THIRD DIVISION

G.R. Nos. 206079-80, January 17, 2018

PHILIPPINE AIRLINES, INC. (PAL), Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

G.R. No. 206309, January 17, 2018

COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. PHILIPPINE AIRLINES, INC. (PAL), Respondent.

DECISION

LEONEN, J.:

Before this Court are two (2) consolidated Petitions for Review on Certiorari under Rule 45 of the Rules of
Court assailing the August 14, 2012 Decision 1 and February 25, 2013 Resolution2 of the Court of Tax Appeals
En Banc in CTA EB Nos. 749 and 757 (CTA Case No. 6877).

These consolidated cases stem from a refund claim by Philippine Airlines, Inc. (PAL) for final taxes withheld on
its interest income from its peso and dollar deposits with China Banking Corporation (Chinabank), JP Morgan
Chase Bank (JPMorgan), Philippine Bank of Communications (PBCom), and Standard Chartered Bank
(Standard Chartered) (collectively, Agent Banks).3

G.R. Nos. 206079-80 involves the Petition filed by PAL questioning the denial of its claim for refund of
P510,233.16 and US$65,877.07, representing the final income tax withheld by Chinabank, PBCom, and
Standard Chartered.4

Meanwhile, G.R. No. 206309 involves the Petition filed by the Commissioner of Internal Revenue
(Commissioner) assailing the grant to PAL of the tax refund of P1,237,646.43, representing the final income
tax withheld and remitted by JPMorgan.5

PAL asserts that it is entitled to a refund of the withheld taxes because it is exempted from paying the tax on
interest income under its franchise, Presidential Decree No. 1590. 6 However, the Commissioner refused to
grant the claim, arguing that PAL failed to prove the remittance of the withheld taxes to the Bureau of Internal
Revenue.7

Thus, the issue involves whether or not PAL is required to prove the remittance to the Bureau of Internal
Revenue of the final withholding tax on its interest from currency bank deposits to be entitled to tax refund.

The Court of Tax Appeals Special First Division ordered the refund to PAL of P1,237,646.43 representing the
final income tax withheld and remitted by JPMorgan on PAL's interest income. However, it denied the refund of
P510,223.16 and US$65,877.07, representing the final income tax withheld by Chinabank, PBCom, and
Standard Chartered.8 The Court of Tax Appeals En Banc affirmed the Decision of the Court of Tax Appeals
Special First Division.9

The facts are as follows:

Sometime in 2002, PAL made US dollar and Philippine peso deposits and placements in the following
Philippine banks: Chinabank, JPMorgan, PBCom, and Standard Chartered.10

PAL earned interest income from these deposits and the Agent Banks deducted final withholding taxes. 11

From Chinabank, PAL claimed that it earned interest income net of withholding tax in the amount of
US$480,688.76 in its US dollar time deposit for the year 2002.12 Substantiating this claim was Chinabank's
Certification dated October 24, 2003,13 which stated that withholding taxes were deducted from PAL's interest
income in the amount of US$38,974.75. These taxes were remitted to the Bureau of Internal Revenue on
different dates from February 11, 2002 to January 10, 2003. 14

From JPMorgan, PAL alleged that it earned interest income in its peso deposit in the amount of P6,188,232.17,
from September 2002 to December 2002. JPMorgan deducted withholding tax totalling P1,237,646.43. 15

From PBCom, PAL maintained that it earned interest income from its various dollar placements for the year
2002, with the following corresponding final taxes withheld: 16

CERTIFICATE FOR
INTEREST INCOME TAX WITHHELD
THE PERIOD

1st Quarter US$ 102,648.40 US$ 7,698.63

2nd Quarter US$ 22,653.20 US$ 1,698.00

3rd Quarter US$ 40,123.73 US$ 3,009.28

4thQuarter US$ 107,163.73 US$ 8,037.28

TOTAL US$ 272,589.06 US$ 20,443.19

PAL's peso deposit account with PBCom also allegedly earned interest income for the year 2002, with the
following corresponding final taxes withheld:17

CERTIFICATE FOR
INTEREST INCOME TAX WITHHELD
THE PERIOD

2nd Quarter P 541,758.42 P 108,351.67

3rd Quarter P 2,009,357.41 P 401,871.46

TOTAL P 2,551,115.83 P 510,223.13

A letter dated April 10, 2003 from PBCom's Branch Manager, Carmencita L. Tan, stated that the taxes withheld
from PAL's interest income had been remitted by PBCom to the Bureau of Internal Revenue. 18

From Standard Chartered, PAL stated that it earned interest income in its dollar time deposit account from May
2002 to December 2002, amounting to US$86,107.55. The amount of US$6,458.14 was deducted and
allegedly remitted to the Bureau of Internal Revenue as final withholding tax. 19

Claiming that it was exempt from final withholding taxes under its franchise, Presidential Decree No. 1590, PAL
filed with the Commissioner on November 3, 2003 a written request for a tax refund 20 of the withheld amounts
of P1,747,869.59 and US$65,877.07.21

The Commissioner failed to act on the request. Thus, on February 24, 2004, PAL elevated the case to the
Court of Tax Appeals in Division.22

In her Answer, the Commissioner contended that PAL's claim was subject to administrative routinary
investigation or examination by the Bureau of Internal Revenue. She also alleged that PAL's claim was not
properly documented, and that it must show that it complied with the prescriptive period for filing refunds under
Sections 204(C) and 229 of the National Internal Revenue Code. It likewise asserted that claims for refund are
of the same nature as a tax exemption, and thus, are strictly construed against the claimant.23

PAL presented evidence to support its claim. The Commissioner then submitted the case for decision based
on the pleadings.24

In its November 9, 2010 Decision,25 the Court of Tax Appeals Special First Division partially granted PAL's
Petition and ordered the Commissioner to refund PAL P1,237,646.43, representing the final income tax
withheld and remitted by JPMorgan. It denied the remaining claim for refund of P510,223.16 and
US$65,877.07 representing the final income tax withheld by Chinabank, PBCom, and Standard Chartered. 26

The Court of Tax Appeals Special First Division found that PAL was exempted from final withholding tax on
interest on bank deposits.27 However, it ruled that PAL failed to adequately substantiate its claim because it did
not prove that the Agent Banks, with the exception of JPMorgan, remitted the withheld amounts to the Bureau
of Internal Revenue.28 PAL only presented documents29 which showed the total amount of final taxes withheld
for all branches of the banks.30 As such, the amount of tax withheld from and to be refunded to PAL could not
be ascertained with particularity.31 It ruled that the Certificates of Final Tax Withheld at Source are not sufficient
to prove remittance.32 Thus:

WHEREFORE, premises considered, the instant Petition for Review is hereby PARTIALLY GRANTED.
Accordingly, respondent is hereby ORDERED TO REFUND in favor of petitioner the reduced amount of
P1,237,646.43, representing the 20% final income tax withheld and remitted by JP Morgan Chase bank on
petitioner's interest income; while the remaining claim of P510,223.16 and US$65,877.07, representing the
final income tax withheld by China Banking Corporation, Philippine Bank of Communication[s], and Standard
Chartered Bank are hereby DENIED due to insufficiency of evidence.

SO ORDERED.33

The Court of Tax Appeals Special First Division denied the separate motions for reconsideration filed by the
parties. Thus, both parties filed separate appeals before the Court of Tax Appeals En Banc, which
consolidated the cases.34

In its August 14, 2012 Decision, the Court of Tax Appeals En Banc denied the petitions and affirmed the
decision of the Court of Tax Appeals Special First Division.35 The Court of Tax Appeals En Banc sustained that
PAL needed to prove the remittance of the withheld taxes because although remittance is the responsibility of
the banks as withholding agents, remittance was put in issue in this case. Thus, the Court of Tax Appeals
Special First Division correctly made a ruling on it. 36

It found that PAL was able to establish the remittance of the taxes withheld by JPMorgan because the monthly
remittance returns were identified by PAL's witness and were formally offered in the Court of Tax Appeals
Special First Division without objections to their admissibility. It ruled that the monthly remittance returns may
be considered even if they were only presented in the Court of Tax Appeals Special First Division as it is a
court of record and is required to conduct a formal trial.37

It sustained that PAL failed to prove the remittance by Chinabank, PBCom, and Standard Chartered because it
did not show that the amounts remitted by these Agent Banks pertained to the taxes withheld from PAL's
interest income.38

Thus:

WHEREFORE, all the foregoing considered, the Commissioner's Petition for Review in CTA EB No. 749 and
PAL's Petition for Review in CTA EB No. 757 are hereby DENIED for lack of merit. The assailed Decision
dated November 9, 2010 and Resolution dated March 17, 2011 are hereby AFFIRMED.

SO ORDERED.39 (Emphasis in the original)

The Court of Tax Appeals En Banc denied the motions for reconsideration. 40

Hence, the present Petitions via Rule 45 have been filed. 41

In G.R. Nos. 206079-80, PAL questions the denial of its refund claim for the taxes withheld by Chinabank,
PBCom, and Standard Chartered. PAL argues that it adequately established the withholding and remittance of
final taxes through the Certificates of Final Taxes Withheld issued to it by these Agent Banks.42 It contends that
these Certificates are prima facie evidence of actual remittance, and if they are uncontroverted, as in this case,
they are sufficient proof of remittance.43 It holds that the rule pertaining to Creditable Taxes Withheld in CIR v.
Asian Transmission Corporation 44 and other Court of Tax Appeals En Banc cases45 should apply to Final
Taxes Withheld, as these are of the same nature.46

PAL also insists that it is unequivocally exempt from final withholding taxes,47 and consequently, for as long as
it duly establishes that taxes were withheld from its income, it must be refunded. 48 It maintains that proof of
actual remittance is not necessary.49

PAL further claims that it need not establish the remittance of income taxes to the Bureau of Internal Revenue
because this function is vested with the Agent Banks as the payors and withholding agents of the
Commissioner.50

In G.R. No. 206309, the Commissioner questions the grant of refund to PAL for the final income taxes withheld
by JPMorgan. She argues that PAL is not entitled to the refund as it failed to present its documentary evidence
before the Bureau of Internal Revenue when it filed its administrative claim. 51

In its June 10, 2013 Resolution, the two (2) cases were consolidated.52

The parties thereafter filed their respective Comments,53 Replies,54 and Memoranda.55

PAL argues that it is entitled to its claim for tax refund or tax credit and insists that it has adequately
established that the final taxes on interest income withheld by the banks were remitted to the Bureau of
Internal Revenue.56 It contends that the Certificates of Final Taxes Withheld issued by the Agent Banks
are prima facie evidence of actual remittance.57 As prima facie evidence, they are sufficient proof of the fact
that PAL is establishing, if they are unexplained or uncontradicted. 58

As such, PAL avers that the Commissioner had the burden to prove that the Agent Banks failed to remit the
withheld taxes.59 Nonetheless, the Commissioner simply submitted the case for decision based on the
pleadings. It did not contradict or dispute the Certificates of Final Taxes Withheld. 60

PAL further posits that the failure of the Agent Banks to remit the withheld taxes should not prejudice PAL,
because they are the withholding agents accountable for proving remittance. PAL has no control or
responsibility over the remittance of the taxes withheld. 61

Moreover, PAL holds that there is no need for proof of actual remittance to be entitled to claim for refund,62 and
that this Court's rulings on creditable taxes withheld should also apply to final taxes withheld at source, as they
are of the same nature.63 Since PAL has shown that it is unequivocally exempt from paying final withholding
taxes, its taxes were erroneously paid and must be refunded. 64

PAL further asserts that the Court of Tax Appeals is a court of record, required to conduct a trial de novo.
Thus, it should not be barred from considering new evidence not submitted in the administrative claim for
refund.65

Assuming PAL is limited by the documents it submitted in the administrative level, the Commissioner had the
burden to prove that PAL did not submit complete supporting documents. However, it neither showed what
documents PAL presented nor established that PAL submitted incomplete supporting documents. 66
PAL further submits that assuming it failed to present the remittance returns on final income tax withheld, the
Commissioner could have retrieved these files from the records, as these are monthly returns filed with the
Bureau of Internal Revenue.67 As the Chief of the Bureau of Internal Revenue, the Commissioner has access
to all tax returns including those of final income tax withheld at source, and thus, is in bad faith in not checking
the records to determine whether or not the withheld taxes were remitted. 68 PAL maintains that the
Commissioner's denial of the withholding of the taxes is not a specific denial, and thus, should be deemed as
an admission of this fact.69

Finally, PAL holds that the denial of its refund because of its failure to submit monthly remittance returns is
contrary to substantial justice, equity, and fair play.70

On the other hand, the Commissioner argues in her Memorandum 71 that PAL needed to prove, but did not
prove, that the withheld taxes were remitted to the Bureau of Internal Revenue. 72

She points out that PAL only showed the withheld amounts remitted by branches of Chinabank, PBCom, and
Standard Chartered, but there is no indication that the remitted amounts are the taxes withheld from PAL's
interest income. She argues that PAL must first prove that the money remitted to the Bureau of Internal
Revenue is attributable to it because tax refunds are strictly construed against the taxpayer. 73

She further insists that PAL's claim must fail for insufficiency of evidence because it failed to present several of
its documentary evidence before the Bureau of Internal Revenue during the administrative level. 74 She argues
that even if the evidence was presented in the Court of Tax Appeals, it should not be considered because
trial de novo in the Court of Tax Appeals must be limited to the evidence shown in the administrative claim for
refund.75 The Court of Tax Appeals' judicial review is allegedly limited to whether the Commissioner rightfully
ruled on the claim on the basis of the evidence presented in the administrative claim, and the ruling may only
be set aside where there is gross abuse of discretion, fraud, or error of law. 76 Thus, she claims that the Court
of Tax Appeals erred in considering the new evidence presented to it. 77 In allowing the presentation of new
evidence, the Court of Tax Appeals did not conduct a judicial review. Rather, it adopted an entirely new
proceeding.78

This Court resolves the following issues:

First, whether or not evidence not presented in the administrative claim for refund in the Bureau of Internal
Revenue can be presented in the Court of Tax Appeals;

Second, whether or not Philippine Airlines, Inc. was able to prove remittance of its final taxes withheld to the
Bureau of Internal Revenue; and

Finally, whether or not proof of remittance is necessary for Philippine Airlines, Inc. to claim a refund under its
charter, Presidential Decree No. 1590.

This Court sustains the factual findings of the Court of Tax Appeals that Philippine Airlines, Inc. failed to prove
remittance of the withheld taxes.

Nonetheless, this Court grants the Petition of Philippine Airlines, Inc.

The Commissioner contends that PAL failed to present several of its documentary evidence before the Bureau
of Internal Revenue during the administrative level.79 Thus, she claims that the new evidence that petitioner
presented in the Court of Tax Appeals should not have been considered because trial de novo in the Court of
Tax Appeals must be limited to the evidence shown in the administrative claim. 80
This Court rules that the Court of Tax Appeals is not limited by the evidence presented in the administrative
claim in the Bureau of Internal Revenue. The claimant may present new and additional evidence to the Court
of Tax Appeals to support its case for tax refund.

Section 4 of the National Internal Revenue Code 81 states that the Commissioner has the power to decide on
tax refunds, but his or her decision is subject to the exclusive appellate jurisdiction of the Court of Tax Appeals:

Section 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.

Republic Act No. 9282,82 amending Republic Act No. 1125,83 is the governing law on the jurisdiction of the
Court of Tax Appeals. Section 7 provides that the Court of Tax Appeals has exclusive appellate jurisdiction
over tax refund claims in case the Commissioner fails to act on them:

Section 7. Jurisdiction. — The CTA shall exercise:

(a) Exclusive appellate jurisdiction to review by appeal, as herein provided:

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

(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the
National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the
National Internal Revenue Code provides a specific period of action, in which case the inaction shall be
deemed a denial;

(3) Decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally decided or resolved
by them in the exercise of their original or appellate jurisdiction[.] (Emphasis supplied)

This means that while the Commissioner has the right to hear a refund claim first, if he or she fails to act on it,
it will be treated as a denial of the refund, and the Court of Tax Appeals is the only entity that may review this
ruling.

The power of the Court of Tax Appeals to exercise its appellate jurisdiction does not preclude it from
considering evidence that was not presented in the administrative claim in the Bureau of Internal Revenue.
Republic Act No. 1125 states that the Court of Tax Appeals is a court of record:

Section 8. Court of record; seal; proceedings. — The Court of Tax Appeals shall be a court of record and shall
have a seal which shall be judicially noticed. It shall prescribe the form of its writs and other processes. It shall
have the power to promulgate rules and regulations for the conduct of the business of the Court, and as may
be needful for the uniformity of decisions within its jurisdiction as conferred by law, but such proceedings shall
not be governed strictly by technical rules of evidence. 84

As such, parties are expected to litigate and prove every aspect of their case anew and formally offer all their
evidence.85 No value is given to documentary evidence submitted in the Bureau of Internal Revenue unless it
is formally offered in the Court of Tax Appeals.86 Thus, the review of the Court of Tax Appeals is not limited to
whether or not the Commissioner committed gross abuse of discretion, fraud, or error of law, as contended by
the Commissioner.87 As evidence is considered and evaluated again, the scope of the Court of Tax Appeals'
review covers factual findings.

In Commissioner of Internal Revenue v. Philippine National Bank:88

Finally, petitioner's allegation that the submission of the certificates of withholding taxes before the Court of
Tax Appeals was late is untenable. The samples of the withholding tax certificates attached to respondent's
comment bore the receiving stamp of the Bureau of Internal Revenue's Large Taxpayers Document
Processing and Quality Assurance Division. As observed by the Court of Tax Appeals En Banc, "[t]he
Commissioner is in no position to assail the authenticity of the CWT certificates due to PNB's alleged failure to
submit the same before the administrative level since he could have easily directed the claimant to furnish
copies of these documents, if the refund applied for casts him any doubt." Indeed, petitioner's inaction
prompted respondent to elevate its claim for refund to the tax court.

More importantly, the Court of Tax Appeals is not precluded from accepting respondent's evidence assuming
these were not presented at the administrative level. Cases filed in the Court of Tax Appeals are litigated de
novo. Thus, respondent "should prove every minute aspect of its case by presenting, formally offering and
submitting . . . to the Court of Tax Appeals [all evidence] . . . required for the successful prosecution of [its]
administrative claim."89 (Emphasis supplied, citations omitted)

In the case at bar, the Commissioner failed to act on PAL's administrative claim. 90 If she had acted on the
refund claim, she could have directed PAL to submit the necessary documents to prove its case.

Furthermore, considering that the refund claim will be litigated anew in the Court of Tax Appeals, the latter may
consider all pieces of evidence formally offered by PAL, whether or not they were submitted in the
administrative level.

Thus, the Commissioner's contention must fail.

II

Both PAL and the Commissioner are contesting whether or not PAL has proven the Agent Banks' remittance of
the withheld taxes on its interest income.91

The Court of Tax Appeals Special First Division and En Banc ruled that PAL was able to prove JPMorgan's
remittance of the withheld taxes but that it failed to prove those of Chinabank, PBCom, and Standard
Chartered.92

This Court maintains the factual findings of the Court of Tax Appeals Special First Division and En Banc.

Firstly, in bringing forth the issue of remittance, the parties are raising a question of fact which is not within the
scope of review on certiorari under a Rule 45 Petition. 93 An appeal under Rule 45 must raise only questions of
law.94

The Rules of Court states that a review of appeals filed before this Court is "not a matter of right, but of sound
judicial discretion." The Rules of Court further requires that only questions of law should be raised in petitions
filed under Rule 45 since factual questions are not the proper subject of an appeal by certiorari. It is not this
Court's function to once again analyze or weigh evidence that has already been considered in the lower
courts.95 (Citations omitted)

There is a question of law when it seeks to determine whether or not the legal conclusions of the lower courts
from a given set of facts are correct, i.e. what is the law, given a particular set of circumstances? On the other
hand, there is a question of fact when the issue involves the truth or falsity of the parties' allegations. The test
in determining if an issue is a question of law or fact is whether or not there is a need to evaluate evidence to
resolve the issue. If there is a need to review the evidence or witnesses, it is a question of fact. If there is no
need, it is a question of law.96

As stated, this Court will no longer entertain questions of fact in appeals under Rule 45. The factual findings of
the lower courts are accorded respect and are beyond this Court's review. 97 However, the rule admits of
exceptions, especially if it is shown that the factual findings are not supported by evidence, or the judgment is
based on a misapprehension of facts:

[T]he general rule for petitions filed under Rule 45 admits exceptions. Medina v. Mayor Asistio, Jr. lists down
the recognized exceptions:

(1) When the conclusion is a finding grounded entirely on speculation, surmises or conjectures; (2) When the
inference made is manifestly mistaken, absurd or impossible; (3) Where there is a grave abuse of discretion;
(4) When the judgment is based on a misapprehension of facts; (5) When the findings of fact are conflicting; (6)
When the Court of Appeals, in making its findings, went beyond the issues of the case and the same is
contrary to the admissions of both appellant and appellee; (7) The findings of the Court of Appeals are contrary
to those of the trial court; (8) When the findings of fact are conclusions without citation of specific evidence on
which they are based; (9) When the facts set forth in the petition as well as in the petitioner's main and reply
briefs are not disputed by the respondents; and (10) The finding of fact of the Court of Appeals is premised on
the supposed absence of evidence and is contradicted by the evidence on record.

These exceptions similarly apply in petitions for review filed before this Court involving civil, labor, tax, or
criminal cases.98 (Citations omitted)

A party filing the petition, however, has the burden of showing convincing evidence that the appeal falls under
one of the exceptions. A mere assertion is not sufficient.99

Moreover, this Court has consistently held that the findings of fact of the Court of Tax Appeals, as a highly
specialized court, are accorded respect and are deemed final and conclusive. 100

In Philippine Refining Company v. Court of Appeals:101

The Court of Tax Appeals is a highly specialized body specifically created for the purpose of reviewing tax
cases ...

