You are on page 1of 82

BASIC ELEMENTS

#1

[G.R. No. 125355. March 30, 2000]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. COURT OF APPEALS


and COMMONWEALTH MANAGEMENT AND SERVICES
CORPORATION, respondents. Court

DECISION

PARDO, J.:

What is before the Court is a petition for review on certiorari of the decision of the Court
of Appeals,[1] reversing that of the Court of Tax Appeals,[2] which affirmed with
modification the decision of the Commissioner of Internal Revenue ruling that
Commonwealth Management and Services Corporation, is liable for value added tax for
services to clients during taxable year 1988.

Commonwealth Management and Services Corporation (COMASERCO, for brevity), is


a corporation duly organized and existing under the laws of the Philippines. It is an
affiliate of Philippine American Life Insurance Co. (Philamlife), organized by the letter to
perform collection, consultative and other technical services, including functioning as an
internal auditor, of Philamlife and its other affiliates.

On January 24, 1992, the Bureau of Internal Revenue (BIR) issued an assessment to
private respondent COMASERCO for deficiency value-added tax (VAT) amounting to
P351,851.01, for taxable year 1988, computed as follows:

"Taxable sale/receipt P1,679,155.00

10% tax due thereon 167,915.50

25% surcharge 41,978.88

20% interest per annum 125,936.63

Compromise penalty for late payment 16,000.00

TOTAL AMOUNT DUE AND COLLECTIBLE P 351,831.01"[3]

COMASERCO's annual corporate income tax return ending December 31, 1988
indicated a net loss in its operations in the amount of P6,077.00. J lexj

On February 10, 1992, COMASERCO filed with the BIR, a letter-protest objecting to the
latter's finding of deficiency VAT. On August 20, 1992, the Commissioner of Internal
Revenue sent a collection letter to COMASERCO demanding payment of the deficiency
VAT.

On September 29,1992, COMASERCO filed with the Court of Tax Appeals [4] a petition
for review contesting the Commissioner's assessment. COMASERCO asserted that the
services it rendered to Philamlife and its affiliates, relating to collections, consultative
and other technical assistance, including functioning as an internal auditor, were on a
"no-profit, reimbursement-of-cost-only" basis. It averred that it was not engaged id the
business of providing services to Philamlife and its affiliates. COMASERCO was
established to ensure operational orderliness and administrative efficiency of Philamlife
and its affiliates, and not in the sale of services. COMASERCO stressed that it was not
profit-motivated, thus not engaged in business. In fact, it did not generate profit but
suffered a net loss in taxable year 1988. COMASERCO averred that since it was not
engaged in business, it was not liable to pay VAT.
On June 22, 1995, the Court of Tax Appeals rendered decision in favor of the
Commissioner of Internal Revenue, the dispositive portion of which reads:

"WHEREFORE, the decision of the Commissioner of Internal Revenue


assessing petitioner deficiency value-added tax for the taxable year 1988
is AFFIRMED with slight modifications. Accordingly, petitioner is ordered
to pay respondent Commissioner of Internal Revenue the amount of
P335,831.01 inclusive of the 25% surcharge and interest plus 20%
interest from January 24, 1992 until fully paid pursuant to Section 248 and
249 of the Tax Code.

"The compromise penalty of P16,000.00 imposed by the respondent in her


assessment letter shall not be included in the payment as there was no
compromise agreement entered into between petitioner and respondent
with respect to the value-added tax deficiency."[5]

On July 26, 1995, respondent filed with the Court of Appeals, petition for review of the
decision of the Court of Appeals.

After due proceedings, on May 13, 1996, the Court of Appeals rendered decision
reversing that of the Court of Tax Appeals, the dispositive portion of which reads: Lexj
uris

"WHEREFORE, in view of the foregoing, judgment is hereby rendered


REVERSING and SETTING ASIDE the questioned Decision promulgated
on 22 June 1995. The assessment for deficiency value-added tax for the
taxable year 1988 inclusive of surcharge, interest and penalty charges are
ordered CANCELLED for lack of legal and factual basis."[6]

The Court of Appeals anchored its decision on the ratiocination in another tax case
involving the same parties,[7] where it was held that COMASERCO was not liable to pay
fixed and contractor's tax for services rendered to Philamlife and its affiliates. The Court
of Appeals, in that case, reasoned that COMASERCO was not engaged in business of
providing services to Philamlife and its affiliates. In the same manner, the Court of
Appeals held that COMASERCO was not liable to pay VAT for it was not engaged in the
business of selling services.

On July 16, 1996, the Commissioner of Internal Revenue filed with this Court a petition
for review on certiorari assailing the decision of the Court of Appeals.

On August 7, 1996, we required respondent COMASERCO to file comment on the


petition, and on September 26, 1996, COMASERCO complied with the resolution. [8]

We give due course to the petition.

At issue in this case is whether COMASERCO was engaged in the sale of services, and
thus liable to pay VAT thereon.

Petitioner avers that to "engage in business" and to "engage in the sale of services" are
two different things. Petitioner maintains that the services rendered by COMASERCO to
Philamlife and its affiliates, for a fee or consideration, are subject to VAT. VAT is a tax
on the value added by the performance of the service. It is immaterial whether profit is
derived from rendering the service. Juri smis

We agree with the Commissioner.

Section 99 of the National Internal Revenue Code of 1986, as amended by Executive


Order (E.O.) No. 273 in 1988, provides that:

"Section 99. Persons liable. - Any person who, in the course of trade or
business, sells, barters or exchanges goods, renders services, or engages
in similar transactions and any person who imports goods shall be subject
to the value-added tax (VAT) imposed in Sections 100 to 102 of this
Code."[9]

COMASERCO contends that the term "in the course of trade or business" requires that
the "business" is carried on with a view to profit or livelihood. It avers that the activities
of the entity must be profit- oriented. COMASERCO submits that it is not motivated by
profit, as defined by its primary purpose in the articles of incorporation, stating that it is
operating "only on reimbursement-of-cost basis, without any profit." Private respondent
argues that profit motive is material in ascertaining who to tax for purposes of
determining liability for VAT.

We disagree.

On May 28, 1994, Congress enacted Republic Act No. 7716, the Expanded VAT Law
(EVAT), amending among other sections, Section 99 of the Tax Code. On January 1,
1998, Republic Act 8424, the National Internal Revenue Code of 1997, took effect. The
amended law provides that:

"SEC. 105. Persons Liable. - Any person who, in the course of trade or
business, sells, barters, exchanges, leases goods or properties, renders
services, and any person who imports goods shall be subject to the value-
added tax (VAT) imposed in Sections 106 and 108 of this Code.

"The value-added tax is an indirect tax and the amount of tax may be
shifted or passed on to the buyer, transferee or lessee of the goods,
properties or services. This rule shall likewise apply to existing sale or
lease of goods, properties or services at the time of the effectivity of
Republic Act No.7716.

"The phrase "in the course of trade or business" means the regular
conduct or pursuit of a commercial or an economic activity, including
transactions incidental thereto, by any person regardless of whether or not
the person engaged therein is a nonstock, nonprofit organization
(irrespective of the disposition of its net income and whether or not it sells
exclusively to members of their guests), or government entity. Jjj uris

"The rule of regularity, to the contrary notwithstanding, services as defined


in this Code rendered in the Philippines by nonresident foreign persons
shall be considered as being rendered in the course of trade or business."

Contrary to COMASERCO's contention the above provision clarifies that even a non-
stock, non-profit, organization or government entity, is liable to pay VAT on the sale of
goods or services. VAT is a tax on transactions, imposed at every stage of the
distribution process on the sale, barter, exchange of goods or property, and on the
performance of services, even in the absence of profit attributable thereto. The term "in
the course of trade or business" requires the regular conduct or pursuit of a commercial
or an economic activity, regardless of whether or not the entity is profit-oriented.

The definition of the term "in the course of trade or business" incorporated in the
present law applies to all transactions even to those made prior to its enactment.
Executive Order No. 273 stated that any person who, in the course of trade or business,
sells, barters or exchanges goods and services, was already liable to pay VAT. The
present law merely stresses that even a nonstock, nonprofit organization or government
entity is liable to pay VAT for the sale of goods and services.

Section 108 of the National Internal Revenue Code of 1997[10] defines the phrase "sale
of services" as the "performance of all kinds of services for others for a fee,
remuneration or consideration." It includes "the supply of technical advice, assistance or
services rendered in connection with technical management or administration of any
scientific, industrial or commercial undertaking or project."[11]
On February 5, 1998, the Commissioner of Internal Revenue issued BIR Ruling No.
010-98[12] emphasizing that a domestic corporation that provided technical, research,
management and technical assistance to its affiliated companies and received
payments on a reimbursement-of-cost basis, without any intention of realizing profit,
was subject to VAT on services rendered. In fact, even if such corporation was
organized without any intention of realizing profit, any income or profit generated by the
entity in the conduct of its activities was subject to income tax.lex

Hence, it is immaterial whether the primary purpose of a corporation indicates that it


receives payments for services rendered to its affiliates on a reimbursement-on-cost
basis only, without realizing profit, for purposes of determining liability for VAT on
services rendered. As long as the entity provides service for a fee, remuneration or
consideration, then the service rendered is subject to VAT.

At any rate, it is a rule that because taxes are the lifeblood of the nation, statutes that
allow exemptions are construed strictly against the grantee and liberally in favor of the
government. Otherwise stated, any exemption from the payment of a tax must be
clearly stated in the language of the law; it cannot be merely implied therefrom.[13] In the
case of VAT, Section 109, Republic Act 8424 clearly enumerates the transactions
exempted from VAT. The services rendered by COMASERCO do not fall within the
exemptions.

Both the Commissioner of Internal Revenue and the Court of Tax Appeals correctly
ruled that the services rendered by COMASERCO to Philamlife and its affiliates are
subject to VAT. As pointed out by the Commissioner, the performance of all kinds of
services for others for a fee, remuneration or consideration is considered as sale of
services subject to VAT. As the government agency charged with the enforcement of
the law, the opinion of the Commissioner of Internal Revenue, in the absence of any
showing that it is plainly wrong, is entitled to great weight.[14] Also, it has been the long
standing policy and practice of this Court to respect the conclusions of quasi-judicial
agencies, such as the Court of Tax Appeals which, by the nature of its functions, is
dedicated exclusively to the study and consideration of tax cases and has necessarily
developed an expertise on the subject, unless there has been an abuse or improvident
exercise of its authority.[15]

There is no merit to respondent's contention that the Court of Appeals' decision in CA-
G. R. No. 34042, declaring the COMASERCO as not engaged in business and not
liable for the payment of fixed and percentage taxes, binds petitioner. The issue in CA-
G. R. No. 34042 is different from the present case, which involves COMASERCO's
liability for VAT. As heretofore stated, every person who sells, barters, or exchanges
goods and services, in the course of trade or business, as defined by law, is subject to
VAT. Jksm

WHEREFORE, the Court GRANTS the petition and REVERSES the decision of the
Court of Appeals in CA-G. R. SP No. 37930. The Court hereby REINSTATES the
decision of the Court of Tax Appeals in C. T. A. Case No. 4853.

No costs.

SO ORDERED.

#2
COMMISSIONER OF G.R. No. 146984
INTERNAL REVENUE
Petitioner,
Present:
QUISUMBING,
- versus - Chairperson,
Respondents. Promulgated:
CARPIO,
CARPIO MORALES,
TINGA, and
MAGSAYSAY LINES, INC., VELASCO, JR., JJ.
BALIWAG NAVIGATION, INC.,
FIM LIMITED OF THE MARDEN
GROUP (HK) and NATIONAL
DEVELOPMENT COMPANY,

July 28, 2006

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

DECISION

TINGA, J.:

The issue in this present petition is whether the sale by the National Development
Company (NDC) of five (5) of its vessels to the private respondents is subject to value-
added tax (VAT) under the National Internal Revenue Code of 1986 (Tax Code) then
prevailing at the time of the sale. The Court of Tax Appeals (CTA) and the Court of
Appeals commonly ruled that the sale is not subject to VAT. We affirm, though on a
more unequivocal rationale than that utilized by the rulings under review. The fact that
the sale was not in the course of the trade or business of NDC is sufficient in itself to
declare the sale as outside the coverage of VAT.

The facts are culled primarily from the ruling of the CTA.

Pursuant to a government program of privatization, NDC decided to sell to


private enterprise all of its shares in its wholly-owned subsidiary the National Marine
Corporation (NMC). The NDC decided to sell in one lot its NMC shares and five (5) of its
ships, which are 3,700 DWT Tween-Decker, Kloeckner type vessels.[1] The vessels
were constructed for the NDC between 1981 and 1984, then initially leased to Luzon
Stevedoring Company, also its wholly-owned subsidiary. Subsequently, the vessels
were transferred and leased, on a bareboat basis, to the NMC.[2]
The NMC shares and the vessels were offered for public bidding. Among the stipulated
terms and conditions for the public auction was that the winning bidder was to pay a
value added tax of 10% on the value of the vessels. [3] On 3 June 1988, private
respondent Magsaysay Lines, Inc. (Magsaysay Lines) offered to buy the shares and the
vessels for P168,000,000.00. The bid was made by Magsaysay Lines, purportedly for a
new company still to be formed composed of itself, Baliwag Navigation, Inc., and FIM
Limited of the Marden Group based in Hongkong (collectively, private
respondents).[4] The bid was approved by the Committee on Privatization, and a Notice
of Award dated 1 July 1988 was issued to Magsaysay Lines.
On 28 September 1988, the implementing Contract of Sale was executed between
NDC, on one hand, and Magsaysay Lines, Baliwag Navigation, and FIM Limited, on the
other. Paragraph 11.02 of the contract stipulated that [v]alue-added tax, if any, shall be
for the account of the PURCHASER.[5] Per arrangement, an irrevocable confirmed
Letter of Credit previously filed as bidders bond was accepted by NDC as security for
the payment of VAT, if any. By this time, a formal request for a ruling on whether or not
the sale of the vessels was subject to VAT had already been filed with the Bureau of
Internal Revenue (BIR) by the law firm of Sycip Salazar Hernandez & Gatmaitan,
presumably in behalf of private respondents. Thus, the parties agreed that should no
favorable ruling be received from the BIR, NDC was authorized to draw on the Letter of
Credit upon written demand the amount needed for the payment of the VAT on the
stipulated due date, 20 December 1988.[6]
In January of 1989, private respondents through counsel received VAT Ruling No. 568-
88 dated 14 December 1988 from the BIR, holding that the sale of the vessels was
subject to the 10% VAT. The ruling cited the fact that NDC was a VAT-registered
enterprise, and thus its transactions incident to its normal VAT registered activity of
leasing out personal property including sale of its own assets that are movable, tangible
objects which are appropriable or transferable are subject to the 10% [VAT].[7]
Private respondents moved for the reconsideration of VAT Ruling No. 568-88, as well
as VAT Ruling No. 395-88 (dated 18 August 1988), which made a similar ruling on the
sale of the same vessels in response to an inquiry from the Chairman of the Senate
Blue Ribbon Committee. Their motion was denied when the BIR issued VAT Ruling
Nos. 007-89 dated 24 February 1989, reiterating the earlier VAT rulings. At this point,
NDC drew on the Letter of Credit to pay for the VAT, and the amount of P15,120,000.00
in taxes was paid on 16 March 1989.
On 10 April 1989, private respondents filed an Appeal and Petition for Refund with the
CTA, followed by a Supplemental Petition for Review on 14 July 1989. They prayed for
the reversal of VAT Rulings No. 395-88, 568-88 and 007-89, as well as the refund of the
VAT payment made amounting to P15,120,000.00.[8] The Commissioner of Internal
Revenue (CIR) opposed the petition, first arguing that private respondents were not the
real parties in interest as they were not the transferors or sellers as contemplated in
Sections 99 and 100 of the then Tax Code. The CIR also squarely defended the VAT
rulings holding the sale of the vessels liable for VAT, especially citing Section 3 of
Revenue Regulation No. 5-87 (R.R. No. 5-87), which provided that [VAT] is imposed on
any sale or transactions deemed sale of taxable goods (including capital goods,
irrespective of the date of acquisition). The CIR argued that the sale of the vessels were
among those transactions deemed sale, as enumerated in Section 4 of R.R. No. 5-87. It
seems that the CIR particularly emphasized Section 4(E)(i) of the Regulation, which
classified change of ownership of business as a circumstance that gave rise to a
transaction deemed sale.
In a Decision dated 27 April 1992, the CTA rejected the CIRs arguments and granted
the petition.[9] The CTA ruled that the sale of a vessel was an isolated transaction, not
done in the ordinary course of NDCs business, and was thus not subject to VAT, which
under Section 99 of the Tax Code, was applied only to sales in the course of trade or
business. The CTA further held that the sale of the vessels could not be deemed sale,
and thus subject to VAT, as the transaction did not fall under the enumeration of
transactions deemed sale as listed either in Section 100(b) of the Tax Code, or Section
4 of R.R. No. 5-87. Finally, the CTA ruled that any case of doubt should be resolved in
favor of private respondents since Section 99 of the Tax Code which implemented VAT
is not an exemption provision, but a classification provision which warranted the
resolution of doubts in favor of the taxpayer.
The CIR appealed the CTA Decision to the Court of Appeals,[10] which on 11
March 1997, rendered a Decision reversing the CTA.[11] While the appellate court
agreed that the sale was an isolated transaction, not made in the course of NDCs
regular trade or business, it nonetheless found that the transaction fell within the
classification of those deemed sale under R.R. No. 5-87, since the sale of the vessels
together with the NMC shares brought about a change of ownership in NMC. The Court
of Appeals also applied the principle governing tax exemptions that such should be
strictly construed against the taxpayer, and liberally in favor of the government.[12]
However, the Court of Appeals reversed itself upon reconsidering the case, through a
Resolution dated 5 February 2001.[13] This time, the appellate court ruled that the
change of ownership of business as contemplated in R.R. No. 5-87 must be a
consequence of the retirement from or cessation of business by the owner of the goods,
as provided for in Section 100 of the Tax Code. The Court of Appeals also agreed with
the CTA that the classification of transactions deemed sale was a classification statute,
and not an exemption statute, thus warranting the resolution of any doubt in favor of the
taxpayer.[14]

To the mind of the Court, the arguments raised in the present petition have already
been adequately discussed and refuted in the rulings assailed before us. Evidently, the
petition should be denied. Yet the Court finds that Section 99 of the Tax Code is
sufficient reason for upholding the refund of VAT payments, and the subsequent
disquisitions by the lower courts on the applicability of Section 100 of the Tax Code and
Section 4 of R.R. No. 5-87 are ultimately irrelevant.
A brief reiteration of the basic principles governing VAT is in order. VAT is ultimately a
tax on consumption, even though it is assessed on many levels of transactions on the
basis of a fixed percentage.[15] It is the end user of consumer goods or services which
ultimately shoulders the tax, as the liability therefrom is passed on to the end users by
the providers of these goods or services[16] who in turn may credit their own VAT liability
(or input VAT) from the VAT payments they receive from the final consumer (or output
VAT).[17] The final purchase by the end consumer represents the final link in a
production chain that itself involves several transactions and several acts of
consumption. The VAT system assures fiscal adequacy through the collection of taxes
on every level of consumption,[18] yet assuages the manufacturers or providers of goods
and services by enabling them to pass on their respective VAT liabilities to the next link
of the chain until finally the end consumer shoulders the entire tax liability.
Yet VAT is not a singular-minded tax on every transactional level. Its assessment bears
direct relevance to the taxpayers role or link in the production chain. Hence, as affirmed
by Section 99 of the Tax Code and its subsequent incarnations,[19] the tax is levied only
on the sale, barter or exchange of goods or services by persons who engage in such
activities, in the course of trade or business. These transactions outside the course
of trade or business may invariably contribute to the production chain, but they do so
only as a matter of accident or incident. As the sales of goods or services do not occur
within the course of trade or business, the providers of such goods or services would
hardly, if at all, have the opportunity to appropriately credit any VAT liability as against
their own accumulated VAT collections since the accumulation of output VAT arises in
the first place only through the ordinary course of trade or business.
That the sale of the vessels was not in the ordinary course of trade or business of NDC
was appreciated by both the CTA and the Court of Appeals, the latter doing so even in
its first decision which it eventually reconsidered.[20] We cite with approval the CTAs
explanation on this point:
In Imperial v. Collector of Internal Revenue, G.R. No. L-7924,
September 30, 1955 (97 Phil. 992), the term carrying on business does not
mean the performance of a single disconnected act, but means conducting,
prosecuting and continuing business by performing progressively all the acts
normally incident thereof; while doing business conveys the idea of business
being done, not from time to time, but all the time. [J. Aranas, UPDATED
NATIONAL INTERNAL REVENUE CODE (WITH ANNOTATIONS), p. 608-9
(1988)]. Course of business is what is usually done in the management of trade
or business. [Idmi v. Weeks & Russel, 99 So. 761, 764, 135 Miss. 65, cited in
Words & Phrases, Vol. 10, (1984)].

What is clear therefore, based on the aforecited jurisprudence, is


that course of business or doing business connotes regularity of activity. In the
instant case, the sale was an isolated transaction. The sale which was involuntary
and made pursuant to the declared policy of Government for privatization could
no longer be repeated or carried on with regularity. It should be emphasized that
the normal VAT-registered activity of NDC is leasing personal property.[21]
This finding is confirmed by the Revised Charter[22] of the NDC which bears no
indication that the NDC was created for the primary purpose of selling real property. [23]
The conclusion that the sale was not in the course of trade or business, which
the CIR does not dispute before this Court,[24] should have definitively settled the matter.
Any sale, barter or exchange of goods or services not in the course of trade or
business is not subject to VAT.
Section 100 of the Tax Code, which is implemented by Section 4(E)(i) of R.R. No. 5-87
now relied upon by the CIR, is captioned Value-added tax on sale of goods, and it
expressly states that [t]here shall be levied, assessed and collected on every sale,
barter or exchange of goods, a value added tax x x x. Section 100 should be read in
light of Section 99, which lays down the general rule on which persons are liable for
VAT in the first place and on what transaction if at all. It may even be noted that Section
99 is the very first provision in Title IV of the Tax Code, the Title that covers VAT in the
law. Before any portion of Section 100, or the rest of the law for that matter, may be
applied in order to subject a transaction to VAT, it must first be satisfied that the
taxpayer and transaction involved is liable for VAT in the first place under Section 99.
It would have been a different matter if Section 100 purported to define the phrase in the
course of trade or business as expressed in Section 99. If that were so, reference to
Section 100 would have been necessary as a means of ascertaining whether the sale of
the vessels was in the course of trade or business, and thus subject to
VAT. But that is not the case. What Section 100 and Section 4(E)(i) of R.R. No. 5-87
elaborate on is not the meaning of in the course of trade or business, but instead the
identification of the transactions which may be deemed as sale. It would become
necessary to ascertain whether under those two provisions the transaction may be
deemed a sale, only if it is settled that the transaction occurred in the course of trade or
business in the first place. If the transaction transpired outside the course of trade or
business, it would be irrelevant for the purpose of determining VAT liability whether the
transaction may be deemed sale, since it anyway is not subject to VAT.
Accordingly, the Court rules that given the undisputed finding that the transaction in
question was not made in the course of trade or business of the seller, NDC that is, the
sale is not subject to VAT pursuant to Section 99 of the Tax Code, no matter how the
said sale may hew to those transactions deemed sale as defined under Section 100.
In any event, even if Section 100 or Section 4 of R.R. No. 5-87 were to find application
in this case, the Court finds the discussions offered on this point by the CTA and the
Court of Appeals (in its subsequent Resolution) essentially correct. Section 4 (E)(i) of
R.R. No. 5-87 does classify as among the transactions deemed sale those involving
change of ownership of business. However, Section 4(E) of R.R. No. 5-87, reflecting
Section 100 of the Tax Code, clarifies that such change of ownership is only an
attending circumstance to retirement from or cessation of business[, ] with respect to all
goods on hand [as] of the date of such retirement or cessation.[25] Indeed, Section 4(E)
of R.R. No. 5-87 expressly characterizes the change of ownership of business as only a
circumstance that attends those transactions deemed sale, which are otherwise stated
in the same section.[26]
WHEREFORE, the petition is DENIED. No costs.

SO ORDERED.

#3
COMMISSIONER OF INTERNAL G.R. No. 178697
REVENUE,
Petitioner, Present:

- versus -
Promulgated:
SONY PHILIPPINES, INC., November 17, 2010
Respondent.
X ---------------------------------------------------------------------------------------X

DECISION

MENDOZA, J.:

This petition for review on certiorari seeks to set aside the May 17, 2007 Decision
and the July 5, 2007 Resolution of the Court of Tax Appeals En Banc [1] (CTA-EB), in
C.T.A. EB No. 90, affirming the October 26, 2004 Decision of the CTA-First
Division[2] which, in turn, partially granted the petition for review of respondent Sony
Philippines, Inc. (Sony). The CTA-First Division decision cancelled the deficiency
assessment issued by petitioner Commissioner of Internal Revenue (CIR) against Sony
for Value Added Tax (VAT) but upheld the deficiency assessment for expanded
withholding tax (EWT) in the amount of P1,035,879.70 and the penalties for late
remittance of internal revenue taxes in the amount of P1,269, 593.90.[3]

THE FACTS:

On November 24, 1998, the CIR issued Letter of Authority No. 000019734 (LOA
19734) authorizing certain revenue officers to examine Sonys books of accounts and
other accounting records regarding revenue taxes for the period 1997 and unverified
prior years. On December 6, 1999, a preliminary assessment for 1997 deficiency taxes
and penalties was issued by the CIR which Sony protested. Thereafter, acting on the
protest, the CIR issued final assessment notices, the formal letter of demand and the
details of discrepancies.[4] Said details of the deficiency taxes and penalties for late
remittance of internal revenue taxes are as follows:
DEFICIENCY VALUE -ADDED TAX (VAT)
(Assessment No. ST-VAT-97-0124-2000)
Basic Tax Due P 7,958,700.00
Add: Penalties
Interest up to 3-31-2000 P 3,157,314.41
Compromise 25,000.00 3,182,314.41
Deficiency VAT Due P 11,141,014.41

DEFICIENCY EXPANDED WITHHOLDING


TAX (EWT)
(Assessment No. ST-EWT-97-0125-2000)
Basic Tax Due P 1,416,976.90
Add: Penalties
Interest up to 3-31-2000 P 550,485.82
Compromise 25,000.00 575,485.82
Deficiency EWT Due P 1,992,462.72

DEFICIENCY OF VAT ON ROYALTY


PAYMENTS
(Assessment No. ST-LR1-97-0126-2000)
Basic Tax Due P
Add: Penalties
Surcharge P 359,177.80
Interest up to 3-31-2000 87,580.34
Compromise 16,000.00 462,758.14
Penalties Due P 462,758.14

LATE REMITTANCE OF FINAL


WITHHOLDING TAX
(Assessment No. ST-LR2-97-0127-2000)
Basic Tax Due P
Add: Penalties
Surcharge P 1,729,690.71
Interest up to 3-31-2000 508,783.07
Compromise 50,000.00 2,288,473.78
Penalties Due P 2,288,473.78

LATE REMITTANCE OF INCOME


PAYMENTS
(Assessment No. ST-LR3-97-0128-2000)
Basic Tax Due P
Add: Penalties
25 % Surcharge P 8,865.34
Interest up to 3-31-2000 58.29
Compromise 2,000.00 10,923.60
Penalties Due P 10,923.60

GRAND TOTAL P 15,895,632.65[5]

Sony sought re-evaluation of the aforementioned assessment by filing a protest


on February 2, 2000. Sony submitted relevant documents in support of its protest on the
16th of that same month.[6]

On October 24, 2000, within 30 days after the lapse of 180 days from submission
of the said supporting documents to the CIR, Sony filed a petition for review before the
CTA.[7]

After trial, the CTA-First Division disallowed the deficiency VAT assessment
because the subsidized advertising expense paid by Sony which was duly covered by a
VAT invoice resulted in an input VAT credit. As regards the EWT, the CTA-First Division
maintained the deficiency EWT assessment on Sonys motor vehicles and on
professional fees paid to general professional partnerships. It also assessed the
amounts paid to sales agents as commissions with five percent (5%) EWT pursuant to
Section 1(g) of Revenue Regulations No. 6-85. The CTA-First Division, however,
disallowed the EWT assessment on rental expense since it found that the total rental
deposit of P10,523,821.99 was incurred from January to March 1998 which was again
beyond the coverage of LOA 19734. Except for the compromise penalties, the CTA-
First Division also upheld the penalties for the late payment of VAT on royalties, for late
remittance of final withholding tax on royalty as of December 1997 and for the late
remittance of EWT by some of Sonys branches.[8] In sum, the CTA-First Division partly
granted Sonys petition by cancelling the deficiency VAT assessment but upheld a
modified deficiency EWT assessment as well as the penalties. Thus, the dispositive
portion reads:

WHEREFORE, the petition for review is hereby PARTIALLY


GRANTED. Respondent is ORDERED to CANCEL and WITHDRAW the
deficiency assessment for value-added tax for 1997 for lack of merit.
However, the deficiency assessments for expanded withholding tax and
penalties for late remittance of internal revenue taxes are UPHELD.
Accordingly, petitioner is DIRECTED to PAY the respondent the
deficiency expanded withholding tax in the amount of P1,035,879.70 and
the following penalties for late remittance of internal revenue taxes in the
sum of P1,269,593.90:

1. VAT on Royalty P 429,242.07


2. Withholding Tax on Royalty 831,428.20
3. EWT of Petitioners Branches 8,923.63
Total P 1,269,593.90

Plus 20% delinquency interest from January 17, 2000 until fully paid
pursuant to Section 249(C)(3) of the 1997 Tax Code.

