G.R. No.
175651, September 14, 2016
PILMICO-MAURI FOODS CORP., Petitioner, v. COMMISSIONER OF INTERNAL
REVENUE, Respondent.
Before the Court is a petition for review on certiorari1 under Rule 45 of the Rules of
Court pursuant to Republic Act (R.A.) No. 1125,2 Section 19,3 as amended by R.A.
No. 9282,4 Section 12.5 The petition filed by Pilmico-Mauri Foods Corp. (PMFC)
against the Commissioner of Internal Revenue (CIR) assails the Decision 6 and
Resolution7 of the Court of Appeals (CTA) en banc, dated August 29, 2006 and
December 4, 2006, respectively, in C.T.A. EB No. 97.
Antecedents
The CTA aptly summed up the facts of the case as
follows:ChanRoblesVirtualawlibrary
[PMFC] is a corporation, organized and existing under the laws of the Philippines,
with principal place of business at Aboitiz Corporate Center, Banilad, Cebu City.
The books of accounts of [PMFC] pertaining to 1996 were examined by the [CIR]
thru Revenue Officer Eugenio D. Maestrado of Revenue District No. 81 (Cebu City
North District) for deficiency income, value-added [tax] (VAT) and withholding tax
liabilities.
As a result of the investigation, the following assessment notices were issued
against [PMFC]:
chanRoblesvirtualLawlibrary
(a) Assessment Notice No. 81-WT-13-96-98-11-126, dated November 26, 1998,
demanding payment for deficiency withholding taxes for the year 1996 in the
sum of P384,925.05 (inclusive of interest and other penalties);
(b) Assessment Notice No. 81-VAT-13-96-98-11-127, dated November 26, 1998,
demanding payment of deficiency value-added tax in the sum of P5,017,778.01
(inclusive of interest and other penalties); [and]
(c) Assessment Notice No. 81-IT-13-96[-]98-11-128, dated November 26, 1998,
demanding payment of. deficiency income tax for the year 1996 in the sum of
P4,359,046.96 (inclusive of interest and other penalties).
The foregoing Assessment Notices were all received by [PMFC] on December 1,
1998. On December 29, 1998, [PMFC] filed a protest letter against the
aforementioned deficiency tax assessments through the Regional Director, Revenue
Region No. 13, Cebu City.
In a final decision of the [CIR] on the disputed assessments dated July 3, 2000, the
deficiency tax liabilities of [PMFC] were reduced from P9,761,750.02 to
P3,020,259.30, broken down as follows:
chanRoblesvirtualLawlibrarya) Deficiency withholding tax from P384,925.05 to
P197,780.67;
b) Deficiency value-added tax from P5,017,778.01 to P1,642,145.79; and
c) Deficiency Income Tax from P4,359,046.96 to P1,180,332.84.
xxxx
On the basis of the foregoing facts[, PMFC] filed its Petition for Review on August 9,
2000. In the "Joint Stipulation of Facts" filed on March 7, 2001, the parties have
agreed that the following are the issues to be resolved:ChanRoblesVirtualawlibrary
I. Whether or not [PMFC] is liable for the payment of deficiency income,
value-added, expanded withholding, final withholding and withholding tax
(on compensation).
II. On the P1,180,382.84 deficiency income tax
A. Whether or not the P5,895,694.66 purchases of raw materials are
unsupported[;]
B. Whether or not the cancelled invoices and expenses for taxes,
repairs and freight are unsupported[;]
C. Whether or not commission, storage and trucking charges claimed
are deductible[; and]
D. Whether or not the alleged deficiency income tax for the year
1996 was correctly computed.
1
 xxxx 1977 did not require substantiation requirements is erroneous.

V. Whether or not [CIR's] decision on the 1996 internal revenue tax liabilities of In fact, in its effort to prove the above-mentioned purchases of raw materials,
[PMFC] is contrary to law and the facts. [PMFC] presented the following sales invoices:
After trial on the merits, the [CTA] in Division rendered the assailed Decision
chanRoblesvirtualLawlibrary
affirming the assessments but in the reduced amount of P2,804,920.36 (inclusive of
surcharge and deficiency interest) representing [PMFC's] Income, VAT and Exhibit Invoice
Date Gross Amount 10% VAT Net Amount
Withholding Tax deficiencies for the taxable year 1996 plus 20% delinquency Number No.
interest per annum until fully paid. The [CTA] in Division ruled as B-3 2072 04/18/96 P2,312,670.00 P210,242.73 P2,102,427.27
follows:ChanRoblesVirtualawlibrary
"However, [PMFC's] contention that the NIRC of 1977 did not impose substantiation B-7,
requirements on deductions from gross income is bereft of merit. Section 238 of the B-11 2026 Undated 2,762,099.10 251,099.92 2,510,999.18
1977 Tax Code [now Section 237 of the National Internal Revenue Code of 1997]
provides:ChanRoblesVirtualawlibrary P5,074,769.10 P461,342.65 P4,613,426.45
SEC. 238. Issuance of receipts or sales or commercial invoices. - All persons, subject The mere fact that [PMFC] submitted the foregoing sales invoices belies [its] claim
to an internal revenue tax shall for each sale or transfer of merchandise or for that the NIRC of 1977 did not require that deductions must be substantiated by
services rendered valued at P25.00 or more, issue receipts or sales or commercial adequate records.
invoices, prepared at least in duplicate, showing the date of transaction, quantity,
unit cost and description of merchandise or nature of service: Provided, That in the From the total purchases of P5,893,694.64 which have been disallowed, it seems
case of sales, receipts or transfers in the amount of P100.00 or more, or, regardless that a portion thereof amounting to P1,280,268.19 (729,663.64 + 550,604.55) has
of amount, where the sale or transfer is made by persons subject to value-added tax no supporting sales invoices because of [PMFC's] failure to present said invoices.
to other persons, also subject to value-added tax; or, where the receipt is issued to
cover payment made as rentals, commissions, compensations or fees, receipts or A scrutiny of the invoices supporting the remaining balance of P4,613,426.45
invoices shall be issued which shall show the name, business style, if any, and (P5,893,694.64 less P1,280,268.19) revealed the following:
address of the purchaser, customer, or client. The original of each receipt or invoice
shall be issued to the purchaser, customer or client at the time the transaction is chanRoblesvirtualLawlibrary
effected, who, if engaged in business or in the exercise of profession, shall keep
and preserve the same in his place of business for a period of three (3) years from a) In Sales Invoice No. 2072 marked as Exhibit B-3, the name Pilmico Foods
the close of the taxable year in which such invoice or receipt was issued, while the Corporation was erased and on top of it the name [PMFC] was inserted but with
duplicate shall be kept and preserved by the issuer, also in his place of business for a a counter signature therein;
like period. x x x b) For undated Sales Invoice No. 2026, [PMFC] presented two exhibits marked as
From the foregoing provision of law, a person who is subject to an internal revenue Exhibits B-7 and B-11. Exhibit B-11 is the original sales invoice whereas Exhibit B-
tax shall issue receipts, sales or commercial invoices, prepared at least in 7 is a photocopy thereof. Both exhibits contained the word Mauri which was
duplicate. The provision likewise imposed a responsibility upon the purchaser to inserted on top and between the words Pilmico and Foods. The only difference is
keep and preserve the original copy of the invoice or receipt for a period of three that in the original copy (Exhibit B-11), there was a counter signature although
years from the close of the taxable year in which such invoice or receipt was the ink used was different from that used in the rest of the writings in the said
issued. The rationale behind the latter requirement is the duty of the taxpayer to invoice; while in the photocopied invoice (Exhibit B-7), no such counter signature
keep adequate records of each and every transaction entered into in the conduct of appeared. [PMFC] did not explain why the said countersignature did not appear
its business. So that when their books of accounts are subjected to a tax audit in the photocopied invoice considering it was just a mere reproduction of the
examination, all entries therein, could be shown as adequately supported and original copy.
proven as legitimate business transactions. Hence, [PMFC's] claim that the NIRC of

2

The sales invoices contain alterations particularly in the name of the purchaser
giving rise to serious doubts regarding their authenticity and if they were really
issued to [PMFC]. Exhibit B-11 does not even have any date indicated therein, which
is a clear violation of Section 238 of the NIRC of 1977 which required that the official
receipts must show the date of the transaction.
Furthermore, [PMFC] should have presented documentary evidence establishing
that Pilmico Foods Corporation did not claim the subject purchases as deduction
from its gross income. After all, the records revealed that both [PMFC] and its
parent company, Pilmico Foods Corporation, have the same AVP Comptroller in the
person of Mr. Eugenio Gozon, who is in-charge of the financial records of both
entities x x x.
Similarly, the official receipts presented by [PMFC] x x x, cannot be considered as
valid proof of [PMFC's] claimed deduction for raw materials purchases. The said
receipts did not conform to the requirements provided for under Section 238 of the
NIRC of 1977, as amended. First the official receipts were not in the name of [PMFC]
but in the name of Golden Restaurant. And second, these receipts were issued by
PFC and not the alleged seller, JTE.
Likewise, [PMFC's] allegations regarding the offsetting of accounts between [PMFC],
PFC and JTE is untenable. The following circumstances contradict [PMFC's]
proposition: 1) the Credit Agreement itself does not provide for the offsetting
arrangement; 2) [PMFC] was not even a party to the credit agreement; and 3) the
official receipts in question pertained to the year 1996 whereas the Credit
Agreement (Exhibit M) and the Real Estate Mortgage Agreement (Exhibit N)
submitted by [PMFC] to prove the fact of the offsetting of accounts, were both
executed only in 1997.
Besides, in order to support its claim, [PMFC] should have presented the following
vital documents, namely, 1) Written Offsetting Agreement; 2) proof of payment by
[PMFC] to Pilmico Foods Corporation; and 3) Financial Statements for the year 1996
of Pilmico Foods Corporation to establish the fact that Pilmico Foods Corporation
did not deduct the amount of raw materials being claimed by [PMFC].
Considering that the official receipts and sales invoices presented by [PMFC] failed
to comply with the requirements of Section 238 of the NIRC of 1977, the
disallowance by the [CIR] of the claimed deduction for raw materials is proper.
[PMFC] filed a Motion for Partial Consideration on January 21, 2005 x x x but x x x
[PMFC's] Motion for Reconsideration was denied in a Resolution dated May 19,
2005 for lack of merit, x x x.8 (Citation omitted, italics ours and emphasis in the
original)
Unperturbed, PMFC then filed a petition for review before the CTA en banc, which
adopted the CTA First Division's ruling and ratiocinations. Additionally, the CTA en
banc declared that:ChanRoblesVirtualawlibrary
The language of [Section 238] of the 1977 NIRC, as amended, is clear. It requires
that for each sale valued at P100.00 or more, the name, business style and address
of the purchaser, customer or client shall be indicated and that the purchaser is
required to keep and preserve the same in his place of business. The purpose of the
law in requiring the preservation by the purchaser of the official receipts or sales
invoices for a period of three years is two-fold: 1) to enable said purchaser to
substantiate his claimed deductions from the gross income,and 2) to enable the
Bureau of Internal Revenue to verify the accuracy of the gross income of the seller
from external sources such as the customers of said seller. Hence, [PMFC's]
argument that there was no substantiation requirement under the 1977 NIRC is
without basis.
Moreover, the Supreme Court had ruled that in claiming deductions for business
expenses [,] it is not enough to prove the business test but a claimant must
substantially prove by evidence or records the deductions claimed under the law,
thus:ChanRoblesVirtualawlibrary
The principle is recognized that when a taxpayer claims a deduction, he must point
to some specific provision of the statute in which that deduction is authorized and
must be able to prove that he is entitled to the deduction which the law allows. As
previously adverted to, the law allowing expenses as deduction from gross income
for purposes of the income tax is Section 30 (a) (l) of the National Internal Revenue
which allows a deduction of "all the ordinary and necessary expenses paid or
incurred during the taxable year in carrying on any trade or business.["] An item of
expenditure, in order to be deductible under this section of the statute must fall
squarely within its language.
We come, then, to the statutory test of deductibility where it is axiomatic that to be
deductible as a business expense, three conditions are imposed, namely: (1) the
expense must be ordinary and necessary; (2) it must be paid or incurred within the
taxable year, and (3) it must be paid or incurred in carrying on a trade or
business. In addition, not only must the taxpayer meet the business test, he must
substantially prove by evidence or records the deductions claimed under the law,
otherwise, the same will be disallowed. The mere allegation of the taxpayer that an
item of expense is ordinary and necessary does not justify its deduction. x x x
And in proving claimed deductions from gross income, the Supreme Court held
that invoices and official receipts are the best evidence to substantiate deductible
business expenses. x x x
3

