SECOND DIVISION

COMMISSIONER OF G.R. Nos. D E C I S I O N

134587 & 134588

INTERNAL REVENUE,
TINGA, J.:
Petitioner, Present:

This is a petition for the review

PUNO, J., of a consolidated Decision of
the Former Fourteenth Division
Chairman, of the Court of
Appeals [1] ordering the
- versus' - AUSTRIA-MARTINEZ, Commissioner of Internal
Revenue to award tax credits
CALLEJO, SR.,
to Benguet Corporation in the
TINGA, and amount corresponding to the
input value added taxes that
CHICO- the latter had incurred in
NAZARIO, relation to its sale of gold to
JJ. the Central Bank during the
period of 01 August 1989 to 31
BENGUET CORPORATION, July 1991.

Respondent.

Pro Petitioner is the Commissioner

mulg of Internal Revenue
ated (petitioner') acting in his
: official capacity as head of the
Bureau of Internal Revenue
July 8, 2005 (BIR), an attached agency of
the Department of
x--------------------------------
Finance, [2] with the
----------------------------------
authority, inter alia, to
-x
determine claims for refunds
or tax credits as provided by
law. [3]
Respondent Benguet
Corporation (respondent') is a
domestic corporation
organized and existing by
virtue of Philippine laws,
engaged in the exploration,
development and operation of
mineral resources, and the
sale or marketing thereof to
various
entities. [4] Respondent is a
value added tax (VAT)
registered enterprise. [5]
The transactions in question
occurred during the period
between 1988 and 1991.
Under Sec. 99 of the National
Internal Revenue Code
(NIRC), [6] as amended by
Executive Order (E.O.) No. 273
s. 1987, then in effect, any
person who, in the course of
trade or business, sells,
barters or exchanges goods,
renders services, or engages in
similar transactions and any
person who imports goods is
liable for output VAT at rates of
either 10% or 0% (zero-
rated') depending on the
classification of the transaction
under Sec. 100 of the NIRC.
Persons registered under the
VAT system [7] are allowed to
recognize input VAT, or the
VAT due from or paid by it in
the course of its trade or
business on importation of
goods or local purchases of
goods or service, including
lease or use of properties,
from a VAT-registered
person. [8]
In January of 1988,
respondent applied for and
was granted by the BIR zero-
rated status on its sale of gold
to Central Bank. [9] On 28
August 1988, Deputy
Commissioner of Internal
Revenue Eufracio D. Santos
issued VAT Ruling No. 3788-
88, which declared that '[t]he
sale of gold to Central Bank is
considered as export sale respondent when, after
subject to zero-rate pursuant applying respondent's
to Section 100[ [10]] of the creditable input VAT costs
Tax Code, as amended by against the retroactive 10%
Executive Order No. 273. The VAT levy, there resulted a
BIR came out with at least six balance of excess output
(6) other VAT. [18]
issuances [11] reiterating the
zero-rating of sale of gold to
the Central Bank, the latest of
which is VAT Ruling No. 036- The express disallowance of
90 dated 14 February respondent's application for
1990. [12] refunds/credits and the
issuance of deficiency
assessments against it were
based on a BIR
Relying on its zero-rated ruling−    −
status and the above    − 
issuances, respondent sold      
gold to the Central Bank during      
the period of 1 August 1989 to      
31 July 1991 and entered into       
transactions that resulted in       
input VAT incurred in relation      
to the subject sales of gold. It       
then filed applications for tax        
refunds/credits corresponding −    
to input VAT for the     
amounts [13] of P46,177,861.     
12, [14]     
P19,218,738.44, [15] and P84
,909,247.96. [16] Respondent
's applications were either
unacted upon or expressly 1. In general, for
disallowed by purposes of the
petitioner. [17] In addition, term 'export
petitioner issued a deficiency sales' only direct
assessment against export sales and
foreign currency
denominated
sales, shall be The BIR also issued VAT Ruling
qualified for zero- No. 059-92 dated 28 April
rating. 1992 and Revenue
Memorandum Order No. 22-92
.... which decreed that the
revocation of VAT Ruling No.
4. Local sales of 3788-88 by VAT Ruling No.
goods, which by 008-92 would not unduly
fiction of law are prejudice mining companies
considered export and, thus, could be applied
sales (e.g., the retroactively. [19]
Export Duty Law
considers sales of
gold to the Central
Respondent filed three
Bank of the
separate petitions for review
Philippines, as
with the Court of Tax Appeals
export sale). This
(CTA), docketed as CTA Case
transaction shall not
No. 4945, CTA Case No. 4627,
be considered as
and the consolidated cases of
export sale for VAT
CTA Case Nos. 4686 and 4829.
purposes.

....
[A]ll Orders and
Memoranda issued
by this Office
inconsistent
herewith are
considered
In the three cases, respondent
withdrawn, modified
argued that a retroactive
or
application of BIR VAT Ruling
superseded. (Emph
No. 008-92 would violate Sec.
asis supplied)
246 of the NIRC, which
mandates the non-
retroactivity of rulings or
circulars issued by the The CTA decisions were
Commissioner of Internal appealed by respondent to the
Revenue that would operate to Court of Appeals. The cases
prejudice the taxpayer. were docketed therein as CA-
Respondent then discussed in G.R. SP Nos. 37205, 38958,
detail the manner and extent and 39435, and thereafter
by which it was prejudiced by consolidated. The Court of
this retroactive Appeals, after evaluating the
application. [20] Petitioner on arguments of the parties,
the other hand, maintained rendered the
that BIR VAT Ruling No. 008- questioned Decision reversing
92 is, firstly, not void and the Court of Tax Appeals
entitled to great respect, insofar as the latter had ruled
having been issued by the that BIR VAT Ruling No. 008-
body charged with the duty of 92 did not prejudice the
administering the VAT law, and respondent and that the same
secondly, it may validly be could be given retroactive
given retroactive effect since it effect.
was not prejudicial to
respondent.

In its Decision, the appellate

court held that respondent
In three separate suffered financial damage
decisions, [21] the CTA equivalent to the sum of the
dismissed respondent's disapproved claims. It stated
respective petitions. It held, that had respondent known
with Presiding Judge Ernesto that such sales were subject to
D. Acosta dissenting, that no 10% VAT, which rate was not
prejudice had befallen the prevailing rate at the time
respondent by virtue of the of the transactions,
retroactive application of BIR respondent would have passed
VAT Ruling No. 008-92, and on the cost of the input taxes
that, consequently, the to the Central Bank. It also
application did not violate Sec. ruled that the remedies which
246 of the NIRC. [22] the CTA supposed would
eliminate any resultant
prejudice to respondent were
not sufficient palliatives as the WHEREFORE, the
monetary values provided in appealed decision is
the supposed remedies do not hereby REVERSED.
approximate the monetary The respondent
values of the tax credits that Commissioner of
respondent lost after the Internal Revenue is
implementation of the VAT ordered to award the
ruling in question. It cited following tax credits to
petitioner.
1) In CA-G.R. SP
No. 37209
Manila Mining Corporation v. ' P49,611,914.00
Commissioner of Internal 2) in CA-G.R. SP
Revenue , [23] in which the No. 38958
Court of Appeals - P19,218,738.44
held [24] that BIR VAT Ruling 3) in CA-G.R. SP
No. 008-92 cannot be given No. 39435
retroactive effect. Lastly, the - P84,909,247.96
Court of Appeals observed that [25]
R.A. 7716, the 'The New
Expanded VAT Law, reveals
the intent of the lawmakers
with regard to the treatment of
sale of gold to the Central Bank
since the amended version Dissatisfied with the above
therein of Sec. 100 of the NIRC ruling, petitioner filed the
expressly provides that the instant Petition for
sale of gold to the Bangko Review questioning the
Sentral ng Pilipinas is an determination of the Court of
export sale subject to 0% VAT Appeals that the retroactive
rate. The appellate court thus application of the subject
allowed respondent's claims, issuance was prejudicial to
decreeing in its dispositive respondent and could not be
portion, viz: applied retroactively.
Apart from the central issue on without having to strike down
the validity of the retroactive the issuances. Clearly,
application of VAT Ruling No. whether the subject VAT ruling
008-92, the question of the may validly be given
validity of the issuance itself retrospective effect is the lis
has been touched upon in the mota in the case. Put in
pleadings, including a another but specific fashion,
reference made by respondent the sole issue to be addressed
to a Court of is whether respondent's sale of
Appeals Decision holding that gold to the Central Bank during
the VAT Ruling had no legal the period when such was
basis. [26] For its part, as the classified by BIR issuances as
party that raised this issue, zero-rated could be taxed
petitioner spiritedly defends validly at a 10% rate after the
the validity of the consummation of the
issuance. [27] Effectively, transactions involved.
however, the question is a
non-issue and delving into it
would be a needless exercise
for, as respondent In a long line of
emphatically pointed out in cases, [29] this Court has
its Comment, unlike affirmed that the rulings,
petitioner's formulation of the circular, rules and regulations
issues, the only real issue in promulgated by the
this case is whether VAT Ruling Commissioner of Internal
No. 008-92 which revoked Revenue would have no
previous rulings of the retroactive application if to so
petitioner which respondent apply them would be
heavily relied upon . . . may be prejudicial to the taxpayers. In
legally applied retroactively to fact, both petitioner [30] and
respondent. [28] This Court respondent [31] agree that
need not invalidate the BIR the retroactive application of
issuances, which have the VAT Ruling No. 008-92 is valid
force and effect of law, unless only if such application would
the issue of validity is so not be prejudicial to the
crucially at the heart of the respondent pursuant to the
controversy that the Court explicit mandate under Sec.
cannot resolve the case 246 of the NIRC, thus:
 Bureau of Internal
Revenue are
Sec. 246. Non- materially different
retroactivity of form the facts on
rulings.- Any which the ruling is
revocation, based; or (c) where
modification or the taxpayer acted
reversal of any of in bad
the rules and faith. (Emphasis
regulations promulg supplied)
ated in accordance
with the preceding
Section or any of the
rulings or
circulars promulgate
d by the In that regard, petitioner
Commissioner shall submits that respondent would
not be given not be prejudiced by a
retroactive retroactive application;
application if the respondent maintains the
revocation, contrary. Consequently, the
modification or determination of the issue of
reversal will be retroactivity hinges on
prejudicial to the whether respondent would
taxpayers except in suffer prejudice from the
the following cases: retroactive application of VAT
(a) where the Ruling No. 008-92.
taxpayer
deliberately
misstates or omits We agree with the Court of
material facts from Appeals and the respondent.
his return on any
document required
of him by the Bureau
of Internal Revenue; To begin with, the
(b) where the facts determination of whether
subsequently respondent had suffered
gathered by the prejudice is a factual issue. It
is an established rule that in
the exercise of its power of
review, the Supreme Court is
not a trier of facts. Moreover,
in the exercise of the Supreme
Court's power of review, the
findings of facts of the Court of
Appeals are conclusive and
binding on the Supreme
Court. [32] An exception to
this rule is when the findings of
fact a quo are
conflicting, [33] as is in this
case.
VAT is a percentage tax
imposed at every stage of the
distribution process on the
sale, barter, exchange or lease
of goods or properties and
rendition of services in the
course of trade or business, or
the importation of
goods. [34] It is an indirect
tax, which may be shifted to
the buyer, transferee, or
lessee of the goods,
properties, or
services. [35] However, the
party directly liable for the
payment of the tax is the
seller. [36]
In transactions taxed at a 10%
rate, when at the end of any
given taxable quarter the
output VAT exceeds the input
VAT, the excess shall be paid
to the government; when the
input VAT exceeds the output
VAT, the excess would be
carried over to VAT liabilities
for the succeeding quarter or
quarters. [37] On the other
hand, transactions which are
taxed at zero-rate do not
result in any output tax. Input
VAT attributable to zero-rated
sales could be refunded or
credited against other internal
revenue taxes at the option of
the taxpayer. [38]
To illustrate, in a zero-rated
transaction, when a VAT-
registered person (taxpayer')
purchases materials from his
supplier
at P80.00, P7.30 [39] of which
was passed on to him by his
supplier as the latter's 10%
output VAT, the taxpayer is
allowed to recover P7.30 from
the BIR, in addition to other
input VAT he had incurred in
relation to the zero-rated
transaction, through tax
credits or refunds. When the
taxpayer sells his finished
product in a zero-rated
transaction, say, for P110.00,
he is not required to pay any
output VAT thereon. In the
case of a transaction subject to
10% VAT, the taxpayer is
allowed to recover both the
input VAT of P7.30 which he
paid to his supplier and his
output VAT of P2.70 (10%
the P30.00 value he has added
to the P80.00 material) by
passing on both costs to the
buyer. Thus, the buyer pays
the total 10% VAT cost, in this
case P10.00 on the product.
In both situations, the
taxpayer has the option not to
carry any VAT cost because in
the zero-rated transaction, the
taxpayer is allowed to recover
input tax from the BIR without
need to pay output tax, while
in 10% rated VAT, the
taxpayer is allowed to pass on
both input and output VAT to
the buyer. Thus, there is an
elemental similarity between
the two types of VAT ratings in
that the taxpayer has the
option not to take on any VAT
payment for his transactions
by simply exercising his right
to pass on the VAT costs in the
manner discussed above.
Proceeding from the foregoing,
there appears to be no upfront
economic difference in
changing the sale of gold to the
Central Bank from a 0% to
10% VAT rate provided that
respondent would be allowed
the choice to pass on its VAT
costs to the Central Bank. In
the instant case, the
retroactive application of VAT
Ruling No. 008-92 unilaterally
forfeited or withdrew this
option of respondent. The
adverse effect is that
respondent became the
unexpected and unwilling
debtor to the BIR of the
amount equivalent to the total
VAT cost of its product, a
liability it previously could
have recovered from the BIR in
a zero-rated scenario or at
least passed on to the Central
Bank had it known it would
have been taxed at a 10%
rate. Thus, it is clear that
respondent suffered economic
prejudice when its
consummated sales of gold to
the Central Bank were taken
out of the zero-rated category.
The change in the VAT rating
of respondent's transactions
with the Central Bank resulted
in the twin loss of its
exemption from payment of
output VAT and its opportunity
to recover input VAT, and at
the same time subjected it to
the 10% VAT sans the option
to pass on this cost to the
Central Bank, with the total
prejudice in money terms
being equivalent to the 10%
VAT levied on its sales of gold
to the Central Bank.
Petitioner had made its
position hopelessly untenable
by arguing that 'the deficiency
10% that may be assessable
will only be equal to 1/11th of
the amount billed to the
[Central Bank] rather than
10% thereof. In short,
[respondent] may only be
charged based on the tax
amount actually and
technically passed on to the
[Central Bank] as part of the
invoiced price. [40] To the
Court, the aforequoted
statement is a clear
recognition that respondent
would suffer prejudice in the
'amount actually and
technically passed on to the
[Central Bank] as part of the
invoiced price. In determining
the prejudice suffered by
respondent, it matters little
how the amount charged
against respondent is
computed, [41] the point is
that the amount (equal to
1/11th of the amount billed to
the Central Bank) was charged
against respondent, resulting
in damage to the latter.
Petitioner posits that the
retroactive application of BIR
VAT Ruling No. 008-92 is
stripped of any prejudicial
effect when viewed in relation
to several available options to
recoup whatever liabilities
respondent may have
incurred, i.e., respondent's
input VAT may still be used (1)
to offset its output VAT on the
sales of gold to the Central
Bank or on its output VAT on
other sales subject to 10%
VAT, and (2) as deductions on
its income tax under Sec. 29 of
the Tax Code. [42]
On petitioner's first suggested
recoupment modality,
respondent counters that its
other sales subject to 10%
VAT are so minimal that this
mode is of little value. Indeed,
what use would a credit be
where there is nothing to set it
off against? Moreover,
respondent points out that
after having been imposed
with 10% VAT sans the
opportunity to pass on the
same to the Central Bank, it
was issued a deficiency tax
assessment because its input
VAT tax credits were not
enough to offset the
retroactive 10% output VAT.
The prejudice then
experienced by respondent lies
in the fact that the tax
refunds/credits that it
expected to receive had
effectively disappeared by
virtue of its newfound output
VAT liability against which
petitioner had offset the
expected refund/credit.
Additionally, the prejudice to
respondent would not simply
disappear, as petitioner
claims, when a liability (which
liability was not there to begin
with) is imposed concurrently
with an opportunity to reduce,
not totally eradicate, the
newfound liability. In sum,
contrary to petitioner's
suggestion, respondent's net
income still decreased
corresponding to the amount it
expected as its refunds/credits
and the deficiency
assessments against it, which
when summed up would be the
total cost of the 10%
retroactive VAT levied on
respondent.
Respondent claims to have
incurred further prejudice. In
computing its income taxes for
the relevant years, the input
VAT cost that respondent had
paid to its suppliers was not
treated by respondent as part
of its cost of goods sold, which
is deductible from gross
income for income tax
purposes, but as an asset
which could be refunded or
applied as payment for other
internal revenue taxes. In fact,
Revenue Regulation No. 5-87
(VAT Implementing
Guidelines), requires input VAT
to be recorded not as part of
the cost of materials or
inventory purchased but as a
separate entry called input
taxes, which may then be
applied against output VAT,
other internal revenue taxes,
or refunded as the case may
be. [43] In being denied the
opportunity to deduct the input
VAT from its gross income,
respondent's net income was
overstated by the amount of
its input VAT. This
overstatement was assessed
tax at the 32% corporate
income tax rate, resulting in
respondent's overpayment of
income taxes in the
corresponding amount. Thus,
respondent not only lost its
right to refund/ credit its input
VAT and became liable for
deficiency VAT, it also overpaid
its income tax in the amount of
32% of its input VAT.
This leads us to the second
recourse that petitioner has
suggested to offset any
resulting prejudice to
respondent as a consequence
of giving retroactive effect to
BIR VAT Ruling No. 008-92.
Petitioner submits that
granting that respondent has
no other sale subject to 10%
VAT against which its input
taxes may be used in
payment, then respondent is
constituted as the final entity
against which the costs of the
tax passes-on shall legally
stop; hence, the input taxes
may be converted as costs
available as deduction for
income tax purposes. [44]
Even assuming that the right
to recover respondent's excess
payment of income tax has not
yet prescribed, this relief
would only address
respondent's overpayment of
income tax but not the other
burdens discussed above.
Verily, this remedy is not a
feasible option for respondent
because the very reason why it
was issued a deficiency tax
assessment is that its input
VAT was not enough to offset
its retroactive output VAT.
Indeed, the burden of having
to go through an unnecessary
and cumbersome refund
process is prejudice enough.
Moreover, there is in fact
nothing left to claim as a
deduction from income taxes.

From the foregoing it is clear
that petitioner's suggested
options by which prejudice
would be eliminated from a
retroactive application of VAT
Ruling No. 008-92 are either
simply inadequate or grossly
unrealistic.
At the time when the subject
transactions were
consummated, the prevailing
BIR regulations relied upon by
respondent ordained that gold
sales to the Central Bank were
zero-rated. The BIR
interpreted Sec. 100 of the
NIRC in relation to Sec. 2 of
E.O. No. 581 s. 1980 which
prescribed that gold sold to the
Central Bank shall be
considered export and
therefore shall be subject to
the export and premium
duties. In coming out with this
interpretation, the BIR also
considered Sec. 169 of Central
Bank Circular No. 960 which
states that all sales of gold to
the Central Bank are
considered
constructive
exports. [45] Respondent
should not be faulted for
relying on the BIR's
interpretation of the said laws
and regulations. [46] While it
is true, as petitioner alleges,
that government is not
estopped from collecting taxes
which remain unpaid on
account of the errors or
mistakes of its agents and/or
officials and there could be no
vested right arising from an
erroneous interpretation of
law, these principles must give
way to exceptions based on
and in keeping with the
interest of justice and fairplay,
as has been done in the instant
matter. For, it is primordial
that every person must, in the
exercise of his rights and in the
performance of his duties, act
with justice, give everyone his
due, and observe honesty and ....
good faith. [47]
This Court is not
unaware of the well-
entrenched principle
The case of ABS-CBN that the
Broadcasting Corporation v. [g]overnment is
Court of Tax never estopped
Appeals [48] involved a from collecting taxes
similar factual milieu. There because of mistakes
the Commissioner of Internal or errors on the part
Revenue issued Memorandum of its agents. But,
Circular No. 4-71 revoking an like other principles
earlier circular for being of law, this also
erroneous for lack of legal admits of exceptions
basis. When the prior circular in the interest of
was still in effect, petitioner justice and fairplay.
therein relied on it and . . .In fact, in the
consummated its transactions United States, . . . it
on the basis thereof. We held, has been held that
thus: the Commissioner
[of Internal
Revenue] is
. . . .Petitioner was precluded from
no longer in a adopting a position
position to withhold inconsistent with
taxes due from one previously
foreign corporations taken where
because it had injustice would
already remitted all result therefrom or
film rentals and no where there has
longer had any been a
control over them misrepresentation
when the new to the
Circular was issued. taxpayer. [49]
...
Respondent, in this case, has
similarly been put on the
receiving end of a grossly
unfair deal. Before respondent
was entitled to tax refunds or
credits based on petitioner's
own issuances. Then suddenly,
it found itself instead being
made to pay deficiency taxes
with petitioner's retroactive
change in the VAT
categorization of respondent's
transactions with the Central
Bank. This is the sort of unjust
treatment of a taxpayer which
the law in Sec. 246 of the NIRC
abhors and forbids.

WHEREFORE, the petition is

DENIED for lack of merit.
The Decision of the Court of
Appeals is AFFIRMED. No
pronouncement as to costs.

SO ORDERED.
EN BANC REVENUE AND BUREAU OF
CUSTOMS, respondents.

G.R. No. 115544 October 30,

G.R. No. 115455 October 30, 1995
1995
PHILIPPINE PRESS INSTITUTE,
ARTURO M. INC.; EGP PUBLISHING CO.,
TOLENTINO, petitioner, INC.; KAMAHALAN PUBLISHING
vs. CORPORATION; PHILIPPINE
THE SECRETARY OF FINANCE JOURNALISTS, INC.; JOSE L.
and THE COMMISSIONER OF PAVIA; and OFELIA L.
INTERNAL DIMALANTA, petitioners,
REVENUE, respondents. vs.
HON. LIWAYWAY V. CHATO, in
G.R. No. 115525 October 30, her capacity as Commissioner of
1995 Internal Revenue; HON.
TEOFISTO T. GUINGONA, JR., in
JUAN T. DAVID, petitioner, his capacity as Executive
vs. Secretary; and HON. ROBERTO
TEOFISTO T. GUINGONA, JR., as B. DE OCAMPO, in his capacity
Executive Secretary; ROBERTO as Secretary of
DE OCAMPO, as Secretary of Finance, respondents.
Finance; LIWAYWAY VINZONS-
CHATO, as Commissioner of G.R. No. 115754 October 30,
Internal Revenue; and their 1995
AUTHORIZED AGENTS OR
REPRESENTATIVES, respondent CHAMBER OF REAL ESTATE
s. AND BUILDERS
ASSOCIATIONS, INC.,
G.R. No. 115543 October 30, (CREBA), petitioner,
1995 vs.
THE COMMISSIONER OF
RAUL S. ROCO and the INTERNAL
INTEGRATED BAR OF THE REVENUE, respondent.
PHILIPPINES, petitioners,
vs. G.R. No. 115781 October 30,
THE SECRETARY OF THE 1995
DEPARTMENT OF FINANCE;
THE COMMISSIONERS OF THE KILOSBAYAN, INC., JOVITO R.
BUREAU OF INTERNAL SALONGA, CIRILO A. RIGOS,
ERME CAMBA, EMILIO C. COOPERATIVE UNION OF THE
CAPULONG, JR., JOSE T. PHILIPPINES, petitioner,
APOLO, EPHRAIM TENDERO, vs.
FERNANDO SANTIAGO, JOSE HON. LIWAYWAY V. CHATO, in
ABCEDE, CHRISTINE TAN, her capacity as the
FELIPE L. GOZON, RAFAEL G. Commissioner of Internal
FERNANDO, RAOUL V. Revenue, HON. TEOFISTO T.
VICTORINO, JOSE CUNANAN, GUINGONA, JR., in his capacity
QUINTIN S. DOROMAL, as Executive Secretary, and
MOVEMENT OF ATTORNEYS HON. ROBERTO B. DE
FOR BROTHERHOOD, OCAMPO, in his capacity as
INTEGRITY AND NATIONALISM, Secretary of
INC. ("MABINI"), FREEDOM Finance, respondents.
FROM DEBT COALITION, INC.,
and PHILIPPINE BIBLE G.R. No. 115931 October 30,
SOCIETY, INC. and WIGBERTO 1995
TAÑADA, petitioners,
vs. PHILIPPINE EDUCATIONAL
THE EXECUTIVE SECRETARY, PUBLISHERS ASSOCIATION,
THE SECRETARY OF FINANCE, INC. and ASSOCIATION OF
THE COMMISSIONER OF PHILIPPINE BOOK
INTERNAL REVENUE and THE SELLERS, petitioners,
COMMISSIONER OF vs.
CUSTOMS, respondents. HON. ROBERTO B. DE
OCAMPO, as the Secretary of
G.R. No. 115852 October 30, Finance; HON. LIWAYWAY V.
1995 CHATO, as the Commissioner of
Internal Revenue; and HON.
PHILIPPINE AIRLINES, GUILLERMO PARAYNO, JR., in
INC., petitioner, his capacity as the
vs. Commissioner of
THE SECRETARY OF FINANCE Customs, respondents.
and COMMISSIONER OF
INTERNAL RESOLUTION
REVENUE, respondents.