Because of this recognized expertise, the findings of the CTA will not ordinarily be reviewed absent a showing
of gross error or abuse on its part. The findings of fact of the CTA are binding on this Court and in the absence
of strong reasons for this Court to delve into facts, only questions of law are open for determination . .
.102 (Citation omitted)

In Commissioner of Internal Revenue v. Tours Specialists, Inc., and the Court of Tax Appeals:103

The well-settled doctrine is that the findings of facts of the Court of Tax Appeals are binding on this Court and
absent strong reasons for this Court to delve into facts, only questions of law are open for determination . . . In
the recent case of Sy Po v. Court of Appeals . . . we ruled that the factual findings of the Court of Tax Appeals
are binding upon this court and can only be disturbed on appeal if not supported by substantial evidence. 104

In the case at bar, both the Court of Tax Appeals Special First Division and En Banc ruled that PAL failed to
sufficiently prove that Chinabank, PBCom, and Standard Chartered had remitted the withheld taxes. 105 It found
that the presented documents106 only showed the total amount of final taxes withheld for all branches of these
Agent Banks.107 It did not show that the amounts remitted by these Agent Banks pertained to the taxes
withheld from PAL’s interest income.108
However, it found that PAL was able to prove the remittance of the taxes withheld by JPMorgan because the
monthly remittance returns were identified by PAL's witness and were formally offered in the Court of Tax
Appeals Special First Division without objections to their admissibility. 109

The Court of Tax Appeals Special First Division stated:

To prove that petitioner earned interest income on its bank deposits and that they were remitted to the BIR,
petitioner offered in evidence the following certifications and Certificates of Final Tax Withheld at Source (BIR
Form No. 2306) from various banks:

AMOUNT OF TAX WITHHELD

BANK PERIOD COVERED
PESO US DOLLAR

China Banking Corp. (Exhibit January 2002 -

38,974.75
"C") December 2002

JP Morgan Chase Bank September 2002 -

1,237,646.43
(Exhibit "D") December 2002

Phil. Bank of
January 2002 - March
Communication[s] (Exhibit 7,698.63
2002
"E")

Phil. Bank of
Communication[s] (Exhibit April 2002 - June 2002 108,351.68 1,698.99
"F")

Phil. Bank of
July 2002 - September
Communication[s] (Exhibit 401,871.48 3,009.28
2002
"G")

Phil. Bank of
October 2002 -
Communication[s] (Exhibit[s] 8,037.28
December 2002
"H" and "I")

Standard Chartered [Bank] May 2002 - December

6,458.14
(Exhibit "J") 2002

TOTAL P1,747,869.59 $65,877.07

A careful scrutiny of the evidence presented reveals that only documents pertaining to the amount of taxes
withheld and actually remitted to the BIR by depositary bank JP Morgan Chase, in the amount of
P1,237,646.43, represents petitioner's valid claim . . .

....

This Court cannot give credence to the other certifications and Certificates of Final Tax Withheld at Source
issued by the various depositary banks because proof on the fact of remittance was not aptly complied with;
thus, the amount of taxes to be refunded cannot be ascertained.
The amount of final withholding taxes as reflected on the Summary of Monthly Final Income Taxes Withheld on
Philippine Savings Deposit and Foreign Currency Deposit and the Monthly Remittance Return of Final Income
Taxes (BIR Form No. 1602) provided by withholding agents China Banking Corporation, Philippine Bank of
Communication, and Standard Chartered Bank were based on the total amount of final withholding taxes per
branch of each depositary banks; while the total amount appearing on the documents of Monthly Remittance
Return of Final Income Taxes (BIR Form No. 1602) was based on the total amount of final withholding taxes
for all branches of the depositary banks.

Therefore, the amount of final income tax withheld from petitioner cannot be ascertained with particularity from
the total amount of final withholding taxes that were remitted to the BIR by China Banking Corporation,
Philippine Bank of Communication[s), and Standard Chartered Bank. 110

These findings were affirmed by the Court of Tax Appeals En Banc:

Without doubt, there were amounts of withheld taxes which have been remitted by [Chinabank] to the BIR.
However, from the supposed Stage 1 up to the last Stage of the paper trail, We fail to see, in the evidence
pointed out by PAL, the inclusion of the final income taxes withheld from its interest income in the total
amounts remitted by [Chinabank] to the BIR. In other words, there is no indication that the specific withheld
amounts which have been remitted to the BIR by [Chinabank] referred to the taxes withheld on PAL's interest
income. In fact, PAL's documentary evidence are merely to the effect that certain amounts have been remitted
to the BIR by [Chinabank], and such amounts may be broken down as to which [Chinabank] branch offices the
same are attributable.

The same holds true as regards the taxes withheld by [PBCom] and [Standard Chartered]. The documentary
evidence of PAL relating to the supposed remittances of the said depositary banks are also wanting of any sign
that portion of the remitted taxes pertain to the withheld taxes from PAL's interest income. Simply put, We
cannot perceive, from such evidence, that pertinent items of the withheld taxes are attributable to PAL. 111

In questioning these findings of the Court of Tax Appeals regarding the remittance of the taxes, the parties are
raising questions of fact. To determine whether or not the taxes have been remitted to the Bureau of Internal
Revenue requires an evaluation of the documents and other evidence presented by the parties. Thus, it is
incumbent upon them to prove that the above-stated exceptions are present in this case.

However, the parties failed to show that this case falls into any of the exceptions mentioned.112

The Court of Tax Appeals Special First Division and En Banc based their findings after an examination of all
pieces of evidence presented by PAL. Both parties failed to show that the Court of Tax Appeals committed any
gross error or abuse in making this factual determination. There is likewise no showing that the findings are
conflicting or based on speculation, conjecture, or misapprehension or mistake of facts. There is no sign of any
grave abuse of discretion.

Thus, this Court finds no reason to disturb the Court of Tax Appeals' factual findings.

III

Nonetheless, this Court rules that PAL is entitled to its claim for refund for taxes withheld by Chinabank,
PBCom, and Standard Chartered.

Remittance need not be proven. PAL needs only to prove that taxes were withheld from its interest income.

III.A

First, PAL is uncontestedly exempt from paying the income tax on interest earned.
Under its franchise, Presidential Decree No. 1590, 113 petitioner may either pay a franchise tax or the basic
corporate income tax, and is exempt from paying any other tax, including taxes on interest earned from
deposits:

Section 13. In consideration of the franchise and rights hereby granted, the grantee shall pay to the Philippine
Government during the life of this franchise whichever of subsections (a) and (b) hereunder will result in a
lower tax:

(a) The basic corporate income tax based on the grantee's annual net taxable income computed in accordance
with the provisions of the National Internal Revenue Code; or

(b) A franchise tax of two per cent (2%) of the gross revenues derived by the grantee from all sources, without
distinction as to transport or nontransport operations; provided, that with respect to international air-transport
service, only the gross passenger, mail, and freight revenues from its outgoing flights shall be subject to this
tax.

The tax paid by the grantee under either of the above alternatives shall be in lieu of all other taxes, duties,
royalties, registration, license, and other fees and charges of any kind, nature, or description, imposed, levied,
established, assessed, or collected by any municipal, city, provincial, or national authority or government
agency, now or in the future, including but not limited to the following:

....

The grantee, shall, however, pay the tax on its real property in conformity with existing law. (Emphasis
supplied)

In Commissioner of Internal Revenue v. Philippine Airlines, Inc.,114 this Court ruled that Section 13 of
Presidential Decree No. 1590 is clear and unequivocal in exempting PAL from all taxes other than the basic
corporate income tax or the 2% franchise tax:

While the Court recognizes the general rule that the grant of tax exemptions is strictly construed against the
taxpayer and in favor of the taxing power, Section 13 of the franchise of respondent leaves no room for
interpretation. Its franchise exempts it from paying any tax other than the option it chooses: either the "basic
corporate income tax" or the two percent gross revenue tax. 115 (Citation omitted)

More recently, PAL's tax privileges were outlined and confirmed in Commissioner of Internal Revenue v.
Philippine Airlines, Inc.116 when Republic Act No. 9334 took effect, amending Section 131 of the National
Internal Revenue Code.117 Republic Act No. 9334 increased the rates of excise tax imposed on alcohol and
tobacco products, and removed the exemption from taxes, duties and charges, including excise taxes, on
importations of cigars, cigarettes, distilled spirits, wines and fermented liquor into the Philippines. 118 This Court
ruled that PAL's tax exemptions remain:

In the fairly recent case of Commissioner of Internal Revenue and Commissioner of Customs v. Philippine
Airlines, Inc., the core issue raised was whether or not PAL's importations of alcohol and tobacco products for
its commissary supplies are subject to excise tax. This Court, ruling in favor of PAL, held that:

....

That the Legislature chose not to amend or repeal [PD] 1590 even after PAL was privatized reveals the intent
of the Legislature to let PAL continue to enjoy, as a private corporation, the very same rights and privileges
under the terms and conditions stated in said charter. . . .

To be sure, the manner to effectively repeal or at least modify any specific provision of PAL's franchise under
PD 1590, as decreed in the aforequoted Sec. 24, has not been demonstrated. . . .
....

Any lingering doubt, however, as to the continued entitlement of PAL under Sec. 13 of its franchise to excise
tax exemption on otherwise taxable items contemplated therein, e.g., aviation gas, wine, liquor or cigarettes,
should once and for all be put to rest by the fairly recent pronouncement in Philippine Airlines, Inc. v.
Commissioner of Internal Revenue. In that case, the Court, on the premise that the "propriety of a tax refund is
hinged on the kind of exemption which forms its basis," declared in no uncertain terms that PAL has
"sufficiently prove[d]" its entitlement to a tax refund of the excise taxes and that PAL's payment of either the
franchise tax or basic corporate income tax in the amount fixed thereat shall be in lieu of all other taxes or
duties, and inclusive of all taxes on all importations of commissary and catering supplies, subject to the
condition of their availability and eventual use....

In the more recent consolidated cases of Republic of the Philippines v. Philippine Airlines, Inc.
(PAL) and Commissioner of Internal Revenue v. Philippine Airlines, Inc. (PAL), this Court, echoing the ruling in
the abovecited case of CIR v. PAL, held that:

In other words, the franchise of PAL remains the governing law on its exemption from taxes. Its payment of
either basic corporate income tax or franchise tax — whichever is lower — shall be in lieu of all other taxes,
duties, royalties, registrations, licenses, and other fees and charges, except only real property tax. The phrase
"in lieu of all other taxes" includes but is not limited to taxes, duties, charges, royalties, or fees due on all
importations by the grantee of the commissary and catering supplies, provided that such articles or supplies or
materials are imported for the use of the grantee in its transport and nontransport operations and other
activities incidental thereto and are not locally available in reasonable quantity, quality, or price. 119 (Citations
omitted)

PAL's tax liability was also modified on July 1, 2005, when Republic Act No. 9337 120 further amended the
National Internal Revenue Code. Section 22 of Republic Act No. 9337 abolished the franchise tax and
subjected PAL to corporate income tax and to value-added tax. Nonetheless, it maintained PAL's exemption
from "any taxes, duties, royalties, registration, license, and other fees and charges, as may be provided by
their respective franchise agreement." 121

Section 22. Franchises of Domestic Airlines. — The provisions of P.D. No. 1590 on the franchise tax of
Philippine Airlines, Inc., R.A. No. 7151 on the franchise tax of Cebu Air, Inc., R.A. No. 7583 on the franchise
tax of Aboitiz Air Transport Corporation, R.A. No. 7909 on the franchise tax of Pacific Airways Corporation,
R.A. No. 8339 on the franchise tax of Air Philippines, or any other franchise agreement or law pertaining to a
domestic airline to the contrary notwithstanding:

(A) The franchise tax is abolished;

(B) The franchisee shall be liable to the corporate income tax;

(C) The franchisee shall register for value-added tax under Section 236, and to account under Title IV of the
National Internal Revenue Code of 1997, as amended, for value-added tax on its sale of goods, property or
services and its lease of property; and

(D) The franchisee shall otherwise remain exempt from any taxes, duties, royalties, registration, license, and
other fees and charges, as may be provided by their respective franchise agreement.

Again, in Commissioner of Internal Revenue v. Philippine Airlines, Inc.,122 this Court maintained that despite
these amendments to the National Internal Revenue Code, PAL remains exempt from all other taxes, duties,
royalties, registrations, licenses, and other fees and charges, provided it pays the corporate income tax as
granted in its franchise agreement. It further emphasized that no explicit repeals were made on Presidential
Decree No. 1590.123
Thus, Presidential Decree No. 1590 and PAL's tax exemptions subsist. Necessarily, PAL remains exempt from
tax on interest income earned from bank deposits.

Moreover, Presidential Decree No. 1590 provides that any excess payment over taxes due from PAL's shall
either be refunded or credited against its tax liability for the succeeding taxable year, thus:

Section 14. The grantee shall pay either the franchise tax or the basic corporate income tax on quarterly basis
to the Commissioner of Internal Revenue. . . .

....

Any excess of the total quarterly payments over the actual annual franchise of income tax due as shown in the
final or adjustment franchise or income-tax return shall either be refunded to the grantee or credited against the
grantee's quarterly franchise or income-tax liability for the succeeding taxable year or years at the option of the
grantee.

The term "gross revenues" is herein defined as the total gross income earned by the grantee from; (a)
transport, nontransport, and other services; (b) earnings realized from investments in money-market
placements, bank deposits, investments in shares of stock and other securities, and other investments; (c) total
gains net of total losses realized from the disposition of assets and foreign-exchange transactions; and (d)
gross income from other sources.124 (Emphasis supplied)

Thus, PAL is entitled to a tax refund or tax credit if excess payments are made on top of the taxes due from it.

Considering that PAL is not liable to pay the tax on interest income from bank deposits, any payments made
for that purpose are in excess of what is due from it. Thus, if PAL erroneously paid for this tax, it is entitled to a
refund.

III.B

PAL is likewise entitled to a refund because it is not responsible for the remittance of tax to the Bureau of
Internal Revenue. The taxes on interest income from bank deposits are in the nature of a withholding tax.
Thus, the party liable for remitting the amounts withheld is the withholding agent of the Bureau of Internal
Revenue.

Interest income from bank deposits is taxed under the National Internal Revenue Code:

Section 27. Rates of Income Tax on Domestic Corporations.

....

(D) Rates of Tax on Certain Passive Incomes. —

(1) Interest from Deposits and Yield or any other Monetary Benefit from Deposit Substitutes and from Trust
Funds and Similar Arrangements, and Royalties. — A final tax at the rate of twenty percent (20%) is hereby
imposed upon the amount of interest on currency bank deposit and yield or any other monetary benefit from
deposit substitutes and from trust funds and similar arrangements received by domestic corporations, and
royalties, derived from sources within the Philippines: Provided, however, That interest income derived by a
domestic corporation from a depository bank under the expanded foreign currency deposit system shall be
subject to a final income tax at the rate of seven and one-half percent (7 1/2%) of such interest
income.125 (Emphasis supplied)

The tax due on this income is a final withholding tax:

Section 57. Withholding of Tax at Source. —

(A) Withholding of Final Tax on Certain Incomes. — Subject to rules and regulations the Secretary of Finance
may promulgate, upon the recommendation of the Commissioner, requiring the filing of income tax return by
certain income payees, the tax imposed or prescribed by Sections ... 27(D)(1), ... of this Code on specified
items of income shall be withheld by payor-corporation and/or person and paid in the same manner and
subject to the same conditions as provided in Section 58 of this Code.126

Final withholding taxes imposed on interest income are likewise provided for under Revenue Regulations No.
02-98, Section 2.57.1(G):127

(G) Income Payment to a Domestic Corporation. — The following items of income shall be subject to a final
withholding tax in the hands of a domestic corporation, based on the gross amount thereof and at the rate of
tax prescribed therefor:

(1) Interest from any currency bank deposit and yield or any other monetary benefit from deposit substitutes
and from trust fund and similar arrangements derived from sources within the Philippines — Twenty Percent
(20%).

....

(3) Interest income derived from a depository bank under the Expanded Foreign Currency Deposit System,
otherwise known as a Foreign Currency Deposit Unit (FCDU) — Seven and one-half percent (7.5%).

When a particular income is subject to a final withholding tax, it means that a withholding agent will withhold
the tax due from the income earned to remit it to the Bureau of Internal Revenue. Thus, the liability for remitting
the tax is on the withholding agent:128

Under Revenue Regulations No. 02-98, Section 2.57:

Section 2.57. Withholding of Tax at Source

(A) Final Withholding Tax. — Under the final withholding tax system the amount of income tax withheld by the
withholding agent is constituted as a full and final payment of the income tax due from the payee on the said
income. The liability for payment of the tax rests primarily on the payor as a withholding agent. Thus, in case of
his failure to withhold the tax or in case of under withholding, the deficiency tax shall be collected from the
payor/withholding agent. The payee is not required to file an income tax return for the particular income.
(Emphasis supplied)

Clearly, the withholding agent is the payor liable for the tax, and any deficiency in its amount shall be collected
from it.129 Should the Bureau of Internal Revenue find that the taxes were not properly remitted, its action is
against the withholding agent, and not against the taxpayer.

The responsibility of the withholding agent is further underscored by Republic Act No. 8424, Section 58:

Section 58. Returns and Payment of Taxes Withheld at Source. —

(B) Statement of Income Payments Made and Taxes Withheld. — Every withholding agent required to deduct
and withhold taxes under Section 57 shall furnish each recipient, in respect to his or its receipts during the
calendar quarter or year, a written statement showing the income or other payments made by the withholding
agent during such quarter or year, and the amount of the tax deducted and withheld therefrom, simultaneously
upon payment at the request of the payee, but not later than the twentieth (20 th) day following the close of the
quarter in the case of corporate payee, or not later than March 1 of the following year in the case of individual
payee for creditable withholding taxes. For final withholding taxes, the statement should be given to the payee
on or before January 31 of the succeeding year.
(C) Annual Information Return. — Every withholding agent required to deduct and withhold taxes under
Section 57 shall submit to the Commissioner an annual information return containing the list of payees and
income payments, amount of taxes withheld from each payee and such other pertinent information as may be
required by the Commissioner . . .130 (Emphasis supplied)

Revenue Regulations 09-28 further provides:

Section 2.57.4. Time of Withholding. — The obligation of the payor to deduct and withhold the tax under
Section 2.57 of these regulations arises at the time an income is paid or payable, whichever comes first, the
term "payable" refers to the date the obligation become due, demandable or legally enforceable. 131

....

Section 2.58. Returns and Payment of Taxes Withheld at Source. —

....

(B) Withholding tax statement for taxes withheld — Every payor required to deduct and withhold taxes under
these regulations shall furnish each payee, whether individual or corporate, with a withholding tax statement,
using the prescribed form (BIR Form 2307) showing the income payments made and the amount of taxes
withheld therefrom, for every month of the quarter within twenty (20) days following the close of the taxable
quarter employed by the payee in filing his/its quarterly income tax return. Upon request of the payee,
however, the payor must furnish such statement to the payee simultaneously with the income payment. For
final withholding taxes, the statement should be given to the payee on or before January 31 of the succeeding
year.

(C) Annual information return for income tax withheld at source. — The payor is required to file with the
Commissioner, Revenue Regional Director, Revenue District Officer, Collection Agent in the city or municipality
where the payor has his legal residence or principal place of business, where the government office is located
in the case of a government agency, on or before January 31 of the following year in which payments were
made, an Annual Information Return of Income Tax Withheld at Source (Form No. 1604), showing among
others the following information:

(1) Name, address and taxpayer's identification number (TIN); and

(2) Nature of income payments, gross amount and amount of tax withheld from each payee and such other
information as may be required by the Commissioner. 132 (Emphasis supplied)

These provisions state that the withholding agent must file the annual information return and furnish the payee
written statements of the payments it made and of the amounts it deducted and withheld. They confirm that the
remittance of the tax is not the responsibility of the payee, but that of the payor, the withholding agent.

Moreover, in Commissioner of Internal Revenue v. Philippine National Bank:133

Petitioner's posture that respondent is required to establish actual remittance to the Bureau of Internal
Revenue deserves scant consideration. Proof of actual remittance is not a condition to claim for a refund of
unutilized tax credits. Under Sections 57 and 58 of the 1997 National Internal Revenue Code, as amended, it is
the payor-withholding agent, and not the payee-refund claimant such as respondent, who is vested with the
responsibility of withholding and remitting income taxes.

This court's ruling in Commissioner of Internal Revenue v. Asian Transmission Corporation, citing the Court of
Tax Appeals' explanation, is instructive:

. . . proof of actual remittance by the respondent is not needed in order to prove withholding and remittance of
taxes to petitioner. Section 2.58.3 (B) of Revenue Regulation No. 2-98 clearly provides that proof of remittance
is the responsibility of the withholding agent and not of the taxpayer-refund claimant. It should be borne in mind
by the petitioner that payors of withholding taxes are by themselves constituted as withholding agents of the
BIR. The taxes they withhold are held in trust for the government. In the event that the withholding agents
commit fraud against the government by not remitting the taxes so withheld, such act should not prejudice
herein respondent who has been duly withheld taxes by the withholding agents acting under government
authority. Moreover, pursuant to Sections 57 and 58 of the NIRC of 1997, as amended, the withholding of
income tax and the remittance thereof to the BIR is the responsibility of the payor and not the payee.
Therefore, respondent . . . has no control over the remittance of the taxes withheld from its income by the
withholding agent or payor who is the agent of the petitioner. The Certificates of Creditable Tax Withheld at
Source issued by the withholding agents of the government are prima facie proof of actual payment by herein
respondent-payee to the government itself through said agents. 134 (Emphasis supplied, citations omitted)

In the case at bar, PAL is the income earner and the payee of the final withholding tax, and the Agent Banks
are the withholding agents who are the payors responsible for the deduction and remittance of the tax.

Given the above provisions, the failure of the Agent Banks to remit the amounts does not affect and should not
prejudice PAL. In case of failure of remittance of taxes, the Bureau of Internal Revenue's cause of action is
against the Agent Banks.

Thus, PAL is not obliged to remit, let alone prove the remittance of, the taxes withheld.

III.C

To claim a refund, this Court rules that PAL needs only to prove that taxes were withheld.

Taxes withheld by the withholding agent are deemed to be the full and final payment of the income tax due
from the income earner or payee.135

Section 2.57. Withholding of Tax at Source

(A) Final Withholding Tax. — Under the final withholding tax system the amount of income tax withheld by the
withholding agent is constituted as a full and final payment of the income tax due from the payee on the
said income. The liability for payment of the tax rests primarily on the payor as a withholding agent.
Thus, in case of his failure to withhold the tax or in case of under withholding, the deficiency tax shall be
collected from the payor/withholding agent. The payee is not required to file an income tax return for the
particular income.