SO ORDERED.[9]

The CIR sought a reconsideration of the above decision and submitted the
following grounds in support thereof:

A. The Honorable Court committed reversible error in holding that


petitioner is not liable for the deficiency VAT in the amount
of P11,141,014.41;

B. The Honorable court committed reversible error in holding that


the commission expense in the amount of P2,894,797.00 should be
subjected to 5% withholding tax instead of the 10% tax rate;

C. The Honorable Court committed a reversible error in holding that


the withholding tax assessment with respect to the 5% withholding
tax on rental deposit in the amount of P10,523,821.99 should be
cancelled; and

D. The Honorable Court committed reversible error in holding that the


remittance of final withholding tax on royalties covering the period
January to March 1998 was filed on time.[10]

On April 28, 2005, the CTA-First Division denied the motion for reconsideration.
Unfazed, the CIR filed a petition for review with the CTA-EB raising identical issues:
1. Whether or not respondent (Sony) is liable for the deficiency VAT in
the amount of P11,141,014.41;

2. Whether or not the commission expense in the amount


of P2,894,797.00 should be subjected to 10% withholding tax instead
of the 5% tax rate;

3. Whether or not the withholding assessment with respect to the 5%


withholding tax on rental deposit in the amount of P10,523,821.99 is
proper; and

4. Whether or not the remittance of final withholding tax on royalties


covering the period January to March 1998 was filed outside of time.[11]

Finding no cogent reason to reverse the decision of the CTA-First Division, the
CTA-EB dismissed CIRs petition on May 17, 2007. CIRs motion for reconsideration was
denied by the CTA-EB on July 5, 2007.

The CIR is now before this Court via this petition for review relying on the very
same grounds it raised before the CTA-First Division and the CTA-EB. The said
grounds are reproduced below:

GROUNDS FOR THE ALLOWANCE OF THE PETITION

THE CTA EN BANC ERRED IN RULING THAT RESPONDENT IS


NOT LIABLE FOR DEFICIENCY VAT IN THE AMOUNT OF
PHP11,141,014.41.

II

AS TO RESPONDENTS DEFICIENCY EXPANDED


WITHHOLDING TAX IN THE AMOUNT OF PHP1,992,462.72:

A. THE CTA EN BANC ERRED IN RULING THAT THE COMMISSION


EXPENSE IN THE AMOUNT OF PHP2,894,797.00 SHOULD BE
SUBJECTED TO A WITHHOLDING TAX OF 5% INSTEAD OF THE
10% TAX RATE.

B. THE CTA EN BANC ERRED IN RULING THAT THE


ASSESSMENT WITH RESPECT TO THE 5% WITHHOLDING TAX
ON RENTAL DEPOSIT IN THE AMOUNT OF PHP10,523,821.99 IS
NOT PROPER.

III

THE CTA EN BANC ERRED IN RULING THAT THE FINAL


WITHHOLDING TAX ON ROYALTIES COVERING THE PERIOD
JANUARY TO MARCH 1998 WAS FILED ON TIME.[12]

Upon filing of Sonys comment, the Court ordered the CIR to file its reply thereto.
The CIR subsequently filed a manifestation informing the Court that it would no longer
file a reply. Thus, on December 3, 2008, the Court resolved to give due course to the
petition and to decide the case on the basis of the pleadings filed.[13]
The Court finds no merit in the petition.
The CIR insists that LOA 19734, although it states the period 1997 and unverified
prior years, should be understood to mean the fiscal year ending in March 31,
1998.[14]The Court cannot agree.

Based on Section 13 of the Tax Code, a Letter of Authority or LOA is the


authority given to the appropriate revenue officer assigned to perform assessment
functions. It empowers or enables said revenue officer to examine the books of account
and other accounting records of a taxpayer for the purpose of collecting the correct
amount of tax.[15]The very provision of the Tax Code that the CIR relies on is
unequivocal with regard to its power to grant authority to examine and assess a
taxpayer.

SEC. 6. Power of the Commissioner to Make Assessments


and Prescribe Additional Requirements for Tax Administration and
Enforcement.

(A)Examination of Returns and Determination of tax Due. After a


return has been filed as required under the provisions of this Code, the
Commissioner or his duly authorized representative may authorize the
examination of any taxpayer and the assessment of the correct
amount of tax: Provided, however, That failure to file a return shall not
prevent the Commissioner from authorizing the examination of any
taxpayer. x x x [Emphases supplied]

Clearly, there must be a grant of authority before any revenue officer can conduct
an examination or assessment. Equally important is that the revenue officer so
authorized must not go beyond the authority given. In the absence of such an authority,
the assessment or examination is a nullity.

As earlier stated, LOA 19734 covered the period 1997 and unverified prior years.
For said reason, the CIR acting through its revenue officers went beyond the scope of
their authority because the deficiency VAT assessment they arrived at was based on
records from January to March 1998 or using the fiscal year which ended in March 31,
1998. As pointed out by the CTA-First Division in its April 28, 2005 Resolution, the CIR
knew which period should be covered by the investigation. Thus, if CIR wanted or
intended the investigation to include the year 1998, it should have done so by including
it in the LOA or issuing another LOA.

Upon review, the CTA-EB even added that the coverage of LOA 19734,
particularly the phrase and unverified prior years, violated Section C of Revenue
Memorandum Order No. 43-90 dated September 20, 1990, the pertinent portion of
which reads:

3. A Letter of Authority should cover a taxable period not exceeding


one taxable year. The practice of issuing L/As covering audit of
unverified prior years is hereby prohibited. If the audit of a taxpayer
shall include more than one taxable period, the other periods or years
shall be specifically indicated in the L/A.[16] [Emphasis supplied]

On this point alone, the deficiency VAT assessment should have been
disallowed. Be that as it may, the CIRs argument, that Sonys advertising expense could
not be considered as an input VAT credit because the same was eventually reimbursed
by Sony International Singapore (SIS), is also erroneous.
The CIR contends that since Sonys advertising expense was reimbursed by SIS,
the former never incurred any advertising expense. As a result, Sony is not entitled to a
tax credit. At most, the CIR continues, the said advertising expense should be for the
account of SIS, and not Sony.[17]

The Court is not persuaded. As aptly found by the CTA-First Division and later
affirmed by the CTA-EB, Sonys deficiency VAT assessment stemmed from the CIRs
disallowance of the input VAT credits that should have been realized from the
advertising expense of the latter.[18] It is evident under Section 110[19] of the 1997 Tax
Code that an advertising expense duly covered by a VAT invoice is a legitimate
business expense. This is confirmed by no less than CIRs own witness, Revenue
Officer Antonio Aluquin.[20] There is also no denying that Sony incurred advertising
expense. Aluquin testified that advertising companies issued invoices in the name of
Sony and the latter paid for the same.[21] Indubitably, Sony incurred and paid for
advertising expense/ services. Where the money came from is another matter all
together but will definitely not change said fact.

The CIR further argues that Sony itself admitted that the reimbursement from SIS
was income and, thus, taxable. In support of this, the CIR cited a portion of Sonys
protest filed before it:

The fact that due to adverse economic conditions, Sony-Singapore


has granted to our client a subsidy equivalent to the latters advertising
expenses will not affect the validity of the input taxes from such expenses.
Thus, at the most, this is an additional income of our client subject to
income tax. We submit further that our client is not subject to VAT on the
subsidy income as this was not derived from the sale of goods or
services.[22]

Insofar as the above-mentioned subsidy may be considered as income and,


therefore, subject to income tax, the Court agrees. However, the Court does not agree
that the same subsidy should be subject to the 10% VAT. To begin with, the said
subsidy termed by the CIR as reimbursement was not even exclusively earmarked for
Sonys advertising expense for it was but an assistance or aid in view of Sonys dire or
adverse economic conditions, and was only equivalent to the latters (Sonys) advertising
expenses.

Section 106 of the Tax Code explains when VAT may be imposed or exacted.
Thus:

SEC. 106. Value-added Tax on Sale of Goods or Properties.

(A) Rate and Base of Tax. There shall be levied, assessed and
collected on every sale, barter or exchange of goods or properties, value-
added tax equivalent to ten percent (10%) of the gross selling price or
gross value in money of the goods or properties sold, bartered or
exchanged, such tax to be paid by the seller or transferor.

Thus, there must be a sale, barter or exchange of goods or properties before any
VAT may be levied. Certainly, there was no such sale, barter or exchange in the
subsidy given by SIS to Sony. It was but a dole out by SIS and not in payment for goods
or properties sold, bartered or exchanged by Sony.

In the case of CIR v. Court of Appeals (CA),[23] the Court had the occasion to rule
that services rendered for a fee even on reimbursement-on-cost basis only and without
realizing profit are also subject to VAT. The case, however, is not applicable to the
present case. In that case, COMASERCO rendered service to its affiliates and, in turn,
the affiliates paid the former reimbursement-on-cost which means that it was paid the
cost or expense that it incurred although without profit. This is not true in the present
case. Sony did not render any service to SIS at all. The services rendered by the
advertising companies, paid for by Sony using SIS dole-out, were for Sony and not SIS.
SIS just gave assistance to Sony in the amount equivalent to the latters advertising
expense but never received any goods, properties or service from Sony.

Regarding the deficiency EWT assessment, more particularly Sonys commission


expense, the CIR insists that said deficiency EWT assessment is subject to the ten
percent (10%) rate instead of the five percent (5%) citing Revenue Regulation No. 2-98
dated April 17, 1998.[24] The said revenue regulation provides that the 10% rate is
applied when the recipient of the commission income is a natural person. According to
the CIR, Sonys schedule of Selling, General and Administrative expenses shows the
commission expense as commission/dealer salesman incentive, emphasizing the word
salesman.

On the other hand, the application of the five percent (5%) rate by the CTA-First
Division is based on Section 1(g) of Revenue Regulations No. 6-85 which provides:

(g) Amounts paid to certain Brokers and Agents. On gross


payments to customs, insurance, real estate and commercial brokers and
agents of professional entertainers five per centum (5%).[25]

In denying the very same argument of the CIR in its motion for reconsideration,
the CTA-First Division, held:

x x x, commission expense is indeed subject to 10% withholding tax


but payments made to broker is subject to 5% withholding tax pursuant to
Section 1(g) of Revenue Regulations No. 6-85. While the commission
expense in the schedule of Selling, General and Administrative expenses
submitted by petitioner (SPI) to the BIR is captioned as commission/dealer
salesman incentive the same does not justify the automatic imposition of
flat 10% rate. As itemized by petitioner, such expense is composed of
Commission Expense in the amount of P10,200.00 and Broker Dealer of
P2,894,797.00.[26]

The Court agrees with the CTA-EB when it affirmed the CTA-First Division
decision. Indeed, the applicable rule is Revenue Regulations No. 6-85, as amended by
Revenue Regulations No. 12-94, which was the applicable rule during the subject
period of examination and assessment as specified in the LOA. Revenue Regulations
No. 2-98, cited by the CIR, was only adopted in April 1998 and, therefore, cannot be
applied in the present case. Besides, the withholding tax on brokers and agents was
only increased to 10% much later or by the end of July 2001 under Revenue
Regulations No. 6-2001.[27] Until then, the rate was only 5%.
The Court also affirms the findings of both the CTA-First Division and the CTA-
EB on the deficiency EWT assessment on the rental deposit. According to their findings,
Sony incurred the subject rental deposit in the amount of P10,523,821.99 only from
January to March 1998. As stated earlier, in the absence of the appropriate LOA
specifying the coverage, the CIRs deficiency EWT assessment from January to March
1998, is not valid and must be disallowed.
Finally, the Court now proceeds to the third ground relied upon by the CIR.

The CIR initially assessed Sony to be liable for penalties for belated remittance of
its FWT on royalties (i) as of December 1997; and (ii) for the period from January to
March 1998. Again, the Court agrees with the CTA-First Division when it upheld the CIR
with respect to the royalties for December 1997 but cancelled that from January to
March 1998.

The CIR insists that under Section 3[28] of Revenue Regulations No. 5-82 and
Sections 2.57.4 and 2.58(A)(2)(a)[29] of Revenue Regulations No. 2-98, Sony should
also be made liable for the FWT on royalties from January to March of 1998. At the
same time, it downplays the relevance of the Manufacturing License Agreement (MLA)
between Sony and Sony-Japan, particularly in the payment of royalties.

The above revenue regulations provide the manner of withholding remittance as


well as the payment of final tax on royalty. Based on the same, Sony is required to
deduct and withhold final taxes on royalty payments when the royalty is paid or is
payable. After which, the corresponding return and remittance must be made within 10
days after the end of each month. The question now is when does the royalty become
payable?

Under Article X(5) of the MLA between Sony and Sony-Japan, the following
terms of royalty payments were agreed upon:

(5)Within two (2) months following each semi-annual period ending


June 30 and December 31, the LICENSEE shall furnish to the LICENSOR
a statement, certified by an officer of the LICENSEE, showing quantities of
the MODELS sold, leased or otherwise disposed of by the LICENSEE
during such respective semi-annual period and amount of royalty due
pursuant this ARTICLE X therefore, and the LICENSEE shall pay the
royalty hereunder to the LICENSOR concurrently with the furnishing of the
above statement.[30]

Withal, Sony was to pay Sony-Japan royalty within two (2) months after every
semi-annual period which ends in June 30 and December 31. However, the CTA-First
Division found that there was accrual of royalty by the end of December 1997 as well as
by the end of June 1998. Given this, the FWTs should have been paid or remitted by
Sony to the CIR on January 10, 1998 and July 10, 1998. Thus, it was correct for the
CTA-First Division and the CTA-EB in ruling that the FWT for the royalty from January
to March 1998 was seasonably filed. Although the royalty from January to March 1998
was well within the semi-annual period ending June 30, which meant that the royalty
may be payable until August 1998 pursuant to the MLA, the FWT for said royalty had to
be paid on or before July 10, 1998 or 10 days from its accrual at the end of June 1998.
Thus, when Sony remitted the same on July 8, 1998, it was not yet late.
In view of the foregoing, the Court finds no reason to disturb the findings of the
CTA-EB.

WHEREFORE, the petition is DENIED.

SO ORDERED.

#4

G.R. No. 193301 March 11, 2013

MINDANAO II GEOTHERMAL PARTNERSHIP, Petitioner,


vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

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

G.R. No. 194637

MINDANAO I GEOTHERMAL PARTNERSHIP, Petitioner,


vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

CARPIO, J.:

G.R. No. 193301 is a petition for review1 assailing the Decision2 promulgated on 10
March 2010 as well as the Resolution3 promulgated on 28 July 2010 by the Court of Tax
Appeals En Banc (CTA En Banc) in CTA EB No. 513. The CTA En Banc affirmed the 22
September 2008 Decision4 as well as the 26 June 2009 Amended Decision5 of the First
Division of the Court of Tax Appeals (CTA First Division) in CTA Case Nos. 7227, 7287,
and 7317. The CTA First Division denied Mindanao II Geothermal Partnership’s
(Mindanao II) claims for refund or tax credit for the first and second quarters of taxable
year 2003 for being filed out of time (CTA Case Nos. 7227 and 7287). The CTA First
Division, however, ordered the

Commissioner of Internal Revenue (CIR) to refund or credit to Mindanao II unutilized


input value-added tax (VAT) for the third and fourth quarters of taxable year 2003 (CTA
Case No. 7317).

G.R. No. 194637 is a petition for review6 assailing the Decision7 promulgated on 31 May
2010 as well as the Amended Decision8 promulgated on 24 November 2010 by the CTA
En Banc in CTA EB Nos. 476 and 483. In its Amended Decision, the CTA En Banc
reversed its 31 May 2010 Decision and granted the CIR’s petition for review in CTA
Case No. 476. The CTA En Banc denied Mindanao I Geothermal Partnership’s
(Mindanao I) claims for refund or tax credit for the first (CTA Case No. 7228), second
(CTA Case No. 7286), third, and fourth quarters (CTA Case No. 7318) of 2003.

Both Mindanao I and II are partnerships registered with the Securities and Exchange
Commission, value added taxpayers registered with the Bureau of Internal Revenue
(BIR), and Block Power Production Facilities accredited by the Department of Energy.
Republic Act No. 9136, or the Electric Power Industry Reform Act of 2000 (EPIRA),
effectively amended Republic Act No. 8424, or the Tax Reform Act of 1997 (1997 Tax
Code),9 when it decreed that sales of power by generation companies shall be
subjected to a zero rate of VAT.10 Pursuant to EPIRA, Mindanao I and II filed with the
CIR claims for refund or tax credit of accumulated unutilized and/or excess input taxes
due to VAT zero-rated sales in 2003. Mindanao I and II filed their claims in 2005.

G.R. No. 193301


Mindanao II v. CIR

The Facts

G.R. No. 193301 covers three CTA First Division cases, CTA Case Nos. 7227, 7287,
and 7317, which were consolidated as CTA EB No. 513. CTA Case Nos. 7227, 7287,
and 7317 claim a tax refund or credit of Mindanao II’s alleged excess or unutilized input
taxes due to VAT zero-rated sales. In CTA Case No. 7227, Mindanao II claims a tax
refund or credit of ₱3,160,984.69 for the first quarter of 2003. In CTA Case No. 7287,
Mindanao II claims a tax refund or credit of ₱1,562,085.33 for the second quarter of
2003. In CTA Case No. 7317, Mindanao II claims a tax refund or credit of
₱3,521,129.50 for the third and fourth quarters of 2003.

The CTA First Division’s narration of the pertinent facts is as follows:

xxxx

On March 11, 1997, [Mindanao II] allegedly entered into a Built (sic)-Operate-Transfer
(BOT) contract with the Philippine National Oil Corporation – Energy Development
Company (PNOC-EDC) for finance, engineering, supply, installation, testing,
commissioning, operation, and maintenance of a 48.25 megawatt geothermal power
plant, provided that PNOC-EDC shall supply and deliver steam to Mindanao II at no
cost. In turn, Mindanao II shall convert the steam into electric capacity and energy for
PNOC-EDC and shall deliver the same to the National Power Corporation (NPC) for
and in behalf of PNOC-EDC. Mindanao II alleges that its sale of generated power and
delivery of electric capacity and energy of Mindanao II to NPC for and in behalf of
PNOC-EDC is its only revenue-generating activity which is in the ambit of VAT zero-
rated sales under the EPIRA Law, x x x.

xxxx

Hence, the amendment of the NIRC of 1997 modified the VAT rate applicable to sales
of generated power by generation companies from ten (10%) percent to zero (0%)
percent.

In the course of its operation, Mindanao II makes domestic purchases of goods and
services and accumulates therefrom creditable input taxes. Pursuant to the provisions
of the National Internal Revenue Code (NIRC), Mindanao II alleges that it can use its
accumulated input tax credits to offset its output tax liability. Considering, however that
its only revenue-generating activity is VAT zero-rated under RA No. 9136, Mindanao II’s
input tax credits remain unutilized.

Thus, on the belief that its sales qualify for VAT zero-rating, Mindanao II adopted the
VAT zero-rating of the EPIRA in computing for its VAT payable when it filed its Quarterly
VAT Returns on the following dates:

CTA Case No. Period Covered Date of Filing


(2003)
Original Return Amended Return
7227 1st Quarter April 23, 2003 July 3, 2002 (sic),
April 1, 2004 &
October 22, 2004
7287 2nd Quarter July 22, 2003 April 1, 2004
7317 3rd Quarter Oct. 27, 2003 April 1, 2004
7317 4th Quarter Jan. 26, 2004 April 1, 2204
Considering that it has accumulated unutilized creditable input taxes from its only
income-generating activity, Mindanao II filed an application for refund and/or issuance of
tax credit certificate with the BIR’s Revenue District Office at Kidapawan City on April
13, 2005 for the four quarters of 2003.

To date (September 22, 2008), the application for refund by Mindanao II remains
unacted upon by the CIR. Hence, these three petitions filed on April 22, 2005 covering
the 1st quarter of 2003; July 7, 2005 for the 2nd quarter of 2003; and September 9,
2005 for the 3rd and 4th quarters of 2003. At the instance of Mindanao II, these
petitions were consolidated on March 15, 2006 as they involve the same parties and the
same subject matter. The only difference lies with the taxable periods involved in each
petition.11

The Court of Tax Appeals’ Ruling: Division

In its 22 September 2008 Decision,12 the CTA First Division found that Mindanao II
satisfied the twin requirements for VAT zero rating under EPIRA: (1) it is a generation
company, and (2) it derived sales from power generation. The CTA First Division also
stated that Mindanao II complied with five requirements to be entitled to a refund:

1. There must be zero-rated or effectively zero-rated sales;

2. That input taxes were incurred or paid;

3. That such input VAT payments are directly attributable to zero-rated sales or
effectively zero-rated sales;

4. That the input VAT payments were not applied against any output VAT liability;
and

5. That the claim for refund was filed within the two-year prescriptive period.13

With respect to the fifth requirement, the CTA First Division tabulated the dates of filing
of Mindanao II’s return as well as its administrative and judicial claims, and concluded
that Mindanao II’s administrative and judicial claims were timely filed in compliance with
this Court’s ruling in Atlas Consolidated Mining and Development Corporation v.
Commissioner of Internal Revenue (Atlas).14 The CTA First Division declared that the
two-year prescriptive period for filing a VAT refund claim should not be counted from the
close of the quarter but from the date of the filing of the VAT return. As ruled in Atlas,
VAT liability or entitlement to a refund can only be determined upon the filing of the
quarterly VAT return.

CTA Period Date Filing


Case Covered
Original Amended Administrative Judicial
No. (2003)
Return Return Return Claim
7227 1st 23 April 1 April 13 April 2005 22 April
Quarter 2003 2004 2005
7287 2nd 22 July 1 April 13 April 2005 7 July
Quarter 2003 2004 2005
7317 3rd 25 Oct. 1 April 13 April 2005 9 Sept.
Quarter 2003 2004 2005
7317 4th 26 Jan. 1 April 13 April 2005 9 Sept.
Quarter 2004 2004 200515

Thus, counting from 23 April 2003, 22 July 2003, 25 October 2003, and 26 January
2004, when Mindanao II filed its VAT returns, its administrative claim filed on 13 April
2005 and judicial claims filed on 22 April 2005, 7 July 2005, and 9 September 2005
were timely filed in accordance with Atlas.
The CTA First Division found that Mindanao II is entitled to a refund in the modified
amount of ₱7,703,957.79, after disallowing ₱522,059.91 from input VAT 16 and
deducting ₱18,181.82 from Mindanao II’s sale of a fully depreciated ₱200,000.00
Nissan Patrol. The input taxes amounting to ₱522,059.91 were disallowed for failure to
meet invoicing requirements, while the input VAT on the sale of the Nissan Patrol was
reduced by ₱18,181.82 because the output VAT for the sale was not included in the
VAT declarations.

The dispositive portion of the CTA First Division’s 22 September 2008 Decision reads:

WHEREFORE, the Petition for Review is hereby PARTIALLY GRANTED. Accordingly,


the CIR is hereby ORDERED to REFUND or to ISSUE A TAX CREDIT CERTIFICATE
in the modified amount of SEVEN MILLION SEVEN HUNDRED THREE THOUSAND
NINE HUNDRED FIFTY SEVEN AND 79/100 PESOS (₱7,703,957.79) representing its
unutilized input VAT for the four (4) quarters of the taxable year 2003.

SO ORDERED.17

Mindanao II filed a motion for partial reconsideration.18 It stated that the sale of the fully
depreciated Nissan Patrol is a one-time transaction and is not incidental to its VAT zero-
rated operations. Moreover, the disallowed input taxes substantially complied with the
requirements for refund or tax credit.

The CIR also filed a motion for partial reconsideration. It argued that the judicial claims
for the first and second quarters of 2003 were filed beyond the period allowed by law, as
stated in Section 112(A) of the 1997 Tax Code. The CIR further stated that Section 229
is a general provision, and governs cases not covered by Section 112(A). The CIR
countered the CTA First Division’s 22 September 2008 decision by citing this Court’s
ruling in Commisioner of Internal Revenue v. Mirant Pagbilao Corporation
(Mirant),19 which stated that unutilized input VAT payments must be claimed within two
years reckoned from the close of the taxable quarter when the relevant sales were
made regardless of whether said tax was paid.

The CTA First Division denied Mindanao II’s motion for partial reconsideration, found
the CIR’s motion for partial reconsideration partly meritorious, and rendered an
Amended Decision20 on 26 June 2009. The CTA First Division stated that the claim for
refund or credit with the BIR and the subsequent appeal to the CTA must be filed within
the two-year period prescribed under Section 229. The two-year prescriptive period in
Section 229 was denominated as a mandatory statute of limitations. Therefore,
Mindanao II’s claims for refund for the first and second quarters of 2003 had already
prescribed.