G.R. No. 115873 October 30,

1995 MENDOZA, J.:

These are motions seeking

reconsideration of our decision
dismissing the petitions filed in
these cases for the declaration of
unconstitutionality of R.A. No.
7716, otherwise known as the
Expanded Value-Added Tax Law.
The motions, of which there are 10
in all, have been filed by the several
petitioners in these cases, with the
exception of the Philippine
Educational Publishers
Association, Inc. and the
Association of Philippine
Booksellers, petitioners in G.R. No.
115931.
The Solicitor General, representing
the respondents, filed a the Senate committee should have
consolidated comment, to which
the Philippine Airlines, Inc.,
petitioner in G.R. No. 115852, and
the Philippine Press Institute, Inc.,
petitioner in G.R. No. 115544, and
Juan T. David, petitioner in G.R.
No. 115525, each filed a reply. In
turn the Solicitor General filed on
June 1, 1995 a rejoinder to the
PPI's reply.
On June 27, 1995 the matter was
submitted for resolution.
I. Power of the Senate to propose
amendments to revenue bills.
Some of the petitioners (Tolentino,
Kilosbayan, Inc., Philippine Airlines
(PAL), Roco, and Chamber of Real
Estate and Builders Association
(CREBA)) reiterate previous claims
made by them that R.A. No. 7716
did not "originate exclusively" in the
House of Representatives as
required by Art. VI, §24 of the
Constitution. Although they admit
that H. No. 11197 was filed in the
House of Representatives where it
passed three readings and that
afterward it was sent to the Senate
where after first reading it was
referred to the Senate Ways and
Means Committee, they complain
that the Senate did not pass it on
second and third readings. Instead
what the Senate did was to pass its
own version (S. No. 1630) which it
approved on May 24, 1994.
Petitioner Tolentino adds that what
done was to amend H. No. 11197
by striking out the text of the bill and
substituting it with the text of S. No.
1630. That way, it is said, "the bill
remains a House bill and the
Senate version just becomes the
text (only the text) of the House
bill."
The contention has no merit.
The enactment of S. No. 1630 is
not the only instance in which the
Senate proposed an amendment to
a House revenue bill by enacting its
own version of a revenue bill. On at
least two occasions during
the Eighth Congress, the Senate
passed its own version of revenue
bills, which, in consolidation with
House bills earlier passed, became
the enrolled bills. These were:
R.A. No. 7369 (AN ACT TO Congress were respectively
AMEND THE OMNIBUS passed:
INVESTMENTS CODE OF 1987
BY EXTENDING FROM FIVE (5) 1. R.A. NO. 7642
YEARS TO TEN YEARS THE
PERIOD FOR TAX AND DUTY AN ACT INCREASING
EXEMPTION AND TAX CREDIT THE PENALTIES FOR
ON CAPITAL EQUIPMENT) which TAX EVASION,
was approved by the President on AMENDING FOR THIS
April 10, 1992. This Act is actually PURPOSE THE
a consolidation of H. No. 34254, PERTINENT
which was approved by the House SECTIONS OF THE
on January 29, 1992, and S. No. NATIONAL INTERNAL
1920, which was approved by the REVENUE CODE
Senate on February 3, 1992. (December 28, 1992).