The finality of the withholding tax is limited only to the payee's income tax liability on the particular income. It
does not extend to the payee's other tax liability on said income, such as when the said income is further
subject to a percentage tax. For example, if a bank receives income subject to final withholding tax, the same
shall be subject to a percentage tax.136 (Emphasis supplied)

Certificates of Final Taxes Withheld issued by the Agent Banks are sufficient evidence to establish the
withholding of the taxes.137

In Commissioner of internal Revenue v. Philippine National Bank: 138

The certificate of creditable tax withheld at source is the competent proof to establish the fact that taxes are
withheld. It is not necessary for the person who executed and prepared the certificate of creditable tax withheld
at source to be presented and to testify personally to prove the authenticity of the certificates.

In Banco Filipino Savings and Mortgage Bank v. Court of Appeals, this court declared that a certificate is
complete in the relevant details that would aid the courts in the evaluation of any claim for refund of excess
creditable withholding taxes:
In fine, the document which may be accepted as evidence of the third condition, that is, the fact of withholding,
must emanate from the payor itself, and not merely from the payee, and must indicate the name of the payor,
the income payment basis of the tax withheld, the amount of the tax withheld and the nature of the tax paid.

At the time material to this case, the requisite information regarding withholding taxes from the sale of acquired
assets can be found in BIR Form No. 1743.1. As described in Section 6 of Revenue Regulations No. 6-85, BIR
Form No. 1743.1 is a written statement issued by the payor as withholding agent showing the income or other
payments made by the said withholding agent during a quarter or year and the amount of the tax deducted and
withheld therefrom. It readily identifies the payor, the income payment and the tax withheld. It is complete in
the relevant details which would aid the courts in the evaluation of any claim for refund of creditable
withholding taxes.139 (Emphasis supplied, citations omitted)

In the case at bar, the Court of Tax Appeals Special First Division noted that PAL offered in evidence the
following Certificates of Final Tax Withheld at Source from the Agent Banks to prove the earned interest
income on its bank deposits and the taxes withheld:140

AMOUNT OF TAX WITHHELD

BANK PERIOD COVERED
PESO US DOLLAR

China Banking Corp. (Exhibit January 2002 -

38,974.75
"C") December 2002

JP Morgan Chase Bank September 2002 -

1,237,646.43
(Exhibit "D") December 2002

Phil. Bank of
January 2002 - March
Communication[s] (Exhibit 7,698.63
2002
"E")

Phil. Bank of
Communication[s] (Exhibit April 2002 - June 2002 108,351.68 1,698.99
"F")

Phil. Bank of
July 2002 - September
Communication[s] (Exhibit 401,871.48 3,009.28
2002
"G")

Phil. Bank of
October 2002 -
Communication[s] (Exhibit[s] 8,037.28
December 2002
"H" and "I")

Standard Chartered [Bank] May 2002 - December

6,458.14
(Exhibit "J") 2002

TOTAL P1,747,869.59 $65,877.07

PAL also presented bank-issued Certificates of Final Tax Withheld at Source showing that the amounts it is
seeking to refund were withheld.
For JPMorgan, PAL presented a Certificate of Income Tax Withheld for the Year 2002, which stated that its
interest earned was P6,188,232.17 and that JPMorgan's withheld taxes were P1,237,646.43. This Certificate
was signed by JPMorgan's Vice President and Operations Manager, Mamerto R. Natividad. 141

For Chinabank, PAL presented a Bank Certification dated October 24, 2003, signed by Wilfredo A. Quijencio,
Chinabank's International Banking Group Senior Manager.142 It showed that Chinabank withheld final taxes
amounting to US$38,974.75 from PAL's interest income from its dollar time deposit with Chinabank for the year
2002:

This is to certify the amount[s] of tax withheld from US DOLLAR Time Deposit account of PHILIPPINE
AIRLINES the year 2002 are as follows:

DATE
PERIOD WITHHOLDIN
PRINCIPAL MATURITY INTEREST REMITTE
COVERE G TAX
AMOUNT VALUE INCOME (NET) D
D DEDUCTED
TO BIR

USD17,098,253.1 01/01/02 USD17,315,721.5 USD111,150.5 USD9,012.20 02/11/02,

4 to 5 2 03/11/02,
04/02/02 04/10/02,
05/10/02

USD17,315,721.5 04/02/02 USD17,617,709.5 USD301,987.9 USD24,485.51 05/10/02,

5 to 4 9 06/10/02,
09/30/02 07/10/02,
08/10/02,
09/10/02,
10/10/02

USD17,617,709.5 9/30/02 to USD17,669,993.7 USD52,284.22 USD4,239.26 10/10/02,

4 12/16/02 6 11/11/02,
12/10/02,
01/10/03

USD10,669,993.7 12/16/02 USD10,807,210.6 USD11,309.08 USD916.95 01/10/03

6 to 2
12/31/02

USD7,000,000.00 12/23/02 USD7,086,558.17 USD3,956.95 USD320.83 01/10/03

to
12/31/02

This is to certify further that the said withholding tax deducted was duly remitted in accordance with existing
rules and regulations of the Bureau of Internal Revenue.

This certification is being issued upon the request of the above client for whatever purpose/s it may serve. 143

For PBCom, PAL presented Certificates of Income Tax Withheld for the four (4) quarters of Year 2002, all of
which were signed by PBCom's Assistant Vice President, Carmencita L. Tan. 144

These Certificates stated the amounts of interest income PAL earned and the taxes withheld from its US dollar
time deposits:145
 CERTIFICATE FOR
INTEREST INCOME TAX WITHHELD
THE PERIOD

1st Quarter146 US$102,648.40 US$7,698.63

2nd Quarter147 US$22,653.20 US$1,698.00

3rd Quarter148 US$40,123.73 US$3,009.28

4th Quarter149 US$107,163.73 US$8,037.28

TOTAL150 US$ 272,589.06 US$ 20,443.19

These Certificates also showed the amounts of interest income PAL earned and the taxes withheld from its
peso deposit accounts:151

CERTIFICATE FOR
INTEREST INCOME TAX WITHHELD
THE PERIOD

2nd Quarter152 P 541,758.42 P 108,351.67

3rd Quarter153 P 2,009,357.41 P 401,871.46

TOTAL P 2,551,115.83 P 510,223.13

Moreover, PBCom's letter154 dated April 10, 2003 stated:

Dear Sir,

This is to certify that Philippine Airlines had various dollar & [peso savings accounts] placement[s] with our
branch for the year 2002. The taxes withheld of which had been remitted to the BIR [are] as follows:

MAY JUNE JULY AUGUST SEPTEMBER

PSA

Principal
186,000,000.03 192,490,557.00 244,661,600.04 104,420,160.01 104,842,017.46
Amount

Interest Paid 325,500.00 216,258.42 1,259,246.32 527,321.80 222,789.29

Withholding
65,100.00 43,251.67 251,849.25 105,464.35 44,557.86
Tax

1ST QRTR. 2ND QRTR. 3RD QRTR. 4TH QRTR.

Dollar Time
Deposit
 Interest Paid 102,648.40 22,653.20 40,123.73 107,163.73

Withholding
7,698.63 1,698.99 3,009.28 8,037.28
Tax

This certification is hereby issued for whatever legal purpose it may serve.

Very truly yours,

(SGD) Ms. Carmencita L. Tan, AVP
Branch Manager155

For Standard Chartered, PAL presented a letter dated September 19, 2003, signed by Standard Chartered's
Treasury Operations Officer, Bienvenido Nieto, listing PAL's interest income and withholding tax for its US
dollar time deposit account from May 2002 to December 2002. 156

This letter stated:

We confirm the above interest income and the 7.5% withholding tax for your Time Deposit Account and
remitted to the Bureau of Internal Revenue.157

These bank-issued Certificates of Income Tax Withheld and BIR Forms were neither disputed nor alleged to be
false or fraudulent. There was not even any denial from the Commissioner or the Agent Banks that the
amounts were not withheld as final taxes from PAL's interest income from its money deposits.

Moreover, these Certificates of Final Tax Withheld, complete in relevant details, were declared under the
penalty of perjury. As such, they may be taken at face value. 158

Section 267 of the National Internal Revenue Code, as amended, provides:

Section 267. Declaration under Penalties of Perjury. — Any declaration, return and other statements required
under this Code, shall, in lieu of an oath, contain a written statement that they are made under the penalties of
perjury. Any person who willfully files a declaration, return or statement containing information which is not true
and correct as to every material matter shall, upon conviction, be subject to the penalties prescribed for perjury
under the Revised Penal Code.159

Considering that these Certificates were presented, the burden of proof shifts to the Commissioner, who needs
to establish that they were incomplete, false, or issued irregularly. 160

However, the Commissioner did no such thing.

Thus, these Certificates are sufficient evidence to establish the withholding of the taxes.

The taxes withheld from PAL are considered its full and final payment of taxes. Necessarily, when taxes were
withheld and deducted from its income, PAL is deemed to have paid them.

Considering that PAL is exempted from paying the withholding tax, it is rightfully entitled to a refund.

III.D

This Court notes that the case of Commissioner of Internal Revenue v. Philippine National Bank161 involves a
refund of creditable withholding tax and not of final withholding tax. However, its ruling that proof of remittance
is not necessary to claim a tax refund applies to final withholding taxes. The same principles used to rationalize
the ruling apply to final withholding taxes: (i) the payor-withholding agent is responsible for the withholding and
remitting of the income taxes; (ii) the payee-refund claimant has no control over the remittance of the taxes
withheld from its income; (iii) the Certificates of Final Tax Withheld at Source issued by the withholding agents
of the government are prima facie proof of actual payment by payee-refund claimant to the government itself
and are declared under perjury.162

Thus, this Court sees no reason why it should not rule the same way.

III.E

Lastly, while tax exemptions are strictly construed against the taxpayer, the government should not misuse
technicalities to keep money it is not entitled to.

Substantial justice, equity and fair play are on the side of petitioner. Technicalities and legalisms, however
exalted, should not be misused by the government to keep money not belonging to it, thereby enriching itself at
the expense of its law-abiding citizens. Under the principle of solutio indebiti provided in Art. 2154, Civil Code,
the BIR received something "when there [was] no right to demand it," and thus, it has the obligation to return it.
Heavily militating against respondent Commissioner is the ancient principle that no one, not even the state,
shall enrich oneself at the expense of another. Indeed, simple justice requires the speedy refund of the wrongly
held taxes.163 (Citations omitted)

Considering that PAL presented sufficient proof that: (i) it is exempted from paying withholding taxes; (ii)
amounts were withheld and deducted from its accounts; (iii) and the Commissioner did not contest the
withholding of these amounts and only raises that they were not proven to be remitted, this Court finds that
PAL sufficiently proved that it is entitled to its claim for refund.

Finally, both the Commissioner and the Court of Tax Appeals should have appreciated the unreasonable
difficulty that it would have put the taxpayer—in this case PAL—to claim a statutory exemption granted to it. In
requiring that it prove actual remittance, the court a quo and the Commissioner effectively put the burden on
the payee to prove that both government and the banks complied with their legal obligation. It would have been
near impossible for the taxpayer to demand to see the records of the payor bank or the ledgers of the
government. The legislative policy was to provide incentives to the taxpayer by unburdening it of taxes. By
administrative and judicial interpretation, such policy would have been unreasonably reversed. This is not this
Court's view of equity. Clearly, the taxpayer in this case is entitled to relief.

WHEREFORE, premises considered, the Petition of Philippine Airlines, Inc. in G.R. Nos. 206079-
80 is GRANTED. The Petition of the Commissioner of Internal Revenue in G.R. No. 206309 is DENIED. The
August 14, 2012 Decision and February 25, 2013 Resolution of the Court of Tax Appeals En Banc in CTA
CASE No. 6877 are PARTIALLY REVERSED. Philippine Airlines, Inc. is entitled to its claim for refund of
P510,223.16 and US$65,877.07, representing the final income taxes withheld by China Banking Corporation,
Philippine Bank of Communications, and Standard Chartered Bank.

SO ORDERED.
 SECOND DIVISION

G.R. No. 203160, January 24, 2018

COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. COVANTA ENERGY PHILIPPINE HOLDINGS,

INC., Respondent.

DECISION

REYES, JR., J.:

This is a petition for review on certiorari1 under Rule 45 of the Rules of Court, seeking to reverse and set aside
the Decision2 dated March 30, 2012 and Resolution3 dated August 16, 2012 of the Court of Tax
Appeals (CTA) en banc in CTA EB Case No. 713.

The CTA en banc denied the appeal of the Commissioner of Internal Revenue (CIR) and affirmed the
cancellation and withdrawal of the deficiency tax assessments on respondent Covanta Energy Philippine
Holdings, Inc. (CEPHI). The CIR avers, however, that CEPHI failed to comply with the requirements of the tax
amnesty law, or Republic Act (R.A.) No. 9480.4

Factual Antecedents

On December 6, 2004, the CIR issued Formal Letters of Demand and Assessment Notices against CEPHI for
deficiency value-added tax (VAT) and expanded withholding tax (EWT). The deficiency assessments were
respectively in the amounts of P465,593.21 and P288,903.78, or an aggregate amount of P754,496.99,
representing CEPHI's VAT and EWT liabilities for the taxable year 2001.5

CEPHI protested the assessments by filing two (2) separate Letters of Protest on January 19, 2005. However,
the CIR issued another Formal Letter of Demand and Assessment Notice dated January 11, 2005, assessing
CEPHI for deficiency minimum corporate income tax (MCIT) in the amount of P467,801.99, likewise for the
taxable year 2001. This assessment lead to CEPHI filing a Letter of Protest on the MCIT assessment on
February 16, 2015.6

The protests remained unacted upon. Thus, CEPHI filed separate petitions before the CTA, seeking the
cancellation and withdrawal of the deficiency assessments. The petitions were filed on October 10, 2005, for
the deficiency VAT and EWT, which was docketed as CTA Case No. 7338; and on November 9, 2005, for the
deficiency MCIT, which was docketed as CTA Case No. 7365.7

On December 6, 2005, the CIR filed an Answer for CTA Case No. 7338, while the Answer for CTA Case No.
7365 was filed on January 10, 2006. The cases were eventually consolidated upon the CIR's motion. 8

After the parties' respective submission of their fonnal offer of evidence, CEPHI filed a Supplemental Petition
on October 7, 2008, informing the CTA that it availed of the tax amnesty under R.A. No. 9480. CEPHI
afterwards submitted a Supplemental Formal Offer of Evidence, together with the documents relevant to its tax
amnesty.9

The CTA then required the parties to submit their respective memoranda within 30 days. The case was
submitted for decision upon the parties' compliance.10

Ruling of the CTA Second Division

In a Decision dated July 27, 2010, the CTA Second Division partially granted the petitions of CEPHI with
respect to the deficiency VAT and MCIT assessments for 2001. Since tax amnesty does not extend to
withholding agents with respect to their withholding tax liabilities, 11 the CTA Second Division ruled, after
computation, that CEPHI is liable to pay the amount of P131,791.02 for the deficiency EWT assessment, plus
additional deficiency and delinquency interest. The dispositive portion of this decision states: 12

WHEREFORE, the instant Petitions for Review are hereby PARTIALLY GRANTED. Accordingly, the deficiency
[VAT] and deficiency [MCIT] assessments for taxable year 2001 issued against petitioner are CANCELLED
and WITHDRAWN.

However, petitioner is ORDERED TO PAY respondent the amount of ONE HUNDRED THIRTY-ONE
THOUSAND SEVEN HUNDRED NINETY-ONE PESOS AND 02/100 (P131,791.02), representing deficiency
[EWT], including the twenty-five percent (25%) surcharge imposed thereon.

Likewise, petitioner is ORDERED TO PAY:

(a) deficiency interest at the rate of twenty percent (20%) per annum on the basic deficiency EWT of
P29,415.00 computed from November 16, 2005 until full payment thereof pursuant to Section 249(B) of the
NIRC of 1997; and

(b) delinquency interest at the rate of 20% per annum of P131,791.02 which is the total amount still due and on
the 20% deficiency interest which have accrued as afore-stated in paragraph (a) computed from January 10,
2005 until full payment thereof, pursuant to Section 249(C) of the NIRC of 1997.

SO ORDERED.13

The CIR moved for the reconsideration of this decision, which the CTA Second Division denied in its
Resolution14 dated December 13, 2010:

WHEREFORE, premises considered, respondent's "Motion for Reconsideration" is hereby DENIED for lack of
merit.

SO ORDERED.15

Unsatisfied with the ruling of the CTA Second Division, the CIR elevated the matter to the CTA en
banc through a Petition for Review dated January 4, 2011, pursuant to R.A. No. 1125, 16 as amended by R.A.
No. 928217 and R.A. No. 9503.18 The sole issue raised in the CIR's appeal was whether the CTA Second
Division erred in upholding the validity of the tax amnesty availed by CEPHI. The CIR was of the position that
CEPHI is not entitled to the immunities and privileges under R.A. No. 9480 because its documentary
submissions failed to comply with the requirements under the tax amnesty law.19

Ruling of the CTA En Banc

Finding the CIR's petition for review unmeritorious, the CTA en banc denied the appeal in the assailed
Decision20 dated March 30, 2012:

WHEREFORE, the Petition for Review filed by [CIR] is hereby DENIED for lack of merit. The Decision dated
July 27, 2010 and Resolution dated December 13, 2010 are hereby AFFIRMED. Deficiency [VAT] and
Deficiency [MCIT] in taxable year 2001 remain CANCELLED and WITHDRAWN. Respondent, however, is
ORDERED TO PAY the amount of ONE HUNDRED THIRTY-ONE THOUSAND SEVEN HUNDRED NINETY-
ONE PESOS AND 02/100 (P131,791.02), representing deficiency [EWT], including the twenty-five (25%)
surcharge imposed thereon. Likewise, respondent is ORDERED TO PAY:

(a) deficiency interest at the rate of twenty percent (20%) per annum on the basic deficiency EWT of
P29,415.00 computed from November 16, 2005 until full payment thereof pursuant to Section 249(B)
of the NIRC of 1997; and
 (b) delinquency interest at the rate of 20% per annum of P131,791.02 which is the total amount still due
and on the 20% deficiency interest which have accrued as afore-stated in paragraph (a) computed
from January 10, 2005 until full payment thereof, pursuant to Section 249(c) of the NIRC of 1997.

SO ORDERED.21

The CTA en banc upheld the ruling that, without any evidence that CEPHI's net worth was underdeclared by at
least 30%, there is a presumption of compliance with the requirements of the tax amnesty law. For this reason,
CEPHI may immediately enjoy the privileges of the tax amnesty program. 22 The CIR disagreed with this
decision, and on April 23, 2012, it moved for the reconsideration of the CTA en banc's decision.

The CIR's motion for reconsideration was denied in the assailed CTA en banc Resolution23 dated August 16,
2012:

WHEREFORE, premises considered, the Motion for Reconsideration is hereby DENIED for lack of merit.

SO ORDERED.24

Prompted by the denial of their petition for review and motion for reconsideration, the CIR elevated the matter
to this Court, by again assailing the validity of CEPHI's tax amnesty. The CIR reiterated its argument that
CEPHI's failure to provide complete information in its Statement of Assets, Liabilities and Net worth (SALN),
particularly the columns requiring the Reference and Basis of Valuation, is sufficient basis to disqualify CEPHI
from the tax amnesty program.25 The CIR also alleged that there is no period of limitation in challenging
CEPHI's compliance with the requirements of the tax amnesty program.26

Ruling of this Court

The Court dismisses the petition.

CEPHI is entitled to the immunities

and privileges of the tax amnesty
program upon full compliance with
the requirements of R.A. No. 9480.

R.A. No. 9480 governs the tax amnesty program for national internal revenue taxes for the taxable year 2005
and prior years.27 Subject to certain exceptions,28 a taxpayer may avail of this program by complying with the
documentary submissions to the Bureau of Internal Revenue (BIR) and thereafter, paying the applicable
amnesty tax.29

The implementing rules and regulations of R.A. No. 9480, as embodied in Department of Finance (DOF)
Department Order No. 29-07,30 laid down the procedure for availing of the tax amnesty:

SEC. 6. Method of Availment of Tax Amnesty. –

1. Forms/Documents to be filed. – To avail of the general tax amnesty, concerned taxpayers

shall file the following documents/requirements:

a. Notice of Availment in such forms as may be prescribed by the BIR.

b. [SALN] as of December 31, 2005 in such forms, as may be prescribed by the BIR.
c. Tax Amnesty Return in such form as may be prescribed by the BIR.
 2. Place of Filing of Amnesty Tax Return. – The Tax Amnesty Return, together with the other
documents stated in Sec. 6 (1) hereof, shall be filed as follows:

a. Residents shall file with the Revenue District Officer (RDO)/Large Taxpayer District
Office of the BIR which has jurisdiction over the legal residence or principal place of
business of the taxpayer, as the case may be.
b. Non-residents shall file with the office of the Commissioner of the BIR, or with the RDO.
c. At the option of the taxpayer, the RDO may assist the taxpayer in accomplishing the
forms and computing the taxable base and the amnesty tax payable, but may not look
into, question or examine the veracity of the entries contained in the Tax Amnesty
Return, [SALN], or such other documents submitted by the taxpayer.

3. Payment of Amnesty Tax and Full Compliance. – Upon filing of the Tax Amnesty Return in
accordance with Sec. 6 (2) hereof, the taxpayer shall pay the amnesty tax to the authorized
agent bank or in the absence thereof, the Collection Agents or duly authorized Treasurer of the
city or municipality in which such person has his legal residence or principal place of business.

The RDO shall issue sufficient Acceptance of Payment Forms, as may be prescribed by the BIR
for the use of-or to be accomplished by – the bank, the collection agent or the Treasurer,
showing the acceptance by the amnesty tax payment. In case of the authorized agent bank, the
branch manager or the assistant branch manager shall sign the acceptance of payment form.

The Acceptance of Payment Form, the Notice of Availment, the SALN, and the Tax Amnesty
Return shall be submitted to the RDO, which shall be received only after complete
payment. The completion of these requirements shall be deemed full compliance with the
provisions of RA 9480.

4. Time for Filing and Payment of Amnesty Tax. – The filing of the Tax Amnesty Return,
together with the SALN, and the payment of the amnesty tax shall be made within six (6)
months from the effectivity of these Rules.31 (Emphasis and underscoring Ours)

Upon the taxpayer's full compliance with these requirements, the taxpayer is immediately entitled to the
enjoyment of the immunities and privileges of the tax amnesty program.32 But when: (a) the taxpayer fails to file
a SALN and the Tax Amnesty Return; or (b) the net worth of the taxpayer in the SALN as of December 31,
2005 is proven to be understated to the extent of 30% or more, the taxpayer shall cease to enjoy these
immunities and privileges.33

The underdeclaration of a taxpayer's net worth, as referred in the second instance above, is proven through:
(a) proceedings initiated by parties other than the BIR or its agents, within one (1) year from the filing of the
SALN and the Tax Amnesty Return; or (b) findings or admissions in congressional hearings or proceedings in
administrative agencies, and in courts. Otherwise, the taxpayer's SALN is presumed true and correct. 34 The tax
amnesty law thus places the burden of overturning this presumption to the parties who claim that there was an
underdeclaration of the taxpayer's net worth.