xxxx
The irregularities found on the official receipts and sales invoices submitted in
evidence by [PMFC], i.e. not having been issued in the name of [PMFC] as the
purchaser and the fact that the same were not issued by the alleged seller himself
directly to the purchaser, rendered the same of no probative value.
Parenthetically, the "Cohan Rule" which according to [PMFC] was adopted by the
Supreme Court in the case of Visayan Cebu Terminal v. Collector, x x x, is not
applicable because in both of these cases[,] there were natural calamities that
prevented the taxpayers therein to fully substantiate their claimed deductions. In
the Visayan Cebu Terminal case, there was a fire that destroyed some of the
supporting documents for the claimed expenses. There is no such circumstance in
[PMFC's] case, hence, the ruling therein is not applicable. It is noteworthy that
notwithstanding the destruction of some of the supporting documents in the
aforementioned Visayan Cebu Terminal case, the Supreme Court[,] in denying the
appeal[,] issued the following caveat noting the violation of the provision of the Tax
Code committed by [PMFC] therein:ChanRoblesVirtualawlibrary
"It may not be amiss to note that the explanation to the effect that the supporting
paper of some of those expenses had been destroyed when the house of the
treasurer was burned, can hardly be regarded as satisfactory, for appellant's
records are supposed to be kept in its offices, not in the residence of one of its
officers." x x x
From the above-quoted portion of the Supreme Court's Decision, it is clear that
compliance with the mandatory record-keeping requirements of the National
Internal Revenue Code should not be taken lightly. Raw materials are indeed
deductible provided they are duly supported by official receipts or sales invoices
prepared and issued in accordance with the invoicing requirements of the National
Internal Revenue Code. x x x [PMFC] failed to show compliance with the
requirements of Section 238 of the 1977 NIRC as shown by the fact that the sales
invoices presented by [it] were not in its name but in the name of Pilmico Foods
Corporation.
xxxx
In the Joint Stipulation of Facts filed on March 7, 2001, the parties have agreed that
with respect to the deficiency income tax assessment, the following are the issues to
be resolved:
Whether or not the P5,895,694.66 purchases of raw materials are unsupported;
xxxx
Clearly, the issue of proper substantiation of the deduction from gross income
pertaining to the purchases of raw materials was properly raised even before
[PMFC] began presenting its evidence. [PMFC] was aware that the [CIR] issued the
assessment from the standpoint of lack of supporting documents for the claimed
deduction and the fact that the assessments were not based on the deductibility of
the cost of raw materials. There is no difference in the basis of the assessment and
the issue presented to the [CTA] in Division for resolution since both pertain to the
issue of proper supporting documents for ordinary and necessary business
expenses.9(Citation omitted, italics ours and emphasis in the original)
PMFC moved for reconsideration. Pending its resolution, the CIR issued Revenue
Regulation (RR) No. 15-2006,10 the abatement program of which was availed by
PMFC on October 27, 2006. Out of the total amount of P2,804,920.36 assessed as
income, value-added tax (VAT) and withholding tax deficiencies, plus surcharges and
deficiency interests, PMFC paid the CIR P1,101,539.63 as basic deficiency tax. The
PMFC, thus, awaits the CIR's approval of the abatement, which can render moot the
resolution of the instant petition.11chanrobleslaw
Meanwhile, the CTA en banc denied the motion for reconsideration12 of PMFC, in its
Resolution13 dated December 4, 2006.
Issues
In the instant petition, what is essentially being assailed is the CTA en banc's
concurrence with the CTA First Division's ruling, which affirmed but reduced the
CIR's income deficiency tax assessment against PMFC. More specifically, the
following errors are ascribed to the CTA:ChanRoblesVirtualawlibrary
I
The Honorable CTA First Division deprived PMFC of due process of law and the CTA
assumed an executive function when it substituted a legal basis other than that
stated in the assessment and pleading of the CIR, contrary to law.
II
The decision of the Honorable CTA First Division must conform to the pleadings and
the theory of the action under which the case was tried. A judgment going outside
the issues and purporting to adjudicate something on which the parties were not
heard is invalid. Since the legal basis cited by the CTA supporting the validity of the
assessment was never raised by the CIR, PMFC was deprived of its constitutional
right to be apprised of the legal basis of the assessment.
III
4
The nature of evidence required to prove an ordinary expense like raw materials is
governed by Section 2914 of the 1977 National Internal Revenue Code (NIRC) and
not by Section 238 as found by the CTA.15chanroblesvirtuallawlibrary
In support of the instant petition, PMFC claims that the deficiency income tax
assessment issued against it was anchored on Sect on 34(A)(l)(b) 16 of the 1997 NIRC.
In disallowing the deduction of the purchase of raw materials from PMFC's gross
income, the CIR never m any reference to Section 238 of the 1977 NIRC relative to
the mandatory requirement of keeping records of official receipts, upon which the
CTA had misplaced reliance. Had substantiation requirements under Section 23 the
1977 NIRC been made an issue during the trial, PMFC could have presented official
receipts or invoices, or could have compelled its suppliers to issue the
same.17chanrobleslaw
PMFC further argues that in determining the deductibility of the purchase of raw
materials from gross income, Section 29 of the 1977 NIRC is the applicable
provision. According to the said section, for the deduction to be allowed, the
expenses must be (a) both ordinary and necessary; (b) incurred in carrying on a
trade or business; and (c) paid or incurred within the taxable year. PMFC, thus,
claims that prior to the promulgation of the 1997 NIRC, the law does not require the
production of official receipts to prove an expense.18chanrobleslaw
In its Comment,19 the Office of the Solicitor General (OSG) counters that the
arguments advanced by PMFC are mere reiterations of those raised in the
proceedings below. Further, PMFC was fully apprised of the assailed tax
assessments and had all the opportunities to prove its claims. 20chanrobleslaw
The OSG also avers that in the Joint Stipulation of Facts filed before the CTA First
Division on March 7, 2001, it was stated that one of the issues for resolution was
"whether or not the Php5,895,694.66 purchases of raw materials are unsupported."
Hence, PMFC was aware that the CIR issued the assessments due to lack of
supporting documents for the deductions claimed. Essentially then, even in the
proceedings before the CIR, the primary issue has always been the lack or
inadequacy of supporting documents for ordinary and necessary business
expenses.21chanrobleslaw
The OSG likewise points out that PMFC failed to satisfactorily discharge the burden
of proving the propriety of the tax deductions claimed. Further, there were
discrepancies in the names of the sellers and purchasers i indicated in the receipts
casting doubts on their authenticity.22chanrobleslaw
Ruling of the Court
The Court affirms but modifies the herein assailed decision and resolution.
Preliminary matters
On December 19, 2006, PMFC filed before the Court a motion for extension of time
to file a petition for review.23 In the said motion, PMFC informed the Court that it
had availed of the CIR's tax abatement program, the details of which were provided
for in RR No. 15-2006. PMFC paid the CIR the amount of P1,101,539.63 as basic
deficiency tax. PMFC manifested that if the abatement application would be
approved by the CIR, the instant petition filed before the Court may be rendered
superfluous.
According to Section 4 of RR No. 15-2006, after the taxpayer's payment of the
assessed basic deficiency tax, the docket of the case shall forwarded to the CIR, thru
the Deputy Commissioner for Operations Group, for issuance of a termination letter.
However, as of this Resolution's writing, none of the parties have presented the said
termination letter. Hence, the Court cannot outrightly dismiss the instant petition on
the ground of mootness.
On the procedural issues raised by PMFC
The first and second issues presented by PMFC are procedural in nature. They both
pertain to the alleged omission of due process of law by the CTA since in its rulings,
it invoked Section 238 of the 1977 NIRC, while in the proceedings below, the CIR's
tax deficiency assessments issued against PMFC were instead anchored on Section
34 of the 1997 NIRC.
Due process was not violated.
In CIR v. Puregold Duty Free, Inc.,24 the Court is emphatic
that:ChanRoblesVirtualawlibrary
It is well settled that matters that were neither alleged in the pleadings nor raised
during the proceedings below cannot be ventilated for the first time on appeal and
are barred by estoppel. To allow the contrary would constitute a violation of the
other party's right to due process, and is contrary to the principle of fair play. x x x
x x x Points of law, theories, issues, and arguments not brought to the attention of
the trial court ought not to be considered by a reviewing court, as these cannot be
raised for the first time on appeal. To consider the alleged facts and arguments
belatedly raised would amount to trampling on the basic principles of fair play,
justice, and due process.25cralawred (Citations omitted)
5
In the case at bar, the CIR issued assessment notices against PMFC for deficiency
income, VAT and withholding tax for the year 1996. PMFC assailed the assessments
before the Bureau of Internal Revenue and late before the CTA.
In the Joint Stipulation of Facts, dated March 7, 2001, filed before CTA First Division,
the CIR and PMFC both agreed that among the issues for resolution was "whether
or not the P5,895,694.66 purchases of raw materials are unsupported."26 Estoppel,
thus, operates against PMFC anent its argument that the issue of lack or inadequacy
of documents to justify the costs of purchase of raw materials as deductions from
the gross income had not been presented in the proceedings below, hence, barred
for being belatedly raised only on appeal.
Further, in issuing the assessments, the CIR had stated the material facts and the
law upon which they were based. In the petition for review filed by PMFC before the
CTA, it was the former's burden to properly invoke the applicable legal provisions in
pursuit of its goal to reduce its tax liabilities. The CTA, on the other hand, is not
bound to rule solely on the basis of the laws cited by the CIR. Were it otherwise, the
tax court's appellate power of review shall be rendered useless. An absurd situation
would arise leaving the CTA with only two options, to wit: (a) affirming the CIR's
legal findings; or (b) altogether absolving the taxpayer from liability if the CIR relied
on misplaced legal provisions. The foregoing is not what the law intends.
To reiterate, PMFC was at the outset aware that the lack or inadequacy of
supporting documents to justify the deductions claimed from the gross income was
among the issues raised for resolution before the CTA. With PMFC's acquiescence to
the Joint Stipulation of Facts filed before the CTA and thenceforth, the former's
participation in the proceedings with all opportunities it was afforded to ventilate its
claims, the alleged deprivation of due process is bereft of basis.
On the applicability of Section 29 of the 1977 NIRC
The third issue raised by PMFC is substantive in nature. At its core is the alleged
application of Section 29 of the 1977 NIRC as regards the deductibility from the
gross income of the cost of raw materials purchased by PMFC.
It bears noting that while the CIR issued the assessments on the basis of Section 34
of the 1997 NIRC, the CTA and PMFC are in agreement that the 1977 NIRC finds
application.
However, while the CTA ruled on the basis of Section 238 of the 1977 NIRC, PMFC
now insists that Section 29 of the same code should be applied instead. Citing Atlas
Consolidated Mining and Development Corporation v. CIR,27 PMFC argues that
Section 29 imposes less stringent requirements and the presentation of official
receipts as evidence of the claimed deductions dispensable. PMFC further posits
that the mandatory nature of the submission of official receipts as proof is a mere
innovation in the 19 NIRC, which cannot be applied retroactively. 28chanrobleslaw
PMFC's argument fails.
The Court finds that the alleged differences between the requirements of Section 29
of the 1977 NIRC invoked by PMFC, on one hand, and Section 238 relied upon by
the CTA, on the other, are more imagined than real.
In CIR v. Pilipinas Shell Petroleum Corporation,29 the Count enunciated
that:ChanRoblesVirtualawlibrary
It is a rule in statutory construction that every part of the statute must be
interpreted with reference to the context, i.e., that every part of the statute must be
considered together with the other parts, and kept subservient to the general intent
of the whole enactment. The law must not be read in truncated parts, its provisions
must be read in relation to the whole law. The particular words, clauses and phrases
should not be studied as detached and isolated expression, but the whole and every
part of the statute must be considered in fixing the meaning of any of its parts and
in order to produce a harmonious whole.30 (Citations omitted)
The law, thus, intends for Sections 29 and 238 of the 1977 NIRC to be read together,
and not for one provision to be accorded preference over the other.
It is undisputed that among the evidence adduced by PMFC on it behalf are the
official receipts of alleged purchases of raw materials. Thus, the CTA cannot be
faulted for making references to the same, and for applying Section 238 of the 1977
NIRC in rendering its judgment. Required or not, the official receipts were submitted
by PMFC as evidence. Inevitably, the said receipts were subjected to scrutiny, and
the CTA exhaustively explained why it had found them wanting.
PMFC cites Atlas31 to contend that the statutory test, as provided in Section 29 of
the 1977 NIRC, is sufficient to allow the deductibility of a business expense from the
gross income. As long as the expense is: (a) both ordinary and necessary; (b)
incurred in carrying a business or trade; and (c) paid or incurred within the taxable
year, then, it shall be allowed as a deduction from the gross income. 32chanrobleslaw
Let it, however, be noted that in Atlas, the Court likewise declared
that:ChanRoblesVirtualawlibrary
In addition, not only must the taxpayer meet the business test, he must
substantially prove by evidence or records the deductions claimed under the law,
otherwise, the same will be disallowed. The mere allegation of the taxpayer that an
6
item of expense is ordinary and necessary does not justify its deduction. 33 (Citation
omitted and italics ours)
It is, thus, clear that Section 29 of the 1977 NIRC does not exempt the taxpayer from
substantiating claims for deductions. While official receipts are not the only pieces
of evidence which can prove deductible expenses, if presented, they shall be
subjected to examination. PMFC submitted official receipts as among its evidence,
and the CTA doubted their veracity. PMFC was, however, unable to persuasively
explain and prove through other documents the discrepancies in the said receipts.
Consequently, the CTA disallowed the deductions claimed, and in its ruling, invoked
Section 238 of the 1977 NIRC considering that official receipts are matters provided
for in the said section.
WHEREFORE, the instant petition is DENIED. The Decision dated August 29, 2006
and Resolution dated December 4, 2006 of the Court of Tax Appeals en banc in
C.T.A. EB No. 97 are AFFIRMED. However, MODIFICATION thereof, the legal interest
of six percent (6%) per annum reckoned from the finality of this Resolution until full
satisfaction, is here imposed upon the amount of P2,804,920.36 to be paid by
Pilmico-Mauri Foods Corporation to the Commissioner of Internal Revenue.
SO ORDERED.chanRoblesvirtualLawlibrary

Conclusion

The Court recognizes that the CTA, which by the very nature of its function is
dedicated exclusively to the consideration of tax problems, has necessarily
developed an expertise on the subject, and its conclusions will not be overturned
unless there has been an abuse or improvident exercise of authority. Such findings
can only be disturbed on appeal if they are not supported by substantial evidence or
there is a showing of gross error or abuse on the part of the tax court. In the
absence of any clear and convincing proof to the contrary, the Court must presume
that the CTA rendered a decision which is valid in every respect. 34chanrobleslaw

Further, revenue laws are not intended to be liberally construed. Taxes are the
lifeblood of the government and in Holmes' memorable metaphor, the price we pay
for civilization; hence, laws relative thereto must be faithfully and strictly
implemented.35 While the 1977 NIRC required substantiation requirements for
claimed deductions to be allowed, PMFC insists on leniency, which is not warranted
under the circumstances.

Lastly, the Court notes too that PMFC's tax liabilities have been me than
substantially reduced to P2,804,920.36 from the CIR's initial assessment of
P9,761,750.02.36chanrobleslaw

In precis, the affirmation of the herein assailed decision and resolution is in order.

However, the Court finds it proper to modify the herein assail decision and
resolution to conform to the interest rates prescribed in Nacar v. Gallery Frames, et
al.37 The total amount of P2,804,920.36 to be paid PMFC to the CIR shall be subject
to an interest of six percent (6%) per annum to be computed from the finality of this
Resolution until full payment.

7

DRUGSTORES ASSOCIATION OF THE PHILIPPINES, INC. AND
NORTHERN LUZON DRUG CORPORATION, Petitioners, v. NATIONAL
COUNCIL ON DISABILITY AFFAIRS; DEPARTMENT OF HEALTH;
DEPARTMENT OF FINANCE; BUREAU OF INTERNAL REVENUE;
DEPARTMENT OF THE INTERIOR AND LOCAL GOVERNMENT; AND
DEPARTMENT OF SOCIAL WELFARE AND DEVELOPMENT, Respondent.
PERALTA, J.:
Before us is a Petition for Review on Certiorari[1] with a Prayer for a Temporary
Restraining Order and/or Writ of Preliminary Injunction which seeks to annul and
set aside the Decision[2] dated July 26, 2010, and the Resolution[3] dated November
19, 2010 of the Court of Appeals (CA) in CA-G.R. SP No. 109903. The CA dismissed
petitioners' Petition for Prohibition[4] and upheld the constitutionality of the
mandatory twenty percent (20%) discount on the purchase of medicine by persons
with disability (PWD).
The antecedents are as follows:
On March 24, 1992, Republic Act (R.A.) No. 7277, entitled "An Act Providing for the
Rehabilitation, Self-Development and Self-Reliance of Disabled Persons and their
Integration into the Mainstream of Society and for Other Purposes," otherwise
known as the "Magna Carta for Disabled Persons," was passed into law. [5] The law
defines "disabled persons", "impairment" and "disability" as follows:
SECTION 4. Definition of Terms. - For purposes of this Act, these terms are defined
as follows:
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(a) Disabled Persons are those suffering from restriction of different abilities, as a
result of a mental, physical or sensory impairment, to perform an activity in the
manner or within the range considered normal for a human being;
(b) Impairment is any loss, diminution or aberration of psychological, physiological,
or anatomical structure of function;
(c) Disability shall mean (1) a physical or mental impairment that substantially limits
one or more psychological, physiological or anatomical function of an individual or
activities of such individual; (2) a record of such an impairment; or (3) being
regarded as having such an impairment.[6]
On April 30, 2007, Republic Act No. 9442 [7] was enacted amending R.A. No. 7277.
The Title of R.A. No. 7277 was amended to read as "Magna Carta for Persons with
Disability" and all references on the law to "disabled persons" were amended to
read as "persons with disability" (PWD).[8] Specifically, R.A. No. 9442 granted the
PWDs a twenty (20) percent discount on the purchase of medicine, and a tax
deduction scheme was adopted wherein covered establishments may deduct the
discount granted from gross income based on the net cost of goods sold or services
rendered:
CHAPTER 8. Other Privileges and Incentives. SEC. 32. Persons with disability shall be
entitled to the following:
(d) At least twenty percent (20%) discount for the purchase of medicines in all
8
 drugstores for the exclusive use or enjoyment of persons with disability;
The abovementioned privileges are available only to persons with disability who are
Filipino citizens upon submission of any of the following as proof of his/her
entitlement thereto:
An identification card issued by the city or municipal mayor or the barangay
(i)
captain of the place where the person with disability resides;
(ii) The passport of the person with disability concerned; or
Transportation discount fare Identification Card (ID) issued by the National
(ii)
Council for the Welfare of Disabled Persons (NCWDP).
The establishments may claim the discounts granted in subsections (a), (b), (c), (f)
and (g) as tax deductions based on the net cost of the goods sold or services
rendered: Provided, however, That the cost of the discount shall be allowed as
deduction from gross income for the same taxable year that the discount is
granted: Provided, further, That the total amount of the claimed tax deduction net
of value-added tax if applicable, shall be included in their gross sales receipts for tax
purposes and shall be subject to proper documentation and to the provisions of the
National Internal Revenue Code (NIRC), as amended.[9]
The Implementing Rules and Regulations (IRR) of R.A. No. 9442[10] was jointly
promulgated by the Department of Social Welfare and Development (DSWD),
Department of Education, Department of Finance (DOF), Department of Tourism,
Department of Transportation and Communication, Department of the Interior and
Local Government (DILG) and Department of Agriculture. Insofar as pertinent to this
petition, the salient portions of the IRR are hereunder quoted: [11]
RULE III. DEFINITION OF TERMS
X Identification Card issued by the Local Government Unit for purposes of uniformity
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Section 5. Definition of Terms. For purposes of these Rules and Regulations, these
terms are defined as follows:
5.1. Persons with Disability - are those individuals defined under Section 4 of RA
7277 "An Act Providing for the Rehabilitation, Self-Development and Self-Reliance of
Persons with Disability as amended and their integration into the Mainstream of
Society and for Other Purposes". This is defined as a person suffering from
restriction or different abilities, as a result of a mental, physical or sensory
impairment, to perform an activity in a manner or within the range considered
normal for human being. Disability shall mean (1) a physical or mental impairment
that substantially limits one or more psychological, physiological or anatomical
function of an individual or activities of such individual; (2) a record of such an
impairment; or (3) being regarded as having such an impairment.
RULE IV. PRIVILEGES AND INCENTIVES FOR THE PERSONS WITH DISABILITY
Section 6. Other Privileges and Incentives. Persons with disability shall be entitled to
the following:
6.1.d. Purchase of Medicine - at least twenty percent (20%) discount on the
purchase of medicine for the exclusive use and enjoyment of persons with disability.
All drugstores, hospital, pharmacies, clinics and other similar establishments selling
medicines are required to provide at least twenty percent (20%) discount subject to
the guidelines issued by DOH and PHILHEALTH.[12]
6.11 The abovementioned privileges are available only to persons with disability
who are Filipino citizens upon submission of any of the following as proof of his/her
entitlement thereto subject to the guidelines issued by the NCWDP in coordination
with DSWD, DOH and DILG.
6.11.1 An identification card issued by the city or municipal mayor or the barangay
captain of the place where the person with disability resides;
6.11.2 The passport of the persons with disability concerned; or
6.11.3 Transportation discount fare Identification Card (ID) issued by the National
Council for the Welfare of Disabled Persons (NCWDP). However, upon effectivity of
this Implementing Rules and Regulations, NCWDP will already adopt the
in the implementation. NCWDP will provide the design and specification of the
identification card that will be issued by the Local Government Units. [13]
6.14. Availmenl of Tax Deductions by Establishment Granting Twenty Percent. 20%
Discount - The establishments may claim the discounts granted in sub-sections (6.1),
(6.2), (6.4), (6.5) and (6.6) as tax deductions based on the net cost of the goods sold
or services rendered: Provided, however, that the cost of the discount shall be
allowed as deduction from gross income for the same taxable year that the discount
is granted: Provided, further, That the total amount of the claimed tax deduction net
of value-added tax if applicable, shall be included in their gross sales receipts for tax
purposes and shall be subject to proper documentation and to the provisions of the
National Internal Revenue Code, as amended.
9
On April 23, 2008, the National Council on Disability Affairs (NCDA)[14] issued 1. Two "1x1" recent ID pictures with the names, and signatures or
Administrative Order (A.O.) No. 1, Series of 2008,[15]prescribing guidelines which thumbmarks at the back of the picture
should serve as a mechanism for the issuance of a PWD Identification Card (IDC)
which shall be the basis for providing privileges and discounts to bona fide PWDs in
accordance with R.A. 9442: 2. One (1) Valid ID

IV. INSTITUTIONAL ARRANGEMENTS

A. The Local Government Unit of the City or Municipal Office shall implement
these guidelines in the issuance of the PWD-IDC
D. Issuance of the appropriate document to confirm the medical condition
of the applicant is as follows:
3. Document to confirm the medical or disability condition (See Section IV, D
for the required document).
On December 9, 2008, the DOF issued Revenue Regulations No. 1-
2009[16] prescribing rules and regulations to implement R.A. 9442 relative to the tax
privileges of PWDs and tax incentives for establishments granting the discount.
Section 4 of Revenue Regulations No. 001-09 states that drugstores can only deduct
the 20% discount from their gross income subject to some conditions. [17]

Disability Document Issuing Entity
Licensed Private or
Apparent Disability Medical Certificate
Government Physician
Licensed Teacher duly signed
School Assessment
by the School Principal
Head of the Business
On May 20, 2009, the DOH issued A.O. No. 2009-0011 [18] specifically stating that the
grant of 20% discount shall be provided in the purchase of branded medicines and
unbranded generic medicines from all establishments dispensing medicines for the
exclusive use of the PWDs.[19] It also detailed the guidelines for the provision of
medical and related discounts and special privileges to PWDs pursuant to R.A. 9442.
[20]

Establishment or Head of
Certificate of Disability
Non-Government On July 28, 2009, petitioners filed a Petition for Prohibition with application for a
Organization Temporary Restraining Order and/or a Writ of Preliminary Injunction [21] before the
Licensed Private or Court of Appeals to annul and enjoin the implementation of the following laws:
Non-Apparent Disability Medical Certificate
Government Physician
E. PWD Registration Forms and ID Cards shall be issued and signed by the City or 1) Section 32 of R.A. No. 7277 as amended by R.A. No. 9442;
Municipal Mayor, or Barangay Captain.
2) Section 6, Rule IV of the Implementing Rules and Regulations of R.A. No. 9442;
xxxx
V. IMPLEMENTING GUIDELINES AND PROCEDURES 3) NCDA A.O. No. 1;