R.A. No. 7549 (AN ACT House Bill No. 2165,

GRANTING TAX EXEMPTIONS October 5, 1992
TO WHOEVER SHALL GIVE
REWARD TO ANY FILIPINO Senate Bill No. 32,
ATHLETE WINNING A MEDAL IN December 7, 1992
OLYMPIC GAMES) which was
2. R.A. NO. 7643
approved by the President on May
22, 1992. This Act is a AN ACT TO
consolidation of H. No. 22232, EMPOWER THE
which was approved by the House COMMISSIONER OF
of Representatives on August 2, INTERNAL REVENUE
1989, and S. No. 807, which was TO REQUIRE THE
approved by the Senate on PAYMENT OF THE
October 21, 1991. VALUE-ADDED TAX
EVERY MONTH AND
On the other hand, the Ninth
TO ALLOW LOCAL
Congress passed revenue laws
GOVERNMENT
which were also the result of the
UNITS TO SHARE IN
consolidation of House and Senate
VAT REVENUE,
bills. These are the following, with
AMENDING FOR THIS
indications of the dates on which
PURPOSE CERTAIN
the laws were approved by the
SECTIONS OF THE
President and dates the separate
NATIONAL INTERNAL
bills of the two chambers of
REVENUE CODE SUBDIVISIONS,
(December 28, 1992) INSTRUMENTALITIES
OR AGENCIES
House Bill No. 1503, INCLUDING
September 3, 1992 GOVERNMENT-
OWNED OR
Senate Bill No. 968, CONTROLLED
December 7, 1992 CORPORATIONS
(GOCCS) TO DEDUCT
3. R.A. NO. 7646 AND WITHHOLD THE
VALUE-ADDED TAX
AN ACT
DUE AT THE RATE OF
AUTHORIZING THE
THREE PERCENT
COMMISSIONER OF
(3%) ON GROSS
INTERNAL REVENUE
PAYMENT FOR THE
TO PRESCRIBE THE
PURCHASE OF
PLACE FOR
GOODS AND SIX
PAYMENT OF
PERCENT (6%) ON
INTERNAL REVENUE
GROSS RECEIPTS
TAXES BY LARGE
FOR SERVICES
TAXPAYERS,
RENDERED BY
AMENDING FOR THIS
CONTRACTORS (April
PURPOSE CERTAIN
6, 1993)
PROVISIONS OF THE
NATIONAL INTERNAL House Bill No. 5260,
REVENUE CODE, AS January 26, 1993
AMENDED (February
24, 1993) Senate Bill No. 1141,
March 30, 1993
House Bill No. 1470,
October 20, 1992 5. R.A. NO. 7656
Senate Bill No. 35, AN ACT REQUIRING
November 19, 1992 GOVERNMENT-
OWNED OR
4. R.A. NO. 7649 CONTROLLED
CORPORATIONS TO
AN ACT REQUIRING
DECLARE
THE GOVERNMENT
DIVIDENDS UNDER
OR ANY OF ITS
CERTAIN
POLITICAL
CONDITIONS TO THE 7. R.A. NO. 7717
NATIONAL
GOVERNMENT, AND AN ACT IMPOSING A
FOR OTHER TAX ON THE SALE,
PURPOSES BARTER OR
(November 9, 1993) EXCHANGE OF
SHARES OF STOCK
House Bill No. 11024, LISTED AND TRADED
November 3, 1993 THROUGH THE
LOCAL STOCK
Senate Bill No. 1168, EXCHANGE OR
November 3, 1993 THROUGH INITIAL
PUBLIC OFFERING,
6. R.A. NO. 7660 AMENDING FOR THE
PURPOSE THE
AN ACT NATIONAL INTERNAL
RATIONALIZING REVENUE CODE, AS
FURTHER THE AMENDED, BY
STRUCTURE AND INSERTING A NEW
ADMINISTRATION OF SECTION AND
THE DOCUMENTARY REPEALING
STAMP TAX, CERTAIN
AMENDING FOR THE SUBSECTIONS
PURPOSE CERTAIN THEREOF (May 5,
PROVISIONS OF THE 1994)
NATIONAL INTERNAL
REVENUE CODE, AS House Bill No. 9187,
AMENDED, November 3, 1993
ALLOCATING FUNDS
FOR SPECIFIC Senate Bill No. 1127,
PROGRAMS, AND March 23, 1994
FOR OTHER
PURPOSES Thus, the enactment of S. No. 1630
(December 23, 1993) is not the only instance in which the
Senate, in the exercise of its power
House Bill No. 7789, to propose amendments to bills
May 31, 1993 required to originate in the House,
passed its own version of a House
Senate Bill No. 1330, revenue measure. It is noteworthy
November 18, 1993 that, in the particular case of S. No.
1630, petitioners Tolentino and §69. No amendment
Roco, as members of the Senate, which seeks the
voted to approve it on second and inclusion of a legislative
third readings. provision foreign to the
subject matter of a bill
On the other hand, amendment by (rider) shall be
substitution, in the manner urged entertained.
by petitioner Tolentino, concerns a
mere matter of form. Petitioner has xxx xxx xxx
not shown what substantial
difference it would make if, as the §70-A. A bill or
Senate actually did in this case, a resolution shall not be
separate bill like S. No. 1630 is amended by
instead enacted as a substitute substituting it with
measure, "taking into another which covers a
Consideration . . . H.B. 11197." subject distinct from
that proposed in the
Indeed, so far as pertinent, the original bill or
Rules of the Senate only provide: resolution. (emphasis
added).
RULE XXIX
Nor is there merit in petitioners'
AMENDMENTS contention that, with regard to
revenue bills, the Philippine Senate
xxx xxx xxx possesses less power than the
U.S. Senate because of textual
§68. Not more than one differences between constitutional
amendment to the provisions giving them the power to
original amendment propose or concur with
shall be considered. amendments.
No amendment by Art. I, §7, cl. 1 of the U.S.
substitution shall be Constitution reads:
entertained unless the
text thereof is All Bills for raising
submitted in writing. Revenue shall
originate in the House
Any of said of Representatives; but
amendments may be the Senate may
withdrawn before a propose or concur with
vote is taken thereon.
 amendments as on supposed indicia of constitutional
other Bills. intent are nothing but the relics of
an unsuccessful attempt to limit the
Art. VI, §24 of our Constitution power of the Senate. It will be
reads: recalled that the 1935 Constitution
originally provided for a unicameral
All appropriation, National Assembly. When it was
revenue or tariff bills, decided in 1939 to change to a
bills authorizing bicameral legislature, it became
increase of the public necessary to provide for the
debt, bills of local procedure for lawmaking by the
application, and private Senate and the House of
bills shall originate Representatives. The work of
exclusively in the proposing amendments to the
House of Constitution was done by the
Representatives, but National Assembly, acting as a
the Senate may constituent assembly, some of
propose or concur with whose members, jealous of
amendments. preserving the Assembly's
lawmaking powers, sought to
The addition of the word curtail the powers of the proposed
"exclusively" in the Philippine Senate. Accordingly they proposed
Constitution and the decision to the following provision:
drop the phrase "as on other Bills"
in the American version, according All bills appropriating
to petitioners, shows the intention public funds, revenue
of the framers of our Constitution to or tariff bills, bills of
restrict the Senate's power to local application, and
propose amendments to revenue private bills shall
bills. Petitioner Tolentino contends originate exclusively in
that the word "exclusively" was the Assembly, but the
inserted to modify "originate" and Senate may propose or
"the words 'as in any other bills' concur with
(sic) were eliminated so as to show amendments. In case
that these bills were not to be like of disapproval by the
other bills but must be treated as a Senate of any such
special kind." bills, the Assembly may
repass the same by a
The history of this provision does two-thirds vote of all its
not support this contention. The members, and
 thereupon, the bill so by them in the elections held on
repassed shall be June 18, 1940.
deemed enacted and
may be submitted to This is the history of Art. VI, §18 (2)
the President for of the 1935 Constitution, from
corresponding action. which Art. VI, §24 of the present
In the event that the Constitution was derived. It
Senate should fail to explains why the word "exclusively"
finally act on any such was added to the American text
bills, the Assembly from which the framers of the
may, after thirty days Philippine Constitution borrowed
from the opening of the and why the phrase "as on other
next regular session of Bills" was not copied. Considering
the same legislative the defeat of the proposal, the
term, reapprove the power of the Senate to propose
same with a vote of amendments must be understood
two-thirds of all the to be full, plenary and complete "as
members of the on other Bills." Thus, because
Assembly. And upon revenue bills are required to
such reapproval, the originate exclusively in the House
bill shall be deemed of Representatives, the Senate
enacted and may be cannot enact revenue measures of
submitted to the its own without such bills. After a
President for revenue bill is passed and sent
corresponding action. over to it by the House, however,
the Senate certainly can pass its
The special committee on the own version on the same subject
revision of laws of the Second matter. This follows from the
National Assembly vetoed the coequality of the two chambers of
proposal. It deleted everything after Congress.
the first sentence. As rewritten, the
proposal was approved by the That this is also the understanding
National Assembly and embodied of book authors of the scope of the
in Resolution No. 38, as amended Senate's power to concur is clear
by Resolution No. 73. (J. from the following commentaries:
ARUEGO, KNOW YOUR
CONSTITUTION 65-66 (1950)). The power of the
The proposed amendment was Senate to propose or
submitted to the people and ratified concur with
amendments is
apparently without of Representatives
restriction. It would because it is more
seem that by virtue of numerous in
this power, the Senate membership and
can practically re-write therefore also more
a bill required to come representative of the
from the House and people. Moreover, its
leave only a trace of the members are
original bill. For presumed to be more
example, a general familiar with the needs
revenue bill passed by of the country in regard
the lower house of the to the enactment of the
United States legislation involved.
Congress contained
provisions for the The Senate is,
imposition of an however, allowed
inheritance tax . This much leeway in the
was changed by the exercise of its power to
Senate into a propose or concur with
corporation tax. The amendments to the
amending authority of bills initiated by the
the Senate was House of
declared by the United Representatives. Thus,
States Supreme Court in one case, a bill
to be sufficiently broad introduced in the U.S.
to enable it to make the House of
alteration. [Flint v. Representatives was
Stone Tracy Company, changed by the Senate
220 U.S. 107, 55 L. ed. to make a proposed
389]. inheritance tax a
corporation tax. It is
(L. TAÑADA AND F. also accepted practice
CARREON, for the Senate to
POLITICAL LAW OF introduce what is
THE PHILIPPINES 247 known as an
(1961)) amendment by
substitution, which may
The above-mentioned entirely replace the bill
bills are supposed to be initiated in the House of
initiated by the House Representatives.
 (I. CRUZ, PHILIPPINE
POLITICAL LAW 144-
145 (1993)).
In sum, while Art. VI, §24 provides
that all appropriation, revenue or
tariff bills, bills authorizing increase
of the public debt, bills of local
application, and private bills must
"originate exclusively in the House
of Representatives," it also adds,
"but the Senate may propose or
concur with amendments." In the
exercise of this power, the Senate
may propose an entirely new bill as
a substitute measure. As petitioner
Tolentino states in a high school
text, a committee to which a bill is
referred may do any of the
following:
(1) to endorse the bill
without changes; (2) to
make changes in the
bill omitting or adding
sections or altering its
language; (3) to make
and endorse an entirely
new bill as a substitute,
in which case it will be
known as a committee
bill; or (4) to make no
report at all.
(A. TOLENTINO, THE
GOVERNMENT OF
THE PHILIPPINES 258
(1950))
To except from this procedure the
amendment of bills which are
required to originate in the House
by prescribing that the number of
the House bill and its other parts up
to the enacting clause must be
preserved although the text of the
Senate amendment may be
incorporated in place of the original
body of the bill is to insist on a mere
technicality. At any rate there is no
rule prescribing this form. S. No.
1630, as a substitute measure, is
therefore as much an amendment
of H. No. 11197 as any which the
Senate could have made.
II. S. No. 1630 a mere amendment
of H. No. 11197. Petitioners' basic
error is that they assume that S.
No. 1630 is an independent and
distinct bill. Hence their repeated
references to its certification that it
was passed by the Senate
"in substitution of S.B. No. 1129,
taking into consideration P.S. Res.
No. 734 and H.B. No. 11197,"
implying that there is something
substantially different between the
reference to S. No. 1129 and the
reference to H. No. 11197. From
this premise, they conclude that
R.A. No. 7716 originated both in
the House and in the Senate and
that it is the product of two "half-
baked bills because neither H. No.
11197 nor S. No. 1630 was passed
by both houses of Congress."
In point of fact, in several instances question was raised whether the
the provisions of S. No. 1630, two bills could be the subject of
clearly appear to be mere such conference, considering that
amendments of the corresponding the bill from one house had not
provisions of H. No. 11197. The been passed by the other and vice
very tabular comparison of the versa. As Congressman Duran put
provisions of H. No. 11197 and S. the question:
No. 1630 attached as Supplement
A to the basic petition of petitioner MR. DURAN.
Tolentino, while showing Therefore, I raise this
differences between the two bills, question of order as to
at the same time indicates that the procedure: If a House
provisions of the Senate bill were bill is passed by the
precisely intended to be House but not passed
amendments to the House bill. by the Senate, and a
Senate bill of a similar
Without H. No. 11197, the Senate nature is passed in the
could not have enacted S. No. Senate but never
1630. Because the Senate bill was passed in the House,
a mere amendment of the House can the two bills be the
bill, H. No. 11197 in its original form subject of a
did not have to pass the Senate on conference, and can a
second and three readings. It was law be enacted from
enough that after it was passed on these two bills? I
first reading it was referred to the understand that the
Senate Committee on Ways and Senate bill in this
Means. Neither was it required that particular instance
S. No. 1630 be passed by the does not refer to
House of Representatives before investments in
the two bills could be referred to the government securities,
Conference Committee. whereas the bill in the
House, which was
There is legislative precedent for introduced by the
what was done in the case of H. Speaker, covers two
No. 11197 and S. No. 1630. When subject matters: not
the House bill and Senate bill, only investigation of
which became R.A. No. 1405 (Act deposits in banks but
prohibiting the disclosure of bank also investigation of
deposits), were referred to a investments in
conference committee, the government securities.
 Now, since the two bills and unrelated measures also
differ in their subject accounts for the petitioners'
matter, I believe that no (Kilosbayan's and PAL's)
law can be enacted. contention that because the
President separately certified to the
Ruling on the point of order raised, need for the immediate enactment
the chair (Speaker Jose B. Laurel, of these measures, his certification
Jr.) said: was ineffectual and void. The
certification had to be made of the
THE SPEAKER. The version of the same revenue bill
report of the which at the moment was being
conference committee considered. Otherwise, to follow
is in order. It is petitioners' theory, it would be
precisely in cases like necessary for the President to
this where a certify as many bills as are
conference should be presented in a house of Congress
had. If the House bill even though the bills are merely
had been approved by versions of the bill he has already
the Senate, there certified. It is enough that he
would have been no certifies the bill which, at the time
need of a conference; he makes the certification, is under
but precisely because consideration. Since on March 22,
the Senate passed 1994 the Senate was considering
another bill on the S. No. 1630, it was that bill which
same subject matter, had to be certified. For that matter
the conference on June 1, 1993 the President had
committee had to be earlier certified H. No. 9210 for
created, and we are immediate enactment because it
now considering the was the one which at that time was
report of that being considered by the House.
committee. This bill was later substituted,
together with other bills, by H. No.
(2 CONG. REC. NO. 11197.
13, July 27, 1955, pp.
3841-42 (emphasis As to what Presidential certification
added)) can accomplish, we have already
explained in the main decision that
III. The President's certification. the phrase "except when the
The fallacy in thinking that H. No. President certifies to the necessity
11197 and S. No. 1630 are distinct of its immediate enactment, etc." in
Art. VI, §26 (2) qualifies not only the
requirement that "printed copies [of
a bill] in its final form [must be]
distributed to the members three
days before its passage" but also
the requirement that before a bill
can become a law it must have
passed "three readings on
separate days." There is not only
textual support for such
construction but historical basis as
well.
Art. VI, §21 (2) of the 1935
Constitution originally provided:
(2) No bill shall be
passed by either House
unless it shall have
been printed and
copies thereof in its
final form furnished its
Members at least three
calendar days prior to
its passage, except
when the President
shall have certified to
the necessity of its
immediate enactment.
Upon the last reading
of a bill, no amendment
thereof shall be allowed
and the question upon
its passage shall be
taken immediately
thereafter, and
the yeas and nays ent
ered on the Journal.
When the 1973 Constitution was
adopted, it was provided in Art. VIII,
§19 (2):
(2) No bill shall become
a law unless it has
passed three readings
on separate days, and
printed copies thereof
in its final form have
been distributed to the
Members three days
before its passage,
except when the Prime
Minister certifies to the
necessity of its
immediate enactment
to meet a public
calamity or emergency.
Upon the last reading
of a bill, no amendment
thereto shall be
allowed, and the vote
thereon shall be taken
immediately thereafter,
and
the yeas and nays ent
ered in the Journal.
This provision of the 1973
document, with slight modification,
was adopted in Art. VI, §26 (2) of
the present Constitution, thus:
(2) No bill passed by
either House shall
become a law unless it
has passed three
readings on separate
days, and printed
 copies thereof in its
final form have been
distributed to its
Members three days
before its passage,
except when the
President certifies to
the necessity of its
immediate enactment
to meet a public
calamity or emergency.
Upon the last reading
of a bill, no amendment
thereto shall be
allowed, and the vote
thereon shall be taken
immediately thereafter,
and
the yeas and nays ent
ered in the Journal.
The exception is based on the
prudential consideration that if in all
cases three readings on separate
days are required and a bill has to
be printed in final form before it can
be passed, the need for a law may
be rendered academic by the
occurrence of the very emergency
or public calamity which it is meant
to address.
Petitioners further contend that a
"growing budget deficit" is not an
emergency, especially in a country
like the Philippines where budget
deficit is a chronic condition. Even
if this were the case, an enormous
budget deficit does not make the
need for R.A. No. 7716 any less
urgent or the situation calling for its
enactment any less an emergency.
Apparently, the members of the
Senate (including some of the
petitioners in these cases) believed
that there was an urgent need for
consideration of S. No. 1630,
because they responded to the call
of the President by voting on the bill
on second and third readings on
the same day. While the judicial
department is not bound by the
Senate's acceptance of the
President's certification, the
respect due coequal departments
of the government in matters
committed to them by the
Constitution and the absence of a
clear showing of grave abuse of
discretion caution a stay of the
judicial hand.
At any rate, we are satisfied that S.
No. 1630 received thorough
consideration in the Senate where
it was discussed for six days. Only
its distribution in advance in its final
printed form was actually
dispensed with by holding the
voting on second and third
readings on the same day (March
24, 1994). Otherwise, sufficient
time between the submission of the
bill on February 8, 1994 on second
reading and its approval on March
24, 1994 elapsed before it was
finally voted on by the Senate on
third reading.
The purpose for which three
readings on separate days is
required is said to be two-fold: (1)
to inform the members of Congress
of what they must vote on and (2)
to give them notice that a measure
is progressing through the enacting
process, thus enabling them and
others interested in the measure to
prepare their positions with
reference to it. (1 J. G.
SUTHERLAND, STATUTES AND
STATUTORY CONSTRUCTION
§10.04, p. 282 (1972)). These
purposes were substantially
achieved in the case of R.A. No.
7716.
IV. Power of Conference
Committee. It is contended
(principally by Kilosbayan, Inc. and
the Movement of Attorneys for
Brotherhood, Integrity and
Nationalism, Inc. (MABINI)) that in
violation of the constitutional policy
of full public disclosure and the
people's right to know (Art. II, §28
and Art. III, §7) the Conference
Committee met for two days in
executive session with only the
conferees present.
As pointed out in our main decision,
even in the United States it was
customary to hold such sessions
with only the conferees and their
staffs in attendance and it was only
in 1975 when a new rule was
adopted requiring open sessions.
Unlike its American counterpart,
the Philippine Congress has not
adopted a rule prescribing open
hearings for conference
committees.
It is nevertheless claimed that in
the United States, before the
adoption of the rule in 1975, at least
staff members were present.
These were staff members of the
Senators and Congressmen,
however, who may be presumed to
be their confidential men, not
stenographers as in this case who
on the last two days of the
conference were excluded. There
is no showing that the conferees
themselves did not take notes of
their proceedings so as to give
petitioner Kilosbayan basis for
claiming that even in secret
diplomatic negotiations involving
state interests, conferees keep
notes of their meetings. Above all,
the public's right to know was fully
served because the Conference
Committee in this case submitted a
report showing the changes made
on the differing versions of the
House and the Senate.
Petitioners cite the rules of both
houses which provide that
conference committee reports
must contain "a detailed,
sufficiently explicit statement of the
changes in or other amendments."
These changes are shown in the
bill attached to the Conference
Committee Report. The members
of both houses could thus ascertain
what changes had been made in
the original bills without the need of
a statement detailing the changes.
The same question now presented
was raised when the bill which
became R.A. No. 1400 (Land
Reform Act of 1955) was reported
by the Conference Committee.
Congressman Bengzon raised a
point of order. He said:
MR. BENGZON. My
point of order is that it is
out of order to consider
the report of the
conference committee
regarding House Bill
No. 2557 by reason of
the provision of Section
11, Article XII, of the
Rules of this House
which provides
specifically that the
conference report must
be accompanied by a
detailed statement of
the effects of the
amendment on the bill
of the House. This
conference committee
report is not
accompanied by that
detailed statement, Mr.
Speaker. Therefore it is
out of order to consider
it.
Petitioner Tolentino, then the
Majority Floor Leader, answered:
MR. TOLENTINO. Mr.
Speaker, I should just
like to say a few words
in connection with the
point of order raised by
the gentleman from
Pangasinan.
There is no question
about the provision of
the Rule cited by the
gentleman from
Pangasinan, but this
provision applies to
those cases where only
portions of the bill have
been amended. In this
case before us an
entire bill is
presented; therefore, it
can be easily seen from
the reading of the bill
what the provisions
are. Besides, this
procedure has been an
established practice.
After some interruption, he
continued:
MR. TOLENTINO. As I
was saying, Mr.
Speaker, we have to
look into the reason for
the provisions of the
Rules, and the reason
for the requirement in
 the provision cited by Nor is there any doubt about the
the gentleman from power of a conference committee
Pangasinan is when to insert new provisions as long as
there are only certain these are germane to the subject of
words or phrases the conference. As this Court held
inserted in or deleted in Philippine Judges Association
from the provisions of v. Prado, 227 SCRA 703 (1993), in
the bill included in the an opinion written by then Justice
conference report, and Cruz, the jurisdiction of the
we cannot understand conference committee is not limited
what those words and to resolving differences between
phrases mean and their the Senate and the House. It may
relation to the bill. In propose an entirely new provision.
that case, it is What is important is that its report
necessary to make a is subsequently approved by the
detailed statement on respective houses of Congress.
how those words and This Court ruled that it would not
phrases will affect the entertain allegations that, because
bill as a whole; but new provisions had been added by
when the entire bill the conference committee, there
itself is copied verbatim was thereby a violation of the
in the conference constitutional injunction that "upon
report, that is not the last reading of a bill, no
necessary. So when amendment thereto shall be
the reason for the Rule allowed."
does not exist, the Rule
does not exist. Applying these
principles, we
(2 CONG. REC. NO. 2, shall decline to look
p. 4056. (emphasis into the petitioners'
added)) charges that an
amendment was made
Congressman Tolentino was upon the last reading of
sustained by the chair. The record the bill that eventually
shows that when the ruling was became R.A. No. 7354
appealed, it was upheld by viva and that copies thereof
voce and when a division of the in its final form were not
House was called, it was sustained distributed among the
by a vote of 48 to 5. (Id., members of each
p. 4058) House. Both the
 enrolled bill and the
legislative journals
certify that the measure
was duly enacted i.e.,
in accordance with
Article VI, Sec. 26 (2) of
the Constitution. We
are bound by such
official assurances
from a coordinate
department of the
government, to which
we owe, at the very
least, a becoming
courtesy.
(Id. at 710. (emphasis
added))
It is interesting to note the following
description of conference
committees in the Philippines in a
1979 study:
Conference
committees may be of
two types: free or
instructed. These
committees may be
given instructions by
their parent bodies or
they may be left without
instructions. Normally
the conference
committees are without
instructions, and this is
why they are often
critically referred to as
"the little legislatures."
Once bills have been
sent to them, the
conferees have almost
unlimited authority to
change the clauses of
the bills and in fact
sometimes introduce
new measures that
were not in the original
legislation. No minutes
are kept, and members'
activities on
conference committees
are difficult to
determine. One
congressman known
for his idealism put it
this way: "I killed a bill
on export incentives for
my interest group
[copra] in the
conference committee
but I could not have
done so anywhere
else." The conference
committee submits a
report to both houses,
and usually it is
accepted. If the report
is not accepted, then
the committee is
discharged and new
members are
appointed.
(R. Jackson,
Committees in the
Philippine Congress, in
COMMITTEES AND
LEGISLATURES: A
COMPARATIVE
 ANALYSIS 163 (J. D. registration, license and other fees
LEES AND M. SHAW, and charges of any kind, nature, or
eds.)). description, imposed, levied,
established, assessed or collected
In citing this study, we pass no by any municipal, city, provincial or
judgment on the methods of national authority or government
conference committees. We cite it agency, now or in the future."
only to say that conference
committees here are no different PAL was exempted from the
from their counterparts in the payment of the VAT along with
United States whose vast powers other entities by §103 of the
we noted in Philippine Judges National Internal Revenue Code,
Association v. Prado, supra. At all which provides as follows:
events, under Art. VI, §16(3) each
house has the power "to determine §103. Exempt
the rules of its proceedings," transactions. — The
including those of its committees. following shall be
Any meaningful change in the exempt from the value-
method and procedures of added tax:
Congress or its committees must
therefore be sought in that body xxx xxx xxx
itself.
(q) Transactions which
V. The titles of S. No. 1630 and are exempt under
H. No. 11197. PAL maintains that special laws or
R.A. No. 7716 violates Art. VI, §26 international
(1) of the Constitution which agreements to which
provides that "Every bill passed by the Philippines is a
Congress shall embrace only one signatory.
subject which shall be expressed in
the title thereof." PAL contends that R.A. No. 7716 seeks to withdraw
the amendment of its franchise by certain exemptions, including that
the withdrawal of its exemption granted to PAL, by amending §103,
from the VAT is not expressed in as follows:
the title of the law.
§103. Exempt
Pursuant to §13 of P.D. No. 1590, transactions. — The
PAL pays a franchise tax of 2% on following shall be
its gross revenue "in lieu of all other exempt from the value-
taxes, duties, royalties, added tax:
 xxx xxx xxx AND REPEALING THE
RELEVANT PROVISIONS OF
(q) Transactions which THE NATIONAL INTERNAL
are exempt under REVENUE CODE, AS AMENDED
special laws, except AND FOR OTHER PURPOSES,"
those granted under Congress thereby clearly
Presidential Decree expresses its intention to amend
Nos. 66, 529, 972, any provision of the NIRC which
1491, 1590. . . . stands in the way of accomplishing
the purpose of the law.
The amendment of §103 is
expressed in the title of R.A. No. PAL asserts that the amendment of
7716 which reads: its franchise must be reflected in
the title of the law by specific
AN ACT reference to P.D. No. 1590. It is
RESTRUCTURING unnecessary to do this in order to
THE VALUE-ADDED comply with the constitutional
