satisfied where a computation may be unknown, but is not as much as unknowable,
within the taxable year. The amount of liability does not have to be determined exactly; it must be determined
with "reasonable accuracy. "Accordingly, the term "reasonable accuracy" implies something less than anex act or
completely accurate amount.95 (Emphasis supplied, citations omitted)

Thus, if the taxpayer is on cash basis, he expense is deductible in the year it was paid, regardless of the year it was
incurred. If he is on the accrual method, he can deduct the expense upon accrual thereof. An item that is
reasonably ascertained as to amount and acknowledged to be due has "accrued"; actual payment is not essential
to constitute "expense."

Stated otherwise, an expense is accrued and deducted for tax purposes when (1) the obligation to pay is already
fixed; (2) the amount can be determined with reasonable accuracy; and (3) it is already knowable or the taxpayer
can reasonably be expected to have known at the closing of its books for the taxable year.
Section 29(j) of the 1977 National Internal Revenue Code96 (Section 34(K) of the 1997 National Internal Revenue
Code) expressly requires, as a condition for deductibility of an expense, that the tax required to be withheld on the
amount paid or payable is shown to have been remitted to the Bureau of Internal Revenue by the taxpayer
constituted as a withholding agent of the government.

The provision of Section 72 of the 1977 National Internal Revenue Code (Section 79 of the 1997 National Internal
Revenue Code) regarding withholding on wages must be read and construed in harmony with Section 29(j) of the
1977 National Internal Revenue Code (Section 34(K) of the 1997 National Internal Revenue Code) on deductions
from gross income. This is in accordance with the rule on statutory construction that an interpretation is to be
sought which gives effect to the whole of the statute, such that every part is made effective, harmonious, and
sensible,97 if possible, and not defeated nor rendered insignificant, meaningless, and nugatory.98 If we go by the
theory of petitioner ING Bank, then the condition imposed by Section 29(j) would have been rendered nugatory, or
we would in effect have created an exception to this mandatory requirement when there was none in the law.

Reading together the two provisions, we hold that the obligation of the payor/employer to deduct and withhold
the related withholding tax arises at the time the income was paid or accrued or recorded as an expense in the
payors/employers books, whichever comes first.

Petitioner ING Bank accrued or recorded the bonuses as deductible expense in its books. Therefore, its obligation
to withhold the related withholding tax due from the deductions for accrued bonuses arose at the time of accrual
and not at the time of actual payment.

In Filipinas Synthetic Fiber Corporation v. Court of Appeals,99 the issue was raised on "whether the liability to
withhold tax at source on income payments to non-resident foreign corporations arises upon remittance of the
amounts due to the foreign creditors or upon accrual thereof."100 In resolving this issue, this court considered the
nature of the accounting method employed by the withholding agent, which was the accrual method, wherein it
was the right to receive income, and not the actual receipt, that determined when to report the amount as part of
the taxpayers gross income.101 It upheld the lower courts finding that there was already a definite liability on the
part of petitioner at the maturity of the loan contracts.102 Moreover, petitioner already deducted as business
expense the said amounts as interests due to the foreign corporation. 103 Consequently, the taxpayer could not
claim that there was "no duty to withhold and remit income taxes as yet because the loan contract was not yet
due and demandable."104 Petitioner, "[h]aving written-off the amounts as business expense in its books, . . . had
taken advantage of the benefit provided in the law allowing for deductions from gross income." 105

Here, petitioner ING Bank already recognized a definite liability on its part considering that it had deducted as
business expense from its gross income the accrued bonuses due to its employees. Underlying its accrual of the
bonus expense was a reasonable expectation or probability that the bonus would be achieved. In this sense, there
was already a constructive payment for income tax purposes as these accrued bonuses were already allotted or
made available to its officers and employees.

We note petitioner ING Bank's earlier claim before the Court of Tax Appeals that the bonus accruals in 1996 and
1997 were disbursed in the following year of accrual, as reimbursements of representation, travel, and
entertainment expenses incurred by its employees. 106 This shows that the accrued bonuses in the amounts
of P400,075.0l (1996) and Pl,034,119.43 (1997) on which deficiency withholding taxes of Pl67,384.97 (1996)
and P397,157.70 (1997) were imposed, respectively, were already set apart or made available to petitioner ING
Bank's officers and employees. To avoid any tax issue, petitioner ING Bank should likewise have recognized the
withholding tax liabilities associated with the bonuses at the time of accrual.

WHEREFORE, the Petition is PARTLY GRANTED. The assessments with respect to petitioner ING Bank's liabilities for
deficiency documentary stamp taxes on its special savings accounts for the taxable years 1996 and 1997 and
deficiency tax on onshore interest income under the foreign currency deposit system for taxable year 1996 are
hereby SET ASIDE solely in view of petitioner ING Bank's availment of the tax amnesty program under Republic Act
No. 9480. The April 5, 2005 Decision of the Court of Tax Appeals En Banc, which affirmed the August 9, 2004
Decision and November 12, 2004 Resolution of the Court of Tax Appeals Second Division holding petitioner ING
Bank liable for deficiency withholding tax on compensation for the taxable years 1996 and 1997 in the total
amount of P564,542.67 inclusive of interest, is AFFIRMED.

SO ORDERED.

TOPIC/DOCTRINE: TAX AMNESTY AVAILMENT

Republic of the Philippines


SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 167679 July 22, 2015

ING BANK N.V., engaged in banking operations in the Philippines as ING BANK N.V. MANILA BRANCH,Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

LEONEN, J.:

Qualified taxpayers with pending tax cases may still avail themselves of the tax amnesty program under Republic
Act No. 9480,1 otherwise known as the 2007 Tax Amnesty Act. Thus, the provision in BIR Revenue Memorandum
Circular No. 19-2008 excepting "[i]ssues and cases which were ruled by any court (even without finality) in favor of
the BIR prior to amnesty availment of the taxpayer" from the benefits of the law is illegal, invalid, and null and
void.2 The duty to withhold the tax on compensation arises upon its accrual.

This is a Petition for Review3 appealing the April 5, 2005 Decision4 of the Court of Tax Appeals En Banc, which in
turn affirmed the August 9, 2004 Decision 5 and November 12, 2004 Resolution6 of the Court of Tax Appeals Second
Division. The August 9, 2004 Decision held petitioner ING Bank, N.V. Manila Branch (ING Bank) liable for (a)
deficiency documentary stamp tax for the taxable years 1996 and 1997 in the total amount of P238,545,052.38
inclusive of surcharges; (b) deficiency onshore tax for the taxable year 1996 in the total amount of P997,333.89
inclusive of surcharges and interest; and (c) deficiency withholding tax on compensation for the taxable years 1996
and 1997 in the total amount of P564,542.67 inclusive of interest. The Resolution denied ING Banks Motion for
Reconsideration.7

While this case was pending before this court, ING Bank filed a Manifestation and Motion 8 stating that it availed
itself of the governments tax amnesty program under Republic Act No. 9480 with respect to its deficiency
documentary stamp tax and deficiency onshore tax liabilities. 9 What is at issue now is whether ING Bank is entitled
to the immunities and privileges under Republic Act No. 9480,and whether the assessment for deficiency
withholding tax on compensation is proper.

ING Bank, "the Philippine branch of Internationale Nederlanden Bank N.V., a foreign banking corporation
incorporated in the Netherlands[,] is duly authorized by the Bangko Sentral ng Pilipinas to operate as a branch with
full banking authority in the Philippines."10
On January 3, 2000, ING Bank received a Final Assessment Notice11 dated December 3, 1999.12 The Final
Assessment Notice also contained the Details of Assessment 13 and 13 Assessment Notices "issued by the
Enforcement Service of the Bureau of Internal Revenue through its Assistant Commissioner Percival T.
Salazar[.]"14 The Final Assessment Notice covered the following deficiency tax assessments for taxable years 1996
and 1997:15

Particulars Basic Tax( ) Surcharge( ) Interest( ) Total( )

Deficiency Income Tax

1996 (ST-INC-96-0174-99) 20,916,785.03 11,346,639.55 32,263,424.58

1997 (ST-INC-97-0185-99) 133,533,114.54 45,730,518.68 179,263,633.22

Deficiency Withholding Tax


on Compensation

1996 (ST-WC-96-0175-99) 1,027,267.20 602,288.17 1,629,555.37

1997 (ST-WC-97-0184-99) 2,505,925.25 968,042.36 3,473,967.61

Deficiency Onshore Tax

1996 (ST-OT-96-0176-99) 8,267,437.54 4,847,209.95 13,114,647.49

Deficiency Branch Profit


Remittance Tax

1996 (ST-RT-96-0177-99) 39,215,700.00 22,992,218[.]63 62,207,918.63

1997 (ST-RT-97-0181-99) 92,587,381.60 6,729,180.18 40,799,690.39 140,116,252.17

Deficiency Documentary
Stamp Tax

1996 (ST-DST-96-0178-99 3,838,753.06 959,688.27 4,798,441.33

1997 (ST-DST-97-0181-99) 1,569,990.18 392,497.55 1,962,487.73

1997 (ST-DST-97-0180-99) 186,997,288.84 46,749,322.21 233,746,611.05

Compromise Penalty

1996 (ST-CP-96-0179-99) 1,000.00 1,000.00

1997 (ST-CP-97-0186-99) 1,000.00 1,000.00

Deficiency Final Tax


1997 (ST-FT-97-0183-99) 53,200.89 20,551.58 73,752.47

TOTALS
490,514,844.13 54,830,688.21 127,307,159.31 672,652,691.65
============= ============= ============= =============

On February 2, 2000, ING Bank "paid the deficiency assessments for [the] 1996 compromise penalty, 1997
deficiency documentary stamp tax and 1997 deficiency final tax in the respective amounts of P1,000.00, P1,000.00
and P75,013.25 [the original amount of P73,752.47 plus additional interest]."16 ING Bank, however, "protested [on
the same day] the remaining ten (10) deficiency tax assessments in the total amount of P672,576,939.18."17

ING Bank filed a Petition for Review before the Court of Tax Appeals on October 26, 2000. This case was docketed
as C.T.A. Case No. 6187.18 The Petition was filed to seek "the cancellation and withdrawal of the deficiency tax
assessments for the years 1996 and 1997, including the alleged deficiency documentary stamp tax on special
savings accounts, deficiency onshore tax, and deficiency withholding tax on compensation mentioned above." 19

After trial, the Court of Tax Appeals Second Division rendered its Decision on August 9, 2004, with the following
disposition:

WHEREFORE, the assessments for 1996 and 1997 deficiency income tax, 1996 and 1997 deficiency branch profit
remittance tax and 1997 deficiency documentary stamp tax on IBCLs exceeding five days are hereby CANCELLED
and WITHDRAWN. However, the assessments for 1996 and 1997 deficiency withholding tax on compensation,
1996 deficiency onshore tax and 1996 and 1997 deficiency documentary stamp tax on special savings accounts are
hereby UPHELD in the following amounts:

Particulars Basic Tax Surcharge Interest Total

Deficiency Withholding Tax


on Compensation

1996 (ST-WC-96-0175-99) P 105,939.86 P 61,445.11 P 167,384.97

1997 (ST-WC-97-0184-99) 287,795.44 109,362.26 397,157.70

Deficiency Onshore Tax

1996 (ST-OT-96-0176-99) 544,991.20 P 136,247.80 316,094.89 997,333.89

Deficiency Documentary
Stamp Tax

1996 (ST-DST-96-0178-99) 3,838,753.06 959,688.27 4,798,441.33

1997 (ST-DST-97-0180-99) 186,997,288.84 46,749,322.21 233,746,611.05

TOTALS P191,774,768.40 P47,845,258.28 P 486,902.26 P240,106,928.94


Accordingly, petitioner is ORDERED to PAY the respondent the aggregate amount of P240,106,928.94, plus 20%
delinquency interest per annum from February 3, 2000 until fully paid, pursuant to Section 249(C) of the National
Internal Revenue Code of 1997.