Any bonafide person with permanent disability can apply for the issuance of the
PWD-IDC. His/her caregiver can assist in the application process. Procedures for the
issuance of the ID Cards are as follows:
A. Completion of the Requirements. Complete and/or make available the following
requirements:
4) DOF Revenue Regulation No. 1-2009;
5) DOH A.O. No. 2009-0011.
On July 26, 2010, the CA rendered a Decision upholding the constitutionality of R.A.
7277 as amended, as well as the assailed administrative issuances. However, the CA
suspended the effectivity of NCDA A.O. No. 1 pending proof of respondent NCDA's
compliance with filing of said administrative order with the Office of the National
Administrative Register (ONAR) and its publication in a newspaper of general
10
circulation. The dispositive portion of the Decision states:
WHEREFORE, the petition is PARTLY GRANTED. The effectivity of NCDA
Administrative Order No. 1 is hereby SUSPENDED pending Respondent's compliance
with the proof of filing of NCDA Administrative Order No. 1 with the Office of the
National Administrative Register and its publication in a newspaper of general
circulation.
Respondent NCDA filed a motion for reconsideration before the CA to lift the
suspension of the implementation of NCDA A.O. No. 1 attaching thereto proof of its
publication in the Philippine Star and Daily Tribune on August 12, 2010, as well as a
certification from the ONAR showing that the same was filed with the said office on
October 22, 2009.[22] Likewise, petitioners filed a motion for reconsideration of the
CA Decision.
In a Resolution dated November 19, 2010, the CA dismissed petitioners' motion for
reconsideration and lifted the suspension of the effectivity of NCDA A.O. No. 1
considering the filing of the same with ONAR and its publication in a newspaper of
general circulation.
Hence, the instant petition raising the following issues:
I. THE CA SERIOUSLY ERRED ON A QUESTION OF SUBSTANCE WHEN IT RULED THAT
THE MANDATED PWD DISCOUNT IS A VALID EXERCISE OF POLICE POWER. ON THE
CONTRARY, IT IS AN INVALID EXERCISE OF THE POWER OF EMINENT DOMAIN
BECAUSE IT FAILS TO PROVIDE JUST COMPENSATION TO PETITIONERS AND OTHER
SIMILARLY SITUATED DRUGSTORES;
X Police power as an attribute to promote the common good would be diluted
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II. THE CA SERIOUSLY ERRED WHEN IT RULED THAT SECTION 32 OF RA 7277 AS
AMENDED BY RA 9442, NCDA AO 1 AND THE OTHER IMPLEMENTING REGULATIONS
DID NOT VIOLATE THE DUE PROCESS CLAUSE;
III. THE CA SERIOUSLY ERRED WHEN IT RULED THAT THE DEFINITIONS OF
DISABILITIES UNDER SECTION 4(A), SECTION 4(B) AND SECTION 4(C) OF RA 7277 AS
AMENDED BY RA 9442, RULE 1 OF THE IMPLEMENTING RULES AND
REGULATIONS[23] OF RA 7277, SECTION 5.1 OF THE IMPLEMENTING RULES AND
REGULATIONS OF RA 9442, NCDA AO 1 AND DOH AO 2009-11 ARE NOT VAGUE,
AMBIGUOUS AND UNCONSTITUTIONAL;
IV. THE CA SERIOUSLY ERRED WHEN IT RULED THAT THE MANDATED PWD
DISCOUNT DOES NOT VIOLATE THE EQUAL PROTECTION CLAUSE.
We deny the petition.
The CA is correct when it applied by analogy the case of Carlos Superdrug
Corporation et al. v. DSWD, et al.[24] wherein We pronouced that Section 4 of R.A.
No. 9257 which grants 20% discount on the purchase of medicine of senior citizens
is a legitimate exercise of police power:
The law is a legitimate exercise of police power which, similar to the power of
eminent domain, has general welfare for its object. Police power is not capable of
an exact definition, but has been purposely veiled in general terms to underscore its
comprehensiveness to meet all exigencies and provide enough room for an efficient
and flexible response to conditions and circumstances, thus assuring the greatest
benefits.[25] Accordingly, it has been described as the most essential, insistent and
the least limitable of powers, extending as it does to all the great public needs. [26] It
is [t]he power vested in the legislature by the constitution to make, ordain, and
establish all manner of wholesome and reasonable laws, statutes, and ordinances,
either with penalties or without, not repugnant to the constitution, as they shall
judge to be for the good and welfare of the commonwealth, and of the subjects of
the same.[27]
For this reason, when the conditions so demand as determined by the legislature,
property rights must bow to the primacy of police power because property rights,
though sheltered by due process, must yield to general welfare. [28]
considerably if on the mere plea of petitioners that they will suffer loss of earnings
and capital, the questioned provision is invalidated. Moreover, in the absence of
evidence demonstrating the alleged confiscatory effect of the provision in question,
there is no basis for its nullification in view of the presumption of validity which
every law has in its favor.[29]
Police power is the power of the state to promote public welfare by restraining and
regulating the use of liberty and property. On the other hand, the power of eminent
domain is the inherent right of the state (and of those entities to which the power
has been lawfully delegated) to condemn private property to public use upon
payment of just compensation. In the exercise of police power, property rights of
private individuals are subjected to restraints and burdens in order to secure the
general comfort, health, and prosperity of the state. [30] A legislative act based on the
police power requires the concurrence of a lawful subject and a lawful method. In
more familiar words, (a) the interests of the public generally, as distinguished from
11
those of a particular class, should justify the interference of the state; and (b) the
means employed are reasonably necessary for the accomplishment of the purpose
and not unduly oppressive upon individuals.[31]
R.A. No. 7277 was enacted primarily to provide full support to the improvement of
the total well-being of PWDs and their integration into the mainstream of society.
The priority given to PWDs finds its basis in the Constitution:
ARTICLE XII
NATIONAL ECONOMY AND PATRIMONY
Section 6. The use of property bears a social function, and all economic agents shall
contribute to the common good. Individuals and private groups, including
corporations, cooperatives, and similar collective organizations, shall have the right
to own, establish, and operate economic enterprises, subject to the duty of the
State to promote distributive justice and to intervene when the common good so
demands.[32]
ARTICLE XIII
SOCIAL JUSTICE AND HUMAN RIGHTS
Section 11. The State shall adopt an integrated and comprehensive approach
to health development which shall endeavor to make essential goods, health and
other social services available to all the people at affordable cost. There shall
be priority for the needs of the underprivileged, sick, elderly, disabled, women, and
children. The State shall endeavor to provide free medical care to paupers. [33]
Thus, R.A. No. 7277 provides:
SECTION 2. Declaration of Policy. The grant of the rights and privileges for disabled
persons shall be guided by the following principles:
X non-government organizations. Rights of persons with disability must never be
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(a). Disabled persons are part of the Philippine society, thus the Senate shall give full
support to the improvement of the total well-being of disabled persons and their
integration into the mainstream of society.
Toward this end, the State shall adopt policies ensuring the rehabilitation, self-
development and self-reliance of disabled persons.
It shall develop their skills and potentials to enable them to compete favorably for
available opportunities.
(b). Disabled persons have the same rights as other people to take their proper
place in society. They should be able to live freely and as independently as possible.
This must be the concern of everyone - the family, community and all government
and non-government organizations.
Disabled person's rights must never be perceived as welfare services by the
Government.
(d). The State also recognizes the role of the private sector in promoting the welfare
of disabled persons and shall encourage partnership in programs that address their
needs and concerns.[34]
To implement the above policies, R.A. No. 9442 which amended R.A. No. 7277
grants incentives and benefits including a twenty percent (20%) discount to PWDs in
the purchase of medicines; fares for domestic air, sea and land travels including
public railways and skyways; recreation and amusement centers including theaters,
food chains and restaurants.[35] This is specifically stated in Section 4 of the IRR of
R.A. No. 9442:
Section 4. Policies and Objectives - It is the objective of Republic Act No. 9442 to
provide persons with disability, the opportunity to participate fully into the
mainstream of society by granting them at least twenty percent (20%) discount in
all basic services. It is a declared policy of RA 7277 that persons with disability are
part of Philippine society, and thus the State shall give full support to the
improvement of their total wellbeing and their integration into the mainstream of
society. They have the same rights as other people to take their proper place in
society. They should be able to live freely and as independently as possible. This
must be the concern of everyone the family, community and all government and
perceived as welfare services. Prohibitions on verbal, non-verbal ridicule and
vilification against persons with disability shall always be observed at all times. [36]
Hence, the PWD mandatory discount on the purchase of medicine is supported by a
valid objective or purpose as aforementioned. It has a valid subject considering that
the concept of public use is no longer confined to the traditional notion of use by
the public, but held synonymous with public interest, public benefit, public welfare,
and public convenience. As in the case of senior citizens,[37] the discount privilege to
12
which the PWDs are entitled is actually a benefit enjoyed by the general public to
which these citizens belong. The means employed in invoking the active
participation of the private sector, in order to achieve the purpose or objective of
the law, is reasonably and directly related.[38] Also, the means employed to provide a
fair, just and quality health care to PWDs are reasonably related to its
accomplishment, and are not oppressive, considering that as a form of
reimbursement, the discount extended to PWDs in the purchase of medicine can be
claimed by the establishments as allowable tax deductions pursuant to Section 32 of
R.A. No. 9442 as implemented in Section 4 of DOF Revenue Regulations No. 1-2009.
Otherwise stated, the discount reduces taxable income upon which the tax liability
of the establishments is computed.
Further, petitioners aver that Section 32 of R.A. No. 7277 as amended by R.A. No.
9442 is unconstitutional and void for violating the due process clause of the
Constitution since entitlement to the 20% discount is allegedly merely based on any
of the three documents mentioned in the provision, namely: (i) an identification
card issued by the city or municipal mayor or the barangay captain of the place
where the PWD resides; (ii) the passport of the PWD; or (iii) transportation discount
fare identification card issued by NCDA. Petitioners, thus, maintain that none of the
said documents has any relation to a medical finding of disability, and the grant of
the discount is allegedly without any process for the determination of a PWD in
accordance with law.
Section 32 of R.A. No. 7277, as amended by R.A. No. 9442, must be read with its IRR
which stated that upon its effectivity, NCWDP (which is the government agency
tasked to ensure the implementation of RA 7277), would adopt the IDC issued by
the local government units for purposes of uniformity in the implementation.
[39]
Thus, NCDA A.O. No. 1 provides the reasonable guidelines in the issuance of IDCs
to PWDs as proof of their entitlement to the privileges and incentives under the
law[40] and fills the details in the implementation of the law.
As stated in NCDA A.O. No. 1, before an IDC is issued by the city or municipal mayor
or the barangay captain,[41] or the Chairman of the NCDA,[42] the applicant must first
secure a medical certificate issued by a licensed private or government physician
that will confirm his medical or disability condition. If an applicant is an employee
with apparent disability, a "certificate of disability" issued by the head of the
business establishment or the head of the non-governmental organization is needed
for him to be issued a PWD-IDC. For a student with apparent disability, the "school
assessment" issued by the teacher and signed by the school principal should be
presented to avail of a PWD-ID.
Petitioners' insistence that Part IV (D) of NCDA Administrative Order No. 1 is void
because it allows allegedly non-competent persons like teachers, head of
establishments and heads of Non-Governmental Organizations (NGOs) to confirm
the medical condition of the applicant is misplaced. It must be stressed that only for
apparent disabilities can the teacher or head of a business establishment validly
issue the mentioned required document because, obviously, the disability is easily
seen or clearly visible. It is, therefore, not an unqualified grant of authority for the
said non-medical persons as it is simply limited to apparent disabilities. For a non-
apparent disability or a disability condition that is not easily seen or clearly visible,
the disability can only be validated by a licensed private or government physician,
and a medical certificate has to be presented in the procurement of an IDC. Relative
to this issue, the CA validly ruled, thus:
We agree with the Office of the Solicitor General's (OSG) ratiocination that teachers,
heads of business establishments and heads of NGOs can validly confirm the
medical condition of their students/employees with apparent disability for obvious
reasons as compared to non-apparent disability which can only be determined by
licensed physicians. Under the Labor Code, disabled persons are eligible as
apprentices or learners provided that their handicap are not as much as to
effectively impede the performance of their job. We find that heads of business
establishments can validly issue certificates of disability of their employees because
aside from the fact that they can obviously validate the disability, they also
have medical records of the employees as a pre-requisite in the hiring of
employees. Hence, Part IV (D) of NCDA AO No. 1 is logical and valid. [43]
Furthermore, DOH A.O. No. 2009-11 prescribes additional guidelines for the 20%
discount in the purchase of all medicines for the exclusive use of PWD. [44] To avail of
the discount, the PWD must not only present his I.D. but also the doctor's
prescription stating, among others, the generic name of the medicine, the
physician's address, contact number and professional license number, professional
tax receipt number and narcotic license number, if applicable. A purchase booklet
issued by the local social/health office is also required in the purchase of over-the-
counter medicines. Likewise, any single dispensing of medicine must be in
accordance with the prescription issued by the physician and should not exceed a
one (1) month supply. Therefore, as correctly argued by the respondents, Section 32
of R.A. No. 7277 as amended by R.A. No. 9442 complies with the standards of
substantive due process.
We are likewise not persuaded by the argument of petitioners that the definition of
"disabilities" under the subject laws is vague and ambiguous because it is allegedly
so general and broad that the person tasked with implementing the law will
undoubtedly arrive at different interpretations and applications of the law. Aside
from the definitions of a "person with disability" or "disabled persons" under
13
Section 4 of R.A. No. 7277 as amended by R.A. No. 9442 and in the IRR of RA 9442,
NCDA A.O. No. 1 also provides:
4. Identification Cards shall be issued to any bonafide PWD with permanent
disabilities due to any one or more of the following conditions:
psychosocial, chronic illness, learning, mental, visual, orthopedic, speech
and hearing conditions. This includes persons suffering from disabling
diseases resulting to the person's limitations to do day to day activities as
normally as possible such as but not limited to those undergoing dialysis,
heart disorders, severe cancer cases and such other similar cases resulting
to temporary or permanent disability.[45]
Similarly, DOH A.O. No. 2009-0011 defines the different categories of disability as
follows:
Rule IV, Section 4, Paragraph B of the Implementing Rules and Regulations (IRR) of
this Act required the Department of Health to address the health concerns of seven
(7) different categories of disability, which include the following: (1) Psychological
and behavioral disabilities (2) Chronic illness with disabilities (3)Learning(cognitive
or intellectual) disabilities (4) Mental disabilities (5) Visual/seeing disabilities (6)
Orthopedic/moving, and (7) communication deficits. [46]
Elementary is the rule that when laws or rules are clear, when the law is
unambiguous and unequivocal, application not interpretation thereof is imperative.
However, where the language of a statute is vague and ambiguous, an
interpretation thereof is resorted to. A law is deemed ambiguous when it is capable
of being understood by reasonably well-informed persons in either of two or more
senses. The fact that a law admits of different interpretations is the best evidence
that it is vague and ambiguous.[47]
In the instant case, We do not find the aforestated definition of terms as vague and
ambiguous. Settled is the rule that courts will not interfere in matters which are
addressed to the sound discretion of the government agency entrusted with the
regulation of activities coming under the special and technical training and
knowledge of such agency.[48] As a matter of policy, We accord great respect to the
decisions and/or actions of administrative authorities not only because of the
doctrine of separation of powers but also for their presumed knowledge, ability, and
expertise in the enforcement of laws and regulations entrusted to their jurisdiction.
The rationale for this rule relates not only to the emergence of the multifarious
needs of a modern or modernizing society and the establishment of diverse
administrative agencies for addressing and satisfying those needs; it also relates to
the accumulation of experience and growth of specialized capabilities by the
administrative agency charged with implementing a particular statute. [49]
Lastly, petitioners contend that R.A. No. 7227, as amended by R.A. No. 9442,
violates the equal protection clause of the Constitution because it fairly singles out
drugstores to bear the burden of the discount, and that it can hardly be said to
"rationally" meet a legitimate government objective which is the purpose of the law.
The law allegedly targets only retailers such as petitioners, and that the other
enterprises in the drug industry are not imposed with similar burden. This same
argument had been raised in the case of Carlos Superdrug Corp., et al. v. DSWD, et
al.,[50] and We reaffirm and apply the ruling therein in the case at bar:
The Court is not oblivious of the retail side of the pharmaceutical industry and the
competitive pricing component of the business. While the Constitution protects
property rights, petitioners must accept the realities of business and the State, in
the exercise of police power, can intervene in the operations of a business which
may result in an impairment of property rights in the process.
Moreover, the right to property has a social dimension. While Article XIII of the
Constitution provides the precept for the protection of property, various laws and
jurisprudence, particularly on agrarian reform and the regulation of contracts and
public utilities, continuously serve as a reminder that the right to property can be
relinquished upon the command of the State for the promotion of public good. [51]
Under the equal protection clause, all persons or things similarly situated must be
treated alike, both in the privileges conferred and the obligations imposed.
Conversely, all persons or things differently situated should be treated differently.
[52]
In the case of ABAKADA Guro Party List, et al. v. Hon. Purisima, et al.,[53] We held:
Equality guaranteed under the equal protection clause is equality under the same
conditions and among persons similarly situated; it is equality among equals, not
similarity of treatment of persons who are classified based on substantial
differences in relation to the object to be accomplished. When things or persons are
different in fact or circumstance, they may be treated in law differently.
In Victoriano v. Elizalde Rope Workers' Union, this Court declared:
The guaranty of equal protection of the laws is not a guaranty of equality in the
application of the laws upon all citizens of the State. It is not, therefore, a
requirement, in order to avoid the constitutional prohibition against inequality, that
every man, woman and child should be affected alike by a statute. Equality of
operation of statutes does not mean indiscriminate operation on persons merely as
such, but on persons according to the circumstances surrounding them. It
14
guarantees equality, not identity of rights. The Constitution does not require that
things which are different in fact be treated in law as though they were the same.
The equal protection clause does not forbid discrimination as to things that are
different. It does not prohibit legislation which is limited either in the object to
which it is directed or by the territory within which it is to operate.
only what interests of the public require, but what measures are necessary for the
protection of such interests.[55] Thus, We are mindful of the fundamental criteria in
cases of this nature that all reasonable doubts should be resolved in favor of the
constitutionality of a statute.[56] The burden of proof is on him who claims that a
statute is unconstitutional. Petitioners failed to discharge such burden of proof.

The equal protection of the laws clause of the Constitution allows classification. WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals dated
Classification in law, as in the other departments of knowledge or practice, is the July 26, 2010, and the Resolution dated November 19, 2010, in CA-G.R. SP No.
grouping of things in speculation or practice because they agree with one another in 109903 are AFFIRMED.
certain particulars. A law is not invalid because of simple inequality. The very idea of
classification is that of inequality, so that it goes without saying that the mere fact of SO ORDERED.
inequality in no manner determines the matter of constitutionality. All that is
required of a valid classification is that it be reasonable, which means that the
classification should be based on substantial distinctions which make for real
differences, that it must be germane to the purpose of the law; that it must not be
limited to existing conditions only; and that it must apply equally to each member
of the class. This Court has held that the standard is satisfied if the classification or
distinction is based on a reasonable foundation or rational basis and is not
palpably arbitrary.

In the exercise of its power to make classifications for the purpose of enacting laws
over matters within its jurisdiction, the state is recognized as enjoying a wide range
of discretion. It is not necessary that the classification be based on scientific or G.R. No. 190506
marked differences of things or in their relation. Neither is it necessary that the
classification be made with mathematical nicety. Hence, legislative classification CORAL BAY NICKEL CORPORATION, Petitioner,
may in many cases properly rest on narrow distinctions, for the equal protection vs.
guaranty does not preclude the legislature from recognizing degrees of evil or harm, COMMISSIONER OF INTERNAL REVENUE, Respondent.
and legislation is addressed to evils as they may appear.
The equal protection clause recognizes a valid classification, that is, a classification
DECISION
that has a reasonable foundation or rational basis and not arbitrary. [54] With respect
to R.A. No. 9442, its expressed public policy is the rehabilitation, self-development
and self-reliance of PWDs. Persons with disability form a class separate and distinct BERSAMIN, J.:
from the other citizens of the country. Indubitably, such substantial distinction is
germane and intimately related to the purpose of the law. Hence, the classification This appeal is brought by a taxpayer whose claim for the refund or credit pertaining
and treatment accorded to the PWDs fully satisfy the demands of equal protection. to its alleged unutilized input tax for the third and fourth quarters of the year 2002
Thus, Congress may pass a law providing for a different treatment to persons with amounting to 50, 124,086.75 had been denied by the Commissioner of Internal
disability apart from the other citizens of the country. Revenue. The Court of Tax Appeals (CTA) En Banc and in Division denied its appeal.