TAX (VAT) SYSTEM, requirement, since it is already
WIDENING ITS TAX stated in the title that the law seeks
BASE AND to amend the pertinent provisions
ENHANCING ITS of the NIRC, among which is
ADMINISTRATION, §103(q), in order to widen the base
AND FOR THESE of the VAT. Actually, it is the bill
PURPOSES which becomes a law that is
AMENDING AND required to express in its title the
REPEALING THE subject of legislation. The titles of
RELEVANT H. No. 11197 and S. No. 1630 in
PROVISIONS OF THE fact specifically referred to §103 of
NATIONAL INTERNAL the NIRC as among the provisions
REVENUE CODE, AS sought to be amended. We are
AMENDED, AND FOR satisfied that sufficient notice had
OTHER PURPOSES. been given of the pendency of
these bills in Congress before they
By stating that R.A. No. 7716 seeks were enacted into what is now R.A.
to "[RESTRUCTURE] THE No. 7716.
VALUE-ADDED TAX (VAT)
SYSTEM [BY] WIDENING ITS TAX In Philippine Judges Association
BASE AND ENHANCING ITS v. Prado, supra, a similar argument
ADMINISTRATION, AND FOR as that now made by PAL was
THESE PURPOSES AMENDING rejected. R.A. No. 7354 is entitled
AN ACT CREATING THE stated in its
PHILIPPINE POSTAL title, but
CORPORATION, DEFINING ITS matter
POWERS, FUNCTIONS AND germane to
RESPONSIBILITIES, PROVIDING the subject
FOR REGULATION OF THE as
INDUSTRY AND FOR OTHER expressed
PURPOSES CONNECTED in the title,
THEREWITH. It contained a and
provision repealing all franking adopted to
privileges. It was contended that the
the withdrawal of franking accomplish
privileges was not expressed in the ment of the
title of the law. In holding that there object in
was sufficient description of the view, may
subject of the law in its title, properly be
including the repeal of franking included in
privileges, this Court held: the act.
Thus, it is
To require every end proper to
and means necessary create in
for the accomplishment the same
of the general act the
objectives of the statute machinery
to be expressed in its by which
title would not only be the act is to
unreasonable but be
would actually render enforced,
legislation impossible. to prescribe
[Cooley, Constitutional the
Limitations, 8th Ed., p. penalties
297] As has been for its
correctly explained: infraction,
and to
The details remove
of a obstacles
legislative in the way
act need of its
not be execution.
specifically If such
 matters are press from the VAT while
properly maintaining those granted to
connected others, the law discriminates
with the against the press. At any rate, it is
subject as averred, "even nondiscriminatory
expressed taxation of constitutionally
in the title, it guaranteed freedom is
is unconstitutional."
unnecessa
ry that they With respect to the first contention,
should also it would suffice to say that since the
have law granted the press a privilege,
special the law could take back the
mention in privilege anytime without offense to
the title. the Constitution. The reason is
(Southern simple: by granting exemptions,
Pac. Co. v. the State does not forever waive
Bartine, the exercise of its sovereign
170 Fed. prerogative.
725)
Indeed, in withdrawing the
(227 SCRA at 707-708) exemption, the law merely subjects
the press to the same tax burden to
VI. Claims of press freedom and which other businesses have long
religious liberty. We have held that, ago been subject. It is thus different
as a general proposition, the press from the tax involved in the cases
is not exempt from the taxing power invoked by the PPI. The license tax
of the State and that what the in Grosjean v. American Press Co.,
constitutional guarantee of free 297 U.S. 233, 80 L. Ed. 660 (1936)
press prohibits are laws which was found to be discriminatory
single out the press or target a because it was laid on the gross
group belonging to the press for advertising receipts only of
special treatment or which in any newspapers whose weekly
way discriminate against the press circulation was over 20,000, with
on the basis of the content of the the result that the tax applied only
publication, and R.A. No. 7716 is to 13 out of 124 publishers in
none of these. Louisiana. These large papers
were critical of Senator Huey Long
Now it is contended by the PPI that who controlled the state legislature
by removing the exemption of the which enacted the license tax. The
censorial motivation for the law was petroleum concessionaires,
thus evident. enterprises registered with the
Export Processing Zone Authority,
On the other hand, in Minneapolis and many more are likewise totally
Star & Tribune Co. v. Minnesota withdrawn, in addition to
Comm'r of Revenue, 460 U.S. 575, exemptions which are partially
75 L. Ed. 2d 295 (1983), the tax withdrawn, in an effort to broaden
was found to be discriminatory the base of the tax.
because although it could have
been made liable for the sales tax The PPI says that the
or, in lieu thereof, for the use tax on discriminatory treatment of the
the privilege of using, storing or press is highlighted by the fact that
consuming tangible goods, the transactions, which are profit
press was not. Instead, the press oriented, continue to enjoy
was exempted from both taxes. It exemption under R.A. No. 7716. An
was, however, later made to pay enumeration of some of these
a special use tax on the cost of transactions will suffice to show
paper and ink which made these that by and large this is not so and
items "the only items subject to the that the exemptions are granted for
use tax that were component of a purpose. As the Solicitor General
goods to be sold at retail." The U.S. says, such exemptions are
Supreme Court held that the granted, in some cases, to
differential treatment of the press encourage agricultural production
"suggests that the goal of and, in other cases, for the
regulation is not related to personal benefit of the end-user
suppression of expression, and rather than for profit. The exempt
such goal is presumptively transactions are:
unconstitutional." It would therefore
appear that even a law that favors (a) Goods for
the press is constitutionally consumption or use
suspect. (See the dissent of which are in their
Rehnquist, J. in that case) original state
(agricultural, marine
Nor is it true that only two and forest products,
exemptions previously granted by cotton seeds in their
E.O. No. 273 are withdrawn original state,
"absolutely and unqualifiedly" by fertilizers, seeds,
R.A. No. 7716. Other exemptions seedlings, fingerlings,
from the VAT, such as those fish, prawn livestock
previously granted to PAL, and poultry feeds) and
goods or services to (e) Works of art and
enhance agriculture similar creations sold
(milling of palay, corn, by the artist himself.
sugar cane and raw
sugar, livestock, (f) Transactions
poultry feeds, fertilizer, exempted under
ingredients used for the special laws, or
manufacture of feeds). international
agreements.
(b) Goods used for
personal consumption (g) Export-sales by
or use (household and persons not VAT-
personal effects of registered.
citizens returning to the
Philippines) or for (h) Goods or services
professional use, like with gross annual sale
professional or receipt not
instruments and exceeding P500,000.0
implements, by 0.
persons coming to the
Philippines to settle (Respondents'
here. Consolidated
Comment on the
(c) Goods subject to Motions for
excise tax such as Reconsideration, pp.
petroleum products or 58-60)
to be used for
manufacture of The PPI asserts that it does not
petroleum products really matter that the law does not
subject to excise tax discriminate against the press
and services subject to because "even nondiscriminatory
percentage tax. taxation on constitutionally
guaranteed freedom is
(d) Educational unconstitutional." PPI cites in
services, medical, support of this assertion the
dental, hospital and following statement in Murdock
veterinary services, v. Pennsylvania, 319 U.S. 105, 87
and services rendered L. Ed. 1292 (1943):
under employer-
employee relationship. The fact that the
ordinance is
 "nondiscriminatory" is
immaterial. The
protection afforded by
the First Amendment is
not so restricted. A
license tax certainly
does not acquire
constitutional validity
because it classifies
the privileges protected
by the First
Amendment along with
the wares and
merchandise of
hucksters and peddlers
and treats them all
alike. Such equality in
treatment does not
save the ordinance.
Freedom of press,
freedom of speech,
freedom of religion are
in preferred position.
The Court was speaking in that
case of a license tax, which, unlike
an ordinary tax, is mainly for
regulation. Its imposition on the
press is unconstitutional because it
lays a prior restraint on the exercise
of its right. Hence, although its
application to others, such those
selling goods, is valid, its
application to the press or to
religious groups, such as the
Jehovah's Witnesses, in
connection with the latter's sale of
religious books and pamphlets, is
unconstitutional. As the U.S.
Supreme Court put it, "it is one
thing to impose a tax on income or
property of a preacher. It is quite
another thing to exact a tax on him
for delivering a sermon."
A similar ruling was made by this
Court in American Bible Society
v. City of Manila, 101 Phil. 386
(1957) which invalidated a city
ordinance requiring a business
license fee on those engaged in the
sale of general merchandise. It was
held that the tax could not be
imposed on the sale of bibles by
the American Bible Society without
restraining the free exercise of its
right to propagate.
The VAT is, however, different. It is
not a license tax. It is not a tax on
the exercise of a privilege, much
less a constitutional right. It is
imposed on the sale, barter, lease
or exchange of goods or properties
or the sale or exchange of services
and the lease of properties purely
for revenue purposes. To subject
the press to its payment is not to
burden the exercise of its right any
more than to make the press pay
income tax or subject it to general
regulation is not to violate its
freedom under the Constitution.
Additionally, the Philippine Bible
Society, Inc. claims that although it
sells bibles, the proceeds derived
from the sales are used to
subsidize the cost of printing copies
which are given free to those who
cannot afford to pay so that to tax
the sales would be to increase the
price, while reducing the volume of
sale. Granting that to be the case,
the resulting burden on the
exercise of religious freedom is so
incidental as to make it difficult to
differentiate it from any other
economic imposition that might
make the right to disseminate
religious doctrines costly.
Otherwise, to follow the petitioner's
argument, to increase the tax on
the sale of vestments would be to
lay an impermissible burden on the
right of the preacher to make a
sermon.
On the other hand the registration
fee of P1,000.00 imposed by §107
of the NIRC, as amended by §7 of
R.A. No. 7716, although fixed in
amount, is really just to pay for the
expenses of registration and
enforcement of provisions such as
those relating to accounting in §108
of the NIRC. That the PBS
distributes free bibles and therefore
is not liable to pay the VAT does
not excuse it from the payment of
this fee because it also sells some
copies. At any rate whether the
PBS is liable for the VAT must be
decided in concrete cases, in the
event it is assessed this tax by the
Commissioner of Internal
Revenue.
VII. Alleged violations of the due
process, equal protection and
contract clauses and the rule on
taxation. CREBA asserts that R.A.
No. 7716 (1) impairs the obligations
of contracts, (2) classifies
transactions as covered or exempt
without reasonable basis and (3)
violates the rule that taxes should
be uniform and equitable and that
Congress shall "evolve a
progressive system of taxation."
With respect to the first contention,
it is claimed that the application of
the tax to existing contracts of the
sale of real property by installment
or on deferred payment basis
would result in substantial
increases in the monthly
amortizations to be paid because of
the 10% VAT. The additional
amount, it is pointed out, is
something that the buyer did not
anticipate at the time he entered
into the contract.
The short answer to this is the one
given by this Court in an early case:
"Authorities from numerous
sources are cited by the plaintiffs,
but none of them show that a lawful
tax on a new subject, or an
increased tax on an old one,
interferes with a contract or impairs
its obligation, within the meaning of
the Constitution. Even though such
taxation may affect particular
contracts, as it may increase the
debt of one person and lessen the
security of another, or may impose
additional burdens upon one class
and release the burdens of
another, still the tax must be paid
unless prohibited by the
Constitution, nor can it be said that
it impairs the obligation of any
existing contract in its true legal
sense." (La Insular v. Machuca Go-
Tauco and Nubla Co-Siong, 39
Phil. 567, 574 (1919)). Indeed not
only existing laws but also "the
reservation of the essential
attributes of sovereignty, is . . . read
into contracts as a postulate of the
legal order." (Philippine-American
Life Ins. Co. v. Auditor General, 22
SCRA 135, 147 (1968)) Contracts
must be understood as having
been made in reference to the
possible exercise of the rightful
authority of the government and no
obligation of contract can extend to
the defeat of that authority.
(Norman v. Baltimore and Ohio
R.R., 79 L. Ed. 885 (1935)).
It is next pointed out that while §4
of R.A. No. 7716 exempts such
transactions as the sale of
agricultural products, food items,
petroleum, and medical and
veterinary services, it grants no
exemption on the sale of real
property which is equally essential.
The sale of real property for
socialized and low-cost housing is
exempted from the tax, but CREBA
claims that real estate transactions
of "the less poor," i.e., the middle
class, who are equally homeless,
should likewise be exempted.
The sale of food items, petroleum,
medical and veterinary services,
etc., which are essential goods and
services was already exempt under
§103, pars. (b) (d) (1) of the NIRC
before the enactment of R.A. No.
7716. Petitioner is in error in
claiming that R.A. No. 7716
granted exemption to these
transactions, while subjecting
those of petitioner to the payment
of the VAT. Moreover, there is a
difference between the "homeless
poor" and the "homeless less poor"
in the example given by petitioner,
because the second group or
middle class can afford to rent
houses in the meantime that they
cannot yet buy their own homes.
The two social classes are thus
differently situated in life. "It is
inherent in the power to tax that the
State be free to select the subjects
of taxation, and it has been
repeatedly held that 'inequalities
which result from a singling out of
one particular class for taxation, or
exemption infringe no
constitutional limitation.'" (Lutz v.
Araneta, 98 Phil. 148, 153
(1955). Accord, City of Baguio v.
De Leon, 134 Phil. 912 (1968);
Sison, Jr. v. Ancheta, 130 SCRA
654, 663 (1984); Kapatiran ng mga
Naglilingkod sa Pamahalaan ng
Pilipinas, Inc. v. Tan, 163 SCRA
371 (1988)).
Finally, it is contended, for the
reasons already noted, that R.A.
No. 7716 also violates Art. VI, As the Court sees it,
§28(1) which provides that "The EO 273 satisfies all the
rule of taxation shall be uniform and requirements of a valid
equitable. The Congress shall tax. It is uniform. . . .
evolve a progressive system of
taxation." The sales tax adopted
in EO 273 is applied
Equality and uniformity of taxation similarly on all goods
means that all taxable articles or and services sold to the
kinds of property of the same class public, which are not
be taxed at the same rate. The exempt, at the constant
taxing power has the authority to rate of 0% or 10%.
make reasonable and natural
classifications for purposes of The disputed sales tax
taxation. To satisfy this is also equitable. It is
requirement it is enough that the imposed only on sales
statute or ordinance applies of goods or services by
equally to all persons, forms and persons engaged in
corporations placed in similar business with an
situation. (City of Baguio v. De aggregate gross
Leon, supra; Sison, Jr. v. annual sales
Ancheta, supra) exceeding
P200,000.00. Small
Indeed, the VAT was already corner sari-sari stores
provided in E.O. No. 273 long are consequently
before R.A. No. 7716 was enacted. exempt from its
R.A. No. 7716 merely expands the application. Likewise
base of the tax. The validity of the exempt from the tax are
original VAT Law was questioned sales of farm and
in Kapatiran ng Naglilingkod sa marine products, so
Pamahalaan ng Pilipinas, that the costs of basic
Inc. v. Tan, 163 SCRA 383 (1988) food and other
on grounds similar to those made in necessities, spared as
these cases, namely, that the law they are from the
was "oppressive, discriminatory, incidence of the VAT,
unjust and regressive in violation of are expected to be
Art. VI, §28(1) of the Constitution." relatively lower and
(At 382) Rejecting the challenge to within the reach of the
the law, this Court held: general public.
 (At 382-383)
The CREBA claims that the VAT is
regressive. A similar claim is made
by the Cooperative Union of the
Philippines, Inc. (CUP), while
petitioner Juan T. David argues
that the law contravenes the
mandate of Congress to provide for
a progressive system of taxation
because the law imposes a flat rate
of 10% and thus places the tax
burden on all taxpayers without
regard to their ability to pay.
The Constitution does not really
prohibit the imposition of indirect
taxes which, like the VAT, are
regressive. What it simply provides
is that Congress shall "evolve a
progressive system of taxation."
The constitutional provision has
been interpreted to mean simply
that "direct taxes are . . . to be
preferred [and] as much as
possible, indirect taxes should be
minimized." (E. FERNANDO, THE
CONSTITUTION OF THE
PHILIPPINES 221 (Second ed.
(1977)). Indeed, the mandate to
Congress is not to prescribe, but
to evolve, a progressive tax
system. Otherwise, sales taxes,
which perhaps are the oldest form
of indirect taxes, would have been
prohibited with the proclamation of
Art. VIII, §17(1) of the 1973
Constitution from which the present
Art. VI, §28(1) was taken. Sales
taxes are also regressive.
Resort to indirect taxes should
be minimized but
not avoided entirely because it is
difficult, if not impossible, to avoid
them by imposing such taxes
according to the taxpayers' ability
to pay. In the case of the VAT, the
law minimizes the regressive
effects of this imposition by
providing for zero rating of certain
transactions (R.A. No. 7716, §3,
amending §102 (b) of the NIRC),
while granting exemptions to other
transactions. (R.A. No. 7716, §4,
amending §103 of the NIRC).
Thus, the following transactions
involving basic and essential goods
and services are exempted from
the VAT:
(a) Goods for
consumption or use
which are in their
original state
(agricultural, marine
and forest products,
cotton seeds in their
original state,
fertilizers, seeds,
seedlings, fingerlings,
fish, prawn livestock
and poultry feeds) and
goods or services to
enhance agriculture
(milling of palay, corn
sugar cane and raw
sugar, livestock,
poultry feeds, fertilizer,
ingredients used for the (f) Transactions
manufacture of feeds). exempted under
special laws, or
(b) Goods used for international
personal consumption agreements.
or use (household and
personal effects of (g) Export-sales by
citizens returning to the persons not VAT-
Philippines) and or registered.
professional use, like
professional (h) Goods or services
instruments and with gross annual sale
implements, by or receipt not
persons coming to the exceeding P500,000.0
Philippines to settle 0.
here.
(Respondents'
(c) Goods subject to Consolidated
excise tax such as Comment on the
petroleum products or Motions for
to be used for Reconsideration, pp.
manufacture of 58-60)
petroleum products
subject to excise tax On the other hand, the transactions
and services subject to which are subject to the VAT are
percentage tax. those which involve goods and
services which are used or availed
(d) Educational of mainly by higher income groups.
services, medical, These include real properties held
dental, hospital and primarily for sale to customers or
veterinary services, for lease in the ordinary course of
and services rendered trade or business, the right or
under employer- privilege to use patent, copyright,
employee relationship. and other similar property or right,
the right or privilege to use
(e) Works of art and industrial, commercial or scientific
similar creations sold equipment, motion picture films,
by the artist himself. tapes and discs, radio, television,
satellite transmission and cable
television time, hotels, restaurants
and similar places, securities,
lending investments, taxicabs,
utility cars for rent, tourist buses,
and other common carriers,
services of franchise grantees of
telephone and telegraph.
The problem with CREBA's petition
is that it presents broad claims of
constitutional violations by
tendering issues not at retail but at
wholesale and in the abstract.
There is no fully developed record
which can impart to adjudication
the impact of actuality. There is no
factual foundation to show in
the concrete the application of the
law to actual contracts and
exemplify its effect on property
rights. For the fact is that
petitioner's members have not
even been assessed the VAT.
Petitioner's case is not made
concrete by a series of hypothetical
questions asked which are no
different from those dealt with in
advisory opinions.
The difficulty
confronting petitioner is
thus apparent. He
alleges arbitrariness. A
mere allegation, as
here, does not suffice.
There must be a factual
foundation of such
unconstitutional taint.
Considering that
petitioner here would
condemn such a no different from the giving of
provision as void on its
face, he has not made
out a case. This is
merely to adhere to the
authoritative doctrine
that where the due
process and equal
protection clauses are
invoked, considering
that they are not fixed
rules but rather broad
standards, there is a
need for proof of such
persuasive character
as would lead to such a
conclusion. Absent
such a showing, the
presumption of validity
must prevail.
(Sison, Jr. v. Ancheta,
130 SCRA at 661)
Adjudication of these broad claims
must await the development of a
concrete case. It may be that
postponement of adjudication
would result in a multiplicity of suits.
This need not be the case,
however. Enforcement of the law
may give rise to such a case. A test
case, provided it is an actual case
and not an abstract or hypothetical
one, may thus be presented.
Nor is hardship to taxpayers alone
an adequate justification for
adjudicating abstract issues.
Otherwise, adjudication would be
advisory opinion that does not
really settle legal issues.
We are told that it is our duty under
Art. VIII, §1, ¶2 to decide whenever
a claim is made that "there has
been a grave abuse of discretion
amounting to lack or excess of
jurisdiction on the part of any
branch or instrumentality of the
government." This duty can only
arise if an actual case or
controversy is before us. Under Art
. VIII, §5 our jurisdiction is defined
in terms of "cases" and all that Art.
VIII, §1, ¶2 can plausibly mean is
that in the exercise of
that jurisdiction we have
the judicial power to determine
questions of grave abuse of
discretion by any branch or
instrumentality of the government.
Put in another way, what is granted
in Art. VIII, §1, ¶2 is "judicial
power," which is "the power of a
court to hear and decide cases
pending between parties who have
the right to sue and be sued in the
courts of law and equity" (Lamb v.
Phipps, 22 Phil. 456, 559 (1912)),
as distinguished from legislative
and executive power. This power
cannot be directly appropriated
until it is apportioned among
several courts either by the
Constitution, as in the case of Art.
VIII, §5, or by statute, as in the case
of the Judiciary Act of 1948 (R.A.
No. 296) and the Judiciary
Reorganization Act of 1980 (B.P.
Blg. 129). The power thus
apportioned constitutes the court's
"jurisdiction," defined as "the power
conferred by law upon a court or
judge to take cognizance of a case,
to the exclusion of all others."
(United States v. Arceo, 6 Phil. 29
(1906)) Without an actual case
coming within its jurisdiction, this
Court cannot inquire into any
allegation of grave abuse of
discretion by the other departments
of the government.
VIII. Alleged violation of policy
towards cooperatives. On the other
hand, the Cooperative Union of the
Philippines (CUP), after briefly
surveying the course of legislation,
argues that it was to adopt a
definite policy of granting tax
exemption to cooperatives that the
present Constitution embodies
provisions on cooperatives. To
subject cooperatives to the VAT
would therefore be to infringe a
constitutional policy. Petitioner
claims that in 1973, P.D. No. 175
was promulgated exempting
cooperatives from the payment of
income taxes and sales taxes but in
1984, because of the crisis which
menaced the national economy,
this exemption was withdrawn by
P.D. No. 1955; that in 1986, P.D.
No. 2008 again granted
cooperatives exemption from
income and sales taxes until
December 31, 1991, but, in the
same year, E.O. No. 93 revoked use of human and
the exemption; and that finally in natural resources, and
1987 the framers of the which are competitive
Constitution "repudiated the in both domestic and
previous actions of the government foreign markets.
adverse to the interests of the However, the State
cooperatives, that is, the repeated shall protect Filipino
revocation of the tax exemption to enterprises against
cooperatives and instead upheld unfair foreign
the policy of strengthening the competition and trade
cooperatives by way of the grant of practices.
tax exemptions," by providing the
following in Art. XII: In the pursuit of these
goals, all sectors of the
§1. The goals of the economy and all
national economy are a regions of the country
more equitable shall be given optimum
distribution of opportunity to develop.
opportunities, income, Private enterprises,
and wealth; a sustained including corporations,
increase in the amount cooperatives, and
of goods and services similar collective
produced by the nation organizations, shall be
for the benefit of the encouraged to broaden
people; and an the base of their
expanding productivity ownership.
as the key to raising the
quality of life for all, §15. The Congress
especially the shall create an agency
underprivileged. to promote the viability
and growth of
The State shall cooperatives as
promote instruments for social
industrialization and full justice and economic
employment based on development.
sound agricultural
development and Petitioner's contention has no
agrarian reform, merit. In the first place, it is not true
through industries that that P.D. No. 1955 singled out
make full and efficient cooperatives by withdrawing their
exemption from income and sales
taxes under P.D. No. 175, §5. What
P.D. No. 1955, §1 did was to
withdraw the exemptions and
preferential treatments theretofore
granted to private business
enterprises in general, in view of
the economic crisis which then
beset the nation. It is true that after
P.D. No. 2008, §2 had restored the
tax exemptions of cooperatives in
1986, the exemption was again
repealed by E.O. No. 93, §1, but
then again cooperatives were not
the only ones whose exemptions
were withdrawn. The withdrawal of
tax incentives applied to all,
including government and private
entities. In the second place, the
Constitution does not really require
that cooperatives be granted tax
exemptions in order to promote
their growth and viability. Hence,
there is no basis for petitioner's
assertion that the government's
policy toward cooperatives had
been one of vacillation, as far as
the grant of tax privileges was
concerned, and that it was to put an
end to this indecision that the
constitutional provisions cited were
adopted. Perhaps as a matter of
policy cooperatives should be
granted tax exemptions, but that is
left to the discretion of Congress. If
Congress does not grant
exemption and there is no
discrimination to cooperatives, no
violation of any constitutional policy
can be charged.
Indeed, petitioner's theory
amounts to saying that under the
Constitution cooperatives are
exempt from taxation. Such theory
is contrary to the Constitution under
which only the following are exempt
from taxation: charitable
institutions, churches and
parsonages, by reason of Art. VI,
§28 (3), and non-stock, non-profit
educational institutions by reason
of Art. XIV, §4 (3).
CUP's further ground for seeking
the invalidation of R.A. No. 7716 is
that it denies cooperatives the
equal protection of the law because
electric cooperatives are exempted
from the VAT. The classification
between electric and other
cooperatives (farmers
cooperatives, producers
cooperatives, marketing
cooperatives, etc.) apparently rests
on a congressional determination
that there is greater need to provide
cheaper electric power to as many
people as possible, especially
those living in the rural areas, than
there is to provide them with other
necessities in life. We cannot say
that such classification is
unreasonable.
We have carefully read the various
arguments raised against the
constitutional validity of R.A. No.
7716. We have in fact taken the
extraordinary step of enjoining its
enforcement pending resolution of
these cases. We have now come to SO ORDERED.
the conclusion that the law suffers
from none of the infirmities
attributed to it by petitioners and
that its enactment by the other
branches of the government does
not constitute a grave abuse of
discretion. Any question as to its
necessity, desirability or
expediency must be addressed to
Congress as the body which is
electorally responsible,
remembering that, as Justice
Holmes has said, "legislators are
the ultimate guardians of the
liberties and welfare of the people
in quite as great a degree as are
the courts." (Missouri, Kansas &
Texas Ry. Co. v. May, 194 U.S.
267, 270, 48 L. Ed. 971, 973
(1904)). It is not right, as petitioner
in G.R. No. 115543 does in arguing
that we should enforce the public
accountability of legislators, that
those who took part in passing the
law in question by voting for it in
Congress should later thrust to the
courts the burden of reviewing
measures in the flush of
enactment. This Court does not sit
as a third branch of the legislature,
much less exercise a veto power
over legislation.