In this case, it is undisputed that CEPHI submitted all the documentary requirements for the tax amnesty
program.35 The CIR argued, however, that CEPHI cannot enjoy the privileges attendant to the tax amnesty
program because its SALN failed to comply with the requirements of R.A. No. 9480. The CIR specifically points
to CEPHI's supposed omission of the information relating to the Reference and Basis for Valuation columns in
CEPHI's original and amended SALNs.36

The required information that should be reflected in the taxpayer's SALN is enumerated in Section 3 of R.A.
No. 9480.37 The essential contents of the SALN are also itemized under the implementing rules and
regulations as follows:

SEC. 8. Contents of the SALN. – The SALN shall contain a true and complete declaration of assets, liabilities
and networth of the taxpayer as of December 31, 2005, as follows:

1. Assets within or without the Philippines, whether real or personal, tangible or intangible, whether
or not used in trade or business:

a. Real properties shall be accompanied by a description of their classification, exact

location, and valued at acquisition cost, if acquired by purchase or the zonal valuation or
fair market value, whichever is higher, if acquired through inheritance or donation;
b. Personal properties other than money, shall be accompanied by a specific description of
the kind and number of assets (i.e. automobiles, shares of stock, etc.) or other
investments, indicating the acquisition cost less depreciation or amortization, in proper
cases, if acquired by purchase, or the fair market price or value at the time of receipt, if
acquired through inheritance or donations;
c. Assets denominated in foreign currency shall be converted into the corresponding
Philippine currency equivalent, at the rate of exchange prevailing as of December 31,
2005; and
d. Cash on hand and in bank in peso as of December 31, 2005, as well as Cash on Hand
and in Bank in foreign currency, converted to peso as of December 31, 2005.

2. All existing liabilities which are legitimate and enforceable, secured and unsecured, whether or
not incurred in trade or business, disclosing or indicating clearly the name and address of the
creditor and the amount of the corresponding liability.

3. The total networth of the taxpayer, which shall be difference between the total assets and total
liabilities.

It is evident from CEPHI's original and amended SALN that the information statutorily mandated in R.A. No.
9480 were all reflected in its submission to the BIR. While the columns for Reference and Basis for
Valuation were indeed left blank, CEPHI attached schedules to its SALN (Schedules 1 to 7), both original
and amended, which provide the required information under R.A. No. 9480 and its implementing rules
and regulations.38 A review of the SALN form likewise reveals that the information required in
the Reference and Basis for Valuation columns are actually the specific description of the taxpayer's declared
assets. As such, these were deemed filled when CEPHI referred to the attached schedules in its SALN. On this
basis, the CIR cannot disregard or simply set aside the SALN submitted by CEPHI.

More importantly, CEPHI's SALN is presumed true and correct, pursuant to Section 4 of R.A. No. 9480.39 This
presumption may be overturned if the CIR is able to establish that CEPHI understated its net worth by the
required threshold of at least 30%.

However, aside from the bare allegations of the CIR, there is no evidence on record to prove that the amount
of CEPHI's net worth was understated. Parties other than the BIR or its agents did not initiate proceedings
within one year from the filing of the SALN or Tax Amnesty Return, in order to challenge the net worth of
CEPHI. Neither was the CIR able to establish that there were findings or admissions in a congressional,
administrative, or court proceeding that CEPHI indeed understated its net worth by 30%.

As the Court previously held in CS Garment, Inc. v. CIR,40 taxpayers are eligible to the immunities of the tax
amnesty program as soon as they fulfill the suspensive conditions imposed under R.A. No. 9480:
A careful scrutiny of the 2007 Tax Amnesty Law would tell us that the law contains two types of conditions one
suspensive, the other resolutory. Borrowing from the concepts under our Civil Code, a condition may be
classified as suspensive when the fulfillment of the condition results in the acquisition of rights. On the other
hand, a condition may be considered resolutory when the fulfillment of the condition results in the
extinguishment of rights. In the context of tax amnesty, the rights referred to are those arising out of the
privileges and immunities granted under the applicable tax amnesty law.

xxxx

This clarification, however, does not mean that the amnesty taxpayers would go scot-free in case they
substantially understate the amounts of their net worth in their SALN. The 2007 Tax Amnesty Law
imposes a resolutory condition insofar as the enjoyment of immunities and privileges under the law is
concerned. Pursuant to Section 4 of the law, third parties may initiate proceedings contesting the declared
amount of net worth of the amnesty taxpayer within one year following the date of the filing of the tax amnesty
return and the SALN. Section 6 then states that "All these immunities and privileges shall not apply x x x where
the amount of networth as of December 31, 2005 is proven to be understated to the extent of thirty percent
(30%) or more, in accordance with the provisions of Section 3 hereof." Accordingly, Section 10 provides that
amnesty taxpayers who willfully understate their net worth shall be (a) liable for perjury under the Revised
Penal Code; and (b) subject to immediate tax fraud investigation in order to collect all taxes due and to
criminally prosecute those found to have willfully evaded lawful taxes due. 41 (Emphasis Ours)

Considering that CEPHI completed the requirements and paid the corresponding amnesty tax, it is considered
to have totally complied with the tax amnesty program. As a matter of course, CEPHI is entitled to the
immediate enjoyment of the immunities and privileges of the tax amnesty program. 42 Nonetheless, the Court
emphasizes that the immunities and privileges granted to taxpayers under R.A. No. 9480 is not absolute. It is
subject to a resolutory condition insofar as the taxpayers' enjoyment of the immunities and privileges
of the law is concerned. These immunities cease upon proof that they underdeclared their net worth by 30%.

Unfortunately for the CIR, however, there is no such proof in CEPHI's case. The Court, thus, finds it necessary
to deny the present petition. While tax amnesty is in the nature of a tax exemption, which is strictly construed
against the taxpayer,43 the Court cannot disregard the plain text of R.A. No. 9480.

WHEREFORE, premises considered, the petition is DENIED for lack of merit. The Decision dated March 30,
2012 and Resolution dated August 16, 2012 of the CTA en banc in CTA EB Case No. 713 are AFFIRMED.

SO ORDERED.
 THIRD DIVISION

March 7, 2018

G.R. No. 205955

UNIVERSITY PHYSICIANS SERVICES INC. - MANAGEMENT, INC., Petitioner

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent

DECISION

MARTIRES, J.:

When a corporation overpays its income tax liability as adjusted at the close of the taxable year, it has two
options: (1) to be refunded or issued a tax credit certificate, or (2) to carry over such overpayment to the
succeeding taxable quarters to be applied as tax credit against income tax due.1 Once the carry-over option is
taken, it becomes irrevocable such that the taxpayer cannot later on change its mind in order to claim a cash
refund or the issuance of a tax credit certificate of the very same amount of overpayment or excess m. come
tax credit.2

Does the irrevocability rule apply exclusively to the carry-over option? Such is the novel issue presented in this
case.

THE FACTS

Before the Court is a petition for review under Rule 45 of the Rules of Court filed by petitioner University
Physicians Services Inc.-Management, Inc. (UPSI-MI) which seeks the reversal and setting aside of the 8
February 2013 Decision 3 of the Court of Tax Appeals (CTA) En Banc in CTA-EB Case No. 828. ·Said decision
of the CTA En Banc affirmed the 5 July 2011 Decision and 8 September 2011 Resolution of the CTA Second
Division (CTA Division) in CTA Case No. 7908. The CTA Division denied the application of UPSI-MI for tax
refund or issuance of Tax Credit Certificate (TCC) of its excess unutilized creditable income tax for the taxable
year 2006.

The Antecedents

As narrated by the CTA, the facts are uncomplicated, viz:

UPSI-MI is a corporation incorporated and existing under and by virtue of laws of the Republic of the
Philippines, with business address at 1122 General Luna Street, Paco. Manila. Respondent on the other hand,
is the duly appointed Commissioner of Internal Revenue, with power, among others, 10 act upon claims for
refund or tax credit of overpaid internal revenue taxes, with office address at the Fifth Floor, BIR National
Office Building, BIR Road, Diliman , Quezon City.

On April 16, 2007. petitioner filed its Annual Income Tax Return (ITR) for the year ended December 31, 2006
with the Revenue District No. 34 of the Revenue Region No. 6 of the Bureau of Internal Revenue (BIR),
reflecting an income tax overpayment of 5,159,341.00. computed as follows: 4

Sales/Revenues/Receipts/Fees ₱ 28,808,960.00

Less: Cost of Sales/Services 23,834,605.00

Gross Income from Operation ₱ 4,974,355.00

 Add: Non-Operating & Other Income 5,375.00

Total Gross Income ₱ 4,979,730.00

Less: Deductions ₱ 4,979,730.00

Taxable Income -

Tax Rate (except MCIT Rate) 35%

Income Tax -

Minimum Corporate Income Tax (MCIT) ₱ 99,595.00

Aggregate Income Tax Due ₱ 99,595.00

Less: Tax Credits/Payments

Prior Year's Excess Credits ₱ 2,331,102.00

Creditable Tax Withheld for the First

Three Quarters

Creditable Tax Withheld for the Fourth

Three Quarters 2,972,834.00

Total Tax Credits/Payments ₱ 5,258,936.00)

Tax Payable/(Overpayment) ₱ (5,159,341.00)

Subsequently, on November 14, 2007, petitioner filed an Annual ITR for the short period fiscal year ended
March 31, '.W07, reflecting the income tax overpayment of 5. 159.341 from the previous period as "Prior Year’s
Excess Credit", as follows:5

Sales/Revenues/Receipts/Fees 7,489,259

Less: Cost of Sales/Services 6,461,650

Gross Income from Operation 1,027,609

Add: Non-Operating & Other Income 479

Total Gross Income 1,028,088

Less: Deductions 1,206,543

Taxable Income (178,455)

 Tax Rate (except MCIT Rate) 35%

Income Tax -

Minimum Corporate Income Tax (MCIT) 20,562

Aggregate Income Tax Due 20,562

Less: Tax Credits/Payments

Prior Year's Excess Credits 5,159,341

Creditable Tax Withheld for the First

1,107,228
Three Quarters

Creditable Tax Withheld for the Fourth

Quarter 6,266,569

Total Tax Credits/Payments 6,266,569

Tax Payable/(Overpayment) (6,246,007)

On the same date, petitioner filed an amended Annual ITR for the short period fiscal year ended March 31,
2007, reflecting the removal of the amount of the instant claim in the ''Prior Year's Excess Credit". Thus, the
amount thereof was changed from ₱5, 159,341 to ₱2,231,507.

On October 10, 2008, petitioner filed with the respondent's office, a claim for refund and/or issuance of a Tax
Credit Certificate (TCC) in the amount of ₱2,927.834.00, representing the alleged excess and unutilized
creditable withholding taxes for 2006.

In view of the fact that respondent has not acted upon the foregoing claim for refund/tax credit, petitioner filed
with a Petition for Review on April l4, 2009 before the Court in Division.

The Ruling of the CTA Division

After trial, the CT A Division denied the petition for review for lack of merit. It reasoned that UPSI-MI effectively
exercised the carry-over option under Section 76 of the National Internal Revenue Code (NIRC) of 1997. On
motion for reconsideration, UPSI-MI argued that the irrevocability rule under Section 76 of the NIRC is not
applicable for the reason that it did not carry over to the succeeding taxable period the 2006 excess income tax
credit. UPSI-MI added that the subject excess tax credits were inadvertently included in its original 2007 ITR,
and such mistake was rectified in the amended 2007 ITR. Thus, UPSI-MI insisted that what should control is its
election of the option "To be issued a Tax Credit Certificate" in its 2006 ITR.

The CTA Division ruled that UPSI-MI's alleged inadvertent inclusion of the 2006 excess tax credit in the 2007
original ITR belies its own allegation that it did not carry over the said amount to the succeeding taxable period.
The amendment of the 2007 ITR cannot undo UPSI-MI's actual exercise of the carry-over option in the original
2007 ITR, for to do so would be against the irrevocability rule. The dispositive portion of the CTA Division's
decision reads:
WHEREFORE, the instant Petition for Review is hereby DENIED for lack of merit.6

Aggrieved, UPSI-MI appealed before the CTA En Banc.

The Ruling of the CTA En Banc

The CTA En Banc ruled that UPSI-MI is barred by Section 76 of the NIRC from claiming a refund of its excess
tax credits for the taxable year 2006. The barring effect applies after UPSI-MI carried over its excess tax
credits to the succeeding quarters of 2007, even if such carry-over was allegedly done inadvertently. The court
emphasized that the prevailing law and jurisprudence admit of no exception or qualification to the irrevocability
rule. Thus, the CTA En Banc affirmed the assailed decision and resolution of the CTA Division, disposing as
follows:

WHEREFORE, all the foregoing considered, the instant Petition for Review is hereby DENIED. The assailed
Decision dated July 5. 2011and Resolution dated September 8, 2011 both rendered by the Court in Division in
CTA Case No. 7908 are hereby AFFIRMED.

SO ORDERED.7

Notably, the said decision was met by a dissent from Justice Esperanza R. Pabon-Victorino. Invoking Phi/am
Asset Management, Inc. v. Commissioner (Philam), 8 Justice Pabon-Victorino took the view that the
irrevocability rule applies as much to the option of refund or tax credit certificate. She wrote:

A contextual appreciation of the ruling [Philam] would tell us that any of the two alternatives once chosen is
irrevocable - be it for refund or carry over. The controlling factor for the operation of the irrevocability rule
is that the taxpayer chose an option; and once it had already done so, it could no longer make another
one.

Unsatisfied with the decision of the CTA En Banc, UPSI-MI appealed before this Court.

The Present Petition for Review

UPSI-MI interposed the following reasons for its petition:

THE HONORABLE COURT OF TAX APPEALS (En Banc) SERIOUSLY ERRED AND DECIDED IN A
MANNER NOT IN ACCORDANCE WITH THE LAW, PREVAILING JURISPRUDENCE, AND FACTUAL
MILIEU SURROUNDING THE CASE, WHEN IT ADOPTED THE DECISION OF THE COURT OF TAX
APPEALS IN DIVISION AND RULED THAT:

a. Petitioner is not entitled to the refund or issuance of a Tax Credit Certificate in the amount of ₱2,927,834.00
representing its 2006 excess tax credits because of the application of the "irrevocability rule" under Section 76
of the NIRC of 1997.

b. The amendment of the original ITR for fiscal year ended 31 March 2007 does not take back, cancel or
rescind the original option to refund through tax credit certificate based on the argument that the Petitioner
allegedly made an option to carry-over the excess credits.

THE HONORABLE COURT OF TAX APPEALS (En Banc) SERIOUSLY ERRED WHEN IT IGNORED THAT
ON JOINT STIPULATIONS, THE RESPONDENT ADMITTED THE FACT THAT PETITIONER INDICATED IN
THE CORRESPONDING BOX ITS

INTENTION TO BE ISSUED A TAX CREDIT CERTIFICATE REPRESENTING ITS UNUTILIZED

CREDITABLE WITHHOLDING TAX WITHHELD FOR THE TAXABLE YEAR 2006 BY MARKING THE
APPROPRIATE BOX.
THE HONORABLE COURT OF TAX APPEALS (En Banc) SERIOUSLY ERRED WHEN IT DECIDED ON
THE ISSUE OF WHETHER OR NOT PEITIONER CARRIED OVER ITS 2006 EXCESS TAX CREDITS TO
THE SUCCEEDING SHORT TAXABLE PERIOD OF 2007 WHEN THE SAME WAS NEVER RAISED IN THE
JOINT STIPULATION OF FACTS.

UPSI-MI faults the CTA En Banc for banking too much on the irrevocability of the option to carry over. It
contends that even the option to be refunded through the issuance of a TCC is likewise irrevocable. Taking cue
from the dissent of Justice Pabon-Victorino, UPSI-MI cites Philam in restating this Court's pronouncement that
"the options of a corporate taxpayer, whose total quarterly income tax payments exceed its tax liability, are
alternative in nature and the choice of one precludes the other." It also cites Commissioner v. PL Management
International Philippines, Inc. (PL Management) 9 that reiterated the rule that the choice of one precludes the
other. Thus, when it indicated in its 2006 Annual ITR the option "To be issued a Tax Credit Certificate," such
choice precluded the other option to carry over.10

In other words, UPSI-MI proposes that the options of refund on one hand and carry-over on the other hand are
both irrevocable by nature. Relying again on the dissent of Justice Pabon-Victorino, UPSI-MI also points to BIR
Form 1702 (Annual Income Tax Return) itself which expressly states under line 31 thereof:

"If overpayment, mark one box only:

(once the choice is made, the same is irrevocable)"

Resume of relevant facts

To recapitulate, UPSI-MI had, as of 31 December 2005, an outstanding amount of ₱2,331, 102.00 in excess
and unutilized creditable withholding taxes.

For the subsequent taxable year ending 31 December 2006, the total sum of creditable taxes withheld on the
management fees of UPSI-MI was ₱2,927,834.00. Per its 2006 Annual Income Tax Return (ITR), UPSI-MI's
income tax due amounted to ₱99,105.00. UPSI-MI applied its "Prior Year's Excess Credits" of ₱2,331, 102.00
as tax credit against such 2006 Income Tax due, leaving a balance of ₱2,231,507.00 of still unutilized excess
creditable tax. Meanwhile, the creditable taxes withheld for the year 2006 (₱2,927,834.00) remained intact and
unutilized. In said 2006 Annual ITR, UPSI-MI chose the option "To be issued a tax credit certificate" with
respect to the amount ₱2,927,834.00, representing unutilized excess creditable taxes for the taxable year
ending 31 December 2006. The figures are summarized in the table below:

Taxable Excess Income Tax Less Tax Balance of

Year Creditable Due Tax Credit Payable Excess CWT
Withholding Tax
(CWT)

2005 P 2,331, 102.00 --- --- --- P

2,231,507.00

2006 P 2,927,834.00 P 99, 105.00 P 99,105.00 (A P 0.00 P

(MCIT) portion of the 2,927,834.00
excess credit of
Php2,33l,102.00 in
2015)

In the following year, UPSI-MI changed its taxable period from calendar year to fiscal year ending on the last
day of March. Thus, it filed on 14 November 2007 an Annual ITR covering the short period from January 1 to
March 31 of 2007. In the original 2007 Annual ITR, UPSI-MI opted to carry over as "Prior Year's Excess
Credits" the total amount of ₱5,159,341.00 which included the 2006 unutilized creditable withholding tax of
₱2,927,834.00. UPSI-MI amended the return by excluding the sum of ₱2,927,834.00 under the line "Prior
Year's Excess Credits" which amount is the subject of the refund claim.

In sum, the question to be resolved is whether UPSI-MI may still be entitled to the refund of its 2006 excess tax
credits in the amount of ₱2,927,834.00 when it thereafter filed its income tax return (for the short period ending
31 March 2007) indicating the option of carry-over.

OUR RULING

We affirm the CTA.

We cannot subscribe to the suggestion that the irrevocability rule enshrined in Section 76 of the National
Internal Revenue Code (NIRC) applies to either of the options of refund or carry-over. Our reading of the law
assumes the interpretation that the irrevocability is limited only to the option of carry-over such that a taxpayer
is still free to change its choice after electing a refund of its excess tax credit. But once it opts to carry over
such excess creditable tax, after electing refund or issuance of tax credit certificate, the carry-over option
becomes irrevocable. Accordingly, the previous choice of a claim for refund, even if subsequently pursued,
may no longer be granted.

The aforementioned Section 76 of the NIRC provides:

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

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

(B) Carry over the excess credit; or

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

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

Under the cited law, there are two options available to the corporation whenever it overpays its income tax for
the taxable year: (1) to carry over and apply the overpayment as tax credit against the estimated quarterly
income tax liabilities of the succeeding taxable years (also known as automatic tax credit) until fully utilized
(meaning, there is no prescriptive period); and (2) to apply for a cash refund or issuance of a tax
credit certificate within the prescribed period.11 Such overpayment of income tax is usually occasioned by the
over-withholding of taxes on the income payments to the corporate taxpayer.

The irrevocability rule is provided in the last sentence of Section 76. A perfunctory reading of the law
unmistakably discloses that the irrevocable option referred to is the carry-over option only. There appears
nothing therein from which to infer that the other choice, i.e., cash refund or tax credit certificate, is also
irrevocable. If the intention of the lawmakers was to make such option of cash refund or tax credit certificate
also irrevocable, then they would have clearly provided so.

In other words, the law does not prevent a taxpayer who originally opted for a refund or tax credit certificate
from shifting to the carry-over of the excess creditable taxes to the taxable quarters of the succeeding taxable
years. However, in case the taxpayer decides to shift its option to carryover, it may no longer revert to its
original choice due to the irrevocability rule. As Section 76 unequivocally provides, once the option to carry
over has been made, it shall be irrevocable. Furthermore, the provision seems to suggest that there are no
qualifications or conditions attached to the rule on irrevocability.

Law and jurisprudence unequivocally support the view that only the option of carry-over is irrevocable.

Aside from the uncompromising last sentence of Section 76, Section 228 of the NIRC recognizes such
freedom of a taxpayer to change its option from refund to carry-over. This law affords the government a
remedy in case a taxpayer, who had previously claimed a refund or tax credit certificate (TCC) of excess
creditable withholding tax, subsequently applies such amount as automatic tax credit. The pertinent text of
Section 228 reads:

SEC. 228. Protesting of Assessment. - When the Commissioner or his duly authorized representative finds that
proper taxes should be assessed, he shall first notify the taxpayer of his findings: Provided, however, That a
pre-assessment notice shall not be required in the following cases:

(a) When the finding for any deficiency tax is the result of mathematical error in the computation
of the tax as appearing on the face of the return; or

(b) When a discrepancy has been determined between the tax withheld and the amount actually
remitted by the withholding agent; or

(c) When a taxpayer who opted to claim a refund or tax credit of excess creditable
withholding tax for a taxable period was determined to have carried over and automatically
applied the same amount claimed against the estimated tax liabilities for the taxable quarter
or quarters of the succeeding taxable year; or

(d) When the excise tax due on exciseable articles has not been paid; or

(e) When the article locally purchased or imported by an exempt person, such as, but not limited
to, vehicles, capital equipment, machineries and spare parts, has been sold, traded or
transferred to non-exempt persons.