Subject to the determination of the courts as to what is a proper exercise of police We sustain the denial of the appeal.
power using the due process clause and the equal protection clause as yardsticks,
the State may interfere wherever the public interests demand it, and in this Antecedents
particular, a large discretion is necessarily vested in the legislature to determine, not
15
The petitioner, a domestic corporation engaged in the manufacture of nickel and/or Issue
cobalt mixed sulphide, is a VAT entity registered with the Bureau of Internal
Revenue (BIR). It is also registered with the Philippine Economic Zone Authority Was the petitioner, an entity located within an ECOZONE, entitled to the refund of
(PEZA) as an Ecozone Export Enterprise at the Rio Tuba Export Processing Zone its unutilized input taxes incurred before it became a PEZA-registered entity?
under PEZA Certificate of Registration dated December 27, 2002. 1
Ruling of the Court
On August 5, 2003,2 the petitioner filed its Amended VAT Return declaring unutilized
input tax from its domestic purchases of capital goods, other than capital goods and The appeal is bereft of merit.
services, for its third and fourth quarters of 2002 totalling 50,124,086.75. On June
14, 2004,3 it filed with Revenue District Office No. 36 in Palawan its Application for
We first explain why we have given due course to the petition for review
Tax Credits/Refund (BIR Form 1914) together with supporting documents.
on certiorari despite the petitioner's premature filing of its judicial claim in the CTA.

Due to the alleged inaction of the respondent, the petitioner elevated its claim to
The petitioner filed with the BIR on June 10, 2004 its application for tax refund or
the CTA on July 8, 2004 by petition for review, praying for the refund of the aforesaid
credit representing the unutilized input tax for the third and fourth quarters of
input VAT (CTA Case No. 7022).4
2002. Barely 28 days later, it brought its appeal in the CTA contending that there was
inaction on the part of the petitioner despite its not having waited for the lapse of
After trial on the merits, the CTA in Division promulgated its decision on March 10, the 120-day period mandated by Section 112 (D) of the 1997 NIRC. At the time of
20085 denying the petitioner's claim for refund on the ground that the petitioner the petitioner's appeal, however, the applicable rule was that provided under BIR
was not entitled to the refund of alleged unutilized input VAT following Section Ruling No. DA-489-03,14 issued on December 10, 2003, to wit:
106(A)(2)(a)(5) of the National Internal Revenue Code (NIRC) of 1997, as amended,
in relation to Article 77(2) of the Omnibus Investment Code and conformably with
It appears, therefore, that it is not necessary for the Commissioner of Internal
the Cross Border Doctrine. In support of its ruling, the CTA in Division
Revenue to first act unfavorably on the claim for refund before the Court of Tax
cited Commissioner of Internal Revenue v. Toshiba Information Equipment (Phils)
Appeals could validly take cognizance of the case. This is so because of the positive
Inc. (Toshiba)6and Revenue Memorandum Circular ("RMC") No. 42-03.7
mandate of Section 230 of the Tax Code and also by virtue of the doctrine that the
delay of the Commissioner in rendering his decision does not extend the
After the CTA in Division denied its Motion for Reconsideration 8 on July 2, 2008,9 the reglementary period prescribed by statute.
petitioner elevated the matter to the CTA En Banc (CTA EB Case No. 403), which also
denied the petition through the assailed decision promulgated on May 29, 2009. 10
Incidentally, the taxpayer could not be faulted for taking advantage of the full two-
year period set by law for filing his claim for refund [with the Commissioner of
The CTA En Banc denied the petitioner's Motion for Reconsideration through the Internal Revenue]. Indeed, no provision in the tax code requires that the claim for
resolution dated December 10, 2009.11 refund be filed at the earliest instance in order to give the Commissioner an
opportunity to rule on it and the court to review the ruling of the Commissioner of
Hence, this appeal, whereby the petitioner contends that Toshiba is not applicable Internal Revenue on appeal.
inasmuch as the unutilized input VAT subject of its claim was incurred from May 1,
2002 to December 31, 2002 as a VAT-registered taxpayer, not as a PEZA-registered xxx
enterprise; that during the period subject of its claim, it was not yet registered with
PEZA because it was only on December 27, 2002 that its Certificate of Registration
As pronounced in Silicon Philippines Inc. vs. Commissioner of Internal Revenue, 15the
was issued; 12 that until then, it could not have refused the payment of VAT on its
exception to the mandatory and jurisdictional compliance with the 120+30 day-
purchases because it could not present any valid proof of zero-rating to its VAT-
period is when the claim for the tax refund or credit was filed in the period between
registered suppliers; and that it complied with all the procedural and substantive
December 10, 2003 and October 5, 2010 during which BIR Ruling No. DA-489-03
requirements under the law and regulations for its entitlement to the refund. 13
16
was still in effect. Accordingly, the premature filing of the judicial claim was allowed,
giving to the CTA jurisdiction over the appeal.
As to the main issue, we sustain the assailed decision of the CTA En Banc.
The petitioner's insistence, that Toshiba is not applicable because Toshiba
Information Equipment (Phils) Inc., the taxpayer involved thereat, was a PEZA-
registered entity during the time subject of the claim for tax refund or credit, is
unwarranted. The most significant difference between Toshiba and this case is that
Revenue Memorandum Circular No. 74-9916 was not yet in effect at the time Toshiba
Information Equipment (Phils) Inc. brought its claim for refund. Regardless of the
distinction, however, Toshiba actually discussed the VAT implication of PEZA-
registered enterprises and ECOZONE-located enterprises in its entirety, which
renders Toshiba applicable to the petitioner's case.
Prior to the effectivity of RMC 74-99, the old VAT rule for PEZA-registered
enterprises was based on their choice of fiscal incentives, namely: (1) if the PEZA-
registered enterprise chose the 5% preferential tax on its gross income in lieu of all
taxes, as provided by Republic Act No. 7916, as amended, then it was VAT-exempt;
and (2) if the PEZA-registered enterprise availed itself of the income tax holiday
under Executive Order No. 226, as amended, it was subject to VAT at 10% 17 (now,
12%). Based on this old rule, Toshiba allowed the claim for refund or credit on the
part of Toshiba Information Equipment (Phils) Inc.
This is not true with the petitioner. With the issuance of RMC 74-99, the distinction
under the old rule was disregarded and the new circular took into consideration the
two important principles of the Philippine VAT system: the Cross Border Doctrine
and the Destination Principle. Thus, Toshiba opined:
The rule that any sale by a VAT-registered supplier from the Customs Territory to a
PEZA-registered enterprise shall be considered an export sale and subject to zero
percent (0%) VAT was clearly established only on 15 October 1999, upon the
issuance of RMC No. 74-99. Prior to the said date, however, whether or not a PEZA-
registered enterprise was VAT-exempt depended on the type of fiscal incentives
availed of by the said enterprise. This old rule on VAT-exemption or liability of PEZA-
registered enterprises, followed by the BIR, also recognized and affirmed by the CTA,
the Court of Appeals, and even this Court, cannot be lightly disregarded considering
the great number of PEZA-registered enterprises which did rely on it to determine
its tax liabilities, as well as, its privileges.
According to the old rule, Section 23 of Rep. Act No. 7916, as amended, gives the
PEZA-registered enterprise the option to choose between two sets of fiscal
incentives: (a) The five percent (5%) preferential tax rate on its gross income under
Rep. Act No. 7916, as amended; and (b) the income tax holiday provided under
Executive Order No. 226, otherwise known as the Omnibus Investment Code of
1987, as amended.
xxxx
This old rule clearly did not take into consideration the Cross Border Doctrine
essential to the VAT system or the fiction of the ECOZONE as a foreign territory. It
relied totally on the choice of fiscal incentives of the PEZA-registered enterprise.
Again, for emphasis, the old VAT rule for PEZA-registered enterprises was based on
their choice of fiscal incentives: (1) If the PEZA-registered enterprise chose the five
percent (5%) preferential tax on its gross income, in lieu of all taxes, as provided by
Rep. Act No. 7916, as amended, then it would be VAT-exempt; (2) If the PEZA-
registered enterprise availed of the income tax holiday under Exec. Order No. 226,
as amended, it shall be subject to VAT at ten percent (10%). Such distinction was
abolished by RMC No. 74-99, which categorically declared that all sales of goods,
properties, and services made by a VAT-registered supplier from the Customs
Territory to an ECOZONE enterprise shall be subject to VAT, at zero percent (0%)
rate, regardless of the latter's type or class of PEZA registration; and, thus,
affirming the nature of a PEZA-registered or an ECOZONE enterprise as a VAT-
exempt entity. 18(underscoring and emphasis supplied)
Furthermore, Section 8 of Republic Act No. 7916 mandates that PEZA shall manage
and operate the ECOZONE as a separate customs territory.1wphi1 The provision
thereby establishes the fiction that an ECOZONE is a foreign territory separate and
distinct from the customs territory. Accordingly, the sales made by suppliers from a
customs territory to a purchaser located within an ECOZONE will be considered as
exportations. Following the Philippine VAT system's adherence to the Cross Border
Doctrine and Destination Principle, the VAT implications are that "no VAT shall be
imposed to form part of the cost of goods destined for consumption outside of the
territorial border of the taxing authority" 19 Thus, Toshiba has discussed that:
This Court agrees, however, that PEZA-registered enterprises, which would
necessarily be located within ECOZONES, are VAT-exempt entities, not because of
Section 24 of Rep. Act No. 7916, as amended, which imposes the five percent (5%)
preferential tax rate on gross income of PEZA-registered enterprises, in lieu of all
taxes; but, rather, because of Section 8 of the same statute which establishes the
fiction that ECOZONES are foreign territory.
17
It is important to note herein that respondent Toshiba is located within an
ECOZONE. An ECOZONE or a Special Economic Zone has been described as
. . . [S]elected areas with highly developed or which have the -Q potential to be
developed into agro-industrial, industrial, tourist, recreational, commercial, banking,
investment and financial centers whose metes and bounds are fixed or delimited by
Presidential Proclamations. An ECOZONE may contain any or all of the following:
industrial estates (IEs), export processing zones (EPZs), free trade zones and
tourist/recreational centers.
The national territory of the Philippines outside of the proclaimed borders of the
ECO ZONE shall be referred to as the Customs Territory.1wphi1
Section 8 of Rep. Act No. 7916, as amended, mandates that the PEZA shall manage
and operate the ECOZONES as a separate customs territory; thus, creating the
fiction that the ECOZONE is a foreign territory. As a result, sales made by a
supplier in the Customs Territory to a purchaser in the ECOZONE shall be treated
as an exportation from the Customs Territory. Conversely, sales made by a supplier
from the ECOZONE to a purchaser in the Customs Territory shall be considered as an
importation into the Customs Territory.20 (underscoring and emphasis are supplied)
The petitioner's principal office was located in Barangay Rio Tuba, Bataraza,
Palawan.21 Its plant site was specifically located inside the Rio Tuba Export
Processing Zone - a special economic zone (ECOZONE) created by Proclamation No.
304, Series of 2002, in relation to Republic Act No. 7916. As such, the purchases of
goods and services by the petitioner that were destined for consumption within the
ECOZONE should be free of VAT; hence, no input VAT should then be paid on such
purchases, rendering the petitioner not entitled to claim a tax refund or credit.
Verily, if the petitioner had paid the input VAT, the CTA was correct in holding that
the petitioner's proper recourse was not against the Government but against the
seller who had shifted to it the output VAT following RMC No. 42-03, 22 which
provides:
In case the supplier alleges that it reported such sale as a taxable sale, the
substantiation of remittance of the output taxes of the seller (input taxes of the
exporter-buyer) can only be established upon the thorough audit of the suppliers'
VAT returns and corresponding books and records. It is, therefore, imperative that
the processing office recommends to the concerned BIR Office the audit of the
records of the seller.
In the meantime, the claim for input tax credit by the exporter-buyer should be
denied without prejudice to the claimant's right to seek reimbursement of the VAT
paid, if any, from its supplier.
We should also take into consideration the nature of VAT as an indirect tax.
Although the seller is statutorily liable for the payment of VAT, the amount of the tax
is allowed to be shifted or passed on to the buyer.23 However, reporting and
remittance of the VAT paid to the BIR remained to be the seller/supplier's
obligation. Hence, the proper party to seek the tax refund or credit should be the
suppliers, not the petitioner.
In view of the foregoing considerations, the Court must uphold the rejection of the
appeal of the petitioner. This Court has repeatedly pointed out that a claim for tax
refund or credit is similar to a tax exemption and should be strictly construed
against the taxpayer. The burden of proof to show that he is ultimately entitled to
the grant of such tax refund or credit rests on the taxpayer.24 Sadly, the petitioner
has not discharged its burden.
WHEREFORE, the Court AFFIRMS the decision promulgated on May 29, 2009 in CTA
EB Case No. 403; and ORDERS the petitioner to pay the costs of suit.
SO ORDERED.
G.R. No. 215950, June 20, 2016
TRIDHARMA MARKETING CORPORATION, Petitioner, v. COURT OF TAX APPEALS,
SECOND DIVISION, AND THE COMMISSIONER OF INTERNAL
REVENUE, Respondents.
DECISION
BERSAMIN, J.:
18
In this special civil action for certiorari,1 the taxpayer assails t he resolutions issued reconsideration.8chanrobleslaw
on July 8, 20142 and December 22, 20143 in CTA Case No. 8833 whereby the Court
of Tax Appeals (CTA), Second Division, granted its motion for suspension of the Prior to the CIR's decision, the petitioner paid the assessments corresponding to the
collection of tax but required it to post a surety bond amounting to WTC, DST and EWT deficiency assessments, inclusive of interest, amounting to
P4,467,391,881.76. P5,836,786.10. It likewise reiterated its offer to compromise the alleged deficiency
assessments on IT and VAT.9chanrobleslaw
The relevant facts follow.
On June 13, 2014, the petitioner appealed the CIR's decision to the CTA via its so-
On August 16, 2013, the petitioner received a Preliminary Assessment Notice (PAN) called Petition for Review with Motion to Suspend Collection of Tax, which was
from the Bureau of Internal Revenue (BIR) assessing it with various deficiency taxes - docketed as CTA Case No. 8833 and raffled to the CTA Second
income tax (IT), value-added tax (VAT), withholding tax on compensation (WTC), Division.10chanrobleslaw
expanded withholding tax (EWT) and documentary stamp tax (DST) - totalling
P4,640,394,039.97, inclusive of surcharge and interest. A substantial portion of the The CTA in Division issued the first assailed resolution on July 8, 2014, stating
deficiency income tax and VAT arose from the complete disallowance 4 by the BIR of thusly:ChanRoblesVirtualawlibrary
the petitioner's purchases from Etheria Trading in 2010 amounting to In the instant case, petitioner's Financial Statements and Independent Auditor's
P4,942,937,053.82. The petitioner replied to the PAN through its letter dated August Report for December 31, 2013 and 2012, as identified by its witness, indicate that
30, 2013.5chanrobleslaw the company's total equity for the year 2012 and 2013 was P955,095,301 and
P916,768,767, respectively. To yield to respondent's alleged assessment and
On September 23, 2013, the petitioner received from the BIR a Formal Letter of collection in the amount of P4,467,391,881.76 would definitely jeopardize the
Demand assessing it with deficiency taxes for the taxable year ending December 31, normal business operations of petitioner thereby causing irreparable injury to its
2010 amounting to P4,697,696,275.25, inclusive of surcharge and interest. It filed a ability to continue.
protest against the formal letter of demand. Respondent Commissioner of Internal
Revenue (CIR) required the petitioner to submit additional documents in support of Moreover, considering petitioner's willingness to post bond, as manifested during
its protest, and the petitioner complied.6chanrobleslaw the June 19, 2014 hearing, in such reasonable amount as may be fixed by this Court,
pursuant to Section 11 of R.A. No. 1125, as amended, this Court in the interest of
On February 28, 2014, the petitioner received a Final Decision on Disputed substantial justice, resolves to grant petitioner's Motion.
Assessment worth P4,473,228,667.87, computed as follows: 7
xxxx
Tax
Basic Tax Surcharge Interest Total WHEREFORE, considering the urgency of the action to be enjoined, petitioner's
Type
Motion for Suspension of Collection of Tax in the amount of P4,467,391,881.76
1. IT 1,527,100,903.98 763,550,451.99 878,605,999.55 P3,169,257,355.52 allegedly representing its deficiency Income Tax and Value Added Tax for taxable
2. VAT 612,723,525.25 306,361,762.63 379,049,238.36 1,298,134,526.24 year 2010 is GRANTED. Provided, however, that petitioner deposits with this Court
an acceptable surety bond equivalent to 150% of the assessment or in the amount
3. WHT 1,679,413.14 1,048,137.84 2,727,550.98 of SIX BILLION SEVEN HUNDRED ONE MILLION EIGHTY SEVEN THOUSAND EIGHT
4. DST 534,493.40 336,511.18 871,004.58 HUNDRED TWENTY TWO and 64/100 PESOS (P6,701,087,822.64) within fifteen (15)
days from notice hereof.
5. EWT 1,378,127.78 860,102.76 2,238,230.54
TOTAL 2,143,416,463.55 1,069,912,214.62 1,259,899,989.69 4,473,228,667.87 Moreover, pursuant to Supreme Court Circular A.M. No. 04-7-02-SC, otherwise
known as the "Proposed Guidelines on Corporate Surety Bonds", petitioner is
The petitioner filed with the CIR a protest through a Request for Reconsideration. hereby ORDERED to submit the following documents with the surety bond stated
However, the CIR rendered a decision dated May 26, 2014 denying the request for above:ChanRoblesVirtualawlibrary
19
1. Certified copy of a valid Certificate of Accreditation and Authority issued by the
Office of the Court Administrator;
2. Copy of the Certificate of Compliance with Circular No. 66 of the Insurance
Commission duly certified by the Insurance Commission;
3. Proof of payment of legal fees under the Rules of Court and the documentary
stamp tax (thirty centavos [P0.30J on each four pesos [P4.00] or fractional part
thereof, of the premium charged, pursuant to Section 187 Title VII of Rep. Act No.
8424) and Value Added Tax (VAT) under the National Internal Revenue Code;
4. Photocopy of the Certificate of Accreditation and Authority issued by the Court
Administrator containing the photograph of the authorized agent (after
presentation to the Clerk of Court of the original copy thereof as Copy of the
Certificate of Accreditation and Authority containing the photograph of the agent);
and cralawlawlibrary
5. Secretary Certificate containing the specimen signatures of the agents authorized
to transact business with the courts.
In addition, the said bond must be a continuing bond which shall remain effective
until the above-captioned case is finally decided, resolved or terminated by this
Court without necessity of renewal on a yearly basis, or its validity being dependent
on the payment of a renewal premium pursuant to Section 177 of the Insurance
Code.
Failure to comply with the above requirements will cause the setting aside of this
Resolution granting petitioner's motion for the suspension of the collection of the
tax liability.
xxxx
SO ORDERED.11chanroblesvirtuallawlibrary
The petitioner filed its Motion for Partial Reconsideration praying, among others, for
the reduction of the bond to an amount it could obtain.
On December 22, 2014, the CTA in Division issued its second assailed resolution
reducing the amount of the petitioner's surety bond to P4,467,391,881.76, which
was the equivalent of the BIR's deficiency assessment for IT and VAT. 12chanrobleslaw
Hence, the petitioner has commenced this special civil action for certiorari,
asserting:ChanRoblesVirtualawlibrary
I.
WITH ALL DUE RESPECT, THE CTA SECOND DIVISION COMMITTED GRAVE ABUSE
OF DISCRETION IN REFUSING TO CONSIDER, AND IN COMPLETELY IGNORING, THE
PATENT ILLEGALITY OF THE ASSESSMENT THAT, UNDER LAW AND JURISPRUDENCE,
FULLY JUSTIFIED DISPENSING WITH THE REQUIREMENT OF POSTING A BOND.
II.
WITH ALL DUE RESPECT, THE CTA SECOND DIVISION COMMITTED GRAVE ABUSE
OF DISCRETION IN IMPOSING A GARGANTUAN BOND IN THE AMOUNT OF
P4,467,391,881.76 THAT PETITIONER HAS DEMONSTRATED BY UNREFUTED
EVIDENCE TO BE FACTUALLY AND LEGALLY IMPOSSIBLE TO PROCURE.
III.
WITH ALL DUE RESPECT, THE CTA SECOND DIVISION COMMITTEED GRAVE ABUSE
OF DISCRETION IN GRANTING AN ILLUSORY RELIEF, AND IN EFFECTIVELY DENYING
PETITIONER ACCESS TO THE REMEDY PROVIDED BY LAW. UPON UNCONTRADICTED
EVIDENCE, THE IMPOSITION OF A BOND IS NOT ONLY UNJUST, BUT WILL CAUSE
IRREPARABLE INJURY UPON PETITIONER EVEN BEFORE IT IS HEARD. 13
On February 9, 2015, the Court issued a temporary restraining order 14 enjoining the
implementation of July 8, 2014 and December 22, 2014 resolutions of the CTA in
Division, and the collection of the deficiency assessments.
Issue
Did the CTA in Division commit grave abuse of discretion in requiring the petitioner
to file a surety bond despite the supposedly patent illegality of the assessment that
was beyond the petitioner's net worth but equivalent to the deficiency assessment
for IT and VAT?
Ruling of the Court
The petition for certiorari is meritorious.
Section 11 of Republic Act No. 1125 (R.A. No. 1125), 15 as amended by Republic Act
No. 9282 (RA 9282)16it is stated that:ChanRoblesVirtualawlibrary
Sec. 11. Who may appeal; effect of appeal. x x x
xxxx
No appeal taken to the Court of Tax Appeals from the decision of the Collector of
20
Internal Revenue or the Collector of Customs shall suspend the payment, levy,
distraint, and/or sale of any property of the taxpayer for the satisfaction of his tax
liability as provided by existing law: Provided, however, That when in the opinion of
the Court the collection by the Bureau of Internal Revenue or the Commissioner of
Customs may jeopardize the interest of the Government and/or the taxpayer the
Court at any stage of the proceeding may suspend the said collection and require
the taxpayer either to deposit the amount claimed or to file a surety bond for not
more than double the amount with the Court. (bold Emphasis supplied.)
Clearly, the CTA may order the suspension of the collection of taxes provided that
the taxpayer either: (1) deposits the amount claimed; or (2) files a surety bond for
not more than double the amount.
The petitioner argues that the surety bond amounting to P4,467,391,881.76 greatly
exceeds its net worth and makes it legally impossible to procure the bond from
bonding companies that are limited in their risk assumptions. 17 As shown in its
audited financial statements for the year ending December 31, 2013, its net worth
only amounted to P916,768,767.00,18 making the amount of P4,467,391,881.76
fixed for the bond nearly five times greater than such net worth.
The surety bond amounting to P4,467,391,881.76 imposed by the CTA was within
the parameters delineated in Section 11 of R.A. 1125, as amended. The Court holds,
however, that the CTA in Division gravely abused its discretion under Section 11
because it fixed the amount of the bond at nearly five times the net worth of the
petitioner without conducting a preliminary hearing to ascertain whether there
were grounds to suspend the collection of the deficiency assessment on the ground
that such collection would jeopardize the interests of the taxpayer. Although the
amount of P4,467,391,881.76 was itself the amount of the assessment, it behoved
the CTA in Division to consider other factors recognized by the law itself towards
suspending the collection of the assessment, like whether or not the assessment
would jeopardize the interest of the taxpayer, or whether the means adopted by the
CIR in determining the liability of the taxpayer was legal and valid. Simply
prescribing such high amount of the bond like the initial 150% of the deficiency
assessment of P4,467,391,881.76 (or P6,701,087,822.64), or later on even reducing
the amount of the bond to equal the deficiency assessment would practically deny
to the petitioner the meaningful opportunity to contest the validity of the
assessments, and would likely even impoverish it as to force it out of business.
At this juncture, it becomes imperative to reiterate the principle that the power to
tax is not the power to destroy. In Philippine Health Care Providers, Inc. v.
Commissioner of Internal Revenue,19 the Court has stressed
that:ChanRoblesVirtualawlibrary
As a general rule, the power to tax is an incident of sovereignty and is unlimited in
its range, acknowledging in its very nature no limits, so that security against its
abuse is to be found only in the responsibility of the legislature which imposes the
tax on the constituency who is to pay it. So potent indeed is the power that it was
once opined that the power to tax involves the power to destroy.
Petitioner claims that the assessed DST to date which amounts to P376 million is
way beyond its net worth of P259 million. Respondent never disputed these
assertions. Given the realities on the ground, imposing the DST on petitioner would
be highly oppressive. It is not the purpose of the government to throttle private
business. On the contrary, the government ought to encourage private enterprise.
Petitioner, just like any concern organized for a lawful economic activity, has a right
to maintain a legitimate business. As aptly held in Roxas, et al. v. CTA, et
al.:ChanRoblesVirtualawlibrary
The power of taxation is sometimes called also the power to destroy. Therefore it
should be exercised with caution to minimize injury to the proprietary rights of a
taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector "kill
the hen that lays the golden egg."
Legitimate enterprises enjoy the constitutional protection not to be taxed out of
existence. Incurring losses because of a tax imposition may be an acceptable
consequence but killing the business of an entity is another matter and should not
be allowed. It is counter-productive and ultimately subversive of the nation's thrust
towards a better economy which will ultimately benefit the majority of our people.
Moreover, Section 11 of R.A. 1125, as amended, indicates that the requirement of
the bond as a condition precedent to suspension of the collection applies only in
cases where the processes by which the collection sought to be made by means
thereof are carried out in consonance with the law, not when the processes are in
plain violation of the law that they have to be suspended for jeopardizing the
interests of the taxpayer.20chanrobleslaw
The petitioner submits that the patent illegality of the assessment was sufficient
ground to dispense with the bond requirement because the CIR was essentially
taxing its sales revenues without allowing the deduction of the cost of goods sold by
virtue of the CIR refusing to consider evidence showing that it had really incurred
costs.21 However, the Court is not in the position to rule on the correctness of the
deficiency assessment, which is a matter still pending in the CTA. Conformably with
the pronouncement in Pacquiao v. Court of Tax Appeals, First Division, and the
Commissioner of Internal Revenue,22 a ruling that has precedential value herein, the
Court deems it best to remand the matter involving the petitioner's plea against the
correctness of the deficiency assessment to the CTA for the conduct of a preliminary
hearing in order to determine whether the required surety bond should be
dispensed with or reduced.
21