WHEREFORE, the motions for

reconsideration are denied with
finality and the temporary
restraining order previously issued
is hereby lifted.
EN BANC COMMISSIONER OF THE
BUREAU OF INTERNAL
G.R. No. 168056 September 1, REVENUE, Respondent.
2005
x------------------------
ABAKADA GURO PARTY LIST -x
(Formerly AASJAS) OFFICERS
SAMSON S. ALCANTARA and G.R. No. 168461
ED VINCENT S.
ALBANO, Petitioners, ASSOCIATION OF PILIPINAS
vs. SHELL DEALERS, INC.
THE HONORABLE EXECUTIVE represented by its President,
SECRETARY EDUARDO ROSARIO ANTONIO; PETRON
ERMITA; HONORABLE DEALERS’ ASSOCIATION
SECRETARY OF THE represented by its President,
DEPARTMENT OF FINANCE RUTH E. BARBIBI; ASSOCIATION
CESAR PURISIMA; and OF CALTEX DEALERS’ OF THE
HONORABLE COMMISSIONER PHILIPPINES represented by its
OF INTERNAL REVENUE President, MERCEDITAS A.
GUILLERMO PARAYNO, GARCIA; ROSARIO ANTONIO
JR., Respondent. doing business under the name
and style of "ANB NORTH SHELL
x------------------------ SERVICE STATION"; LOURDES
-x MARTINEZ doing business under
the name and style of "SHELL
G.R. No. 168207 GATE – N. DOMINGO";
BETHZAIDA TAN doing business
AQUILINO Q. PIMENTEL, JR., under the name and style of
LUISA P. EJERCITO-ESTRADA, "ADVANCE SHELL STATION";
JINGGOY E. ESTRADA, PANFILO REYNALDO P. MONTOYA doing
M. LACSON, ALFREDO S. LIM, business under the name and style
JAMBY A.S. MADRIGAL, AND of "NEW LAMUAN SHELL
SERGIO R. OSMEÑA III, SERVICE STATION"; EFREN
Petitioners, SOTTO doing business under the
vs. name and style of "RED FIELD
EXECUTIVE SECRETARY SHELL SERVICE STATION";
EDUARDO R. ERMITA, CESAR V. DONICA CORPORATION
PURISIMA, SECRETARY OF represented by its President, DESI
FINANCE, GUILLERMO L. TOMACRUZ; RUTH E. MARBIBI
PARAYNO, JR., doing business under the name
and style of "R&R PETRON JOSELITO F. FLORDELIZA;
STATION"; PETER M. UNGSON MOTORISTS’ HERITAGE
doing business under the name CORPORATION represented by
and style of "CLASSIC STAR its Vice-President for Operations,
GASOLINE SERVICE STATION"; JOSELITO F. FLORDELIZA;
MARIAN SHEILA A. LEE doing PHILIPPINE STANDARD OIL
business under the name and style CORPORATION represented by
of "NTE GASOLINE & SERVICE its Vice-President for Operations,
STATION"; JULIAN CESAR P. JOSELITO F. FLORDELIZA;
POSADAS doing business under ROMEO MANUEL doing business
the name and style of under the name and style of
"STARCARGA ENTERPRISES"; "ROMMAN GASOLINE STATION";
ADORACION MAÑEBO doing ANTHONY ALBERT CRUZ III
business under the name and style doing business under the name
of "CMA MOTORISTS CENTER"; and style of "TRUE SERVICE
SUSAN M. ENTRATA doing STATION", Petitioners,
business under the name and style vs.
of "LEONA’S GASOLINE CESAR V. PURISIMA, in his
STATION and SERVICE capacity as Secretary of the
CENTER"; CARMELITA Department of Finance and
BALDONADO doing business GUILLERMO L. PARAYNO, JR.,
under the name and style of in his capacity as Commissioner
"FIRST CHOICE SERVICE of Internal Revenue, Respondent.
CENTER"; MERCEDITAS A.
GARCIA doing business under the x------------------------
name and style of "LORPED -x
SERVICE CENTER"; RHEAMAR
A. RAMOS doing business under G.R. No. 168463
the name and style of "RJRAM PTT
GAS STATION"; MA. ISABEL FRANCIS JOSEPH G.
VIOLAGO doing business under ESCUDERO, VINCENT
the name and style of "VIOLAGO- CRISOLOGO, EMMANUEL JOEL
PTT SERVICE CENTER"; J. VILLANUEVA, RODOLFO G.
MOTORISTS’ HEART PLAZA, DARLENE ANTONINO-
CORPORATION represented by CUSTODIO, OSCAR G.
its Vice-President for Operations, MALAPITAN, BENJAMIN C.
JOSELITO F. FLORDELIZA; AGARAO, JR. JUAN EDGARDO
MOTORISTS’ HARVARD M. ANGARA, JUSTIN MARC SB.
CORPORATION represented by CHIPECO, FLORENCIO G. NOEL,
its Vice-President for Operations, MUJIV S. HATAMAN, RENATO B.
MAGTUBO, JOSEPH A. AUSTRIA-MARTINEZ, J.:
SANTIAGO, TEOFISTO DL.
GUINGONA III, RUY ELIAS C. The expenses of government,
LOPEZ, RODOLFO Q. AGBAYANI having for their object the interest
and TEODORO A. CASIÑO, of all, should be borne by everyone,
Petitioners, and the more man enjoys the
vs. advantages of society, the more he
CESAR V. PURISIMA, in his ought to hold himself honored in
capacity as Secretary of contributing to those expenses.
Finance, GUILLERMO L.
PARAYNO, JR., in his capacity -Anne Robert Jacques Turgot
as Commissioner of Internal (1727-1781)
Revenue, and EDUARDO R.
ERMITA, in his capacity as French statesman and economist
Executive
Mounting budget deficit, revenue
Secretary, Respondent.
generation, inadequate fiscal
x------------------------ allocation for education, increased
-x emoluments for health workers,
and wider coverage for full value-
G.R. No. 168730 added tax benefits … these are the
reasons why Republic Act No.
BATAAN GOVERNOR ENRIQUE 9337 (R.A. No. 9337)1 was
T. GARCIA, JR. Petitioner, enacted. Reasons, the wisdom of
vs. which, the Court even with its
HON. EDUARDO R. ERMITA, in extensive constitutional power of
his capacity as the Executive review, cannot probe. The
Secretary; HON. MARGARITO petitioners in these cases,
TEVES, in his capacity as however, question not only the
Secretary of Finance; HON. JOSE wisdom of the law, but also
MARIO BUNAG, in his capacity as perceived constitutional infirmities
the OIC Commissioner of the in its passage.
Bureau of Internal Revenue; and
HON. ALEXANDER AREVALO, in Every law enjoys in its favor the
his capacity as the OIC presumption of constitutionality.
Commissioner of the Bureau of Their arguments notwithstanding,
Customs, Respondent. petitioners failed to justify their call
for the invalidity of the law. Hence,
DECISION R.A. No. 9337 is not
unconstitutional.
LEGISLATIVE HISTORY
R.A. No. 9337 is a consolidation of
three legislative bills namely,
House Bill Nos. 3555 and 3705,
and Senate Bill No. 1950.
House Bill No. 35552 was
introduced on first reading on
January 7, 2005. The House
Committee on Ways and Means
approved the bill, in substitution of
House Bill No. 1468, which
Representative (Rep.) Eric D.
Singson introduced on August 8,
2004. The President certified the
bill on January 7, 2005 for
immediate enactment. On January
27, 2005, the House of
Representatives approved the bill
on second and third reading.
House Bill No. 37053 on the other
hand, substituted House Bill No.
3105 introduced by Rep. Salacnib
F. Baterina, and House Bill No.
3381 introduced by Rep. Jacinto V.
Paras. Its "mother bill" is House Bill
No. 3555. The House Committee
on Ways and Means approved the
bill on February 2, 2005. The
President also certified it as urgent
on February 8, 2005. The House of
Representatives approved the bill
on second and third reading on
February 28, 2005.
Meanwhile, the Senate Committee
on Ways and Means
approved Senate Bill No.
19504 on March 7, 2005, "in
substitution of Senate Bill Nos.
1337, 1838 and 1873, taking into
consideration House Bill Nos. 3555
and 3705." Senator Ralph G. Recto
sponsored Senate Bill No. 1337,
while Senate Bill Nos. 1838 and
1873 were both sponsored by
Sens. Franklin M. Drilon, Juan M.
Flavier and Francis N. Pangilinan.
The President certified the bill on
March 11, 2005, and was approved
by the Senate on second and third
reading on April 13, 2005.
On the same date, April 13, 2005,
the Senate agreed to the request of
the House of Representatives for a
committee conference on the
disagreeing provisions of the
proposed bills.
Before long, the Conference
Committee on the Disagreeing
Provisions of House Bill No. 3555,
House Bill No. 3705, and Senate
Bill No. 1950, "after having met and
discussed in full free and
conference," recommended the
approval of its report, which the
Senate did on May 10, 2005, and
with the House of Representatives
agreeing thereto the next day, May
11, 2005.
On May 23, 2005, the enrolled copy
of the consolidated House and
Senate version was transmitted to
the President, who signed the
same into law on May 24, 2005.
Thus, came R.A. No. 9337.
July 1, 2005 is the effectivity date of
R.A. No. 9337.5 When said date
came, the Court issued a
temporary restraining order,
effective immediately and
continuing until further orders,
enjoining respondents from
enforcing and implementing the
law.
Oral arguments were held on July
14, 2005. Significantly, during the
hearing, the Court speaking
through Mr. Justice Artemio V.
Panganiban, voiced the rationale
for its issuance of the temporary
restraining order on July 1, 2005, to
wit:
J. PANGANIBAN : . . . But before I
go into the details of your
presentation, let me just tell you a
little background. You know when
the law took effect on July 1, 2005,
the Court issued a TRO at about 5
o’clock in the afternoon. But before
that, there was a lot of complaints
aired on television and on radio.
Some people in a gas station were
complaining that the gas prices
went up by 10%. Some people
were complaining that their electric
bill will go up by 10%. Other times
people riding in domestic air carrier
were complaining that the prices
that they’ll have to pay would have
to go up by 10%. While all that was
being aired, per your presentation
and per our own understanding of
the law, that’s not true. It’s not true
that the e-vat law necessarily
increased prices by 10% uniformly
isn’t it?
ATTY. BANIQUED : No, Your
Honor.
J. PANGANIBAN : It is not?
ATTY. BANIQUED : It’s not,
because, Your Honor, there is an
Executive Order that granted the
Petroleum companies some
subsidy . . . interrupted
J. PANGANIBAN : That’s correct . .
.
ATTY. BANIQUED : . . . and
therefore that was meant to temper
the impact . . . interrupted
J. PANGANIBAN : . . . mitigating
measures . . .
ATTY. BANIQUED : Yes, Your
Honor.
J. PANGANIBAN : As a matter of
fact a part of the mitigating
measures would be the elimination
of the Excise Tax and the import
duties. That is why, it is not correct
to say that the VAT as to petroleum
dealers increased prices by 10%.
ATTY. BANIQUED : Yes, Your
Honor.
J. PANGANIBAN : And therefore,
there is no justification for
increasing the retail price by 10% to
cover the E-Vat tax. If you consider
the excise tax and the import
duties, the Net Tax would probably
be in the neighborhood of 7%? We
are not going into exact figures I am
just trying to deliver a point that
different industries, different
products, different services are hit
differently. So it’s not correct to say
that all prices must go up by 10%.
ATTY. BANIQUED : You’re right,
Your Honor.
J. PANGANIBAN : Now. For
instance, Domestic Airline
companies, Mr. Counsel, are at
present imposed a Sales Tax of
3%. When this E-Vat law took
effect the Sales Tax was also
removed as a mitigating measure.
So, therefore, there is no
justification to increase the fares by
10% at best 7%, correct?
ATTY. BANIQUED : I guess so,
Your Honor, yes.
J. PANGANIBAN : There are other
products that the people were
complaining on that first day, were
being increased arbitrarily by 10%.
And that’s one reason among many
others this Court had to issue TRO
because of the confusion in the
implementation. That’s why we
added as an issue in this case,
even if it’s tangentially taken up by
the pleadings of the parties, the
confusion in the implementation of
the E-vat. Our people were
subjected to the mercy of that
confusion of an across the board
increase of 10%, which you
yourself now admit and I think even
the Government will admit is
incorrect. In some cases, it should
be 3% only, in some cases it should
be 6% depending on these
mitigating measures and the
location and situation of each
product, of each service, of each
company, isn’t it?
ATTY. BANIQUED : Yes, Your
Honor.
J. PANGANIBAN : Alright. So that’s
one reason why we had to issue a
TRO pending the clarification of all
these and we wish the government
will take time to clarify all these by
means of a more detailed
implementing rules, in case the law
is upheld by this Court. . . .6
The Court also directed the parties
to file their respective Memoranda.
G.R. No. 168056
Before R.A. No. 9337 took effect,
petitioners ABAKADA GURO Party
List, et al., filed a petition for
prohibition on May 27, 2005. They
question the constitutionality of
Sections 4, 5 and 6 of R.A. No.
9337, amending Sections 106, 107
and 108, respectively, of the
National Internal Revenue Code
(NIRC). Section 4 imposes a 10%
VAT on sale of goods and
properties, Section 5 imposes a
10% VAT on importation of goods,
and Section 6 imposes a 10% VAT
on sale of services and use or
lease of properties. These
questioned provisions contain a
uniform proviso authorizing the
President, upon recommendation
of the Secretary of Finance, to raise
the VAT rate to 12%, effective
January 1, 2006, after any of the
following conditions have been
satisfied, to wit:
. . . That the President, upon the
recommendation of the Secretary
of Finance, shall, effective January
1, 2006, raise the rate of value-
added tax to twelve percent (12%),
after any of the following conditions
has been satisfied:
(i) Value-added tax collection as a
percentage of Gross Domestic
Product (GDP) of the previous year
exceeds two and four-fifth percent
(2 4/5%); or
(ii) National government deficit as a
percentage of GDP of the previous
year exceeds one and one-half
percent (1 ½%).
Petitioners argue that the law is
unconstitutional, as it constitutes
abandonment by Congress of its
exclusive authority to fix the rate of
taxes under Article VI, Section
28(2) of the 1987 Philippine
Constitution.
G.R. No. 168207
On June 9, 2005, Sen. Aquilino Q.
Pimentel, Jr., et al., filed a petition
for certiorari likewise assailing the
constitutionality of Sections 4, 5
and 6 of R.A. No. 9337.
Aside from questioning the so-
called stand-by authority of the
President to increase the VAT rate
to 12%, on the ground that it
amounts to an undue delegation of
legislative power, petitioners also
contend that the increase in the
VAT rate to 12% contingent on any
of the two conditions being satisfied
violates the due process clause
embodied in Article III, Section 1 of
the Constitution, as it imposes an
unfair and additional tax burden on
the people, in that: (1) the 12%
increase is ambiguous because it
does not state if the rate would be
returned to the original 10% if the
conditions are no longer satisfied;
(2) the rate is unfair and
unreasonable, as the people are
unsure of the applicable VAT rate
from year to year; and (3) the
increase in the VAT rate, which is
supposed to be an incentive to the
President to raise the VAT
collection to at least 2 4/5 of the
GDP of the previous year, should
only be based on fiscal adequacy.
Petitioners further claim that the
inclusion of a stand-by
authority granted to the President
by the Bicameral Conference
Committee is a violation of the "no-
amendment rule" upon last reading
of a bill laid down in Article VI,
Section 26(2) of the Constitution.
G.R. No. 168461
Thereafter, a petition for prohibition
was filed on June 29, 2005, by the
Association of Pilipinas Shell
Dealers, Inc., et al., assailing the
following provisions of R.A. No.
9337:
1) Section 8, amending Section
110 (A)(2) of the NIRC, requiring
that the input tax on depreciable
goods shall be amortized over a
60-month period, if the acquisition,
excluding the VAT components,
exceeds One Million Pesos (₱1,
000,000.00);
2) Section 8, amending Section
110 (B) of the NIRC, imposing a
70% limit on the amount of input tax
to be credited against the output
tax; and
3) Section 12, amending Section
114 (c) of the NIRC, authorizing the
Government or any of its political
subdivisions, instrumentalities or
agencies, including GOCCs, to
deduct a 5% final withholding tax
on gross payments of goods and
services, which are subject to 10%
VAT under Sections 106 (sale of
goods and properties) and 108
(sale of services and use or lease
of properties) of the NIRC.
Petitioners contend that these
provisions are unconstitutional for
being arbitrary, oppressive,
excessive, and confiscatory.
Petitioners’ argument is premised
on the constitutional right of non-
deprivation of life, liberty or
property without due process of law
under Article III, Section 1 of the
Constitution. According to
petitioners, the contested sections
impose limitations on the amount of
input tax that may be claimed.
Petitioners also argue that the input
tax partakes the nature of a
property that may not be
confiscated, appropriated, or
limited without due process of law.
Petitioners further contend that like
any other property or property right,
the input tax credit may be
transferred or disposed of, and that
by limiting the same, the
government gets to tax a profit or
value-added even if there is no
profit or value-added.
Petitioners also believe that these
provisions violate the constitutional
guarantee of equal protection of the
law under Article III, Section 1 of
the Constitution, as the limitation
on the creditable input tax if: (1) the
entity has a high ratio of input tax;
or (2) invests in capital equipment;
or (3) has several transactions with
the government, is not based on
real and substantial differences to
meet a valid classification.
Lastly, petitioners contend that the
70% limit is anything but
progressive, violative of Article VI,
Section 28(1) of the Constitution,
and that it is the smaller businesses
with higher input tax to output tax
ratio that will suffer the
consequences thereof for it wipes
out whatever meager margins the
petitioners make.
G.R. No. 168463
Several members of the House of
Representatives led by Rep.
Francis Joseph G. Escudero filed
this petition for certiorari on June
30, 2005. They question the
constitutionality of R.A. No. 9337
on the following grounds:
1) Sections 4, 5, and 6 of R.A. No.
9337 constitute an undue
delegation of legislative power, in
violation of Article VI, Section 28(2)
of the Constitution;
2) The Bicameral Conference
Committee acted without
jurisdiction in deleting the no pass
on provisions present in Senate Bill
No. 1950 and House Bill No. 3705;
and
3) Insertion by the Bicameral
Conference Committee of Sections
27, 28, 34, 116, 117, 119, 121,
125,7 148, 151, 236, 237 and 288,
which were present in Senate Bill
No. 1950, violates Article VI,
Section 24(1) of the Constitution,
which provides that all
appropriation, revenue or tariff bills
shall originate exclusively in the
House of Representatives
G.R. No. 168730
On the eleventh hour, Governor
Enrique T. Garcia filed a petition
for certiorari and prohibition on July
20, 2005, alleging
unconstitutionality of the law on the
ground that the limitation on the
creditable input tax in effect allows
VAT-registered establishments to
retain a portion of the taxes they
collect, thus violating the principle
that tax collection and revenue
should be solely allocated for public
purposes and expenditures.
Petitioner Garcia further claims that
allowing these establishments to
pass on the tax to the consumers is
inequitable, in violation of Article VI,
Section 28(1) of the Constitution.
RESPONDENTS’ COMMENT
The Office of the Solicitor General
(OSG) filed a Comment in behalf of
respondents. Preliminarily,
respondents contend that R.A. No.
9337 enjoys the presumption of
constitutionality and petitioners
failed to cast doubt on its validity.
Relying on the case of Tolentino
vs. Secretary of Finance, 235
SCRA
630 (1994), respondents argue that
the procedural issues raised by
petitioners, i.e., legality of the
bicameral proceedings, exclusive
origination of revenue measures
and the power of the Senate
concomitant thereto, have already
been settled. With regard to the
issue of undue delegation of
legislative power to the President,
respondents contend that the law is
complete and leaves no discretion
to the President but to increase the
rate to 12% once any of the two
conditions provided therein arise.
Respondents also refute
petitioners’ argument that the
increase to 12%, as well as the
70% limitation on the creditable
input tax, the 60-month
amortization on the purchase or
importation of capital goods
exceeding ₱1,000,000.00, and the
5% final withholding tax by
government agencies, is arbitrary,
oppressive, and confiscatory, and
that it violates the constitutional
principle on progressive taxation,
among others.
Finally, respondents manifest that
R.A. No. 9337 is the anchor of the
government’s fiscal reform agenda.
A reform in the value-added system
of taxation is the core revenue
measure that will tilt the balance
towards a sustainable
macroeconomic environment
necessary for economic growth.
ISSUES
The Court defined the issues, as
follows:
PROCEDURAL ISSUE
Whether R.A. No. 9337 violates the
following provisions of the
Constitution:
a. Article VI, Section 24, and
b. Article VI, Section 26(2)
SUBSTANTIVE ISSUES
1. Whether Sections 4, 5 and 6 of
R.A. No. 9337, amending Sections
106, 107 and 108 of the NIRC,
violate the following provisions of
the Constitution:
a. Article VI, Section 28(1), and
b. Article VI, Section 28(2)
2. Whether Section 8 of R.A. No.
9337, amending Sections
110(A)(2) and 110(B) of the NIRC;
and Section 12 of R.A. No. 9337,
amending Section 114(C) of the
NIRC, violate the following
provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article III, Section 1
RULING OF THE COURT
As a prelude, the Court deems it
apt to restate the general principles
and concepts of value-added tax
(VAT), as the confusion and
inevitably, litigation, breeds from a
fallacious notion of its nature.
The VAT is a tax on spending or
consumption. It is levied on the
sale, barter, exchange or lease of
goods or properties and
8 It was only in 1987, when President
services. Being an indirect tax on
expenditure, the seller of goods or
services may pass on the amount
of tax paid to the buyer,9 with the
seller acting merely as a tax
collector.10 The burden of VAT is
intended to fall on the immediate
buyers and ultimately, the end-
consumers.
In contrast, a direct tax is a tax for
which a taxpayer is directly liable
on the transaction or business it
engages in, without transferring the
burden to someone
11
else. Examples are individual and
corporate income taxes, transfer
taxes, and residence taxes.12
In the Philippines, the value-added
system of sales taxation has long
been in existence, albeit in a
different mode. Prior to 1978, the
system was a single-stage tax
computed under the "cost
deduction method" and was
payable only by the original sellers.
The single-stage system was
subsequently modified, and a
mixture of the "cost deduction
method" and "tax credit method"
was used to determine the value-
added tax payable.13 Under the
"tax credit method," an entity can
credit against or subtract from the
VAT charged on its sales or outputs
the VAT paid on its purchases,
inputs and imports.14
Corazon C. Aquino issued
Executive Order No. 273, that the
VAT system was rationalized by
imposing a multi-stage tax rate of
0% or 10% on all sales using the
"tax credit method."15
E.O. No. 273 was followed by R.A.
No. 7716 or the Expanded VAT
Law,16 R.A. No. 8241 or the
Improved VAT Law,17 R.A. No.
8424 or the Tax Reform Act of
1997,18 and finally, the presently
beleaguered R.A. No. 9337, also
referred to by respondents as the
VAT Reform Act.
The Court will now discuss the
issues in logical sequence.
PROCEDURAL ISSUE
I.
Whether R.A. No. 9337 violates the
following provisions of the
Constitution:
a. Article VI, Section 24, and
b. Article VI, Section 26(2)
A. The Bicameral Conference
Committee
Petitioners Escudero, et al., and
Pimentel, et al., allege that the
Bicameral Conference Committee
exceeded its authority by:
1) Inserting the stand-by
authority in favor of the President in
Sections 4, 5, and 6 of R.A. No.
9337;
2) Deleting entirely the no pass-
on provisions found in both the
House and Senate bills;
3) Inserting the provision imposing
a 70% limit on the amount of input
tax to be credited against the
output tax; and
4) Including the amendments
introduced only by Senate Bill No.
1950 regarding other kinds of taxes
in addition to the value-added tax.
Petitioners now beseech the Court
to define the powers of the
Bicameral Conference Committee.
It should be borne in mind that the
power of internal regulation and
discipline are intrinsic in any
legislative body for, as unerringly
elucidated by Justice Story, "[i]f
the power did not exist, it would
be utterly impracticable to
transact the business of the
nation, either at all, or at least
with decency, deliberation, and
order."19 Thus, Article VI, Section
16 (3) of the Constitution provides
that "each House may determine
the rules of its proceedings."
Pursuant to this inherent
constitutional power to promulgate
and implement its own rules of
procedure, the respective rules of
each house of Congress provided
for the creation of a Bicameral
Conference Committee.
Thus, Rule XIV, Sections 88 and 89
of the Rules of House of
Representatives provides as
follows:
Sec. 88. Conference Committee. –
In the event that the House does
not agree with the Senate on the
amendment to any bill or joint
resolution, the differences may be
settled by the conference
committees of both chambers.
In resolving the differences with the
Senate, the House panel shall, as
much as possible, adhere to and
support the House Bill. If the
differences with the Senate are so
substantial that they materially
impair the House Bill, the panel
shall report such fact to the House
for the latter’s appropriate action.
Sec. 89. Conference Committee
Reports. – . . . Each report shall
contain a detailed, sufficiently
explicit statement of the changes in
or amendments to the subject
measure.
...
The Chairman of the House panel
may be interpellated on the
Conference Committee Report
prior to the voting thereon. The
House shall vote on the
Conference Committee Report in
the same manner and procedure
as it votes on a bill on third and final
reading.
Rule XII, Section 35 of the Rules of
the Senate states:
Sec. 35. In the event that the
Senate does not agree with the
House of Representatives on the
provision of any bill or joint
resolution, the differences shall be
settled by a conference committee
of both Houses which shall meet
within ten (10) days after their
composition. The President shall
designate the members of the
Senate Panel in the conference
committee with the approval of the
Senate.
Each Conference Committee
Report shall contain a detailed and
sufficiently explicit statement of the
changes in, or amendments to the
subject measure, and shall be
signed by a majority of the
members of each House panel,
voting separately.
A comparative presentation of the
conflicting House and Senate
provisions and a reconciled version
thereof with the explanatory
statement of the conference
committee shall be attached to the
report.
...
The creation of such conference
committee was apparently in
response to a problem, not
addressed by any constitutional
provision, where the two houses of
Congress find themselves in
disagreement over changes or
amendments introduced by the
other house in a legislative bill.
Given that one of the most basic
powers of the legislative branch is
to formulate and implement its own
rules of proceedings and to
discipline its members, may the
Court then delve into the details of
how Congress complies with its
internal rules or how it conducts its
business of passing legislation?
Note that in the present petitions,
the issue is not whether provisions
of the rules of both houses creating
the bicameral conference
committee are
unconstitutional, but whether the
bicameral conference committee
has strictly complied with the
rules of both houses, thereby
remaining within the jurisdiction
conferred upon it by Congress.
In the recent case of Fariñas vs.
The Executive Secretary,20 the
Court En
Banc, unanimously reiterated and
emphasized its adherence to the
"enrolled bill doctrine," thus,
declining therein petitioners’ plea
for the Court to go behind the
enrolled copy of the bill. Assailed in
said case was Congress’s creation
of two sets of bicameral conference
committees, the lack of records of
said committees’ proceedings, the
alleged violation of said
committees of the rules of both
houses, and the disappearance or
deletion of one of the provisions in
the compromise bill submitted by
the bicameral conference
committee. It was argued that such
irregularities in the passage of the
law nullified R.A. No. 9006, or the
Fair Election Act.
Striking down such argument, the
Court held thus:
Under the "enrolled bill doctrine,"
the signing of a bill by the Speaker
of the House and the Senate
President and the certification of
the Secretaries of both Houses of
Congress that it was passed are
conclusive of its due enactment. A
review of cases reveals the Court’s
consistent adherence to the
rule. The Court finds no reason
to deviate from the salutary rule
in this case where the
irregularities alleged by the
petitioners mostly involved the
internal rules of Congress, e.g.,
creation of the 2nd or
rd
3 Bicameral Conference
Committee by the House. This
Court is not the proper forum for
the enforcement of these
internal rules of Congress,
whether House or Senate.
Parliamentary rules are merely
procedural and with their
observance the courts have no
concern. Whatever doubts there
may be as to the formal validity
of Rep. Act No. 9006 must be
resolved in its favor. The Court
reiterates its ruling in Arroyo vs. De
Venecia, viz.:
But the cases, both here and
abroad, in varying forms of
expression, all deny to the
courts the power to inquire into
allegations that, in enacting a
law, a House of Congress failed
to comply with its own rules, in
the absence of showing that
there was a violation of a
constitutional provision or the
rights of private
individuals. In Osmeña v.
Pendatun, it was held: "At any rate,
courts have declared that ‘the rules
adopted by deliberative bodies are
subject to revocation, modification
or waiver at the pleasure of the
body adopting them.’ And it has
been said that "Parliamentary
rules are merely procedural, and
with their observance, the courts
have no concern. They may be
waived or disregarded by the
legislative body." Consequently,
"mere failure to conform to
parliamentary usage will not
invalidate the action (taken by a
deliberative body) when the
requisite number of members
have agreed to a particular
measure."21 (Emphasis supplied)
The foregoing declaration is
exactly in point with the present
cases, where petitioners allege
irregularities committed by the
conference committee in
introducing changes or deleting
provisions in the House and Senate
bills. Akin to
22
the Fariñas case, the present
petitions also raise an issue
regarding the actions taken by the
conference committee on matters
regarding Congress’ compliance
with its own internal rules. As
stated earlier, one of the most basic
and inherent power of the
legislature is the power to formulate
rules for its proceedings and the
discipline of its members.
Congress is the best judge of how
it should conduct its own business
expeditiously and in the most
orderly manner. It is also the sole
concern of Congress to instill
discipline among the members of
its conference committee if it
believes that said members
violated any of its rules of
proceedings. Even the expanded
jurisdiction of this Court cannot
apply to questions regarding only
the internal operation of Congress,
thus, the Court is wont to deny a
review of the internal proceedings
of a co-equal branch of
government.
Moreover, as far back as 1994 or
more than ten years ago, in the
case of Tolentino vs. Secretary of
Finance,23 the Court already made
the pronouncement that "[i]f a
change is desired in the practice
[of the Bicameral Conference
Committee] it must be sought in
Congress since this question is
not covered by any
constitutional provision but is
only an internal rule of each
house." 24 To date, Congress has
not seen it fit to make such
changes adverted to by the Court.
It seems, therefore, that Congress 12% VAT locally services
finds the practices of the bicameral on manufactur including
conference committee to be very importati ed goods sale of
useful for purposes of prompt and on of and electricity
efficient legislative action. goods petroleum by
(amendin products generation
Nevertheless, just to put minds at g Sec. and raw companies
ease that no blatant irregularities 107 of materials to ,
tainted the proceedings of the NIRC); be used in transmissi
bicameral conference committees, and 12% the on and
the Court deems it necessary to VAT on manufactur distribution
dwell on the issue. The Court sale of e thereof companies
observes that there was a services (amending , and use
necessity for a conference and use Sec. 106 of or lease of
committee because a comparison or lease NIRC); properties
of the provisions of House Bill Nos. of 12% VAT (amending
3555 and 3705 on one hand, and propertie on Sec. 108 of
Senate Bill No. 1950 on the other, s importation NIRC)
reveals that there were indeed (amendin of goods
disagreements. As pointed out in g Sec. and
the petitions, said disagreements 108 of reduced
were as follows: NIRC) rates for
certain
House House Bill Senate imported
Bill No. No.3705 Bill No. products
3555 1950 including
With regard to "Stand-By petroleum
Authority" in favor of President products
Provides Provides Provides (amending
for 12% for 12% for a single Sec. 107 of
VAT on VAT in rate of NIRC); and
every general on 10% VAT 12% VAT
sale of sales of on sale of on sale of
goods or goods or goods or services
propertie properties properties and use or
s and (amending lease of
(amendin reduced Sec. 106 of properties
g Sec. rates for NIRC), and a
106 of sale of 10% VAT reduced
NIRC); certain on sale of rate for
 certain absorbed
services by
including generation
power ,
generation transmissi
(amending on, and
Sec. 108 of distribution
NIRC) companies
With regard to the "no pass-on" .
provision With regard to 70% limit on input
No Provides Provides tax credit
similar that the that the Provides No similar Provides
provision VAT VAT that the provision that the
imposed on imposed input tax input tax
power on sales of credit for credit for
generation electricity capital capital
and on the by goods on goods on
sale of generation which a which a
petroleum companies VAT has VAT has
products and been paid been paid
shall be services of shall be shall be
absorbed transmissi equally equally
by on distribute distributed
generation companies d over 5 over 5
companies and years or years or
or sellers, distribution the the
respectivel companies deprecia depreciabl
y, and shall , as well as ble life of e life of
not be those of such such
passed on franchise capital capital
to grantees of goods; goods; the
consumers electric the input input tax
utilities tax credit credit for
shall not for goods goods and
apply to and services
residential services other than
other capital
end-users. than goods
VAT shall capital shall not
be
goods exceed the Senate bill were with regard to
shall not 90% of the (1) what rate of VAT is to be
exceed output imposed; (2) whether only the VAT
5% of the VAT. imposed on electricity generation,
total transmission and distribution
amount companies should not be passed
of such on to consumers, as proposed in
goods the Senate bill, or both the VAT
and imposed on electricity generation,
services; transmission and distribution
and for companies and the VAT imposed
persons on sale of petroleum products
engaged should not be passed on to
in retail consumers, as proposed in the
trading of House bill; (3) in what manner input
goods, tax credits should be limited; (4)
the and whether the NIRC provisions
allowable on corporate income taxes,
input tax percentage, franchise and excise
credit taxes should be amended.
shall not
exceed There being differences and/or
11% of disagreements on the foregoing
the total provisions of the House and
amount Senate bills, the Bicameral
of goods Conference Committee was
purchase mandated by the rules of both
d. houses of Congress to act on the
With regard to amendments to be made same by settling
to NIRC said differences
provisions regarding
income and excise taxes and/or disagreements. The
No similar provision Bicameral Conference
No similar provision Provided Committee for
acted on amendments
the disagreeingto
provisions byseveral
making the following
NIRC
changes: provisions regarding
corporate income,
1. With regard to the disagreement
percentage, franchise
on the rate of VAT to be imposed, it
and excise taxes
would appear from the Conference
The disagreements between the Committee Report that the
provisions in the House bills and Bicameral Conference Committee
tried to bridge the gap in the
difference between the 10% VAT
rate proposed by the Senate, and
the various rates with 12% as the
highest VAT rate proposed by the
House, by striking a compromise
whereby the present 10% VAT rate
would be retained until certain
conditions arise, i.e., the value-
added tax collection as a
percentage of gross domestic
product (GDP) of the previous year
exceeds 2 4/5%, or National
Government deficit as a
percentage of GDP of the previous
year exceeds 1½%, when the
President, upon recommendation
of the Secretary of Finance shall
raise the rate of VAT to 12%
effective January 1, 2006.
2. With regard to the disagreement
on whether only the VAT imposed
on electricity generation,
transmission and distribution
companies should not be passed
on to consumers or whether both
the VAT imposed on electricity
generation, transmission and
distribution companies and the
VAT imposed on sale of petroleum
products may be passed on to
consumers, the Bicameral
Conference Committee chose to
settle such disagreement by
altogether deleting from its Report
any no pass-on provision.
3. With regard to the disagreement
on whether input tax credits should
be limited or not, the Bicameral
Conference Committee decided to
adopt the position of the House by
putting a limitation on the amount of
input tax that may be credited
against the output tax, although it
crafted its own language as to the
amount of the limitation on input tax
credits and the manner of
computing the same by providing
thus:
(A) Creditable Input Tax. – . . .
...
Provided, The input tax on goods
purchased or imported in a
calendar month for use in trade or
business for which deduction for
depreciation is allowed under this
Code, shall be spread evenly over
the month of acquisition and the
fifty-nine (59) succeeding months if
the aggregate acquisition cost for
such goods, excluding the VAT
component thereof, exceeds one
million Pesos (₱1,000,000.00):
PROVIDED, however, that if the
estimated useful life of the capital
good is less than five (5) years, as
used for depreciation purposes,
then the input VAT shall be spread
over such shorter period: . . .
(B) Excess Output or Input Tax. – If
at the end of any taxable quarter
the output tax exceeds the input
tax, the excess shall be paid by the
VAT-registered person. If the input
tax exceeds the output tax, the
excess shall be carried over to the
succeeding quarter or quarters:
PROVIDED that the input tax
inclusive of input VAT carried over