SO ORDERED.20 (Emphasis in the original)

Both the Commissioner of Internal Revenue and ING Bank filed their respective Motions for
Reconsideration.21Both Motions were denied through the Second Divisions Resolution dated November 12, 2004,
as follows:

WHEREFORE, the respondents Motion for Partial Reconsideration and the petitioners Motion for Reconsideration
are hereby DENIED for lack of merit. The pronouncement reached in the assailed decision is REITERATED.

SO ORDERED.22

On December 8, 2004, ING Bank filed its appeal before the Court of Tax Appeals En Banc. 23 The Court of Tax
Appeals En Banc denied due course to ING Banks Petition for Review and dismissed the same for lack of merit in
the Decision promulgated on April 5, 2005.24

Hence, ING Bank filed its Petition for Review25 before this court. The Commissioner of Internal Revenue filed its
Comment26 on October 5, 2005 and ING Bank its Reply27 on December 14, 2005. Pursuant to this courts
Resolution28 dated January 25, 2006, the Commissioner of Internal Revenue filed its Manifestation and Motion29on
February 14, 2006, stating that it is adopting its Comment as its Memorandum, and ING Bank filed its
Memorandum30 on March 9, 2006.

On December 20, 2007, ING Bank filed a Manifestation and Motion 31 informing this court that it had availed itself
of the tax amnesty authorized and granted under Republic Act No. 9480 covering "all national internal revenue
taxes for the taxable year 2005 and prior years, with or without assessments duly issued therefor, that have
remained unpaid as of December 31, 2005[.]"32 ING Bank stated that it filed before the Bureau of Internal Revenue
its Notice of Availment of Tax Amnesty Under Republic Act No. 948033 on December 14, 2007, together with the
following documents:

(1) Statement of Assets, Liabilities and Net Worth (SALN) as of December 31, 2005 (original and amended
declarations);34

(2) Tax Amnesty Return For Taxable Year 2005 and Prior Years (BIR Form No. 2116);35 and (3) Tax Amnesty
Payment Form (Acceptance of Payment Form) for Taxable Year 2005 and Prior Years (BIR Form No.
0617)36 showing payment of the amnesty tax in the amount of P500,000.00.

ING Bank prayed that this court issue a resolution taking note of its availment of the tax amnesty, and confirming
its entitlement to all the immunities and privileges under Section 6 of Republic Act No. 9480, particularly with
respect to the "payment of deficiency documentary stamp taxes on its special savings accounts for the taxable
years 1996 and 1997 and deficiency tax on onshore interest income derived under the foreign currency deposit
system for taxable year 1996[.]"37

Pursuant to this courts Resolution38 dated January 23, 2008, the Commissioner of Internal Revenue filed its
Comment39 and ING Bank, its Reply.40

Originally, ING Bank raised the following issues in its pleadings:


First, whether "[t]he Court of Tax Appeals En Banc erred in concluding that petitioners Special Saving Accounts are
subject to documentary stamp tax (DST) as certificates of deposit under Section 180 of the 1977 Tax Code"; 41

Second, whether "[t]he Court of Tax Appeals En Banc erred in holding petitioner liable for deficiency onshore tax
considering that under the 1977 Tax Code and the pertinent revenue regulations, the obligation to pay the ten
percent (10%) final tax on onshore interest income rests on the payors-borrowers and not on petitioner as payee-
lender";42 and

Third, whether "[t]he Court of Tax Appeals En Banc erred in holding petitioner liable for deficiency withholding tax
on compensation for the accrued bonuses in the taxable years 1996 and 1997 considering that these were not
distributed to petitioners officers and employees during those taxable years, hence, were not yet subject to
withholding tax."43

However, ING Bank availed itself of the tax amnesty under Republic Act No. 9480, with respect to its liabilities for
deficiency documentary stamp taxes on its special savings accounts for the taxable years 1996 and 1997 and
deficiency tax on onshore interest income under the foreign currency deposit system for taxable year 1996.

Consequently, the issues now for resolution are:

First, whether petitioner ING Bank may validly avail itself of the tax amnesty granted by Republic Act No. 9480; and

Second, whether petitioner ING Bank is liable for deficiency withholding tax on accrued bonuses for the taxable
years 1996 and 1997.

Tax amnesty availment

Petitioner ING Bank asserts that it is "qualified to avail of the tax amnesty under Section 5 [of Republic Act No.
9480] and . . . not disqualified under Section 8 [of the same law]." 44 Respondent Commissioner of Internal
Revenue, for its part, does not deny the authenticity of the documents submitted by petitioner ING Bank or
dispute the payment of the amnesty tax. However, respondent Commissioner of Internal Revenue claims that
petitioner ING Bank is not qualified to avail itself of the tax amnesty granted under Republic Act No. 9480 because
both the Court of Tax Appeals En Banc and Second Division ruled in its favor that confirmed the liability of
petitioner ING Bank for deficiency documentary stamp taxes, onshore taxes, and withholding taxes. 45

Respondent Commissioner of Internal Revenue asserts that BIR Revenue Memorandum Circular No. 19-2008
specifically excludes "cases which were ruled by any court (even without finality) in favor of the BIR prior to
amnesty availment of the taxpayer" from the coverage of the tax amnesty under Republic Act No. 9480.46 In any
case, respondent Commissioner of Internal Revenue argues that petitioner ING Banks availment of the tax
amnesty is still subject to its evaluation,47 that it is "empowered to exercise [its] sound discretion . . . in the
implementation of a tax amnesty in favor of a taxpayer,"48 and "petitioner cannot presume that its application . . .
would be granted[.]"49 Accordingly, respondent Commissioner of Internal Revenue prays that "petitioner [ING
Banks] motion be denied for lack of merit."50

Petitioner ING Bank counters that BIR Revenue Memorandum Circular No. 19-2008 cannot override Republic Act
No. 9480 and its Implementing Rules and Regulations, which only exclude from tax amnesty "tax cases subject of
final and [executory] judgment by the courts."51 Petitioner ING Bank asserts that its full compliance with the
conditions prescribed in Republic Act No. 9480 (the conditions being submission of the requisite documents and
payment of the amnesty tax), which respondent Commissioner of Internal Revenue does not dispute, confirms that
it is "qualified to avail itself, and has actually availed itself, of the tax amnesty." 52 It argues that there is nothing in
the law that gives respondent Commissioner of Internal Revenue the discretion to rescind or erase the legal effects
of its tax amnesty availment.53 Thus, the issue is no longer about whether "[it] is entitled to avail itself of the tax
amnesty[,]"54 but rather whether the effects of its tax amnesty availment extend to the assessments of deficiency
documentary stamp taxes on its special savings accounts for 1996 and 1997 and deficiency tax on onshore interest
income for 1996.55

Petitioner ING Bank points out the Court of Tax Appeals ruling in Metropolitan Bank and Trust Company v.
Commissioner of Internal Revenue,56 to the effect that full compliance with the requirements of the tax amnesty
law extinguishes the tax deficiencies subject of the amnesty availment. 57 Thus, with its availment of the tax
amnesty and full compliance with all the conditions prescribed in the statute, petitioner ING Bank asserts that it is
entitled to all the immunities and privileges under Section 6 of Republic Act No. 9480.58

Withholding tax on compensation

Petitioner ING Bank claims that it is not liable for withholding taxes on bonuses accruing to its officers and
employees during taxable years 1996 and 1997.59 It maintains its position that the liability of the employer to
withhold the tax does not arise until such bonus is actually distributed. It cites Section 72 of the 1977 National
Internal Revenue Code, which states that "[e]very employer making payment of wages shall deduct and withhold
upon such wages a tax," and BIR Ruling No. 555-88 (November 23, 1988) declaring that "[t]he withholding tax on
the bonuses should be deducted upon the distribution of the same to the officers and employees[.]" 60 Since the
supposed bonuses were not distributed to the officers and employees in 1996 and 1997 but were distributed in
the succeeding year when the amounts of the bonuses were finally determined, petitioner ING Bank asserts that
its duty as employer to withhold the tax during these taxable years did not arise. 61

Petitioner ING Bank further argues that the Court of Tax Appeals discussion on Section 29(j) of the 1993 National
Internal Revenue Code and Section 3 of Revenue Regulations No. 8-90 is not applicable because the issue in this
case "is not whether the accrued bonuses should be allowed as deductions from petitioners taxable income but,
rather, whether the accrued bonuses are subject to withholding tax on compensation in the respective years of
accrual[.]"62 Respondent Commissioner of Internal Revenue counters that petitioner ING Banks application of BIR
Ruling No. 555-88 is misplaced because as found by the Second Division of the Court of Tax Appeals, the factual
milieu is different:63

In that ruling, bonuses are determined and distributed in the succeeding year "[A]fter [sic] the audit of each
company is completed (on or before April 15 of the succeeding year)". The withholding and remittance of income
taxes were also made in the year they were distributed to the employees. . . .

In petitioners case, bonuses were determined during the year but were distributed in the succeeding year. No
withholding of income tax was effected but the bonuses were claimed as an expense for the year. . . .

Since the bonuses were not subjected to withholding tax during the year they were claimed as an expense, the
same should be disallowed pursuant to the above-quoted law.64

Respondent Commissioner of Internal Revenue contends that petitioner ING Banks act of "claim[ing] [the] subject
bonuses as deductible expenses in its taxable income although it has not yet withheld and remitted the
[corresponding withholding] tax"65 to the Bureau of Internal Revenue contravened Section 29(j) of the 1997
National Internal Revenue Code, as amended. 66 Respondent Commissioner of Internal Revenue claims that
"subject bonuses should also be disallowed as deductible expenses of petitioner." 67

Taxpayers with pending tax cases may avail themselves of the tax amnesty program under Republic Act No. 9480.
In CS Garment, Inc. v. Commissioner of Internal Revenue,68 this court has "definitively declare[d] . . . the exception
[i]ssues and cases which were ruled by any court (even without finality) in favor of the BIR prior to amnesty
availment of the taxpayer under BIR [Revenue Memorandum Circular No.] 19-2008 [as] invalid, [for going] beyond
the scope of the provisions of the 2007 Tax Amnesty Law." 69 Thus:

[N]either the law nor the implementing rules state that a court ruling that has not attained finality would preclude
the availment of the benefits of the Tax Amnesty Law. Both R.A. 9480 and DOF Order No. 29-07 are quite precise in
declaring that "[t]ax cases subject of final and executory judgment by the courts" are the ones excepted from the
benefits of the law. In fact, we have already pointed out the erroneous interpretation of the law in Philippine
Banking Corporation (Now: Global Business Bank, Inc.) v. Commissioner of Internal Revenue, viz:

The BIRs inclusion of "issues and cases which were ruled by any court (even without finality) in favor of the BIR
prior to amnesty availment of the taxpayer" as one of the exceptions in RMC 19-2008 is misplaced. RA 9480 is
specifically clear that the exceptions to the tax amnesty program include "tax cases subject of final and executory
judgment by the courts." The present case has not become final and executory when Metrobank availed of the tax
amnesty program.70 (Emphasis in the original, citation omitted)

Moreover, in the fairly recent case of LG Electronics Philippines, Inc. v. Commissioner of Internal Revenue, 71 we
confirmed that only cases that involve final and executory judgments are excluded from the tax amnesty program
as explicitly provided under Section 8 of Republic Act No. 9480.72

Thus, petitioner ING Bank is not disqualified from availing itself of the tax amnesty under the law during the
pendency of its appeal before this court.