The taxpayers shall be informed in writing of the law and the facts on which the assessment is made;
otherwise, the assessment shall be void. x x x (emphasis supplied)

The provision contemplates three scenarios:

(1) Deficiency in the payment or remittance of tax to the government (paragraphs [a], [b] and [d]);

(2) Overclaim of refund or tax credit (paragraph [ c ]); and

(3) Unwarranted claim of tax exemption (paragraph [e]).

In each case, the government is deprived of the rightful amount of tax due it. The law assures recovery of the
amount through the issuance of an assessment against the erring taxpayer. However, the usual two-stage
process in making an assessment is not strictly followed. Accordingly, the government may immediately
proceed to the issuance of a final assessment notice (FAN), thus dispensing with the preliminary assessment
(PAN), for the reason that the discrepancy or deficiency is so glaring or reasonably within the taxpayer's
knowledge such that a preliminary notice to the taxpayer, through the issuance of a PAN, would be a
superfluity.
Pertinently, paragraph (c) contemplates a double recovery by the taxpayer of an overpaid income tax that
arose from an over-withholding of creditable taxes. The refundable amount is the excess and unutilized
creditable withholding tax.

This paragraph envisages that the taxpayer had previously asked for and successfully recovered from the
BIR its excess creditable withholding tax through refund or tax credit certificate; it could not be viewed
any other way. If the government had already granted the refund, but the taxpayer is determined to have
automatically applied the excess creditable withholding tax against its estimated quarterly tax liabilities in the
succeeding taxable year(s), the taxpayer would undeservedly recover twice the same amount of excess
creditable withholding tax. There appears, therefore, no other viable remedial recourse on the part of the
government except to assess the taxpayer for the double recovery. In this instance, and in accordance with the
above rule, the government can right away issue a FAN.

If, on the other hand, an administrative claim for refund or issuance of TCC is still pending but the taxpayer
had in the meantime automatically carried over the excess creditable tax, it would appear not only wholly
unjustified but also tantamount to adopting an unsound policy if the government should resort to the remedy of
assessment.

First, on the premise that the carry-over is to be sustained, there should be no more reason for the government
to make an assessment for the sum (equivalent to the excess creditable withholding tax) that has been
justifiably returned already to the taxpayer (through automatic tax credit) and for which the government has no
right to retain in the first place. In this instance, all that the government needs to do is to deny the refund claim.

Second, on the premise that the carry-over is to be disallowed due to the pending application for refund, it
would be more complicated and circuitous if the government were to grant first the refund claim and then later
assess the taxpayer for the claim of automatic tax credit that was previously disallowed. Such procedure is
highly inefficient and expensive on the part of the government due to the costs entailed by an assessment. It
unduly hampers, instead of eases, tax administration and unnecessarily exhausts the government's time and
resources. It defeats, rather than promotes, administrative feasibility. 12 Such could not have been intended by
our lawmakers. Congress is deemed to have enacted a valid, sensible, and just law.13

Thus, in order to place a sensible meaning to paragraph (c) of Section 228, it should be interpreted as
contemplating only that situation when an application for refund or tax credit certificate had already been
previously granted. Issuing an assessment against the taxpayer who benefited twice because of the
application of automatic tax credit is a wholly acceptable remedy for the government.

Going back to the case wherein the application for refund or tax credit is still pending before the BIR, but the
taxpayer had in the meantime automatically carried over its excess creditable tax in the taxable quarters of the
succeeding taxable year(s), the only judicious course of action that the BIR may take is to deny the pending
claim for refund. To insist on giving due course to the refund claim only because it was the first option taken,
and consequently disallowing the automatic tax credit, is to encourage inefficiency or to suppress
administrative feasibility, as previously explained. Otherwise put, imbuing upon the choice of refund or tax
credit certificate the character of irrevocability would bring about an irrational situation that Congress did not
intend to remedy by means of an assessment through the issuance of a FAN without a prior PAN, as provided
in paragraph (c) of Section 228. It should be remembered that Congress' declared national policy in passing
the NIRC of 1997 is to rationalize the internal revenue tax system of the Philippines, including tax
administration.14

The foregoing simply shows that the lawmakers never intended to make the choice of refund or tax credit
certificate irrevocable. Sections 76 and 228, paragraph (c), unmistakably evince such intention.

Philam and PL Management cases

did not categorically declare the
option of refund or TCC irrevocable.
The petitioner hinges its claim of irrevocability of the option of refund on the statement of this Court
in Philam and PL Management that "the options xxx are alternative and the choice of one precludes the other."
This also appears as the basis of Justice Fabon-Victorino’s stance in her dissent to the majority opinion in the
assailed decision.

We do not agree.

The cases cited in the petition did not make an express declaration that the option of cash refund or TCC, once
made, is irrevocable. Neither should this be inferred from the statement of the Court that the options are
alternative and that the choice of one precludes the other. Such statement must be understood in the light of
the factual milieu obtaining in the cases.

Philam involved two cases wherein the taxpayer failed to signify its option in the Final Adjustment Return
(FAR).

In the first case (G.R. No. 156637), the Court ruled that such failure did not mean the outright barring of the
request for a refund should one still choose this option later on. Thy taxpayer did in fact file on 11 September
1998 an administrative claim for refund of its 1997 excess creditable taxes. We sustained the refund claim in1
this case.

It was different in the second case (G.R. No. 162004) because the taxpayer filled out the portion "Prior Year's
Excess Credits" in its subsequent FAR. The court considered the taxpayer to have constructively chosen the
carry-over option. It was in this context that the court determined the taxpayer to be bound by its initial choice
(of automatic tax credit), so that it is precluded from asking for a refund of the excess CWT. It must be so
because the carry-over option is irrevocable, and it cannot be allowed to recover twice for its overpayment of
tax.

Unlike the second case, there was no flip-flopping of choices in the first one. The taxpayer did not indicate in its
1997 FAR the choice of carryover. Neither did it apply automatic tax credit in subsequent income tax returns so
as to be considered as having constructively chosen the carry-over option. When it later on asked for a refund
of its 1997 excess CWT, the taxpayer was expressing its option for the first time. It must be emphasized that
the Court sustained the application for refund but without expressly declaring that such choice was irrevocable.

In either case, it is clear that the taxpayer cannot avail of both refund and automatic tax credit at the same
time. Thus, as Philam declared: "One cannot get a tax refund and a tax credit at the same time for the same
excess income taxes paid." This is the import of the Court's pronouncement that the options under Section 76
are alternative in nature.

In declaring that "the choice of one (option) precludes the other," the Court in Philam cited Philippine Bank of
Communications v. Commissioner of Internal Revenue (PBCom), 15 a case decided under the aegis of the old
NIRC of 1977 under which the irrevocability rule had not yet been established. It was in PBCom that the Court
stated for the first time that "the choice of one precludes the other."16 However, a closer perusal
of PBCom reveals that the taxpayer had opted for an automatic tax credit. Thus, it was precluded from availing
of the other remedy of refund; otherwise, it would recover twice the same excess creditable tax. Again,
nowhere is it even suggested that the choice of refund is irrevocable. For one thing, it was not the choice taken
by the taxpayer. For another, the irrevocability rule had not yet been provided.

As in PBCom, the Court also said in PL Management that the choice of one (option) precludes the
other.1âwphi1 Similarly, the taxpayer in PL Management initially signified in the FAR its choice of automatic tax
credit. But unlike in PBCom, PL Management was decided under the NIRC of 1997 when the irrevocability rule
was already applicable. Thus, although PL Management was unable to actually apply its excess creditable tax
in the next succeeding taxable quarters due to lack of income tax liability, its subsequent application for TCC
was rightfully denied by the Court. The reason is the irrevocability of its choice of carry-over.
In other words, previous incarnations of the words "the options are alternative... the choice of one precludes
the other" did not lay down a doctrinal rule that the option of refund or tax credit certificate is irrevocable.

Again, we need not belabor the point that insisting upon the irrevocability of the option for refund, even though
the taxpayer subsequently changed its mind by resorting to automatic tax credit, is not only contrary to the
apparent intention of the lawmakers but is also clearly violative of the principle of administrative feasibility.

Prior to the NIRC of 1997, the alternative options of refund and carryover of excess creditable tax had already
been firmly established. However, the irrevocability rule was not yet in place. 17 As we explained in PL
Management, Congress added the last sentence of Section 76 in order to lay down the irrevocability rule. More
recently, in Republic v. Team (Phils.) Energy Corp., 18 we said that the rationale of the rule is to avoid
confusion and complication that could be brought about by the flip-flopping on the options, viz:

The evident intent of the legislature, in adding the last sentence to Section 76 of the NIRC of 1997, is to keep
the taxpayer from flip-flopping on its options, and avoid confusion and complication as regards said taxpayer's
excess tax credit.19

The current rule specifically addresses the problematic situation when a taxpayer, after claiming cash refund or
applying for the issuance of tax credit, and during the pendency of such claim or application, automatically
carries over the same excess creditable tax and applies it against the estimated quarterly income tax liabilities
of the succeeding year. Thus, the rule not only eases tax administration but also obviates double recovery of
the excess creditable tax.

Further, nothing in the contents of BIR 1702 expressly declares that the option of refund or TCC is irrevocable.
Even on the assumption that the irrevocability also applies to the option of refund, such would be an
interpretation of the BIR that, as already demonstrated in the foregoing discussion, is contrary to the intent of
the law. It must be stressed that such erroneous interpretation is not binding on the court. Philippine Bank of
Communications v. CIR20 is apropos:

It is widely accepted that the interpretation placed upon a statute by the executive officers, whose duty is to
enforce it, is entitled to great respect by the courts. Nevertheless, such interpretation is not conclusive and will
be ignored if judicially found to be erroneous. Thus, courts will not countenance administrative issuances that
override, instead of remaining consistent and in harmony with, the law they seek to apply and implement. 21

Applying the foregoing precepts to the given case, UPSI-MI is barred from recovering its excess creditable tax
through refund or TCC. It is undisputed that despite its initial option to refund its 2006 excess creditable tax,
UPSI-MI subsequently indicated in its 2007 short-period FAR that it carried over the 2006 excess creditable tax
and applied the same against its 2007 income tax due. The CTA was correct in considering UPSI-MI to have
constructively chosen the option of carry-over, for which reason, the irrevocability rule forbade it to revert to its
initial choice. It does not matter that UPSI-Ml had not actually benefited from the carry-over on the ground that
it did not have a tax due in its 2007 short period. Neither may it insist that the insertion of the carry-over in the
2007 FAR was by mere mistake or inadvertence. As we previously laid down, the irrevocability rule admits of
no qualifications or conditions.

In sum, the petitioner is clearly mistaken in its view that the irrevocability rule also applies to the option of
refund or tax credit certificate. In view of the court's finding that it constructively chose the option of can-y-over,
it is already barred from recovering its 2006 excess creditable tax through refund or TCC even if it was its initial
choice.

However, the petitioner remains entitled to the benefit of carry-over and thus may apply the 2006 overpaid
income tax as tax credit in succeeding taxable years until fully exhausted. This is because, unlike the remedy
of refund or tax credit certificate, the option of carry-over under Section 76 is not subject to any prescriptive
period. WHEREFORE, the petition is DENIED for lack of merit. The 8 February 2013 Decision of the Court of
Tax Appeals in CTA-EB Case No. 828 is hereby AFFIRMED. SO ORDERED.
 THIRD DIVISION

G.R. No. 197663, March 14, 2018

TEAM ENERGY CORPORATION (FORMERLY: MIRANT PAGBILAO CORPORATION AND SOUTHERN

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

G.R. No. 197770, March 14, 2018

REPUBLIC OF THE PHILIPPINES REP. BY THE BUREAU OF INTERNAL REVENUE, Petitioner, v. TEAM
ENERGY CORPORATION, Respondent.

DECISION

LEONEN, J.:

For a judicial claim for Value Added Tax (VAT) refund to prosper, the claim must not only be filed within the
mandatory 120+30-day periods. The taxpayer must also prove the factual basis of its claim and comply with
the 1997 National Internal Revenue Code (NIRC) invoicing requirements and other appropriate revenue
regulations. Input VAT payments on local purchases of goods or services must be substantiated with VAT
invoices or official receipts, respectively.

The Petitions for Review in G.R. Nos. 197663 and 197770 seek to reverse and set aside the April 8, 2011
Decision1 and July 7, 2011 Resolution2 of the Court of Tax Appeals En Banc in CTA EB No. 603. The assailed
Decision affirmed with modification the October 5, 2009 Decision 3 and February 23, 2010 Resolution4 of the
Court of Tax Appeals in Division, granting Team Energy Corporation (Team Energy) a tax refund/credit in the
reduced amount of P11,161,392.67, representing unutilized input VAT attributable to zero-rated sales for the
taxable year 2003. The assailed Resolution denied the respective motions for reconsideration filed by Team
Energy and the Commissioner of Internal Revenue (Commissioner).

Team Energy is a VAT-registered entity with Certificate of Registration No. 96-600-002498. It is engaged in
power generation and electricity sale to National Power Corporation (NPC) under a Build, Operate, and
Transfer scheme.5

On November 13, 2002, Team Energy filed with the Bureau of Internal Revenue (BIR) "an Application for
Effective Zero-Rate of its supply of electricity to the NPC, which was subsequently approved."6

For the year 2003, Team Energy filed its Original and Amended Quarterly VAT Returns on the following dates
and with the following details:

Quarter Original Return Amended Return Zero-rated Sales Input VAT

1st April 25, 2003 July 25, 2003 P3,170,914,604.24 P15,085,320.31

2nd July 25, 2003 October 27, 2003 3,034,739,252.93 15,898,643.56

3rd October 27, 2003 - 2,983,478,607.66 21,151,308.57

4th January 24, 2004 July 26, 20047 3,019,672,908.84 31,330,081.06

Total P12,208,805,373.678 P83,465,353.509

On December 17, 2004, Team Energy filed with the Revenue District Office No. 60 in Lucena City a claim for
refund of unutilized input VAT in the amount of P83,465,353.50, for the first to fourth quarters of taxable year
2003.10

On April 22, 2005, Team Energy appealed before the Court of Tax Appeals its 2003 first quarter VAT claim of
PI 5,085,320.31. The appeal was docketed as CTA Case No. 7229.11

Opposing the appeal, the Commissioner averred that the amount claimed by Team Energy was not properly
documented and that NPC's exemption from taxes did not extend to its electricity supplier such as Team
Energy.12

On July 22, 2005, Team Energy appealed its VAT refund claims for the second to fourth quarters of 2003 in the
amount of P68,380,033.19, docketed as CTA Case No. 7298.13

As special and affirmative defenses, the Commissioner alleged that it was imperative upon Team Energy to
prove its compliance with the registration requirements of a VAT taxpayer; the invoicing and accounting
requirements for VAT-registered persons; and the checklist of requirements for a VAT refund under Revenue
Memorandum Order No. 53-98. Furthermore, the Commissioner contended that Team Energy must prove that
the claims were filed within the prescriptive periods and that the input taxes being claimed had not been
applied against any output tax liability or were not carried over in the succeeding quarters. 14

On October 12, 2005, the two (2) cases were consolidated.15

The Court of Tax Appeals First Division partially granted Team Energy's petition. 16 It held that NPC's
exemption from direct and indirect taxes had long been resolved by this Court. 17 Consequently, NPC's
electricity purchases from independent power producers, such as Team Energy, were subject to 0% VAT
pursuant to Section 108(B)(3) of the 1997 NIRC.18

The Court of Tax Appeals First Division further ruled that P20,986,302.67 out of the reported zero-rated sales
of P12,208,805,373.67 must be excluded for Team Energy's failure to submit the corresponding official
receipts, leaving a balance of P12,187,819,071.00 as substantiated zero-rated sales.19 Consequently, only
99.83%20 of the validly supported input VAT payments being claimed could be considered.

The Court of Tax Appeals First Division likewise disallowed P12,642,304.32 of Team Energy's claimed input
VAT for its failure to meet the substantiation requirements under Sections 110(A) and 113(A) of the 1997 NIRC
and Sections 4.104-1, 4.104-5, and 4.108-1 of Revenue Regulations No. 7-95 or the Consolidated Value
Added Tax Regulations.21 Team Energy's reported output VAT liability of P776.36 in its Quarterly VAT Return
for the third quarter of 2003 was further deducted from the substantiated input VAT. 22 The Court of Tax
Appeals used the following computation in determining Team Energy's total allowable input VAT:

Substantiated Input VAT P70,823,049.18

Less: Output VAT 776.36

Excess: Input VAT 70,822,272.82

Multiply by rate of substantiated zero-rated sales 99.83%

Excess input VAT attributable to substantiated zero-rated sales P70,700,533.0123

Finally, on the issue of prescription, the Court of Tax Appeals First Division held that "[t]he reckoning of the
two-year prescriptive period for the filing of a claim for input VAT refund starts from the date of filing of the
corresponding quarterly VAT return." 24 It explained that this Court's ruling in Commissioner of Internal Revenue
v. Mirant Pagbilao Corporation,25 to the effect that "the two-year prescriptive period for the filing of a claim for
input VAT refund starts from the close of the taxable quarter when the relevant sales were made," 26 must be
applied to cases filed after the promulgation of Mirant. Accordingly, Team Energy's administrative claim filed on
December 17, 2004, and judicial claims filed on April 22, 2005 and July 22, 2005 were well within the two (2)-
year prescriptive period.27

The dispositive portion of the October 5, 2009 Decision provided:

WHEREFORE, in view of the foregoing, the instant Petition for Review is hereby PARTIALLY GRANTED.
[The Commissioner of Internal Revenue] is hereby ORDERED to REFUND or ISSUE a tax credit certificate to
[Team Energy] in the amount of P70,700,533.01.

SO ORDERED.28 (Emphasis in the original)

Upon the denial of her Motion for Reconsideration, the Commissioner filed on March 31, 2010 a Petition for
Review with the Court of Tax Appeals En Banc.29 She argued that the Court of Tax Appeals First Division erred
in allowing the tax refund/credit as Team Energy's administrative and judicial claims for the first and second
quarters were filed beyond the two (2)-year period prescribed in Section 112(A) of the 1997
NIRC.30 Additionally, she averred that Team Energy's judicial claims for the second, third, and fourth quarters
of 2003 were filed beyond the 30-day period to appeal under Section 112 of the 1997 NIRC. 31 Team Energy
filed its Comment/Opposition to the Petition.32

On April 8, 2011, the Court of Tax Appeals En Banc promulgated its Decision, partially granting Team Energy's
petition. It held that Team Energy's judicial claim for refund for the second, third, and fourth quarters of 2003
was filed only on July 22, 2005 or beyond the 30-day period prescribed under Section 112(D)33 of the 1997
NIRC. Consequently, the claim for these quarters must be denied for lack of jurisdiction. Furthermore, the
Court of Tax Appeals En Banc found Team Energy entitled to a refund in the reduced amount of
P11,161,392.67, representing unutilized input VAT attributable to its zero-rated sales for the first quarter of
2003.

The dispositive portion of the Court of Tax Appeals En Banc April 8, 2011 Decision read:

WHEREFORE, on the basis of the foregoing considerations, the Petition for Review ... is PARTIALLY
GRANTED. The assailed Decision and Resolution of the First Division dated October 5, 2009 and February
23, 2010, respectively, are hereby MODIFIED. Accordingly, [the Commissioner] is ORDERED to refund in
favor of [Team Energy] the reduced amount of Eleven Million One Hundred Sixty[-]One Thousand Three
Hundred Ninety[-]Two [Pesos] and Sixty[-]Seven Centavos (P11,161,392.67) representing unutilized input
value-added tax (VAT) paid on its domestic purchases of goods and services and importation of goods
attributable to its zero-rated sales for the first quarter of taxable year 2003.

SO ORDERED.34 (Emphasis in the original)

The separate partial motions for reconsideration of Team Energy and the Commissioner were denied in the
Court of Tax Appeals En Banc July 7, 2011 Resolution.35

Team Energy and the Commissioner filed their separate Petitions for Review before this Court, docketed as
G.R. Nos. 19766336 and 197770,37 respectively.

After the parties have filed their respective comments to the petitions and replies to these comments, this Court
directed them to submit their respective memoranda in its July 1, 2013 Resolution. 38

Team Energy filed its Consolidated Memorandum 39 while the Commissioner filed a Manifestation,40 stating that
she was adopting her Comment dated February 21, 201241 as her Memorandum.

The issues for this Court's resolution are as follows:

First, whether or not the Court of Tax Appeals erred in disallowing Team Energy Corporation's claim for tax
refund of its unutilized input VAT for the second to fourth quarters of 2003 on the ground of lack of jurisdiction;

Second, whether or not the Court of Tax Appeals erred in failing to recognize the interchangeability of VAT
invoices and VAT official receipts to comply with the substantiation requirements for refunds of excess or
unutilized input tax under Sections 110 and 113 of the 1997 National Internal Revenue Code, resulting in the
disallowance of P258,874.55; and

Finally, whether or not Team Energy Corporation's failure to submit the Registration and Certificate of
Compliance issued by the Energy Regulatory Commission (ERC) disqualifies it from claiming a tax
refund/credit.

The prescriptive periods regarding judicial claims for refunds or tax credits of input VAT are explicitly set forth
in Section 112(D)42 of the 1997 NIRC:

Section 112. Refunds or Tax Credits of Input Tax. —

….

(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.
(Emphasis supplied)

The text of the law is clear that resort to an appeal with the Court of Tax Appeals should be made within 30
days either from receipt of the decision denying the claim or the expiration of the 120-day period given to the
Commissioner to decide the claim.