from the previous quarter that may
be credited in every quarter shall
not exceed seventy percent (70%)
of the output VAT: PROVIDED,
HOWEVER, THAT any input tax
attributable to zero-rated sales by a
VAT-registered person may at his
option be refunded or credited
against other internal revenue
taxes, . . .
4. With regard to the amendments
to other provisions of the NIRC on
corporate income tax, franchise,
percentage and excise taxes, the
conference committee decided to
include such amendments and
basically adopted the provisions
found in Senate Bill No. 1950, with
some changes as to the rate of the
tax to be imposed.
Under the provisions of both the
Rules of the House of
Representatives and Senate
Rules, the Bicameral Conference
Committee is mandated to settle
the differences between the
disagreeing provisions in the
House bill and the Senate bill. The
term "settle" is synonymous to
"reconcile" and "harmonize."25 To
reconcile or harmonize disagreeing
provisions, the Bicameral
Conference Committee may then
(a) adopt the specific provisions of
either the House bill or Senate bill,
(b) decide that neither provisions in
the House bill or the provisions in
the Senate bill would
be carried into the final form of the
bill, and/or (c) try to arrive at a
compromise between the
disagreeing provisions.
In the present case, the changes
introduced by the Bicameral
Conference Committee on
disagreeing provisions were meant
only to reconcile and harmonize the
disagreeing provisions for it did not
inject any idea or intent that is
wholly foreign to the subject
embraced by the original
provisions.
The so-called stand-by authority in
favor of the President, whereby the
rate of 10% VAT wanted by the
Senate is retained until such time
that certain conditions arise when
the 12% VAT wanted by the House
shall be imposed, appears to be a
compromise to try to bridge the
difference in the rate of VAT
proposed by the two houses of
Congress. Nevertheless, such
compromise is still totally within the
subject of what rate of VAT should
be imposed on taxpayers.
The no pass-on provision was
deleted altogether. In the
transcripts of the proceedings of
the Bicameral Conference
Committee held on May 10, 2005,
Sen. Ralph Recto, Chairman of the
Senate Panel, explained the
reason for deleting the no pass-
on provision in this wise:
. . . the thinking was just to keep the
VAT law or the VAT bill simple. And
we were thinking that no sector
should be a beneficiary of
legislative grace, neither should
any sector be discriminated on.
The VAT is an indirect tax. It is a
pass on-tax. And let’s keep it plain
and simple. Let’s not confuse the
bill and put a no pass-on provision.
Two-thirds of the world have a VAT
system and in this two-thirds of the
globe, I have yet to see a VAT with
a no pass-though provision. So, the
thinking of the Senate is basically
simple, let’s keep the VAT
simple.26 (Emphasis supplied)
Rep. Teodoro Locsin further made
the manifestation that the no pass-
on provision "never really enjoyed
the support of either House."27
With regard to the amount of input
tax to be credited against output
tax, the Bicameral Conference
Committee came to a compromise
on the percentage rate of the
limitation or cap on such input tax
credit, but again, the change
introduced by the Bicameral
Conference Committee was totally
within the intent of both houses to
put a cap on input tax that may be
credited against the output tax.
From the inception of the subject
revenue bill in the House of
Representatives, one of the major
objectives was to "plug a glaring
loophole in the tax policy and
administration by creating vital
restrictions on the claiming of input
VAT tax credits . . ." and "[b]y
introducing limitations on the
claiming of tax credit, we are
capping a major leakage that has
placed our collection efforts at an
apparent disadvantage."28
As to the amendments to NIRC
provisions on taxes other than the
value-added tax proposed in
Senate Bill No. 1950, since said
provisions were among those
referred to it, the conference
committee had to act on the same
and it basically adopted the version
of the Senate.
Thus, all the changes or
modifications made by the
Bicameral Conference Committee
were germane to subjects of the
provisions referred
to it for reconciliation. Such being
the case, the Court does not see
any grave abuse of discretion
amounting to lack or excess of
jurisdiction committed by the
Bicameral Conference Committee.
In the earlier cases of Philippine
Judges Association vs.
29
Prado and Tolentino vs.
30
Secretary of Finance, the Court
recognized the long-standing
legislative practice of giving said
conference committee ample
latitude for compromising
differences between the Senate
and the House. Thus, in
the Tolentino case, it was held that:
. . . it is within the power of a
conference committee to include in
its report an entirely new provision
that is not found either in the House
bill or in the Senate bill. If the
committee can propose an
amendment consisting of one or
two provisions, there is no reason
why it cannot propose several
provisions, collectively considered
as an "amendment in the nature of
a substitute," so long as such
amendment is germane to the
subject of the bills before the
committee. After all, its report was
not final but needed the approval of
both houses of Congress to
become valid as an act of the
legislative department. The
charge that in this case the
Conference Committee acted as
a third legislative chamber is
thus without any
31
basis. (Emphasis supplied)
B. R.A. No. 9337 Does Not Violate
Article VI, Section 26(2) of the
Constitution on the "No-
Amendment Rule"
Article VI, Sec. 26 (2) of the
Constitution, states:
No bill passed by either House
shall become a law unless it has
passed three readings on separate
days, and printed copies thereof in
its final form have been distributed
to its Members three days before
its passage, except when the
President certifies to the necessity
of its immediate enactment to meet
a public calamity or emergency.
Upon the last reading of a bill, no
amendment thereto shall be
allowed, and the vote thereon shall
be taken immediately thereafter,
and the yeas and nays entered in
the Journal.
Petitioners’ argument that the
practice where a bicameral
conference committee is allowed to
add or delete provisions in the
House bill and the Senate bill after
these had passed three readings is
in effect a circumvention of the "no
amendment rule" (Sec. 26 (2), Art.
VI of the 1987 Constitution), fails to
convince the Court to deviate from
its ruling in the Tolentino case that:
Nor is there any reason for
requiring that the Committee’s
Report in these cases must have
undergone three readings in each
of the two houses. If that be the
case, there would be no end to
negotiation since each house may
seek modification of the
compromise bill. . . .
Art. VI. § 26 (2) must, therefore,
be construed as referring only to
bills introduced for the first time
in either house of Congress, not
to the conference committee
report.32 (Emphasis supplied)
The Court reiterates here that the
"no-amendment rule" refers only
to the procedure to be followed
by each house of Congress with
regard to bills initiated in each of
said respective houses, before
said bill is transmitted to the
other house for its concurrence
or amendment. Verily, to construe
said provision in a way as to
proscribe any further changes to a
bill after one house has voted on it
would lead to absurdity as this
would mean that the other house of
Congress would be deprived of its
constitutional power to amend or
introduce changes to said bill.
Thus, Art. VI, Sec. 26 (2) of the
Constitution cannot be taken to
mean that the introduction by the
Bicameral Conference Committee
of amendments and modifications
to disagreeing provisions in bills
that have been acted upon by both
houses of Congress is prohibited.
C. R.A. No. 9337 Does Not Violate
Article VI, Section 24 of the
Constitution on Exclusive
Origination of Revenue Bills
Coming to the issue of the validity
of the amendments made
regarding the NIRC provisions on
corporate income taxes and
percentage, excise taxes.
Petitioners refer to the following
provisions, to wit:
Section 27 Rates of Income Tax on Domestic C
28(A)(1) Tax on Resident Foreign Corporatio
28(B)(1) Inter-corporate Dividends
34(B)(1) Inter-corporate Dividends
116 Tax on Persons Exempt from VAT
117 Percentage Tax on domestic carrier
119 Tax on franchises
121 Tax on banks and Non-Bank Financ
148 Excise Tax on manufactured oils an
151 Excise Tax on mineral products
236 Registration requirements
237 Issuance of receipts or sales or com
288 Disposition of Incremental Revenue
Petitioners claim that the
amendments to these provisions of
the NIRC did not at all originate
from the House. They aver that
House Bill No. 3555 proposed
amendments only regarding
Sections 106, 107, 108, 110 and
114 of the NIRC, while House Bill
No. 3705 proposed amendments
only to Sections 106, 107,108, 109,
110 and 111 of the NIRC; thus, the
other sections of the NIRC which
the Senate amended but which
amendments were not found in the
House bills are not intended to be
amended by the House of
Representatives. Hence, they
argue that since the proposed
amendments did not originate from
the House, such amendments are
a violation of Article VI, Section 24
of the Constitution.
The argument does not hold water.
Article VI, Section 24 of the
Constitution reads:
Sec. 24. All appropriation, revenue
or tariff bills, bills authorizing
increase of the public debt, bills of
local application, and private bills
shall originate exclusively in the
House of Representatives but the
Senate may propose or concur with
amendments.
In the present cases, petitioners
admit that it was indeed House Bill
Nos. 3555 and 3705 that initiated
the move for amending provisions
of the NIRC dealing mainly with the
value-added tax. Upon transmittal
of said House bills to the Senate,
the Senate came out with Senate
Bill No. 1950 proposing
amendments not only to NIRC
provisions on the value-added tax
but also amendments to NIRC
provisions on other kinds of taxes.
Is the introduction by the Senate of
provisions not dealing directly with
the value- added tax, which is the
only kind of tax being amended in
the House bills, still within the
purview of the constitutional
provision authorizing the Senate to
propose or concur with
amendments to a revenue bill that
originated from the House?
The foregoing question had been
squarely answered in
the Tolentino case, wherein the
Court held, thus:
. . . To begin with, it is not the law –
but the revenue bill – which is
required by the Constitution to
"originate exclusively" in the House
of Representatives. It is important
to emphasize this, because a bill
originating in the House may
undergo such extensive changes in
the Senate that the result may be a
rewriting of the whole. . . . At this
point, what is important to note is
that, as a result of the Senate
action, a distinct bill may be
produced. To insist that a
revenue statute – and not only
the bill which initiated the
legislative process culminating
in the enactment of the law –
must substantially be the same
as the House bill would be to
deny the Senate’s power not
only to "concur with
amendments" but also to
"propose amendments." It would
be to violate the coequality of
legislative power of the two houses
of Congress and in fact make the
House superior to the Senate.
… Senate Bill No. 1950 amending
…Given, then, the power of the
Senate to propose amendments,
the Senate can propose its own
version even with respect to bills
which are required by the
Constitution to originate in the
House.
...
Indeed, what the Constitution
simply means is that the initiative
for filing revenue, tariff or tax bills,
bills authorizing an increase of the
public debt, private bills and bills of
local application must come from
the House of Representatives on
the theory that, elected as they are
from the districts, the members of
the House can be expected to be
more sensitive to the local needs
and problems. On the other
hand, the senators, who are
elected at large, are expected to
approach the same problems
from the national perspective.
Both views are thereby made to
bear on the enactment of such
laws.33 (Emphasis supplied)
Since there is no question that the
revenue bill exclusively originated
in the House of Representatives,
the Senate was acting within its
constitutional power to introduce
amendments to the House bill
when it included provisions in
corporate income taxes,
percentage, excise and franchise
taxes. Verily, Article VI, Section 24
of the Constitution does not contain
any prohibition or limitation on the
extent of the amendments that may
be introduced by the Senate to the
House revenue bill.
Furthermore, the amendments
introduced by the Senate to the
NIRC provisions that had not been
touched in the House bills are still
in furtherance of the intent of the
House in initiating the subject
revenue bills. The Explanatory
Note of House Bill No. 1468, the
very first House bill introduced on
the floor, which was later
substituted by House Bill No. 3555,
stated:
One of the challenges faced by the
present administration is the urgent
and daunting task of solving the
country’s serious financial
problems. To do this, government
expenditures must be strictly
monitored and controlled and
revenues must be significantly
increased. This may be easier said
than done, but our fiscal authorities
are still optimistic the government
will be operating on a balanced
budget by the year 2009. In fact,
several measures that will result to
significant expenditure savings
have been identified by the
administration. It is supported
with a credible package of
revenue measures that include
measures to improve tax
administration and control the
leakages in revenues from
income taxes and the value-
added tax (VAT). (Emphasis
supplied)
Rep. Eric D. Singson, in his
sponsorship speech for House Bill
No. 3555, declared that:
In the budget message of our
President in the year 2005, she
reiterated that we all acknowledged
that on top of our agenda must be
the restoration of the health of our
fiscal system.
In order to considerably lower the
consolidated public sector deficit
and eventually achieve a balanced
budget by the year 2009, we need
to seize windows of
opportunities which might seem
poignant in the beginning, but in
the long run prove effective and
beneficial to the overall status of
our economy. One such
opportunity is a review of
existing tax rates, evaluating the
relevance given our present
conditions.34 (Emphasis supplied)
Notably therefore, the main
purpose of the bills emanating from
the House of Representatives is to
bring in sizeable revenues for the
government
to supplement our country’s
serious financial problems, and
improve tax administration and
control of the leakages in revenues
from income taxes and value-
added taxes. As these house bills
were transmitted to the Senate, the
latter, approaching the measures
from the point of national
perspective, can introduce
amendments within the purposes
of those bills. It can provide for
ways that would soften the impact
of the VAT measure on the
consumer, i.e., by distributing the
burden across all sectors instead of
putting it entirely on the shoulders
of the consumers. The sponsorship
speech of Sen. Ralph Recto on
why the provisions on income tax
on corporation were included is
worth quoting:
All in all, the proposal of the Senate
Committee on Ways and Means
will raise ₱64.3 billion in additional
revenues annually even while by
mitigating prices of power, services
and petroleum products.
However, not all of this will be
wrung out of VAT. In fact, only
₱48.7 billion amount is from the
VAT on twelve goods and services.
The rest of the tab – ₱10.5 billion-
will be picked by corporations.
What we therefore prescribe is a
burden sharing between corporate
Philippines and the consumer. Why
should the latter bear all the pain?
Why should the fiscal salvation be
only on the burden of the
consumer?
The corporate world’s equity is in
form of the increase in the
corporate income tax from 32 to 35
percent, but up to 2008 only. This
will raise ₱10.5 billion a year. After
that, the rate will slide back, not to
its old rate of 32 percent, but two
notches lower, to 30 percent.
Clearly, we are telling those with
the capacity to pay, corporations, to
bear with this emergency provision
that will be in effect for 1,200 days,
while we put our fiscal house in
order. This fiscal medicine will have
an expiry date.
For their assistance, a reward of
tax reduction awaits them. We
intend to keep the length of their
sacrifice brief. We would like to
assure them that not because there
is a light at the end of the tunnel,
this government will keep on
making the tunnel long.
The responsibility will not rest
solely on the weary shoulders of
the small man. Big business will be
there to share the burden.35
As the Court has said, the Senate
can propose amendments and in
fact, the amendments made on
provisions in the tax on income of
corporations are germane to the
purpose of the house bills which is
to raise revenues for the
government.
Likewise, the Court finds the
sections referring to other
percentage and excise taxes
germane to the reforms to the VAT
system, as these sections would
cushion the effects of VAT on
consumers. Considering that
certain goods and services which
were subject to percentage tax and
excise tax would no longer be VAT-
exempt, the consumer would be
burdened more as they would be
paying the VAT in addition to these
taxes. Thus, there is a need to
amend these sections to soften the
impact of VAT. Again, in his
sponsorship speech, Sen. Recto
said:
However, for power plants that run
on oil, we will reduce to zero the
present excise tax on bunker fuel,
to lessen the effect of a VAT on this
product.
For electric utilities like Meralco, we
will wipe out the franchise tax in
exchange for a VAT.
And in the case of petroleum, while
we will levy the VAT on oil
products, so as not to destroy the
VAT chain, we will however bring
down the excise tax on socially
sensitive products such as diesel,
bunker, fuel and kerosene.
...
What do all these exercises point
to? These are not contortions of
giving to the left hand what was
taken from the right. Rather, these
sprang from our concern of
softening the impact of VAT, so that
the people can cushion the blow of
higher prices they will have to pay
as a result of VAT.36
The other sections amended by the
Senate pertained to matters of tax
administration which are necessary
for the implementation of the
changes in the VAT system.
To reiterate, the sections
introduced by the Senate are
germane to the subject matter and
purposes of the house bills, which
is to supplement our country’s
fiscal deficit, among others. Thus,
the Senate acted within its power to
propose those amendments.
SUBSTANTIVE ISSUES
I.
Whether Sections 4, 5 and 6 of
R.A. No. 9337, amending Sections
106, 107 and 108 of the NIRC,
violate the following provisions of
the Constitution:
a. Article VI, Section 28(1), and
b. Article VI, Section 28(2)
A. No Undue Delegation of
Legislative Power
Petitioners ABAKADA
GURO Party List, et al., Pimentel,
Jr., et al., and Escudero, et
al. contend in common that
Sections 4, 5 and 6 of R.A. No.
9337, amending Sections 106, 107
and 108, respectively, of the NIRC
giving the President the stand-by
authority to raise the VAT rate from
10% to 12% when a certain
condition is met, constitutes undue
delegation of the legislative power
to tax.
The assailed provisions read as
follows:
SEC. 4. Sec. 106 of the same
Code, as amended, is hereby
further amended to read as follows:
SEC. 106. Value-Added Tax on
Sale of Goods or Properties. –
(A) Rate and Base of Tax. – There
shall be levied, assessed and
collected on every sale, barter or
exchange of goods or properties, a
value-added tax equivalent to ten
percent (10%) of the gross selling
price or gross value in money of the
goods or properties sold, bartered
or exchanged, such tax to be paid
by the seller or
transferor: provided, that the
President, upon the
recommendation of the
Secretary of Finance, shall,
effective January 1, 2006, raise
the rate of value-added tax to
twelve percent (12%), after any
of the following conditions has
been satisfied.
(i) value-added tax collection as
a percentage of Gross Domestic
Product (GDP) of the previous
year exceeds two and four-fifth
percent (2 4/5%) or
(ii) national government deficit
as a percentage of GDP of the
previous year exceeds one and
one-half percent (1 ½%).
SEC. 5. Section 107 of the same
Code, as amended, is hereby
further amended to read as follows:
SEC. 107. Value-Added Tax on
Importation of Goods. –
(A) In General. – There shall be
levied, assessed and collected on
every importation of goods a value-
added tax equivalent to ten percent
(10%) based on the total value
used by the Bureau of Customs in
determining tariff and customs
duties, plus customs duties, excise
taxes, if any, and other charges,
such tax to be paid by the importer
prior to the release of such goods
from customs custody: Provided,
That where the customs duties are
determined on the basis of the
quantity or volume of the goods,
the value-added tax shall be based
on the landed cost plus excise
taxes, if any: provided, further,
that the President, upon the
recommendation of the
Secretary of Finance, shall,
effective January 1, 2006, raise
the rate of value-added tax to
twelve percent (12%) after any of
the following conditions has
been satisfied.
(i) value-added tax collection as
a percentage of Gross Domestic
Product (GDP) of the previous
year exceeds two and four-fifth
percent (2 4/5%) or
(ii) national government deficit
as a percentage of GDP of the
previous year exceeds one and
one-half percent (1 ½%).
SEC. 6. Section 108 of the same
Code, as amended, is hereby
further amended to read as follows:
SEC. 108. Value-added Tax on
Sale of Services and Use or Lease
of Properties –
(A) Rate and Base of Tax. – There
shall be levied, assessed and
collected, a value-added tax
equivalent to ten percent (10%) of
gross receipts derived from the
sale or exchange of
services: provided, that the
President, upon the
recommendation of the
Secretary of Finance, shall,
effective January 1, 2006, raise
the rate of value-added tax to
twelve percent (12%), after any
of the following conditions has
been satisfied.
(i) value-added tax collection as
a percentage of Gross Domestic
Product (GDP) of the previous
year exceeds two and four-fifth
percent (2 4/5%) or
(ii) national government deficit
as a percentage of GDP of the
previous year exceeds one and
one-half percent (1
½%). (Emphasis supplied)
Petitioners allege that the grant of
the stand-by authority to the
President to increase the VAT rate
is a virtual abdication by Congress
of its exclusive power to tax
because such delegation is not
within the purview of Section 28 (2),
Article VI of the Constitution, which
provides:
The Congress may, by law,
authorize the President to fix within
specified limits, and may impose,
tariff rates, import and export
quotas, tonnage and wharfage
dues, and other duties or imposts
within the framework of the national
development program of the
government.
They argue that the VAT is a tax
levied on the sale, barter or
exchange of goods and properties
as well as on the sale or exchange
of services, which cannot be
included within the purview of tariffs
under the exempted delegation as
the latter refers to customs duties,
tolls or tribute payable upon
merchandise to the government
and usually imposed on goods or
merchandise imported or exported.
Petitioners ABAKADA
GURO Party List, et al., further
contend that delegating to the
President the legislative power to
tax is contrary to republicanism.
They insist that accountability,
responsibility and transparency
should dictate the actions of
Congress and they should not pass
to the President the decision to
impose taxes. They also argue that
the law also effectively nullified the
President’s power of control, which
includes the authority to set aside
and nullify the acts of her
subordinates like the Secretary of
Finance, by mandating the fixing of
the tax rate by the President upon
the recommendation of the
Secretary of Finance.
Petitioners Pimentel, et al. aver
that the President has ample
powers to cause, influence or
create the conditions provided by
the law to bring about either or both
the conditions precedent.
On the other hand, petitioners
Escudero, et al. find bizarre and
revolting the situation that the
imposition of the 12% rate would be
subject to the whim of the
Secretary of Finance, an unelected
bureaucrat, contrary to the
principle of no taxation without
representation. They submit that
the Secretary of Finance is not
mandated to give a favorable
recommendation and he may not
even give his recommendation.
Moreover, they allege that no
guiding standards are provided in
the law on what basis and as to
how he will make his
recommendation. They claim,
nonetheless, that any
recommendation of the Secretary
of Finance can easily be brushed
aside by the President since the
former is a mere alter ego of the
latter, such that, ultimately, it is the
President who decides whether to
impose the increased tax rate or
not.
A brief discourse on the principle of
non-delegation of powers is
instructive.
The principle of separation of
powers ordains that each of the
three great branches of
government has exclusive
cognizance of and is supreme in
matters falling within its own
constitutionally allocated
37
sphere. A logical
corollary to the doctrine of
separation of powers is the
principle of non-delegation of
powers, as expressed in the Latin
maxim: potestas delegata non
delegari potest which means "what
has been delegated, cannot be
delegated."38 This doctrine is
based on the ethical principle that
such as delegated power
constitutes not only a right but a
duty to be performed by the
delegate through the
instrumentality of his own judgment
and not through the intervening
mind of another.39
With respect to the Legislature,
Section 1 of Article VI of the
Constitution provides that "the
Legislative power shall be vested in
the Congress of the Philippines
which shall consist of a Senate and
a House of Representatives." The
powers which Congress is
prohibited from delegating are
those which are strictly, or
inherently and exclusively,
legislative. Purely legislative
power, which can never be
delegated, has been described as
the authority to make a complete
law – complete as to the time
when it shall take effect and as to
whom it shall be applicable – and
to determine the expediency of
its enactment.40 Thus, the rule is
that in order that a court may be
justified in holding a statute
unconstitutional as a delegation of
legislative power, it must appear
that the power involved is purely
legislative in nature – that is, one
appertaining exclusively to the
legislative department. It is the
nature of the power, and not the
liability of its use or the manner of
its exercise, which determines the
validity of its delegation.
Nonetheless, the general rule
barring delegation of legislative
powers is subject to the following
recognized limitations or
exceptions:
(1) Delegation of tariff powers to
the President under Section 28 (2)
of Article VI of the Constitution;
(2) Delegation of emergency
powers to the President under
Section 23 (2) of Article VI of the
Constitution;
(3) Delegation to the people at
large;
(4) Delegation to local
governments; and
(5) Delegation to administrative
bodies.
In every case of permissible
delegation, there must be a
showing that the delegation itself is
valid. It is valid only if the law (a) is
complete in itself, setting forth
therein the policy to be executed,
carried out, or implemented by the
delegate;41 and (b) fixes a standard
— the limits of which are sufficiently
determinate and determinable — to
which the delegate must conform in
the performance of his
42
functions. A sufficient standard is
one which defines legislative
policy, marks its limits, maps out its
boundaries and specifies the public
agency to apply it. It indicates the
circumstances under which the
legislative command is to be
effected.43 Both tests are intended
to prevent a total transference of
legislative authority to the delegate,
who is not allowed to step into the
shoes of the legislature and
exercise a power essentially
legislative.44
In People vs. Vera,45 the Court,
through eminent Justice Jose P.
Laurel, expounded on the concept
and extent of delegation of power in
this wise:
In testing whether a statute
constitutes an undue delegation of
legislative power or not, it is usual
to inquire whether the statute was
complete in all its terms and
provisions when it left the hands of
the legislature so that nothing was
left to the judgment of any other
appointee or delegate of the
legislature.
...
‘The true distinction’, says
Judge Ranney, ‘is between the
delegation of power to make the
law, which necessarily involves
a discretion as to what it shall
be, and conferring an authority
or discretion as to its execution,
to be exercised under and in
pursuance of the law. The first
cannot be done; to the latter no
valid objection can be made.’
...
It is contended, however, that a
legislative act may be made to the
effect as law after it leaves the
hands of the legislature. It is true
that laws may be made effective on
certain contingencies, as by
proclamation of the executive or
the adoption by the people of a
particular community. In Wayman
vs. Southard, the Supreme Court of
the United States ruled that the
legislature may delegate a power
not legislative which it may itself
rightfully exercise. The power to
ascertain facts is such a power
which may be delegated. There
is nothing essentially legislative
in ascertaining the existence of
facts or conditions as the basis
of the taking into effect of a law.
That is a mental process
common to all branches of the
government. Notwithstanding the
apparent tendency, however, to
relax the rule prohibiting delegation
of legislative authority on account
of the complexity arising from
social and economic forces at work
in this modern industrial age, the
orthodox pronouncement of Judge
Cooley in his work on
Constitutional Limitations finds
restatement in Prof. Willoughby's
treatise on the Constitution of the
United States in the following
language — speaking of
declaration of legislative power to
administrative agencies: The
principle which permits the
legislature to provide that the
administrative agent may
determine when the
circumstances are such as
require the application of a law is
defended upon the ground that
at the time this authority is
granted, the rule of public policy,
which is the essence of the
legislative act, is determined by
the legislature. In other words,
the legislature, as it is its duty to
do, determines that, under given
circumstances, certain
executive or administrative
action is to be taken, and that,
under other circumstances,
different or no action at all is to
be taken. What is thus left to the
administrative official is not the
legislative determination of what
public policy demands, but
simply the ascertainment of
what the facts of the case require
to be done according to the
terms of the law by which he is
governed. The efficiency of an
Act as a declaration of legislative
will must, of course, come from
Congress, but the ascertainment
of the contingency upon which
the Act shall take effect may be
left to such agencies as it may
designate. The legislature, then,
may provide that a law shall take
effect upon the happening of
future specified contingencies
leaving to some other person or
body the power to determine
when the specified contingency
has arisen. (Emphasis supplied).46
In Edu vs. Ericta,47 the Court
reiterated:
What cannot be delegated is the
authority under the Constitution to
make laws and to alter and repeal
them; the test is the completeness
of the statute in all its terms and
provisions when it leaves the hands
of the legislature. To determine
whether or not there is an undue
delegation of legislative power, the
inquiry must be directed to the
scope and definiteness of the
measure enacted. The legislative
does not abdicate its functions
when it describes what job must
be done, who is to do it, and what
is the scope of his authority. For
a complex economy, that may be
the only way in which the legislative
process can go forward. A
distinction has rightfully been
made between delegation of
power to make the laws which
necessarily involves a discretion
as to what it shall be, which
constitutionally may not be
done, and delegation of
authority or discretion as to its
execution to be exercised under
and in pursuance of the law, to
which no valid objection can be
made. The Constitution is thus not
to be regarded as denying the
legislature the necessary
resources of flexibility and
practicability. (Emphasis
supplied). 48
Clearly, the legislature may
delegate to executive officers or
bodies the power to determine
certain facts or conditions, or the
happening of contingencies, on
which the operation of a statute is,
by its terms, made to depend, but
the legislature must prescribe
sufficient standards, policies or
limitations on their
49
authority. While the power to tax
cannot be delegated to executive
agencies, details as to the
enforcement and administration of
an exercise of such power may be
left to them, including the power to
determine the existence of facts on
which its operation depends.50
The rationale for this is that the
preliminary ascertainment of facts
as basis for the enactment of
legislation is not of itself a
legislative function, but is simply
ancillary to legislation. Thus, the
duty of correlating information and
making recommendations is the
kind of subsidiary activity which the
legislature may perform through its
members, or which it may delegate
to others to perform. Intelligent
legislation on the complicated
problems of modern society is
impossible in the absence of
accurate information on the part of
the legislators, and any reasonable
method of securing such
information is 51
proper. The
Constitution as a continuously
operative charter of government
does not require that Congress find
for itself
every fact upon which it desires to
base legislative action or that it
make for itself detailed
determinations which it has
declared to be prerequisite to
application of legislative policy to
particular facts and circumstances
impossible for Congress itself
properly to investigate.52
In the present case, the challenged
section of R.A. No. 9337 is the
common proviso in Sections 4, 5
and 6 which reads as follows:
That the President, upon the
recommendation of the Secretary
of Finance, shall, effective January
1, 2006, raise the rate of value-
added tax to twelve percent (12%),
after any of the following conditions
has been satisfied:
(i) Value-added tax collection as a
percentage of Gross Domestic
Product (GDP) of the previous year
exceeds two and four-fifth percent
(2 4/5%); or
(ii) National government deficit as a
percentage of GDP of the previous
year exceeds one and one-half
percent (1 ½%).
The case before the Court is not a
delegation of legislative power. It is
simply a delegation of
ascertainment of facts upon which
enforcement and administration of
the increase rate under the law is
contingent. The legislature has
made the operation of the 12% rate
effective January 1, 2006,
contingent upon a specified fact or
condition. It leaves the entire
operation or non-operation of the
12% rate upon factual matters
outside of the control of the
executive.
No discretion would be exercised
by the President. Highlighting the
absence of discretion is the fact
that the word shall is used in the
common proviso. The use of the
word shall connotes a mandatory
order. Its use in a statute denotes
an imperative obligation and is
inconsistent with the idea of
discretion.53 Where the law is clear
and unambiguous, it must be taken
to mean exactly what it says, and
courts have no choice but to see to
it that the mandate is obeyed.54
Thus, it is the ministerial duty of the
President to immediately impose
the 12% rate upon the existence of
any of the conditions specified by
Congress. This is a duty which
cannot be evaded by the President.
Inasmuch as the law specifically
uses the word shall, the exercise of
discretion by the President does
not come into play. It is a clear
directive to impose the 12% VAT
rate when the specified conditions
are present. The time of taking into
effect of the 12% VAT rate is based
on the happening of a certain
specified contingency, or upon the
ascertainment of certain facts or
conditions by a person or body
other than the legislature itself.
The Court finds no merit to the
contention of
petitioners ABAKADA GURO Party
List, et al. that the law effectively
nullified the President’s power of
control over the Secretary of
Finance by mandating the fixing of
the tax rate by the President upon
the recommendation of the
Secretary of Finance. The Court
cannot also subscribe to the
position of petitioners
Pimentel, et al. that the
word shall should be interpreted to
mean may in view of the phrase
"upon the recommendation of the
Secretary of Finance." Neither
does the Court find persuasive the
submission of petitioners
Escudero, et al. that any
recommendation by the Secretary
of Finance can easily be brushed
aside by the President since the
former is a mere alter ego of the
latter.
When one speaks of the Secretary
of Finance as the alter ego of the
President, it simply means that as
head of the Department of Finance
he is the assistant and agent of the
Chief Executive. The multifarious
executive and administrative
functions of the Chief Executive are
performed by and through the
executive departments, and the
acts of the secretaries of such
departments, such as the
Department of Finance, performed
and promulgated in the regular
course of business, are, unless
disapproved or reprobated by the
Chief Executive, presumptively the
acts of the Chief Executive. The
Secretary of Finance, as such,
occupies a political position and
holds office in an advisory capacity,
and, in the language of Thomas
Jefferson, "should be of the
President's bosom confidence"
and, in the language of Attorney-
General Cushing, is "subject to the
direction of the President."55
In the present case, in making his
recommendation to the President
on the existence of either of the two
conditions, the Secretary of
Finance is not acting as the alter
ego of the President or even her
subordinate. In such instance, he is
not subject to the power of control
and direction of the President. He
is acting as the agent of the
legislative department, to
determine and declare the event
upon which its expressed will is to
take effect.56 The Secretary of