II

Petitioner ING Bank showed that it complied with the requirements set forth under Republic Act No. 9480.
Respondent Commissioner of Internal Revenue never questioned or rebutted that petitioner ING Bank fully
complied with the requirements for tax amnesty under the law. Moreover, the contestability period of one (1) year
from the time of petitioner ING Banks availment of the tax amnesty law on December 14, 2007 lapsed.
Correspondingly, it is fully entitled to the immunities and privileges mentioned under Section 6 of Republic Act No.
9480. This is clear from the following provisions:

SEC. 2. Availment of the Amnesty. - Any person, natural or juridical, who wishes to avail himself of the tax amnesty
authorized and granted under this Act shall file with the Bureau of Internal Revenue (BIR) a notice and Tax
Amnesty Return accompanied by a Statement of Assets, Liabilities and Networth (SALN) as of December 31, 2005,
in such form asmay be prescribed in the implementing rules and regulations (IRR) of this Act, and pay the
applicable amnesty tax within six months from the effectivity of the IRR.

....

SEC. 4. Presumption of Correctness of the SALN. - The SALN as of December 31, 2005 shall be considered as true
and correct except where the amount of declared networth is understated to the extent of thirty percent (30%) or
more as may be established in proceedings initiated by, or at the instance of, parties other than the BIR or its
agents: Provided, That such proceedings must be initiated within one year following the date of the filing of the tax
amnesty return and the SALN. Findings of or admission in congressional hearings, other administrative agencies of
government, and/or courts shall be admissible to prove a thirty percent (30%) under-declaration. . . . .

SEC. 6. Immunities and Privileges. - Those who availed themselves of the tax amnesty under Section 5 hereof, and
have fully complied with all its conditions shall be entitled to the following immunities and privileges:
a. The taxpayer shall be immune from the payment of taxes, as well as addition thereto, and the
appurtenant civil, criminal or administrative penalties under the National Internal Revenue Code of 1997,
as amended, arising from the failure to pay any and all internal revenue taxes for taxable year 2005 and
prior years.

b. The taxpayers Tax Amnesty Returns and the SALN as of December 31, 2005 shall not be admissible as
evidence in all proceedings that pertain to taxable year 2005 and prior years, insofar as such proceedings
relate to internal revenue taxes, before judicial, quasi-judicial or administrative bodies in which he is a
defendant or respondent, and except for the purpose of ascertaining the networth beginning January 1,
2006, the same shall not be examined, inquired or looked into by any person or government office.
However, the taxpayer may use this as a defense, whenever appropriate, in cases brought against him.

c. The books of accounts and other records of the taxpayer for the years covered by the tax amnesty
availed of shall not be examined: Provided, That the Commissioner of Internal Revenue may authorize in
writing the examination of the said books of accounts and other records to verify the validity or
correctness of a claim for any tax refund, tax credit (other than refund or credit of taxes withheld on
wages), tax incentives, and/or exemptions under existing laws. (Emphasis supplied)

Contrary to respondent Commissioner of Internal Revenues stance, Republic Act No. 9480 confers no discretion
on respondent Commissioner of Internal Revenue. The provisions of the law are plain and simple. Unlike the power
to compromise or abate a taxpayers liability under Section 20473 of the 1997 National Internal Revenue Code that
is within the discretion of respondent Commissioner of Internal Revenue, 74 its authority under Republic Act No.
9480 is limited to determining whether (a) the taxpayer is qualified to avail oneself of the tax amnesty; (b) all the
requirements for availment under the law were complied with; and (c) the correct amount of amnesty tax was
paid within the period prescribed by law. There is nothing in Republic Act No. 9480 which can be construed as
authority for respondent Commissioner of Internal Revenue to introduce exceptions and/or conditions to the
coverage of the law nor to disregard its provisions and substitute his own personal judgment.

Republic Act No. 9480 provides a general grant of tax amnesty subject only to the cases specifically excepted by it.
A tax amnesty "partakes of an absolute. . . waiver by the Government of its right to collect what otherwise would
be due it[.]"75 The effect of a qualified taxpayers submission of the required documents and the payment of the
prescribed amnesty tax was immunity from payment of all national internal revenue taxes as well as all
administrative, civil, and criminal liabilities founded upon or arising from non-payment of national internal revenue
taxes for taxable year 2005 and prior taxable years.76

Finally, the documentary stamp tax and onshore income tax are covered by the tax amnesty program under
Republic Act No. 9480 and its Implementing Rules and Regulations.77 Moreover, as to the deficiency tax on
onshore interest income, it is worthy to state that petitioner ING Bank was assessed by respondent Commissioner
of Internal Revenue, not as a withholding agent, but as one that was directly liable for the tax on onshore interest
income and failed to pay the same.

Considering petitioner ING Banks tax amnesty availment, there is no more issue regarding its liability for
deficiency documentary stamp taxes on its special savings accounts for 1996 and 1997 and deficiency tax on
onshore interest income for 1996, including surcharge and interest. III.

The Court of Tax Appeals En Banc affirmed the factual finding of the Second Division that accrued bonuses were
recorded in petitioner ING Banks books as expenses for taxable years 1996 and 1997, although no withholding of
tax was effected:

With the preceding defense notwithstanding, petitioner now maintained that the portion of the disallowed
bonuses in the amounts of P3,879,407.85 and P9,004,402.63 for the respective years 1996 and 1997, were actually
payments for reimbursements of representation, travel and entertainment expenses of its officers. These expenses
according to petitioner are not considered compensation of employees and likewise not subject to withholding tax.

In order to prove that the discrepancy in the accrued bonuses represents reimbursement of expenses, petitioner
availed of the services of an independent CPA pursuant to CTA Circular No. 1-95, as amended. As a consequence,
Mr. Ruben Rubio was commissioned by the court to verify the accuracy of petitioners position and to check its
supporting documents.

In a report dated January 29, 2002, the commissioned independent CPA noted the following pertinent findings: . . .

Findings and Observations 1997 1996

Supporting document is under the P 930,307.56 P 1,849,040.70


name of the employee

Supporting document is not under 537,456.37 53,384.80


the name of the Bank nor its
employees (addressee is
"cash"/blank)

Supporting document is under the 7,039,976.36 1,630,292.14


name of the Bank

Supporting document is in the name 362,919.59 62,615.91


of another person (other than the
employee claiming the expense)

Supporting document is not dated 13,404.00 423,199.07


within the period (i.e., 1996 and
1997)

Date/year of transaction is not 31,510.00 26,126.49


Indicated

Amount is not supported by 313,319.09 935,044.28


liquidation document(s)

TOTAL P9,228,892.97 P4,979,703.39

Based on the above report, only the expenses in the name of petitioners employee and those under its name can
be given credence. Therefore, the following expenses are valid expenses for income tax purposes:

1996 1997

Supporting document is under the P1,849,040.70 P 930,307.56


name of the employee

Supporting document is under the 1,630,292.14 7,039,976.36


name of the Bank

TOTAL P3,479,332.84 P 7,970,283.92

Consequently, petitioner is still liable for the amounts of P167,384.97 and P397,157.70 representing deficiency
withholding taxes on compensation for the respective years of 1996 and 1997, computed as follows:

1996 1997

Total Disallowed Accrued Bonus P 3,879,407.85 P 9,004,402.63

Less: Substantiated

Reimbursement of Expense 3,479,332.84 7,970,283.92

Unsubstantiated P 400,075.01 P 1,034,119.43

Tax Rate 26.48% 27.83%

Basic Withholding Tax Due

Thereon P 105,939.86 P 287,795.44

Interest (Sec. 249) 61,445.11 109,362.26

Deficiency Withholding Tax on

78
Compensation P 167,384.97 P 397,157.70

An expense, whether the same is paid or payable, "shall be allowed as a deduction only if it is shown that the tax
required to be deducted and withheld therefrom [was] paid to the Bureau of Internal Revenue[.]" 79

Section 29(j) of the 1977 National Internal Revenue Code80 (now Section 34(K) of the 1997 National Internal
Revenue Code) provides:
Section 29. Deductions from gross income. In computing taxable income subject to tax under Sec. 21(a); 24(a),
(b) and (c); and 25(a) (1), there shall be allowed as deductions the items specified in paragraphs (a) to (i) of this
section: . . . .

....

(a) Expenses. (1) Business expenses. (A) In general. All ordinary and necessary expenses paid or incurred
during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other
compensation for personal services actually rendered; travelling expenses while away from home in the pursuit of
a trade, profession or business, rentals or other payments required to be made as a condition to the continued use
or possession, for the purpose of the trade, profession or business, of property to which the taxpayer has not
taken or is not taking title or in which he has no equity.

....

(j) Additional requirement for deductibility of certain payments. Any amount paid or payable which is otherwise
deductible from, or taken into account in computing gross income for which depreciation or amortization may be
allowed under this section, shall be allowed as a deduction only if it is shown that the tax required to be deducted
and withheld therefrom has been paid to the Bureau of Internal Revenue in accordance with this section, Sections
5181 and 7482 of this Code. (Emphasis supplied)

Section 3 of Revenue Regulations No. 8-90 (now Section 2.58.5 of Revenue Regulations No. 2-98) provides:

Section 3. Section 9 of Revenue Regulations No. 6-85 is hereby amended to read as follows:

Section 9. (a) Requirement for deductibility. Any income payment, which is otherwise deductible under Sections 29
and 54 of the Tax Code, as amended, shall be allowed as a deduction from the payors gross income only if it is
shown that the tax required to be withheld has been paid to the Bureau of Internal Revenue in accordance with
Sections 50, 51, 72, and 74 also of the Tax Code.(Emphasis supplied)

Under the National Internal Revenue Code, every form of compensation for personal services is subject to income
tax and, consequently, to withholding tax. The term "compensation" means all remunerations paid for services
performed by an employee for his or her employer, whether paid in cash or in kind, unless specifically excluded
under Sections 32(B)83 and 78(A)84 of the 1997 National Internal Revenue Code. 85 The name designated to the
remuneration for services is immaterial. Thus, "salaries, wages, emoluments and honoraria, bonuses, allowances
(such as transportation, representation, entertainment, and the like), [taxable] fringe benefits[,] pensions and
retirement pay, and other income of a similar nature constitute compensation income"86 that is taxable.

Hence, petitioner ING Bank is liable for the withholding tax on the bonuses since it claimed the same as expenses
in the year they were accrued.

Petitioner ING Bank insists, however, that the bonus accruals in 1996 and 1997 were not yet subject to withholding
tax because these bonuses were actually distributed only in the succeeding years of their accrual (i.e., in 1997 and
1998) when the amounts were finally determined.

Petitioner ING Banks contention is untenable.

The tax on compensation income is withheld at source under the creditable withholding tax system wherein the
tax withheld is intended to equal or at least approximate the tax due of the payee on the said income. It was
designed to enable (a) the individual taxpayer to meet his or her income tax liability on compensation earned; and
(b) the government to collect at source the appropriate taxes on compensation.87 Taxes withheld are creditable in
nature.88 Thus, the employee is still required to file an income tax return to report the income and/or pay the
difference between the tax withheld and the tax due on the income.89 For over withholding, the employee is
refunded.90 Therefore, absolute or exact accuracy in the determination of the amount of the compensation income
is not a prerequisite for the employers withholding obligation to arise.

It is true that the law and implementing regulations require the employer to deduct and pay the income tax on
compensation paid to its employees, either actually or constructively.

Section 72 of the 1977 National Internal Revenue Code, as amended, 91 states:

SECTION 72. Income tax collected at source. (a) Requirement of withholding. Every employer making
payment of wages shall deduct and withhold upon such wages a tax determined in accordance with regulations to
be prepared and promulgated by the Minister of Finance. (Emphasis supplied)

Sections 7 and 14 of Revenue Regulations No. 6-82,92 as amended,93 relative to the withholding of tax on
compensation income, provide:

Section 7. Requirement of withholding. Every employer or any person who pays or controls the payment of
compensation to an employee, whether resident citizen or alien, non-resident citizen, or nonresident alien
engaged in trade or business in the Philippines, must withhold from such compensation paid, an amount
computed in accordance with these regulations.