In Pacquiao, the petitioners were issued deficiency IT and VAT assessments for 2008
and 2009 in the aggregate amount of P2,261,217,439.92, which amount was above
their net worth of P1,185,984,697.00 as reported in their joint Statement of Assets,
Liabilities and Net Worth (SALN). They had paid the VAT assessments but appealed
to the CTA the IT assessments. Notwithstanding their appeal, the CIR still initiated
collection proceedings against them by issuing warrants of distraint or levy against
their properties, and warrants of garnishment against their bank accounts. As a
consequence, they went to the CTA through an urgent motion to lift the warrants
and to suspend the collection of taxes. The CTA in Division found the motion to
suspend tax collection meritorious, and lifted the warrant of distraint or levy and
garnishment on the condition that they post a cash bond of P3,298,514,894.35, or
surety bond of P4,947,772,341.53. They thus came to the Court to challenge the
order to post the cash or surety bond as a condition for the suspension of collection
of their deficiency taxes. In resolving their petition, the Court held and
disposed:ChanRoblesVirtualawlibrary
Absent any evidence and preliminary determination by the CTA, the Court cannot
make any factual finding and settle the issue of whether the petitioners should
comply with the security requirement under Section 11, R.A. No. 1125. The
determination of whether the methods, employed by the CIR in its assessment,
jeopardized the interests of a taxpayer for being patently in violation of the law is a
question of fact that calls for the reception of evidence which would serve as basis.
In this regard, the CTA is in a better position to initiate this given its time and
resources. The remand of the case to the CTA on this question is, therefore, more
sensible and proper.
amply protected by the Bill of Rights under the
Constitution.23chanroblesvirtuallawlibrary
Consequently, to prevent undue and irreparable damage to the normal business
operations of the petitioner, the remand to the CTA of the questions involving the
suspension of collection and the correct amount of the bond is the proper course of
action.
WHEREFORE, the Court GRANTS the petition for certiorari; ANNULS and SETS
ASIDE the resolutions issued on July 8, 2014 and December 22, 2014 in CTA Case
No. 8833 requiring the petitioner to post a surety bond of P4,467,391,881.76 as a
condition to restrain the collection of the deficiency taxes assessed against
it; PERMANENTLY ENJOINS the enforcement of the resolutions issued on July 8,
2014 and December 22, 2014 in CTA Case No. 8833; and REQUIRES the Court of Tax
Appeals, Second Division, to forthwith conduct a preliminary hearing in CTA Case
No. 8833 to determine and rule on whether the bond required under Section 11 of
Republic Act No. 1125 may be dispensed with or reduced to restrain the collection
of the deficiency taxes assessed against the petitioner.
No pronouncement on costs of suit.
SO ORDERED.chanRoblesvirtualLawlibrary

For the Court to make any finding of fact on this point would be premature. As
stated earlier, there is no evidentiary basis. All the arguments are mere allegations
from both sides. Moreover, any finding by the Court would pre-empt the CTA from
properly exercising its jurisdiction and settle the main issues presented before it,
that is, whether the petitioners were afforded due process; whether the CIR has
valid basis for its assessment; and whether the petitioners should be held liable for
the deficiency taxes.

xxxx

In the conduct of its preliminary hearing, the CTA must balance the scale between
the inherent power of the State to tax and its right to prosecute perceived GR No. 213394. April 6, 2016
transgressors of the law, on one side; and the constitutional rights of petitioners to
due process of law and the equal protection of the laws, on the other. In case of Spouses Emmanuel D. Pacquiao and Jinkee J. Pacquiao, Petitioners, vs. The Court
doubt, the tax court must remember that as in all tax cases, such scale should favor of Tax Appeals First Division and the Commission of Internal Revenue
the taxpayer, for a citizen's right to due process and equal protection of the law is
22
Mendoza, J.
Facts
Due to his success and fame as a world-class professional boxer Pacquiao
was able to amass income from both the Philippines and the United States of
America (US). His income from the US came primarily from the purses he received
for the boxing matches he took part under Top Rank, Inc. While his income from the
Philippines consisted of talent fees received from various Philippine Corporations for
product endorsements, advertising commercials and television appearances.
On April 15, 2009, Pacquiao filed his 2008 income tax return reporting his
Philippine sourced-income. It was subsequently amended to include his US-sourced
income.
On March 25, 2010, Pacquiao received a Letter of Authority (March LA)
from the Regional District Office NO. 43 (RDO) of the Bureau of Internal Revenue
(BIR) for the examination of his books of accounts another accounting records for
the period covering January 1, 2008 to December 31, 2008.
On April 15, 2010, Pacquiao filed his 2009 income tax return however; he
failed to include his income derived from US. He also failed to file his Value Added
Tax (VAT) returns for the years 2008 and 2009.
Commissioner on Internal Revenue (CIR) issued another Letter of Authority,
dated July 27, 2010 (July LA), authorizing the BIRs National Investigation Division
(NID) to examine the books of accounts and other accounting records of both
Pacquiao and Jinkee for the last 15 years, from 1995 to 2009. On September 21 and
22, 2010, the CIR replaced the July LA by issuing to both Pacquiao and Jinkee
separate electronic versions of the July LA pursuant to Revenue Memorandum
Circular (RMC) No. 56-2010.
Due to these developments, petitioners wrote a letter questioning the
propriety of the CIR investigation as they were already subjected to an earlier
investigation by the BIR for the years prior to 2007, and no fraud was ever found to
have been committed.
The NID informed the counsel of the petitioners that the July LA issued by
the CIR had effectively cancelled and superseded the March LA issued by its RDO.
The same letter also stated that fraud had been established by the Commissioner,
still spouses were given the opportunity to present documents as part of their
procedural rights to due process with regard to the civil aspect thereof. The CIR
informed the petitioners that its reinvestigation of years prior to 2007 was justified
because the assessment thereof was pursuant to a fraud investigation against the
petitioners under the Run After Tax Evaders (RATE) program of the BIR.
On January 5 and 21, 2011, the petitioners submitted various income tax
related documents for the years 2007-2009.18 As for the years 1995 to 2006, the
petitioners explained that they could not furnish the bureau with the books of
accounts and other tax related documents as they had already been disposed.
Finally, the petitioners pointed out that their tax liabilities for the said years had
already been fully settled with then CIR Jose Mario Buag, who after a review, found
no fraud against them.
On June 21, 2011, on the same day that the petitioners made their last
compliance in submitting their tax-related documents, the CIR issued a subpoena
duces tecum, requiring the petitioners to submit additional income tax and VAT-
related documents for the years 1995-2009.
After conducting its own investigation, the CIR made its initial assessment
finding that the petitioners were unable to fully settle their tax liabilities. Thus, the
CIR issued its Notice of Initial Assessment-Informal Conference (NIC), directly
addressed to the petitioners, informing them that based on the best evidence
obtainable, they were liable for deficiency income taxes in the amount of
P714,061,116.30 for 2008 and P1,446,245,864.33 for 2009, inclusive of interests
and surcharges.
The CIR then issued the Preliminary Assessment Notice (PAN), informing
the petitioners that based on third-party information (allowed under Section 5(B)
and 6 of the NIRC), they found the petitioners liable not only for deficiency income
taxes in the amount of P714,061,116.30 for 2008 and P1,446,245,864.33 for 2009,
but also for their non-payment of their VAT liabilities in the amount P4,104,360.01
for 2008 and P 24,901,276.77 for 2009.
The petitioners filed their protest against the PAN.
After denying the protest, the BIR issued its Formal Letter Demand (FLD),
finding the petitioners liable for deficiency income tax and VAT amounting to
P766,899,530.62 for taxable years 2008 and P1,433,421,214.61 for 2009, inclusive
of interests and surcharges. Again, the petitioners questioned the findings of the
CIR.
On May 14, 2013, the BIR issued its Final Decision on Disputed Assessment
(FDDA), addressed to Pacquiao only, informing him that the CIR found him liable for
deficiency income tax and VAT for taxable years 2008 and 2009 which, inclusive of
interests and surcharges, amounted to a total of P2,261,217,439.92.
23
 Seeking to collect the total outstanding tax liabilities of the petitioners, the
Accounts Receivable Monitoring Division of the BIR (BIR-ARMD), issued the
Preliminary Collection Letter (PCL), demanding that both Pacquiao and Jinkee pay
the amount of P2,261,217,439.92, inclusive of interests and surcharges.
Then, on August 7, 2013, the BIR-ARMD sent Pacquiao and Jinkee the Final
Notice Before Seizure (FNBS), informing the petitioners of their last opportunity to
make the necessary settlement of deficiency income and VAT liabilities before the
bureau would proceed against their property. Although they no longer questioned
the BIRs assessment of their deficiency VAT liability, the petitioners requested that
they be allowed to pay the same in four (4) quarterly installments. Eventually,
through a series of installments, Pacquiao and Jinkee paid a total P32,196,534.40 in
satisfaction of their liability for deficiency VAT.
Proceedings at the CTA
Aggrieved that they were being made liable for deficiency income taxes for
the years 2008 and 2009, the petitioners sought redress and filed a petition for
review with the CTA contending that the assessment of the CIR was defective
because it was predicated on its mere allegation that they were guilty of fraud. They
also questioned the validity of the attempt by the CIR to collect deficiency taxes
from Jinkee, arguing that she was denied due process. According to the petitioners,
as all previous communications and notices from the CIR were addressed to both
petitioners, the FDDA was void because it was only addressed to Pacquiao.
Moreover, considering that the PCL and FNBS were based on the FDDA, the same
should likewise be declared void. The petitioners added that the CIR assessment,
which was not based on actual transaction documents but simply on best possible
sources, was not sanctioned by the Tax Code. They also argue that the assessment
failed to consider not only the taxes paid by Pacquiao to the US authorities for his
fights, but also the deductions claimed by him for his expenses.
Pending the resolution by the CTA of their appeal, the petitioners sought
the suspension of the issuance of warrants of distraint and/or levy and warrants of
garnishment. Meanwhile, the BIR-ARMD informed the petitioners that they were
denying their request to defer the collection enforcement action for lack of legal
basis.
A warrant of distraint and/or levy against Pacquiao and Jinkee was included
in the letter. Aggrieved, the petitioners filed the subject Urgent Motion for the CTA
to lift the warrants of distraint, levy and garnishments issued by the CIR against their
assets and to enjoin the CIR from collecting the assessed deficiency taxes pending
the resolution of their appeal. As for the cash deposit and bond requirement under
Section 11 of Republic Act (R.A.) No. 1125, the petitioners question the necessity
thereof, arguing that the CIRs assessment of their tax liabilities was highly
questionable. At the same time, the petitioners manifested that they were willing to
file a bond for such reasonable amount to be fixed by the tax court.
The CTA issued the resolution granting the petitioners Urgent Motion,
ordering the CIR to desist from collecting on the deficiency tax assessments against
the petitioners. In its resolution, the CTA noted that the amount sought to be
collected was way beyond the petitioners net worth, which, based on Pacquiaos
Statement of Assets, Liabilities and Net Worth (SALN), only amounted to
P1,185,984,697.00.
The CTA, however, saw no justification that the petitioners should deposit
less than the disputed amount. They were, thus, required to deposit the amount of
P3,298,514,894.35 or post a bond in the amount of P4,947,772,341.53.
The petitioners sought partial reconsideration praying for the reduction of
the amount of the bond required or an extension of 30 days to file the same. CTA
issued resolution denying the petitioners motion to reduce the required cash
deposit or bond, but allowed them an extension of thirty (30) days within which to
file the same.
Hence, this Petition.
Issues
1. Whether or not Respondent Court acted with grave abuse of discretion
amounting to lack or excess of jurisdiction in presuming the correctness of
a fraud assessment without evidentiary support other than the issuance of
fraud assessments themselves.
2. Whether or not Respondent Court acted with grave abuse of discretion
amounting to lack or excess of jurisdiction when it required Petitioners to
post a bond even if the tax collection processes employed by the
Respondent Court against Petitioners was patently in violation of law
thereby blatantly breaching Petitioners constitutional right to due process.
Arguments of the Petitioners
In support of their position, the petitioners assert that the CTA acted with
grave abuse of discretion amounting to lack or excess of jurisdiction in requiring
them to provide security required under Section 11 of R.A. No. 1125. Under the
circumstances, they claim that they should not be required to make a cash deposit
or post a bond to stay the collection of the questioned deficiency taxes considering
24
that the assessment and collection efforts of the BIR was marred by both procedural
and substantive errors.
It is the position of the petitioners that the circumstances of the case
warrant the application of the exception provided under Section 11 of R.A. No. 1125
as affirmed by the ruling of the Court in Collector of Internal Revenue v. Avelino and
Collector of Internal Revenue v. Zulueta, (Zulueta) and that they should have been
exempted from posting the required security as a prerequisite to suspend the
collection of deficiency taxes from them.
Arguments of the CIR
For its part, the CIR asserts that the CTA was correct in insisting that the
petitioners post the required cash deposit or bond as a condition to suspend the
collection of deficiency taxes. According to the tax administrator, Section 11 of R.A.
No. 1125, as amended, is without exception when it states that notwithstanding an
appeal to the CTA, a taxpayer, in order to suspend the payment of his tax liabilities,
is required to deposit the amount claimed by the CIR or to file a surety bond for not
more than double the amount due.49 As for the Courts rulings in Avelino and
Zulueta invoked by the petitioners, the CIR argues that they are inapplicable
considering that in the said cases, it was ruled that the requirement of posting a
bond to suspend the collection of taxes could be dispensed with only if the methods
employed by the CIR in the tax collection were clearly null and void and prejudicial
to the taxpayer. The CIR points out that, in this case, the CTA itself made no finding
that its collection by summary methods was void and even ruled that the alleged
illegality of the methods employed by the respondent (CIR) to effect the collection
of tax [is] not at all patent or evident xxx and could only be determined after a full-
blown trial.51 The CIR even suggests that the Court revisit its ruling in Avelino and
Zulueta as Section 11 of R.A. No. 1125, as amended, gives the CTA no discretion to
allow the dispensation of the required bond as a condition to suspend the collection
of taxes. Finally, the CIR adds that whether the assessment and collection of the
petitioners tax liabilities were proper as to justify the application of Avelino and
Zulueta is a question of fact which is not proper in a petition for certiorari under
Rule 65, considering that the rule is only confined to issues of jurisdiction.
The Courts Ruling
Section 11 of R.A. No. 1125, as amended by R.A. No. 9282, embodies the
rule that an appeal to the CTA from the decision of the CIR will not suspend the
payment, levy, distraint, and/or sale of any property of the taxpayer for the
satisfaction of his tax liability as provided by existing law. When, in the view of the
CTA, the collection may jeopardize the interest of the Government and/or the
taxpayer, it may suspend the said collection and require the taxpayer either to
deposit the amount claimed or to file a surety bond. The application of the
exception to the rule is the crux of the subject controversy. Specifically, Section 11
provides:
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. x x x x
No appeal taken to the CTA from the decision of the
Commissioner of Internal Revenue or the Commissioner of
Customs or the Regional Trial Court, provincial, city or municipal
treasurer or the Secretary of Finance, the Secretary of Trade and
Industry and Secretary of Agriculture, as the case may be shall
suspend the payment, levy, distraint, and/or sale of any property
of the taxpayer for the satisfaction of his tax liability as provided
by existing law: Provided, however, That when in the opinion of
the Court the collection by the aforementioned government
agencies may jeopardize the interest of the Government and/or
the taxpayer, the Court at any stage of the proceeding may
suspend the said collection and require the taxpayer either to
deposit the amount claimed or to file a surety bond for not more
than double the amount with the Court. x x x x [Emphasis
Supplied]
To recall, the Court in Avelino upheld the decision of the CTA to declare the
warrants of garnishment, distraint and levy and the notice of sale of the properties
of Jose Avelino null and void and ordered the CIR to desist from collecting the
deficiency income taxes which were assessed for the years 1946 to 1948 through
summary administrative methods. The Court therein found that the demand of the
then CIR was made without authority of law because it was made five (5) years and
thirty-five (35) days after the last two returns of Jose Avelino were filed clearly
beyond the three (3)- year prescriptive period provided under what was then
Section 51(d) of the National Internal Revenue Code.
25
 Dismissing the contention of the CIR that the deposit of the amount
claimed or the filing of a bond as required by law was a requisite before relief was
granted, the Court therein concurred with the opinion of the CTA that the courts
were clothed with authority to dispense with the requirement if the method
employed by the Collector of Internal Revenue in the collection of tax is not
sanctioned by law.
In Zulueta, the Court held that a careful analysis of the second paragraph of
said Section 11 will lead to the conclusion that the requirement of the bond as a
condition precedent to the issuance of a writ of injunction applies only in cases
where the processes by which the collection sought to be made by means thereof
are carried out in consonance with law for such cases provided and not when said
processes are obviously in violation of the law to the extreme that they have to be
SUSPENDED for jeopardizing the interests of the taxpayer.
From all the foregoing, it is clear that the authority of the courts to issue
injunctive writs to restrain the collection of tax and to dispense with the deposit of
the amount claimed or the filing of the required bond is not simply confined to
cases where prescription has set in. As explained by the Court in those cases,
whenever it is determined by the courts that the method employed by the Collector
of Internal Revenue in the collection of tax is not sanctioned by law, the bond
requirement under Section 11 of R.A. No. 1125 should be dispensed with. The
purpose of the rule is not only to prevent jeopardizing the interest of the taxpayer,
but more importantly, to prevent the absurd situation wherein the court would
declare that the collection by the summary methods of distraint and levy was
violative of law, and then, in the same breath require the petitioner to deposit or file
a bond as a prerequisite for the issuance of a writ of injunction.
The determination of whether the petitioners case falls within the
exception provided under Section 11, R.A No. 1125 cannot be determined at this
point. Applying the foregoing precepts to the subject controversy, the Court finds no
sufficient basis in the records for the Court to determine whether the dispensation
of the required cash deposit or bond provided under Section 11, R.A No. 1125 is
appropriate. It should first be highlighted that in rendering the assailed resolution,
the CTA, without stating the facts and law, made a determination that the illegality
of the methods employed by the CIR to effect the collection of tax was not patent.
Though it may be true that it would have been premature for the CTA to
immediately determine whether the assessment made against the petitioners was
valid or whether the warrants were properly issued and served, still, it behooved
upon the CTA to properly determine, at least preliminarily, whether the CIR, in its
assessment of the tax liability of the petitioners, and its effort of collecting the
same, complied with the law and the pertinent issuances of the BIR itself. The CTA
should have conducted a preliminary hearing and received evidence so it could have
properly determined whether the requirement of providing the required security
under Section 11, R.A. No. 1125 could be reduced or dispensed with pendente lite.
The Court cannot make a preliminary determination on whether the CIR
used methods not sanctioned by law
Absent any evidence and preliminary determination by the CTA, the Court
cannot make any factual finding and settle the issue of whether the petitioners
should comply with the security requirement under Section 11, R.A. No. 1125. The
determination of whether the methods, employed by the CIR in its assessment,
jeopardized the interests of a taxpayer for being patently in violation of the law is a
question of fact that calls for the reception of evidence which would serve as basis.
In this regard, the CTA is in a better position to initiate this given its time and
resources. The remand of the case to the CTA on this question is, therefore, more
sensible and proper. For the Court to make any finding of fact on this point would be
premature. As stated earlier, there is no evidentiary basis. All the arguments are
mere allegations from both sides. Moreover, any finding by the Court would pre-
empt the CTA from properly exercising its jurisdiction and settle the main issues
presented before it, that is, whether the petitioners were afforded due process;
whether the CIR has valid basis for its assessment; and whether the petitioners
should be held liable for the deficiency taxes.
Decision
Petition to be remanded to the CTA to conduct preliminary hearing As the
CTA is in a better position to make such a preliminary determination; a remand to
the CTA is in order.
Let a Writ of Preliminary Injunction be issued, enjoining the
implementation of the April 22, 2014 and July 11, 2014 Resolutions of the Court of
Tax Appeals, First Division, in CTA Case No. 8683, requiring the petitioners to first
deposit a cash bond in the amount of P3,298,514,894.35 or post a bond of
P4,947,772,341.53, as a condition to restrain the collection of the deficiency taxes
assessed against them.
26