The CTA First Division found that the records of Mindanao II’s case are bereft of
evidence that the sale of the Nissan Patrol is not incidental to Mindanao II’s VAT zero-
rated operations. Moreover, Mindanao II’s submitted documents failed to substantiate
the requisites for the refund or credit claims.

The CTA First Division modified its 22 September 2008 Decision to read as follows:

WHEREFORE, the Petition for Review is hereby PARTIALLY GRANTED. Accordingly,


the CIR is hereby ORDERED to REFUND or to ISSUE A TAX CREDIT CERTIFICATE
to Mindanao II Geothermal Partnership in the modified amount of TWO MILLION NINE
HUNDRED EIGHTY THOUSAND EIGHT HUNDRED EIGHTY SEVEN AND 77/100
PESOS (₱2,980,887.77) representing its unutilized input VAT for the third and fourth
quarters of the taxable year 2003.

SO ORDERED.21

Mindanao II filed a Petition for Review,22 docketed as CTA EB No. 513, before the CTA
En Banc.

The Court of Tax Appeals’ Ruling: En Banc


On 10 March 2010, the CTA En Banc rendered its Decision 23 in CTA EB No. 513 and
denied Mindanao II’s petition. The CTA En Banc ruled that (1) Section 112(A) clearly
provides that the reckoning of the two-year prescriptive period for filing the application
for refund or credit of input VAT attributable to zero-rated sales or effectively zero-rated
sales shall be counted from the close of the taxable quarter when the sales were made;
(2) the Atlas and Mirant cases applied different tax codes: Atlas applied the 1977 Tax
Code while Mirant applied the 1997 Tax Code; (3) the sale of the fully-depreciated
Nissan Patrol is incidental to Mindanao II’s VAT zero-rated transactions pursuant to
Section 105; (4) Mindanao II failed to comply with the substantiation requirements
provided under Section 113(A) in relation to Section 237 of the 1997 Tax Code as
implemented by Section 4.104-1, 4.104-5, and 4.108-1 of Revenue Regulation No. 7-
95; and (5) the doctrine of strictissimi juris on tax exemptions cannot be relaxed in the
present case.

The dispositive portion of the CTA En Banc’s 10 March 2010 Decision reads:

WHEREFORE, on the basis of the foregoing considerations, the Petition for Review en
banc is DISMISSED for lack of merit. Accordingly, the Decision dated September 22,
2008 and the Amended Decision dated June 26, 2009 issued by the First Division are
AFFIRMED.

SO ORDERED.24

The CTA En Banc issued a Resolution25 on 28 July 2010 denying for lack of merit
Mindanao II’s Motion for Reconsideration.26 The CTA En Banc highlighted the following
bases of their previous ruling:

1. The Supreme Court has long decided that the claim for refund of unutilized
input VAT must be filed within two (2) years after the close of the taxable quarter
when such sales were made.

2. The Supreme Court is the ultimate arbiter whose decisions all other courts
should take bearings.

3. The words of the law are clear, plain, and free from ambiguity; hence, it must
be given its literal meaning and applied without any interpretation. 27

G.R. No. 194637


Mindanao I v. CIR

The Facts

G.R. No. 194637 covers two cases consolidated by the CTA EB: CTA EB Case Nos.
476 and 483. Both CTA EB cases consolidate three cases from the CTA Second
Division: CTA Case Nos. 7228, 7286, and 7318. CTA Case Nos. 7228, 7286, and 7318
claim a tax refund or credit of Mindanao I’s accumulated unutilized and/or excess input
taxes due to VAT zero-rated sales. In CTA Case No. 7228, Mindanao I claims a tax
refund or credit of ₱3,893,566.14 for the first quarter of 2003. In CTA Case No. 7286,
Mindanao I claims a tax refund or credit of ₱2,351,000.83 for the second quarter of
2003. In CTA Case No. 7318, Mindanao I claims a tax refund or credit of ₱7,940,727.83
for the third and fourth quarters of 2003.

Mindanao I is similarly situated as Mindanao II. The CTA Second Division’s narration of
the pertinent facts is as follows:

xxxx

In December 1994, Mindanao I entered into a contract of Build-Operate-Transfer (BOT)


with the Philippine National Oil Corporation – Energy Development Corporation (PNOC-
EDC) for the finance, design, construction, testing, commissioning, operation,
maintenance and repair of a 47-megawatt geothermal power plant. Under the said BOT
contract, PNOC-EDC shall supply and deliver steam to Mindanao I at no cost. In turn,
Mindanao I will convert the steam into electric capacity and energy for PNOC-EDC and
shall subsequently supply and deliver the same to the National Power Corporation
(NPC), for and in behalf of PNOC-EDC.

Mindanao I’s 47-megawatt geothermal power plant project has been accredited by the
Department of Energy (DOE) as a Private Sector Generation Facility, pursuant to the
provision of Executive Order No. 215, wherein Certificate of Accreditation No. 95-037
was issued.

On June 26, 2001, Republic Act (R.A.) No. 9136 took effect, and the relevant provisions
of the National Internal Revenue Code (NIRC) of 1997 were deemed modified. R.A. No.
9136, also known as the "Electric Power Industry Reform Act of 2001 (EPIRA), was
enacted by Congress to ordain reforms in the electric power industry, highlighting,
among others, the importance of ensuring the reliability, security and affordability of the
supply of electric power to end users. Under the provisions of this Republic Act and its
implementing rules and regulations, the delivery and supply of electric energy by
generation companies became VAT zero-rated, which previously were subject to ten
percent (10%) VAT.

xxxx

The amendment of the NIRC of 1997 modified the VAT rate applicable to sales of
generated power by generation companies from ten (10%) percent to zero percent
(0%). Thus, Mindanao I adopted the VAT zero-rating of the EPIRA in computing for its
VAT payable when it filed its VAT Returns, on the belief that its sales qualify for VAT
zero-rating.

Mindanao I reported its unutilized or excess creditable input taxes in its Quarterly VAT
Returns for the first, second, third, and fourth quarters of taxable year 2003, which were
subsequently amended and filed with the BIR.

On April 4, 2005, Mindanao I filed with the BIR separate administrative claims for the
issuance of tax credit certificate on its alleged unutilized or excess input taxes for
taxable year 2003, in the accumulated amount of ₱14,185, 294.80.

Alleging inaction on the part of CIR, Mindanao I elevated its claims before this Court on
April 22, 2005, July 7, 2005, and September 9, 2005 docketed as CTA Case Nos. 7228,
7286, and 7318, respectively. However, on October 10, 2005, Mindanao I received a
copy of the letter dated September 30, 2003 (sic) of the BIR denying its application for
tax credit/refund.28

The Court of Tax Appeals’ Ruling: Division

On 24 October 2008, the CTA Second Division rendered its Decision 29 in CTA Case
Nos. 7228, 7286, and 7318. The CTA Second Division found that (1) pursuant to
Section 112(A), Mindanao I can only claim 90.27% of the amount of substantiated
excess input VAT because a portion was not reported in its quarterly VAT returns; (2)
out of the ₱14,185,294.80 excess input VAT applied for refund, only ₱11,657,447.14
can be considered substantiated excess input VAT due to disallowances by the
Independent Certified Public Accountant, adjustment on the disallowances per the CTA
Second Division’s further verification, and additional disallowances per the CTA Second
Division’s further verification;

(3) Mindanao I’s accumulated excess input VAT for the second quarter of 2003 that was
carried over to the third quarter of 2003 is net of the claimed input VAT for the first
quarter of 2003, and the same procedure was done for the second, third, and fourth
quarters of 2003; and (4) Mindanao I’s administrative claims were filed within the two-
year prescriptive period reckoned from the respective dates of filing of the quarterly VAT
returns.

The dispositive portion of the CTA Second Division’s 24 October 2008 Decision reads:
WHEREFORE, premises considered, the consolidated Petitions for Review are hereby
PARTIALLY GRANTED. Accordingly, the CIR is hereby ORDERED TO ISSUE A TAX
CREDIT CERTIFICATE in favor of Mindanao I in the reduced amount of TEN MILLION
FIVE HUNDRED TWENTY THREE THOUSAND ONE HUNDRED SEVENTY SEVEN
PESOS AND 53/100 (₱10,523,177.53) representing Mindanao I’s unutilized input VAT
for the four quarters of the taxable year 2003.

SO ORDERED.30

Mindanao I filed a motion for partial reconsideration with motion for Clarification 31 on 11
November 2008. It claimed that the CTA Second Division should not have allocated
proportionately Mindanao I’s unutilized creditable input taxes for the taxable year 2003,
because the proportionate allocation of the amount of creditable taxes in Section 112(A)
applies only when the creditable input taxes due cannot be directly and entirely
attributed to any of the zero-rated or effectively zero-rated sales. Mindanao I claims that
its unreported collection is directly attributable to its VAT zero-rated sales. The CTA
Second Division denied Mindanao I’s motion and maintained the proportionate
allocation because there was a portion of the gross receipts that was undeclared in
Mindanao I’s gross receipts.

The CIR also filed a motion for partial reconsideration32 on 11 November 2008. It
claimed that Mindanao I failed to exhaust administrative remedies before it filed its
petition for review. The CTA Second Division denied the CIR’s motion, and cited
Atlas33 as the basis for ruling that it is more practical and reasonable to count the two-
year prescriptive period for filing a claim for refund or credit of input VAT on zero-rated
sales from the date of filing of the return and payment of the tax due.

The dispositive portion of the CTA Second Division’s 10 March 2009 Resolution reads:

WHEREFORE, premises considered, the CIR’s Motion for Partial Reconsideration and
Mindanao I’s Motion for Partial Reconsideration with Motion for Clarification are hereby
DENIED for lack of merit.

SO ORDERED.34

The Ruling of the Court of Tax Appeals: En Banc

On 31 May 2010, the CTA En Banc rendered its Decision35 in CTA EB Case Nos. 476
and 483 and denied the petitions filed by the CIR and Mindanao I. The CTA En Banc
found no new matters which have not yet been considered and passed upon by the
CTA Second Division in its assailed decision and resolution.

The dispositive portion of the CTA En Banc’s 31 May 2010 Decision reads:

WHEREFORE, premises considered, the Petitions for Review are hereby DISMISSED
for lack of merit. Accordingly, the October 24, 2008 Decision and March 10, 2009
Resolution of the CTA Former Second Division in CTA Case Nos. 7228, 7286, and
7318, entitled "Mindanao I Geothermal Partnership vs. Commissioner of Internal
Revenue" are hereby AFFIRMED in toto.

SO ORDERED.36

Both the CIR and Mindanao I filed Motions for Reconsideration of the CTA En Banc’s 31
May 2010 Decision. In an Amended Decision promulgated on 24 November 2010, the
CTA En Banc agreed with the CIR’s claim that Section 229 of the NIRC of 1997 is
inapplicable in light of this Court’s ruling in Mirant. The CTA En Banc also ruled that the
procedure prescribed under Section 112(D) now 112(C)37 of the 1997 Tax Code should
be followed first before the CTA En Banc can act on Mindanao I’s claim. The CTA En
Banc reconsidered its 31 May 2010 Decision in light of this Court’s ruling in
Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc. (Aichi).38
The pertinent portions of the CTA En Banc’s 24 November 2010 Amended Decision
read:

C.T.A. Case No. 7228:

(1) For calendar year 2003, Mindanao I filed with the BIR its Quarterly VAT
Returns for the First Quarter of 2003. Pursuant to Section 112(A) of the NIRC of
1997, as amended, Mindanao I has two years from March 31, 2003 or until
March 31, 2005 within which to file its administrative claim for refund;

(2) On April 4, 2005, Mindanao I applied for an administrative claim for refund of
unutilized input VAT for the first quarter of taxable year 2003 with the BIR, which
is beyond the two-year prescriptive period mentioned above.

C.T.A. Case No. 7286:

(1) For calendar year 2003, Mindanao I filed with the BIR its Quarterly VAT
Returns for the second quarter of 2003. Pursuant to

Section 112(A) of the NIRC of 1997, as amended, Mindanao I has two years
from June 30, 2003, within which to file its administrative claim for refund for the
second quarter of 2003, or until June 30, 2005;

(2) On April 4, 2005, Mindanao I applied an administrative claim for refund of


unutilized input VAT for the second quarter of taxable year 2003 with the BIR,
which is within the two-year prescriptive period, provided under Section 112 (A)
of the NIRC of 1997, as amended;

(3) The CIR has 120 days from April 4, 2005 (presumably the date Mindanao I
submitted the supporting documents together with the application for refund) or
until August 2, 2005, to decide the administrative claim for refund;

(4) Within 30 days from the lapse of the 120-day period or from August 3, 2005 to
September 1, 2005, Mindanao I should have elevated its claim for refund to the
CTA in Division;

(5) However, on July 7, 2005, Mindanao I filed its Petition for Review with this
Court, docketed as CTA Case No. 7286, even before the 120-day period for the
CIR to decide the claim for refund had lapsed on August 2, 2005. The Petition for
Review was, therefore, prematurely filed and there was failure to exhaust
administrative remedies;

xxxx

C.T.A. Case No. 7318:

(1) For calendar year 2003, Mindanao I filed with the BIR its Quarterly VAT
Returns for the third and fourth quarters of 2003. Pursuant to Section 112(A) of
the NIRC of 1997, as amended, Mindanao I therefore, has two years from
September 30, 2003 and December 31, 2003, or until September 30, 2005 and
December 31, 2005, respectively, within which to file its administrative claim for
the third and fourth quarters of 2003;

(2) On April 4, 2005, Mindanao I applied an administrative claim for refund of


unutilized input VAT for the third and fourth quarters of taxable year 2003 with
the BIR, which is well within the two-year prescriptive period, provided under
Section 112(A) of the NIRC of 1997, as amended;

(3) From April 4, 2005, which is also presumably the date Mindanao I submitted
supporting documents, together with the aforesaid application for refund, the CIR
has 120 days or until August 2, 2005, to decide the claim;
(4) Within thirty (30) days from the lapse of the 120-day period or from August 3,
2005 until September 1, 2005 Mindanao I should have elevated its claim for
refund to the CTA;

(5) However, Mindanao I filed its Petition for Review with the CTA in Division only
on September 9, 2005, which is 8 days beyond the 30-day period to appeal to
the CTA.

Evidently, the Petition for Review was filed way beyond the 30-day prescribed period.
Thus, the Petition for Review should have been dismissed for being filed late.

In recapitulation:

(1) C.T.A. Case No. 7228

Claim for the first quarter of 2003 had already prescribed for having been filed
beyond the two-year prescriptive period;

(2) C.T.A. Case No. 7286

Claim for the second quarter of 2003 should be dismissed for Mindanao I’s failure
to comply with a condition precedent when it failed to exhaust administrative
remedies by filing its Petition for Review even before the lapse of the 120-day
period for the CIR to decide the administrative claim;

(3) C.T.A. Case No. 7318

Petition for Review was filed beyond the 30-day prescribed period to appeal to
the CTA.

xxxx

IN VIEW OF THE FOREGOING, the Commissioner of Internal Revenue’s Motion for


Reconsideration is hereby GRANTED; Mindanao I’s Motion for Partial Reconsideration
is hereby DENIED for lack of merit.

The May 31, 2010 Decision of this Court En Banc is hereby REVERSED.

Accordingly, the Petition for Review of the Commissioner of Internal Revenue in CTA
EB No. 476 is hereby GRANTED and the entire claim of Mindanao I Geothermal
Partnership for the first, second, third and fourth quarters of 2003 is hereby DENIED.

SO ORDERED.39

The Issues

G.R. No. 193301


Mindanao II v. CIR
Mindanao II raised the following grounds in its Petition for Review:

I. The Honorable Court of Tax Appeals erred in holding that the claim of
Mindanao II for the 1st and 2nd quarters of year 2003 has already prescribed
pursuant to the Mirant case.

A. The Atlas case and Mirant case have conflicting interpretations of the
law as to the reckoning date of the two year prescriptive period for filing
claims for VAT refund.

B. The Atlas case was not and cannot be superseded by the Mirant case
in light of Section 4(3), Article VIII of the 1987 Constitution.
C. The ruling of the Mirant case, which uses the close of the taxable
quarter when the sales were made as the reckoning date in counting the
two-year prescriptive period cannot be applied retroactively in the case of
Mindanao II.

II. The Honorable Court of Tax Appeals erred in interpreting Section 105 of the
1997 Tax Code, as amended in that the sale of the fully depreciated Nissan
Patrol is a one-time transaction and is not incidental to the VAT zero-rated
operation of Mindanao II.

III. The Honorable Court of Tax Appeals erred in denying the amount disallowed
by the Independent Certified Public Accountant as Mindanao II substantially
complied with the requisites of the 1997 Tax Code, as amended, for refund/tax
credit.

A. The amount of ₱2,090.16 was brought about by the timing difference in


the recording of the foreign currency deposit transaction.

B. The amount of ₱2,752.00 arose from the out-of-pocket expenses


reimbursed to SGV & Company which is substantially suppoerted [sic] by
an official receipt.

C. The amount of ₱487,355.93 was unapplied and/or was not included in


Mindanao II’s claim for refund or tax credit for the year 2004 subject
matter of CTA Case No. 7507.

IV. The doctrine of strictissimi juris on tax exemptions should be relaxed in the
present case.40

G.R. No. 194637


Mindanao I v. CIR

Mindanao I raised the following grounds in its Petition for Review:

I. The administrative claim and judicial claim in CTA Case No. 7228 were timely
filed pursuant to the case of Atlas Consolidated Mining and Development
Corporation vs. Commissioner of Internal Revenue, which was then the
controlling ruling at the time of filing.

A. The recent ruling in the Commissioner of Internal Revenue vs. Mirant


Pagbilao Corporation, which uses the end of the taxable quarter when the
sales were made as the reckoning date in counting the two-year
prescriptive period, cannot be applied retroactively in the case of
Mindanao I.

B. The Atlas case promulgated by the Third Division of this Honorable


Court on June 8, 2007 was not and cannot be superseded by the Mirant
Pagbilao case promulgated by the Second Division of this Honorable
Court on September 12, 2008 in light of the explicit provision of Section
4(3), Article VIII of the 1987 Constitution.

II. Likewise, the recent ruling of this Honorable Court in Commissioner of Internal
Revenue vs. Aichi Forging Company of Asia, Inc., cannot be applied retroactively
to Mindanao I in the present case.41

In a Resolution dated 14 December 2011,42 this Court resolved to consolidate G.R. Nos.
193301 and 194637 to avoid conflicting rulings in related cases.

The Court’s Ruling

Determination of Prescriptive Period


G.R. Nos. 193301 and 194637 both raise the question of the determination of the
prescriptive period, or the interpretation of Section 112 of the 1997 Tax Code, in light of
our rulings in Atlas and Mirant.

Mindanao II’s unutilized input VAT tax credit for the first and second quarters of 2003, in
the amounts of ₱3,160,984.69 and ₱1,562,085.33, respectively, are covered by G.R.
No. 193301, while Mindanao I’s unutilized input VAT tax credit for the first, second,
third, and fourth quarters of 2003, in the amounts of ₱3,893,566.14, ₱2,351,000.83, and
₱7,940,727.83, respectively, are covered by G.R. No. 194637.

Section 112 of the 1997 Tax Code

The pertinent sections of the 1997 Tax Code, the law applicable at the time of Mindanao
II’s and Mindanao I’s administrative and judicial claims, provide:

SEC. 112. Refunds or Tax Credits of Input Tax. -(A) Zero-rated or Effectively Zero-rated
Sales. - Any VAT-registered person, whose sales are zero-rated or effectively zero-
rated may, within two (2) years after the close of the taxable quarter when the sales
were made, apply for the issuance of a tax credit certificate or refund of creditable input
tax due or paid attributable to such sales, except transitional input tax, to the extent that
such input tax has not been applied against output tax: Provided, however, That in the
case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B) and Section 108
(B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been
duly accounted for in accordance with the rules and regulations of the Bangko Sentral
ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated
or effectively zero-rated sale and also in taxable or exempt sale of goods or properties
or services, and the amount of creditable input tax due or paid cannot be directly and
entirely attributed to any one of the transactions, it shall be allocated proportionately on
the basis of the volume of sales.

xxxx

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

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

x x x x 43 (Underscoring supplied)

The relevant dates for G.R. No. 193301 (Mindanao II) are:

CTA Period Close of Last day Actual date of Last day Actual
Case covered by quarter for filing filing for Date
No. VAT Sales in when application application for filing case of filing
2003 and sales of tax tax refund/ with CTA45 case
amount were refund/tax credit with the with CTA
made credit CIR (judicial
certificate (administrative claim)
with the claim)44
CIR
7227 1st Quarter, 31 March 31 March 13 April 2005 12 22 April
₱3,160,984.69 2003 2005 September 2005
2005
7287 2nd Quarter, 30 June 30 June 13 April 2005 12 7 July
₱1,562,085.33 2003 2005 September 2005
2005
7317 3rd and 4th 30 30 13 April 2005 12 9
Quarters, September September September September
₱3,521,129.50 2003 2005 2005 2005
31 2 January
December 2006
2003 (31
December
2005
being
a
Saturday)

The relevant dates for G.R. No. 194637 (Minadanao I) are:

CTA Period Close of Last day Actual date of Last day Actual
Case covered by quarter for filing filing for Date
No. VAT Sales in when application application for filing case of filing
2003 and sales of tax tax refund/ with CTA47 case
amount were refund/tax credit with the with CTA
made credit CIR (judicial
certificate (administrative claim)
with the claim)46
CIR
7227 1st Quarter, 31 March 31 March 4 April 2005 1 22 April
₱3,893,566.14 2003 2005 September 2005
2005
7287 2nd Quarter, 30 June 30 June 4 April 2005 1 7 July
₱2,351,000.83 2003 2005 September 2005
2005
7317 3rd 30 30 4 April 2005 1 9
and 4th September September September September
Quarters, 2003 2005 2005 2005
₱7,940,727.83
31 2 January
December 2006
2003 (31
December
2005
being
a
Saturday)

When Mindanao II and Mindanao I filed their respective administrative and judicial
claims in 2005, neither Atlas nor Mirant has been promulgated. Atlas was promulgated
on 8 June 2007, while Mirant was promulgated on 12 September 2008. It is therefore
misleading to state that Atlas was the controlling doctrine at the time of filing of the
claims. The 1997 Tax Code, which took effect on 1 January 1998, was the applicable
law at the time of filing of the claims in issue. As this Court explained in the recent
consolidated cases of Commissioner of Internal Revenue v. San Roque Power
Corporation, Taganito Mining Corporation v. Commissioner of Internal Revenue, and
Philex Mining Corporation v. Commissioner of Internal Revenue (San Roque):48

Clearly, San Roque failed to comply with the 120-day waiting period, the time expressly
given by law to the Commissioner to decide whether to grant or deny San Roque’s
application for tax refund or credit. 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 taxpayer’s 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 Commissioner of Internal Revenue 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 Commissioner’s 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.

San Roque’s failure to comply with the 120-day mandatory period renders its petition for
review with the CTA void. Article 5 of the Civil Code provides, "Acts executed against
provisions of mandatory or prohibitory laws shall be void, except when the law itself
authorizes their validity." San Roque’s void petition for review cannot be legitimized by
the CTA or this Court because Article 5 of the Civil Code states that such void petition
cannot be legitimized "except when the law itself authorizes its validity." There is no law
authorizing the petition’s validity.

It is hornbook doctrine that a person committing a void act contrary to a mandatory


provision of law cannot claim or acquire any right from his void act. A right cannot spring
in favor of a person from his own void or illegal act. This doctrine is repeated in Article
2254 of the Civil Code, which states, "No vested or acquired right can arise from acts or
omissions which are against the law or which infringe upon the rights of others." For
violating a mandatory provision of law in filing its petition with the CTA, San Roque
cannot claim any right arising from such void petition. Thus, San Roque’s petition with
the CTA is a mere scrap of paper.

This Court cannot brush aside the grave issue of the mandatory and jurisdictional
nature of the 120-day period just because the Commissioner merely asserts that the
case was prematurely filed with the CTA and does not question the entitlement of San
Roque to the refund. The mere fact that a taxpayer has undisputed excess input VAT,
or that the tax was admittedly illegally, erroneously or excessively collected from him,
does not entitle him as a matter of right to a tax refund or credit. Strict compliance with
the mandatory and jurisdictional conditions prescribed by law to claim such tax refund or
credit is essential and necessary for such claim to prosper. Well-settled is the rule that
tax refunds or credits, just like tax exemptions, are strictly construed against the
taxpayer.

The burden is on the taxpayer to show that he has strictly complied with the conditions
for the grant of the tax refund or credit.

This Court cannot disregard mandatory and jurisdictional conditions mandated by law
simply because the Commissioner chose not to contest the numerical correctness of the
claim for tax refund or credit of the taxpayer. Non-compliance with mandatory periods,
non-observance of prescriptive periods, and non-adherence to exhaustion of
administrative remedies bar a taxpayer’s claim for tax refund or credit, whether or not
the Commissioner questions the numerical correctness of the claim of the taxpayer.
This Court should not establish the precedent that non-compliance with mandatory and
jurisdictional conditions can be excused if the claim is otherwise meritorious, particularly
in claims for tax refunds or credit. Such precedent will render meaningless compliance
with mandatory and jurisdictional requirements, for then every tax refund case will have
to be decided on the numerical correctness of the amounts claimed, regardless of non-
compliance with mandatory and jurisdictional conditions.

San Roque cannot also claim being misled, misguided or confused by the Atlas doctrine
because San Roque filed its petition for review with the CTA more than four years
before Atlas was promulgated. The Atlas doctrine did not exist at the time San Roque
failed to comply with the 120-day period. Thus, San Roque cannot invoke the Atlas
doctrine as an excuse for its failure to wait for the 120-day period to lapse. In any event,
the Atlas doctrine merely stated that the two-year prescriptive period should be counted
from the date of payment of the output VAT, not from the close of the taxable quarter
when the sales involving the input VAT were made. The Atlas doctrine does not
interpret, expressly or impliedly, the 120+30 day periods.49 (Emphases in the original;
citations omitted)

Prescriptive Period for


the Filing of Administrative Claims

In determining whether the administrative claims of Mindanao I and Mindanao II for


2003 have prescribed, we see no need to rely on either Atlas or Mirant. Section 112(A)
of the 1997 Tax Code is clear: "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."

We rule on Mindanao I and II’s administrative claims for the first, second, third, and
fourth quarters of 2003 as follows:

(1) The last day for filing an application for tax refund or credit with the CIR for
the first quarter of 2003 was on 31 March 2005. Mindanao II filed its
administrative claim before the CIR on 13 April 2005, while Mindanao I filed its
administrative claim before the CIR on 4 April 2005. Both claims have prescribed,
pursuant to Section 112(A) of the 1997 Tax Code.