I. Withholding of tax on compensation paid to resident employees. (a)In general, every employer making
payment of compensation shall deduct and withhold from such compensation income for the entire calendar year,
a tax determined in accordance with the prescribed new Withholding Tax Tables effective January 1, 1992 (ANNEX
"A").

....

Section 14. Liability for the Tax. The employer is required to collect the tax by deducting and withholding the
amount thereof from the employees compensation as when paid, either actually or constructively. An employer is
required to deduct and withhold the tax notwithstanding that the compensation is paid in something other than
money (for example, compensation paid in stocks or bonds) and to pay the tax to the collecting officer. If
compensation is paid in property other than money, the employer should make necessary arrangements to ensure
that the amount of the tax required to be withheld is available for payment to the collecting officer.

Every person required to deduct and withhold the tax from the compensation of an employee is liable for the
payment of such tax whether or not collected from the employee. If, for example, the employer deducts less than
the correct amount of tax, or if he fails to deduct any part of the tax, he is nevertheless liable for the correct
amount of the tax. However, if the employer in violation of the provisions of Chapter XI, Title II of the Tax Code
fails to deduct and withhold and thereafter the employee pays the tax, it shall no longer be collected from the
employer. Such payment does not, however, operate to relieve the employer from liability for penalties or
additions to the tax for failure to deduct and withhold within the time prescribed by law or regulations. The
employer will not be relieved of his liability for payment of the tax required to be withheld unless he can show that
the tax has been paid by the employee.

The amount of any tax withheld/collected by the employer is a special fund in trust for the Government of the
Philippines.
When the employer or other person required to deduct and withhold the tax under this Chapter XI, Title II of the
Tax Code has withheld and paid such tax to the Commissioner of Internal Revenue or to any authorized collecting
officer, then such employer or person shall be relieved of any liability to any person. (Emphasis supplied)

Constructive payment of compensation is further defined in Revenue Regulations No. 6-82:

Section 25. Applicability; constructive receipt of compensation.

....

Compensation is constructively paid within the meaning of these regulations when it is credited to the account of
or set apart for an employee so that it may be drawn upon by him at any time although not then actually reduced
to possession. To constitute payment in such a case, the compensation must be credited or set apart for the
employee without any substantial limitation or restriction as to the time or manner of payment or condition upon
which payment is to be made, and must be made available to him so that it may be drawn upon at any time, and
its payment brought within his control and disposition. (Emphasis supplied)

On the other hand, it is also true that under Section 45 of the 1997 National Internal Revenue Code (then Section
39 of the 1977 National Internal Revenue Code, as amended), deductions from gross income are taken for the
taxable year in which "paid or accrued" or "paid or incurred" is dependent upon the method of accounting income
and expenses adopted by the taxpayer.

In Commissioner of Internal Revenue v. Isabela Cultural Corporation,94 this court explained the accrual method of
accounting, as against the cash method:

Accounting methods for tax purposes comprise a set of rules for determining when and how to report income and
deductions. . . .

Revenue Audit Memorandum Order No. 1-2000, provides that under the accrual method of accounting, expenses
not being claimed as deductions by a taxpayer in the current year when they are incurred cannot be claimed as
deduction from income for the succeeding year. Thus, a taxpayer who is authorized to deduct certain expenses
and other allowable deductions for the current year but failed to do so cannot deduct the same for the next year.

The accrual method relies upon the taxpayers right to receive amounts or its obligation to pay them, in opposition
to actual receipt or payment, which characterizes the cash method of accounting. Amounts of income accrue
where the right to receive them become fixed, where there is created an enforceable liability. Similarly, liabilities
are accrued when fixed and determinable in amount, without regard to indeterminacy merely of time of payment.

For a taxpayer using the accrual method, the determinative question is, when do the facts present themselves in
such a manner that the taxpayer must recognize income or expense? The accrual of income and expense is
permitted when the all-events test has been met. This test requires: (1) fixing of a right to income or liability to
pay; and (2) the availability of the reasonable accurate determination of such income or liability.

The all-events test requires the right to income or liability be fixed, and the amount of such income or liability be
determined with reasonable accuracy.1wphi1 However, the test does not demand that the amount of income or
liability be known absolutely, only that a taxpayer has at his disposal the information necessary to compute the
amount with reasonable accuracy. The all-events test is satisfied where computation remains uncertain, if its basis
is unchangeable; the test is satisfied where a computation may be unknown, but is not as much as unknowable,
within the taxable year. The amount of liability does not have to be determined exactly; it must be determined
with "reasonable accuracy. "Accordingly, the term "reasonable accuracy" implies something less than anex act or
completely accurate amount.95 (Emphasis supplied, citations omitted)
Thus, if the taxpayer is on cash basis, he expense is deductible in the year it was paid, regardless of the year it was
incurred. If he is on the accrual method, he can deduct the expense upon accrual thereof. An item that is
reasonably ascertained as to amount and acknowledged to be due has "accrued"; actual payment is not essential
to constitute "expense."

Stated otherwise, an expense is accrued and deducted for tax purposes when (1) the obligation to pay is already
fixed; (2) the amount can be determined with reasonable accuracy; and (3) it is already knowable or the taxpayer
can reasonably be expected to have known at the closing of its books for the taxable year.

Section 29(j) of the 1977 National Internal Revenue Code96 (Section 34(K) of the 1997 National Internal Revenue
Code) expressly requires, as a condition for deductibility of an expense, that the tax required to be withheld on the
amount paid or payable is shown to have been remitted to the Bureau of Internal Revenue by the taxpayer
constituted as a withholding agent of the government.

The provision of Section 72 of the 1977 National Internal Revenue Code (Section 79 of the 1997 National Internal
Revenue Code) regarding withholding on wages must be read and construed in harmony with Section 29(j) of the
1977 National Internal Revenue Code (Section 34(K) of the 1997 National Internal Revenue Code) on deductions
from gross income. This is in accordance with the rule on statutory construction that an interpretation is to be
sought which gives effect to the whole of the statute, such that every part is made effective, harmonious, and
sensible,97 if possible, and not defeated nor rendered insignificant, meaningless, and nugatory. 98 If we go by the
theory of petitioner ING Bank, then the condition imposed by Section 29(j) would have been rendered nugatory, or
we would in effect have created an exception to this mandatory requirement when there was none in the law.

Reading together the two provisions, we hold that the obligation of the payor/employer to deduct and withhold
the related withholding tax arises at the time the income was paid or accrued or recorded as an expense in the
payors/employers books, whichever comes first.

Petitioner ING Bank accrued or recorded the bonuses as deductible expense in its books. Therefore, its obligation
to withhold the related withholding tax due from the deductions for accrued bonuses arose at the time of accrual
and not at the time of actual payment.

In Filipinas Synthetic Fiber Corporation v. Court of Appeals,99 the issue was raised on "whether the liability to
withhold tax at source on income payments to non-resident foreign corporations arises upon remittance of the
amounts due to the foreign creditors or upon accrual thereof."100 In resolving this issue, this court considered the
nature of the accounting method employed by the withholding agent, which was the accrual method, wherein it
was the right to receive income, and not the actual receipt, that determined when to report the amount as part of
the taxpayers gross income.101 It upheld the lower courts finding that there was already a definite liability on the
part of petitioner at the maturity of the loan contracts.102 Moreover, petitioner already deducted as business
expense the said amounts as interests due to the foreign corporation. 103 Consequently, the taxpayer could not
claim that there was "no duty to withhold and remit income taxes as yet because the loan contract was not yet
due and demandable."104 Petitioner, "[h]aving written-off the amounts as business expense in its books, . . . had
taken advantage of the benefit provided in the law allowing for deductions from gross income."105

Here, petitioner ING Bank already recognized a definite liability on its part considering that it had deducted as
business expense from its gross income the accrued bonuses due to its employees. Underlying its accrual of the
bonus expense was a reasonable expectation or probability that the bonus would be achieved. In this sense, there
was already a constructive payment for income tax purposes as these accrued bonuses were already allotted or
made available to its officers and employees.

We note petitioner ING Bank's earlier claim before the Court of Tax Appeals that the bonus accruals in 1996 and
1997 were disbursed in the following year of accrual, as reimbursements of representation, travel, and
entertainment expenses incurred by its employees.106 This shows that the accrued bonuses in the amounts
of P400,075.0l (1996) and Pl,034,119.43 (1997) on which deficiency withholding taxes of Pl67,384.97 (1996)
and P397,157.70 (1997) were imposed, respectively, were already set apart or made available to petitioner ING
Bank's officers and employees. To avoid any tax issue, petitioner ING Bank should likewise have recognized the
withholding tax liabilities associated with the bonuses at the time of accrual.

WHEREFORE, the Petition is PARTLY GRANTED. The assessments with respect to petitioner ING Bank's liabilities for
deficiency documentary stamp taxes on its special savings accounts for the taxable years 1996 and 1997 and
deficiency tax on onshore interest income under the foreign currency deposit system for taxable year 1996 are
hereby SET ASIDE solely in view of petitioner ING Bank's availment of the tax amnesty program under Republic Act
No. 9480. The April 5, 2005 Decision of the Court of Tax Appeals En Banc, which affirmed the August 9, 2004
Decision and November 12, 2004 Resolution of the Court of Tax Appeals Second Division holding petitioner ING
Bank liable for deficiency withholding tax on compensation for the taxable years 1996 and 1997 in the total
amount of P564,542.67 inclusive of interest, is AFFIRMED.

SO ORDERED.

TOPIC/DOCTRINE: REDEMPTION OF TAX DELINQUENT PROPERTIES

Republic of the Philippines


SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 207791 July 15, 2015

THE CITY OF DAVAO, REPRESENTED BY THE CITY TREASURER OF DAVAO CITY, Petitioner,
vs.
THE INTESTATE ESTATE OF AMADO S. DALISAY, REPRESENTED BY SPECIAL ADMINISTRATOR ATTY. NICASIO B.
PADERNA, Respondent.

DECISION

MENDOZA, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the January 24, 2013
Decision1 and the May 15, 2013 Resolution2 of the Court of Appeals (CA), in CA-G.R. CV No. 01903-MIN, which
affirmed the June 6, 2008 Decision of the Regional Trial Court, Branch 17, Davao City (RTC), ordering the City of
Davao to, among others, receive the amount of P5,000,000.00 as full payment of the redemption price of the
forfeited properties of the Intestate Estate of Amado S. Dalisay.

The Facts

The Estate of Amado S. Dalisay (the Estate)owned the following properties, all situated in Davao City:

1. Lot 1, Pcs-11-001298, covered by Transfer Certificate of Title (TCT) No. T-202211 with Tax Declaration
No. E-1-34-10484;
2. Lot 6, Pcs-11-001298, covered by TCT No. T-202215 with Tax Declaration No. E-1-34-10488;

3. Lot 7, Pcs-11-001298, covered by TCT No. T-202216 with Tax Declaration No. E-1-34-10489;

4. Lot 2, Pcs-11-001298, covered by TCT No. T-202212 with Tax Declaration No. E-1-34-10492; and

5. Building erected in Lot No. 26-B and covered by Tax Declaration No. E-1-34-10480.

These properties were advertised for sale at a public auction for nonpayment of real estate taxes. The public
auction was scheduled on July 19, 2004. No bidders appeared on the date of the public auction, thus, the aforesaid
properties were acquired by the City Government of Davao (the City)pursuant to Section 263 of Republic Act (R.A.)
No. 7160 of the Local Government Code of 1991 (LGC) which provides:

Section 263. Purchase of Property By the Local Government Units for Want of Bidder.- In case there is no bidder
for the real property advertised for sale as provided herein, the real property tax and the related interest and costs
of sale, the local treasurer conducting the sale shall purchase the property in behalf of the local government unit
concerned to satisfy the claim and within two (2) days thereafter shall make a report of his proceedings which shall
be reflected upon the records of his office. It shall be the duty of the Registrar of Deeds concerned upon
registration with his office of any such declaration of forfeiture to transfer the title of the forfeited property to the
local government unit concerned without the necessity of an order from a competent court.