G.R. No. 182737, March 02, 2016
SILICON PHILIPPINES, INC. (FORMERLY INTEL PHILIPPINES MANUFACTURING,
INC.), Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
SERENO, C.J.:
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court
assailing the Court of Tax Appeals (CTA) En Banc Decision 1 dated 18 January 2008
and Resolution2 dated 30 April 2008 in CTA EB No. 298.
The CTA En Banc affirmed the CTA Second Division Decision 3 dated 5 February 2007
and Resolution4dated 29 June 2007 in CTA Case Nos. 6741, 6800 & 6841. That
Decision denied the claim for tax refund or issuance of tax credit certificates
corresponding to petitioner's excess/unutilized input value-added tax (VAT) for the
2nd, 3rd and 4th quarters of taxable year 2001. The CTA En Banc Resolution denied
petitioner's motion for reconsideration.
FACTS
Petitioner is a corporation engaged in the business of designing, developing,
manufacturing and exporting integrated circuit components.5 It is a preferred
pioneer enterprise registered with the Board of Investments. 6 It is likewise
registered with the Bureau of Internal Revenue (BIR) as a VAT taxpayer by virtue of
its sale of goods and services7 with a permit to print accounting documents like
sales invoices and official receipts.8
On 24 July 2001, petitioner filed its 2nd Quarter VAT Return reporting the amount of
P765,696,325.68 as its zero-rated sales.9
Its 3rd Quarter VAT Return filed on 23 October 2001 indicated zero-rated sales in the
amount of P571,812,011.26.10 This amount was increased to P678,418,432.83 in the
Amended 3rd Quarter VAT Return filed on 29 October 2001. 11
The 4th Quarter VAT Return filed on 15 January 2002 reported zero-rated sales in the
amount of P1,000,052,659.89.12 This amount remained unchanged in the Amended
4th Quarter VAT Return filed on 22 May 2002.13
Petitioner sought to recover the VAT it paid on imported capital goods for the
2nd quarter of 2001. On 16 October 2001, it filed with the One-Stop Shop Inter-
Agency Tax Credit and Duty Drawback Center, Department of Finance, an application
for a tax credit/refund in the amount of P9,038,279.56.14
On 4 September 2002, petitioner also filed for a tax credit/refund of the VAT it had
paid on imported capital goods for the 3rd and 4th quarters of 2001 in the amounts of
P1,420,813.0415 and P14,582,023.62,16 respectively.
Because of the continuous inaction by respondent on the administrative claims of
petitioner for a tax credit/refund in the total amount of P25,041,116.22, 17 the latter
filed separate petitions for review before the CTA.
CTA Case No. 6741 filed on 30 July 2003 sought to recover P9,038,279.56 for the
2nd quarter of 2001;18CTA Case No. 6800 filed on 20 October 2003, the amount of
P1,420,813.04 for the 3rd quarter of 2001;19 and CTA Case No. 6841 filed on 30
December 2003, P14,582,023.62 for the 4th quarter of 2001.20
The three cases were consolidated by the CTA Second Division in a Resolution dated
20 February 2004.21 Trial on the merits ensued, and the case was submitted for
decision on 23 August 2007.22
RULING OF THE CTA SECOND DIVISION
In a Decision23 dated 5 February 2007, the CTA Second Division dismissed the
petitions for lack of merit.
It ruled that pursuant to Section 112 of the National Internal Revenue Code (NIRC),
the refund/tax credit of unutilized input VAT is allowed (a) when the excess input
VAT is attributable to zero-rated or effectively zero-rated sales; and (b) when the
excess input VAT is attributable to capital goods purchased by a VAT-registered
person.24
27

25
In order to prove zero-rated export sales, a VAT-registered person must present the
following: (1) the sales invoice as proof of the sale of goods; (2) the export
declaration or bill of lading/airway bill as proof of actual shipment of the goods from
the Philippines to a foreign country; and (3) bank credit advice or certificate of
remittance or any other document proving payment for the goods in acceptable
foreign currency or its equivalent in goods and services. 26
The CTA Second Division found that petitioner presented nothing more than a
certificate of inward remittances for the entire year 2001, in compliance with the
third requirement only.27 That being the case, petitioner's reported export sales in
the total amount of P2,444,167,418.4028 cannot qualify as VAT zero-rated sales.29
On the other hand, a taxpayer claiming a refund/tax credit of input VAT paid on
purchased capital goods must prove all of the following: (1) that it is a VAT-
registered entity; (2) that it paid input VAT on capital goods purchased; (3) that its
input VAT payments on capital goods were duly supported by VAT invoices or official
receipts; (4) that it did not offset or apply the claimed input VAT payments on capital
goods against any output VAT liability; and (5) that the administrative and judicial
claims for a refund were filed within the two-year prescriptive period. 30
The CTA Second Division found that petitioner was able to prove the first and the
fifth requisites for the pertinent quarters of the year 2001. 31
However, petitioner was not able to prove the fourth requisite with regard to the
claimed input VAT payments for the 3rd and the 4th quarters of 2001. The evidence
purportedly showing that it had not offset or applied the claimed input VAT
payment against any output VAT liability was denied admission as evidence for
being a mere photocopy.32
Petitioner also failed to prove the second and the third requisite with regard to the
claimed input VAT payment for the 2nd quarter of 2001. Specifically, it failed to prove
that the purchases were capital goods.33
For purchases to fall under the definition of capital goods or properties, the
following conditions must be present: (1) the goods or properties have an estimated
useful life of more than one year; (2) they are treated as depreciable assets under
Section 29(f) of Revenue Regulations No. 7-95; and (3) they are used directly or
indirectly in the production or sale of taxable goods or services. 34
The CTA Second Division perused the Summary List of Importations on Capital
Goods for the 2nd quarter of 2001 presented by petitioner and found items therein
that could not be considered as depreciable assets.35 As to the rest of the items,
petitioner failed to present the detailed general ledgers and audited financial
statements to show that those goods were capitalized in the books of accounts and
subjected to depreciation.36
Petitioner filed a Motion for Reconsideration, which was denied in the Resolution
dated 29 June 2007.37It then filed before the CTA En Banc a petition for review
challenging the CTA Second Division Decision and Resolution.
RULING OF THE CTA EN BANC
The CTA En Banc issued the assailed Decision 38 dated 18 January 2008 dismissing the
petition for lack of merit.
It affirmed the finding of the CTA Second Division that petitioner had failed to prove
its capital goods purchases for the 2nd quarter of the year 2001.39 The CTA En Banc
emphasized the evidentiary nature of a claim that a VAT-registered person made
capital goods purchases.40 It is necessary to ascertain the treatment of the
purported capital goods as depreciable assets, which can only be determined
through the examination of the detailed general ledgers and audited financial
statements, including the person's income tax return.41 In view of petitioner's lack of
evidence on this point, the claim for the refund or the issuance of tax credit
certificates must be denied.
Petitioner's Motion for Reconsideration was denied in the challenged Resolution
dated 30 April 2008.42
Issues
Petitioner now comes before us raising the following issues for our consideration:
chanRoblesvirtualLawlibrary
I.
[WHETHER] THE COURT OF TAX APPEALS ERRED IN DENYING [PETITIONER'S] CLAIM
FOR REFUND OF ITS EXCESS / UNUTILIZED INPUT VAT DERIVED FROM IMPORTATION
OF CAPITAL GOODS DUE TO ITS FAILURE TO PROVE THE EXISTENCE OF ZERO-RATED
EXPORT SALES.
II.
[WHETHER] THE COURT OF TAX APPEALS ERRED IN FINDING THAT [PETITIONER]
28
FAILED TO COMPLY WITH THE REQUIREMENTS OF A VALID CLAIM FOR REFUND /
TAX CREDIT OF INPUT VAT PAID ON ITS IMPORTATION OF CAPITAL GOODS.
III.
[WHETHER] THE COURT OF TAX APPEALS ERRED IN RULING THAT [PETITIONER]
FAILED TO PROVE THAT THE GOODS IMPORTED ARE CAPITAL GOODS
IV.
[WHETHER] THE INPUT VAT ON THE ALLEGED NON-CAPITAL GOODS ARE STILL
REFUNDABLE BECAUSE THEY ARE ATTRIBUTABLE TO THE ZERO RATED SALES OF
[PETITIONER, A 100% EXPORT ENTERPRISE]43ChanRoblesVirtualawlibrary
In the Resolution dated 30 July 2008,44 we required respondent to comment on the
petition. The Comment dated 21 January 200945 was filed by the Office of the
Solicitor General as counsel.
OUR RULING
The applicable provision of the NIRC, as amended, is Section 112, 46 which provides:
chanRoblesvirtualLawlibrary
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
acceptableFOREIGN 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.
(C) Cancellation of VAT Registration. A person whose registration has been
cancelled due to retirement from or cessation of business, or due to changes in or
cessation of status under Section 106(C) of this Code may, within two (2) years from
the date of cancellation, apply for the issuance of a tax credit certificate for any
unused input tax which may be used in payment of his other internal revenue taxes.
(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.
(E) Manner of Giving Refund. Refunds shall be made upon warrants drawn by the
Commissioner or by his duly authorized representative without the necessity of
being countersigned by the Chairman, Commission on Audit, the provisions of the
Administrative Code of 1987 to the contrary notwithstanding: Provided, That
refunds under this paragraph shall be subject to post audit by the Commission on
Audit. (Emphases supplied)
Under the foregoing provision, the administrative claim of a VAT-registered person
for the issuance by respondent of tax credit certificates or the refund of input taxes
paid on zero-rated sales or capital goods imported may be made within two years
after the close of the taxable quarter when the sale or importation/purchase was
made.
In the case of petitioner, its administrative claim for the 2nd quarter of the year 2001
was filed on 16 October 2001, well within the two-year period provided by law. The
same is true with regard to the administrative claims for the 3rd and the 4th quarters
of 2001, both of which were filed on 4 September 2002.
Upon the filing of an administrative claim, respondent is given a period of 120 days
within which to (1) grant a refund or issue the tax credit certificate for creditable
input taxes; or (2) make a full or partial denial of the claim for a tax refund or tax
credit. Failure on the part of respondent to act on the application within the 120-
29
day period shall be deemed a denial.
As shown by the table below, the judicial claims of petitioner were filed beyond the
Note that the 120-day period begins to run from the date of submission of complete 120+30 day period:
documents supporting the administrative claim. If there is no evidence showing that chanRoblesvirtualLawlibrary
the taxpayer was required to submit47 - or actually submitted - additional Taxable End of the End of the
documents after the filing of the administrative claim, it is presumed that the Administrative Judicial Number of
Quarter of 120-day 30-day
complete documents accompanied the claim when it was filed. 48 Claim Filed Claim Filed Days Late
2001 Period Period