(2) The last day for filing an application for tax refund or credit with the CIR for
the second quarter of 2003 was on 30 June 2005. Mindanao II filed its
administrative claim before the CIR on 13 April 2005, while Mindanao I filed its
administrative claim before the CIR on 4 April 2005. Both claims were filed on
time, pursuant to Section 112(A) of the 1997 Tax Code.

(3) The last day for filing an application for tax refund or credit with the CIR for
the third quarter of 2003 was on 30 September 2005. Mindanao II filed its
administrative claim before the CIR on 13 April 2005, while Mindanao I filed its
administrative claim before the CIR on 4 April 2005. Both claims were filed on
time, pursuant to Section 112(A) of the 1997 Tax Code.

(4) The last day for filing an application for tax refund or credit with the CIR for
the fourth quarter of 2003 was on 2 January 2006. Mindanao II filed its
administrative claim before the CIR on 13 April 2005, while Mindanao I filed its
administrative claim before the CIR on 4 April 2005. Both claims were filed on
time, pursuant to Section 112(A) of the 1997 Tax Code.

Prescriptive Period for


the Filing of Judicial Claims

In determining whether the claims for the second, third and fourth quarters of 2003 have
been properly appealed, we still see no need to refer to either Atlas or Mirant, or even to
Section 229 of the 1997 Tax Code. The second paragraph of Section 112(C) of the
1997 Tax Code is clear: "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."

The mandatory and jurisdictional nature of the 120+30 day periods was explained in
San Roque:

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

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

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

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

xxxx

There are three compelling reasons why the 30-day period need not necessarily fall
within the two-year prescriptive period, as long as the administrative claim is filed within
the two-year prescriptive period.

First, Section 112(A) clearly, plainly, and unequivocally provides that the taxpayer "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 the creditable input tax due
or paid to such sales." In short, the law states that the taxpayer may apply with the
Commissioner for a refund or credit "within two (2) years," which means at anytime
within two years. Thus, the application for refund or credit may be filed by the taxpayer
with the Commissioner on the last day of the two-year prescriptive period and it will still
strictly comply with the law. The two-year prescriptive period is a grace period in favor of
the taxpayer and he can avail of the full period before his right to apply for a tax refund
or credit is barred by prescription.

Second, Section 112(C) provides that the Commissioner shall decide the application for
refund or credit "within one hundred twenty (120) days from the date of submission of
complete documents in support of the application filed in accordance with Subsection
(A)." The reference in Section 112(C) of the submission of documents "in support of the
application filed in accordance with Subsection A" means that the application in Section
112(A) is the administrative claim that the Commissioner must decide within the 120-
day period. In short, the two-year prescriptive period in Section 112(A) refers to the
period within which the taxpayer can file an administrative claim for tax refund or credit.
Stated otherwise, the two-year prescriptive period does not refer to the filing of the
judicial claim with the CTA but to the filing of the administrative claim with the
Commissioner. As held in Aichi, the "phrase ‘within two years x x x apply for the
issuance of a tax credit or refund’ refers to applications for refund/credit with the CIR
and not to appeals made to the CTA."

Third, if the 30-day period, or any part of it, is required to fall within the two-year
prescriptive period (equivalent to 730 days), then the taxpayer must file his
administrative claim for refund or credit within the first 610 days of the two-year
prescriptive period. Otherwise, the filing of the administrative claim beyond the first 610
days will result in the appeal to the CTA being filed beyond the two-year prescriptive
period. Thus, if the taxpayer files his administrative claim on the 611th day, the
Commissioner, with his 120-day period, will have until the 731st day to decide the claim.
If the Commissioner decides only on the 731st day, or does not decide at all, the
taxpayer can no longer file his judicial claim with the CTA because the two-year
prescriptive period (equivalent to 730 days) has lapsed. The 30-day period granted by
law to the taxpayer to file an appeal before the CTA becomes utterly useless, even if the
taxpayer complied with the law by filing his administrative claim within the two-year
prescriptive period.

The theory that the 30-day period must fall within the two-year prescriptive period adds
a condition that is not found in the law. It results in truncating 120 days from the 730
days that the law grants the taxpayer for filing his administrative claim with the
Commissioner. This Court cannot interpret a law to defeat, wholly or even partly, a
remedy that the law expressly grants in clear, plain, and unequivocal language.

Section 112(A) and (C) must be interpreted according to its clear, plain, and
unequivocal language. The taxpayer can file his administrative claim for refund or credit
at anytime within the two-year prescriptive period. If he files his claim on the last day of
the two-year prescriptive

period, his claim is still filed on time. The Commissioner will have 120 days from such
filing to decide the claim. If the Commissioner decides the claim on the 120th day, or
does not decide it on that day, the taxpayer still has 30 days to file his judicial claim with
the CTA. This is not only the plain meaning but also the only logical interpretation of
Section 112(A) and (C).50 (Emphases in the original; citations omitted)

In San Roque, this Court ruled that "all taxpayers can rely on BIR Ruling No. DA-489-03
from the time of its issuance on 10 December 2003 up to its reversal in Aichi on 6
October 2010, where this Court held that the 120+30 day periods are mandatory and
jurisdictional."51 We shall discuss later the effect of San Roque’s recognition of BIR
Ruling No. DA-489-03 on claims filed between 10 December 2003 and 6 October 2010.
Mindanao I and II filed their claims within this period.

We rule on Mindanao I and II’s judicial claims for the second, third, and fourth quarters
of 2003 as follows:

G.R. No. 193301


Mindanao II v. CIR

Mindanao II filed its administrative claims for the second, third, and fourth quarters of
2003 on 13 April 2005. Counting 120 days after filing of the administrative claim with the
CIR (11 August 2005) and 30 days after the CIR’s denial by inaction, the last day for
filing a judicial claim with the CTA for the second, third, and fourth quarters of 2003 was
on 12 September 2005. However, the judicial claim cannot be filed earlier than 11
August 2005, which is the expiration of the 120-day period for the Commissioner to act
on the claim.

(1) Mindanao II filed its judicial claim for the second quarter of 2003 before the
CTA on 7 July 2005, before the expiration of the 120-day period. Pursuant to
Section 112(C) of the 1997 Tax Code, Mindanao II’s judicial claim for the second
quarter of 2003 was prematurely filed.

However, pursuant to San Roque’s recognition of the effect of BIR Ruling No.
DA-489-03, we rule that Mindanao II’s judicial claim for the second quarter of
2003 qualifies under the exception to the strict application of the 120+30 day
periods.

(2) Mindanao II filed its judicial claim for the third quarter of 2003 before the CTA
on 9 September 2005. Mindanao II’s judicial claim for the third quarter of 2003
was thus filed on time, pursuant to Section 112(C) of the 1997 Tax Code.

(3) Mindanao II filed its judicial claim for the fourth quarter of 2003 before the
CTA on 9 September 2005. Mindanao II’s judicial claim for the fourth quarter of
2003 was thus filed on time, pursuant to Section 112(C) of the 1997 Tax Code.

G.R. No. 194637


Mindanao I v. CIR

Mindanao I filed its administrative claims for the second, third, and fourth quarters of
2003 on 4 April 2005. Counting 120 days after filing of the administrative claim with the
CIR (2 August 2005) and 30 days after the CIR’s denial by inaction,52 the last day for
filing a judicial claim with the CTA for the second, third, and fourth quarters of 2003 was
on 1 September 2005. However, the judicial claim cannot be filed earlier than 2 August
2005, which is the expiration of the 120-day period for the Commissioner to act on the
claim.

(1) Mindanao I filed its judicial claim for the second quarter of 2003 before the
CTA on 7 July 2005, before the expiration of the 120-day period. Pursuant to
Section 112(C) of the 1997 Tax Code, Mindanao I’s judicial claim for the second
quarter of 2003 was prematurely filed. However, pursuant to San Roque’s
recognition of the effect of BIR Ruling No. DA-489-03, we rule that Mindanao I’s
judicial claim for the second quarter of 2003 qualifies under the exception to the
strict application of the 120+30 day periods.

(2) Mindanao I filed its judicial claim for the third quarter of 2003 before the CTA
on 9 September 2005. Mindanao I’s judicial claim for the third quarter of 2003
was thus filed after the prescriptive period, pursuant to Section 112(C) of the
1997 Tax Code.

(3) Mindanao I filed its judicial claim for the fourth quarter of 2003 before the CTA
on 9 September 2005. Mindanao I’s judicial claim for the fourth quarter of 2003
was thus filed after the prescriptive period, pursuant to Section 112(C) of the
1997 Tax Code.

San Roque: Recognition of BIR Ruling No. DA-489-03

In the consolidated cases of San Roque, the Court En Banc53 examined and ruled on
the different claims for tax refund or credit of three different companies. In San Roque,
we reiterated that "following the verba legis doctrine, Section 112(C) must be applied
exactly as worded since it is clear, plain, and unequivocal. The taxpayer cannot simply
file a petition with the CTA without waiting for the Commissioner’s decision within the
120-day mandatory and jurisdictional period. The CTA will have no jurisdiction because
there will be no ‘decision’ or ‘deemed a denial decision’ of the Commissioner for the
CTA to review."

Notwithstanding a strict construction of any claim for tax exemption or refund, the Court
in San Roque recognized that BIR Ruling No. DA-489-03 constitutes equitable
estoppel54 in favor of taxpayers. BIR Ruling No. DA-489-03 expressly states that the
"taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek
judicial relief with the CTA by way of Petition for Review." This Court discussed BIR
Ruling No. DA-489-03 and its effect on taxpayers, thus:
Taxpayers should not be prejudiced by an erroneous interpretation by the
Commissioner, particularly on a difficult question of law. The abandonment of the Atlas
doctrine by Mirant and Aichi is proof that the reckoning of the prescriptive periods for
input VAT tax refund or credit is a difficult question of law. The abandonment of the
Atlas doctrine did not result in Atlas, or other taxpayers similarly situated, being made to
return the tax refund or credit they received or could have received under Atlas prior to
its abandonment. This Court is applying Mirant and Aichi prospectively. Absent fraud,
bad faith or misrepresentation, the reversal by this Court of a general interpretative rule
issued by the Commissioner, like the reversal of a specific BIR ruling under Section
246, should also apply prospectively. x x x.

xxxx

Thus, the only issue is whether BIR Ruling No. DA-489-03 is a general interpretative
rule applicable to all taxpayers or a specific ruling applicable only to a particular
taxpayer.

BIR Ruling No. DA-489-03 is a general interpretative rule because it was a response to
a query made, not by a particular taxpayer, but by a government agency tasked with
processing tax refunds and credits, that is, the One Stop Shop Inter-Agency Tax Credit
and Drawback Center of the Department of Finance. This government agency is also
the addressee, or the entity responded to, in BIR Ruling No. DA-489-03. Thus, while
this government agency mentions in its query to the Commissioner the administrative
claim of Lazi Bay Resources Development, Inc., the agency was in fact asking the
Commissioner what to do in cases like the tax claim of Lazi Bay Resources
Development, Inc., where the taxpayer did not wait for the lapse of the 120-day period.

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

xxxx

Taganito, however, filed its judicial claim with the CTA on 14 February 2007, after the
issuance of BIR Ruling No. DA-489-03 on 10 December 2003. Truly, Taganito can claim
that in filing its judicial claim prematurely without waiting for the 120-day period to
expire, it was misled by BIR Ruling No. DA-489-03. Thus, Taganito can claim the
benefit of BIR Ruling No. DA-489-03, which shields the filing of its judicial claim from the
vice of prematurity. (Emphasis in the original)

Summary of Administrative and Judicial Claims

G.R. No. 193301


Mindanao II v. CIR

Administrative Judicial Claim Action on Claim


Claim
1st Quarter, 2003 Filed late -- Deny, pursuant to
Section 112(A) of the
1997 Tax Code
2nd Quarter, 2003 Filed on time Prematurely filed Grant, pursuant to
BIR Ruling No. DA-489-03
3rd Quarter, 2003 Filed on time Filed on time Grant, pursuant to
Section 112(C) of the
1997 Tax Code
4th Quarter, 2003 Filed on time Filed on time Grant, pursuant to
Section 112(C) of the
1997 Tax Code
G.R. No. 194637
Mindanao I v. CIR

Administrative Judicial Claim Action on Claim


Claim
1st Quarter, 2003 Filed late -- Deny, pursuant to
Section 112(A) of the
1997 Tax Code
2nd Quarter, 2003 Filed on time Prematurely filed Grant, pursuant to
BIR Ruling No. DA-489-03
3rd Quarter, 2003 Filed on time Filed late Grant, pursuant to
Section 112(C) of the
1997 Tax Code
4th Quarter, 2003 Filed on time Filed late Grant, pursuant to
Section 112(C) of the
1997 Tax Code

Summary of Rules on Prescriptive Periods Involving VAT

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

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

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

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

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

"Incidental" Transaction

Mindanao II asserts that the sale of a fully depreciated Nissan Patrol is not an incidental
transaction in the course of its business; hence, it is an isolated transaction that should
not have been subject to 10% VAT.

Section 105 of the 1997 Tax Code does not support Mindanao II’s position:

SEC. 105. Persons Liable. - Any person who, in the course of trade or business, sells
barters, exchanges, leases goods or properties, renders services, and any person who
imports goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to
108 of this Code.

The value-added tax is an indirect tax and the amount of tax may be shifted or passed
on to the buyer, transferee or lessee of the goods, properties or services. This rule shall
likewise apply to existing contracts of sale or lease of goods, properties or services at
the time of the effectivity of Republic Act No. 7716.

The phrase "in the course of trade or business" means the regular conduct or pursuit of
a commercial or an economic activity, including transactions incidental thereto, by any
person regardless of whether or not the person engaged therein is a nonstock, nonprofit
private organization (irrespective of the disposition of its net income and whether or not
it sells exclusively to members or their guests), or government entity.

The rule of regularity, to the contrary notwithstanding, services as defined in this Code
rendered in the Philippines by nonresident foreign persons shall be considered as being
rendered in the course of trade or business. (Emphasis supplied)

Mindanao II relies on Commissioner of Internal Revenue v. Magsaysay Lines, Inc.


(Magsaysay)55 and Imperial v. Collector of Internal Revenue (Imperial)56 to justify its
position. Magsaysay, decided under the NIRC of 1986, involved the sale of vessels of
the National Development Company (NDC) to Magsaysay Lines, Inc. We ruled that the
sale of vessels was not in the course of NDC’s trade or business as it was involuntary
and made pursuant to the Government’s policy for privatization. Magsaysay, in quoting
from the CTA’s decision, imputed upon Imperial the definition of "carrying on business."
Imperial, however, is an unreported case that merely stated that "‘to engage’ is to
embark in a business or to employ oneself therein."57

Mindanao II’s sale of the Nissan Patrol is said to be an isolated


transaction.1âwphi1 However, it does not follow that an isolated transaction cannot be
an incidental transaction for purposes of VAT liability. Indeed, a reading of Section 105
of the 1997 Tax Code would show that a transaction "in the course of trade or business"
includes "transactions incidental thereto."

Mindanao II’s business is to convert the steam supplied to it by PNOC-EDC into


electricity and to deliver the electricity to NPC. In the course of its business, Mindanao II
bought and eventually sold a Nissan Patrol. Prior to the sale, the Nissan Patrol was part
of Mindanao II’s property, plant, and equipment. Therefore, the sale of the Nissan Patrol
is an incidental transaction made in the course of Mindanao II’s business which should
be liable for VAT.

Substantiation Requirements

Mindanao II claims that the CTA’s disallowance of a total amount of ₱492,198.09 is


improper as it has substantially complied with the substantiation requirements of
Section 113(A)58 in relation to Section 23759 of the 1997 Tax Code, as implemented by
Section 4.104-1, 4.104-5 and 4.108-1 of Revenue Regulation No. 7-95.60

We are constrained to state that Mindanao II’s compliance with the substantiation
requirements is a finding of fact. The CTA En Banc evaluated the records of the case
and found that the transactions in question are purchases for services and that
Mindanao II failed to comply with the substantiation requirements. We affirm the CTA
En Banc’s finding of fact, which in turn affirmed the finding of the CTA First Division. We
see no reason to overturn their findings.

WHEREFORE, we PARTIALLY GRANT the petitions. The Decision of the Court of Tax
Appeals En Bane in CT A EB No. 513 promulgated on 10 March 2010, as well as the
Resolution promulgated on 28 July 2010, and the Decision of the Court of Tax Appeals
En Bane in CTA EB Nos. 476 and 483 promulgated on 31 May 2010, as well as the
Amended Decision promulgated on 24 November 2010, are AFFIRMED with
MODIFICATION.

For G.R. No. 193301, the claim of Mindanao II Geothermal Partnership for the first
quarter of 2003 is DENIED while its claims for the second, third, and fourth quarters of
2003 are GRANTED. For G.R. No. 19463 7, the claims of Mindanao I Geothermal
Partnership for the first, third, and fourth quarters of 2003 are DENIED while its claim for
the second quarter of 2003 is GRANTED.
SO ORDERED.

#5
REPUBLIC OF THE PHILIPPINES

COURT OF TAX APPEALS, QUEZON CITY

EN BANC

CTA EB NO. 1312

(CTA Case No. 8441)

MAXICARE HEALTHCARE CORPORATION … Petitioner

versus

COMMISSIONER OF INTERNAL REVENUE … Respondent

CTA EB NO. 1317

(CTA Case No. 8441)

COMMISSIONER OF INTERNAL REVENUE … Petitioner

versus

MAXICARE HEALTHCARE CORPORATION … Respondent

PRESENT: DEL ROSARIO, PJ, CASTANEDA, JR, BAUTISTA, UY, CASANOVA,


FABON-VICTORINO, MINDARO-GRULLA, RINGPIS-LIBAN AND MANAHAN, JJ

Promulgated: MAY 08, 2017

DECISION

CASTANEDA, JR, J:

Before Us are consolidated Petitions for Review, docketed as follows:

(a) CTA EB No. 1312, that Maxicare Healthcare Corporation (Maxicare) filed by
registered mail on June 9, 2015; and,

(b) CTA EB No. 1317, that the Commissioner of Internal Revenue (CIR) filed by
registered mail on June 10, 2015.

Both petitions assail the April 21, 2014 Decision and May 5, 2015 Amended Decision
promulgated by the Third Division of the Court in CTA Case No. 8441, the dispositive
portions of which respectively read:

April 21, 2014 Decision that upheld the 2008 2nd, 3rd and 4th Quarters VAT assessment:

“WHEREFORE, the instant Petition for Review dated March 13, 2012 filed by petitioner
Maxicare Healthcare, is hereby PARTIALLY GRANTED. Consequently, the
assessment issued by respondent Commissioner of Internal Revenue against petitioner
Maxicare Healthcare Corporation for calendar year 2008 covering deficiency Value-
Added Tax is UPHELD IN PART. Accordingly, petitioner is DIRECTED TO
PAY respondent basic deficiency VAT in the amount of P125,726,203.58 and the
corresponding twenty-five percent (25%) surcharge in the amount of P31,431,550.89 as
imposed under Section 248(A)(3) of the NIRC of 1997, as amended, or in the sum of
P157,157,754.47, computed as follows:

[Table]*

In addition, petitioner is ORDERED TO PAY (a) Deficiency interest at the rate of twenty
percent (20%) per annum on the basic deficiency VAT of P24,476,512.77,
P39,747,965.34, and P61,501,725.47 for the 2nd, 3rd and 4th quarters, respectively,
computed from July 25, 2008, October 25, 2008 and January 25, 2009, respectively,
until full payment thereof pursuant to Section 249(B) of the NIRC of 1997, as amended;
(b) Delinquency interest at the rate of twenty percent (20%) per annum on the total
deficiency taxes of P157,157,754.47 representing basic deficiency VAT of
P125,726,203.58 and 25% surcharge of P31,431,550.89 computed from April 30, 2012
until full payment thereof pursuant to Section 249(C)(3) of the NIRC of 1997, as
amended.

SO ORDERED.”

May 5, 2015 Amended Decision that withdrew and set aside the VAT assessment:

“WHEREFORE, the Motion for Partial Reconsideration dated May 7, 2014 filed by
petitioner is hereby GRANTED. Accordingly, the impugned VAT assessment issued by
respondent against petitioner for taxable year 2008 is ordered withdrawn and set aside.

On the other hand, the Motion for Partial Reconsideration posted by respondent on May
9, 2014 is hereby DENIED, for lack of merit.

SO ORDERED.”

THE FACTS

Maxicare, previously known as Philippine Healthcare Providers, Inc.,1 is a domestic


corporation whose “primary purpose is to establish, maintain, conduct, and operate a
prepaid group practice health care delivery system or a health maintenance
organization (HMO) to take care of the sick, diseased, and disabled persons who are
enrolled in a health care plan and to provide for the administrative, legal and financial
responsibilities of the organization.”2

By law,3 the CIR has authority to decide disputed assessment and to enforce the
provisions of National Internal Revenue Code (NIRC), and other tax laws.

On January 1, 1998, the 1997 NIRC took effect. Section 7 therein expressly prohibits
the CIR from delegating the powers (a) to recommend rules and regulations
implementing the NIRC and (b) to issue rulings of first impression and to reverse,
revoke or modify existing rulings.4

Also, under Section 108, VAT is imposed on the sales of services by service contractors
with the term “gross receipts” defined as the “total amount of money or its equivalent
representing the contract price, compensation, service fee, rental or royalty, including
the amount charged for materials supplied with the services and deposits and advanced
payments actually or constructively received during the taxable quarter for the services
performed or to be performed for another person, xxx.”5

On June 23, 1998, CIR Liwayway Vinzons-Chato issued VAT Ruling No. 018-98 which
confirmed that Aetna Healthcare, Inc., an HMO, is subject to VAT as a service
contractor and that the “basis for computing the VAT in the case of sellers of services
shall be gross receipts as defined above and under Sec. 102 of the Tax Code [now
Section 108], as amended, which in the case of the HMOs shall be the membership
fees received from the members undiminished by any amount paid or payable to
owners/ operators of hospitals, clinics and medical and dental practitioners."
(Aetna ruling; italics supplied)6

On April 5, 2002, the CTA promulgated Philippine Health Care Providers, Inc. v. The
Commissioner of Internal Revenue7 which upheld the 1996 and 1997 VAT assessments
against then Philippine Health Care Providers, Inc. (now Maxicare) under Section 102
(now Section 108) of the 1997 NIRC). The court sustained the Aetna ruling on the
definition of gross receipts for HMOs, thus:

“Thus, it is evident that petitioner [Philippine Health Care Providers, Inc.] is not actually
rendering medical service but merely acting as a conduit between the members and
their accredited and recognized hospitals and clinics. Apparently, they are subject to
VAT under Section 102 of the Tax Code as service contractors, thus:

xxx xxx xxx

Suffice it to say, that what is really taxed in this case is the service rendered by
petitioner in providing and arranging for the provisions of health care services to its
members in exchange for a pre-negotiated, pre-paid membership fees. The records do
not show any proof that petitioner actually owned a hospital or clinic nor is it directly
engaged in the rendering of medical services.

xxx xxx xxx

The next issue is concerned with the question of whether or not membership fees in
connection with prepaid group practice health care program are subject to VAT. We
answer in the affirmative. The revenues of health care providers are actually derived
from the application and membership fees being paid by their members. Thus, the basis
for computing the VAT in case of sellers of services shall be the gross receipts, which in
this case shall be the payments for medical plans and application fees actually received
from the members, undiminished by any amount paid or payable to owners/ operators
of hospitals, clinics and medical and dental practitioners.” (underscoring supplied)

On December 13, 2002, CIR Guillermo L. Parayno, Jr. issued Revenue Memorandum
Circular No. (RMC) 56-2002 on the taxability of HMOs for VAT purposes. It circularized
to all revenue officers and others concerned the Aetna ruling which was reiterated
in Philippine Health Care Providers, Inc. v. The Commissioner of Internal Revenue 8 that
held HMOs as service contractors subject to VAT under Section 108.9

On March 26, 2003, the CTA subsequently reconsidered its decision and set-aside the
VAT assessments on the ground that the 1998 Aetna ruling,10 declaring the HMOs
subject to VAT, could not be applied to justify the 1996 and 1997 VAT assessments
pursuant to the principle of non-retroactivity in Section 246 of the 1997 NIRC.11

On February 18, 2005, the Court of Appeals affirmed the CTA Resolution stating that
the case of Philippine Health Care Providers, Inc. (now Maxicare) did not fall under one
of the exceptions of the non-retroactivity rule. Therefore, so as not to prejudice the
taxpayer, the Aetna ruling could only be applied prospectively:
“In sum, the facts herein presented do not show that the case falls under one of the
exceptions to the applicability of the non-retroactivity rule. VAT Ruling No. 18-98 dated
June 23. 1998 [Aetna ruling] cannot be applied retroactively as it would be prejudicial to
respondent [Philippine Health Care Providers, Inc.]. To allow the imposition of the value-
added tax upon services offered by respondent covering the years 1996 and 1997 when
it can no longer at present pass on the economic burden to its members would be to
penalize respondent's reliance in good faith on the BIR's previous ruling. Thus, VAT
Ruling No. 231-88 is still the applicable ruling in the instant case.

WHEREFORE, the petition is DENIED. The Resolution dated March 26, 2003 of the
Court of Tax Appeals is AFFIRMED.” (underscoring supplied)

On November 1, 2005, Republic Act No. (RA) 9337 took effect which amended portions
of Section 108 but retained its relevant provisions on service contractors and the
definition of gross receipts.12

To implement RA 9337, Revenue Regulations No. (RR) 16-2005 or the Consolidated


Value-Added Tax Regulations of 2005 was issued. Section 4.108-3 of the regulations
provides, among others, specific definitions of gross receipts of various industries.
Specifically, Section 4.108-3(k) defined the nature of HMOs and the scope of their gross
receipts subject to VAT:

“SEC. 4.108-3. Definitions and Specific Rules on Selected Services. -

xxx xxx xxx

(k) Health Maintenance Organizations (HMOs) are entities, organized in accordance


with the provisions of the Corporation Code of the Philippines and licensed by the
appropriate government agency, which arranges for coverage or designated managed
care services needed by plan holders/ members for fixed prepaid membership fees and
for a specified period of time.

HMO's gross receipts shall be the total amount of money or its equivalent representing
the service fee actually or constructively received during the taxable period for the
services performed or to be performed for another person, excluding the value-added
tax. The compensation for their services representing their service fee, is presumed to
be the total amount received as enrollment fee from their members plus other charges
received.”

On February 7, 2007, RR 4-2007 was issued to amend, among others, provisions of


Section 4.108-3 of RR 16-2005. However, it left Section 4.108-3(k), the provision
dealing specifically on HMOs, unchanged. The regulations likewise amended the
definition of gross receipts found in Section 4.108-4:

“SECTION 4.108-4. Definition of Gross Receipts. - ‘Gross receipts’ refers to the


total amount of money or its equivalent representing the contract price, compensation,
service fee, rental or royalty, including the amount charged for materials supplied with
the services and deposits applied as payments for services rendered and advance
payments actually or constructively received during the taxable period for the services
performed or to be performed for another person, excluding VAT, except those amounts
earmarked for payment to unrelated third (3rd) party or received as reimbursement for
advance payment on behalf of another which do not redound to the benefit of the payor.
A payment is a payment to a third (3rd) party if the same is made to settle an obligation
of another person, e.g., customer or client, to the said third party, which obligation is
evidenced by the sales invoice/ official receipt issued by said third party to the obligor/
debtor (e.g., customer or client of the payor of the obligation).