It was in Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc.43 where this Court first
pronounced that observance of the 120+30-day periods in Section 112(D)44 is crucial in filing an appeal with
the Court of Tax Appeals. This was further emphasized in Commissioner of Internal Revenue v. San Roque
Power Corporation45 where this Court categorically held that compliance with the 120+30-day periods under
Section 112 of the 1997 NIRC is mandatory and jurisdictional. Exempted from this are VAT refund cases that
are prematurely filed before the Court of Tax Appeals or before the lapse of the 120-day period between
December 10, 2003, when the BIR issued Ruling No. DA-489-03, and October 6, 2010, when this Court
promulgated Aichi.46

Section 112(D)47 is consistent with Section 11 of Republic Act No. 1125, as amended by Section 9 of Republic
Act No. 9282 (2004), which provides a 30-day period of appeal either from receipt of the adverse decision of
the Commissioner or from the lapse of the period fixed by law for action:

Section 11. Who May Appeal; Mode of Appeal; Effect of Appeal. -Any party adversely affected by a decision,
ruling or inaction of the Commissioner of Internal Revenue, . . . may file an appeal with the CTA within thirty
(30) days after the receipt of such decision or ruling or after the expiration of the period fixed by law for
action as referred to in Section 7(a)(2) 48 herein.
Appeal shall be made by filing a petition for review under a procedure analogous to that provided for under
Rule 42 of the 1997 Rules of Civil Procedure with the CTA within thirty (30) days from the receipt of the
decision or ruling or in the case of inaction as herein provided, from the expiration of the period fixed
by law to act thereon. (Emphasis supplied)

In this case, Team Energy's judicial claim was filed beyond the 30-day period required in Section 112(D). The
administrative claim for refund was filed on December 17, 2004.49 Thus, BIR had 120 days to act on the claim,
or until April 16, 2005. Team Energy, in turn, had until May 16, 2005 to file a petition with the Court of Tax
Appeals but filed its appeal only on July 22, 2005, or 67 days late. Thus, the Court of Tax Appeals En Banc
correctly denied its claim for refund due to prescription.

Team Energy argues, however, that the application of the Aichi doctrine to its claim would violate the rule on
non-retroactivity of judicial decisions.50 Team Energy adds that when it filed its claims for refund with the BIR
and the Court of Tax Appeals, both the administrative and judicial claims for refund must be filed within the two
(2)-year prescriptive period.51 Moreover, Revenue Regulations No. 7-95 did not require a specific number of
days after the 60-day, now 120-day, period given to the Commissioner to decide on the claim within which to
appeal to the Court of Tax Appeals.52 Team Energy contends that to deny its claim of P70,700,533.01 duly
proven before the Court of Tax Appeals First Division "would result to unjust enrichment on the part of the
government."53

This Court is not persuaded.

When Team Energy filed its refund claim in 2004, the 1997 NIRC was already in effect, which clearly provided
for: (a) 120 days for the Commissioner to act on a taxpayer's claim; and (b) 30 days for the taxpayer to appeal
either from the Commissioner's decision or from the expiration of the 120-day period, in case of the
Commissioner's inaction.

"Rules and regulations [including Revenue Regulations No. 7-95] or parts [of them] which are contrary to or
inconsistent with [the NIRC] are . . . amended or modified accordingly." 54

This Court, in construing the law, merely declares what a particular provision has always meant. It does not
create new legal obligations. This Court does not have the power to legislate. Interpretations of law made by
courts necessarily always have a "retroactive" effect.55

In Aichi, where the issue on prematurity of a judicial claim was first raised and passed upon, this Court applied
outright its interpretation of the 1997 NIRC's language on the mandatory character of the 120+30-day periods.
Consequently, it ordered the dismissal of Aichi's appeal due to premature filing of its claim for refund/credit of
input VAT. The administrative and judicial claims in Aichi were filed on September 30, 2004, even prior to the
filing of Team Energy's claims.

San Roque dealt with judicial claims which were either prematurely filed or had already prescribed. That case,
specifically in G.R. No. 197156, Philex Mining Corporation v. Commissioner of Internal Revenue, involved the
filing of a judicial claim beyond the 30-day period to appeal as in this case. Then and there, this Court rejected
Philex Mining Corporation's (Philex) judicial claim because of late filing:

Unlike San Roque and Taganito, Philex's case is not one of premature filing but of late filing. Philex did not file
any petition with the CTA within the 120-day period. Philex did not also file any petition with the CTA within 30
days after the expiration of the 120-day period. Philex filed its judicial claim long after the expiration of the 120-
day period, in fact 426 days after the lapse of the 120-day period. In any event, whether governed by
jurisprudence before, during, or after the Atlas case, Philex's judicial claim will have to be rejected
because of late filing. Whether the two-year prescriptive period is counted from the date of payment of the
output VAT following the Atlas doctrine, or from the close of the taxable quarter when the sales attributable to
the input VAT were made following the Mirant and Aichi doctrines, Philex's judicial claim was indisputably filed
late.
The Atlas doctrine cannot save Philex from the late filing of its judicial claim. The inaction of the
Commissioner on Philex's claim during the 120-day period is, by express provision of law, "deemed a
denial" of Philex's claim. Philex had 30 days from the expiration of the 120-day period to file its judicial
claim with the CTA. Philex's failure to do so rendered the "deemed a denial" decision of the
Commissioner final and inappealable. The right to appeal to the CTA from a decision or "deemed a denial"
decision of the Commissioner is merely a statutory privilege, not a constitutional right. The exercise of such
statutory privilege requires strict compliance with the conditions attached by the statute for its exercise. Philex
failed to comply with the statutory conditions and must thus bear the consequences. 56 (Emphasis supplied,
citation omitted)

Philex filed its judicial claim on October 17, 2007, before Aichi was promulgated.

The proper application of the mandatory and jurisdictional nature of the 120+30-day periods, whether
prospective or retroactive, was, in fact, at the heart of this Court en banc's debates in San Roque.

Some justices were of the view that the mandatory and jurisdictional nature of the 120+30-day periods must be
applied prospectively, or at the earliest upon the effectivity of Revenue Regulations No. 16-2005,57 or upon the
finality of Aichi.58 Still others59 argued for retroactive application to all undecided VAT refund cases regardless
of the period when the claim for refund was made.

The majority held that the 120+30-day mandatory periods were already in the 1997 NIRC when the taxpayers
filed their judicial claims. The law is clear, plain, and unequivocal and must be applied exactly as worded.
However, the majority considered as an exception, for equitable reasons, BIR Ruling No. DA-489-03, which
expressly stated that taxpayers need not wait for the lapse of the 120-day period before seeking judicial relief.
Thus, judicial claims filed from December 10, 2003, when BIR Ruling No. DA-489-03 was issued, to October 6,
2010, when the Aichi doctrine was adopted, were excepted from the strict application of the 120+30-day
mandatory and jurisdictional periods.

San Roque Power Corporation (San Roque) filed a motion for reconsideration and supplemental motion for
reconsideration in G.R. No. 187485, arguing for the prospective application of the 120+30-day mandatory and
jurisdictional periods. This Court denied San Roque with finality on October 8, 2013.60

In Commissioner of Internal Revenue v. Mindanao II Geothermal Partnership,61 Mindanao II Geothermal

Partnership (Mindanao II) filed its administrative and judicial claims on October 6, 2005 and July 21, 2006,
respectively, prior to the promulgation of Aichi and San Roque. While its administrative claim was found to
have been timely filed, this Court nevertheless denied its refund claim because the judicial claim was filed late
or only 138 days after the lapse of the 120+30-day periods. This Court held that the 30-day period to appeal
was mandatory and jurisdictional, applying the ruling in San Roque. It further emphasized that late filing was
absolutely prohibited.

Since then, the 120+30-day periods have been applied to pending cases,62 resulting in denial of taxpayers'
claims due to late filing. This Court finds no reason to except this case.

Further, the Commissioner's inaction on Team Energy's claim during the 120-day period is "deemed a denial,"
pursuant to Section 7(a)(2)63 of Republic Act No. 1125, as amended by Section 7 of Republic Act No. 9282.
Team Energy had 30 days from the expiration of the 120-day period to file its judicial claim with the Court of
Tax Appeals. Its failure to do so rendered the Commissioner's "deemed a denial" decision as final and
inappealable.

Team Energy's contention that denial of its duly proven refund claim would constitute unjust enrichment on the
part of the government is misplaced.

"Excess input tax is not an excessively, erroneously, or illegally collected tax." 64 A claim for refund of this tax is
in the nature of a tax exemption, which is based on Sections 110(B) and 112(A) of 1997 NIRC, allowing VAT-
registered persons to recover the excess input taxes they have paid in relation to their zero-rated sales. "The
term 'excess' input VAT simply means that the input VAT available as [refund] credit exceeds the output VAT,
not that the input VAT is excessively collected because it is more than what is legally due." 65 Accordingly,
claims for tax refund/credit of excess input tax are governed not by Section 229 but only by Section 112 of the
NIRC.

A claim for input VAT refund or credit is construed strictly against the taxpayer.66 Accordingly, there must be
strict compliance with the prescriptive periods and substantive requirements set by law before a claim for tax
refund or credit may prosper.67 The mere fact that Team Energy has proved its excess input VAT does not
entitle it as a matter of right to a tax refund or credit. The 120+30-day periods in Section 112 is not a mere
procedural technicality that can be set aside if the claim is otherwise meritorious. It is a mandatory and
jurisdictional condition imposed by law. Team Energy's failure to comply with the prescriptive periods is, thus,
fatal to its claim.

II

On the disallowance of some of its input VAT claims, Team Energy submits that "at the time when the
unutilized input VAT [was] incurred in 2003, the applicable NIRC provisions did not create a distinction
between an official receipt and an invoice in substantiating a claim for refund." 68 Section 113 of the 1997 NIRC,
prior to its amendment by Republic Act No. 9337 in 2005, provides:

Section 113. Invoicing and Accounting Requirements for VAT-Registered Persons. —

(A) Invoicing Requirements. - A VAT-registered person shall, for every sale, issue an invoice or receipt.
In addition to the information required under Section 237, the following information shall be indicated
in the invoice or receipt:

(1) A statement that the seller is a VAT-registered person, followed by his taxpayer's identification
number (TIN); and

(2) The total amount which the purchaser pays or is obligated to pay to the seller with the
indication that such amount includes the value-added tax.

Team Energy posits that Section 113, prior to its amendment by Republic Act No. 9337, must be applied to its
input VAT incurred in 2003, and that the disallowed amount of P258,874.55 supported by VAT invoice or
official receipts should be allowed.

Team Energy's contention is untenable.

Claimants of tax refunds have the burden to prove their entitlement to the claim under substantive law and the
factual basis of their claim.69 Moreover, in claims for VAT refund/credit, applicants must satisfy the
substantiation and invoicing requirements under the NIRC and other implementing rules and regulations. 70

Under Section 110(A)(1) of the 1997 NIRC, creditable input tax must be evidenced by a VAT invoice or official
receipt, which must in turn reflect the information required in Sections 113 and 237 of the Code, viz:

Section 113. Invoicing and Accounting Requirements for VAT-Registered Persons. —

(A) Invoicing Requirements. — A VAT-registered person shall, for every sale, issue an invoice or receipt. In
addition to the information required under Section 237, the following information shall be indicated in
the invoice or receipt:
(1) A statement that the seller is a VAT-registered person, followed by his taxpayer's identification number
(TIN); and

(2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such
amount includes the value- added tax.

....

Section 237. Issuance of Receipts or Sales or Commercial Invoices. — All persons subject to an internal
revenue tax shall, for each sale or transfer of merchandise or for services rendered valued at Twenty-five
pesos (P25.00) or more, issue duly registered receipts or sales or commercial invoices, prepared at least
in duplicate, showing the date of transaction, quantity, unit cost and description of merchandise or
nature of service: Provided, however, That in the case of sales, receipts or transfers in the amount of One
hundred pesos (P100.00) or more, or regardless of amount, where the sale or transfer is made by a person
liable to value-added tax to another person also liable to value-added tax; or where the receipt is issued
to cover payment made as rentals, commissions, compensations or fees, receipts or invoices shall be
issued which shall show the name, business style, if any, and address of the purchaser, customer or
client: Provided, further, That where the purchaser is a VAT-registered person, in addition to the
information herein required, the invoice or receipt shall further show the Taxpayer Identification
Number (TIN) of the purchaser. (Emphasis supplied)

Section 4.108-1 of Revenue Regulations No. 7-95 summarizes the information that must be contained in a
VAT invoice and a VAT official receipt:

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

1. the name, TIN and address of seller;

2. date of transaction;
3. quantity, unit cost and description of merchandise or nature of service;
4. the name, TIN, business style, if any, and address of the VAT- registered purchaser, customer
or client;
5. the word "zero rated" imprinted on the invoice covering zero- rated sales; and
6. the invoice value or consideration.

In the case of sale of real property subject to VAT and where the zonal or market value is higher than the
actual consideration, the VAT shall be separately indicated in the invoice or receipt.

Only VAT-registered persons are required to print their TIN followed by the word "VAT" in their invoice
or receipts and this shall be considered as a "VAT Invoice". All purchases covered by invoices other than
"VAT Invoice" shall not give rise to any input tax.

If the taxable person is also engaged in exempt operations, he should issue separate invoices or receipts for
the taxable and exempt operations. A "VAT Invoice" shall be issued only for sales of goods, properties or
services subject to VAT imposed in Sections 100 and 102 [now Sections 106 and 108] of the Code.

The invoice or receipt shall be prepared at least in duplicate, the original to be given to the buyer and the
duplicate to be retained by the seller as part of his accounting records. (Emphasis supplied)

In this case, the Court of Tax Appeals disallowed Team Energy's input VAT of P258,874.55, which consisted
of:

1. Input taxes of P78,134.65 claimed on local purchase of goods supported by documents other than VAT
invoices;71 and
 2. Input taxes of P180,739.90 claimed on local purchase of services supported by documents other than
VAT official receipts.72

Team Energy submits that the disallowances "essentially result from the non-recognition [by] the [Court of Tax
Appeals] En Banc of the interchangeability of VAT invoices and VAT [official receipts] in a claim for refund of
excess or unutilized input tax."73

In AT&T Communications Services Philippines, Inc. v. Commissioner of Internal Revenue,74 this Court was
confronted with the same issue on the substantiation of the taxpayer-applicant's zero-rated sales of services.
In that case, AT&T Communications Services Philippines, Inc. (AT&T) applied for tax refund and/or tax credit
of its excess/unutilized input VAT from zero-rated sales of services for calendar year 2002. The Court of Tax
Appeals First Division, as affirmed by the En Banc, denied AT&T's claim "for lack of substantiation" on the
ground that:

[Considering that the subject revenues pertain to gross receipts from services rendered by petitioner, valid
VAT official receipts and not mere sales invoices should have been submitted in support thereof. Without
proper VAT official receipts, the foreign currency payments received by petitioner from services rendered for
the four (4) quarters of taxable year 2002 in the sum of US$1,102,315.48 with the peso equivalent of
P56,898,744.05 cannot qualify for zero-rating for VAT purposes.75 (Emphasis in the original)

Reversing the Court of Tax Appeals, this Court held that since Section 113 did not distinguish between a sales
invoice and an official receipt, the sales invoices presented by AT&T would suffice provided that the
requirements under Sections 113 and 237 of the Tax Code were met. It further explained:

Sales invoices are recognized commercial documents to facilitate trade or credit transactions. They are proofs
that a business transaction has been concluded, hence, should not be considered bereft of probative value.
Only the preponderance of evidence threshold as applied in ordinary civil cases is needed to substantiate a
claim for tax refund proper.76 (Citations omitted)

However, in a subsequent claim for tax refund or credit of input VAT filed by AT&T for the calendar year 2003,
the same issue on the interchangeability of invoice and official receipt was raised. This time in AT&T
Communications Services Phils., Inc. v. Commissioner of Internal Revenue,77 this Court held that there was a
clear delineation between official receipts and invoices and that these two (2) documents could not be used
interchangeably. According to this Court, Section 113 on invoicing requirements must be read in conjunction
with Sections 106 and 108, which specifically delineates sales invoices for sales of goods and official receipts
for sales of services.

Although it appears under [Section 113 of the 1997 NIRC] that there is no clear distinction on the evidentiary
value of an invoice or official receipt, it is worthy to note that the said provision is a general provision which
covers all sales of a VAT[-]registered person, whether sale of goods or services. It does not necessarily follow
that the legislature intended to use the same interchangeably. The Court therefore cannot conclude that the
general provision of Section 113 of the NIRC of 1997, as amended, intended that the invoice and official
receipt can be used for either sale of goods or services, because there are specific provisions of the Tax Code
which clearly delineates the difference between the two transactions.

In this instance, Section 108 of the NIRC of 1997, as amended, provides:

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

....

(C) Determination of the Tax — The tax shall be computed by multiplying the total amount indicated in
the official receipt by one-eleventh (1/11).

Comparatively, Section 106 of the same Code covers sale of goods, thus:
SEC. 106. Value-added Tax on Sale of Goods or Properties. —

....

(D) Determination of the Tax. — The tax shall be computed by multiplying the total amount indicated in
the invoice by one-eleventh (1/11).

Apparently, the construction of the statute shows that the legislature intended to distinguish the use of an
invoice from an official receipt. It is more logical therefore to conclude that subsections of a statute under the
same heading should be construed as having relevance to its heading. The legislature separately categorized
VAT on sale of goods from VAT on sale of services, not only by its treatment with regard to tax but also with
respect to substantiation requirements. Having been grouped under Section 108, its subparagraphs, (A) to (C),
and Section 106, its subparagraphs (A) to (D), have significant relations with each other.

Legislative intent must be ascertained from a consideration of the statute as a whole and not of an isolated part
or a particular provision alone. This is a cardinal rule in statutory construction. For taken in the abstract, a word
or phrase might easily convey a meaning quite different from the one actually intended and evident when the
word or phrase is considered with those with which it is associated. Thus, an apparently general provision may
have a limited application if viewed together with the other provisions. 78 (Emphasis supplied, citation omitted)

This Court reiterates that to claim a refund of unutilized or excess input VAT, purchase of goods or properties
must be supported by VAT invoices, while purchase of services must be supported by VAT official receipts.

For context, VAT is a tax imposed on each sale of goods or services in the course of trade or business, or
importation of goods "as they pass along the production and distribution chain." 79 It is an indirect tax, which
"may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services." 80 The
output tax81 due from VAT-registered sellers becomes the input tax82 paid by VAT-registered purchasers on
local purchase of goods or services, which the latter in turn may credit against their output tax liabilities. On the
other hand, for a non-VAT purchaser, the VAT shifted forms part of the cost of goods, properties, and services
purchased, which may be deductible as an expense for income tax purposes.83

Panasonic Communications Imaging Corp. v. Commissioner of Internal Revenue 84 explained the concept of
VAT and its collection through the tax credit method:

The VAT is a tax on consumption, an indirect tax that the provider of goods or services may pass on to his
customers. Under the VAT method of taxation, which is invoice-based, an entity can subtract from the VAT
charged on its sales or outputs the VAT it paid on its purchases, inputs and imports. For example, when a
seller charges VAT on its sale, it issues an invoice to the buyer, indicating the amount of VAT he charged. For
his part, if the buyer is also a seller subjected to the payment of VAT on his sales, he can use the invoice
issued to him by his supplier to get a reduction of his own VAT liability. The difference in tax shown on invoices
passed and invoices received is the tax paid to the government. In case the tax on invoices received exceeds
that on invoices passed, a tax refund may be claimed.

Under the 1997 NIRC, if at the end of a taxable quarter the seller charges output taxes equal to the input taxes
that his suppliers passed on to him, no payment is required of him. It is when his output taxes exceed his input
taxes that he has to pay the excess to the BIR. If the input taxes exceed the output taxes, however, the excess
payment shall be earned over to the succeeding quarter or quarters. Should the input taxes result from zero-
rated or effectively zero-rated transactions or from the acquisition of capital goods, any excess over the output
taxes shall instead be refunded to the taxpayer.85 (Citations omitted)

Our VAT system is invoice-based, i.e. taxation relies on sales invoices or official receipts. A VAT-registered
entity is liable to VAT, or the output tax at the rate of 0% or 10% (now 12%) on the gross selling price 86 of
goods or gross receipts87 realized from the sale of services. Sections 106(D) and 108(C) of the Tax Code
expressly provide that VAT is computed at 1/11 of the total amount indicated in the invoice for sale of goods
or official receipt for sale of services.88 This tax shall also be recognized as input tax credit to the purchaser of
the goods or services.

Under Section 11089 of the 1997 NIRC, the input tax on purchase of goods or properties, or services is
creditable:

(a) To the purchaser upon consummation of sale and on importation of goods or properties;

(b) To the importer upon payment of the VAT prior to the release of the goods from the custody of the Bureau
of Customs; and

[(c)] [T]o the purchaser [of services], lessee [of property] or licensee upon payment of the compensation,
rental, royalty or fee.

A VAT-registered person may opt, however, to apply for tax refund or credit certificate of VAT paid
corresponding to the zero-rated sales of goods, properties, or services to the extent that this input tax has not
been applied against the output tax.

Strict compliance with substantiation and invoicing requirements is necessary considering VAT's nature and
VAT system's tax credit method, where tax payments are based on output and input taxes and where the
seller's output tax becomes the buyer's input tax that is available as tax credit or refund in the same
transaction. It ensures the proper collection of taxes at all stages of distribution, facilitates computation of tax
credits, and provides accurate audit trail or evidence for BIR monitoring purposes.

The Court of Tax Appeals further pointed out that the noninterchangeability between VAT official receipts and
VAT invoices avoids having the government refund a tax that was not even paid.

It should be noted that the seller will only become liable to pay the output VAT upon receipt of payment from
the purchaser. If we are to use sales invoice in the sale of services, an absurd situation will arise when the
purchaser of the service can claim tax credit representing input VAT even before there is payment of the output
VAT by the seller on the sale pertaining to the same transaction. As a matter of fact[,] if the seller is not paid on
the transaction, the seller of service would legally not have to pay output tax while the purchaser may legally
claim input tax credit thereon. The government ends up refunding a tax which has not been paid at all. Hence,
to avoid this, VAT official receipt for the sale of services is an absolute requirement.90

In conjunction with this rule, Revenue Memorandum Circular No. 42-0391 expressly provides that an "invoice is
the supporting document for the claim of input tax on purchase of goods whereas official receipt is the
supporting document for the claim of input tax on purchase of services." It further states that a taxpayer's
failure to comply with the invoicing requirements will result to the disallowance of the claim for input tax.
Pertinent portions of this circular provide:

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

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

Pursuant to Sections 106(D) and 108(C) in relation to Section 110 of the 1997 NIRC, the output or input tax on
the sale or purchase of goods is determined by the total amount indicated in the VAT invoice, while the output
or input tax on the sale or purchase of services is determined by the total amount indicated in the VAT official
receipt.

Thus, the Court of Tax Appeals properly disallowed the input VAT of P258,874.55 for Team Energy's failure to
comply with the invoicing requirements.