Finance becomes the means or
tool by which legislative policy is
determined and implemented,
considering that he possesses all
the facilities to gather data and
information and has a much
broader perspective to properly
evaluate them. His function is to
gather and collate statistical data
and other pertinent information and
verify if any of the two conditions
laid out by Congress is present. His
personality in such instance is in
reality but a projection of that of
Congress. Thus, being the agent of
Congress and not of the President,
the President cannot alter or modify
or nullify, or set aside the findings
of the Secretary of Finance and to
substitute the judgment of the
former for that of the latter.
Congress simply granted the
Secretary of Finance the authority
to ascertain the existence of a fact,
namely, whether by December 31,
2005, the value-added tax
collection as a percentage of Gross
Domestic Product (GDP) of the
previous year exceeds two and
four-fifth percent (24/5%) or the
national government deficit as a
percentage of GDP of the previous
year exceeds one and one-half
percent (1½%). If either of these
two instances has occurred, the
Secretary of Finance, by legislative
mandate, must submit such
information to the President. Then
the 12% VAT rate must be imposed
by the President effective January
1, 2006. There is no undue
delegation of legislative power
but only of the discretion as to
the execution of a law. This is
constitutionally
permissible.57 Congress does not
abdicate its functions or unduly
delegate power when it describes
what job must be done, who must
do it, and what is the scope of his
authority; in our complex economy
that is frequently the only way in
which the legislative process can
go forward.58
As to the argument of
petitioners ABAKADA GURO Party
List, et al. that delegating to the
President the legislative power to
tax is contrary to the principle of
republicanism, the same deserves
scant consideration. Congress did
not delegate the power to tax but
the mere implementation of the
law. The intent and will to increase
the VAT rate to 12% came from
Congress and the task of the
President is to simply execute the
legislative policy. That Congress
chose to do so in such a manner is
not within the province of the Court
to inquire into, its task being to
interpret the law.59
The insinuation by petitioners
Pimentel, et al. that the President
has ample powers to cause,
influence or create the conditions to
bring about either or both the
conditions precedent does not
deserve any merit as this argument
is highly speculative. The Court
does not rule on allegations which
are manifestly conjectural, as these
may not exist at all. The Court
deals with facts, not fancies; on
realities, not appearances. When
the Court acts on appearances
instead of realities, justice and law
will be short-lived.
B. The 12% Increase VAT Rate
Does Not Impose an Unfair and
Unnecessary Additional Tax
Burden
Petitioners Pimentel, et al. argue
that the 12% increase in the VAT
rate imposes an unfair and
additional tax burden on the
people. Petitioners also argue that
the 12% increase, dependent on
any of the 2 conditions set forth in
the contested provisions, is
ambiguous because it does not
state if the VAT rate would be
returned to the original 10% if the
rates are no longer satisfied.
Petitioners also argue that such
rate is unfair and unreasonable, as
the people are unsure of the
applicable VAT rate from year to
year.
Under the common provisos of
Sections 4, 5 and 6 of R.A. No.
9337, if any of the two conditions
set forth therein are satisfied, the
President shall increase the VAT
rate to 12%. The provisions of the
law are clear. It does not provide for
a return to the 10% rate nor does it
empower the President to so revert
if, after the rate is increased to
12%, the VAT collection goes
below the 24/5 of the GDP of the
previous year or that the national
government deficit as a percentage
of GDP of the previous year does
not exceed 1½%.
Therefore, no statutory
construction or interpretation is
needed. Neither can conditions or
limitations be introduced where
none is provided for. Rewriting the
law is a forbidden ground that only
Congress may tread upon.60
Thus, in the absence of any
provision providing for a return to
the 10% rate, which in this case the
Court finds none, petitioners’
argument is, at best, purely
speculative. There is no basis for
petitioners’ fear of a fluctuating
VAT rate because the law itself
does not provide that the rate
should go back to 10% if the
conditions provided in Sections 4, 5
and 6 are no longer present. The
rule is that where the provision of
the law is clear and unambiguous,
so that there is no occasion for the
court's seeking the legislative
intent, the law must be taken as it
is, devoid of judicial addition or
subtraction.61
Petitioners also contend that the
increase in the VAT rate, which
was allegedly an incentive to the
President to raise the VAT
collection to at least 2 4/5 of the
GDP of the previous year, should
be based on fiscal adequacy.
Petitioners obviously overlooked
that increase in VAT collection is
not the only condition. There is
another condition, i.e., the national
government deficit as a percentage
of GDP of the previous year
exceeds one and one-half percent
(1 ½%).
Respondents explained the
philosophy behind these
alternative conditions:
1. VAT/GDP Ratio > 2.8%
The condition set for increasing
VAT rate to 12% have economic or
fiscal meaning. If VAT/GDP is less
than 2.8%, it means that
government has weak or no
capability of implementing the VAT
or that VAT is not effective in the
function of the tax collection.
Therefore, there is no value to
increase it to 12% because such
action will also be ineffectual.
2. Nat’l Gov’t Deficit/GDP >1.5%
The condition set for increasing
VAT when deficit/GDP is 1.5% or
less means the fiscal condition of
government has reached a
relatively sound position or is
towards the direction of a balanced
budget position. Therefore, there is
no need to increase the VAT rate
since the fiscal house is in a
relatively healthy position.
Otherwise stated, if the ratio is
more than 1.5%, there is indeed a
need to increase the VAT rate.62
That the first condition amounts to
an incentive to the President to
increase the VAT collection does
not render it unconstitutional so
long as there is a public purpose for
which the law was passed, which in
this case, is mainly to raise
revenue. In fact, fiscal
adequacy dictated the need for a
raise in revenue.
The principle of fiscal adequacy as
a characteristic of a sound tax
system was originally stated by
Adam Smith in his Canons of
Taxation (1776), as:
IV. Every tax ought to be so
contrived as both to take out and to
keep out of the pockets of the
people as little as possible over and
above what it brings into the public
treasury of the state.63
It simply means that sources of
revenues must be adequate to
meet government expenditures
and their variations.64
The dire need for revenue cannot
be ignored. Our country is in a
quagmire of financial woe. During
the Bicameral Conference
Committee hearing, then Finance
Secretary Purisima bluntly
depicted the country’s gloomy state
of economic affairs, thus:
First, let me explain the position
that the Philippines finds itself in
right now. We are in a position
where 90 percent of our revenue is
used for debt service. So, for every
peso of revenue that we currently
raise, 90 goes to debt service.
That’s interest plus amortization of
our debt. So clearly, this is not a
sustainable situation. That’s the
first fact.
The second fact is that our debt to
GDP level is way out of line
compared to other peer countries
that borrow money from that
international financial markets. Our
debt to GDP is approximately equal
to our GDP. Again, that shows you
that this is not a sustainable
situation.
The third thing that I’d like to point
out is the environment that we are
presently operating in is not as
benign as what it used to be the
past five years.
What do I mean by that?
In the past five years, we’ve been
lucky because we were operating
in a period of basically global
growth and low interest rates. The
past few months, we have seen an
inching up, in fact, a rapid increase
in the interest rates in the leading
economies of the world. And,
therefore, our ability to borrow at
reasonable prices is going to be
challenged. In fact, ultimately, the
question is our ability to access the
financial markets.
When the President made her
speech in July last year, the
environment was not as bad as it is
now, at least based on the forecast
of most financial institutions. So,
we were assuming that raising 80
billion would put us in a position
where we can then convince them
to improve our ability to borrow at
lower rates. But conditions have
changed on us because the
interest rates have gone up. In fact,
just within this room, we tried to
access the market for a billion
dollars because for this year alone,
the Philippines will have to borrow
4 billion dollars. Of that amount, we
have borrowed 1.5 billion. We
issued last January a 25-year bond
at 9.7 percent cost. We were trying
to access last week and the market
was not as favorable and up to now
we have not accessed and we
might pull back because the
conditions are not very good.
So given this situation, we at the
Department of Finance believe that
we really need to front-end our
deficit reduction. Because it is
deficit that is causing the increase
of the debt and we are in what we
call a debt spiral. The more debt
you have, the more deficit you have
because interest and debt service
eats and eats more of your
revenue. We need to get out of this
debt spiral. And the only way, I
think, we can get out of this debt
spiral is really have a front-end
adjustment in our revenue base.65
The image portrayed is chilling.
Congress passed the law hoping
for rescue from an inevitable
catastrophe. Whether the law is
indeed sufficient to answer the
state’s economic dilemma is not for
the Court to judge. In
the Fariñas case, the Court
refused to consider the various
arguments raised therein that dwelt
on the wisdom of Section 14 of R.A.
No. 9006 (The Fair Election Act),
pronouncing that:
. . . policy matters are not the
concern of the Court. Government
policy is within the exclusive
dominion of the political branches
of the government. It is not for this
Court to look into the wisdom or
propriety of legislative
determination. Indeed, whether an
enactment is wise or unwise,
whether it is based on sound
economic theory, whether it is the
best means to achieve the desired
results, whether, in short, the
legislative discretion within its
prescribed limits should be
exercised in a particular manner
are matters for the judgment of the
legislature, and the serious conflict
of opinions does not suffice to bring
them within the range of judicial
cognizance.66
In the same vein, the Court in this
case will not dawdle on the purpose
of Congress or the executive
policy, given that it is not for the
judiciary to "pass upon questions of
wisdom, justice or expediency of
legislation."67
II.
Whether Section 8 of R.A. No.
9337, amending Sections
110(A)(2) and 110(B) of the NIRC;
and Section 12 of R.A. No. 9337,
amending Section 114(C) of the
NIRC, violate the following
provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article III, Section 1
A. Due Process and Equal
Protection Clauses
Petitioners Association
of Pilipinas Shell Dealers, Inc., et
al. argue that Section 8 of R.A. No.
9337, amending Sections 110
(A)(2), 110 (B), and Section 12 of
R.A. No. 9337, amending Section
114 (C) of the NIRC are arbitrary,
oppressive, excessive and
confiscatory. Their argument is
premised on the constitutional right
against deprivation of life, liberty of
property without due process of
law, as embodied in Article III,
Section 1 of the Constitution.
Petitioners also contend that these
provisions violate the constitutional
guarantee of equal protection of the
law.
The doctrine is that where the due
process and equal protection
clauses are invoked, considering
that they are not fixed rules but
rather broad standards, there is a
need for proof of such persuasive
character as would lead to such a
conclusion. Absent such a
showing, the presumption of
validity must prevail.68
Section 8 of R.A. No. 9337,
amending Section 110(B) of the
NIRC imposes a limitation on the
amount of input tax that may be
credited against the output tax. It
states, in part: "[P]rovided, that the
input tax inclusive of the input VAT
carried over from the previous
quarter that may be credited in
every quarter shall not exceed
seventy percent (70%) of the
output VAT: …"
Input Tax is defined under Section
110(A) of the NIRC, as amended,
as the value-added tax
due from or paid by a VAT-
registered person on the
importation of goods or local
purchase of good and services,
including lease or use of property,
in the course of trade or business,
from a VAT-registered person,
and Output Tax is the value-added
tax due on the sale or lease of
taxable goods or properties or
services by any person registered
or required to register under the
law.
Petitioners claim that the contested
sections impose limitations on the
amount of input tax that may be
claimed. In effect, a portion of the
input tax that has already been paid
cannot now be credited against the
output tax.
Petitioners’ argument is not
absolute. It assumes that the input
tax exceeds 70% of the output tax,
and therefore, the input tax in
excess of 70% remains uncredited.
However, to the extent that the
input tax is less than 70% of the
output tax, then 100% of such input
tax is still creditable.
More importantly, the excess input
tax, if any, is retained in a
business’s books of accounts and
remains creditable in the
succeeding quarter/s. This is
explicitly allowed by Section
110(B), which provides that "if the
input tax exceeds the output tax,
the excess shall be carried over to
the succeeding quarter or
quarters." In addition, Section
112(B) allows a VAT-registered
person to apply for the issuance of
a tax credit certificate or refund for
any unused input taxes, to the
extent that such input taxes have
not been applied against the output
taxes. Such unused input tax may
be used in payment of his other
internal revenue taxes.
The non-application of the
unutilized input tax in a given
quarter is not ad infinitum, as
petitioners exaggeratedly contend.
Their analysis of the effect of the
70% limitation is incomplete and
one-sided. It ends at the net effect
that there will be
unapplied/unutilized inputs VAT for
a given quarter. It does not proceed
further to the fact that such
unapplied/unutilized input tax may
be credited in the subsequent
periods as allowed by the carry-
over provision of Section 110(B) or
that it may later on be refunded
through a tax credit certificate
under Section 112(B).
Therefore, petitioners’ argument
must be rejected.
On the other hand, it appears that
petitioner Garcia failed to
comprehend the operation of the
70% limitation on the input tax.
According to petitioner, the
limitation on the creditable input tax
in effect allows VAT-registered
establishments to retain a portion
of the taxes they collect, which
violates the principle that tax
collection and revenue should be
for public purposes and
expenditures
As earlier stated, the input tax is the
tax paid by a person, passed on to
him by the seller, when he buys
goods. Output tax meanwhile is the
tax due to the person when he sells
goods. In computing the VAT
payable, three possible scenarios
may arise:
First, if at the end of a taxable
quarter the output taxes charged by
the seller are equal to the input
taxes that he paid and passed on
by the suppliers, then no payment
is required;
Second, when the output taxes
exceed the input taxes, the person
shall be liable for the excess, which
has to be paid to the Bureau of
Internal Revenue (BIR);69 and
Third, if the input taxes exceed the
output taxes, the excess shall be
carried over to the succeeding
quarter or quarters. Should the
input taxes result from zero-rated
or effectively zero-rated
transactions, any excess over the
output taxes shall instead be
refunded to the taxpayer or
credited against other internal
revenue taxes, at the taxpayer’s
option.70
Section 8 of R.A. No. 9337
however, imposed a 70% limitation
on the input tax. Thus, a person
can credit his input tax only up to
the extent of 70% of the output tax.
In layman’s term, the value-added
taxes that a person/taxpayer paid
and passed on to him by a seller
can only be credited up to 70% of
the value-added taxes that is due to
him on a taxable transaction. There
is no retention of any tax collection
because the person/taxpayer has
already previously paid the input
tax to a seller, and the seller will
subsequently remit such input tax
to the BIR. The party directly liable
for the payment of the tax is the
seller.71 What only needs to be
done is for the person/taxpayer to
apply or credit these input taxes, as
evidenced by receipts, against his
output taxes.
Petitioners Association
of Pilipinas Shell Dealers, Inc., et
al. also argue that the input tax
partakes the nature of a property
that may not be confiscated,
appropriated, or limited without due
process of law.
The input tax is not a property or a
property right within the
constitutional purview of the due
process clause. A VAT-registered
person’s entitlement to the
creditable input tax is a mere
statutory privilege.
The distinction between statutory
privileges and vested rights must
be borne in mind for persons have
no vested rights in statutory
privileges. The state may change
or take away rights, which were
created by the law of the state,
although it may not take away
property, which was vested by
virtue of such rights.72
Under the previous system of
single-stage taxation, taxes paid at
every level of distribution are not
recoverable from the taxes
payable, although it becomes part
of the cost, which is deductible from
the gross revenue. When Pres.
Aquino issued E.O. No. 273
imposing a 10% multi-stage tax on
all sales, it was then that the
crediting of the input tax paid on
purchase or importation of goods
and services by VAT-registered
persons against the output tax was
introduced.73 This was adopted by
the Expanded VAT Law (R.A. No.
7716),74 and The Tax Reform Act
of 1997 (R.A. No. 8424).75 The right
to credit input tax as against the
output tax is clearly a privilege
created by law, a privilege that also
the law can remove, or in this case,
limit.
Petitioners also contest as
arbitrary, oppressive, excessive
and confiscatory, Section 8 of R.A.
No. 9337, amending Section
110(A) of the NIRC, which
provides:
SEC. 110. Tax Credits. –
(A) Creditable Input Tax. – …
Provided, That the input tax on
goods purchased or imported in a
calendar month for use in trade or
business for which deduction for
depreciation is allowed under this
Code, shall be spread evenly over
the month of acquisition and the
fifty-nine (59) succeeding months if
the aggregate acquisition cost for
such goods, excluding the VAT
component thereof, exceeds One
million pesos
(₱1,000,000.00): Provided,
however, That if the estimated
useful life of the capital goods is
less than five (5) years, as used for
depreciation purposes, then the
input VAT shall be spread over
such a shorter
period: Provided, finally, That in
the case of purchase of services,
lease or use of properties, the input
tax shall be creditable to the
purchaser, lessee or license upon
payment of the compensation,
rental, royalty or fee.
The foregoing section imposes a
60-month period within which to
amortize the creditable input tax on
purchase or importation of capital
goods with acquisition cost of ₱1
Million pesos, exclusive of the VAT
component. Such spread out only
poses a delay in the crediting of the
input tax. Petitioners’ argument is
without basis because the taxpayer
is not permanently deprived of his
privilege to credit the input tax.
It is worth mentioning that
Congress admitted that the spread-
out of the creditable input tax in this
case amounts to a 4-year interest-
free loan to the government.76 In
the same breath, Congress also
justified its move by saying that the
provision was designed to raise an
annual revenue of 22.6
77
billion. The legislature also
dispelled the fear that the provision
will fend off foreign investments,
saying that foreign investors have
other tax incentives provided by
law, and citing the case of China,
where despite a 17.5% non-
creditable VAT, foreign
investments were not
deterred.78 Again, for whatever is
the purpose of the 60-month
amortization, this involves
executive economic policy and
legislative wisdom in which the
Court cannot intervene.
With regard to the 5% creditable
withholding tax imposed on
payments made by the government
for taxable transactions, Section 12
of R.A. No. 9337, which amended
Section 114 of the NIRC, reads:
SEC. 114. Return and Payment of
Value-added Tax. –
(C) Withholding of Value-added
Tax. – The Government or any of
its political subdivisions,
instrumentalities or agencies,
including government-owned or
controlled corporations (GOCCs)
shall, before making payment on
account of each purchase of goods
and services which are subject to
the value-added tax imposed in
Sections 106 and 108 of this Code,
deduct and withhold a final value-
added tax at the rate of five percent
(5%) of the gross payment thereof:
Provided, That the payment for
lease or use of properties or
property rights to nonresident
owners shall be subject to ten
percent (10%) withholding tax at
the time of payment. For purposes
of this Section, the payor or person
in control of the payment shall be
considered as the withholding
agent.
The value-added tax withheld
under this Section shall be remitted
within ten (10) days following the
end of the month the withholding
was made.
Section 114(C) merely provides a
method of collection, or as stated
by respondents, a more simplified
VAT withholding system. The
government in this case is
constituted as a withholding agent
with respect to their payments for
goods and services.
Prior to its amendment, Section
114(C) provided for different rates
of value-added taxes to be withheld
-- 3% on gross payments for
purchases of goods; 6% on gross
payments for services supplied by
contractors other than by public
works contractors; 8.5% on gross
payments for services supplied by
public work contractors; or 10% on
payment for the lease or use of
properties or property rights to
nonresident owners. Under the
present Section 114(C), these
different rates, except for the 10%
on lease or property rights payment
to nonresidents, were deleted, and
a uniform rate of 5% is applied.
The Court observes, however, that
the law the used the word final. In
tax usage, final, as opposed to
creditable, means full. Thus, it is
provided in Section 114(C): "final
value-added tax at the rate of five
percent (5%)."
In Revenue Regulations No. 02-98,
implementing R.A. No. 8424 (The
Tax Reform Act of 1997), the
concept of final withholding tax on
income was explained, to wit:
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 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
underwithholding, the deficiency
tax shall be collected from the
payor/withholding agent. …
(B) Creditable Withholding Tax. –
Under the creditable withholding
tax system, taxes withheld on
certain income payments are
intended to equal or at least
approximate the tax due of the
payee on said income. … Taxes
withheld on income payments
covered by the expanded
withholding tax (referred to in Sec.
2.57.2 of these regulations) and
compensation income (referred to
in Sec. 2.78 also of these
regulations) are creditable in
nature.
As applied to value-added tax, this
means that taxable transactions
with the government are subject to
a 5% rate, which constitutes as full
payment of the tax payable on the
transaction. This represents the net
VAT payable of the seller. The
other 5% effectively accounts for
the standard input VAT (deemed
input VAT), in lieu of the actual
input VAT directly or attributable to
the taxable transaction.79
The Court need not explore the
rationale behind the provision. It is
clear that Congress intended to
treat differently taxable
transactions with the
80
government. This is supported by
the fact that under the old
provision, the 5% tax withheld by
the government remains creditable
against the tax liability of the seller
or contractor, to wit:
SEC. 114. Return and Payment of
Value-added Tax. –
(C) Withholding
of Creditable Value-added Tax. –
The Government or any of its
political subdivisions,
instrumentalities or agencies,
including government-owned or
controlled corporations (GOCCs)
shall, before making payment on
account of each purchase of goods
from sellers and services rendered
by contractors which are subject to
the value-added tax imposed in
Sections 106 and 108 of this Code,
deduct and withhold the value-
added tax due at the rate of three
percent (3%) of the gross payment
for the purchase of goods and six
percent (6%) on gross receipts for
services rendered by contractors
on every sale or installment
payment which shall be creditable
against the value-added tax
liability of the seller or
contractor: Provided, however,
That in the case of government
public works contractors, the
withholding rate shall be eight and
one-half percent (8.5%): Provided,
further, That the payment for lease
or use of properties or property
rights to nonresident owners shall
be subject to ten percent (10%)
withholding tax at the time of
payment. For this purpose, the
payor or person in control of the
payment shall be considered as the
withholding agent.
The valued-added tax withheld
under this Section shall be remitted
within ten (10) days following the
end of the month the withholding
was made. (Emphasis supplied)
As amended, the use of the
word final and the deletion of the
word creditable exhibits
Congress’s intention to treat
transactions with the government
differently. Since it has not been
shown that the class subject to the
5% final withholding tax has been
unreasonably narrowed, there is no
reason to invalidate the provision.
Petitioners, as petroleum dealers,
are not the only ones subjected to
the 5% final withholding tax. It
applies to all those who deal with
the government.
Moreover, the actual input tax is not
totally lost or uncreditable, as
petitioners believe. Revenue
Regulations No. 14-2005 or the
Consolidated Value-Added Tax
Regulations 2005 issued by the
BIR, provides that should the actual
input tax exceed 5% of gross
payments, the excess may form
part of the cost. Equally, should the
actual input tax be less than 5%,
the difference is treated as
income.81
Petitioners also argue that by
imposing a limitation on the
creditable input tax, the
government gets to tax a profit or
value-added even if there is no
profit or value-added.
Petitioners’ stance is purely
hypothetical, argumentative, and
again, one-sided. The Court will not
engage in a legal joust where
premises are what ifs, arguments,
theoretical and facts, uncertain.
Any disquisition by the Court on
this point will only be, as
Shakespeare describes life
82
in Macbeth, "full of sound and
fury, signifying nothing."
What’s more, petitioners’
contention assumes the
proposition that there is no profit or
value-added. It need not take an
astute businessman to know that it
is a matter of exception that a
business will sell goods or services
without profit or value-added. It
cannot be overstressed that a
business is created precisely for
profit.
The equal protection clause under
the Constitution means that "no
person or class of persons shall be
deprived of the same protection of
laws which is enjoyed by other
persons or other classes in the
same place and in like
circumstances." 83
The power of the State to make
reasonable and natural
classifications for the purposes of
taxation has long been established.
Whether it relates to the subject of
taxation, the kind of property, the
rates to be levied, or the amounts
to be raised, the methods of
assessment, valuation and
collection, the State’s power is
entitled to presumption of validity.
As a rule, the judiciary will not
interfere with such power absent a
clear showing of
unreasonableness, discrimination,
or arbitrariness.84
Petitioners point out that the
limitation on the creditable input tax
if the entity has a high ratio of input
tax, or invests in capital equipment,
or has several transactions with the
government, is not based on real
and substantial differences to meet
a valid classification.
The argument is pedantic, if not
outright baseless. The law does not
make any classification in the
subject of taxation, the kind of
property, the rates to be levied or
the amounts to be raised, the
methods of assessment, valuation
and collection. Petitioners’ alleged
distinctions are based on variables
that bear different consequences.
While the implementation of the law
may yield varying end results
depending on one’s profit margin
and value-added, the Court cannot
go beyond what the legislature has
laid down and interfere with the
affairs of business.
The equal protection clause does
not require the universal
application of the laws on all
persons or things without
distinction. This might in fact
sometimes result in unequal
protection. What the clause
requires is equality among equals
as determined according to a valid
classification. By classification is
meant the grouping of persons or
things similar to each other in
certain particulars and different
from all others in these same
particulars.85
Petitioners brought to the Court’s
attention the introduction of Senate
Bill No. 2038 by Sens. S.R.
Osmeña III and Ma. Ana Consuelo
A.S. – Madrigal on June 6, 2005,
and House Bill No. 4493 by Rep.
Eric D. Singson. The proposed
legislation seeks to amend the 70%
limitation by increasing the same to
90%. This, according to petitioners,
supports their stance that the 70%
limitation is arbitrary and
confiscatory. On this score, suffice
it to say that these are still
proposed legislations. Until
Congress amends the law, and
absent any unequivocal basis for
its unconstitutionality, the 70%
limitation stays.
B. Uniformity and Equitability of
Taxation
Article VI, Section 28(1) of the
Constitution reads:
The rule of taxation shall be
uniform and equitable. The
Congress shall evolve a particular class.87
progressive system of taxation.
Uniformity in taxation means that
all taxable articles or kinds of
property of the same class shall be
taxed at the same rate. Different
articles may be taxed at different
amounts provided that the rate is
uniform on the same class
everywhere with all people at all
times.86
In this case, the tax law is uniform
as it provides a standard rate of 0%
or 10% (or 12%) on all goods and
services. Sections 4, 5 and 6 of
R.A. No. 9337, amending Sections
106, 107 and 108, respectively, of
the NIRC, provide for a rate of 10%
(or 12%) on sale of goods and
properties, importation of goods,
and sale of services and use or
lease of properties. These same
sections also provide for a 0% rate
on certain sales and transaction.
Neither does the law make any
distinction as to the type of industry
or trade that will bear the 70%
limitation on the creditable input
tax, 5-year amortization of input tax
paid on purchase of capital goods
or the 5% final withholding tax by
the government. It must be
stressed that the rule of uniform
taxation does not deprive
Congress of the power to classify
subjects of taxation, and only
demands uniformity within the
R.A. No. 9337 is also equitable.
The law is equipped with a
threshold margin. The VAT rate of
0% or 10% (or 12%) does not apply
to sales of goods or services with
gross annual sales or receipts not
exceeding ₱1,500,000.00.88 Also,
basic marine and agricultural food
products in their original state are
still not subject to the tax,89 thus
ensuring that prices at the
grassroots level will remain
accessible. As was stated
in Kapatiran ng mga Naglilingkod
sa Pamahalaan ng Pilipinas, Inc.
vs. Tan:90
The disputed sales tax is also
equitable. It is imposed only on
sales of goods or services by
persons engaged in business with
an aggregate gross annual sales
exceeding ₱200,000.00. Small
corner sari-sari stores are
consequently exempt from its
application. Likewise exempt from
the tax are sales of farm and
marine products, so that the costs
of basic food and other necessities,
spared as they are from the
incidence of the VAT, are expected
to be relatively lower and within the
reach of the general public.
It is admitted that R.A. No. 9337
puts a premium on businesses with
low profit margins, and unduly
favors those with high profit
margins. Congress was not
oblivious to this. Thus, to equalize
the weighty burden the law entails,
the law, under Section 116,
imposed a 3% percentage tax on
VAT-exempt persons under
Section 109(v), i.e., transactions
with gross annual sales and/or
receipts not exceeding ₱1.5
Million. This acts as a equalizer
because in effect, bigger
businesses that qualify for VAT
coverage and VAT-exempt
taxpayers stand on equal-footing.
Moreover, Congress provided
mitigating measures to cushion the
impact of the imposition of the tax
on those previously exempt. Excise
taxes on petroleum products91 and
natural gas92 were reduced.
Percentage tax on domestic
carriers was removed.93 Power
producers are now exempt from
paying franchise tax.94
Aside from these, Congress also
increased the income tax rates of
corporations, in order to distribute
the burden of taxation. Domestic,
foreign, and non-resident
corporations are now subject to a
35% income tax rate, from a
previous 32%.95 Intercorporate
dividends of non-resident foreign
corporations are still subject to 15%
final withholding tax but the tax
credit allowed on the corporation’s
domicile was increased to
96
20%. The Philippine Amusement
and Gaming Corporation
(PAGCOR) is not exempt from
income taxes anymore.97 Even the
sale by an artist of his works or
services performed for the
production of such works was not
spared.
All these were designed to ease, as
well as spread out, the burden of
taxation, which would otherwise
rest largely on the consumers. It
cannot therefore be gainsaid that
R.A. No. 9337 is equitable.
C. Progressivity of Taxation
Lastly, petitioners contend that the
limitation on the creditable input tax
is anything but regressive. It is the
smaller business with higher input
tax-output tax ratio that will suffer
the consequences.
Progressive taxation is built on the
principle of the taxpayer’s ability to
pay. This principle was also lifted
from Adam Smith’s Canons of
Taxation, and it states:
I. The subjects of every state ought
to contribute towards the support of
the government, as nearly as
possible, in proportion to their
respective abilities; that is, in
proportion to the revenue which
they respectively enjoy under the
protection of the state.
Taxation is progressive when its
rate goes up depending on the
resources of the person affected.98
The VAT is an antithesis of
progressive taxation. By its very
nature, it is regressive. The
principle of progressive taxation
has no relation with the VAT
system inasmuch as the VAT paid
by the consumer or business for
every goods bought or services
enjoyed is the same regardless of
income. In
other words, the VAT paid eats the
same portion of an income,
whether big or small. The disparity
lies in the income earned by a
person or profit margin marked by
a business, such that the higher the
income or profit margin, the smaller
the portion of the income or profit
that is eaten by VAT. A converso,
the lower the income or profit
margin, the bigger the part that the
VAT eats away. At the end of the
day, it is really the lower income
group or businesses with low-profit
margins that is always hardest hit.
Nevertheless, the Constitution
does not really prohibit the
imposition of indirect taxes, like the
VAT. What it simply provides is that
Congress shall "evolve a
progressive system of taxation."
The Court stated in the Tolentino
case, thus:
The Constitution does not really
prohibit the imposition of indirect
taxes which, like the VAT, are
regressive. What it simply provides
is that Congress shall ‘evolve a
progressive system of taxation.’
The constitutional provision has
been interpreted to mean simply
that ‘direct taxes are . . . to be
preferred [and] as much as
possible, indirect taxes should be
minimized.’ (E. FERNANDO, THE
CONSTITUTION OF THE
PHILIPPINES 221 (Second ed.
1977)) Indeed, the mandate to
Congress is not to prescribe, but to
evolve, a progressive tax system.
Otherwise, sales taxes, which
perhaps are the oldest form of
indirect taxes, would have been
prohibited with the proclamation of
Art. VIII, §17 (1) of the 1973
Constitution from which the present
Art. VI, §28 (1) was taken. Sales
taxes are also regressive.
Resort to indirect taxes should be
minimized but not avoided entirely
because it is difficult, if not
impossible, to avoid them by
imposing such taxes according to
the taxpayers' ability to pay. In the
case of the VAT, the law minimizes
the regressive effects of this
imposition by providing for zero
rating of certain transactions (R.A.
No. 7716, §3, amending §102 (b) of
the NIRC), while granting
exemptions to other transactions.
(R.A. No. 7716, §4 amending §103
of the NIRC)99
CONCLUSION
It has been said that taxes are the
lifeblood of the government. In this
case, it is just an enema, a first-aid
measure to resuscitate an
economy in distress. The Court is
neither blind nor is it turning a deaf
ear on the plight of the masses. But
it does not have the panacea for
the malady that the law seeks to
remedy. As in other cases, the
Court cannot strike down a law as
unconstitutional simply because of
its yokes.
Let us not be overly influenced by
the plea that for every wrong there
is a remedy, and that the judiciary
should stand ready to afford relief.
There are undoubtedly many
wrongs the judicature may not
correct, for instance, those
involving political questions. . . .
Let us likewise disabuse our minds
from the notion that the judiciary is
the repository of remedies for all
political or social ills; We should not
forget that the Constitution has
judiciously allocated the powers of
government to three distinct and
separate compartments; and that
judicial interpretation has tended to
the preservation of the
independence of the three, and a
zealous regard of the prerogatives
of each, knowing full well that one
is not the guardian of the others
and that, for official wrong-doing,
each may be brought to account,
either by impeachment, trial or by
the ballot box.100
The words of the Court in Vera vs.
Avelino101 holds true then, as it still
holds true now. All things
considered, there is no raison
d'être for the unconstitutionality of
R.A. No. 9337.