An advance payment is an advance payment on behalf of another if the same is paid to


a third (3rd) party for a present or future obligation of said another party which obligation
is evidenced by a sales invoice/ official receipt issued by the obligee/ creditor to the
obligor/ debtor (i.e., the aforementioned "another party") for the sale of goods or
services by the former to the latter.

For this purpose “unrelated party” shall not include taxpayer's employees, partners,
affiliates (parent, subsidiary and other related companies), relatives by consanguinity or
affinity within the fourth (4th) civil degree, and trust fund where the taxpayer is the
trustor, trustee or beneficiary, even if covered by an agreement to the contrary.”

On April 24, 2007, the Supreme Court promulgated Commissioner of Internal Revenue
v. Philippine Health Care Providers, Inc.,13which cancelled the HMO’s 1997 and 1999
VAT assessments on the basis of the non-retroactivity of Aetna ruling14 and of its good
faith reliance on VAT Ruling No. 231-88 issued on June 8, 1988, which exempted it
from VAT. However, in finding that the Philippine Health Care Providers, Inc. did not
actually render medical and/or hospital services, the Court held that its services
were not exempt from VAT. Thus:

“On the first issue, respondent is contesting petitioner's assessment of its VAT liabilities
for taxable years 1996 and 1997.

Section 102 of the National Internal Revenue Code of 1977, as amended by E.O. No.
273 (VAT Law) and R.A. No. 7716 (E-VAT Law), provides:

The import of the above provision is plain. It requires no interpretation. It contemplates


the exemption from VAT of taxpayers engaged in the performance of medical, dental,
hospital, and veterinary services. In Commissioner of Internal Revenue v. Seagate
Technology (Philippines), we defined an exempt transaction as one involving goods or
services which, by their nature, are specifically listed in and expressly exempted from
the VAT, under the Tax Code, without regard to the tax status of the party in the
transaction. In Commissioner of Internal Revenue v. Toshiba Information Equipment
(Phils.) Inc., we reiterated this definition.

In its letter to the BIR requesting confirmation of its VAT-exempt status, respondent
described its services as follows:

Under the prepaid group practice health care delivery system adopted by Health Care,
individuals enrolled in Health Care's health care program are entitled to preventive,
diagnostic, and corrective medical services to be dispensed by Health Care's duly
licensed physicians, specialists, and other professional technical staff participating in
said group practice health care delivery system established and operated by Health
Care. Such medical services will be dispensed in a hospital or clinic owned, operated,
or accredited by Health Care. To be entitled to receive such medical services from
Health Care, an individual must enroll in Health Care's health care program and pay an
annual fee. Enrollment in Health Care's health care program is on a year-to-year basis
and enrollees are issued identification cards.

From the foregoing, the CTA made the following conclusions:


a) Respondent ‘is not actually rendering medical service but merely acting as a
conduit between the members and their accredited and recognized hospitals and
clinics.’

b) It merely ‘provides and arranges for the provision of pre-need health care
services to its members for a fixed prepaid fee for a specified period of time.’

c) It then ‘contracts the services of physicians, medical and dental practitioners,


clinics and hospitals to perform such services to its enrolled members’; and

d) Respondent ‘also enters into contract with clinics, hospitals, medical


professionals and then negotiates with them regarding payment schemes,
financing and other procedures in the delivery of health services.’

We note that these factual findings of the CTA were neither modified nor reversed by
the Court of Appeals. It is a doctrine that findings of fact of the CTA, a special court
exercising particular expertise on the subject of tax, are generally regarded as final,
binding, and conclusive upon this Court, more so where these do not conflict with the
findings of the Court of Appeals. Perforce, as respondent does not actually provide
medical and/or hospital services, as provided under Section 103 on exempt
transactions, but merely arranges for the same, its services are not VAT-exempt.”
(underscoring supplied; citations omitted)

On December 4, 2007, CIR Lilian B. Hefti issued RMC 81-2007 which again clarified
that the “taxable base of HMOs for VAT purposes shall be the gross receipts without
any deduction.”15

On March 26, 2008, Deputy Commissioner Gregorio V. Cabantac issued VAT Ruling
No. 03-2008 which again reiterated the previous CIR position in Aetna that an HMO is
not exempt from VAT under Section 109(G) since it does not directly perform the
medical services but merely acts as conduit between its members and their accredited
hospitals and that the taxable base for computing the VAT shall be the gross receipts
under Section 108(A) “undiminished by any amount paid or payable to owners/
operators of hospitals, clinics and medical and dental practitioners.”16

Thereafter, Maxicare filed its 1st and 2nd quarterly VAT returns of 2008 on the following
dates17 declaring the amounts it allegedly earmarked for payments to unrelated third
parties or its medical utilization expenses (i.e. medical and dental fees, hospital bills,
laboratory fees, professional fees, etc.) as VAT-exempt sales:18

VAT Returns Date of Filing VAT-Exempt Sales

1st Quarter April 24, 2008 P 330,063,761.9619

2nd Quarter July 25, 2008 247.3 86.731.4320

In a letter dated September 25, 2008, Maxicare requested for confirmation of its opinion
that its provision for medical utilization should not be subject to VAT.21

On October 27, 2008, Maxicare filed its 3rd Quarter VAT return and again excluded from
the taxable sales those it allegedly earmarked for payments to unrelated third parties or
the medical utilization expenses (i.e. medical and dental fees, hospital bills, laboratory
fees, professional fees, etc.):22
VAT Returns Date of Filing VAT-Exempt Sales

3rd Quarter October 27, 2008 376,254,627.4923

On October 31, 2008, the Assistant Commissioner-Legal Service issued BIR Ruling DA-
VAT-026 375-08 in favor of Maxicare which confirmed the position that the “amounts
earmarked for payment to unrelated third parties or received as reimbursement for
advance payment on behalf of another shall be excluded” in “determining gross receipts
for VAT purposes.”24

On January 15, 2009, CIR Sixto S. Esquivias IV issued RMC 02-2009, which
reproduced his letter to MEDICard Philippines, Inc. (MEDICard) expressly revoking BIR
Ruling No. DA (VAT-054) 529-2008. The letter stated that said ruling previously issued
by the Assistant Commissioner-Legal Service to MEDICard was one of “first impression”
that “should have been presented to the CIR for evaluation and approval.”25

On January 26, 2009,26 as in the previous three quarters, Maxicare filed its fourth
quarter VAT return declaring the amounts it allegedly earmarked for payments to
unrelated third parties as VAT-exempt sales:27

VAT Returns Date of Filing VAT-Exempt Sales

4th Quarter January 26, 2009 P 572, 012,745.5528

On January 27, 2009, CIR Sixto S. Esquivias IV issued RMC 6-2009 which repeated his
revocation of BIR Ruling No. DA (VAT-054) 529-2008 and similar rulings such as the
one issued to Maxicare (DA-VAT-026 375-08) and stressed the VATability of HMOs.
The circular also stressed that the 1998 Aetna ruling is still controlling which
pronounced that HMOs are subject to VAT and the “basis for computing the VAT shall
be the membership fees received from the members undiminished by any amount paid
or payable to owners/ operators of hospitals, clinics and medical and dental
practitioners.”29

Consequently, on February 1, 2009, respondent issued Letter of Authority (LOA) No.


00012161 authorizing the audit of the internal revenue tax liabilities of petitioner for
calendar year 2008.30

On May 21, 2010, CIR Joel L. Tan-Torres issued RMC 39-2010 declaring that the tax
base of HMOs for VAT purposes shall be the gross receipts without any deduction for
medical utilization such as medical and dental fees, hospital bills, laboratory fees,
professional fees, etc.31

On February 4, 2011, Maxicare received BIR Notice of Informal Conference dated


February 1, 2011 in connection with its deficiency VAT assessment for CY 2008 in the
amount of P305,192,043.58.32

In a letter-reply dated March 19, 2011, Maxicare contested the assessment indicated in
the Notice of Informal Conference. The challenge was dismissed by virtue of BIR letter
dated April 5, 2011.33
On April 18, 2011, Maxicare received from the CIR a Preliminary Assessment Notice
(PAN) for deficiency VAT for calendar year 2008 in the amount of P332,449,309.85,
inclusive of penalties and surcharges.34

On May 18, 2011, Maxicare received an Assessment Notice from respondent for
deficiency VAT in the amount of P337,911,970.96, inclusive of surcharges and interest.
The assessment was based on CIR’s position that the tax base of HMOs for VAT
purposes shall be the gross receipts without any deduction for medical utilization, viz.,
medical and dental fees, hospital bills, laboratory fees, professional fees, etc.
Specifically, the assessment covered purported gross receipts not subjected to VAT or
exempt sales per VAT returns pertaining to Maxicare’s deductions or exclusions from its
gross receipts of medical utilization expenses like medical and dental fees, hospital bills,
laboratory fees, professional fees, etc.35

On June 17, 2011, Maxicare filed its protest against the subject assessment issued
pursuant to Section 228 of the Tax Code.36

On July 7, 2011, Maxicare received the CIR’s letter dated June 28, 2011 informing it
that its protest as well as the case docket would be forwarded to Revenue District Office
(RDO) No. 47 for further evaluation and action.37

On August 8, 2011, Maxicare received, through BIR RDO No. 47, a letter dated August
3, 2011 on the indorsement of the case to certain revenue officers for further
evaluation.38

On August 16, 2011, Maxicare submitted pertinent documents to substantiate its


protest.39

On March 2, 2012, petitioner received a copy of the letter dated February 21, 2012
denying its protest and reiterating the assessment.40

On March 13, 2012, Maxicare filed its Petition for Review which was raffled to the Court
of Tax Appeals (CTA) Third Division.41

On March 27, 2012, the CIR issued a Final Decision on Disputed Assessment
(FDDA).42

On May 25, 2012, the CIR filed her Answer.43

After the Pre-trial Conference, the parties filed their Joint Stipulation of Facts (JSF) on
the basis of which a Pre-Trial Order was issued on September 13, 2012.44

During the trial, petitioner presented its Assistant Treasurer and Vice President for
Finance, Jean Paul I. Gines, who executed a judicial affidavit for his direct
testimony.45 The CIR opted not to present evidence.46

On May 6, 2013, the case was submitted for decision with the filing of Maxicare’s
memorandum. The CIR, however did not file a memorandum, despite the opportunity
granted.47

On August 13, 2013, Maxicare filed an Omnibus Motion (to Re-open Trial and to
Appoint an ICPA) to which respondent filed Comment/ Opposition on October 1, 2013.
The Court denied the motion for lack of merit on October 30, 2013. 48

On April 21, 2014, the CTA Third Division promulgated its decision partially granting
Maxicare’s petition but upheld in part the VAT assessment.49
On May 5, 2015, upon motions for reconsideration of both parties, the Court in Division
promulgated an Amended Decision which set aside the VAT assessment. 50

On June 9, 2015, Maxicare filed its Petition for Review by registered mail with the
Court En Banc under Rule 8 of the Revised Rules of the Court of Tax Appeals (RRCTA)
which was docketed as CTA EB Case No. 1312.51

On June 10, 2015, the CIR also filed a Petition for Review by registered mail with the
Court En Banc which was docketed as CTA EB Case No. 1317.52

On June 24, 2015, the Court En Banc in a Minute Resolution resolved to consolidate
CTA EB No. 1317 with CTA EB No. 1312.53

In a Resolution dated July 28, 2015, both parties were ordered to file their respective
comments.54

On September 1, 2015, Maxicare filed its Comment/ Opposition.55 However, the CIR
failed to file a comment per records verification.56

Accordingly, in a Resolution dated January 7, 2016, the Court ordered both parties to
file their memoranda.57

On March 3, 2016, Maxicare filed its memorandum.58 Per records verification dated
April 14, 2016, the CIR did not file a memorandum.

In a Resolution dated May 17, 2016, the consolidated cases were deemed submitted for
decision.59

THE ISSUES

The issues to be resolved by the Court En Banc can be summarized as follows:

1. Was Maxicare justified in relying on BIR Ruling DA-(VAT-026) 375-08 issued on


October 31, 2008?

2. For HMOs, how should the gross receipts be defined for purposes of computing the
VAT?

3. What prescriptive period should apply to the CY 2008 VAT Assessments?

THIS COURT’S RULING

We grant in part the petition of the CIR.

The facts do not support Maxicare’s assertion that there was good faith reliance
in BIR Ruling DA-(VAT-026) 375-08 issued on October 31, 2008

Although good faith is presumed,60 based on the chronology of facts, the Court is
unconvinced that Maxicare was unaware of the position of the CIR with respect to the
VAT issues concerning the HMO industry prior to the filing of its quarterly VAT returns.

In CIR v. Philippine Health Care Providers, Inc.,61 a case involving Maxicare


(then Philippine Health Care Providers, Inc.) and very similar issues, the Supreme Court
defined good faith in this wise:

“We agree with both the Tax Court and the Court of Appeals that respondent acted in
good faith. In Civil Service Commission v. Maala, we described good faith as ‘that state
of mind denoting honesty of intention and freedom from knowledge of circumstances
which ought to put the holder upon inquiry; an honest intention to abstain from taking
any unconscientious advantage of another, even through technicalities of law, together
with absence of all information, notice, or benefit or belief of facts which render
transaction unconscientious.’” (underscoring supplied)

The sequence of events leading up to the favorable delegated authority ruling in 2008
demonstrate clearly that the CIR was very consistent in the treatment of HMOs and in
the definition of an HMO’s gross receipts for VAT purposes. As will be discussed at
length, Maxicare was fully apprised of the implications on its VAT position and ought to
have realized that its position was untenable in the light of consistent pronouncements
by both the CIR and the courts.

First, the issue on the VATability of HMOs and the computation of gross receipts has
been restated with coherence by the CIR in various implementing issuances beginning
with the Aetna ruling62 in 1998.

In fact, prior to the filing of Maxicare’s 2008 quarterly VAT returns, 63 Aetna was
reiterated by no less than three revenue issuances and a ruling:

RMC 56-2002 on December 8, 2002;

RR 16-2005, Section 1.108-3(k), on September 1, 2005;

RMC 81-2007 on December 4, 2007; and,

VAT Ruling No. 3-2008 on March 26, 2008.

All these issuances have been uniform in defining gross receipts as defined in Section
108(A) of the 1997 NIRC “without deductions”64 or “undiminished by any amount paid or
payable to owners/ operators of hospitals, clinics and medical and dental
practitioners.”65

As a general rule, the construction given to a statute by an administrative agency


charged with the interpretation and application of that statute is entitled to great respect
and should be accorded great weight by the courts.66 Maxicare should have been
guided by the same prudence and should have deferred to the consistent position taken
by the CIR.

Second, as early as 2002, when the CTA promulgated its decision cancelling the 1996
and 1997 VAT assessments because the Aetna ruling was not given retroactive
application, Maxicare (then Philippine Health Care Providers, Inc.) was already put on
notice as to the definition of gross receipts espoused by the CIR and subsequently
adopted by the CTA.

In Philippine Health Care Providers, Inc. v. Commissioner of Internal Revenue,61 the


CTA adopted the definition of gross receipts for HMOs stated in the Aetna ruling. In said
case, the Court specifically pronounced that “the basis for computing the VAT in case of
sellers of services shall be the payments for medical plans and application fees actually
received from the members, undiminished by any amount paid or payable to owners/
operators of hospitals, clinics and medical and dental practitioners.”

“Thus, it is evident that petitioner is not actually rendering medical service but merely
acting as a conduit between the members and their accredited and recognized hospitals
and clinics. Apparently, they are subject to VAT under Section 102 [now Section 108] of
the Tax Code as service contractors, thus:

xxx xxx xxx


Suffice it to say, that what is really taxed in this case is the service rendered by
petitioner in providing and arranging for the provisions of health care services to its
members in exchange for a pre-negotiated, pre-paid membership fees. The records do
not show any proof that petitioner actually owned a hospital or clinic nor is it directly
engaged in the rendering of medical services.

xxx xxx xxx

The next issue is concerned with the question of whether or not membership fees in
connection with prepaid group practice health care program are subject to VAT. We
answer in the affirmative. The revenues of health care providers are actually derived
from the application and membership fees being paid by their members. Thus, the basis
for computing the VAT in case of sellers of services shall be the gross receipts, which in
this case shall be the payments for medical plans and application fees actually received
from the members, undiminished by any amount paid or payable to owners/ operators
of hospitals, clinics and medical and dental practitioners.”68 (underscoring supplied)

On appeal, although the Court of Appeals69 and the Supreme Court70 upheld the CTA
resolution restraining the application of the Aetna ruling to prevent prejudice to
Maxicare, the courts nonetheless did not disturb the CTA’s definition of gross receipts.
The courts furthermore did not overturn or invalidate the Aetna ruling where the same
definition was lifted.

We observe that the facts of this case especially Maxicare’s justification based on a
ruling it hastily obtained uncannily mirror those in the previous cases. This pattern or
strategy betrays an intention to take advantage of another through the technicalities of
law.

Third, BIR Ruling DA-(VAT-026) 375-08 issued by the Assistant Commissioner Legal
Service cannot reverse, revoke or modify the existing Aetna ruling issued by the CIR.
The DA-(VAT-026) 375-08 ruling, is a delegated authority ruling which deviates from the
prior rulings and issuances of the delegating authority, the CIR. It is a ruling of first
impression because it was issued without established precedents71 and, thus, could not
be issued by an Assistant Commissioner.

In this regard, Section 7 of the 1997 NIRC plainly prohibits the issuance of DA-(VAT-
026) 375-08, thus:

“SEC. 7. Authority of the Commissioner to Delegate Power. - The Commissioner may


delegate the powers vested in him under the pertinent provisions of this Code to any or
such subordinate officials with the rank equivalent to a division chief or higher, subject
to such limitations and restrictions as may be imposed under rules and regulations to be
promulgated by the Secretary of Finance, upon recommendation of the
Commissioner: Provided, however, That the following powers of the Commissioner shall
not be delegated:

(a) The power to recommend the promulgation of rules and regulations by the Secretary
of Finance;

(b) The power to issue rulings of first impression or to reverse, revoke or modify any
existing ruling of the Bureau:

xxx xxx xxx” (underscoring supplied)


Given the succession of issuances by the CIR which consistently spell out that the
HMOs are subject to VAT and that the gross receipts should be undiminished by any
deductions, it is unwarranted that Maxicare could disavow knowledge of these
circumstances and conveniently insist upon relying on BIR Ruling DA-(VAT-026) 375-
08.

We note that Maxicare has been conspicuously silent about the fact that the positive
ruling it obtained was subsequently revoked by the CIR in RMC 6-2009 in January 27,
2009, less than three months after it was issued.

Fourth, We note that in its 2007 and 2008 Audited Financial Statements submitted to
the examiners,72 Maxicare disclosed the contingency pertaining to the cases involving
the 1996 and 1997 VAT assessments. The cases on VAT assessments precisely
adjudicated upon the very issues that are again before the Court in this case: how the
gross receipts of HMOs should be computed for VAT purposes.

Fifth, Maxicare’s position which calls for the exemption of its receipts from VAT must be
proven beyond bare allegations considering that tax exemptions are construed strictly
against the taxpayer.73 During the trial, Maxicare has had ample time to adduce relevant
evidence in support of its position on the amounts earmarked as medical/ hospital
utilization expenses. It failed to do so during the presentation of evidence and when its
eleventh-hour attempt to reopen trial, after filing its memorandum, was denied by the
Court below.74

Finally, granting We were to ignore these glaring circumstances that should have put
Maxicare upon inquiry on how the gross receipts should properly be computed as
financial prudence should dictate, it can be shielded only with respect to its 4 th Quarter
2008 VAT Return, which it filed on January 26, 2009 after the issuance of the ruling.

A taxpayer cannot benefit from a BIR ruling before the date of its issuance. In the
consolidated cases of Commissioner of Internal Revenue v. San Roque Power
Corporation, et al.,75 the Supreme Court held in this regard:

“San Roque, therefore, cannot benefit from BIR Ruling No. DA-489-03 because it filed
its judicial claim prematurely on 10 April 2003, before the issuance of BIR Ruling No.
DA-489-03 on 10 December 2003. To repeat, San Roque cannot claim that it was
misled by the BIR into filing its judicial claim prematurely because BIR Ruling No. DA-
489-03 was issued only after San Roque filed its judicial claim. At the time San Roque
filed its judicial claim, the law as applied and administered by the BIR was that the
Commissioner had 120 days to act on administrative claims. This was in fact the
position of the BIR prior to the issuance of BIR Ruling No. DA-489-03. Indeed, San
Roque never claimed the benefit of BIR Ruling No. DA-489-03 or RMC 49-03, whether
in this Court, the CTA, or before the Commissioner.” (underscoring supplied)

Considering the foregoing, the Court finds Maxicare’s arguments unmeritorious.

The Court sustains the CTA Third Division’s holding on the definition of gross
receipts of HMOs

Maxicare seeks to exempt from VAT 80% of the enrollment fees or premiums it
collected which allegedly represents those earmarked for medical utilization 76 despite
the contrary issuances of the CIR. It has taken issue with the definition of gross receipts
as far as HMOs are concerned which was restated in the Amended Decision77 of the
CTA Third Division:
“A judicious evaluation of petitioner's arguments unfolds no extenuating ground for the
Court to depart from its ruling with respect to the application of Section 4.108-3(k) of RR
No. 16-2005 defining what constitutes HMOs' gross receipts for purposes of determining
its tax base for VAT. The challenged Decision of April 21, 2014 even traced the
evolution of the terms as applied in the present case and clarified that for VAT
purposes, HMOs' gross receipts shall be the total amount of money or its equivalent
actually received from members undiminished by any amount paid or payable to the
owners/ operators of hospitals, clinics and medical and dental practitioners.

xxx xxx xxx” (underscoring supplied)

We agree with the Court’s definition of gross receipts.

First, for a tax exemption to exist, it must be so categorically declared in words that
admit of no doubt.78 The law is very clear. Section 108 of the 1997 NIRC, as amended,
provides a definition of gross receipts subject to VAT:

“SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. -

xxx xxx xxx

The term ‘gross receipts’ means the total amount of money or its equivalent
representing the contract price, compensation, service fee, rental or royalty, including
the amount charged for materials supplied with the services and deposits and advanced
payments actually or constructively received during the taxable quarter for the services
performed or to be performed for another person, excluding value-added tax.”
(underscoring supplied)

Second, one cannot question the authority of petitioner CIR to promulgate rules and
regulations to effectuate the clear intent of our internal revenue laws. 79 It is well settled
that the construction given to a statute by an administrative agency charged with the
interpretation and application of that statute is entitled to great respect and should be
accorded great weight by the courts unless such construction is clearly shown to be in
sharp conflict with the Constitution, the governing statute, or other laws. 80

As already discussed, a succession of regulations, circulars and rulings have


harmoniously affirmed the position that for HMOs, gross receipts “shall be the payments
for medical plans and application fees actually received from the members,
undiminished by any amount paid or payable to owners/ operators of hospitals, clinics
and medical and dental practitioners.” Maxicare cannot persist upon a position which
differs from established interpretation simply because it serves its own interests.

Third, Maxicare contends that when RR 4-2007 amended the general provision on the
definition of gross receipts in Section 4.108.4 of the RR 16-2005, the corresponding
definition of gross receipts for HMOs found in Section 4.108-3(k) was likewise
amended.81

This argument is flawed.

Maxicare’s strained reasoning runs counter to the principle of generalia specialibus non
derogant. As a corollary from the doctrine that implied repeals are not favored, this rule
of interpretation states that subsequent general legislation is deemed not to derogate
from a prior special act. Section 4.108.4 gives the general definition of gross receipts.
Thus, the definition found therein cannot overcome the specific definition of gross
receipts for HMOs in Section 4.108-3(k). This is in accord with the rule on statutory
construction that specific provisions must prevail over general ones:

“A special and specific provision prevails over a general provision irrespective of their
relative positions in the statute. Generalia specialibus non derogant. Where there is in
the same statute a particular enactment and also a general one which in its most
comprehensive sense would include what is embraced in the former, the particular
enactment must be operative, and the general enactment must be taken to affect only
such cases within its general language as are not within the provisions of the particular
enactment.”82

Stated differently, the amendment by RR 4-2007 of a general provision on gross


receipts under Section 4.108-4 cannot be construed as implying the repeal or
amendment of a specific provision on gross receipts for HMOs under Section 4.108-
3(k).

Maxicare notably fails to highlight that while RR 4-2007 amended Section 4.108-4, it
also amended other provisions of 4.108-3 on other selected services such as (e)
domestic common carriers; (f) generation, transmission and distribution companies; (h)
franchise grantees; (i) non-life insurance companies. But, significantly, it left
out unchanged the provision on HMOs under Section 4.108-3(k). If it were really the
intention of the CIR to amend the definition of gross receipts for HMOs, it should have
made the necessary recommendations. No such intention can be inferred when viewed
in the light of prior and consistent issuances and interpretation of the CIR.

Fourth, the issues concerning the HMOs are not novel. Recently, in Medicard
Philippines, Inc. v. Commissioner of Internal Revenue,83 the CTA Third Division affirmed
the VAT assessment against an HMO. The court held that the gross receipts for HMOs
include the amount earmarked as payments for medical/ hospital expenses, thus:

“In the case of HMOs, it is they, not their members, who are obligated to the doctors
and hospitals for payment of the latter's bills. The contractual vinculum, insofar as the
provision of medical services is concerned, is between the hospitals and doctors, on the
one hand, and the petitioner, on the other hand. In the event, for example, that a doctor
refuses to treat a member, the course of action of the member is against petitioner, not
the doctor. The doctors on the other hand, cannot refuse to render service for as long
as the member is in good standing in the records of the petitioner.

Therefore, all payments to doctors and hospitals, whether earmarked or actually paid,
including the item of P11,522,346.00 identified as Professional Fees in the disputed
assessment, are inextricably intertwined with the total fees payable to petitioner by the
members and are a crucial factor in the over-all design of the terms and conditions
stated in every contract for coverage. They form part of the gross receipt of petitioner
subject to VAT.” (underscoring supplied)

On appeal, the CTA En Banc affirmed the CTA Third Division and held that the HMO’s
taxable gross receipts include those earmarked for medical, dental and hospital
services,84 thus:

“Petitioner avers that the amounts it received from its member-clients are earmarked or
intended to be paid for medical, dental and hospital services to independent hospital,
clinics and medical professionals. In addition, these amounts do not redound to the
benefit of the petitioner and are merely held for the account of the member-clients.
Thus, these amounts should not form part of petitioner's gross receipts pursuant to
Revenue Regulations No. 4-2007 (RR No. 4-2007).

xxx xxx xxx

Under Section 4.108-3(k) of RRNo. 16-2005, HMOs gross receipts shall be the total
amount of money or its equivalent representing the service fee actually or constructively
received during the taxable period for the services performed or to be performed for
another person, excluding the value-added tax. In contrast with the amendment
introduced by Section 11 of RRNo. 4-2007, to Section 4.108.4 of RRNo. 16-2005,
Section 4.108-3 of RR No. 16-2005 does not mention of any amount earmarked or
received as reimbursement for advance payment to be excluded from gross receipts.