III

The Commissioner submits that the Court of Tax Appeals En Banc erred in granting Team Energy a tax
refund/credit of P11,161,392.67, representing unutilized input VAT attributable to zero-rated sales of electricity
to NPC.92 She maintains that Team Energy is not entitled to any tax refund or credit because it cannot qualify
for VAT zero-rating under Republic Act No. 9136 93 or the Electrical Power Industry Reform Act (EPIRA) Law
for failure to submit its ERC Registration and Certificate of Compliance.94 She avers that to operate a
generation facility, Team Energy must have a duly issued ERC Certificate of Compliance, without which an
entity cannot be considered a power generation company and its sales of generated power will not qualify for
VAT zero-rating.95

The Court of Tax Appeals rejected this argument on the ground that the issue was raised for the first time in a
motion for partial reconsideration, viz:

[The Commissioner] raised the issue of [Team Energy's] failure to submit the Registration and Certificate of
Compliance (COC) issued by ERC for the first time in the instant Motion for Partial Reconsideration. The said
issue was neither raised in the Court a quo nor in the Petition for Review with the Court En Banc. The rule is
well settled that no question will be considered by the appellate court which has not been raised in the court
below. When a party deliberately adopts a certain theory, and the case is tried and decided upon the theory in
the court below, he will not be permitted to change his theory on appeal, because to permit him to do so would
be unfair to the adverse party. Thus, a judgment that goes beyond the issues and purports to adjudicate
something on which the court did not hear the parties, is not only irregular but also extrajudicial and invalid. In
the case of Rizal Commercial Banking Corporation vs. Commissioner of Internal Revenue,96 the Supreme
Court said:

The rule is well-settled that points of law, theories, issues and arguments not adequately brought to the
attention of the lower court need not be considered by the reviewing court as they cannot be raised for the first
time on appeal, much more in a motion for reconsideration as in this case, because this would be offensive to
the basic rules of fair play, justice and due process. This last ditch effort to shift to a new theory and raise a
new matter in the hope of a favorable result is a pernicious practice that has consistently been rejected.

Also, both parties stipulated and recognized in the Joint Stipulation of Facts and Issues that [Team Energy] is
principally engaged in the business of power generation. Moreover, [the Commissioner] acknowledged [Team
Energy's] sale of electricity to the NPC as zero-rated evidence[d] by the approved Application for VAT zero-
rating.97

The Commissioner now asserts that her counsel's mistake in belatedly raising the issue should not prejudice
the State, as it is not bound by the errors of its officers or agents. 98 She adds that despite the Stipulation of
Facts, the Court of Tax Appeals should have determined Team Energy's compliance with Republic Act No.
9136 or the EPIRA Law because the burden lies on the taxpayer to prove its entitlement to a refund. 99

The Commissioner's argument is misplaced.

Team Energy's claim for unutilized or excess input VAT was anchored not on the EPIRA Law but on Section
108(B)(3)100 of the 1997 NIRC, in relation to Section 13 of Republic Act No. 6395 101 or the NPC's
charter,102 before its repeal by Republic Act No. 9337. One of the issues presented before the Court of Tax
Appeals First Division was "[w]hether or not the power generation services rendered by [Team Energy] to NPC
are subject to zero percent (0%) VAT pursuant to Section 108(B)(3)."103 Otherwise stated, the Court of Tax
Appeals First Division was confronted with the legal issue of whether NPC's tax exemption privilege includes
the indirect tax of VAT to entitle Team Energy to 0% VAT rate. The Court of Tax Appeals aptly resolved the
issue in the affirmative, consistent with this Court's pronouncements 104 that NPC is exempt from all taxes, both
direct and indirect, and services rendered by any VAT-registered person or entity to NPC are effectively
subject to 0% rate.

Indeed, the requirements of the EPIRA law would apply to claims for refund filed under the EPIRA. In such
case, the taxpayer must prove that it has been duly authorized by the ERC to operate a generation facility and
that it derives its sales from power generation. This was the thrust of this Court's ruling in Commissioner of
Internal Revenue v. Toledo Power Company (TPC).105

In Toledo, the Court of Tax Appeals granted Toledo Power Company's (TPC) claim for refund of unutilized
input VAT attributable to sales of electricity to NPC, but denied refund of input VAT related to sales of
electricity to other entities106 for failure of TPC to prove that it was a generation company under the EPIRA.
This Court held that TPC's failure to submit its ERC Certificate of Compliance renders its sales of generated
power not qualified for VAT zero-rating. This Court, in affirming the Court of Tax Appeals, held:

Section 6 of the EPIRA provides that the sale of generated power by generation companies shall be zero-
rated. Section 4 (x) of the same law states that a generation company "refers to any person or entity
authorized by the ERC to operate facilities used in the generation of electricity." Corollarily, to be entitled to a
refund or credit of unutilized input VAT attributable to the sale of electricity under the EPIRA, a
taxpayer must establish: (1) that it is a generation company, and (2) that it derived sales from power
generation.

....

In this case, when the EPIRA took effect in 2001, TPC was an existing generation facility. And at the time the
sales of electricity to CEBECO, ACMDC, and AFC were made in 2002, TPC was not yet a generation company
under EPIRA. Although it filed an application for a COC on June 20, 2002, it did not automatically become a
generation company. It was only on June 23, 2005, when the ERC issued a COC in favor of TPC, that it
became a generation company under EPIRA. Consequently, TPC's sales of electricity to CEBECO, ACMDC,
and AFC cannot qualify for VAT zero-rating under the EPIRA.107 (Emphasis supplied)

Here, considering that Team Energy's refund claim is premised on Section 108(B)(3) of the 1997 NIRC, in
relation to NPC's charter, the requirements under the EPIRA are inapplicable. To qualify its electricity sale to
NPC as zero-rated, Team Energy needs only to show that it is a VAT-registered entity and that it has complied
with the invoicing requirements under Section 108(B)(3) of the 1997 NIRC, in conjunction with Section 4.108-1
of Revenue Regulations No. 7-95.108

Finally, the Commissioner is bound by her admission in the Joint Stipulation of Facts and Issues, 109 concerning
the prior approval of Team Energy's 2002 Application for Effective Zero-Rate of its supply of electricity to the
NPC.110 Thus, she is estopped from asserting that Team Energy's transactions cannot be effectively
considered zero-rated.

In sum, the Court of Tax Appeals En Banc found proper the refund of P11,161,392.67, representing unutilized
input VAT attributable to Team Energy's zero-rated sales for the first quarter of 2003.111 This Court accords the
highest respect to the factual findings of the Court of Tax Appeals112 considering its developed expertise on the
subject, unless there is showing of abuse in the exercise of its authority. 113 This Court finds no reason to
overturn the factual findings of the Court of Tax Appeals on the amounts allowed for refund.

WHEREFORE, the Petitions are DENIED. The April 8, 2011 Decision and July 7, 2011 Resolution of the Court
of Tax Appeals En Banc in CTA EB No. 603 are AFFIRMED.

SO ORDERED.
 SECOND DIVISION

G.R. Nos. 201225-26 (From CTA-EB Nos. 649 & 651), April 18, 2018

TEAM SUAL CORPORATION (FORMERLY MIRANT SUAL

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

G.R. No. 201132 (From CTA-EB No. 651), April 18, 2018

COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. TEAM SUAL CORPORATION (FORMERLY

MIRANT SUAL CORPORATION), Respondent.

G.R. No. 201133 (From CTA-EB No. 649), April 18, 2018

COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. TEAM SUAL CORPORATION (FORMERLY

MIRANT SUAL CORPORATION), Respondent.

DECISION

REYES, JR., J.:

Nature of the Petitions

Challenged before the Court via Petitions for Review on Certiorari1 under Rule 45 of the Rules of Court is the
Consolidated Decision2 of the Court of Tax Appeals (CTA) En Banc dated September 15, 2011 and its
subsequent Resolution3 dated March 21,2012 in CTA-EB Nos. 649 and 651. The assailed Decision and
Resolution modified the Amended Decision 4 of the CTA Special First Division dated June 7, 2010 and partially
granted Team Sual Corporation's (TSC) claim for refund in the amount of P123,110,001.68 representing
unutilized input Value Added Tax (VAT) for the second, third, and fourth quarters of taxable year 2001.

The Antecedent Facts

TSC is a domestic corporation duly organized and existing under and by virtue of the laws of the Philippines
with principal office at Barangay Pangascasan, Sual, Pangasinan. It is principally engaged in the business of
power generation and subsequent sale thereof to the National Power Corporation (NPC) under a Build,
Operate, and Transfer scheme. TSC was originally registered with the Securities and Exchange Commission
under the name "Pangasinan Electric Corporation." On August 17, 1999, it changed its name to "Southern
Energy Pangasinan, Inc.," which was then changed to "Mirant Sual Corporation" on June 28, 2001, and finally
to "Team Sual" on July 23, 2007.5

As a seller of services, TSC is registered with the Bureau of Internal Revenue (BIR) as a VAT taxpayer with
Certificate of Registration bearing RDO Control No. 05-0181 and Taxpayer's Identification No. 003-841-103.6

On December 6, 2000, TSC filed with the BIR Revenue District Office No. 5-Alaminos, Pangasinan an
application for zero-rating arising from its sale of power generation services to NPC for the taxable year 2001.
The same was subsequently approved. As a result, TSC filed its VAT returns covering the four quarters of
taxable year 2001.7

For the first, second, third, and fourth quarters of 2001, TSC reported excess input VAT amounting to
P37,985,009.25, P29,298,556.12, P32,869,835.40, and P66,566,967.02, respectively. The total excess input
VAT claimed by TSC for the taxable year amounted to P166,720,367.79.8

On March 20, 2003, TSC filed with the BIR an administrative claim for refund in the aggregate amount of
P166,720,367.79 for its unutilized input VAT for taxable year 2001.9
On March 31, 2003, without waiting for the resolution of its administrative claim for refund or tax credit, TSC
filed with the CTA Division a petition for review docketed as CTA Case No. 6630. It prayed for the refund or
issuance of a tax credit certificate for its alleged unutilized input VAT for the first quarter of taxable year 2001 in
the amount of P37,985,009.25.10

On July 23, 2003, TSC filed another petition for review docketed as CTA Case No. 6733, seeking the refund or
issuance of a tax credit certificate for its alleged unutilized input VAT for the second, third, and fourth quarters
of taxable year 2001 in the amount of P128,735,358.54. Both cases were consolidated on August 7, 2003. 11

Trial of the case ensued.

In its Decision dated June 9, 2006, the CTA Division partially granted TSC's claim. It allowed the refund of
unutilized input VAT for the first, third, and fourth quarters of taxable year 2001, but disallowed the refund for
the second quarter. The CTA Division ruled that the claim for the second quarter did not fall within the two-year
prescriptive period. The dispositive portion of the CTA Division's decision reads:

WHEREFORE, the instant Petition for Review is hereby PARTIALLY GRANTED. ACCORDINGLY,
respondent Commissioner of Internal Revenue is hereby ORDERED to REFUND or to ISSUE A TAX CREDIT
CERTIFICATE in the amount of ONE HUNDRED SEVENTEEN MILLION THREE HUNDRED THIRTY
THOUSAND FIVE HUNDRED FIFTY PESOS AND 62/100 (P117,330,550.62) to petitioner Mirant Sual
Corporation, representing unutilized input VAT from its domestic purchases of goods and services and
importation of goods attributable to its effectively zero-rated sales to the National Power Corporation for the
first, third, and fourth quarters of taxable year 2001.12

The Commissioner of Internal Revenue (CIR) filed a Motion for Partial Reconsideration on July 3, 2009,
praying that the entire claim for refund be denied. The CIR argued that TSC has not sufficiently proven its
entitlement to refund and that the CTA had no jurisdiction to act on the judicial claim for refund because the
same was prematurely filed.13

Likewise, in its Motion for Partial Reconsideration dated July 7, 2009 and Supplemental Motion for Partial
Reconsideration dated July 31, 2009, TSC prayed that the CTA, in addition to the amount already granted,
refund the amounts of: (1) P29,298,556.12 representing input VAT for the second quarter of taxable year 2001,
and (2) P12,761,224.50 for input VAT on local purchases of goods and services for the same year. 14

On June 7, 2010, the CTA Division promulgated an Amended Decision which partially granted TSC's additional
claim for refund. In said decision, the CTA denied the claim for input VAT on local purchases of goods and
services, but allowed the refund for input VAT for the second quarter of taxable year 2001. However, the grant
was reduced from P29,298,556.12 to P27,233,561.57 for failure to substantiate the difference. 15 The
dispositive portion of the amended decision states:

WHEREFORE, respondent's Motion for Partial Reconsideration filed on July 3, 2009 and
petitioner's Supplemental Motion for Partial Reconsideration filed on July 31, 2009 are hereby DENIED for lack
of merit. Petitioner's Motion for Partial Reconsideration filed on July 7, 2009 is hereby PARTIALLY
GRANTED and this Court's Decision dated June 9, 2009 denying petitioner's claim for refund of unutilized
input VAT for the second quarter of 2001 is hereby MODIFIED. Accordingly, respondent Commissioner of
Internal Revenue is hereby ORDERED to REFUND or to ISSUE A TAX CREDIT CERTIFICATE in the amount
of ONE HUNDRED FORTY FOUR MILLION FIVE HUNDRED SIXTY FOUR THOUSAND ONE HUNDRED
TWELVE PESOS AND 19/100 (P144,564,112.19) to petitioner Team Sual Corporation (formerly: Mirant Sual
Corporation), representing unutilized input VAT from its domestic purchases of goods and services and
importation of goods attributable to its effectively zerorated sales to the National Power Corporation for the
first, second, third, and fourth quarters of taxable year 2001. SO ORDERED.16

Dissatisfied, TSC filed a Petition for Review docketed as CTA EB No. 649 before the CTA En Banc. It posits
that the CTA Division erred in disallowing the amount of P12,761,224.50 for input VAT on local purchases of
goods and services on the mere fact that the pertinent supporting documents were issued under TSC's former
name. TSC argues that a corporation's change of name does not affect its identity or rights. Thus, it should still
be entitled to claim the said input VAT.17

The CIR also filed a petition for review praying that the Decision dated June 9, 2009 and the Amended
Decision dated June 7, 2010 be reversed and set aside and another one be rendered denying the entire claim
for refund. The CIR reiterated the arguments she raised in her Motion for Partial Reconsideration. The case
was docketed as CTA EB No. 651.18

On September 15, 2010, the CTA En Banc resolved19 to consolidate CTA EB No. 649 with CTA EB No. 651.

On September 15, 2011, the CTA En Banc rendered a Consolidated Decision20 granting petitioner's claim for
refund of input VAT for the second, third, and fourth quarters of taxable year 2001 amounting to
P123,110,001.68. Insofar as the refund of the input VAT for the first quarter of taxable year 2001 is concerned,
the CTA En Banc ruled that the CTA did not acquire jurisdiction over it as it had been filed prematurely. The
dispositive portion of said decision reads as follows:

WHEREFORE, all the foregoing considered, the Commissioner's Petition for Review in CTA EB No. 651 is
hereby DENIED.

On the other hand, Team Sual's Petition for Review in CTA EB No. 649 is hereby PARTIALLY GRANTED, but
only insofar as the consideration of the portion of the refund claim disallowed by the court a quo upon the
reason that the supporting documents were in Team Sual's former names.

The Decision promulgated on June 9, 2009 and Amended Decision dated June 7, 2010 by the Court in
Division, are therefore MODIFIED. Accordingly, the Commissioner is hereby ORDERED to REFUND to Team
Sual the amount of, or to ISSUE A TAX CREDIT CERTIFICATE in its favor amounting to, ONE HUNDRED
TWENTY THREE MILLION ONE HUNDRED TEN THOUSAND ONE PESOS and SIXTY EIGHT CENTAVOS
(P123,110,001.68), representing Team Sual's unutilized input VAT attributable to its effectively zero-rated
sales to NPC for the second, third and fourth quarters of taxable year 2001.

SO ORDERED.21

TSC filed a Motion for Partial Reconsideration of the CTA En Banc's decision. It insists that the judicial claim
for refund over the first quarter of 2001 was not prematurely filed and that the CTA Division did in fact have
jurisdiction to act on it. Similarly, the CIR filed a motion for reconsideration, praying that TSC's claim be denied
altogether.22

In its Resolution dated March 21, 2012, the CT A En Banc denied the motions of both TSC and the CIR,
affirming its September 15, 2011 Decision as follows:

WHEREFORE, premises considered, the Motion for Reconsideration of the Commissioner and the Motion for
Partial Reconsideration of Team Sual are hereby DENIED for lack of merit.

SO ORDERED.23

Aggrieved, the CIR and TSC filed their respective Petitions for Review on Certiorari under Rule 45 before the
Court. TSC's petition was docketed as G.R. No. 201225-26,24 while the CIR's petitions were docketed as G.R.
Nos. 20113225 and 201133.26

In the Resolutions dated June 25, 201227 and July 18, 2012,28 the Court resolved to consolidate G.R. Nos.
201132, 201133, and 201225-26.

The Issues

On one hand, the CIR argues the following for the total disallowance of TSC's claim:
 I. The Honorable Court of Tax Appeals En Banc erred, when it affirmed, with modification, the former
First Division's decision promulgated on June 9, 2009 and Amended Decision dated June 7, 2012,
granting respondent's claim for refund in the amount of P123,110,001.68 allegedly representing
unutilized input VAT attributable to its effectively zero-rated sales to the National Power Corporation for
the second, third, and fourth quarters of taxable year 2001, because the Honorable Court of Tax
Appeals had no jurisdiction to act on respondent's petitions for review; and

II. Assuming that the former First Division had jurisdiction, petitioner avers that its denial by inaction was
proper and that respondent has not sufficiently proven its entitlement to a refund. 29

On the other hand, TSC raises the following grounds for the allowance of its judicial claim for refund covering
the first quarter of taxable year 2001:

I. The CTA acquired jurisdiction over the case filed with and tried by the First Division of the CTA due to
the failure of respondent CIR to invoke the rule of non-exhaustion of administrative remedies; and

II. The CTA En Banc's application of the doctrine laid down in the case of Commissioner Of Internal
Revenue vs. Aichi Forging Company of Asia30 to petitioner's claim for refund is erroneous as:

A.) It will violate established rules on non-retroactivity of judicial decisions;

B.) It will cause injustice to petitioner who relied in good faith on the existing jurisprudence at the time of the
filing of the claim for refund; and

C.) It will unjustly enrich the government at the expense of the petitioner. 31

In sum, the rise or fall of the instant petitions rest upon whether the CTA has jurisdiction to act on TSC's two
judicial claims for refund.

The Court's Ruling

The petitions are bereft of merit.

In order for the CTA to acquire jurisdiction over a judicial claim for refund or tax credit arising from unutilized
input VAT, the said claim must first comply with the mandatory 120+30-day waiting period. Any judicial claim
for refund or tax credit filed in contravention of said period is rendered premature, depriving the CTA of
jurisdiction to act on it.32

Pursuant to Section 112, Subsections (A) and (C) of the National Internal Revenue Code (NIRC) of 1997, 33 the
procedure to be followed in claiming a refund or tax credit of unutilized input VAT are as follows:

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 of 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. Provided, finally, that for a person making sales that are zero-rated under
Section 108(B) (6), the input taxes shall be allocated ratably between his zero-rated and non-zero-rated sales.
xxxx

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

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

It is clear from the above-quoted provisions that any taxpayer seeking a refund or tax credit arising from
unutilized input VAT from zero-rated or effectively zero-rated sales should first file an initial administrative claim
with the BIR. This claim for refund or tax credit must be filed within two years after the close of the taxable
quarter when the sales were made.

The CIR is then given a period of 120-days from the submission of complete documents in support of the
application to either grant or deny the claim. If the claim is denied by the CIR or the latter has not acted on it
within the 120-day period, the taxpayer-claimant is then given a period of 30 days to file a judicial
claim via petition for review with the CTA.

As such, the law provides for two scenarios before a judicial claim for refund may be filed with the CTA: (1) the
full or partial denial of the claim within the 120-day period, or (2) the lapse of the 120-day period without the
CIR having acted on the claim. It is only from the happening of either one may a taxpayer-claimant file its
judicial claim for refund or tax credit for unutilized input VAT. Consequently, failure to observe the said period
renders the judicial claim premature, divesting the CTA of jurisdiction to act on it.

This mandatory and jurisdictional nature of the 120-day waiting period has been reiterated time and again by
the Court.34 In the case of Commissioner of Internal Revenue vs. San Roque Power Corporation,35 the
Court En Banc categorically stated:

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. 36

Likewise, in Harte-Hanks Philippines, Inc. vs. Commissioner of Internal Revenue,37 the Court illustrated the
fatal effect of non-observance of the 120-day period. In said case, the Court dismissed the judicial claim for
refund because it was filed a mere seven days after taxpayer-claimant HHPI filed its administrative claim,
without waiting for it to be first reso1ved. The Court explained that the CTA must wait for the Commissioner's
decision on the administrative claim or the lapse of the 120-day waiting period otherwise there would be
nothing to review. It is the denial or inaction "deemed a denial" which the taxpayer-claimant takes to the CTA
for review. Without any 'decision,' the CTA as a court of special jurisdiction acquires no jurisdiction over a
taxpayer-claimant's judicial claim for refund.38

In the instant case, TSC filed its administrative claim for refund for taxable year 2001 on March 20, 2003, well
within the two-year period provided for by law. TSC then filed two separate judicial claims for refund: one on
March 31, 2003 for the first quarter of 2001, and the other on July 23, 2003 for the second, third, and fourth
quarters of the same year.39

Given the fact that TSC's administrative claim was filed on March 20, 2003, the CIR had 120 days or until July
18, 2003 to act on it. Thus, the first judicial claim was premature because TSC filed it a mere 11 days after
filing its administrative claim.
On the other hand, the second judicial claim filed by TSC was filed on time because it was filed on July 23,
2003 or five days after the lapse of the 120-day period.40 Accordingly, it is clear that the second judicial claim
complied with the mandatory waiting period of 120 days and was filed within the prescriptive period of 30 days
from the CIR's action or inaction. Therefore, the CTA division only acquired jurisdiction over TSC's second
judicial claim for refund covering its second, third, and fourth quarters of taxable year 2001.