Within one (1) year from the date of such forfeiture, the taxpayer or any of his representative, may redeem the
property by paying to the local treasurer the full amount of the real property tax and the related interest and the
costs of sale. If the property is not redeemed as provided herein, the ownership thereof shall be vested on the
local government unit concerned.

On September 13, 2005, or more than a year after the public auction, the Declarations of Forfeiture for the five (5)
properties were separately issued by the City Treasurer. The common provisions of the declarations read:

WHEREAS, the delinquent taxpayer or his authorized representative, has within a period of one (1) year from said
date of Declaration of Forfeiture as herein specified, to redeem the property sold by paying to the City Treasurer
the full amount of the real property tax and related interest and cost of sale as authorized under R.A. 7160. If the
property is not redeemed as herein provided, the ownership of the above described property shall be fully vested
to the City Government of Davao in accordance with Section 263 of R.A. 7160.

NOW, THEREFORE, for and in accordance of the foregoing, I RODRIGO S. RIOLA, in my capacity as the Acting City
Treasurer of Davao City, and pursuant to the provision of Section 262 of Republic Act 7160 otherwise known as the
Local Government Code of 1991 hereby DECLARE AS IT HEREBY DECLARED the above described property
FORFEITED in favor of the City Government of Davao.

EXECUTED in Davao City, Philippines this 13th day of September 2005.

[Emphases Supplied]

On October 3, 2005, the City caused the annotation of the five (5) Declarations of Forfeiture on the corresponding
TCTs of the properties.

Subsequently, the Estate inquired from the City Treasurers Office regarding the amount of the redemption price
of the properties. On September 11, 2006, the Real Property Tax Division of the City furnished the Estate copies of
the billing statements containing a handwritten summary of the amount showing the aggregate total
of P4,996,534.67.
Thus, on September 13, 2006, the Estate delivered a written tender of payment to the City Treasurer and, at the
same time, tendered the amount of P5,000,000.00. The City, however, refused to accept the same. This
constrained the Estate to file the Notice to Deposit the P5,000,000.00 with the Office of the Clerk of Court, RTC, at
the disposal of the City Treasurer. In doing so, the Estate was made to pay legal fees amounting to P75,200.00. An
action for redemption, consignation and damages against the City was consequently filed by the Estate with the
RTC.

For its part, the City admitted the existence of the billing statements, but it posited that their issuance was not an
admission that the Estate still had the right to redeem the properties. The period of redemption had long expired
on July 19, 2005, a year after the subject properties were acquired by the City during the public auction for want of
a bidder. Hence, its refusal to accept the tendered amount was valid and for a lawful cause.

On June 6, 2008, the RTC ruled in favor of the Estate, finding the latters evidence as preponderantly acceptable in
establishing its right of redemption. The City was ordered to: 1) receive the P5,000,000.00 deposited with the Clerk
of Court, as full payment of the redemption price of the forfeited properties; and 2) issue a certificate of
redemption in favor of the Estate. Further, actual damages and attorneys fees in the amount of P75,200.00
and P50,000.00,respectively, were awarded in favor of the Estate.3

Aggrieved, the City appealed the RTC decision to the CA, arguing that the one (1) year period should be reckoned
from the date of forfeiture, that is, when the properties of the Estate were purchased by the City for want of a
bidder during the public auction on July 19, 2004. In the same vein, the RTC erred in holding that the City was
estopped from disclaiming and denying the erroneous statement made by the City Treasurer when the Estate was
inadvertently informed that the one year redemption period started from the date of the issued Declaration of
Forfeiture. To this, the Estate countered that the reckoning date should be the one stated in the Declarations of
Forfeiture which corresponded to their date of issuance, to wit, on September 13, 2005.

In the assailed decision, the CA affirmed the ruling of the RTC. It observed that the City had been remiss in its duty
to immediately issue the Declaration of Forfeiture within two (2) days from purchase of the property as required
under Section 263 of the LGC. The CA then explained that "redemption should be looked upon with favor, and
where no injury would follow, a liberal construction will be given to redemption laws, specifically on the exercise of
the right to redeem." In the words of the CA:

In the case at bench, We have come to the conclusion upon inquiry into the equities of this case to liberally apply
the redemption provision of the law in favor of the Estate of Amado Dalisay and give them another opportunity to
recover the properties.

It must be stressed that the delinquent taxpayer may within one (1) year from the date of such forfeiture, redeem
the property by paying to the local treasurer the full amount of the real property tax and the related interest and
the costs of sale. The City, by its own inefficiency, belatedly issued the DECLARATIONS OF FORFEITURE on
September 13, 2005. Such is no fault of the plaintiff-appellee.4

[Emphasis and Underscoring in the Original]

As regards the issue on damages, the CA found the award of attorneys fees proper, in accordance with Article
2208 of the Civil Code which allowed an award of the said fees and expenses of litigation, other than judicial costs,
when by the act or omission of one party, compelled the other to litigate and incur expenses of litigation to protect
his interest.5 In this case, the Citys refusal to accept the Estates tendered payment for the redemption of the lots
had effectively constrained it to file suit. Lastly, the actual damages in the amount of P75,200.00 as consignation
fees had been proven with the corresponding receipt.

Hence, this petition.


ASSIGNMENT OF ERRORS:

1. THAT THE HONORABLE COURT ERRED IN HOLDING THAT THE ONE YEAR REDEMPTION PERIOD
BEGINS FROM THE DATE OF DECLARATION OF FORFEITURE ISSUED BY THE CITY TREASURER ON
SEPTEMBER 13, 2006, INSTEAD OF JULY 19, 2004, WHEN THE SUBJECT DELINQUENT PROPERTIES
WERE FORFEITED BY THE CITY GOVERNMENT FOR WANT OF BIDDER DURING THE PUBLIC
AUCTION SALE;

2. THAT THE HONORABLE COURT ERRED IN HOLDING THAT THE CITY GOVERNMENT IS ESTOPPED
FROM DISCLAIMING AND DENYING THE ERRONEOUS STATEMENT MADE BY THE CITY TREASURER
IN HIS DECLARATION OF FORFEITURES DATED SEPTEMBER 13, 2006, WHICH INADVERTINTLY (SIC)
INFORMED THE PLAINTIFF THAT THE ONE YEAR REDEMPTION PERIOD STARTS FROM THE DATE
OF DECLARATION;

3. THAT THE HONORABLE COURT ERRED IN HOLDING THAT THE PROVISION OF SECTION 263 OF
R.A. 7160, OTHERWISE KNOWN AS THE "LOCAL GOVERNMENT CODE OF 1991" DID NOT
EXPRESSLY REPEAL THE PERTINENT PROVISION OF REDEMPTION UNDER P.D. 464, THE LAW
GOVERNING REAL PROPERTY TAXATION THEN, AND ACT 496, SECTIONS 50 AND 377 GRANTING
THE RIGHT OF REDEMPTION TO BE EXERCISED WITHIN ONE YEAR FROM THE REGISTRATION OF
SAID FORFEITED PROPERTIES IN THE REGISTER OF DEEDS;

4. THAT THE HONORABLE COURT ERRED IN HOLDING PUBLIC DEFENDANT-APPELLANT LIABLE TO


PAY PLAINTIFF FOR ACTUAL DAMAGES IN THE AMOUNT OF P75,200.00 AS CONSIGNATION FEES
AND ATTORNEYS FEES AMOUNTING TO P50,000.00.6

The City argues that no law provides that the one (1) year redemption period should be counted from the date of
the Declaration of Forfeiture. What the LGC simply provides is that the period of redemption is "within one (1) year
from the date of such forfeiture. "For the City, this phrase means that the effective date of the forfeiture was July
19, 2004, when the tax delinquent properties were sold at a public auction and, thus, forfeited in its favor for want
of a bidder, rather than September 13, 2005 or the date of the issued Declarations of Forfeiture.

Further, and contrary to the observation of the CA, Section 263 of the LGC does not order the City Treasurer to
issue a declaration of forfeiture within two (2) days from the date when tax delinquent real properties, sold at
auction sale, are purchased by the local government in the absence of a bidder. It merely directs the local
treasurer to make a report of his proceedings which shall be reflected in the records of his office. In fine, it is the
position of the City that the issuance of the said declarations of forfeiture had no bearing in the determination of
the period of redemption, inasmuch as the same were only issued for registration purposes with the Register of
Deeds.7 Here, the date of issuance of the five (5) declarations of forfeiture on September 13, 2005 was immaterial
as the same was merely intended to facilitate the transfers of title to the forfeited properties in favor of the City
after the lapse of the redemption period reckoned from the auction sale held on July 19, 2004.

Assuming arguendo that the City Treasurer is mandated by law to issue a declaration of forfeiture within two (2)
days from the purchase of the properties, the City avers that it should not be bound by the consequences of the
malfeasance of its public officers. In other words, the City invokes the doctrine that the principle of estoppel does
not operate against the government for the act of its agents, and that it is never estopped by any mistake or error
on their part.8 Position of the Estate

For its part, the Estate argues that the City erred when it interpreted the subject provision and concluded that
"[t]he law does not say that the one (1) year period of redemption is counted from the date of declaration of
forfeiture."9 It explained that the provision merely states that the redemption period is counted from "the date of
such forfeiture," and the word "such" before the word "forfeiture" was resorted to in order to avoid the repetition
of the words "declaration of" before the word "forfeiture."10 This interpretation is supported by the second
paragraph of the same provision which mentions the phrase, "any such declaration of forfeiture" in connection
with the duty of the Register of Deeds to transfer the title of the forfeited property to the local government unit
sans a court order. The Estate submits that the subject provision should be read as follows:

Within one (1) year from the date of declaration of forfeiture the taxpayer or any of its representative, may
redeem the property by paying to the local treasurer the full amount of the real property tax and the related
interest and costs of sale. If the property is not redeemed as provided herein, the ownership thereof shall be fully
vested in the local government unit concerned.11

[Emphasis Supplied]

The Estate likewise opposes the Citys theory that declarations of forfeiture have no bearing in the determination
of the period of redemption because the same were only issued by the treasurer for registration purposes with the
Register of Deeds. For the Estate, there is a difference between redemption of property sold at a public auction
and redemption of property purchased by the local government unit for want of bidder. The former is governed by
Section 261 of the LGC, while the latter is covered by Section 263 (2) of the same law.

Reply of the City

The City replies that the term "such" as found in the phrase, "date of such forfeiture," should be construed as
referring to the entire legal process of forfeiture as prescribed in the first paragraph of Section 263 and not to the
singular word, "declaration," as found in the second sentence of the said paragraph. More importantly, the
operative act of forfeiture is the act of the City Treasurer, in behalf of the city, in purchasing the property for lack
of a bidder, and not the registration of any declaration of forfeiture because the said document only facilitates the
transfer of ownership of the property. The City also makes reference to Section 261 of the LGC, involving the
redemption of tax delinquent properties purchased by the public, which provides that the redemption of the
property is to be reckoned from the date of the sale. For the City, this rule is equally applicable in resolving the
present case involving Section 263 of the LGC because the distinctions between the said provisions are too
insignificant, for the Court to rule otherwise. Regardless of whether the property put up for auction was purchased
by the public or by the local government for want of a bidder, the commencement of the period for redemption
must begin on the date of the sale, for the sake of uniformity in the rules. 12

The Issues

After a perusal of the arguments presented by the parties, the Court culled the main issue into this significant
question of law:

Whether the one (1) year redemption period of forfeited tax delinquent properties purchased by the local
government for want of a bidder is reckoned from the date of the auction or sale or from the date of the issuance
of the declaration of forfeiture.