Likewise, it is noteworthy that Section 10 of RR No. 4-2007 amended Section 4.108-3


(e), (f), (h), (i) and (j) of RR No. 16-2005, but the same did not amend Section 4.108-
3(k) of RR No. 16-2005. Hence, the necessary conclusion is that Sections 10 and 11 of
RR No. 4-2007 did not amend Section 4.108-3(k) of RR No. 16-2005 and as such, the
latter provision is still applicable with respect to the determination of gross receipts of
HMOs.

In other words, what is applicable in this case is Section 4.108-3(k) of RR No. 16-2005,
and not Section 11 of RR No. 4-2007 amending Section 4.108-4 of RR No. 16-2005,
with respect to the composition of petitioner's gross receipts. To reiterate, Sections 10
and 11 of RR No. 4-2007 did not amend Section 4.108-3(k) of RR No. 16-2005, which
provides for specific rules vis a vis HMOs gross receipts. Thus, there is no basis to
exclude petitioner's alleged amounts earmarked for payment to medical, dental and
hospital services to independent hospital, clinics and medical professionals, following
the specific rules for HMOs under Section 4.108-3(k) of RR No. 16-2005.” (underscoring
supplied)

On the basis of the foregoing, Maxicare’s arguments clearly lack merit.

The ten-year prescription in Section 222(a) of the 1997 NIRC applies to the VAT
assessments against Maxicare.

In its decision,85 the CTA Third Division found that CIR’s right to assess Maxicare for
deficiency VAT had prescribed with respect to the 1st Quarter of 2008 since the Formal
Assessment Notice (FAN) was received by Maxicare only on May 18, 2011, 86 to wit:

[Table]*

However, the CIR correctly identified that Maxicare’s VAT returns for the subject year
under audit are false.87 Consequently, We hold that the ten-year period under Section
222(a) of the 1997 NIRC, as amended, applies:

“SEC. 222. Exceptions as to Period of Limitation of Assessment and Collection of


Taxes. -

(a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a
return, the tax may be assessed, or a proceeding in court for the collection of such tax
may be filed without assessment, at any time within ten (10) years after the discovery of
the falsity, fraud or omission: Provided, That in a fraud assessment which has become
final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or
criminal action for the collection thereof.” (underscoring supplied)
In Aznar v. Court of Tax Appeals,88 a case characterized as involving “false tax returns”,
the Supreme Court sustained the right of the CIR to assess under the extended ten-
year prescription in Section 332 (now Section 222) of the 1997 NIRC.

In Samar-I Electric Cooperative v. Commissioner of Internal Revenue,89 the Supreme


Court once again invoked Aznar to apply the ten-year prescription under Section 222. It
justified the extended period by remarking on the substantial underdeclaration of
withholding taxes by the taxpayer in the amount of P2,690,850.91 which
constituted falsity within the Aznar contemplation:

“In the case at bar, it was petitioner's substantial underdeclaration of withholding


taxes in the amount of P2.690.850.91 which constituted the "falsity" in the subject
returns - giving respondent the benefit of the period under Section 222 of the NIRC of
1997 to assess the correct amount of tax ‘at any time within ten (10) years after the
discovery of the falsity, fraud or omission.’

The case of Aznar v. Court of Tax Appeals discusses what acts or omissions may
constitute falsity, viz.:

xxx xxx xxx

There being undoubtedly false tax returns in this case, We affirm the conclusion of the
respondent Court of Tax Appeals that Sec. 332 (a) of the NIRC should apply and that
the period of ten years within which to assess petitioner's tax liability had not expired at
the time said assessment was made.

A careful examination of the evidence on record yields to no other conclusion but that
petitioner failed to withhold taxes from its employees' 13th month pay and other benefits
in excess of thirty thousand pesos (P30,000.00) amounting to P2.690.850.91 for the
taxable years 1997 to 1999-resulting to its filing of the subject false returns. Petitioner
failed to refute this finding, both in fact and in law, before the courts a quo.”
(underscoring and emphases supplied; citations omitted)

A false return simply involves a “deviation from truth, whether intentional or not.” 90

In this case, Maxicare, clearly filed false returns as it has consistently stipulated91 and
stated92 that it excluded the medical/ hospital utilization expenses from its taxable gross
receipts against the established interpretation by the CIR and the holdings by the
courts. Based on the Assessment Notice,93 it remains uncontested that Maxicare failed
to pay VAT on these receipts which it erroneously considered exempt sales amounting
to P1,525,717,866.43, thus:

Schedule 1 (Exhibit H-1)

VAT able sales erroneously classified as zero-rated


P9,841,685.67
sales

Proceeds from sale of assets 616,071.00

Exempt sales per VAT returns (cost to render


1,525,717,866.43
service not subject to VAT)

Gross receipts not subjected to VAT P1,536,175,623.10

More recently in Commissioner of Internal Revenue v. Asalus Corporation,94 a case


involving undeclared VATable sales of more than 30%, the Supreme Court declared
that “a mere showing that the returns filed by the taxpayer were false, notwithstanding
the absence of intent to defraud, is sufficient to warrant the application of the ten (10)
year prescriptive period under Section 222 of the NIRC.”

Accordingly, reckoned from February 1, 2011,95 the date of the Notice of Informal
Conference, the CIR has ten years or until February 1, 2021 to assess Maxicare for
deficiency VAT.

WHEREFORE, premises considered, the Petition for Review filed by Maxicare in CTA
EB Case No. 1312 is DENIED for lack of merit. The Petition for Review filed by the CIR
in CTA EB Case No. 1317 is GRANTED in part.

The Amended Decision is hereby REVERSED. Maxicare is ORDERED TO


PAY deficiency VAT liability in the aggregate amount of P200,149,302.69, inclusive of
25% surcharge as imposed under Section 248(A)(3) of the 1997 NIRC, as amended,
computed as follows:

[Table]*

In addition, Maxicare is ORDERED TO PAY:

(a) Deficiency interest at the rate of twenty percent (20%) per annum on the basic
deficiency VAT computed from the following dates until full payment thereof pursuant to
Section 249(B) of the 1997 NIRC, as amended:

Period Covered Basic Deficiency VAT Reckoning Date

1st Quarter 2008 P34,393,238.58 April 25, 2008

2nd Quarter 2008 P24,476,512.77 Jul 25, 2008

3rd Quarter 2008 P39,747,965.34 October 25, 2008

4th Quarter 2008 P61,501,725.47 January 25, 2009

(b) Delinquency interest at the rate of twenty percent (20%) per annum on the total
deficiency taxes of P200,149,302.69, representing basic deficiency VAT of
P160,119,442.15 and 25% surcharge of P40,029,860.54, computed from April 30,
201296until full payment thereof pursuant to Section 249(C)(3) of the 1997 NIRC, as
amended.

SO ORDERED.

JUANITO C. CASTANEDA, JR.


Associate Justice

WE CONCUR:

(with Concurring and Dissenting Opinion)


ROMAN G. DEL ROSARIO
Presiding Justice

LOVELL R. BAUTISTA
Associate Justice
(With due respect, I join PJ’s Concurring and Dissenting Opinion)
ERLINDA P. UY
Associate Justice

CAESAR A. CASANOVA
Associate Justice

(I maintain my position in the assailed decision)


ESPERANZA R. FABON-VICTORINO
Associate Justice

CIELITO N. MINDARO-GRULLA
Associate Justice

(with Separate Concurring Opinion)


MA. BELEN M. RINGPIS-LIBAN
Associate Justice

(with Concurring and Dissenting Opinion)


CATHERINE T. MANAHAN
Associate Justice

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the
conclusions in the above decision were reached in consultation before the case was
assigned to the writer of the opinion of the Court.

ROMAN G. DEL ROSARIO


Presiding Justice

1Decision, par. 4, p. 7, Division Docket Vol. 2, p. 625; EFPS Forms, Annex E,


Maxicare’s March 13, 2012 Petition for Review, Division Docket Vol. 1, pp. 56-66; EFPS
Forms, Exhibit C, Maxicare’s Formal Offer of Documentary Evidence, Division Docket
Vol. 1, pp. 432-443. Philippine Healthcare Providers, Inc. has principal office at 19/F
Medical Plaza, Makati, Amorsolo comer De la Rosa Street, Legaspi Village, Makati City
(G.R. No. 168129. April 24, 2007; CA-GR SP No. 76449, February 18, 2005; CTA Case
No. 6166, April 5, 2002). Maxicare also has its principal office at 19/F Medical Plaza
Makati, Amorsolo comer Dela Rosa Streets, Legaspi Village, Makati City (Letter of
Authority, Exhibit A, Maxicare’s Formal Offer of Documentary Evidence, Division Docket
Vol. 1, p. 430).
2 Decision, par. 2, p. 1, Division Docket Vol. 2, p. 619.
3 “SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax
Cases. - The power to interpret the provisions of this Code and other tax laws shall be
under the exclusive and original jurisdiction of the Commissioner, subject to review by
the Secretary of Finance.

The power to decide disputed assessments, refunds of internal revenue taxes, fees or
other charges, penalties imposed in relation thereto, or other matters arising under this
Code or other laws or portions thereof administered by the Bureau of Internal Revenue
is vested in the Commissioner, subject to the exclusive appellate jurisdiction of the
Court of Tax Appeals.”
4 “SEC. 7. Authority of the Commissioner to Delegate Power. - The Commissioner may
delegate the powers vested in him under the pertinent provisions of this Code to any or
such subordinate officials with the rank equivalent to a division chief or higher, subject
to such limitations and restrictions as may be imposed under rules and regulations to be
promulgated by the Secretary of Finance, upon recommendation of the
Commissioner: Provided, however, That the following powers of the Commissioner shall
not be delegated:

(a) The power to recommend the promulgation of rules and regulations by the Secretary
of Finance;

(b) The power to issue rulings of first impression or to reverse, revoke or modify any
existing ruling of the Bureau:

xxx xxx xxx” (underscoring supplied)


5 “SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. -

(A) Rate and Base of Tax. - There shall be levied, assessed and collected, a value-
added tax equivalent to ten percent (10%) of gross receipts derived from the sale or
exchange of services, including the use or lease of properties.

The phrase ‘sale or exchange of services’ means the performance of all kinds of
services in the Philippines for others for a fee, remuneration or consideration, including
those performed or rendered by construction and service contractors: stock, real
estate, commercial, customs and immigration brokers; lessors of property, whether
personal or real; warehousing services; lessors or distributors of cinematographic films;
persons engaged in milling, processing, manufacturing or repacking goods for others;
proprietors, operators or keepers of hotels, motels, resthouses, pension houses, inns,
resorts; proprietors or operators of restaurants, refreshment parlors, cafes and other
eating places, including clubs and caterers; dealers in securities; lending investors;
transportation contractors on their transport of goods or cargoes, including persons who
transport goods or cargoes for hire and other domestic common carriers by land, air and
water relative to their transport of goods or cargoes; services of franchise grantees of
telephone and telegraph, radio and television broadcasting and all other franchise
grantees except those under Section 119 of this Code; services of banks, non-bank
financial intermediaries and finance companies; and non-life insurance companies
(except their crop insurances), including surety, fidelity, indemnity and bonding
companies; and similar services regardless of whether or not the performance thereof
calls for the exercise or use of the physical or mental faculties. The phrase ‘sale or
exchange of services’ shall likewise include:

xxx xxx xxx

The term ‘gross receipts’ means the total amount of money or its equivalent
representing the contract price, compensation, service fee, rental or royalty, including
the amount charged for materials supplied with the services and deposits and advanced
payments actually or constructively received during the taxable quarter for the services
performed or to be performed for another person, excluding value-added tax.”
6 “In reply, please be informed as follows:

Answer to Query No. 1:

xxx xxx xxx


By arranging for the provision of health care services to members when the need arises,
which will be rendered by independent health care providers, in exchange for pre-
negotiated, pre-paid membership fees, your firm is subject to value-added tax under
Sec. 102 of the Tax Code as a service contractor. It could not be exempt under Sec
103(1) of the Tax Code as your firm does not directly perform or render medical, dental,
hospital and/or veterinary service.

Answer to query No. 2:

The fact that an HMO fully owns or controls a hospital or clinic which may directly
provide health care services to members does not affect its being subject to value-
added tax. What is being subjected to tax is the activity of contracting to provide
probable future medical and health services the considerations of which are pre-paid
pre-negotiated membership fees. It is different in the case where a firm, which owns a
hospital or clinic and having in its employ a complement of medical or dental staff,
renders medical, hospital or dental services and is paid for the services just rendered.
The former is subject to VAT under Sec. 102 while the latter is exempt pursuant to Sec.
103(1) of the Tax Code, as amended.

Answer to query No. 3.

The basis for computing the VAT in the case of sellers of services shall be gross
receipts as defined above and under Sec. 102 of the Tax Code, as amended, which in
the case of the HMOs shall be the membership fees received from the members
undiminished by any amount paid or payable to owners/ operators of hospitals, clinics
and medical and dental practitioners. However, the HMO, if a VAT-registered taxpayer,
is entitled to input tax credits in determining its VAT liability.” (underscoring supplied)
7 CTA Case No. 6166, April 5, 2002; Maxicare’s Audited Financial Statements disclosed
this contingency in Note 24, BIR Records, pp. 1-3.
8 CTA Case No. 6166, April 5, 2002.
9 “SUBJECT: Taxability of Health Maintenance Organizations (HMOs) for VAT Purposes

TO: All Internal Revenue Officers and Others Concerned

For the information and guidance of all concerned, quoted hereunder are pertinent
portions of C.T. A. Case No. 6166, entitled: ''Philippine Health Care Providers, Inc.,
petitioner, vs. The Commissioner of Internal Revenue, respondent', dated April 05.
2002. which reiterated the view of the VAT Review Committee under VAT Ruling No.
18-98. dated June 23, 1998. [Aetna ruling] that Health Maintenance Organizations
(HMOs) are considered service contractors and, therefore, subject to VAT at the rate of
ten percent (10%), to wit:

xxx xxx xxx

Thus, without doubt. HMOs are subject to the value-added tax on their gross receipts.

All internal revenue officers and employees are hereby enjoined to give this Circular as
wide a publicity as possible.” (underscoring supplied)
10 VAT Ruling No. 18-98, June 23, 1998.
11Commissioner of Internal Revenue v. Philippine Health Care Providers, Inc., CA-G.R.
SP No. 76449, February 18, 2005.
12 “SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. -

(A) Rate and Base of Tax. - There shall be levied, assessed and collected, a value-
added tax equivalent to ten percent (10%) of gross receipts derived from the sale or
exchange of services, including the use or lease of properties: Provided, That the
President, upon the recommendation of the Secretary of Finance, shall, effective
January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of
the following conditions has been satisfied:

(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the
previous year exceeds two and four-fifth percent (2 4/5%); or

(ii) National government deficit as a percentage of GDP of the previous year exceeds
one and one-half percent (1 1/2%).

The phrase “sale or exchange of services” means the performance of all kinds of
services in the Philippines for others for a fee, remuneration or consideration, including
those performed or rendered by construction and service contractors; stock, real estate,
commercial, customs and immigration brokers; lessors of property, whether personal or
real; warehousing services; lessors or distributors of cinematographic films; persons
engaged in milling, processing, manufacturing or repacking goods for others;
proprietors, operators or keepers of hotels, motels, resthouses, pension houses, inns,
resorts; proprietors or operators of restaurants, refreshment parlors, cafes and other
eating places, including clubs and caterers; dealers in securities; lending investors;
transportation contractors on their transport of goods or cargoes, including persons who
transport goods or cargoes for hire and other domestic common carriers by land relative
to their transport of goods or cargoes; common carriers by air and sea relative to their
transport of passengers, goods or cargoes from one place in the Philippines to another
place in the Philippines; sales of electricity by generation companies, transmission, and
distribution companies; services of franchise grantees of electric utilities, telephone and
telegraph, radio and television broadcasting and all other franchise grantees except
those under Section 119 of this Code and non-life insurance companies (except their
crop insurances), including surety, fidelity, indemnity and bonding companies; and
similar services regardless of whether or not the performance thereof calls for the
exercise or use of the physical or mental faculties. The phrase “sale or exchange of
services” shall likewise include:

xxx xxx xxx

The term 'gross receipts' means the total amount of money or its equivalent
representing the contract price, compensation, service fee, rental or royalty, including
the amount charged for materials supplied with the services and deposits and advanced
payments actually or constructively received during the taxable quarter for the services
performed or to be performed for another person, excluding value-added
tax.” (underscoring supplied)
13 G.R. No. 168129, April 24, 2007.
14 VAT Ruling No. 18-98.
15“For the information and guidance of all internal revenue officials, employees and
others concerned, quoted hereunder is the full text of Unnumbered Memorandum dated
December 4, 2007 regarding "Table Audit of Health Maintenance Organizations
(HMO)", as follows:
‘MEMORANDUM

TO: Assistant Commissioner/ Head Revenue Executive Assistants of the Large


Taxpayers Service, Regional Directors, Revenue District Officers and Others
Concerned

FROM: (Signed)
LILIAN B. HEFTI
Commissioner of Internal Revenue

SUBJECT: Table Audit of Health Maintenance Organizations (HMOs)

DATE: December 4, 2007

It has come to the attention of the undersigned that, for purposes of computing Value-
Added Tax (VAD), most of the HMOs are using as their taxable base not their actual or
constructive gross receipts.

It is hereby clarified that the taxable base of HMOs for VAT purposes shall be the gross
receipts without any deduction. The said tax treatments have already been clarified and
reiterated under Revenue Regulations (RR) No. 16-2005, as amended.

xxx xxx xxx’” (underscoring supplied)


16 “From the foregoing, it is evident that entities providing non-professional medical,
dental, hospital and veterinary services are entitled to VAT exemption on such
transactions. However it appears that in the present case, HPPI [Health Plan
Philippines, Inc.] merely arranges for the provision of health care services to members
when the need arises, which will be rendered by independent health care providers, in
exchange for pre-paid membership fees. HPPI is subject to value-added tax under Sec.
108(A) of the same Tax Code as a service contractor. It could not be exempt under Sec.
109 (G) of the same Tax Code since HPPI does not directly perform or render medical,
dental, hospital and/or veterinary service, nonprofessional or otherwise, but merely acts
as a conduit between the members and their accredited and recognized hospitals and
clinics. (CIR vs. Philippine Health Care Providers. Inc., G.R. No. 168129, April 24, 2007)

The basis for computing the abovementioned 10% VAT (now 12% under Revenue
Memorandum Circular No. 7-2006) in the case of sellers of services shall be the gross
receipts as defined under Sec. 108 (A) of the Tax Code, as amended, which in [sic] the
undiminished by any amount paid or payable to owners/ operators of hospitals, clinics
and medical and dental practitioners. However, the HMO, if a VAT-registered taxpayer,
is entitled to input tax credits in determining its VAT liability.” (underscoring supplied)
17 Decision, par. 3, p. 6 and par. 2, p. 12, Division Docket Vol. 2, pp. 624 and 630.
18 Decision, pp. 20-22, Division Docket Vol. 2, p. 638-640.
19 1st Quarter 2008 VAT Return, B1R Records, pp. 543-544.
20 2nd Quarter 2008 VAT Return, BIR Records, pp. 549-550.
21 BIR Ruling DA-VAT-026 375-08, October 31, 2008.
22 Decision, pp. 20-22, Division Docket Vol. 2, p. 638-640.
23 3rd Quarter 2008 VAT Return, BIR Records, pp. 555-556.
24 “It is undisputed that in determining the gross receipts for VAT purposes, only those
amounts which would redound to the benefit of the payor will be
considered. Accordingly, those amounts which are earmarked for payment to unrelated
third party or received as reimbursement for advance payment on behalf of another
shall be excluded.

xxx xxx xxx

WHEREFORE, in view of the foregoing, this office holds that -

1. Maxicare, under a fund management arrangement similar to ASO and CHCP, acts
only as an intermediary between the purchaser of health care services (members) and
the health care providers (hospitals and clinics), does not exercise any beneficial
ownership of the amount earmarked for medical utilization and which amount does not
redound to the benefit of the said corporation, the same shall be excluded from its gross
receipts for purposes of VAT. Only gross receipts constituting part of gross income of
the recipient shall be subject to VAT.” (underscoring supplied)
25 “SUBJECT: Circularizing Revocation of BIR Ruling No. DA (VAT-054) 529-2008

TO: All Internal Revenue Officials, Employees and Others Concerned

For the information and guidance of all internal revenue officials, employees and others
concerned, quoted hereunder is the full text of the undersigned letter to MEDICard
Philippines, Inc. for the revocation of BIR Ruling DA (VAT-054) 529-2008 dated
December 15, 2008 as follows:

January 15, 2009

The President
MEDICard Philippines, Inc.
9th Floor Sagittarius Building
H.V. dela Costa Street
Salcedo Village

Sir/Madam:

This is to inform you that this office is recalling BIR Ruling DA (VAT-054) 529-2008
dated December 15, 2008 issued to you through your agent Mr. Prudencio F. Tatunay,
Managing Partner of Dela Cruz Tatunay & Co.

Please be informed that your request for a ruling is of first impression, on this regard,
the ruling should have been presented to the undersigned for evaluation and approval.
Under the Tax Code, the power to issue rulings of first impression or to reverse or to
revoke or modify any existing ruling of the Bureau is an exclusive power of the
Commissioner of Internal Revenue which cannot be delegated.

This serves as a notice of revocation of BIR Ruling DA (VAT-054) 529-2008.

Very truly yours,


(SGD.) SIXTO S. ESQUIVIAS IV
Commissioner of Internal Revenue

All concerned are hereby enjoined to be guided accordingly and give this circular as
wide a publicity as possible.
(SGD.) SIXTO S. ESQUIVIAS IV
Commissioner of Internal Revenue”
(underscoring supplied)
26 April 21, 2014 Decision, p. 12, Division Docket Vol. 2, p. 630.
27 April 21, 2014 Decision, pp. 20-22, Division Docket Vol. 2, p. 638-640.
28 4th Quater 2008 VAT Return, BIR Records, pp. 561-562.
29“For the information and guidance of all internal revenue officials, employees and
others concerned, please be informed that the undersigned issued Revenue
Memorandum Circular (RMC) No. 2-2009 revoking BIR Ruling No. DA (VAT-054) 529-
2008 issued in favor of MEDICard Philippines, Inc.

Similarly, BIR Rulings Nos. DA (VAT-019) 121 dated August 8, 2008 issued in favor of
Health Maintenance, Inc., DA (C-032) 122-2008 also dated August 8, 2008 issued in
favor of Asalus Corporation, and DA (VAT 026) 375-2008 dated October 31, 2008
issued in favor of Maxicare Health Corporation are likewise herein being revoked.

On this regard, all internal revenue officials, employees and others concerned are being
reminded that BIR Ruling 018-98 is still controlling which states that HMOs are subject
to VAT and the basis for computing the VAT shall be the membership fees received
from the members undiminished by any amount paid or payable to owners/ operators of
hospitals, clinics and medical and dental practitioners.

This has already been elucidated in Revenue Regulations No. 16-2005 which
categorically mentioned that HMO's gross receipts shall be the total amount of money or
its equivalent representing the service fee actually or constructively received during the
taxable period for the services performed or to be performed for another person,
excluding the value-added tax. The compensation for their services representing their
service fee, is presumed to be the total amount received as enrollment from their
members plus other charges received." (underscoring supplied)
30 Decision, p. 2, Division Docket Vol. 2, p. 620.
31 Decision, p. 2, Division Docket Vol. 2, p. 620. RMC 39-2010 is quoted in part:

“Revenue Memorandum Circular (RMC) No. 2-2009 was issued revoking BIR Ruling
No. DA (VAT-054) 529-2008 issued in favor of MEDICard Philippines, Inc. RMC No. 6-
2009, likewise, revoked BIR Rulings Nos. DA (VAT-019) 121 issued in favor of Health
Maintenance, Inc., DA (C-032) 122-2008 issued in favor of Asalus Corporation, and, DA
(VAT-026) 375-2008 issued in favor of Maxicare Health Corporation.

The Legal and Revenue Operations Group of the Department of Finance (DOF), in its
letter dated January 12, 2010 to Asalus Corporation, upheld the revocation of BIR
Ruling No. DA (C-032) 122-2008.