TSC submits that at the time of the filing of its claims for refund, prevailing jurisprudence espoused that the
120-day waiting period was merely permissive instead of mandatory. 41 Otherwise stated, TSC argues that as
long as a taxpayer-claimant filed both its administrative and judicial claim within the two year prescriptive
period under Section 112(A) of the NIRC then there would be no need to comply with the 120-day waiting
period. This assertion has no basis.

In support of its position, TSC cites42 the cases of Intel Technology Philippines, Inc. vs. Commissioner of
Internal Revenue,43San Roque Power Corporation vs. Commissioner of Internal Revenue,44AT&T
Communications Services Philippines, Inc. vs. Commissioner of Internal Revenue,45 and Southern Philippines
Power Corporation vs. Commissioner of Internal Revenue.46 TSC insists that in said cases, because the Court
allowed the filing of the judicial claim even before the CIR could act on the administrative claim, then the Court
implicitly ruled that the 120-day period is not mandatory. However, a more thorough study of the cases reveals
that they are inapplicable to this controversy as they involve different issues.

In Intel Technology Philippines,47 the Court resolved the issue of whether entities engaged in business are
required to indicate in their receipts or invoices the authority from the BIR to print the same. Nowhere in the
case did the Court rule that the 120-day period may be dispensed with as long as the administrative and
judicial claims are filed within the two-year prescriptive period.

In San Roque Power Corporation,48 the main issue revolved around the coverage of the terms, "zero-rated or
effectively zero-rated sales." The Court discussed that the NIRC does not limit the definition of "sale" to
commercial transactions in the normal course of business, but extends the term to transactions which are also
"deemed" sale under Section 106(B) of the NIRC. Again, nowhere in said case was the 120-day period even
remotely mentioned or ruled upon.

Finally, in AT&T Communications Services Philippines, Inc.49 and Southern Philippines Power
Corporation,50 the issues resolved by the Court dealt with the substantiation requirements in relation to a claim
for tax refund or credit Likewise, the Court never even touched upon the nature of the 120-day waiting period in
said case.

Given the foregoing, it is apparent that none of these cases constitute binding precedent as to the nature of the
120-day period. As such, TSC cannot now claim that at the time they filed their judicial claims, they relied in
good faith on the then-prevailing interpretation as to the nature of the 120-day period.

Nevertheless, TSC insists that assuming arguendo that the 120-day period was indeed mandatory and
jurisdictional, the issue of its non-compliance with said period, as a ground to deny its claim, was already
waived since the CIR did not raise it in the proceedings before the CTA Division. It claims that non-compliance
with the 120-day period prior to the filing of a judicial claim with the CTA merely results in a lack of cause of
action, a ground which may be waived for failure to timely invoke the same. 51

However, it is apparent from the records that the issue of TSC's non-compliance with the 120-day waiting
period has been raised by the CIR throughout the pendency of the entire case. In fact, the records reveal that
the CIR raised it at the earliest possible opportunity, when it filed its motion for partial reconsideration with the
CTA Division dated July 3, 2009.52

In any case, even if the CIR failed to raise the issue of TSC's non-compliance with the 120-day waiting period
at the first instance, such failure would not operate to vest the CTA with jurisdiction over TSC's judicial claims
for refund. The Court has already settled that a judicial claim for refund which does not comply with the 120-
day mandatory waiting period renders the same void. 53 As such, no right can be claimed or acquired from it,
notwithstanding the failure of a party to raise it as a ground for dismissal. In San Roque,54 the Court expounded
on such point, to wit:

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.55 (Emphasis supplied)

Being a mere scrap of paper, TSC's judicial claim for refund filed on March 31, 2003 covering the first quarter
of taxable year 2001 cannot be the source of any rights.

Thus, considering the foregoing, the Court agrees with the ruling of the CTA En Banc which held that between
the March 31 and the July 23 petitions for review filed by TSC, the CTA Division only acquired jurisdiction over
the latter.

Seeing as the CTA validly acquired jurisdiction over the July 23 petition for review covering the second, third,
and fourth quarters of taxable year 2001, we give full accord to its factual findings with respect to the amount of
duly substantiated excess input VAT for said periods.

The CTA En Banc, based on their appreciation of the evidence presented to them, unequivocally ruled that
TSC has sufficiently proven its entitlement to the refund or the issuance of a tax credit certificate in its favor for
unutilized input VAT in the amount of P123,110,001.68.56

It is well settled that factual findings of the CTA when supported by substantial evidence, will not be disturbed
on appeal. Due to the nature of its functions, the tax court dedicates itself to the study and consideration of tax
problems and necessarily develops expertise thereon. Unless there has been an abuse of discretion on its
part, the Court accords the highest respect to the factual findings of the CTA. 57

It must be emphasized that generally, it is not the province of an appeal by petition for review on certiorari to
determine factual matters. Although there are exceptions 58 to this general rule, none of these exist in the
instant case. With that being said, the issue of whether a claimant has actually presented the necessary
documents that would prove its entitlement to a tax refund or tax credit, is indubitably a question of fact. 59

As a final note, tax refunds or tax credits, just like tax exemptions, are strictly construed against the taxpayer-
claimant. A claim for tax refund is a statutory privilege and the mere existence of unutilized input VAT does not
entitle the taxpayer, as a matter of right, to it. As such, the rules and procedure in claiming a tax refund should
be faithfully complied with. Non-compliance with the pertinent laws should render any judicial claim fatally
defective.60

WHEREFORE, premises considered, the instant petitions are DENIED. The Consolidated Decision dated
September 15, 2011 and the Resolution dated March 21, 2012 of the Court of Tax Appeals En Banc in CTA
EB No. 649 and CTA EB No. 651 are hereby AFFIRMED in toto.

SO ORDERED.
 THIRD DIVISION

G.R. No. 190324, June 06, 2018

PHILIPPINE PORTS AUTHORITY, Petitioner, v. THE CITY OF DAVAO, SANGGUNIANG PANGLUNGSOD

NG DAVAO CITY, CITY MAYOR OF DAVAO CITY, CITY TREASURER OF DAVAO CITY, CITY ASSESSOR
OF DAVAO CITY, AND CENTRAL BOARD OF ASSESSMENT APPEALS (CBAA), Respondents.

DECISION

LEONEN, J.:

When a tax case is pending on appeal with the Court of Tax Appeals, the Court of Tax Appeals has the
exclusive jurisdiction to enjoin the levy of taxes and the auction of a taxpayer's properties in relation to that
case.

This is a Petition for Review on Certiorari,1 assailing the Court of Appeals December 15, 2008 Decision 2 and
September 11, 2009 Resolution3 in CA-G.R. SP No. 00735-MIN, dismissing the Philippine Ports Authority's
Petition for Prohibition.

The Philippine Ports Authority was created under Presidential Decree No. 857, as amended. It was mandated
"to implement an integral program for the planning, development, financing, and operation of ports in the
Philippines" and was "empowered to administer properties of any kind under its jurisdiction." 4

On June 17, 2004, the Philippine Ports Authority received a letter from the City Assessor of Davao for the
assessment and collection of real property taxes against its administered properties located at Sasa Port. It
appealed the assessment via registered mail to the Local Board of Assessment Appeals through the Office of
the City Treasurer of Davao on August 2, 2004. The Office of the City Treasurer of Davao received the appeal
on August 11, 2004, and forwarded it to the Chairman of the Local Board of Assessment Appeals, who
received it on September 6, 2004. While the case was pending, the City of Davao posted a notice of sale of
delinquent real properties,5 including the three (3) properties subject of this case, namely, 1) the quay covered
by Tax Declaration No. E-04-09-063842; 2) the parcel of land with Tax Declaration No. E-04-09-092572; and
3) the administrative building under Tax Declaration No. E-04-09-090803.6

The Local Board of Assessment Appeals dismissed the Philippine Ports Authority's appeal for having been
filed out of time, and for its lack of jurisdiction on the latter's tax exemption in its January 25, 2005 Order.7 The
Philippine Ports Authority appealed8 before the Central Board of Assessment Appeals, but this appeal was
denied in the Central Board of Assessment Appeals April 7, 2005 Decision. 9 Thus, it filed an appeal with the
Court of Tax Appeals.10

The Philippine Ports Authority claimed that it did not receive any warrant of levy for the three (3) properties
which were sold to respondent City of Davao, or any notice that they were going to be auctioned. It was
informed that it had one (1) year from the date of registration of the sale within which to redeem the properties
by paying the taxes, penalties, and incidental expenses, plus interest at the rate of 2% per month on the
purchase price.11

Thus, it filed a petition for certiorari with the Court of Appeals, arguing that the City of Davao's taxation of its
properties and their subsequent auction and sale to satisfy the alleged tax liabilities were without or in excess
of its jurisdiction and contrary to law. It argued that it had no other speedy and adequate remedy except to file
a petition for certiorari with the Court of Appeals.12

While the petition was pending with the Court of Appeals, the Court of Tax Appeals promulgated a
Decision13 dated July 30, 2007, granting the Philippine Ports Authority's appeal, resolving in its favor the issue
of its liability for the real estate tax of Sasa Port and its buildings. The dispositive portion of this Decision read:
WHEREFORE, premises considered, the present Petition for Review is hereby GRANTED. Accordingly, the
Decision dated April 7, 2005 of the Central Board of Assessment Appeals in CBAA Case No. M-20 and the
Order dated January 25, 2005 of the LBAA in LBAA Case No. 01-04 dismissing the appeal are hereby SET
ASIDE. We declare the Sasa Port, Davao City and its buildings EXEMPT from the real estate tax imposed by
Davao City. We declare VOID all the real estate tax assessments issued by Davao City on the Sasa Port and
its buildings.

SO ORDERED.14 (Emphasis in the original)

Additionally, while the petition was pending with the Court of Appeals, the Court of Tax Appeals issued an
Entry of Judgment stating that its July 30, 2007 Decision became final and executory on February 13, 2008,
considering that no appeal to the Supreme Court had been taken. 15

Thereafter, the Court of Appeals dismissed the petition in its December 15, 2008 Decision. 16 It held that the
Court of Tax Appeals had exclusive jurisdiction to determine the matter 17 and said that the Philippine Ports
Authority "should have applied for the issuance of writ of injunction or prohibition before the Court of Tax
Appeals."18 It further found the petition dismissible on the ground that the Philippine Ports Authority committed
forum shopping, as the petition raised the same facts and issues as in its appeal before the Court of Tax
Appeals.19

Petitioner filed a motion for reconsideration, which the Court of Appeals denied in its September 11, 2009
Resolution,20 which read, in part:

This Court GRANTS the Motion For Extension Of Time To tile Comment and NOTES the Comment
subsequently tiled within the extended period prayed for, and DENIES petitioner's Motion for Reconsideration
from the Decision dated December 15, 2008, dismissing the petition for prohibition and upholding the authority
of the City Government of Davao in taxing, auctioning and selling petitioner's properties to satisfy the latter's
real property tax liabilities.

....

WHEREFORE, the instant Motion for Reconsideration is hereby DENIED.

SO ORDERED.21 (Emphasis in the original)

Thus, the Philippine Ports Authority filed its Petition for Review22 under Rule 45 of the Rules of Court before
this Court against the City of Davao, Sangguniang Panglungsod ng Davao City, City Mayor of Davao City, City
Treasurer of Davao City, City Assessor of Davao City, and Central Board of Assessment Appeals (collectively,
respondents), assailing the Court of Appeals December 15, 2008 Decision and September 11, 2009
Resolution. Respondents filed their Comment23 to which petitioner filed its Reply.24

Petitioner argues that it did not commit forum shopping, asserting that the only element of forum shopping
present as between the appeals filed before the Court of Tax Appeals and the Court of Appeals is identity of
parties.25 Its arguments regarding the jurisdiction of the Court of Appeals are inscrutable but appear to maintain
that the Court of Appeals has jurisdiction on the basis of urgency. It also avers that the Court of Appeals erred
when it "ruled, declared and upheld the authority" of respondent City of Davao to tax, auction, and sell its
properties.26 It points out that the Supreme Court has held that as a government instrumentality, its properties
cannot be taxed by local government.27

Respondents insist that forum shopping exists, considering that the elements of litis pendentia were present
when the case was filed with the Court of Appeals.28 On the question of the propriety of the imposition of tax on
petitioner's properties, respondents claim that there was an error in the Court of Tax Appeals July 30, 2007
Decision. Thus, while they maintain that this case is not the proper case to rectify the error of the Court of Tax
Appeals, they ask that this Court lay down a jurisprudential pronouncement on the real property tax treatment
of petitioner's properties.29
The issues for resolution by this Court are:

First, whether or not the Court of Appeals had jurisdiction to issue the injunctive relief prayed for by petitioner
Philippine Ports Authority; and

Second, whether or not the petition before the Court of Appeals was properly dismissed for forum shopping.

This Court denies the Petition.

In real property tax cases such as this, the remedy of a taxpayer depends on the stage in which the local
government unit is enforcing its authority to impose real property taxes.30 Moreover, as jurisdiction is conferred
by law,31 reference must be made to the law when determining which court has jurisdiction over a case, in
relation to its factual and procedural antecedents.

Petitioner has failed to cite any law supporting its contention that the Court of Appeals has jurisdiction over this
case. On the other hand, Section 7, paragraph (a)(5) of Republic Act No. 1125,32 as amended by Republic Act
No. 9282,33 provides that the Court of Tax Appeals has exclusive appellate jurisdiction over:

Section 7. Jurisdiction. - The CTA shall exercise:

(a) Exclusive appellate jurisdiction to review by appeal, as herein provided:

....
(5) Decisions of the Central Board of Assessment Appeals in the exercise of its appellate jurisdiction over
cases involving the assessment and taxation of real property originally decided by the provincial or city board
of assessment appeals[.]

The Central Board of Assessment Appeals April 7, 2005 Decision assailed by petitioner before the Court of
Appeals was rendered in the exercise of its appellate jurisdiction over the real property tax assessment of its
properties. Clearly, this falls within the above-cited provision. Indeed, there is no dispute that this Central Board
of Assessment Appeals decision constitutes one of the cases covered by the Court of Tax Appeals' exclusive
jurisdiction.

Despite the clear wording of the law placing this case within the exclusive appellate jurisdiction of the Court of
Tax Appeals, petitioner insists that the Court of Appeals could have issued the relief prayed for despite the
provisions of Republic Act No. 9282, considering its urgent need for injunctive relief. 34

Petitioner's contention has no legal basis whatsoever and must be rejected. Urgency does not remove the
Central Board of Assessment Appeals decision from the exclusive appellate jurisdiction of the Court of Tax
Appeals. This is particularly true since, as properly recognized by the Court of Appeals, petitioner could have,
and should have, applied for injunctive relief with the Court of Tax Appeals, which has the power to issue the
preliminary injunction prayed for.35

In City of Manila v. Grecia-Cuerdo,36 this Court expressly recognized the Court of Tax Appeals' power to
determine whether or not there has been grave abuse of discretion in cases falling within its exclusive
appellate jurisdiction and its power to issue writs of certiorari:

On the strength of the above constitutional provisions, it can be fairly interpreted that the power of the CTA
includes that of determining whether or not there has been grave abuse of discretion amounting to lack or
excess of jurisdiction on the part of the RTC in issuing an interlocutory order in cases falling within the
exclusive appellate jurisdiction of the tax court. It, thus, follows that the CTA, by constitutional mandate, is
vested with jurisdiction to issue writs of certiorari in these cases.
Indeed, in order for any appellate court, to effectively exercise its appellate jurisdiction, it must have the
authority to issue, among others, a writ of certiorari. In transferring exclusive jurisdiction over appealed tax
cases to the CTA, it can reasonably be assumed that the law intended to transfer also such power as is
deemed necessary, if not indispensable, in aid of such appellate jurisdiction. There is no perceivable reason
why the transfer should only be considered as partial, not total.

Consistent with the above pronouncement, this Court has held as early as the case of J.M. Tuason & Co., Inc.
v. Jaramillo, et al. that "if a case may be appealed to a particular court or judicial tribunal or body, then said
court or judicial tribunal or body has jurisdiction to issue the extraordinary writ of certiorari, in aid of its appellate
jurisdiction." This principle was affirmed in De Jesus v. Court of Appeals, where the Court stated that "a court
may issue a writ of certiorari in aid of its appellate jurisdiction if said court has jurisdiction to review, by appeal
or writ of error, the final orders or decisions of the lower court." The rulings in J.M. Tuason and De Jesus were
reiterated in the more recent cases of Galang, Jr. v. Geronimo and Bulilis v. Nuez.

Furthermore, Section 6, Rule 135 of the present Rules of Com1 provides that when by law, jurisdiction is
conferred on a court or judicial officer, all auxiliary writs, processes and other means necessary to carry it into
effect may be employed by such court or officer.

If this Court were to sustain petitioners' contention that jurisdiction over their certiorari petition lies with the CA,
this Court would be confirming the exercise by two judicial bodies, the CA and the CTA, of jurisdiction over
basically the same subject matter — precisely the split-jurisdiction situation which is anathema to the orderly
administration of justice. The Court cannot accept that such was the legislative motive, especially considering
that the law expressly confers on the CTA, the tribunal with the specialized competence over tax and tariff
matters, the role of judicial review over local tax cases without mention of any other court that may exercise
such power. Thus, the Court agrees with the ruling of the CA that since appellate jurisdiction over private
respondents' complaint for tax refund is vested in the CTA, it follows that a petition for certiorari seeking
nullification of an interlocutory order issued in the said case should, likewise, be filed with the same court. To
rule otherwise would lead to an absurd situation where one court decides an appeal in the main case while
another court rules on an incident in the very same case.

Stated differently, it would be somewhat incongruent with the pronounced judicial abhorrence to split
jurisdiction to conclude that the intention of the law is to divide the authority over a local tax case filed with the
RTC by giving to the CA or this Court jurisdiction to issue a writ of certiorari against interlocutory orders of the
RTC but giving to the CTA the jurisdiction over the appeal from the decision of the trial court in the same case.
It is more in consonance with logic and legal soundness to conclude that the grant of appellate jurisdiction to
the CTA over tax cases filed in and decided by the RTC carries with it the power to issue a writ
of certiorari when necessary in aid of such appellate jurisdiction. The supervisory power or jurisdiction of the
CTA to issue a writ of certiorari in aid of its appellate jurisdiction should co-exist with, and be a complement to,
its appellate jurisdiction to review, by appeal, the final orders and decisions of the RTC, in order to have
complete supervision over the acts of the latter.

A grant of appellate jurisdiction implies that there is included in it the power necessary to exercise it effectively,
to make all orders that will preserve the subject of the action, and to give effect to the final determination of the
appeal. It carries with it the power to protect that jurisdiction and to make the decisions of the court thereunder
effective. The court, in aid of its appellate jurisdiction, has authority to control all auxiliary and incidental
matters necessary to the efficient and proper exercise of that jurisdiction. For this purpose, it may, when
necessary, prohibit or restrain the performance of any act which might interfere with the proper exercise of its
rightful jurisdiction in cases pending before it.

Lastly, it would not be amiss to point out that a court which is endowed with a particular jurisdiction should
have powers which are necessary to enable it to act effectively within such jurisdiction. These should be
regarded as powers which are inherent in its jurisdiction and the court must possess them in order to enforce
its rules of practice and to suppress any abuses of its process and to defeat any attempted thwarting of such
process.37 (Citations omitted)
In this case, the Court of Tax Appeals had jurisdiction over petitioner's appeal to resolve the question of
whether or not it was liable for real property tax. To recall, the real property tax liability was the very reason for
the acts which petitioner wanted to have enjoined. It was, thus, the Court of Tax Appeals, and not the Court of
Appeals, that had the power to preserve the subject of the appeal, to give effect to its final determination, and,
when necessary, to control auxiliary and incidental matters and to prohibit or restrain acts which might interfere
with its exercise of jurisdiction over petitioner's appeal. Thus, respondents' acts carried out pursuant to the
imposition of the real property tax were also within the jurisdiction of the Court of Tax Appeals.

Even if the law had vested the Court of Appeals with jurisdiction to issue injunctive relief in real property tax
cases such as this, the Court of Appeals was still correct in dismissing the petition before it. Once a court
acquires jurisdiction over a case, it also has the power to issue all auxiliary writs necessary to maintain and
exercise its jurisdiction, to the exclusion of all other courts. 38 Thus, once the Court of Tax Appeals acquired
jurisdiction over petitioner's appeal, the Court of Appeals would have been precluded from taking cognizance
of the case.

II

The rule against forum shopping is violated when a party institutes more than one action based on the same
cause to increase its chances of obtaining a favorable outcome. Thus, when a party institutes a case while
another case is pending, where there is an identity of parties and an identity of rights asserted and relief
prayed for such that judgment in one case amounts to res judicata in the other, it is guilty of forum shopping.39

To reverse a court determination that a party has violated the rule against forum shopping, this party must
show that one or more of the requirements for forum shopping does not exist. To this end, petitioner attempts
to differentiate the petition filed with the Court of Appeals from the appeal filed with the Court of Tax Appeals. It
argues that the right asserted before the Court of Appeals is its right to peacefully possess its ports, free from
the threat of losing the properties due to tax liabilities, whereas the right asserted before the Court of Tax
Appeals is its right to be exempt from real property tax, as a government instrumentality. Petitioner further
argues that the reliefs sought from the two (2) tribunals were not the same—it sought a final relief from
payment of real property taxes on its ports from the Court of Tax Appeals; on the other hand, it sought a
temporary and immediate relief from respondents' acts from the Court of Appeals, while the issue of taxability
was still pending with the Court of Tax Appeals.40

However, even assuming without conceding that the arguments laid down by petitioner could support its claim
that it did not forum shop, this Court cannot accept that it was what was argued before the Court of Tax
Appeals and Court of Appeals, respectively, without reading the text itself. Whether or not the rights asserted
and reliefs prayed for in the two (2) petitions were different would best determined from a reading of the appeal
and petition themselves.

Unfortunately for petitioner, it submitted only its own arguments. Neither its petition before the Court of Appeals
nor its appeal before the Court of Tax Appeals was attached to the petition filed with this Court. Without any of
these texts, this Court is in no position to determine that the elements of forum shopping are absent here.

Thus, this Court affirms the Court of Appeals' finding that the rule against forum shopping was violated when
petitioner filed its Petition for Certiorari despite its pending appeal before the Court of Tax Appeals. 41

WHEREFORE, the Petition for Review on Certiorari is DENIED. The Court of Appeals December 15, 2008
Decision and September 11, 2009 Resolution in CA-G.R. SP No. 00735-MIN are hereby AFFIRMED.

SO ORDERED.