The Court's Ruling

In its decision, the CA obviously resorted to an interpretation based solely on the basic rules in interpretation: the
liberal application of redemption laws. It inquired into the "equities of this case" and preferred to uphold the
protection afforded to the original owner of the property as it is "the policy of the law to aid rather than defeat the
owners right."13

The Court need not belabor the existence of this rule in jurisprudence. In a long line of cases, the Court has indeed
been copious in its stance to allow the redemption of property where in doing so, the ends of justice are better
realized. Doronila v. Vasquez14 allowed redemption in certain cases even after the lapse of the one-year period in
order to promote justice and avoid injustice. In Tolentino v. Court of Appeals, 15 the policy of the law to aid rather
than defeat the right of redemption was expressed, stressing that where no injury would ensue, liberal
construction of redemption laws was to be pursued and the exercise of the right to redemption to be permitted to
better serve the ends of justice. In De los Reyes v. Intermediate Appellate Court,16 the rule was liberally interpreted
in favor of the original owner of the property to give him another opportunity, should his fortunes improve, to
recover his property.

Nonetheless, the Courts agreement with the CA decision ends here. The above rulings now beget a more
important question for the resolution of this case: Does a simplistic application of the liberal construction of
redemption laws provide a just resolution of this case? The Court answers this question in the negative.

While it is a given that redemption by property owners is looked upon with favor, it is equally true that the right to
redeem properties remains to be a statutory privilege. 17 Redemption is by force of law, and the purchaser at public
auction is bound to accept it.18 Further, the right to redeem property sold as security for the satisfaction of an
unpaid obligation does not exist preternaturally. Neither is it predicated on proprietary right, which, after the sale
of the property on execution, leaves the judgment debtor and vests in the purchaser. Instead, it is a bare statutory
privilege to be exercised only by the persons named in the statute. 19

In other words, a valid redemption of property must appropriately be based on the law which is the very source of
this substantive right. It is, therefore, necessary that compliance with the rules set forth by law and jurisprudence
should be shown in order to render validity to the exercise of this right. Hence, when the Court is beckoned to rule
on this validity, a hasty resort to elementary rules on construction proves inadequate. Especially so, when there
are deeper underpinnings involved, not only as to the right of the owner to take back his property, but equally
important, as to the right of the purchaser to acquire the property after deficient compliance with statutory
requirements, including the exercise of the right within the period prescribed by law.

The Court cannot close its eyes and automatically rule in favor of the redemptioner at all times. The right acquired
by the purchaser at an execution sale is inchoate and does not become absolute until after the expiration of the
redemption period without the right of redemption having been exercised. "But inchoate though it be, it is, like
any other right, entitled to protection and must be respected until extinguished by redemption." 20 Suffice it to say,
the liberal application of redemption laws in favor of the property owner is not an austere solution to a
controversy, where there are remarkable factors that lead to a more sound and reasonable interpretation of the
law. Here, the proper focus of the CA should have been the just and fair interpretation of the law, instead of an
automatic and constricted view on its liberal application.

It is without question that Section 263 of the LGC lacks definiteness as to the reckoning point for the redemption of
tax delinquent properties. It merely employs the phrase, "within one (1) year from the date of such forfeiture." On
one hand, the City avers that the period commences from the date of the forfeiture, that is, the date of the
auction. On the other hand, the Estate insists that the redemption period begins from the date when the
declarations of forfeiture were issued. For the Court, the arguments of the City point toward a more just and fair
resolution of the perceived vagueness in the law.

First. The Citys theory that the term "forfeiture," contemplated in the subject phrase, refers to the date when the
tax delinquent properties were sold at a public auction, holds more logic than the conjecture of the Estate on the
usage of the word "such."

Indeed, Section 263 of the LGC takes into effect because of one vital factor: the absence of a bidder in a public
auction for tax delinquent properties. Were it not for this fact, this provision would not come into operation or, at
the least, find relevance. Sections 260 and 261 would have come into play in cases where a purchaser, other than
the local government unit, places a bid on the property. This is undeniably a distinct feature of Section 263 that
cannot be ignored. The absence of the public impels the City Treasurer to purchase the property in behalf of the
city. Reason would, therefore, dictate that this purchase by the City is the very forfeiture mandated by the law. The
contemplated "forfeiture" in the provision points to the situation where the local government ipso facto "forfeits"
the property for want of a bidder.

This analysis is ridden with substance that surpasses the hypothesis of the Estate. The Estate purely speculates that
the term "such" in the phrase "the date of such forfeiture," was only resorted to in order to avoid the repetition of
the words in the text of the law. It attempts to convince the Court that the second paragraph of the same provision
which mentions the phrase, "any such declaration of forfeiture," in connection with the duty of the Register of
Deeds to transfer the title of the forfeited property, shows that the "forfeiture" contemplated by the law is that of
the issuance of the Declaration of Forfeiture. While the Estate has a point in saying that the City may not
speciously insist that the law does not say that the one (1) year period of redemption is counted from the date of
"declaration of forfeiture," this proffered explanation is far more hallow and unfounded.

As explained above, the better theory that is consistent with the subject matter of the provision is that forfeiture
of tax delinquent properties transpires no later than the purchase made by the city due to lack of a bidder from the
public. This happens on the date of the sale, and not upon the issuance of the declaration of forfeiture.

To rule otherwise would be similar to saying that prior to the accrual of the local governments right as a
purchaser, an additional requirement of issuing a declaration of forfeiture is necessary. Not only is this duty
unfounded, but it also places the local government in a vacuum from the time of the auction up to the time it
issues the document. It causes the absurd situation, where the local governments forfeiture of the property for
want of a bidder becomes an empty and meaningless exercise merely because the issuance of the declaration of
forfeiture came at a much subsequent time. The precarious effect of this view strips off the local government of
the protection given by law to a purchaser during and after a public auction. This goes against the safeguards to
which a purchaser is entitled until a valid redemption of the property ensues because then, it is burdened with yet
another positive act of issuing a document in order to gain rights. Surely, this is not the intention of Section 263.
The local governments power to acquire tax delinquent properties cannot be overemphasized at this point.

Second. The CA seemed to have completely disregarded the ruling in City Mayor v. RCBC (City Mayor) 21 in its quick
application of the liberal rules of statutory construction. True, City Mayor involved Section 261 of the LGC, instead
of Section 263, because it involved a private individual who was adjudged as the highest bidder during the public
auction. Nevertheless, the said case passed upon the very issue at bench: the reckoning period of the redemption
period for auctioned tax delinquent properties.

In City Mayor, the property owner and respondent bank filed a petition for the acceptance of its tender of
payment and for the subsequent issuance of the certificate of redemption, after the highest bidder during the
auction had effected payment of the tax delinquencies and the issuance and registration of the corresponding
Certificate of Sale of Delinquent Property. The lower court ruled in favor of the respondent bank on the ground
that "the counting of the one (1) year redemption period of tax delinquent properties sold at public auction should
start from the date of registration of the certificate of sale or the final deed of sale in favor of the purchaser" based
on Section 78 of Presidential Decree (P.D.) No. 464.22

The Court, however, disagreed with the lower courts position, viz:

However, since the passing of R.A. No. 7160, such is no longer controlling. The issue of whether or not R.A No.
7160 or the Local Government Code, repealed P.D. No. 464 or the Real Property Tax Code has long been laid to
rest by this Court. Jurisdiction thrives to the effect that R.A. No. 7160 repealed P.D. No. 464. From January 1, 1992
onwards, the proper basis for the computation of the real property tax payable, including penalties or interests, if
applicable, must be R. A. No. 7160. Its repealing clause, Section 534, reads:

SECTION 534. Repealing Clause.


xxxx

(c) The provisions of Sections 2, 3, and 4 of Republic Act No. 1939 regarding hospital fund; Section 3, a (3) and b (2)
of Republic Act No. 5447 regarding the Special Education Fund; Presidential Decree No. 144 as amended by
Presidential Decree Nos. 559 and 1741; Presidential Decree No. 231 as amended; Presidential Decree No. 436 as
amended by Presidential Decree No. 558; and Presidential Decrees Nos. 381, 436, 464, 477, 526, 632, 752, and
1136 are hereby repealed and rendered of no force and effect.

Inasmuch as the crafter of the Local Government Code clearly worded the above-cited Section to repeal P.D. No.
464, it is a clear showing of their legislative intent that R.A. No. 7160 was to supersede P.D. No. 464. As such, it is
apparent that in case of sale of tax delinquent properties, R.A. No. 7160 is the general law applicable.

xxx

From the foregoing, the owner of the delinquent real property or person having legal interest therein, or his
representative, has the right to redeem the property within one (1) year from the date of sale upon payment of
the delinquent tax and other fees. Verily, the period of redemption of tax delinquent properties should be counted
not from the date of registration of the certificate of sale, as previously provided by Section 78 of P.D. No. 464, but
rather on the date of sale of the tax delinquent property, as explicitly provided by Section 261 of R.A. No. 7160.

[Emphases and Underscoring Supplied]

It is worthy to note, however, that City Mayor was ultimately resolved in favor of respondent bank because it
turned out that petitioner city government enacted an ordinance, which provided for the procedure in the
collection of delinquent taxes on real properties within its territorial jurisdiction. Section 14 (a) Paragraph 7 of the
said ordinance expressly set the redemption period within one (1) year from the date of the annotation of the sale
of the property at the proper registry. Being a special law with limited territorial application, the city ordinance
prevailed over that of the LGC which was, and still is, the general law on the matter. Consequently, the respondent
bank had until February 10, 2005 to redeem the subject properties counted from the date of registration of the
Certificate of Sale of Delinquent Property on February 10, 2004. Its tender of payment of the subject properties
tax delinquencies and other fees on June 10, 2004, was then well within the redemption period.

It is now apparent that the previous rule enunciating the reckoning period of redemption for tax delinquent
properties from the date of the registration of sale of the property is no longer controlling. Section 261 now
mandates that the owner of the delinquent real property or person having legal interest therein, or his
representative, has the right to redeem the property within one (1) year from the date of sale upon payment of
the delinquent tax and other fees.

In the case at bench, considering the fact that neither of the parties has invoked the existence of an ordinance of
similar import, the general law on the matter finds bearing. In applying the pronouncements in City Mayor to this
case, the Court finds no harm in considering the interpretation of Section 261 which is emphatic in saying that the
redemption period is set "within one (1) year from the date of sale," as applicable to Section 263. The usage of the
terms "sale" and "forfeiture" in Sections 261 and 263, respectively, only highlights a distinction in the situations
covered and produces no significant variance. The former refers to the voluntary purchase made by a bidder in
public auction while the latter points to the divesting of the ownership of a particular property on account of the
breach of a legal duty, without compensation,23 for example, the non-payment of tax. Therefore, in cases covered
by these pertinent provisions in the LGC, the date of the "sale" or "forfeiture" is rightfully the point in time when
the owner is divested of certain attributes of ownership over the property albeit only until the redemption of the
property. This translates to no other event but to the date of the public auction. More than the purpose of
uniformity and harmony among provisions of law, the Court finds this conclusion as consistent with the intention
of the law.
Third. At this juncture, the Court considers the peculiar fact involved in this case: the City Treasurers belated
issuance of the disputed Declarations of Forfeiture.1wphi1 Clearly, this irregularity had eventually shaped and
brought forth the subject controversy. Had it not been for the severe delay in the issuance, there would have been
no dispute and the reckoning period of the redemption period would have been a toss between closer dates,
rather than those claimed, which are years apart, to wit: July 19, 2004 and September 13, 2005.