Considering that there is no evidence in this case showing that petitioner made later 13 February 15 March
2nd 16 October 2001 30 July 2003 502 days
submissions of documents in support of its administrative claims, the 120-day 2002 2002
period within which respondent is allowed to act on the claims shall be reckoned 4 September 2 January 1 February 20 October
from 16 October 2001 and 4 September 2002. 3rd 261 days
2002 2003 2003 2003

Whether respondent rules in favor of or against the taxpayer - or does not act at all 30
4 September 2 January 1 February
on the administrative claim - within the period of 120 days from the submission of 4th December 332 days
2002 2003 2003
complete documents, the taxpayer may resort to a judicial claim before the CTA. 2003
The judicial claim for the 4th quarter of 2001, while filed within the period 10
Section 7 of Republic Act No. (R.A.) 1125 (An Act Creating the Court of Tax Appeals), December 2003 up to 6 October 2010, cannot find solace in BIR Ruling No. DA-489-
as amended, provides: 03. The general interpretative rule allowed the premature filing of judicial claims by
chanRoblesvirtualLawlibrary providing that the "taxpayer-claimant need not wait for the lapse of the 120-day
SECTION 7. Jurisdiction. The CTA shall exercise: period before it could seek judicial relief with the CTA by way of Petition for
Review."52 The rule certainly did not allow the filing of a judicial claim long after the
a. Exclusive appellate jurisdiction to review by appeal, as herein provided: expiration of the 120+30 day period.53

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 Code
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; (Emphasis supplied)
The judicial claim shall be filed within a period of 30 days after the receipt of
respondent's decision or ruling or after the expiration of the 120-day period,
whichever is sooner.49
As things stood, the CTA had no jurisdiction to act upon, take cognizance of, and
render judgment upon the petitions for review filed by petitioner. For having been
rendered without jurisdiction, the decision of the CTA Second Division in this case -
and consequently, the decision of the CTA En Banc - is a total nullity that creates no
rights and produces no effect.54
Section 19 of R.A. 1125 provides that parties adversely affected by a decision or
ruling of the CTA En Banc may file before us a verified petition for review on
certiorari pursuant to Rule 45 of the 1997 Rules of Civil Procedure. In this case, the
assailed CTA rulings are not decisions in contemplation of law 55 that can serve as the
subject of this Court's exercise of its power of review.
Given the foregoing, there is no reason for this Court to rule upon the issues raised
by petitioner in the instant petition.chanrobleslaw

Aside from a specific exception to the mandatory and jurisdictional nature of the WHEREFORE, this Court hereby SETS ASIDE the assailed Court of Tax Appeals En
periods provided by the law,50 any claim filed in a period less than or beyond the Banc Decision dated 18 January 2008 and Resolution dated 30 April 2008 in CTA EB
120+30 days provided by the NIRC is outside the jurisdiction of the CTA. 51 No. 298; and the Court of Tax Appeals Second Division Decision dated 5 February
30
2007 and Resolution dated 29 June 2007 in CTA CaseNos. 6741, 6800 & 6841.
The judicial claims filed by petitioner with the Court of Tax Appeals for the refund of
the input value-added tax paid on imported capital goods for the 2 nd, 3rd and
4th quarters of 2001 are DISMISSED for lack of jurisdiction.
SO ORDERED.cralawlawlibrary
G.R. No. 208731
PHILIPPINE AMUSEMENT AND GAMING CORPORATION, Petitioner,
vs.
BUREAU OF INTERNAL REVENUE, COMMISSIONER OF INTERNAL REVENUE, and
REGIONAL DIRECTOR, REVENUE REGION No. 6, Respondents.
DECISION
CARPIO, J.:
The Case
G.R. No. 208731 is a petition for review1 assailing the Decision2 promulgated on 18
February 2013 as well as the Resolution3 promulgated on 23 July 2013 by the Court
of Tax Appeals En Banc (CTA En Banc) in CTA EB No. 844. The CTA EB affirmed the
Decision dated 6 July 20114 and Resolution5 dated 13 October 2011 of the Court of
Tax Appeals' First Division (CTA 1st Division) in CTA Case No. 7880.
In its 6 July 2011 Decision, the CTA 1st Division ruled in favor of the Bureau of
Internal Revenue (BIR), Commissioner of Internal Revenue (CIR), and the Regional
Director of Revenue Region No. 6 (collectively, respondents) and against petitioner
Philippine Amusement and Gaming Corporation (PAGCOR). The CTA 1st Division
dismissed PAGCOR's petition for review seeking the cancellation of the Final
Assessment Notice (FAN) dated 14 January 2008 which respondents issued for
alleged deficiency fringe benefits tax in 2004. The CTA 1st Division ruled that
PAGCOR's petition was filed out of time.
The Facts
The CTA 1st Division recited the facts as follows:
[PAGCOR] claims that it is a duly organized government-owned and controlled
corporation existing under and by virtue of Presidential Decree No. 1869, as
amended, with business address at the 6th Floor, Hyatt Hotel and Casino, Pedro Gil
comer M.H. Del Pilar Streets, Malate, Manila. It was created to regulate, establish
and operate clubs and casinos for amusement and recreation, including sports
gaming pools, and such other forms of amusement and recreation.
Respondent [CIR], on the other hand, is the Head of the [BIR] with authority, among
others, to resolve protests on assessments issued by her office or her authorized
representatives. She holds office at the BIR National Office Building, Agham Road,
Diliman, Quezon City.
[PAGCOR] provides a car plan program to its qualified officers under which sixty
percent (60%) of the car plan availment is shouldered by PAGCOR and the remaining
forty percent (40%) for the account of the officer, payable in five (5) years.
On October 10, 2007, [PAGCOR] received a Post Reporting Notice dated September
28, 2007 from BIR Regional Director Alfredo Misajon [RD Misajon] of Revenue
Region 6, Revenue District No. 33, for an informal conference to discuss the result of
its investigation on [PAGCOR's] internal revenue taxes in 2004. The Post Reporting
Notice shows that [PAGCOR] has deficiencies on Value Added Tax (VAT), Withholding
Tax on VAT (WTV), Expanded Withholding Tax (EWT), and Fringe Benefits Tax (FBI).
31
Subsequently, the BIR abandoned the claim for deficiency assessments on VAT, WTV
and EWT in the Letter to [PAGCOR] dated November 23, 2007 in view of the
principles laid down in Commissioner of Internal Revenue vs. Acesite Hotel
Corporation [G.R. No. 147295] exempting [PAGCOR] and its contractors from VAT.
However, the assessment on deficiency FBT subsists and remains due to date.
On January 17, 2008, [PAGCOR] received a Final Assessment Notice [FAN] dated
January 14, 2008, with demand for payment of deficiency FBT for taxable year 2004
in the amount of P48,589,507.65.
On January 24, 2008, [PAGCOR] filed a protest to the FAN addressed to [RD Misajon]
of Revenue Region No. 6 of the BIR.
On August 14, 2008, [PAGCOR] elevated its protest to respondent CIR in a Letter
dated August 13, 2008, there being no action taken thereon as of that date.
In a Letter dated September 23, 2008 received on September 25, 2008, [PAGCOR]
was informed that the Legal Division of Revenue Region No. 6 sustained Revenue
Officer Ma. Elena Llantada on the imposition of FBT against it based on the
provisions of Revenue Regulations (RR) No. 3-98 and that its protest was forwarded
to the Assessment Division for further action.
On November 19, 2008, [PAGCOR] received a letter from the OIC-Regional Director,
Revenue Region No. 6 (Manila), stating that its letter protest was referred to
Revenue District Office No. 33 for appropriate action.
On March 11, 2009, [PAGCOR] filed the instant Petition for Review alleging
respondents' inaction in its protest on the disputed deficiency FBT. 6
The CTA 1st Division's Ruling
The CTA 1st Division issued the assailed decision dated 6 July 2011 and ruled in favor
of respondents. The CTA 1st Division ruled that RD Misajon's issuance of the FAN
was a valid delegation of authority, and PAGCOR's administrative protest was validly
and seasonably filed on 24 January 2008. The petition for review filed with the CTA
1st Division, however, was filed out of time. The CTA 1st Division stated:
As earlier stated, [PAGCOR] timely filed its administrative protest on January 24,
2008. In accordance with Section 228 of the Tax Code, respondent CIR or her duly
authorized representative had 180 days or until July 22, 2008 to act on the protest.
After the expiration of the 180-day period without action on the protest, as in the
instant case, the taxpayer, specifically [PAGCOR], had 30 days or until August 21,
2008 to assail the non-determination of its protest.
Clearly, the conclusion that the instant Petition for Review was filed beyond the
reglementary period for appeal on March 11, 2009, effectively depriving the Court
of jurisdiction over the petition, is inescapable.
And as provided in Section 228 of the NIRC, the failure of [PAGCOR] to appeal from
an assessment on time rendered the same final, executory and demandable.
Consequently, [PAGCOR] is already precluded from disputing the correctness of the
assessment. The failure to comply with the 30-day statutory period would bar the
appeal and deprive the Court of Tax Appeals of its jurisdiction to entertain and
determine the correctness of the assessment.
Even assuming in gratia argumenti that the [CTA] has jurisdiction over the case as
claimed by [PAGCOR], the petition must still fail on the ground that [PAGCOR] is not
exempt from payment of the assessed FBT under its charter.
xxxx
Since the car plan provided by [PAGCOR] partakes of the nature of a personal
expense attributable to its employees, it shall be treated as taxable fringe benefit of
its employees, whether or not the same is duly receipted in the name of the
employer. Therefore, [PAGCOR's] obligation as an agent of the government to
withhold and remit the final tax on the fringe benefit received by its employees is
personal and direct. The government's cause of action against [PAGCOR] is not for
the collection of income tax, for which [PAGCOR] is exempted, but for the
enforcement of the withholding provision of the 1997 NIRC, compliance of which is
imposed on [PAGCOR] as, the withholding agent, and not upon its employees.
Consequently, [PAGCOR's] non-compliance with said obligation to withhold makes it
personally liable for the tax arising from the breach of its legal duty. 7
PAGCOR filed a motion for reconsideration, dated 26 July 2011, of the 6 July 2011
Decision of the CTA 1st Division. The CIR filed a comment, 8 and asked that PAGCOR
be ordered to pay P48,589,507.65 representing deficiency fringe benefits tax for
taxable year 2004 plus 25% surcharge and 20% delinquency interest from late
payment beyond 15 February 2008 until fully paid, pursuant to Sections 248 and
249 of the National Internal Revenue Code (NIRC) of 1997.
32
In the meantime, the CIR sent PAGCOR a letter dated 18 July 2011. 9 The letter stated
that PAGCOR should be subjected to the issuance of a Warrant of Distraint and/or
Levy and a Warrant of Garnishment because of its failure to pay its outstanding
delinquent account in the amount of P46,589,507.65, which included surcharge and
interest. Settlement of the tax liability is necessary to obviate the issuance of a
Warrant of Distraint and/or Levy and a Warrant of Garnishment.
Subsequently, PAGCOR filed a reply dated 28 September 2011 to ask that an order
be issued directing respondents to hold in abeyance the execution of the Warrant of
Distraint and/or Levy and the Warrant of Garnishment, as well as to suspend the
collection of tax insofar as the 2004 assessment is concerned. PAGCOR also asked
for exemption from filing a bond or depositing the amount claimed by
respondents.10
PAGCOR filed a petition for review with urgent motion to suspend tax
collection11 with the CTA En Banc on 23 November 2011.
The CTA En Banc's Ruling
The CTA En Banc dismissed PAGCOR's petition for review and affirmed the CTA 1st
Division's Decision and Resolution. The CTA En Banc ruled that the protest filed
before the RD is a valid protest; hence, it was superfluous for PAGCOR to raise the
protest before the CIR. When PAGCOR filed its administrative protest on 24 January
2008, the CIR or her duly authorized representative had 180 days or until 22 July
2008 to act on the protest. After the expiration of the 180 days, PAGCOR had 30
days or until 21 August 2008 to assail before the CTA the non-determination of its
protest.
Moreover, Section 223 of the NIRC merely suspends the period within which the BIR
can make assessments on a certain taxpayer. A taxpayer's request for reinvestigation
only happens upon the BIR's issuance of an assessment within the three-year
prescriptive period. The reinvestigation of the assessment suspends the prescriptive
period for either a revised assessment or a retained assessment.
PAGCOR filed its Motion for Reconsideration on 22 March 2013, while respondents
filed their Comment/Opposition on 3 June 2013.
The CTA En Banc denied PAGCOR's motion in a Resolution 12 dated 23 July 2013.
PAGCOR filed the present petition for review on 14 October 2013. Respondents filed
their comment through the Office of the Solicitor General on 20 March 2014. On 23
April 2014, this Court required PAGCOR to file a reply to the comment within 10
days from notice. This period expired on 26 June 2014. On 15 September 2014, this
Court issued another resolution denying PAGCOR's petition for failure to comply
with its lawful order without any valid cause. On 31 October 2014, PAGCOR filed a
motion for reconsideration of the Court's 15 September 2014 Resolution. We
granted PAGCOR's motion in a Resolution dated 10 December 2014.
The Issues
PAGCOR presented the following issues in its petition:
1. Whether or not the CTA En Banc gravely erred in affirming the CTA 1st
Division's Decision dismissing the Petition for Review for having been filed
out of time.
2. Whether or not the CTA En Banc seriously erred when it affirmed the
CTA 1st Division's failure to decide the case on substantive matters, i.e., the
full import of PAGCOR's tax exemption under its charter which necessarily
includes its exemption from the fringe benefits tax (FBT).
2.1 Assuming that PAGCOR is not exempt from the FBT, whether or
not the car plan extended to its officers inured to its benefit and it
is required or necessary in the conduct of its business.
2.2 Assuming that PAGCOR is subject to the alleged deficiency FBT,
whether or not it is only liable for the basic tax, i.e., excluding
surcharge and interest.13
In their Comment,14 respondents argue that the CTA properly dismissed PAGCOR's
petition because it was filed beyond the periods provided by law.
The Court's Ruling
The petition has no merit. The CTA En Banc and 1st Division were correct in
dismissing PAGCOR's petition. However, as we shall explain below, the dismissal
should be on the ground of premature, rather than late, filing.
Timeliness of PAGCOR's Petition before the CTA
33
The CTA 1st Division and CTA En Banc both established that PAGCOR received a FAN
on 17 January 2008, filed its protest to the FAN addressed to RD Misajon on 24
January 2008, filed yet another protest addressed to the CIR on 14 August 2008, and
then filed a petition before the CTA on 11 March 2009. There was no action on
PAGCOR's protests filed on 24 January 2008 and 14 August 2008. PAGCOR would like
this Court to rule that its protest before the CIR starts a new period from which to
determine the last day to file its petition before the CTA.
The CIR, on the other hand, denied PAGCOR's claims of exemption with the issuance
of its 18 July 2011 letter. The letter asked PAGCOR to settle its obligation of
P46,589,507.65, which consisted of tax, surcharge and interest. PAGCOR's failure to
settle its obligation would result in the issuance of a Warrant of Distraint and/or
Levy and a Warrant of Garnishment.
The relevant portions of Section 228 of the NIRC of 1997 provide:
SEC. 228. Protesting of Assessment. - When the Commissioner or his duly authorized
representative finds that proper taxes should be assessed, he shall first notify the
taxpayer of his findings: x x x.
xxxx
Within a period to be prescribed by implementing rules and regulations, the
taxpayer shall be required to respond to said notice. If the taxpayer fails to respond,
the Commissioner or his duly authorized representative shall issue an assessment
based on his findings.
Such assessment may be protested administratively by filing a request for
reconsideration or reinvestigation within thirty (30) days from receipt of the
assessment in such form and manner as may be prescribed by implementing rules
and regulations.
Within sixty (60) days from filing of the protest, all relevant supporting documents
shall have been submitted; otherwise, the assessment shall become final.
If the protest is denied in whole or in part, or is not acted upon within one hundred
eighty (180) days from submission of documents, the taxpayer adversely affected by
the decision or inaction may appeal to the Court of Tax Appeals within thirty (30)
days from receipt of the said decision, or from the lapse of one hundred eighty
(180)-day period; otherwise, the decision shall become final, executory and
demandable.
Section 3.1.5 of Revenue Regulations No. 12-99, implementing Section 228 above,
provides:
3.1.5. Disputed Assessment. - The taxpayer or his duly authorized representative
may protest administratively against the aforesaid formal letter of demand and
assessment notice within thirty (30) days from date of receipt thereof.xx x.
xxxx
If the taxpayer fails to file a valid protest against the formal letter of demand and
assessment notice within thirty (30) days from date of receipt thereof, the
assessment shall become final, executory and demandable.
If the protest is denied, in whole or in part, by the Commissioner, the taxpayer may
appeal to the Court of Tax Appeals within thirty (30) days from the date of receipt of
the said decision, otherwise, the assessment shall become final, executory and
demandable.
In general, if the protest is denied, in whole or in part, by the Commissioner or his
duly authorized representative, the taxpayer may appeal to the Court of Tax Appeals
within thirty (30) days from date of receipt of the said decision, otherwise, the
assessment shall become final executory and demandable: Provided, however, that
if the taxpayer elevates his protest to the Commissioner within thirty (30) days from
date of receipt of the final decision of the Commissioner's duly authorized
representative, the latter's decision shall not be considered final, executory and
demandable, in which case, the protest shall be decided by the Commissioner.
If the Commissioner or his duly authorized representative fails to act on the
taxpayer's protest within one hundred eighty (180) days from date of submission, by
the taxpayer, of the required documents in support of his protest, the taxpayer may
appeal to the Court of Tax Appeals within thirty (30) days from the lapse of the said
180-day period, otherwise the assessment shall become final, executory and
demandable.
Following the verba legis doctrine, the law must be applied exactly as worded since
it is clear, plain, and unequivocal.15 A textual reading of Section 3.1.5 gives a
protesting taxpayer like PAGCOR only three options:
34
 1. If the protest is wholly or partially denied by the CIR or his authorized
representative, then the taxpayer may appeal to the CTA within 30 days
from receipt of the whole or partial denial of the protest.
2. If the protest is wholly or partially denied by the CIR's authorized
representative, then the taxpayer may appeal to the CIR within 30 days
from receipt of the whole or partial denial of the protest.
3. If the CIR or his authorized representative failed to act upon the protest
within 180 days from submission of the required supporting documents,
then the taxpayer may appeal to the CTA within 30 days from the lapse of
the 180-day period.
To further clarify the three options: A whole or partial denial by the CIR's authorized
representative may be appealed to the CIR or the CTA. A whole or partial denial by
the CIR may be appealed to the CTA. The CIR or the CIR's authorized
representative's failure to act may be appealed to the CTA. There is no mention of
an appeal to the CIR from the failure to act by the CIR's authorized representative.
PAGCOR did not wait for the RD or the CIR's decision on its protest. PAGCOR made
separate and successive filings before the RD and the CIR before it filed its petition
with the CTA. We shall illustrate below how PAGCOR failed to follow the clear
directive of Section 228 and Section 3.1.5.
PAGCOR's protest to the RD on 24 January 2008 was filed within the 30-day period
prescribed in Section 228 and Section 3.1.5. The RD did not release any decision on
PAGCOR's protest; thus, PAGCOR was unable to make use of the first option as
described above to justify an appeal to the CTA. The effect of the lack of decision
from the RD is the same, whether we consider PAGCOR's April 2008 submission of
documents16 or not.
Under the third option described above, even if we grant leeway to PAGCOR and
consider its unspecified April 2008 submission, PAGCOR still should have waited for
the RD's decision until 27 October 2008, or 180 days from 30 April 2008. PAGCOR
then had 30 days from 27 October 2008, or until 26 November 2008, to file its
petition before the CTA. PAGCOR, however, did not make use of the third option.
PAGCOR did not file a petition before the CTA on or before 26 November 2008.
Under the second option, PAGCOR ought to have waited for the RD's whole or
partial denial of its protest before it filed an appeal before the CIR. PAGCOR
rendered the second option moot when it formulated its own rule and chose to
ignore the clear text of Section 3.1.5. PAGCOR "elevated an appeal" to the CIR on 13
August 2008 without any decision from the RD, then filed a petition before the CTA
on 11 March 2009. A textual reading of Section 228 and Section 3 .1.5 will readily
show that neither Section 228 nor Section 3 .1.5 provides for the remedy of an
appeal to the CIR in case of the RD's failure to act. The third option states that the
remedy for failure to act by the CIR or his authorized representative is to file an
appeal to the CTA within 30 days after the lapse of 180 days from the submission of
the required supporting documents. PAGCOR clearly failed to do this.1wphi1
If we consider, for the sake of argument, PAGCOR's submission before the CIR as a
separate protest and not as an appeal, then such protest should be denied for
having been filed out of time. PAGCOR only had 30 days from 17 January 2008
within which to file its protest. This period ended on 16 February 2008. PAGCOR
filed its submission before the CIR on 13 August 2008.
When PAGCOR filed its petition before the CTA, it is clear that PAGCOR failed to
make use of any of the three options described above. A petition before the CTA
may only be made after a whole or partial denial of the protest by the CIR or the
CIR's authorized representative. When PAGCOR filed its petition before the CTA on
11 March 2009, there was still no denial of PAGCOR's protest by either the RD or the
CIR. Therefore, under the first option, PAGCOR's petition before the CTA had no
cause of action because it was prematurely filed. The CIR made an unequivocal
denial of PAGCOR's protest only on 18 July 2011, when the CIR sought to collect
from PAGCOR the amount of P46,589,507.65. The CIR's denial further puts PAGCOR
in a bind, because it can no longer amend its petition before the CTA. 17
It thus follows that a complaint whose cause of action has not yet accrued cannot
be cured or remedied by an amended or supplemental pleading alleging the
existence or accrual of a cause of action while the case is pending. Such an action is
prematurely brought and is, therefore, a groundless suit, which should be dismissed
by the court upon proper motion seasonably filed by the defendant. The underlying
reason for this rule is that a person should not be summoned before the public
tribunals to answer for complaints which are [premature]. As this Court eloquently
said in Surigao Mine Exploration Co., Inc. v. Harris:
It is a rule of law to which there is, perhaps, no exception, either at law or in equity,
that to recover at all there must be some cause of action at the commencement of
the suit. As observed by counsel for appellees, there are reasons of public policy
why there should be no needless haste in bringing up litigation, and why people
who are in no default and against whom there is yet no cause of action should not
be summoned before the public tribunals to answer complaints which are
35
groundless. We say groundless because if the action is [premature], it should not be SO ORDERED.
entertained, and an action prematurely brought is a groundless suit.
G.R. No. 180434
It is true that an amended complaint and the answer thereto take the place of the
originals which are thereby regarded as abandoned (Reynes vs. Compaia General COMMISSIONER OF INTERNAL REVENUE, Petitioner,
de Tabacos [1912], 21 Phil. 416; Ruyman and Farris vs. Director of Lands [1916], 34 vs.
Phil. 428) and that "the complaint and answer having been superseded by the MIRANT PAGBILAO CORPORATION (now TeaM Energy Corporation), * Respondent.
amended complaint and answer thereto, and the answer to the original complaint
not having been presented in evidence as an exhibit, the trial court was not DECISION
authorized to take it into account." (Bastida vs. Menzi & Co. [1933], 58 Phil. 188.)
But in none of these cases or in any other case have we held that if a right of action
REYES, J.:
did not exist when the original complaint was filed, one could be created by filing an
amended complaint. In some jurisdictions in the United States what was termed an
This appeal by Petition for Review on Certiorari1 seeks to reverse and set aside the
"imperfect cause of action" could be perfected by suitable amendment (Brown vs.
Decision2 dated September 11, 2007 and Resolution3 dated November 7, 2007 of
Galena Mining & Smelting Co., 32 Kan., 528; Hooper vs. City of Atlanta, 26 Ga. App.,
the Court of Tax Appeals (CTA) en banc in E.B. Case Nos. 216 and 225, affirming the
221) and this is virtually permitted in Banzon and Rosaura vs. Sellner ([1933], 58
Decision4 dated August 31, 2005 of the CTA Second Division in CTA Case No. 6417,
Phil. 453); Asiatic Potroleum [sic] Co. vs. Veloso ([1935], 62 Phil. 683); and recently
ordering petitioner Commissioner of Internal Revenue (CIR) to issue a refund or a
in Ramos vs. Gibbon (38 Off. Gaz. 241). That, however, which is no cause of action
tax credit certificate in the amount of Pl18,756,640.97 in favor of Mirant Pagbilao
whatsoever cannot by amendment or supplemental pleading be converted into a
Corporation5 (MPC).
cause of action: Nihil de re accrescit ei qui nihil in re quando jus accresceret habet.