These actions confirm the BIR's position that the taxable base of Health Maintenance
Organizations (HMOs) for VAT purposes shall be the gross receipts without any
deduction for medical utilization (medical and dental fees. hospital bills, laboratory fees,
professional fees, etc.). The said tax treatments have already been clarified under
Revenue Regulations No. 16 2005. as amended, which provides that HMO's gross
receipts shall be the total amount of money or its equivalent representing the service fee
actually or constructively received during the taxable period for the services performed
or to be performed for another person, excluding the value-added tax. The
compensation for their services representing their service fee, is presumed to be the
total amount received as enrollment from their members plus other charges received.”
(underscoring supplied)
32 Decision, p. 2, Division Docket Vol. 2, p. 620.
33 Decision, p. 2, Division Docket Vol. 2, p. 620.
34 Decision, p. 3, Division Docket Vol. 2, p. 621.
35 Decision, p. 3, Division Docket Vol. 2, p. 621.
36 Decision, p. 3, Division Docket Vol. 2, p. 621.
37 Decision, p. 3, Division Docket Vol. 2, p. 621.
38 Decision, p. 3, Division Docket Vol. 2, p. 621.
39 Decision, p. 3, Division Docket Vol. 2, p. 621.
40 Decision, p. 4, Division Docket Vol. 2, p. 622.
41 Decision, p. 4, Division Docket Vol. 2, p. 622.
42 Decision, p. 4, Division Docket Vol. 2, p. 622.
43 Decision, p. 4, Division Docket Vol. 2, p. 622.
44 Decision, p. 5, Division Docket Vol. 2, p. 623.
45 Decision, p. 5, Division Docket Vol. 2, p. 623.
46Decision, p. 8, Division Docket Vol. 2, p. 626; Resolution dated March 21, 2016,
Division Docket Vol. 2, p. 527-528.
47 Decision, p. 8, Division Docket Vol. 2, p. 626.
48 Decision, p. 8, Division Docket Vol. 2, p. 626.
49 Decision, p. 22, Division Docket Vol. 2, p. 640.
50 Amended Decision, p. 16, Division Docket Vol. 2, p. 860.
51 Rollo (CTA EB No. 1312) Vol. I, pp. 7-46.
52 Rollo (CTA EB No. 1317), pp. 6-21.
53 Division Docket Vol. 2, p. 866.
54 Rollo (CTA EB No. 1312) Vol. 11, pp. 518-520.
55 Rollo (CTA EB No. 1312) Vol. II, pp. 527-578.
56 Resolution dated January 7, 2016, Rollo (CTA EB No. 1312) Vol. II, p. 590.
57 Rollo (CTA EB No. 1312) Vol. II, pp. 589-590.
58 Rollo (CTA EB No. 1312) Vol. II, pp. 603-672.
59 Rollo (CTA EB No. 1312) Vol. II, pp. 676-677.
60Edgardo H. Catindig v. People of the Philippines, et al., G.R. No. 183141, September
18, 2009.
61 G.R. No. 168129, April 24, 2007
62 VAT Ruling No. 18-98, June 23, 1998.
63 Ist
Quarter, April 24, 2008; 2nd Quarter, July 25, 2008; 3rd Quarter, October 27, 2008
and 4th Quarter, January 26, 2009.
64 RMC 81-2007, December 4, 2007.
65 RMC 56-2002, December 13, 2002; VAT Ruling No. 3-2008, March 26, 2008.
66Commissioner of Internal Revenue v. Solidbank Corporation, G.R. No. 148191,
November 25, 2003; Senator Heherson T. Alvarez, et al. v. Secretary Teofisto T.
Guingona, et al., G.R. No. 118303. January 31, 1996.
67 CTA Case No. 6166, April 5, 2002.
68Compare with the CIR’s definition of gross receipts in Aetna: “The basis for computing
the VAT in the case of sellers of services shall be gross receipts as defined above and
under Sec. 102 [now Sec. 108] of the Tax Code, as amended, which in the case of the
HMOs shall be the membership fees received from the members undiminished by any
amount paid or payable to owners/ operators of hospitals, clinics and medical and
dental practitioners. However, the HMO, if a VAT-registered taxpayer, is entitled to input
tax credits in determining its VAT liability.”
69 CA-G.R. SP No. 76449, February 18, 2005.
70 G.R. No. 168129, April 24, 2007.
71 Section 3 of Revenue Administrative Order No. 2-2001 defines rulings of first
impression as “rulings, opinions and interpretations of the Commissioner of Internal
Revenue with respect to the provisions of the Tax Code and other tax laws without
established precedent, and which are issued in response to a specific request for ruling
filed by a taxpayer with the Bureau of Internal Revenue. Provided, however, that the
term shall include reversal, modification or revocation of any existing ruling.”
72 Note 24 Contingencies, BIR Records, pp. 1-3.
73Smart Communications, Inc. v. The City of Davao, et al., G.R. No. 155491,
September 16, 2008 stated that: “Tax exemptions are never presumed and are strictly
construed against the taxpayer and liberally in favor of the taxing authority.”
74 Decision, p. 8, Division Docket Vol. 2, p. 626.
75 G.R. No. 187485, February 12, 2013.
76Maxicare’s March 3, 2016 Memorandum, par. 139, p. 44, Rollo (CTA EB No. 1312)
Vol. II, p. 646.
77 Amended Decision, pp. 5-6, Division Docket Vol. 2, pp. 848-849.
78Commissioner of Internal Revenue v. A.D. Guerrero, G.R. No. L-20942, September
22, 1967.
79 Section 4, 1997 NIRC.
80Senator Heherson T. Alvarez, et al. v. Secretary Teofisto T. Guingona, et al., G.R.
No. 118303, January 31, 1996.
81Maxicare’s April 17, 2013 Memorandum, par. 38, p. 15, Division Docket Vol. 2, p.
543; Maxicare’s March 3, 2016 Memorandum, pars. 50-58, pp. 19-21, Rollo (CTA EB
No. 1312) Vol. II, pp. 621-623.
82 Batangas City et al. v. Pilipinas Shell Petroleum Corporation, G.R. No. 187631, July
8, 2015.
83 CTA Case No. 7948, June 5, 2014.
84 CTA EB No. 1224 (CTA Case No. 7984), September 2, 2015.
85 Division Docket Vol. 2, p. 630.
86 Pre-Trial Order, Stipulated Facts, par. 12, Division Docket Vol. 1, p. 308.
87 CIR’s June 10, 2015 Petition for Review, Rollo (CTA EB No. 1317), pp. 13-15.
88 G.R. No. L-20569, August 23, 1974, 58 SCRA 519
89 G.R. No. 193100, December 10, 2014.
90Commissioner of Internal Revenue v. Fitness By Design, Inc., G.R. No. 215957,
November 9, 2016 citing Aznar v. Court of Tax Appeals, G.R. No. L-20569, August 23,
1974.
91 Joint Stipulation of Facts with Manifestation and Motion, No. 1. xvii, Division Docket,
p. 299.

Maxicare’s April 17, 2013 Memorandum, par. 4, Division Docket, pp. 530-531;
92

Maxicare’s March 3, 2016 Memorandum, par. 139, Rollo, p. 637.


93 Exhibit H-1, Maxicare’s Formal Offer of Documentary Evidence, Division Docket Vol.
1, p. 471.
94 G.R. No. 221590, February 22, 2017.
95 Exhibit D, Division Docket Vol. 1, pp. 444-447.
96Exhibit L, Final Decision on Disputed Assessment, Maxicare’s Formal Offer of
Documentary Evidence, Division Docket Vol. 1, p. 496-497.

* Some tables of this document may not available in the HTML format. The
missing parts, usually owing to formatting issues encountered by our Editors, are
indicated with “[Table]*”. To view the missing parts, view the PDF Version of this
document by clicking on the “VIEW PDF” button at the top of this page.

CONCURRING AND DISSENTING OPINION

DEL ROSARIO, PJ:

I concur with the ponencia’s conclusion that the ten-year prescriptive period to assess
Maxicare Healthcare Corporation (Maxicare) with deficiency value-added tax (VAT) for
the year 2008 under Section 222 (a) of the National Internal Revenue Code (NIRC) of
1997, as amended, applies to this case. As elucidated in the ponencia, the factual
antecedents of the present case clearly show that Maxicare was fully aware of the
Commissioner of Internal Revenue’s (CIR) consistent rulings and revenue issuances in
the form of revenue regulations and revenue memorandum circular on what constitutes
“gross receipts” of health maintenance organizations (HMOs) for VAT purposes. Hence,
in choosing not to declare the total amount of money or its equivalent actually or
constructively received from its members as enrollment fee in year 2008, Maxicare
intentionally and deceptively concealed substantial receipts from its services as HMO
thereby succeeding in paying much less VAT than what the law prescribes. While the
non-declaration of the correct amount of gross receipts makes the corresponding
VAT returns fraudulent, it clearly establishes Maxicare’s intent to evade the
payment of correct VAT on its vatable transaction.

True, Maxicare obtained BIR Ruling DA-(VAT-026) 375-08 dated October 31, 2008
which purportedly opines that Maxicare’s gross receipts, for VAT purposes, pertain to
the total amount of money or its equivalent actually received from members less the
amount earmarked as provision for medical utilization to cover for medical availment/
claims of members. Yet, Maxicare cannot feign ignorance of the instrinsic invalidity of
such ruling, issued as it was merely by the Assistant Commissioner of the Legal
Service.

As aptly pointed out in the ponencia, BIR Ruling DA-(VAT-026) 375-08 is a ruling of
first impression which may only be issued by the CIR pursuant to Section 7 of the
NIRC of 1997, as amended. A ruling or opinion on matters of first impression issued by
a BIR Official without authority is a patent nullity which cannot be binding upon the
government. Stated differently, BIR Ruling DA-(VAT-026) 375-08 did not operate to
reverse, modify or revoke the existing interpretative position of the CIR on what
constitutes HMOs’ gross receipts for VAT purposes as embodied in VAT Ruling No.
018-08 and circularized through Revenue Memorandum Circular (RMC) No. 56-2002.

Consistent with the foregoing, I concur with the ponencia’s pronouncement that HMOs’
gross receipts, for VAT purposes, shall be the total amount of money or its equivalent
actually received from members undiminished by any amount paid or payable to the
owners/ operators of hospitals, clinics and medical and dental practitioners.

The point of my dissent is with regard to the imposition of 20% deficiency interest on
Maxicare’s deficiency VAT for the year 2008. In this regard, I reiterate the position I
have taken in the consolidated cases of Commissioner of Internal Revenue vs.
Philippine Tobacco Flue-Curing & Redrying Corporation1 on the imposition of deficiency
interest:

“xxx I am not unaware of Paper Industries Corporation of the Philippines vs. Court of
Appeals, Commissioner of Internal Revenue, and Court of Tax Appeals (PICOP),2 which
somehow made mention of deficiency interest under the NIRC of 1977. I must stress,
however, that PICOP cannot be relied upon to justify the imposition of deficiency
interest on petitioner’s excise tax liability. PICOP did not state nor resolve the issue
whether or not the deficiency interest provided for in Section 249 (B) of the NIRC of
1997, as amended, may be imposed on tax other than donor’s, estate, and income
taxes. Thus, not having been resolved therein, PICOP cannot be considered as a
doctrine on the matter. The case of Office of the Ombudsman vs. Honorable Court of
Appeals and Former Deputy Ombudsman for the Visayas Arturo C. Mojica,3 is
instructive:
“The legal maxim “stare decisis et non quieta movere" (follow past precedents and do
not disturb what has been settled) states that where the same questions relating to the
same event have been put forward by parties similarly situated as in a previous case
litigated and decided by a competent court, the rule of stare decisis is a bar to any
attempt relitigate the same issues.

xxx xxx xxx

Thus, where the issue involved was not raised nor presented to the court and not
passed upon by the court in the previous case, the decision in the previous case
is not stare decisis of the question presented.” (Emphasis supplied)

If PICOP has any relevance to the present controversy, it is the doctrinal precedent
that deficiency interest may be imposed only on tax specifically covered by the
relevant provision of the NIRC of 1977. Thus, the Court in PICOP, while recognizing
that transaction tax is in the nature of income tax and that deficiency interest is
imposable on income tax, nonetheless declined to impose such deficiency interest on
transaction tax after noting the significant provisions of the NIRC of 1977: first, it is
Section 51 (c)(1), (e)(1), and (3) which impose deficiency interest; second, Section
51 (c) (1) confines such deficiency interest on taxes covered by TITLE II; and,
third, that transaction tax does not fall within TITLE II. Thus:

“It will be seen that Section 51 (c) (1) and (e) (1) and (3), of the 1977 Tax Code,
authorize the imposition of surcharge and interest only in respect of a "tax
imposed by this Title," that is to say, Title II on "Income Tax." It will also be seen
that Section 72 of the 1977 Tax Code imposes a surcharge only in case of failure to file
a return or list "required by this Title," that is, Title II on "Income Tax." The thirty-five
percent (35%) transaction tax is, however, imposed in the 1977 Tax Code by
Section 210 (b) thereof which Section is embraced in Title V on "Taxes on
Business" of that Code. Thus, while the thirty-five percent (35%) transaction tax is in
truth a tax imposed on interest income earned by lenders or creditors purchasing
commercial paper on the money market, the relevant provisions, i.e., Section 210 (b),
were not inserted in Title II of the 1977 Tax Code. The end result is that the thirty-five
percent (35%) transaction tax is not one of the taxes in respect of which Section 51 (e)
authorized the imposition of surcharge and interest and Section 72 the imposition of a
fraud surcharge.” (Emphases supplied)

True, the Supreme Court in PICOP declared that the present provision of the NIRC
mentions that additions on tax applies to all taxes. While such pronouncement may not
be construed beyond the context in which it was made, PICOP simply confirmed that in
general, certain penalties and charges are applicable to all types of tax or deficiency
tax; PICOP, however, did not categorically construe the provision of Section 249
(B) that deals with “deficiency interest” on the type of tax “as defined in [the]
Code.” Note that the present NIRC is explicit with respect to the type of tax on which
deficiency interest may be imposed, viz:

‘Section 249.lnterest-

(B) Deficiency Interest. - Any deficiency in the tax due, as the term is defined in this
Code, shall be subject to the interest prescribed in Subsection (A) hereof, which interest
shall be assessed and collected from the date prescribed for its payment until the full
payment thereof.’ (Emphasis supplied)
Section 249 (B) cannot be any clearer: the deficiency interest must refer only to
‘deficiency in the tax due, as the term is defined in [the] Code.’

Verily, as the law stands, only donor’s, estate, and income taxes carry a provision on
deficiency tax; they are the types of taxes on which such deficiency interest may be
imposed.

Finally, Sections 247 (a) and 249 (A) are general provisions that impose “additions” to
the tax and “interest” thereon. Both sections may not be read in isolation from the
relevant and specific provision of Section 249 (B) with respect to the imposition of
“deficiency” interest, more so as all these provisions fall within the same Chapter I of
Title X of the NIRC of 1997, as amended.

Otherwise stated, Sections 247 (a) and 249 (A) must reasonably be read and construed
subject to the provision of Section 249 (B) - all these provisions being covered by
the same Chapter I of Title X of the NIRC of 1997, as amended.”

Also apt is my Concurring and Dissenting Opinion in Philippine Aerospace Development


Corporation vs. Commissioner of Internal Revenue4 which I quote below:

“Settled is the rule that laws imposing tax is construed strictly against the government
and liberally in favor of the taxpayer. Unless clearly imposed by pertinent provision
of law, deficiency interest as an additional tax burden should not simply be
presumed. Thus, the obligation to pay deficiency interest may not be applied to
taxes other than income tax, donor’s tax and estate tax, irrespective of whether
an assessment is issued or not. After all, the deficiency tax assessed is still
subject to the delinquency interest rate of 20% per annum until fully paid. Truth
be told, the delinquency interest rate of 20% is way more than the legal interest of
12% per annum.”

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
kills the “hen that lays the golden egg.”5 Indeed, the imposition of 20% deficiency
interest per annum on a tax not clearly within the context of the law, in addition to
20% delinquency interest per annum and a surcharge of 25% on the amount due
under Section 248 of the NIRC of 1997, as amended, is too burdensome for a
taxpayer to survive and continue its business affairs.

In fine, Section 249 (B) of the NIRC is clear and explicit as when deficiency
interest may be imposed, i.e., it may be imposed only on ‘‘any deficiency in the tax due
as the term is defined in [the National Internal Revenue] Code.” While there are many
situations which could give rise to deficiency tax liabilities, Section 249 (B) of the
NIRC qualified the imposition of deficiency interest to “deficiency in the tax due,
as the term is defined in the Code.” This evidently means that not all situations
involving deficiency tax liabilities should be subjected to deficiency interest.

In contrast, Sections 248 [Civil Penalties] and 249(C) [Delinquency Interest] of the
NIRC, both of which fall under Chapter I of Title X [Statutory Offenses and Penalties],
prescribe “Additions to the Tax”; yet, these Sections did not provide the same
qualificationas that which is stated with respect to deficiency interest. Moreover,
Section 248(A) of the NIRC imposes the 25% surcharge simply in addition to the tax
required to be paid, and Section 248(B) imposes the penalty of 50% of the tax or of the
deficiency tax, without qualification similar to that provided in Section 249(B) of the
NIRC anent deficiency interest. In the same vein, delinquency interest provided in
Section 249 of the NRIC is imposed without qualification on the amount of the tax
due, or on the deficiency tax, or on any surcharge or interest thereon. Reasonably
construed, in the absence of aforestated qualification, the “additions” to tax apply to all
forms of tax.

While additions to tax that are “qualified” must be limited to the type of
“deficiency in the tax due as the term is defined in the Code”, to impose or
demand payment of 20% deficiency interest on all deficiency tax liabilities would
render senseless the unequivocal qualification in Section 249(B) of the NIRC that
deficiency interest shall be imposed only on “any deficiency in the tax due as the
term is defined in [the National Internal Revenue] Code." Had it been the intention
to impose deficiency interest on all deficiency tax liabilities, this specific
qualification would not have been incorporated at all, similar to Sections 248 and
249 (C) of the NIRC.

Since it is only with respect to the donor’s tax, income tax and estate tax which
incorporate provisions that specifically define “deficiency” and considering that Section
249(B) of the NIRC is categorical that deficiency interest shall be imposed only on any
deficiency in the tax due as the term is defined in the NIRC, I reiterate that the
deficiency interest must be imposed only on these three (3) types of taxes. The liability
to pay deficiency interest springs from Section 249(B) of the NIRC and its imposition
must be strictly exercised in accordance with its precepts. This is consistent with Article
1158 of the Civil Code of the Philippines which provides that “Obligations derived
from law are not presumed. Only those expressly determined in this Code or in
special laws are demandable, and shall be regulated by the precepts of the law which
establishes them; xxx xxx xxx.”

In sum, deficiency interest may be imposed only on tax specifically covered and defined
by the relevant provisions of the NIRC, i.e., income tax, donor’s tax and estate
tax; conversely, deficiency interest may not properly be imposed on the VAT
assessed against Maxicare.

All told, I VOTE to GRANT the Petition for Review filed by the CIR in CTA EB No. 1317.
On the other hand, I VOTE to DENY the Petition for Review filed by Maxicare in CTA
EB No. 1312. The Amended Decision of the Court in Division should be REVERSED.
Maxicare should be ordered to pay deficiency VAT in the aggregate amount of
Php200,149,302.69, inclusive of 25% surcharge as imposed under Section 248(A)(3) of
the NIRC of 1997, as amended. Likewise, Maxicare should be ordered to pay
delinquency interest at the rate of 20% per annum on the total deficiency VAT of
Php200,149,302.69, inclusive of the 25% surcharge, computed from April 30, 2012 until
full payment thereof pursuant to Section 249(C)(3) of the NIRC of 1997, as amended.

ROMAN G. DEMROSARIO
Presiding Justice

1 CTA EB Nos. 1218 and 1220, April 11, 2016. This is consistent with my earlier opinion
in Avon Products Manufacturing, Inc. vs. Commissioner of Internal Revenue, CTA EB
No. 1062, January 15, 2016; CIR vs. Staedtler (Philippines), Inc., CTA EB No. 1310,
January 28, 2016; Medicard Philippines, Inc. vs. CIR, CTA EB No. 1224, January 29,
2016; Lourdes College vs. CIR, CTA EB No. 1164, February 2, 2016; Philippine
Aerospace Development Corporation vs. CIR, CTA EB No. 1035, February 9, 2016; CIR
vs. BPI-Philam Life Assurance Corporation, CTA EB No. 1240, February 11, 2016; CIR
vs. OfficeMetro Philippines, Inc. (formerly Regus Centres, Inc.), and OfficeMetro
Philippines, Inc. vs. CIR, CTA EB Nos. 1210 & 1213, March 7, 2016; and CIR vs. ESS
Manufacturing Company, Inc., ESS Manufacturing Company, Inc. vs. CIR, CTA EB
Nos. 1169 8.1175, March 30, 2016.
2 G.R. Nos. 106949-50, December 1, 1995.
3 G.R. No. 146486, March 4, 2005.
4 CTA EB No. 1035, February 9, 2016.
5Commissioner of Internal Revenue vs. SM Prime Holdings, Inc., G.R. No. 183505,
February 26, 2010, citing Roxas vs. Court of Tax Appeals, G.R. No. L-25043, April 26,
1968.

SEPARATE CONCURRING OPINION

RINGPIS-LIBAN J:

I concur with the Ponencia of J. Castaneda and this Separate Concurring Opinion is to
emphasize the basis of my concurrence with respect to the imposition of deficiency
interest on deficiency value-added tax (VAT), expanded withholding tax (EWT) and
withholding tax on compensation (WTC).

With due respect to my esteemed colleagues, Presiding Justice Ramon G. Del Rosario
and Associate Justice Erlinda P. Uy, I do not agree with their position (as expressed in
P.J. Del Rosario's Concurring & Dissenting Opinion) that deficiency interest under
Section 249(B) of the National Internal Revenue Code (NIRC) of 1997, as amended,
should be applied only where there is deficiency income tax, deficiency estate tax and
deficiency donor's tax.

On this score, I adopt the Separate Concurring Opinions of Justices Castaneda and
Cotango-Manalastas in Philippine Aerospace Development Corporation v.
Commissioner of Internal Revenue1, which expound on why deficiency interest should
be applied to all kinds of taxes. The relevant portions are quoted below:

Justice Castaneda wrote in his Separate Concurring Opinion:

"The law is clear. There is no room left for interpretation.

Section 247 of the 1997 NIRC provides:

'TITLE X
STATUTORY OFFENSES AND PENALTIES

CHAPTER I
ADDITIONS TO THE TAX

SECTION 247. General Provisions.-

(a) The additions to the tax or deficiency tax prescribed in this Chapter shall apply to all
taxes, fees and charges imposed in this Code. The amount so added to the tax shall
be collected at the same time, in the same manner and as part of the tax." (emphasis
and underscoring supplied)

The text of Section 247(a) states without any doubt that the additions under Chapter I,
Tide X are applicable to all taxes imposed under the code, i.e. the 1997 NIRC. The
authority under that provision extends to all taxes regardless of the tide under which
they are classified.

Thus, contrary to the position taken in the dissent, the law does not limit these additions
to only the three (3) types of internal revenue taxes, namely, income (Title II), estate
(Title III) and donor's tax (Title III). Their imposition applies with equal force and effect to
the other taxes under the 1997 NIRC such as the value-added tax (Title IV), other
percentage taxes (Title V), excise tax (Title VI) and documentary stamp tax (Title VII).

Accordingly, the additions to the tax or deficiency tax such as, among others, Civil
Penalties or Surcharges under Section 248, Deficiency Interest under Section
249(B), Delinquency Interest under Section 249(C), and Installment on Extended
Paymentunder Section 249(D) are applicable to petitioner's deficiency EWT, WTC and
VAT, as well.

The dissent reasoned that because there is no definition for deficiency EWT, WTC and
VAT unlike those for income tax in Section 56(B), for estate tax in Section 93 and for
donor's tax in Section 104 then no deficiency interest can be imposed on the deficiency
EWT, WTC and VAT due from the petitioner. The lacuna or the missing definition noted
in the dissent was precisely addressed by Section 247(a) when this provision was first
legislated through the amendments to the 1977 NIRC and which were then
subsequently reenacted in the 1997 NIRC.

The Supreme Court had the occasion to discuss the history of this provision in Paper
Industries Corporation of the Philippines (PICOP) v. Court of Appeals, et al.2

In said case, the Supreme Court held that PICOP was not liable for interest and
surcharge on the unpaid transaction tax because the 1977 Tax Code then applicable
authorized the imposition of interest and surcharge only on taxes within Tide II of the
code (Income Tax). Therefore, since the transaction tax was embraced under a different
tide, Tide V (Taxes on Business), then the Court concluded that transaction tax was not
one of the taxes for which interest and surcharge could be imposed. Nonetheless, it
further expounded that this inadvertence in the 1977 NIRC was cured subsequently by
fiat. Thus:

"The CIR, both in its petition before the Court of Appeals and its Petition in the instant
case, points to Section 51 (e) of the 1977 Tax Code as its source of authority for
assessing a surcharge and penalty interest in respect of the thirty-five percent (35%)
transaction tax due from Picop.

It will be seen that Section 51(c)(1) and (e)(1) and (3), of the 1977 Tax Code, authorize
the imposition of surcharge and interest only in respect of a "tax imposed by this Title"
that is to say, Title II on "Income Tax." It will also be seen that Section 72 of the 1977
Tax Code imposes a surcharge only in case of failure to file a return or list "required by
this Title," that is, Title II on "Income Tax." The thirty-five percent (35%) transaction tax
is, however, imposed in the 1977 Tax Code by Section 210 (b) thereof which Section is
embraced in Title V on "Taxes on business" of that Code. Thus, while the thirty-five
percent (35%) transaction tax is in truth a tax imposed on interest income earned by
lenders or creditors purchasing commercial paper on the money market, the relevant
provisions, i.e., Section 210 (b), were not inserted in Title II of the 1977 Tax Code. The
end result is that the thirty-five percent (35%) transaction tax is not one of the taxes in
respect of which Section 51 (e) authorized the imposition of surcharge and interest and
Section 72 the imposition of a fraud surcharge.

It is not without reluctance that we reach the above conclusion on the basis of
what may well have been an inadvertent error in legislative draftsmanship, a type
of error common enough during the period of Martial Law in our country. Nevertheless,
we are compelled to adopt this conclusion. We consider that the_authority (sic) to
impose what the present Tax Code calls (in Section 248) civil penalties consisting of
additions to the tax due, must be expressly given in the enabling statute, in language
too clear to be mistaken. The grant of that authority is not lightly to be assumed to have
been made to administrative officials, even to one as highly placed as the Secretary of
Finance.

The state of the present law tends to reinforce our conclusion that Section 51 (c) and (e)
of the 1977 Tax Code did not authorize the imposition of a surcharge and penalty
interest for failure to pay the thirty-five percent (35%) transaction tax imposed under
Section 210 (b) of the same Code. The corresponding provision in the current Tax Code
very clearly embraces failure to pay all taxes imposed in the Tax Code, without any
regard to the Title of the Code where provisions imposing particular taxes are textually
located. Section 247 (a) of the NIRC, as amended, reads:

'Title X
Statutory Offenses and Penalties

Chapter I
Additions to the Tax

SECTION 247. General Provisions. - (a) The additions to the tax or deficiency tax
prescribed in this Chapter shall apply to all taxes, fees and charges imposed in this
Code. The amount so added to the tax shall be collected at the same time, in the same
manner and as part of the tax...

SECTION 248. Civil Penalties. - (a) There shall be imposed, in addition to the tax
required to be paid, penalty equivalent to twenty-five percent (25%) of the amount
due, in the following cases:

xxx xxx xxx

(3) failure to pay the tax within the time prescribed for its payment; or

xxx xxx xxx

(c) the penalties imposed hereunder shall form part of the tax and the entire amount
shall be subject to the interest prescribed in Section 249.

SECTION 249. Interest. - (a) In General. - There shall be assessed and collected on
any unpaid amount of tax, interest at the rate of twenty percent (20%) per annum or
such higher rate as may be prescribed by regulations, from the date prescribed for
payment until the amount is fully paid ...' (Emphases supplied)

In other words, Section 247 (a) of the current NIRC supplies what did not exist back in
1977 when Picop's liability for the thirty-five percent (35%) transaction tax became
fixed. We do not believe we can fill that legislative lacuna by judicial fiat. There is
nothing to suggest that Section 247(a) of the present Tax Code, which was
inserted in 1985, was intended to be given retroactive application by the
legislative authority. (underscoring and emphases supplied; citations omitted)

In fact, this Court En Banc, under the ponencia of J. Mindaro-Grulla in Takenaka


Corporation Philippine Branch v. CIR3, relied upon the same PICOP holding to stress its
position that the deficiency interest imposed under Section 249(B) of the 1997 NIRC
does not apply merely to the deficiency income, deficiency estate and deficiency donor's
tax by virtue of Section 247(a) of the same law. It reads:

'Anent the issue on the applicability of deficiency interest under Section 249(B) of the
NIRC of 1997, as amended, only to deficiency income tax, deficiency estate tax, and
deficiency donor's tax, as held by the Court a quo, petitioner asseverates that such an
interpretation would result to absurd conclusions as it would mean triple imposition of
20% interest under Sections 249(A), 249(8), and 249(C) of the NIRC of 1997,
simultaneously, effectively giving rise to at least 60% interest per annum.

We agree with petitioner.