The general rule is that the State cannot be put in estoppel by the mistakes or errors of its officials or
agents.24Indeed, like all general rules, this is also subject to exceptions. Estoppel should not be invoked except in a
rare and unusual circumstance. It may not be invoked where they would operate to defeat the effective operation
of a policy adopted to protect the public. They must be applied with circumspection and should be applied only in
those special cases where the interests of justice clearly require it.25

The Court, however, can only commiserate with the situation of the state and its lost chance of recovering its
property, as it still sees no reason to depart from the general rule. The following circumstances became the object
of the Courts perplexity:

1. The Estate does not dispute the validity of the notices with respect to the public auction. This brings the
Court to the safe assumption that there was valid constructive notice as to possible danger of forfeiture of
the properties prior to the auction. The Estate, with its administrator in the person of Nicasio B. Paderna,
is undoubtedly bound by this. Corollary thereto, the delinquent status of the properties may not be said
to have been surprising news to the Estate.

2. Just the same, it took the Estate more than one (1) year from the date of the auction of which it was
properly notified, to inquire from the City Treasurers Office regarding the amount of the redemption
price due. On the same date of inquiry or on September 11, 2006, the Estate was furnished a handwritten
summary of the amount due for redemption. It is fair to suppose that at this point, the Estate became
aware that no declaration of forfeiture had yet been issued by the City Treasurer.

3. Two (2) days after this inquiry, and as if a reaction thereto, the City Treasurer issued the subject five (5)
Declarations of Forfeiture on September 13, 2006. Now with full confidence on the said document and its
expressed statement that the property owner had one year from the date of its issuance, within which to
redeem the properties, the Estate lost no time in tendering its payment for the redemption of the
properties.

The delay on the part of the Estate to at least inquire into the outcome of the auction and its misplaced reliance on
a curious document heightens the belief of the Court that the City may not be deprived of a right that has long
been vested in its favor. The odd timing in the issuance of the Declarations of Forfeiture and its very contents
which observably benefit the Estate to the core form a nagging doubt that may not be easily shrugged off. This
hinders the Court from applying the exceptions to the rule on estoppel, when doing this would result in more
impropriety.

It is the City that would suffer an injustice if it were to be bound by its officers suspect actions. The policy of
enabling local governments to fully utilize the income potentialities of the real property tax would be put at a
losing end if tax delinquent properties could be recovered by the sheer expediency of a document erroneously or,
perhaps fraudulently, issued by its officers. This would place at naught, the essence of redemption as a statutory
privilege; for then, the statutory period for its exercise may be extended by the indiscretion of scrupulous officers.
In other words, the period would become flexible because extensions of the period would depend, not just on the
sound discretion of the City Treasurer but on his attitude, work ethics and worse, temperament.

The Court cannot allow this situation to prevail.


In this case, the period to redeem the subject properties of this case had long expired on July 19, 2005, and since
then, the forfeiture of the properties had become absolute. The failure of the Estate to validly exercise its right of
redemption within the statutory period had already resulted in the consolidation of ownership over the properties
by the City.

One final word. The resolution of this case does not, in any way, cloud the glaring misfeasance in office committed
by the City Treasurer. As discussed, this legal battle could not have developed were it not for the lull of more than
a year between the subject auction and the issuance of the declarations of forfeiture. More often than not,
inordinate delay in the issuance of documents, whether out of a ministerial or directory function, creates an
injurious effect to the parties concerned. This inefficiency in the bureaucracy must be thwarted lest the quality of
public service in local governments deteriorate and personal rights suffer. No less than the Constitution sanctifies
the principle that a public office is a public trust, and enjoins all public officers and employees to serve with the
highest degree of responsibility, integrity, loyalty, and efficiency. 26 These attributes, by all means, are expected of a
City Treasurer. WHEREFORE, the assailed January 24, 2013 Decision of the Court of Appeals and its May 15, 2013
Resolution in C.A.-G.R. CV No. 01903-MIN are REVERSED and SET ASIDE. No costs. The action for redemption,
consignation and damages filed by respondent Estate is ordered DISMISSED.

SO ORDERED.

TOPIC/DOCTRINE: ASSESSMENT AND COLLECTION OF TAXES

Republic of the Philippines


SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 192173 July 29, 2015

COMMISSIONER OF INTERNAL REVENUE, Petitioner,


vs.
STANDARD CHARTERED BANK, Respondent.

DECISION

PEREZ, J.:

For the Court's consideration is a Petition for Review on Certiorari which seeks to reverse and set aside the 1
March 2010 Decision1 and the 30 April 2010 Resolution2 of the Court of Tax Appeals (CTA) En Banc in CTA EB Case
No. 522, affirming in toto the Decision3 and Resolution4 dated 27 February 2009 and 29 July 2009, respectively, of
the Second Division of the CTA (CTA in Division) in CTA Case No. 7165. The court a quo cancelled and set aside the
Formal Letter of Demand and Assessment Notices dated 24 June 2004 issued by petitioner against respondent for
deficiency income tax, final income tax Foreign Currency Deposit Unit (FCDU), and expanded withholding tax
(EWT) in the aggregate amount of P33,076,944.18, including increments covering taxable year 1998, for having
been issued beyond the reglementary period.

The Facts

As found by the CT A in Division and affirmed by the CT A En Banc, the factual antecedents of the case and the
proceedings conducted thereon were as follows:
On July 14, 2004, [respondent] received [petitioner's] Formal Letter of Demand dated June 24, 2004, for alleged
deficiency income tax, final income tax - FCDU, [withholding tax - compensation (WTC)], EWT, [final withholding
tax (FWT)], and increments for taxable year 1998 in the aggregate amount of P33,326,211.37, broken down as
follows:

Compromise
Tax Basic Tax Interest Total
Penalty

Income Tax 3,594,272.00 3,803,936.67 25,000.00 7,423,208.67

Final Income Tax 11,748,483.99 12,433,808.31 25,000.00 24,207,292.30


FCDU

Withholding Tax 50,282.59 55,450.48 12,000.00 117,733.07


Compensation

Expanded 678,361.62 748,081.59 20,000.00 1,446,443.21


Withholding Tax

Final Withholding 56,845.84 62,688.28 12,000.00 131,534.12


Tax

TOTAL 16,128,246.04 17,103,965.33 94,000.00 33,326,211.37

On August 12, 2004, [respondent] protested the said assessment by filing a letter-protest dated August 9, 2004
addressed to the BIR Deputy Commissioner for Large Taxpayers' Service stating the factual and legal bases of the
assessment, and requested that it be withdrawn and cancelled. As of the date of filing of this Petition for Review,
[petitioner] has not rendered a decision on [respondent's] protest.

In view of [petitioner's] inaction on [respondent's] protest, on March 9, 2005, [respondent] filed the present
Petition for Review.

xxxx

On October 14, 2005, [respondent] filed a Motion for Leave of Court to Serve Supplemental Petition, with attached
Supplemental Petition for Review, pursuant to Rule 10 of the 1997 Rules of Civil Procedure, as amended, in view of
the alleged payments made by [respondent] through the BIR's Electronic Filing and Payment System (eFPS) as
regards its deficiency [WTC] and [FWT] assessments in the amounts of P124,967.73 and P139,713.l l, respectively.
In its Supplemental Petition for Review, (respondent) seeks to be fully credited of the payments it made to cover
the deficiency [WTC] and [FWT]. Thus, the remaining assessments cover only the deficiency income tax, final
income tax FCDU, and [EWT] in the modified total amount of P33,076,944.18, computed as follows:

Compromise
Basic Tax Interest Total
Tax Penalty
Income Tax 3,594,272.00 3,803,936.67 25,000.00 7,423,208.67
11,748,483.99 12,433,808.31 25,000.00 24,207,292.30
Final Income Tax

FCDU
678,361.62 748,081.59 20,000.00 1,446,443.21
Expanded

Withholding Tax

TOTAL 16,021,117.61 16,985,826.57 70,000.00 33,076,944.18

Finding merit in [respondent's] motion, the same was granted and the Supplemental Petition for Review was
admitted in a Resolution dated December 12, 2005.

[Respondent] presented Chona G. Reyes, its Vice-President, as witness, and documentary exhibits which were
admitted by the Court in its Resolutions dated October 1, 2007, and January 31, 2008.

On the other hand, [petitioner] presented Juan M. Luna, Jr., Revenue Officer II of the BIR LTAID I, as witness, and
documentary evidence marked as Exhibits "1 " to "4 ".

Thereafter, the parties were ordered to file their simultaneous memoranda, within thirty (30) days from notice,
after which the case shall be deemed submitted for decision.

[Petitioner;s] "Memorandum" was filed on August 4, 2008, while [respondent's] Memorandum was filed on
October 24, 2008 after a series of motions for extension of time to file memorandum were granted by the [c]ourt.
The case was deemed submitted for decision on November 12, 2008. 5

The Ruling of the CTA in Division

In a Decision dated 27 February 2009,6 the CTA in Division granted respondent's petition for the cancellation and
setting aside of the subject Formal Letter of Demand and Assessment Notices dated 24 June 2004 on the ground
that petitioner's right to assess respondent for the deficiency income tax, final income tax - FCDU, and EWT
covering taxable year 1998 was already barred by prescription. The court a quo explained that although petitioner
offered in evidence copies of the Waivers of Statute of Limitations executed by the parties, for the purpose of
justifying the extension of period to assess respondent, the subject waivers, particularly the First and Second
Waivers dated 20 July 2001 and 4 April 2002, respectively, failed to strictly comply and conform with the provisions
of Revenue Memorandum Order (RMO) No. 20-90, citing the case of Philippine Journalists, Inc. v. CIR. 7 It therefore
concluded that since the aforesaid waivers were invalid, it necessarily follows that the subsequent waivers did not
in any way cure these defects. Neither did it extend the prescriptive period to assess. Accordingly, it ruled that the
assailed Formal Letter of Demand and Assessment Notices are void for having been issued beyond the
reglementary period.8 Having rendered such ruling, the CT A in Division decided not to pass upon other incidental
issues raised before it for being moot.

On 29 July 2009, the CTA in Division denied petitioner's Motion for Reconsideration thereof for lack of merit.9

Aggrieved, petitioner appealed to the CT A En Banc by filing a Petition for Review under Section 18 of Republic Act
(R.A.) No. 1125, as amended by R.A. No. 9282,10 on 3 September 2009, docketed as CTA EB No. 522.
The Ruling of the CTA En Banc

The CT A En Banc affirmed in toto both the aforesaid Decision and Resolution rendered by the CTA in Division in
CTA Case No. 7165, pronouncing that there was no cogent justification to disturb the findings and conclusion
spelled out therein, since what petitioner merely prayed was for the appellate court to view and appreciate the
arguments/discussions raised by petitioner in her own perspective of things, which unfortunately had already been
considered and passed upon.

In other words, the CT A En Banc simply concurred with the ruling that petitioner's subject Formal Letter of
Demand and Assessment Notices (insofar as to the deficiency income tax, final income tax - FCDU, and EWT) shall
be cancelled considering that the same was already barred by prescription for having been issued beyond the
three-year prescriptive period provided for in Section 203 of the National Internal Revenue Code (NIRC) of 1997, as
amended. The waivers of the statute of limitations executed by the parties did not extend the aforesaid
prescriptive period because they were invalid for failure to comply with and conform to the requirements set forth
in RMO No. 20-90.