We are therefore of the opinion, and so hold, that unless the plaintiff has a valid
and subsisting cause of action at the time his action is commenced, the defect
cannot be cured or remedied by the acquisition or accrual of one while the action is
pending, and a supplemental complaint or an amendment setting up such after-
accrued cause of action is not permissible. (Italics ours)18
PAGCOR has clearly failed to comply with the requisites in disputing an assessment
as provided by Section 228 and Section 3.1.5. Indeed, PAGCOR's lapses in procedure
have made the BIR's assessment final, executory and demandable, thus obviating
the need to further discuss the issue of the propriety of imposition of fringe benefits
tax.
WHEREFORE, we DENY the petition. The Decision promulgated on 18 February 2013
and the Resolution promulgated on 23 July 2013 by the Court of Tax Appeals - En
Banc in CTA EB No. 844 are AFFIRMED with the MODIFICATION that the denial of
Philippine Amusement and Gaming Corporation's petition is due to lack of
jurisdiction because of premature filing. We REMAND the case to the Court of Tax
Appeals for the determination of the final amount to be paid by PAGCOR after the
imposition of surcharge and delinquency interest.
The Facts
MPC is a duly-registered Philippine corporation located at Pagbilao Grande Island in
Pagbilao, Quezon, and primarily engaged in the generation and distribution of
electricity to the National Power Corporation (NAPOCOR) under a Build, Operate,
Transfer Scheme. As such, it is registered with the Bureau of Internal Revenue (BIR)
as a Value-Added Tax (VAT) taxpayer in accordance with Section 236 of the National
Internal Revenue Code (NIRC) of 1997, with Taxpayer Identification No. 0001-726-
870, and registered under RDO Control No. 96-600-002498. 6
On November 26, 1999, the BIR approved MPCs application for Effective Zero-
Rating for the construction and operation of its power plant. 7
For taxable year 2000, the quarterly VAT returns filed by MPC on April 25, 2000, July
25, 2000, October 24, 2000, and August 27, 2001 showed an excess input VAT paid
on domestic purchases of goods, services and importation of goods in the amount
of 127,140,331.85.8
On March 11, 2002, MPC filed before the BIR an administrative claim for refund of
its input VAT covering the taxable year of 2000, in accordance with Section 112,

36
subsections (A) and (B) of the NIRC. Thereafter, or on March 26, 2002, fearing that
the period for filing a judicial claim for refund was about to expire, MPC proceeded
to file a petition for review before the CTA, docketed as CTA Case No. 6417, 9 without
waiting for the CIRs action on the administrative claim.
On August 31, 2005, the CTA Second Division rendered a Decision 10 partially granting
MPCs claim for refund, and ordering the CIR to grant a refund or a tax credit
certificate, but only in the reduced amount of 118,749,001.55, representing MPCs
unutilized input VAT incurred for the second, third and fourth quarters of taxable
year 2000.
The CTA Second Division held that by virtue of NAPOCORs exemption from direct
and indirect taxes as provided for in Section 13 11 of Republic Act No. 6395,12 MPCs
sale of services to NAPOCOR is subject to VAT at 0% rate. The Secretary of Finance
even issued a Memorandum dated January 28, 1998, addressed to the CIR,
espousing the Courts ruling that purchases by NAPOCOR of electricity from
independent power producers are subject to VAT at 0% rate, to wit:
As explained by the Supreme Court, the rationale for the [NAPOCORs] tax
exemption is to ensure cheaper power. If the BIRs recent view is to be
implemented, the VAT being an indirect tax, may be passed on by the seller of
electricity to [NAPOCOR]. Effectively, this means that electricity will be sold at a
higher rate to the consumers. Estimates show that a 10% VAT on electricity which is
purchased by [NAPOCOR] from its independent power producers will increase
power cost by about P1.30 billion a year. The effect on the consumer is an additional
charge of P0.59 per kilowatt-hour. The recognition of [NAPOCORs] broad privilege
will inure to the benefit of the Filipino consumer.
In view of the foregoing and using the power of review granted to the Secretary of
Finance under Section 4 of Republic Act No. 8424, the DOF upholds the ruling of the
Supreme Court that the [NAPOCOR] is exempt under its charter and subsequent
laws from all direct and indirect taxes on its purchases of petroleum products and
electricity. Thus, the purchases by [NAPOCOR] of electricity from independent
power producers are subject to VAT at zero-rate. 13
In arriving at the reduced amount of 118,749,001.55, the CTA Second Division
found out that: (a) 2,116,851.79 input taxes claimed should be disallowed because
MPC failed to validate by VAT official receipts and invoices the excess payment of
input taxes; (b) 6,274,478.51 of input taxes was not properly documented; and (c)
the input taxes of 127,140,331.85 for the year 2000 were already deducted by
MPC from the total available input VAT as of April 25, 2002 as evidenced by the
2002 first quarterly VAT return. Thus, the input taxes sought to be refunded were
not applied by MPC against its output VAT liability as of April 25, 2002 and can no
longer be used as credit against its future output VAT liability. 14
Undaunted, MPC filed a motion for partial reconsideration and new trial in view of
the additional amount it sought to be approved.
In an Amended Decision dated August 30, 2006, the CTA Second Division found that
MPC is entitled to a modified amount of 118,756,640.97 input VAT, upon allowing
the amount of 7,639.42 in addition to the VAT input tax. However, MPCs motion
for new trial was denied. Dissatisfied, MPC elevated the matter to the CTA en
banc, particularly in E.B. Case No. 216.15
Meanwhile, the CIR filed a motion for reconsideration of the amended decision.
However, on November 13, 2006, the CTA Second Division issued a Resolution
denying the motion. Thereafter, the CIR filed a petition for review before the CTA en
banc, docketed as E.B. Case No. 225.16
In a Decision17 dated September 11, 2007, the CTA en banc affirmed in toto the
assailed amended decision and resolved the issues presented in E.B. Case Nos. 216
and 225.
In sustaining the decision of the CTA Second Division in E.B. Case No. 216, the
CTA en banc ruled that:
(a) MPCs claim for the refund of 810,047.31 is disallowed for lack of
supporting documents. Tax refunds, being in the nature of tax exemptions,
are construed in strictissimi juris against the claimant. Thus, a mere
summary list submitted by MPC is considered immaterial to prove the
amount of its claimed unutilized input taxes.18
(b) MPCs claim for the refund of 836,768.00 as input taxes is denied due
to lack of proof of payment. As a rule, "input tax on importations should be
supported with Import Entry and Internal Revenue Declarations (IEIRDs)
duly validated for actual payment of input tax" and that other documents
may be adduced to determine its payment.19 Here, the IEIRDs presented by
MPC did not show payment of the input taxes and the amounts indicated
therein differed from the bank debit advice. More so, the bank debit advice
did not properly describe the mode of payment of the input tax which
made it difficult to determine which payee, and to what kind of payment
did the bank debit advices pertain to.20
37
 (c) The denial of MPCs motion for new trial was correct since it was
pointless to require MPC to submit additional documents in support of the
unutilized input tax of 3,310,109.20, in view of MPCs admission that the
VAT official receipts and invoices were not even pre-marked and proffered
before the court. Regrettably, without such documents, the CTA could not
in any way properly verify the correctness of the certified public
accountants conclusion.21
As regards E.B. Case No. 225, the CTA en banc upheld the ruling of the CTA Second
Division that VAT at 0% rate may be imposed on the sale of services of MPC to
NAPOCOR on the basis of NAPOCORs exemption from direct and indirect taxes. 22
Disagreeing with the CTA en bancs decision, both parties filed their respective
motions for reconsideration, which were denied in the CTA en
banc Resolution23 dated November 7, 2007.
Feeling aggrieved by the adverse ruling of the CTA en banc, the CIR now seeks
recourse to the Court via a petition for review on certiorari.
The Issues
The CIR raises in the petition the sole issue of whether or not the CTA erred in
granting MPCs claim for refund of its excess input VAT payments on domestic
purchases of goods, services and importation of goods attributable to zero-rated
sales for taxable year 2000.24
The Court, however, points out that given the factual antecedents, the case also
raises a jurisdictional issue inasmuch as MPC instituted the CTA action 15 days from
the filing of its administrative claim for refund and without waiting for the CIRs
action thereon. Thus, towards a full and proper resolution of the issue on the tax
courts action on MPCs case, the Court finds it necessary to likewise resolve the
issue of whether or not the CTA had jurisdiction to entertain MPCs judicial claim.
Ruling of the Court
The Court shall first address the issue on jurisdiction. While the matter was not
raised by the CIR in its petition, it is settled that a jurisdictional issue may be invoked
by either party or even the Court motu proprio, and may be raised at any stage of
the proceedings, even on appeal. Thus, the Court emphasized in Sales, et al. v.
Barro:25
It is well-settled that a courts jurisdiction may be raised at any stage of the
proceedings, even on appeal. The reason is that jurisdiction is conferred by law, and
lack of it affects the very authority of the court to take cognizance of and to render
judgment on the action. x x x [E]ven if [a party] did not raise the issue of jurisdiction,
the reviewing court is not precluded from ruling that it has no jurisdiction over the
case. In this sense, dismissal for lack of jurisdiction may even be ordered by the
court motu proprio.26 (Citations omitted)
In the present dispute, compliance with the requirements on administrative claims
with the CIR, which are to precede judicial actions with the CTA, indubitably impinge
on the tax courts jurisdiction. In CIR v. Aichi Forging Company of Asia, Inc.,27 the
Court ruled that the premature filing of a claim for refund or credit of input VAT
before the CTA warrants a dismissal, inasmuch as no jurisdiction is acquired by the
tax court.28 Pertinent thereto are the provisions of Section 112 of the NIRC at the
time of MPCs filing of the administrative and judicial claims, and which prescribe
the periods within which to file and resolve such claims, to wit:
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 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
[CTA].
xxxx
38
Contrary to the specified periods, specifically those that are provided in the second
paragraph of Section 112(D), MPC filed its petition for review with the CTA on March
26, 2002, or a mere 15 days after it filed an administrative claim for refund with the
CIR on March 11, 2002. It then did not wait for the lapse of the 120-day period
expressly provided for by law within which the CIR shall grant or deny the
application for refund. The Courts pronouncement in CIR v. San Roque Power
Corporation29 is instructive on the effect of such failure to comply with the 120-day
waiting period, to wit:
1. Application of the 120+30-Day Periods
xxxx
It is indisputable that compliance with the 120-day waiting period is mandatory and
jurisdictional. The waiting period, originally fixed at 60 days only, was part of the
provisions of the first VAT law, Executive Order No. 273, which took effect on 1
January 1988. The waiting period was extended to 120 days effective 1 January 1998
under RA 8424 or the Tax Reform Act of 1997. Thus, the waiting period has been in
our statute books for more than fifteen (15) years before San Roque filed its
judicial claim.
Failure to comply with the 120-day waiting period violates a mandatory provision of
law. It violates the doctrine of exhaustion of administrative remedies and renders
the petition premature and thus without a cause of action, with the effect that the
CTA does not acquire jurisdiction over the taxpayers petition. Philippine
jurisprudence is replete with cases upholding and reiterating these doctrinal
principles.
The charter of the CTA expressly provides that its jurisdiction is to review on appeal
"decisions of the [CIR] in cases involving x x x refunds of internal revenue taxes."
When a taxpayer prematurely files a judicial claim for tax refund or credit with the
CTA without waiting for the decision of the Commissioner, there is no "decision" of
the Commissioner to review and thus the CTA as a court of special jurisdiction has
no jurisdiction over the appeal. The charter of the CTA also expressly provides that if
the Commissioner fails to decide within "a specific period" required by law, such
"inaction shall be deemed a denial" of the application for tax refund or credit. It is
the Commissioners decision, or inaction "deemed a denial," that the taxpayer can
take to the CTA for review. Without a decision or an "inaction x x x deemed a denial"
of the Commissioner, the CTA has no jurisdiction over a petition for
review.30(Citations omitted, emphasis in the original and underscoring ours)
The Court explained further:
The old rule that the taxpayer may file the judicial claim, without waiting for the
Commissioners 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.
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.31 (Citations omitted and emphasis in the original)
The cited exception to the general rule, which came as a result of the issuance of
BIR Ruling No. DA-489-03, does not apply to MPCs case as its administrative and
judicial claims were both filed in March 2002.
The doctrine laid down in San Roque was reiterated in subsequent cases. In CIR v.
Aichi Forging Company of Asia, Inc.,32 the Court cited the general rule that parties
must observe the mandatory 120-day waiting period to give the CIR an opportunity
to act on administrative claims; otherwise, their judicial claims are prematurely
filed.33 In Team Energy Corporation (formerly MPC) v. CIR,34 the Court again
emphasized the rule stating that "the 120-day period is crucial in filing an appeal
with the CTA."35 "[T]he 120-day period is mandatory and jurisdictional, and that the
CTA does not acquire jurisdiction over a judicial claim that is filed before the
expiration of the 120-day period."36
Clearly, MPC's failure to observe the mandatory 120-day period under the law was
fatal to its immediate filing of a judicial claim before the CTA. It rendered the filing
of the CTA petition premature, and barred the tax court from acquiring jurisdiction
over the same. Thus, the dismissal of the petition is in order. "[T]ax refunds or tax
39
credits - just like tax exemptions - are strictly construed against taxpayers, the latter
having the burden to prove strict compliance with the conditions for the grant of
the tax refund or credit."37

With the CTA being barren of jurisdiction to entertain MPC's petition, the Court
finds it unnecessary, even inappropriate, to still discuss the main issue of MPC's
entitlement to the disputed tax refund. The petition filed by MPC with the CT A
instead warrants a dismissal. It is settled that "a void judgment for want of
jurisdiction is no judgment at all."38

WHEREFORE, the DeCision dated September 11, 2007 and Resolution dated
November 7, 2007 of the Court of Tax Appeals en banc in E.B. Case Nos. 216 and
225 are SET ASIDE, as the CTA Case No. 6417 was prematurely filed, and therefore,
the CTA lacked jurisdiction to entertain Mirant Pagbilao Corporation's judicial claim.

SO ORDERED.

40