The issue is no longer novel as the same was sufficiently discussed by the Supreme
Court in Paper Industries Corporation of the Philippines (PICOP) v. Court of Appeals, et
al. The Supreme Court held that Section 24 7(a) of the NIRC of 1977, as amended [now
Section 247(a) of the NIRC of 1997, as amended], "very clearly embraces failure to pay
all taxes imposed in the Tax Code, without any regard to the Tide of the Code where
provisions imposing particular taxes are textually located." (emphases and underscoring
supplied; citations omitted)

In sum, petitioner's deficiency EWT, WTC and VAT should be subject to deficiency
interest as provided for under Section 249 of the 1997 NIRC."

In the same Aerospace Case, the Separate Concurring Opinion of Justice Cotango-
Manalastas also elucidates on the subject of deficiency interest thus:

"At the outset, Section 247 of the NIRC of 1997, as amended, provides that the
additions (i.e., surcharge, interest) to deficiency tax prescribed under Chapter
I4 (Additions to the Tax), Tide X (Statutory Offenses and Penalties) are applicable to all
taxesimposed under the Tax Code. Thus, the NIRC does not limit deficiency interest to
only three (3) types of internal revenue taxes.

A reading of the definitions of the term "deficiency" found in Sections 56(8), 93 and 104
of the NIRC of 1997, as amended, shows that these definitions relate to how deficiency
income, estate and donor's tax are computed, the relevant provisions are quoted
hereunder:

'SECTION 56. Payment and Assessment of Income Tax for Individuals and
Corporations. -

xxx xxx xxx

(B) Assessment and Payment of Deficiency Tax. - After the return is filed, the
Commissioner shall examine it and assess the correct amount of the tax. The tax or
deficiency income tax so discovered shall be paid upon notice and demand from the
Commissioner.
As used in this Chapter, in respect of a tax imposed by this Tide, the term 'deficiency'
means:

(1) The amount by which the tax imposed by this Title exceeds the amount shown as
the tax by the taxpayer upon his return; but the amount so shown on the return shall be
increased by the amounts previously assessed (or collected without assessment) as a
deficiency, and decreased by the amount previously abated, credited, returned or
otherwise repaid in respect of such tax; or

(2) If no amount is shown as the tax by the taxpayer upon his return, or if no return is
made by the taxpayer, then the amount by which the tax exceeds the amounts
previously assessed (or collected without assessment) as a deficiency; but such
amounts previously assessed or collected without assessment shall first be decreased
by the amounts previously abated, credited, returned or otherwise repaid in respect of
such tax.

SECTION 93. Definition of Deficienty. -As used in this Chapter, the term deficiency'
means:

(a) The amount by which the tax imposed by this Chapter exceeds the amount shown
as the tax by the executor, administrator or any of the heirs upon his return; but the
amount so shown on the return shall first be increased by the amounts previously
assessed (or collected without assessment) as a deficiency and decreased by the
amounts previously abated, refunded or otherwise repaid in respect of such tax; or

(b) If no amount is shown as the tax by the executor, administrator or any of the heirs
upon his return, or if no return is made by the executor, administrator, or any heir, then
the amount by which the tax exceeds the amounts previously assessed (or collected
without assessment) as a deficiency; but such amounts previously assessed or
collected without assessment shall first be decreased by the amounts previously
abated, refunded or otherwise repaid in respect of such tax.

SECTION 104. Definitions. - xxx

The term 'deficiency' means: (a) the amount by which the tax imposed by this Chapter
exceeds the amount shown as the tax by the donor upon his return; but the amount: so
shown on the return shall first be increased by the amount previously assessed (or
collected without assessment) as a deficiency, and decreased by the amounts
previously abated, refunded or otherwise repaid in respect of such tax, or (b) if no
amount is shown as the tax by the donor, then the amount by which the tax exceeds the
amounts previously assessed (or collected without assessment) as a deficiency, but
such amount previously assessed, or collected without assessment, shall first be
decreased by the amount previously abated, refunded or otherwise repaid in respect of
such tax.'

These definitions, which are similar for the three types of taxes, are basic and standard
definition of "deficiency" which can likewise be adopted by analogy in defining
"deficiency" as to other internal revenue taxes. Hence, I believe the phrase "[a]ny
deficiency in the tax due, as the term is defined in this Code" generally refers to
deficiency tax that arises when the correct amount of tax due, as determined by the
CIR, is more than the amount of tax shown in the taxpayer's return.

I described "deficiency" as one determined by the CIR because the word "deficiency"
was used in Section 56(B)[under Chapter IX5, Title II] as follows:
'(B) Assessment and Payment of Deficieny Tax. - After the return is filed,
the Commissioner shall examine it and assess the correct amount of the tax. The
tax or deficiency income tax so discovered shall be paid upon notice and demand
from the Commissioner.'

and in Section 92 (under Chapter I6, Title III) as follows:

'SECTION 92. Discharge of Executor or Administrator from Personal Liability. - xxx. The
executor or administrator, upon payment of the amount of which he is notified, shall be
discharged from personal liability for any deficiency in the tax thereafter found to be
due and shall be entitled to a receipt or writing showing such discharge.

Notably, the word "deficiency" was not mentioned anywhere else in Chapter II (Donor's
Tax) of Title III except when it was defined in Section 104.

Moreover, Section 6 of the NIRC of 1997, as amended, provides:

'SECTION 6. Power of the Commissioner to Make Assessments and Prescribe


Additional Requirements for Tax Administration and Enforcement. -

(A) Examination of Returns and Determination of Tax Due - After a return has been filed
as required under the provisions of this Code, the Commissioner or his duly authorized
representative may authorize the examination of any taxpayer and the assessment of
the correct amount of tax: Provided, however, That failure to file a return shall not
prevent the Commissioner from authorizing the examination of any taxpayer.

The tax or any deficiency tax so assessed shall be paid upon notice and demand from
the Commissioner or from his duly authorized representative. xxx'

The Tax Code follows the pay-as-you-file system of taxation under which the taxpayer
computes his own tax liability, prepares the return, and pays the tax as he files the
return. The pay-as-you-file system is a self-assessing tax system.7 Hence, after the
return is filed (or even if no return is filed), the Bureau of Internal Revenue (BIR) will
examine such return and will make a determination as to the correct amount of tax and
make the corresponding assessment of deficiency tax, if any, found due from the
taxpayer.

Hence, from the foregoing, it appears that 'deficiency in the tax due' refers to deficiency
as determined by the CIR. This distinction finds significance in determining whether
interest is imposed under Section 249(A) or 249(8) of the NIRC of 1997, as amended.

Section 249(A) of the NIRC of 1997, as amended, provides:

'(A) In General. - There shall be assessed and collected on any unpaid amount of
tax, interest at the rate of twenty percent (20%) per annum, or such higher rate as may
be prescribed by rules and regulations, from the date prescribed for payment until
the amount is fully paid.'

Based on the above provision, Section 249(A) of the NIRC of 1997, as amended,
applies to 'any unpaid amount of tax' and interest would run 'from the date prescribed
for payment until the amount is fully paid' which is the same period provided in Section
249(B) of the NIRC of 1997, as amended.

Since 'any unpaid amount of tax' is an all-encompassing phrase, it follows that


deficiency tax also falls within that phrase since, basically, deficiency tax is unpaid tax.
Hence, it is reasonable to conclude that generally, any unpaid tax is subject to interest
under Section 249(A) of the NIRC of 1997, as amended.

For example, a taxpayer filed his income tax return for taxable year 2003 and paid the
income tax due as shown in his return (which was due for filing on April 15, 2004) only
on May 30, 2004. Pursuant to Section 249(A) of the NIRC of 1997, as amended, the
taxpayer is required to pay 20% interest p.a. from April 15, 2004 to May 30, 2004.
However, if specifically, the unpaid amount of tax refers to 'deficiency in the tax due',
then Section 249(B) of the NIRC of 1997, as amended, applies.

From the foregoing, assuming arguendo that deficiency interest is not applicable to the
other types of taxes because they are not considered 'deficiency in the tax due, as the
term is defined in this Code', then these other types of taxes will fall under Section
249(A) of the NIRC of 1997, as amended, since it applies to 'any unpaid amount of tax',
an all-encompassing phrase.

Also, if deficiency interest under Section 249(B) of the NIRC of 1997, as amended, is
not applicable to internal revenue taxes other than income, estate and donor's tax, then
a taxpayer that was issued a deficiency tax assessment (Final Assessment Notice/
Formal Letter of Demand) would be placed in a better position than a taxpayer who was
not yet issued a deficiency tax assessment. In the former case, the taxpayer with an
assessment is not required to pay interest from the date prescribed for its payment until
full payment while the latter who self-assessed his unpaid tax, would have to pay for the
same.

For example, a taxpayer filed his VAT return for the 1st quarter of 2003 (calendar year)
and paid the tax due thereon on April 25, 2003. Later on, he discovered that he
underpaid his VAT due and hence, he filed an amended return on June 10, 2003 and
paid the corresponding deficiency VAT. Pursuant to Section 249(A) of the NIRC of
1997, as amended, he has to pay for interest from April 25, 2003 to June 10, 2003. On
the other hand, if another taxpayer was assessed by the BIR for deficiency VAT for the
1st quarter of 2003, based on the position expressed in the Dissenting Opinion, then, he
will not be required to pay for deficiency interest under Section 249(B) of the NIRC of
1997, as amended, from April 25, 2003 until full payment.

Moreover, applying the argument that deficiency interest is only applicable for
deficiencies that were defined in the NIRC, it would appear that 'deficiency' exists only
for these particular tax types (income tax, estate tax and donor's tax). Does that mean
the BIR cannot assess a taxpayer for 'deficiency' on taxes other than income, estate
and donor's tax since the same were not defined in the NIRC? This could not have been
the intention of Congress."

It is for the reasons above that, as held in the ponencia, deficiency interest is not limited
to merely deficiency income tax, deficiency estate tax and deficiency donor's tax.

MA. BELEN M. RINGPIS-LIBAN


Associate Justice

1 CTA EB. No. 1035, February 9, 2016.


2 Citing G.R. No. 106949-50, December 1, 1995 consolidated with Commissioner of
Internal Revenue v. Paper Industries Corporation of the Philippines (PICOP), et al.,
G.R. No. 106984-85, December 1, 1995.
3 Citing CTA EB Case No. 745, September 4, 2012.
4 Includes Sections 247-252 of the NIRC.
5 Returns and Payment of Tax.
6 Estate Tax.
7 PNOC vs. Court of Appeals, G.R. No. 109976 and 112800, April 26, 2005.

Concurring and Dissenting Opinion

MANAHAN, J:

I concur with the ponencia’s conclusion, but not the rationale used in arriving at said
conclusion that Maxicare should be held liable for deficiency value-added tax (VAT), but
only for the 2nd, 3rd, and 4th quarters of taxable year 2008.

The ponencia reasoned that the gross receipts derived by health maintenance
organizations (HMOs) for VAT purposes, shall be the total amount of money or its
equivalent actually received from members undiminished by any amount paid or
payable to owners/ operators of hospitals, clinics and medical and dental practitioners.

However, I disagree with the blanket application of this definition which does not allow
the recognition of receipt of payments that do not redound to the benefit of Maxicare.

The definition of "gross receipts” for VAT sales of service is provided in Section 108 of
the 1997 National Internal Revenue Code, as amended (NIRC), as follows:

Sec. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. -

xxx

The term ‘gross receipts’ means the total amount of money or its equivalent
representing the contract price, compensation, service fee, rental or royalty, including
the amount charged for materials supplied with the services and deposits and advanced
payments actually or constructively received during the taxable quarter for the services
performed or to be performed for another person, excluding value-added tax.

This definition is further clarified in Revenue Regulations No. (RR) 16-20051, as


amended by RR 04-20072, which provides:

Sec. 4.108-4. Definition of Gross Receipts. - “Gross receipts” refers to the total
amount of money or its equivalent representing the contract price, compensation,
service fee, rental or royalty, including the amount charged for materials supplied with
the services and deposits applied as payments for services rendered and advance
payments actually or constructively received during the taxable period for the services
performed or to be performed for another person, excluding the VAT, except those
amounts earmarked for payment to unrelated third (3rd) party or received as
reimbursement for advance payment on behalf of another which do not redound to the
benefit of the payor.
A payment is a payment to a third (3rd) party if the same is made to settle an obligation
of another person, e.g. customer or client, to the said third party, which obligation is
evidenced by the sales invoice/ official receipt issued by the said third party to the
obligor/ debtor (e.g. customer or client of the payor of the obligation).

An advance payment is an advance payment on behalf of another if the same is paid to


a third (3rd) party for a present or future obligation of said another party which obligation
is evidenced by a sales invoice/ official receipt issued by the obligee/ creditor to the
obligor/ debtor (i.e. the aforementioned ‘another party’) for the sale of goods or services
by the former to the latter.

For this purpose ‘unrelated party’ shall not include taxpayer’s employees, partners,
affiliates (parent, subsidiary and other related companies), relatives by consanguinity or
affinity within the fourth (4th) civil degree, and trust fund where the taxpayer is the
trustor, trustee or beneficiary, even if covered by an agreement to the contrary. 3

From the foregoing, the exclusion of earmarked payments to third parties and advance
payments on behalf of another from gross receipts appeared in RR 16-05 as amended,
which recognizes the peculiar aspect of service contractors receiving payments that are
to be paid out to other parties. This peculiarity also applies to HMOs and was also
recognized in the definition of gross receipts for HMOs contained in RR 16-05:

Sec. 4.108-3. Definitions and Specific Rules on Selected Services. -

xxx

(k) Health Maintenance Organizations (HMOs) are entities, organized in accordance


with the provisions of the Corporation Code of the Philippines and licensed by the
appropriate government agency, which arranges for coverage or designated managed
care services needed by plan holders/ members for fixed prepaid membership fees and
for a specified period of time.

HMOs’ gross receipts shall be the total amount of money or its equivalent representing
the service fee actually or constructively received during the taxable period for the
services performed or to be performed for another person, excluding the value-added
tax. The compensation for their services representing their service fee is presumed to
be the total amount received as enrollment fee from their members plus other charges
received.

To my mind, this statement in RR 16-05 that the total amount received as enrollment
fee plus other charges received is presumed to be the HMO’s service fee is critical.
While it is a presumption made by law, it remains disputable. This means that the HMO
can prove otherwise, and should be given the chance to do so, if indeed the total
amounts received from its members do not all constitute service fees and should
therefore not be considered as part of gross receipts subject to VAT.

Thus, I am of the position that HMOs should be allowed to prove which portions of their
receipts do not constitute service fees and therefore will not form part of gross receipts
subject to VAT. In this aspect, RR 16-05, Sec. 4.108-4 also provides how the same may
be proved, to wit:

A payment is a payment to a third (3rd) party if the same is made to settle an obligation
of another person, e.g. customer or client, to the said third party, which obligation is
evidenced by the sales invoice/ official receipt issued by the said third party to the
obligor/ debtor (e.g. customer or client of the payor of the obligation).

An advance payment is an advance payment on behalf of another if the same is paid to


a third (3rd) party for a present or future obligation of said another party which obligation
is evidenced by a sales invoice/ official receipt issued by the obligee/ creditor to the
obligor/ debtor (i.e. the aforementioned ‘another party’) for the sale of goods or services
by the former to the latter.4

In the instant case, Maxicare failed to adduce evidence to prove that the amount of
Php1,525,717,866.43 which it declared as exempt VAT sales in its tax returns, were
paid out to third parties and therefore, were not part of its service fees. For the foregoing
reasons, I find that Maxicare’s entire gross receipts for the 2nd, 3rd, and 4th quarters of
taxable year 2008 should be subject to VAT as concluded by the ponencia.

However, with respect to the applicable prescriptive period for the 1 st quarter of 2008, I
disagree with the ponencia’s conclusion that the ten-year prescriptive period should
apply.

The ponencia applied the Supreme Court decision in Aznar v. Court of Tax
Appeals5 (Aznar), which declared that a return is false as long as there is a deviation
from the truth, whether intentional or not. In the instant case, the Court En Banc found
that Maxicare filed false returns when it excluded the medical/ hospital utilization
expenses from its taxable gross receipts against the established interpretation by the
Commissioner of Internal Revenue (CIR) and jurisprudence, thereby, justifying the
application of the ten-year prescriptive period.

I am not unaware of the recent Supreme Court decision in CIR v. Asalus Corporation6,
which again reiterated the Aznar case in that a “mere showing that the returns filed by
the taxpayer were false, notwithstanding the absence of intent to defraud, is sufficient to
warrant the application of the ten (10) year prescriptive period under Section 222 of the
NIRC.”

However, and with due respect, it is my position that the applicability of the ten-year
period does not apply to every “false” return and that the definition of a “false” return
should be revisited in light of Commissioner of Internal Revenue v. B.F. Goodrich Phils.
Inc. 7(Goodrich), as I will discuss below.8

In Aznar, the taxpayer was assessed with deficiency income tax for six consecutive
taxable years due to his gross under-declaration of taxable income. These substantial
underdeclarations were noted by the Supreme Court and were made the indicia of the
falsity of income tax returns. The Court went on to state that the “very substantial under-
declarations of income for six consecutive years eloquently demonstrate the falsity or
fraudulence of the income tax returns with an intent to evade the payment of tax.”
Furthermore, the Court expounded on the concept of false returns as being distinct from
fraudulent returns with intent to evade taxes, as follows:

We believe that the proper and reasonable interpretation of said provision should be
that in the three different cases of (1) false return, (2) fraudulent return with intent to
evade tax, (3) failure to file a return, the tax may be assessed, or a proceeding in court
for the collection of such tax may be begun without assessment, at any time within ten
years after the discovery of the (1) falsity, (2) fraud, (3) omission, Our stand that the law
should be interpreted to mean a separation of the three different situations of false
return, fraudulent return with intent to evade tax, and failure to file a return is
strengthened immeasurably by the last portion of the provision which segregates the
situations into three different classes, namely - ‘falsity,’ ‘fraud[,]’ and ‘omission.’ That
there is a difference between ‘false return’ and ‘fraudulent return’ cannot be
denied. While the first merely implies deviation from the truth, whether intentional or
not, the second implies intentional or deceitful entry with intent to evade the taxes due.9

Based on this decision, the Court has categorized wrongful entries, intentional or
unintentional, or mistakes made, whether in good faith or in bad faith, appearing on the
face of tax returns, as “falsity” which constitutes a legal ground for the imposition of the
ten-year period of prescription.

Almost 25 years later, the Supreme Court promulgated its Goodrich decision, which
shows a softening of the Court’s stance on the scope and coverage of “false return” as
compared to the position in Aznar.

In Goodrich, the taxpayer sold a piece of real property at a price which was lower than
its declared fair market value. The Bureau of Internal Revenue (BIR) insisted that
“falsity” was committed thereby justifying the issuance of the assessment beyond the
normal three-year prescriptive period. In finding that the assessment had prescribed,
the Supreme Court commented on the issue of falsity, as follows:

Petitioner insists that private respondent committed “falsity” when it sold the property for
a price lesser than its declared fair market value. This fact alone did not constitute a
false return which contains wrong information due to mistake, carelessness or
ignorance. It is possible that real property may be sold for less than adequate
consideration for a bona fide business purpose; in such event, the sale remains an
“arm’s length” transaction. In the present case, the private respondent was compelled to
sell the property even at a price less than its market value, because it would have lost
all ownership rights over it upon the expiration of the parity amendment. xxx

Furthermore, the fact that private respondent sold its real property for a price less than
its declared fair market value did not by itself justify a finding of false return. Indeed,
private respondent declared the sale in its 1974 return submitted to the BIR. Within the
five-year prescriptive period [now, three-year prescriptive period], the BIR could have
issued the questioned assessment, because the declared fair market value of the said
property was of public record. This it did not do, however, during all those five years.
Moreover, the BIR failed to prove that respondent’s 1974 return had been filed
fraudulently. Equally significant was its failure to prove respondent’s intent to evade the
payment of the correct amount of tax.10

While Aznar and Goodrich have radically different factual milieus, both these cases
impacted on how “false returns” are defined. From the broad Aznar definition that a
false return is any deviation from the truth, Goodrich provided an instance wherein a
“deviation” from the truth as found by the BIR, did not automatically render the return as
a “false return” which would justify the application of the ten-year prescriptive period.

Furthermore, in Goodrich, the Supreme Court required that the BIR prove the presence
of fraudulent intent or intent to evade payment of the correct amount of tax on the part
of the taxpayer. The Supreme Court also found that the BIR could have issued the
assessment within the ordinary prescriptive period considering that the declared fair
market value was in the public record. In Goodrich, the “deviation” did not put the BIR at
a disadvantage in issuing its assessment, as opposed to the situation in Aznar which
involved exorbitant under-declarations for six consecutive years which could not have
been easily traced from the returns itself.

This is consistent with the statement in Aznar.

The ordinary period of prescription of 5 years within which to assess tax liabilities under
Sec. 331 of the NIRC should be applicable in normal circumstances, but whenever the
government is placed at a disadvantage so as to prevent its lawful agents from proper
assessment of tax liabilities due to false returns, fraudulent return intended to evade
payment of tax or failure to file returns, the period of ten years...from the time of the
discovery of the falsity, fraud or omission...should be the one enforced.11

Thus, as early as Aznar, a qualification had been made that there should be a
disadvantage to the government agents resulting from falsity, fraud or omission, which
would prevent said agents from assessing the tax within the ordinary period of
prescription. Without such disadvantage, the normal three-year prescriptive period
should apply.

It is perhaps interesting to note that even prior to Goodrich, the CTA, in 1995, had also
recognized this limitation in Aznar, to wit:

Respondent also contends in the alternative, that petitioner’s omission of its sales of
bottled and tetra-packed milk from its sales tax return rendered said returns “false”
within the meaning of Section 223 of the Tax Code. In support of this, reliance is placed
on the ruling in the case of Aznar vs. Court of Tax Appeals (58 SCRA 519), wherein it
was held that the term “false return” merely implied a deviation from truth, irrespective of
whether such omission is intentional or not. Thus, respondent argues, since petitioner’s
sales tax returns did not disclose the “truth” regarding its sales of bottled and tetra-
packed milk to outlets other than the Armed Forces of the Philippines Commissary and
Exchange Service (AFPCES) and the US Military Installations (USMI), such omission
rendered said returns “false” within the contemplation of Section 223 of the Tax Code.

We find respondent’s reliance on Aznar misplaced. There is nothing in the said case
which establishes a hard and fast rule that every “deviation” from the truth necessarily
brings a particular return under the coverage of Section 223 of the Tax Code. As
pointed out by the petitioner, it is only where the falsity or “deviation” would place the
government at a disadvantage so as to prevent the assessment and collection of the
correct amount of taxes that the ordinary prescriptive period... should not be applied.12

Finally, it is necessary to apply the Aznar and Goodrich doctrines in light of the purpose
and rationale for providing a prescriptive period.

It must be kept in mind that the very reason why the law provided for prescription is to
give taxpayers peace of mind, that is, to safeguard them from unreasonable
examination, investigation, or assessment. The law on prescription, being a remedial
measure, should be liberally construed in order to afford such protection. As a corollary,
the exceptions to the law on prescription should perforce be strictly construed.13

Guided by the foregoing, the application of Aznar should not be one of unbridled
discretion.14 This is especially true considering that taxes are self-assessed, as
discussed by the Supreme Court:
Taxes are generally self-assessed. They are initially computed and voluntarily paid by
the taxpayer. The government does not have to demand it. If the tax payments are
correct, the BIR need not make an assessment.

The self-assessing and voluntarily paying taxpayer, however, may later find that he or
she has erroneously paid taxes.15

Upon finding that a tax has been paid erroneously, the taxpayer is allowed to file a claim
for refund. On the reverse side, should the taxpayer find that there is an error in its
return, the taxpayer may file an amended return, or should the BIR be the one to detect
the error, then an assessment shall be issued.

The very meaning of a deficiency assessment is that there was an error or omission on
the part of the taxpayer in the preparation of its return or the payment of its tax. But
each and every error, as discussed previously, does not and should not result to the
operation of the ten-year prescriptive period. Otherwise, on the strength of
the Aznar doctrine, BIR examiners conducting regular tax audits, who, logically as a
matter of course, would always come up with tax findings of either under-declaration of
income or over-declaration of deductions, or both, could mercilessly and arbitrarily raise
the argument of false return giving rise to the ten-year prescriptive period. The result
would be a lackadaisical implementation of the statutory principle that the statute of
limitations is a remedial measure and should be strictly construed against the taxing
authority and liberally in favor of the taxpayer.

It is unfortunate that the case of Commissioner of Internal Revenue v. Ayala Hotels,


Inc.16 (Ayala) was not ruled upon by the Supreme Court due to the failure of therein
petitioner to file its petition for review on certiorari. However, the Court of Appeals’
discussion aptly described the effect of a sweeping application of Aznar, as quoted
below:

Reliance on the Aznar Case with regard to the issue of prescription is misplaced.
Although in the said case, the Supreme Court ruled that a “false return” merely implies a
deviation from the truth, whether intentional or not, such pronouncement should not be
given a sweeping application in all cases where a mistake in ITR entries are made by
taxpayers. Otherwise, any mistake, however slight, in a return filed by a taxpayer in
good faith would justify the application of the ten-year prescriptive period for
assessment. Consequently, the protection provided for under Section 203 of the 1997
NIRC is rendered nugatory. Logically therefore, not all “false returns” would call for an
application of Section 222 of the 1997 NIRC. Only “false returns” which are filed by a
taxpayer with intent to evade tax should warrant an application of the ten-year
prescriptive period.

In order to render a return made by a taxpayer a “false return” within the meaning of
Section 222, of the Tax Code, there must appear, a design to mislead or deceive on the
part of the taxpayer, or at least culpable negligence. A mistake, not culpable in respect
of its value would not constitute a false return.17

Notwithstanding, there is sufficient basis provided by Aznar and Goodrich to limit the
application of the ten-year period to certain factual circumstances.

Applying the foregoing to the instant case:


1. There was no design to mislead or deceive on the part of Maxicare since the issue
involved here is a difficult question of law which gave rise to differing issuances by the
BIR;

2. The alleged deviation was not an intentional mistake or omission so as to put the BIR
at a disadvantage in the investigation and assessment. The BIR was not prevented from
issuing an assessment within the three-year period. This is highlighted by the fact that
the BIR, in fact, issued the assessment within the three-year period for the 2nd, 3rd, and
4th quarters of taxable year 2008; and

3. There was no fraudulent intent or intent to evade the payment of the correct amount
of tax as shown by Maxicare’s disclosure of its “exempt sales” in the VAT returns based
on its understanding and determination of its gross receipts.

Hence, the foregoing circumstances do not justify the application of the ten-year period.

On a final note, I join Justice Ma. Belen M. Ringpis-Liban’s Concurring Opinion with
respect to the imposition of deficiency and delinquency interests.

For all the foregoing, I vote to partially grant the Petition for Review filed by the
Maxicare in CTA EB No. 1312 only with respect to the 1st quarter of taxable year 2008.
On the other hand, I vote to partially grant the CIR’s Petition for Review in CTA EB No.
1317.

CATHERINE T. MANAHAN
Associate Justice