Upon denial of petitioner's Motion for Reconsideration thereof, it filed the instant Petition for Review on Certiorari
before this Court seeking the reversal of the 1 March 2010 Decision 11 and the 30 April 2010 Resolution12rendered
in CTA EB No. 522, based on the sole ground, to wit: The CT A En Banc committed reversible error in not holding
that respondent is estopped from questioning the validity of the waivers of the Statute of Limitations executed by
its representatives in view of the partial payments it made on the deficiency taxes sought to be collected in
petitioner's Formal Letter of Demand and Assessment Notices dated 24 June 2004. The Issues

The primary issue presented before this Court is whether or not petitioner's right to assess respondent for
deficiency income tax, final income tax - FCDU, and EWT covering taxable year 1998 has already prescribed under
Section 203 of the NIRC of 1997, as amended, for failure to comply with the requirements set forth in RMO No. 20-
90 dated 4 April 1990, pertaining to the proper and valid execution of a waiver of the Statute of Limitations, and in
accordance with existing jurisprudential pronouncements.

Subsequently, even assuming that petitioner's right to assess had indeed prescribed, another issue was submitted
for our consideration, to wit: whether or not respondent is estopped from questioning the validity of the waivers
of the Statute of Limitations executed by its representatives in view of the partial payments it made on the
deficiency taxes (i.e. WTC and FWT) sought to be collected in petitioner's Formal Letter of Demand and
Assessment Notices dated 24 June 2004.

Our Ruling

We find no merit in the petition.

At the outset, the period for petitioner to assess and collect an internal revenue tax is limited only to three years
by Section 203 of the NIRC of 1997., as amended, quoted hereunder as follows: SEC. 203. Period of Limitation
Upon Assessment and Collection. Except as provided in Section 222, internal revenue taxes shall be assessed
within three years after the last day prescribed by law for the filing of the return, and no proceeding in court
without assessment for the collection of such taxes shall be begun after the expiration of such period: Provided,
That in a case where a return is filed beyond the period prescribed by law, the three (3)-year period shall be
counted from the day the return was filed.

For purposes of this Section, a return filed before the last day prescribed by law for the filing thereof shall be
considered as filed on such last day. (Emphasis supplied)
This mandate governs the question of prescription of the government's right to assess internal revenue taxes
primarily to safeguard the interests of taxpayers from unreasonable investigation by not indefinitely extending the
period of assessment and depriving the taxpayer of the assurance that it will no longer be subjected to further
investigation for taxes after the expiration of reasonable period of time. 13

Thus, in the present case, petitioner only had three years, counted from the date of actual filing of the return or
from the last date prescribed by law for the filing of such return, whichever comes later, to assess a national
internal revenue tax or to begin a court proceeding for the collection thereof without an assessment. However,
one of the exceptions to the three-year prescriptive period on the assessment of taxes is that provided for under
Section 222(b) of the NIRC of 1997, as amended, which states:

SEC. 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxes.

xxxx

(b) If before the expiration of the time prescribed in Section 203 for the assessment of the tax, both the
Commissioner and the taxpayer have agreed in writing to its assessment after such time, the tax may be assessed
within the period agreed upon.

The period so agreed upon may be extended by subsequent written agreement made before the expiration of the
period previously agreed upon. (Emphasis supplied)

From the foregoing, the above provision authorizes the extension of the original three-year prescriptive period by
the execution of a valid waiver, where the taxpayer and the Commissioner of Internal Revenue (CIR) may stipulate
to extend the period of assessment by a written 1 agreement executed prior to the lapse of the period prescribed
by law, and by subsequent written agreements before the expiration of the period previously agreed upon. It must
be kept in mind that the very reason why the law provided for prescription is to give taxpayers peace of mind, that
is, to safeguard them from unreasonable examination, investigation, or assessment. The law on prescription, being
a remedial measure, should be liberally construed in order to afford such protection. As a corollary, the exceptions
to the law on prescription should perforce be strictly construed.14

In the landmark case of Philippine Journalists, Inc. v. CIR (PJI case),15 we pronounced that a waiver is not
automatically a renunciation of the right to invoke the defense of prescription. A waiver of the Statute of
Limitations is nothing more than "an agreement between the taxpayer and the Bureau of Internal Revenue (BIR)
that the period to issue an assessment and collect the taxes due is extended to a date certain." It is a bilateral
agreement, thus necessitating the very signatures of both the CIR and the taxpayer to give birth to a valid
agreement. Furthermore, indicating in the waiver the date of acceptance by the BIR is necessary in order to
determine whether the parties (the taxpayer and the government) had entered into a waiver "before the
expiration of the time prescribed in Section 203 (the three-year prescriptive period) for the assessment of the tax."
When the period of prescription has expired, there will be no more need to execute a waiver as there will be
nothing more to extend. Hence, no implied consent . can be presumed, nor can it be contended that the
concurrence to such waiver is a mere formality.

In delineation of the same sense about the waiver of the Statute of Limitations, RMO No. 20-90 and Revenue
Delegation Authority Order (RDAO) No. 05-01 were issued on 4 April 1990 and 2 August 2001, respectively. The
said revenue orders outline the procedure for the proper execution of a waiver, viz.: 16

1. The waiver must be in the proper form prescribed by RMO 20-90. The phrase "but not after __ 19 _",
which indicates the expiry date of the period agreed upon to assess/collect the tax after the regular three-
year period of prescription, should be filled up.
2. The waiver must be signed by the taxpayer himself or his duly authorized representative. In the case of
a corporation, the waiver must be signed by any of its responsible officials. In case the authority is
delegated by the taxpayer to a representative, such delegation should be in writing and duly notarized.

3. The waiver should be duly notarized.

4. The CIR or the revenue official authorized by him must sign the waiver indicating that the BIR has
accepted and agreed to the waiver. The date of such acceptance by the BIR should be indicated. However,
before signing the waiver, the CIR. or the revenue official authorized by him must make sure that the
waiver is in the prescribed form, duly notarized, and executed by the taxpayer or his duly authorized
representative.

5. Both the date of execution by the taxpayer and date of acceptance by the Bureau should be before the
expiration of the period of prescription or before the lapse of the period agreed upon in case a
subsequent agreement is executed.

6. The waiver must be executed in three copies, the original copy to be attached to the docket of the case,
the second copy for the taxpayer and the third copy for the Office accepting the waiver. The fact of
receipt by the taxpayer of his/her file copy must be indicated in the original copy to show that the
taxpayer was notified of the acceptance of the BIR and the perfection of the agreement. (Emphases
supplied)

The provisions of the RMO and RDAO explicitly show their mandatory nature, requiring strict compliance. Hence,
failure to comply with any of the requisites renders a waiver defective and ineffectual. It is worth mentioning that
strict compliance with the requirements set forth in RMO No. 20-90 has been upheld in the PJI case.17 In reversing
the decision of the Court of Appeals promulgated on 5 August 2003, this Court ruled that:

The NIRC, under Sections 203 and 222, provides for a statute of limitations on the assessment and collection of
internal revenue taxes in order to safeguard the interest of the taxpayer against unreasonable investigation.
Unreasonable investigation contemplates cases where the period of assessment extends indefinitely because this
deprives the taxpayer of the assurance that it will no longer be subjected to further investigation for taxes after
the expiration of a reasonable period of time x x x

xxxx

RMO No. 20-90 implements these provisions of the NIRC relating to the period of prescription for the assessment
and collection of taxes. A cursory reading of the Order supports petitioner's argument that the RMO must be
strictly followed, x x x"18 (Emphasis supplied)

Applying the rules and rulings, the waivers in question were defective and did not validly extend the original three-
year prescriptive period. As correctly found by the CT A in Division, and affirmed in toto by the CT A En Banc, the
subject waivers of the Statute of Limitations were in clear violation of RMO No. 20-90:

1) This case involves assessment amounting to more than P1,000,000.00. For this, RMO No. 20-90
requires the Commissioner of Internal Revenue to sign for the BIR.1avvphi1 A perusal of the First and
Second Waivers of the Statute of Limitations shows that they were signed by Assistant Commissioner-
Large Taxpayers Service Virginia L. Trinidad and Assistant Commissioner-Large Taxpayers Service Edwin R.
Abella respectively, and not by the Commissioner of Internal Revenue;

2) The date of acceptance by the Assistant Commissioner-Large Taxpayers Service Virginia L. Trinidad of
the First Waiver was not indicated therein;
3) The date of acceptance by the Assistant Commissioner-Large Taxpayers Service Edwin R. Abella of the
Second Waiver was not indicated therein;

4) The First and Second Waivers of Statute of Limitations did not specify the kind and amount of the tax
due; and

5) The tenor of the Waiver of the Statute of Limitations signed by petitioner's authorized representative
failed to comply with the prescribed requirements of RMO No. 20-90. The subject waiver speaks of a
request for extension of time within which to present additional documents, whereas the waiver provided
under RMO No. 20-90 pertains to the approval by the Commissioner of Internal Revenue of the taxpayer's
request for re-investigation and/or

reconsideration of his/its pending internal revenue case.19

Taking into consideration the foregoing defects in the First and Second Waivers presented and admitted in
evidence before the court a quo, the period to assess the tax liabilities of respondent for taxable year 1998 was
never extended. Consequently, when the succeeding waivers of Statute of Limitations were subsequently executed
covering the same tax liabilities of respondent, and there being no assessment having been issued as of that time,
prescription has already set in. We therefore hold that the subject waivers did not extend the period to assess the
subject deficiency tax liabilities of respondent for taxable year 1998. The aforesaid waivers cannot be considered
as "subsequent written agreement(s) made before the expiration of the period previously agreed upon" referred
to in the second sentence of the earlier quoted Section 222(b) of the NIRC of 1997, as amended, since there is no
"period previously agreed upon" to speak of.

As regards petitioner's insistence that respondent is already estopped from impugning the validity of the subject
waivers considering that it made partial payments on the deficiency taxes being collected, particularly as to the
payment of its deficiency WTC and FWT assessments in the amounts of P124,967.73 and P139,713.11,
respectively, we find this argument bereft of merit.

As aptly found in the 29 July 2009 Resolution of the CTA in Division, although respondent paid the deficiency WTC
and FWT assessments, it did not waive the defense of prescription as regards the remaining tax deficiencies, it
being on record that respondent continued to raise the issue of prescription in its Pre-Trial Brief filed on 15 August
2005, Joint Stipulations of Facts and Issues filed on 1 September 2005, direct testimonies of its witness, and
Memorandum filed on 24 October 2008. More so, even petitioner did not consider such payment of respondent as
a waiver of the defense of prescription, but merely raised the issue of estoppel in her Motion for Reconsideration
of the aforesaid decision. From the conduct of both parties, there can be no estoppel in this case. 20

Upon payment of the assessed deficiency in the WTC in the amount of P124,967.73 and in the FWT in the amount
of 139,713.11, respondent filed a Motion for Leave of Court to Serve Supplemental Petition, with attached
Supplemental Petition for Review. As stated in the CTA En Banc affirmed decision of the CTA in Division, "[i]n its
Supplemental Petition for Review, respondent seeks to be fully credited of the payments it made to cover the
deficiency WTC and FWT. Thus, the remaining assessments cover only the deficiency income tax, final income tax
FCDU, and (EWT) in the modified total amount of P33,076,944.18, x x x".21 The aforesaid motion was granted and
the supplemental petition was admitted by the CT A in Division. Undeniably, the acceptance of said payments was
never questioned by petitioner. Indeed, the decision of the CTA in Division, which decision was affirmed by the CTA
En Banc, covered only the remaining questioned assessment, namely: income tax, final income tax -FCDU, and
EWT. Clearly, the payment of the deficiency WTC and FWT was made together with the reiteration in the petition
for the cancellation of the assessment notices on the alleged deficiency income tax, final income tax - FCDU, and
EWT.
When respondent paid the deficiency WTC and FWT assessments, petitioner accepted said payment without any
opposition. This effectively extinguished respondent's obligation to pay the subject taxes. It bears emphasis that,
obligations are extinguished, among others, by payment or performance. 22 Under Article 1232 of the Civil Code,
payment means not only the delivery of money but also the performance, in any other manner, of an obligation.
As intended, which intention was re