WHEREFORE, Republic Act No.

9337 not being unconstitutional,
the petitions in G.R. Nos. 168056,
168207, 168461, 168463, and
168730, are hereby DISMISSED.

There being no constitutional

impediment to the full enforcement
and implementation of R.A. No.
9337, the temporary restraining
order issued by the Court on July 1,
2005 is LIFTED upon finality of
herein decision.

SO ORDERED.
FIRST DIVISION
G.R. No. 182399 March
12, 2014
CS GARMENT, INC.,* Petitioner,
vs.
COMMISSIONER OF INTERNAL
REVENUE, Respondent.
DECISION
SERENO, CJ:
Before the Court is a Rule 45
petition for review on certiorari,
assailing the respective
Decision and Resolution2 of the
1
Court of Tax. Appeals (CTA) en
bane in EB Case No. 287. These
judgments in turn affirmed the
Decision3 and the Resolution4 of
the CTA Second Division, which
ordered the cancellation of certain
items in the 1998 tax assessments
against petitioner CS Garment, Inc.
(CS Garment or petitioner).
Accordingly, petitioner was
directed to pay the Bureau of
Internal Revenue (BIR) the
remaining portion of the tax
assessments. This portion was
comprised of the outstanding
deficiency value-added tax (VAT)
on CS Garment’s undeclared local
sales and on the incidental sale of
a motor vehicle; deficiency
documentary stamp tax (DST) on a
lease agreement; and deficiency
income tax as a result of the
disallowed expenses and
undeclared local sales. However,
while the present case was
pending before this Court, CS
Garment filed a Manifestation and
Motion stating that the latter had
availed itself of the government’s
tax amnesty program under
Republic Act No. (R.A.) 9480, or
the 2007 Tax Amnesty Law.
FACTS
We reproduce the narration of facts
culled by the CTA en banc5 as
follows:
Petitioner [CS Garment] is a
domestic corporation duly
organized and existing under and
by virtue of the laws of the
Philippines with principal office at
Road A, Cavite Ecozone, Rosario,
Cavite. On the other hand,
respondent is the duly appointed
Commissioner of Internal Revenue
of the Philippines authorized under
law to perform the duties of said
office, including, inter alia, the
power to assess taxpayers for
[alleged] deficiency internal
revenue tax liabilities and to act
upon administrative protests or
requests for
reconsideration/reinvestigation of
such assessments.
Petitioner is registered with the
Philippine Economic Zone
Authority (PEZA) under Certificate
 of Registration No. 89-064, duly ₱ 659,807.00
approved on December 18, 1989.
As such, it is engaged in the
business of manufacturing
Deficiency Income Tax (at
garments for sale abroad.
Normal Rate of 34%)
On November 24, 1999, petitioner
[CS Garment] received from Basic tax due ₱ 78,639.00
respondent [CIR] Letter Add:
of Surcharge 39,320.00
Authority No. 00012641 dated
November 10, 1999, authorizing Interest 43,251.00
the examination of petitioner’s
books of accounts and other
Total Amount Payable ₱ 161,210.00
accounting records for all internal
revenue taxes covering the period
January 1, 1998 to December 31,
1998. Deficiency Income Tax (at
Normal Rate of 34%)
On October 23, 2001, petitioner
received five (5) formal demand Basic tax due ₱ 78,639.00
letters with accompanying
Add: Surcharge 39,320.00
Assessment Notices from
respondent, through the OfficeInterest
of 43,251.00
the Revenue Director of Revenue
Region No. 9, San Pablo City,
requiring it to pay the alleged Total Amount Payable ₱ 161,210.00
deficiency VAT, Income, DST and
withholding tax assessments for
taxable year 1998 in the aggregate Deficiency DST
amount of ₱2,046,580.10 broken
down as follows: Basic tax due P 806.00

Deficiency VAT Add: Surcharge 403.00

Interest 484.00
Basic tax due P 314,194.00
Add: Surcharge 157,097.00
Total Amount Payable ₱ 1,693.00
Interest 188,516.00
Total Amount Payable Deficiency EWT
Basic tax due ₱ 22,800.00 The case was raffled to the Second
Division of [the CTA] for decision.
Add: Surcharge 11,400.00 After trial on the merits, the Second
Division rendered the Assailed
Interest 13,680.00
Decision on January 4, 2007 upon
which the Second Division
Total Amount Payable ₱ 47,880.00 cancelled respondent’s
assessment against CS Garments
for deficiency expanded
withholding taxes for CY 1998
GRAND TOTAL ₱ 2,046,580.10
amounting to ₱47,880.00, and
partially cancelled the deficiency
DST assessment amounting to
On November 20, 2001, or within ₱1,963.00. However, the Second
the 30-day period prescribed under Division upheld the validity of the
Section 228 of the Tax Code, as deficiency income tax
amended, petitioner filed a formal assessments by subjecting the
written protest with the respondent disallowed expenses in the amount
assailing the above assessments. of ₱14,851,478.83 and a portion of
the undeclared local sales
On January 11, 2002, or within the ₱1,541,936.60 (amounting to
sixty-day period after the filing of ₱1,500,000.00) to income tax at
the protest, petitioner submitted to the special rate of 5%. The
the Assessment Division of remainder of undeclared local
Revenue Region No. 9, San Pablo sales of ₱1,541,936.06 (amounting
City, additional documents in to ₱41,936.60) was subjected to
support of its protest. income tax at the rate of 34%. The
Second Division found that total tax
Respondent failed to act with
liability of CS Garments amounted
finality on the protest filed by
to ₱2,029,570.12, plus 20%
petitioner within the period of one
delinquency interest pursuant to
hundred eighty (180) days from
Section 249(C)(3), and computed
January 11, 2002 or until July 10,
the same as follows:
2002. Hence, petitioner appealed
before [the CTA] via a Petition for
Review filed on August 6, 2002 or Income
D
within thirty (30) days from the last Tax
efi
day of the aforesaid 180-day ci
period. en at at TOT
cy VAT DST 5% 34% AL
Ta denied CS Garments’ motion for
x lack of merit. (Citations omitted)

Ba Petitioner appealed the case to the

sic P P CTA en banc and alleged the
P P
Ta 314, 817, following: (1) the Formal
145. 1,78
x 194. 573. Assessment Notices (FAN) issued
00 9.44
D 00 94 by the Commissioner of Internal
ue Revenue (CIR) did not comply with
the requirements of the law; (2) the
25
income generated by CS Garment
%
from its participation in the Cavite
Su 78,5 204,
36.2 447. Export Processing Zone’s trade
rc 48.5 393.
5 36 fairs and from its sales to
ha 0 49
employees were not subject to 10%
rg
VAT; (3) the sale of the company
e
vehicle to its general manager was
20 not subject to 10% VAT; (4) it had
% no undeclared local sales in the
188, 422, amount of ₱1,541,936.60; and (5)
Int 102. 925.
516. 898. Rule XX, Section 2 of the PEZA
er 02 6
00 52 Rules and Regulations allowed
es
t deductions from the expenses it
had incurred in connection with
advertising and representation;
P P P clinic and office supplies;
P P
581, 1,44 2,02 commissions and professional
283. 3,16
258. 4,86 9,57 fees; transportation, freight and
27 2.40
50 5.95 0.12 handling, and export fees; and
=== ===
=== === === licenses and other taxes.
=== ===
=== === ===
=== ===
=== === === The CTA en banc affirmed the
=== ===
=== === === Decision and Resolution of the
= =
= = = CTA Second Division. As regards
the first issue, the banc ruled that
On January 29, 2007, CS the CIR had duly apprised CS
Garments filed its "Motion for Garment of the factual and legal
Partial Reconsideration" of the said bases for assessing the latter’s
decision. On May 25, 2007, in a liability for deficiency income tax,
resolution, the Second Division as shown in the attached Schedule
of Discrepancies provided to
petitioner; and in the subsequent
reference of the CIR to Rule XX,
Section 2 of the Rules and
Regulations of R.A. 7916. With
respect to the second issue, the
CTA pronounced that the income
generated by CS Garment from the
trade fairs was subject to internal
revenue taxes, as those
transactions were considered
"domestic sales" under R.A. 7916,
otherwise known as the Special
Economic Zone Act. With respect
to the third issue, the CTA en banc
declared that the sale of the motor
vehicle by CS Garment to the
latter’s general manager in the
amount of ₱1.6 million was subject
to VAT, since the sale was
considered an incidental
transaction within the meaning of
Section 105 of the NIRC. On the
fourth issue, the CTA found that CS
Garment had failed to declare the
latter’s total local sales in the
amount of ₱1,541,936.60 in its
1998 income tax return. The tax
court then calculated the income
tax liability of petitioner by
subjecting ₱1.5 million of that
liability to the preferential income
tax rate of 5%. This amount
represented the extent of the
authority of CS Garment, as a
PEZA-registered enterprise, to sell
in the local market. The normal
income tax rate of 34% was then
charged for the excess amount of
₱41,936.60. Finally, as regards the
fifth issue, the CTA ruled that
Section 2, Rule XX of the PEZA
Rules – which enumerates the
specific deductions for ECOZONE
Export Enterprises – does not
mention certain claims of petitioner
as allowable deductions.
Aggrieved, CS Garment filed the
present Petition for Review
assailing the Decision of the CTA
en banc. However, on 26
September 2008, while the instant
case was pending before this
Court, petitioner filed a
Manifestation and Motion stating
that it had availed itself of the
government’s tax amnesty
program under the 2007 Tax
Amnesty Law. It thus prays that we
take note of its availment of the tax
amnesty and confirm that it is
entitled to all the immunities and
privileges under the law. It has
submitted to this Court the
following documents, which have
allegedly been filed with Equitable
PCI Bank–Cavite EPZA Branch, a
supposed authorized agent-bank
of the BIR:6
1. Notice of Availment of Tax
Amnesty under R.A. 9480
2. Statement of Assets,
Liabilities, and Net worth
(SALN)
3. Tax Amnesty Return (BIR
Form No. 2116)
 4. Tax Amnesty Payment
Form (Acceptance of
Payment Form or BIR Form
No. 0617)
5. Equitable PCI Bank’s BIR
Payment Form indicating that
CS Garment deposited the
amount of ₱250,000 to the
account of the Bureau of
Treasury–BIR
On 26 January 2009, the Office of
the Solicitor General (OSG) filed its
Comment objecting to the
Manifestation and Motion of CS
Garment.7
The OSG asserts that the filing of
an application for tax amnesty does
not by itself entitle petitioner to the
benefits of the law, as the BIR must
still assess whether petitioner was
eligible for these benefits and
whether all the conditions for the
availment of tax amnesty had been
satisfied. Next, the OSG claims that
the BIR is given a one-year period
to contest the correctness of the
SALN filed by CS Garment, thus
making petitioner’s motion
premature. Finally, the OSG
contends that pursuant to BIR
Revenue Memorandum Circular
No. (RMC) 19-2008, petitioner is
disqualified from enjoying the
benefits of the Tax Amnesty Law,
since a judgment was already
rendered in favor of the BIR prior to
the tax amnesty availment. The
OSG points out that CS Garment
submitted its application for tax
amnesty only on 6 March 2008,
which was almost two months after
the CTA en banc issued its 14
January 2008 Decision and more
than one year after the CTA
Second Division issued its 4
January 2007 Decision.
On 8 February 2010, the Court
required both parties to prepare
and file their respective
memoranda within 30 days from
notice.8 After this Court granted the
motions for extension filed by the
parties, the OSG eventually filed its
Memorandum on 18 May 2010,
and CS Garment on 7 June 2010.
It is worthy to note that in its
Memorandum, the OSG did not
raise any argument with respect to
petitioner’s availment of the tax
amnesty program. Neither did the
OSG deny the authenticity of the
documents submitted by CS
Garments or mention that a case
had been filed against the latter for
availing itself of the tax amnesty
program, taking into account the
considerable lapse of time from the
moment petitioner filed its Tax
Amnesty Return and Statement of
Assets, Liabilities, and Net Worth in
2008.
On 17 July 2013, the parties were
ordered9 to "move in the
10
premises" by informing the Court
of the status of the tax amnesty
availment of petitioner CS
Garment, including any
supervening event that may be of
help to the Court in its immediate
disposition of the present case.
Furthermore, the parties were
directed to indicate inter alia (a)
whether CS Garment had complied
with the requirements of the 2007
Tax Amnesty Law, taking note of
the aforementioned documents
submitted; (b) whether a case had
been initiated against petitioner,
with respect to its availment of the
tax amnesty program; and (c)
whether respondent CIR was still
interested in pursuing the case.
Petitioner eventually filed its
Compliance11 on 27 August 2013,
and the OSG on 29 November
2013.12
According to the OSG,13 CS
Garment had already complied
with all documentary requirements
of the 2007 Tax Amnesty Law. It
also stated that the BIR Litigation
Division had not initiated any case
against petitioner relative to the
latter’s tax amnesty application.
However, the OSG reiterated that
the CIR was still interested in
pursuing the case.
ISSUE
The threshold question before this
Court is whether or not CS
Garment is already immune from
paying the deficiency taxes stated
in the 1998 tax assessments of the
CIR, as modified by the CTA.
DISCUSSION
Tax amnesty refers to the
articulation of the absolute waiver
by a sovereign of its right to collect
taxes and power to impose
penalties on persons or entities
guilty of violating a tax law.14 Tax
amnesty aims to grant a general
reprieve to tax evaders who wish to
come clean by giving them an
opportunity to straighten out their
records.15 In 2007, Congress
enacted R.A. 9480, which granted
a tax amnesty covering "all national
internal revenue taxes for the
taxable year 2005 and prior years,
with or without assessments duly
issued therefor, that have
remained unpaid as of December
31, 2005."16 These national internal
revenue taxes include (a) income
tax; (b) VAT; (c) estate tax; (d)
excise tax; (e) donor’s tax; (f)
documentary stamp tax; (g) capital
gains tax; and (h) other percentage
taxes.17 Pursuant to Section 6 of
the 2007 Tax Amnesty Law, those
who availed themselves of the
benefits of the law became
"immune from the payment of
taxes, as well as additions thereto,
and the appurtenant civil, criminal
or administrative penalties under
the National Internal Revenue
Code of 1997, as amended, arising
from the failure to pay any and all
internal revenue taxes for taxable
year 2005 and prior years."
Amnesty taxpayers may
immediately enjoy the privileges
and immunities under the 2007 Tax
Amnesty Law, as soon as they fulfill
the suspensive conditions imposed
therein
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.
The imposition of a suspensive
condition under the 2007 Tax
Amnesty Law is evident from the
following provisions of the law:
2007 Tax Amnesty Law – Republic
Act No. 9480
SECTION 2. Availment of the
Amnesty. — Any person, natural or
juridical, who wishes to avail
himself of the tax amnesty
authorized and granted under this
Act shall file with the Bureau of
Internal Revenue (BIR) a notice
and Tax Amnesty Return
accompanied by a Statement of
Assets, Liabilities and Networth
(SALN) as of December 31, 2005,
in such form as may be prescribed
in the implementing rules and
regulations (IRR) of this Act, and
pay the applicable amnesty tax
within six months from the
effectivity of the IRR.
SECTION 4. Presumption of
Correctness of the SALN. — The
SALN as of December 31, 2005
shall be considered as true and
correct except where the amount of
declared networth is understated to
the extent of thirty percent (30%) or
more as may be established in
proceedings initiated by, or at the
instance of, parties other than the
BIR or its agents: Provided, That
such proceedings must be initiated
within one year following the date
of the filing of the tax amnesty
return and the SALN. Findings of or
admission in congressional
hearings, other administrative
agencies of government, and/or
courts shall be admissible to prove
a thirty percent (30%) under-
declaration.
SECTION 6. Immunities and
Privileges. — Those who availed
themselves of the tax amnesty
under Section 5 hereof, and have
fully complied with all its conditions
shall be entitled to the following
immunities and privileges:
(a) The taxpayer shall be
immune from the payment of
taxes, as well as additions
thereto, and the appurtenant
civil, criminal or
administrative penalties
under the National Internal
Revenue Code of 1997, as
amended, arising from the
failure to pay any and all
internal revenue taxes for
taxable year 2005 and prior
years.
(b) The taxpayer’s Tax
Amnesty Return and the
SALN as of December 31,
2005 shall not be admissible
as evidence in all
proceedings that pertain to
taxable year 2005 and prior
years, insofar as such
proceedings relate to internal
revenue taxes, before
judicial, quasi-judicial or
administrative bodies in
which he is a defendant or
respondent, and except for
the purpose of ascertaining
the networth beginning
January 1, 2006, the same
shall not be examined,
inquired or looked into by any
person or government office.
However, the taxpayer may
use this as a defense,
whenever appropriate, in
cases brought against him.
(c) The books of accounts
and other records of the
taxpayer for the years
covered by the tax amnesty
availed of shall not be
examined: Provided, That the
Commissioner of Internal
Revenue may authorize in
writing the examination of the
said books of accounts and
other records to verify the
validity or correctness of a
claim for any tax refund, tax
credit (other than refund or
credit of taxes withheld on
wages), tax incentives,
and/or exemptions under
existing laws.
All these immunities and privileges
shall not apply where the person
failed to file a SALN and the Tax
Amnesty Return, or 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.
SECTION 7. When and Where to
File and Pay. — The filing of the
Tax Amnesty Return and the
payment of the amnesty tax for
those availing themselves of the
tax amnesty shall be made within
six months starting from the
effectivity of the IRR. It shall be filed
at the office of the Revenue District
Officer which has jurisdiction over
the legal residence or principal
place of business of the filer. The
Revenue District Officer shall issue
an acceptance of payment form
authorizing an authorized agent
bank, or in the absence thereof, the
collection agent or municipal
treasurer concerned, to accept the
amnesty tax payment.
Department of Finance Order No.
29-07: Rules and Regulations to
Implement R.A. 9480
SECTION 6. Method of Availment
of Tax Amnesty. —
xxxx
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 Agent 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 of 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 R.A. 9480.
(Emphases supplied)
In availing themselves of the
benefits of the tax amnesty
program, taxpayers must first
accomplish the following forms and
prepare them for submission: (1)
Notice of Availment of Tax
Amnesty Form; (2) Tax Amnesty
Return Form (BIR Form No. 2116);
(3) Statement of Assets, Liabilities
and Net worth (SALN) as of
December 31, 2005; and (4) Tax
Amnesty Payment Form
(Acceptance of Payment Form or
BIR Form No. 0617).18
The taxpayers must then compute
the amnesty tax due in accordance
with the rates provided in Section 5
of the law,19 using as tax base their
net worth as of 31 December 2005
as declared in their SALNs. At their
option, the revenue district office
(RDO) of the BIR may assist them
in accomplishing the forms and
computing the taxable base and
the amnesty tax due.20 The RDO,
however, is disallowed from
looking into, questioning or
examining the veracity of the
entries contained in the Tax
Amnesty Return, SALN, and other
documents they have
21
submitted. Using the Tax
Amnesty Payment Form, the
taxpayers must make a complete
payment of the computed amount
to an authorized agent bank, a
collection agent, or a duly
authorized treasurer of the city or
municipality.22
Thereafter, the taxpayers must file
with the RDO or an authorized
agent bank the (1) Notice of
Availment of Tax Amnesty Form;
(2) Tax Amnesty Return Form (BIR
Form No. 2116); (3) SALN; and (4)
Tax Amnesty Payment
23
Form. The RDO shall only
receive these documents after
complete payment is made, as
shown in the Tax Amnesty
Payment Form.24 It must be noted
that the completion of these
requirements "shall be deemed full
compliance with the provisions of
R.A. 9480."25 In our considered
view, this rule means that amnesty
taxpayers may immediately enjoy
the privileges and immunities
under the 2007 Tax Amnesty Law
as soon as the aforementioned
documents are duly received.
The OSG has already
26
confirmed to this Court that CS
Garment has complied with all of
the documentary requirements of
the law. Consequently, and
contrary to the assertion of the
OSG, no further assessment by the
BIR is necessary. CS Garment is
now entitled to invoke the
immunities and privileges under
Section 6 of the law.
Similarly, we reject the contention
of OSG that the BIR was given a
one-year period to contest the
correctness of the SALN filed by
CS Garment, thus making
petitioner’s motion premature.
Neither the 2007 Tax Amnesty Law
nor Department of Finance (DOF)
Order No. 29-07 (Tax Amnesty Law
IRR) imposes a waiting period of
one year before the applicant can
enjoy the benefits of the Tax
Amnesty Law. It can be surmised
from the cited provisions that the
law intended the immediate
enjoyment of the immunities and
privileges of tax amnesty upon
fulfilment of the requirements.
Further, a reading of Sections 4
and 6 of the 2007 Tax Amnesty
Law shows that Congress has
adopted a "no questions asked"
policy, so long as all the
requirements of the law and the
rules are satisfied. The one-year
period referred to in the law should
thus be considered only as a
prescriptive period within which
third parties, meaning "parties
other than the BIR or its agents,"
can question the SALN – not as a
waiting period during which the BIR
may contest the SALN and the
taxpayer prevented from enjoying
the immunities and privileges
under the law.
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.
Nevertheless, in this case we note
that the OSG has already
Indicated27 that the CIR had not
filed a case relative to the tax
amnesty application of CS
Garment, from the time the
documents were filed in March
2008. Neither did the OSG mention
that a third party had initiated
proceedings challenging the
declared amount of net worth of the
amnesty taxpayer within the one-
year period.
Taxpayers with pending tax cases
are still qualified to avail
themselves of the tax amnesty
program.
With respect to its last assertion,
the OSG quotes the following
guidelines under BIR RMC 19-
2008 to establish that CS Garment
is disqualified from availing itself of
the tax amnesty program:28
A BASIC GUIDE ON THE TAX
AMNESTY ACT OF 2007
The following is a basic guide for any court (even
taxpayers who wish to avail of tax without finality) in
amnesty pursuant of Republic Act favor of the BIR prior
No. 9480 (Tax Amnesty Act of to amnesty availment
2007). of the taxpayer.(e.g.
Taxpayers who have
Who may avail of the amnesty? failed to observe or
follow BOI and/or
xxxx PEZA rules on
entitlement to Income
EXCEPT: Tax Holiday Incentives
and other incentives)
[x] Withholding agents
with respect to their [x] Cases involving
withholding tax issues ruled with finality
liabilities by the Supreme Court
prior to the effectivity of
[x] Those with pending
R.A. 9480 (e.g. DST on
cases:
Special Savings
• Under the Account)
jurisdiction of the
[x] Taxes passed-on
PCGG
and collected from
• Involving
customers for
violations of the
remittance to the BIR
Anti-Graft and
Corrupt Practices [x] Delinquent
Act Accounts/Accounts
Receivable considered
• Involving
as assets of the
violations of the
BIR/Government,
Anti-Money
including self-assessed
Laundering Law
tax (Emphasis
• For tax evasion
supplied)
and other
criminal offenses To resolve the matter, we refer to
under the NIRC the basic text of the Tax Amnesty
and/or the RPC Law and its implementing rules and
regulations, viz:
[x] Issues and cases
which were ruled by
Republic Act No. 9480
SECTION 8. Exceptions. — The
tax amnesty provided in Section 5
hereof shall not extend to the
following persons or cases existing
as of the effectivity of this Act:
xxxx
(f) Tax cases subject of final and
executory judgment by the courts.
DOF Order No. 29-07: Rules and
Regulations to Implement R.A.
9480
SECTION 5. Exceptions. — The
tax amnesty shall not extend to the
following persons or cases existing
as of the effectivity of R.A. 9480:
xxxx
7. Tax cases subject of final and
executory judgment by the courts.
(Emphases supplied)
We cull from the aforementioned
provisions that neither the law nor
the implementing rules state that a
court ruling that has not attained
finality would preclude the
availment of the benefits of the Tax
Amnesty Law. Both R.A. 9480 and
DOF Order No. 29-07 are quite
precise in declaring that
"[t]ax cases subject of final and
executory judgment by the courts"
are the ones excepted from the
benefits of the law. In fact, we have
already pointed out the erroneous
interpretation of the law in
Philippine Banking Corporation
(Now: Global Business Bank, Inc.)
v. Commissioner of Internal
Revenue, viz:
The BIR’s inclusion of "issues and
cases which were ruled by any
court (even without finality) in favor
of the BIR prior to amnesty
availment of the taxpayer" as one
of the exceptions in RMC 19-2008
is misplaced. RA 9480 is
specifically clear that the
exceptions to the tax amnesty
program include "tax cases subject
of final and executory judgment by
the courts." The present case has
not become final and executory
when Metrobank availed of the tax
amnesty program.29 (Emphasis
supplied)
While tax amnesty, similar to a tax
exemption, must be construed
strictly against the taxpayer and
liberally in favor of the taxing
authority,30 it is also a well-settled
doctrine31 that the rule-making
power of administrative agencies
cannot be extended to amend or
expand statutory requirements or
to embrace matters not originally
encompassed by the
law.1âwphi1 Administrative
regulations should always be in
accord with the provisions of the
statute they seek to carry into
effect, and any resulting
inconsistency shall be resolved in
favor of the basic law. We thus
definitively declare that the
exception "[i]ssues and cases
which were ruled by any court
(even without finality) in favor of the
BIR prior to amnesty availment of
the taxpayer" under BIR RMC 19-
2008 is invalid, as the exception
goes beyond the scope of the
provisions of the 2007 Tax
Amnesty Law.32
WHEREFORE, the instant Petition
for Review is GRANTED. The 14
January 2008 Decision and 2 April
2008 Resolution of the Court of Tax
Appeals en banc in CTA EB Case
No. 287 is hereby SET ASIDE, and
the remaining assessments for
deficiency taxes for taxable year
1998 are hereby CANCELLED
solely in the light of the availment
by CS Garment, Inc. of the tax
amnesty program under Republic
Act No. 9480.

Considering the completion of the SO ORDERED.

aforementioned requirements, we
find that petitioner has successfully
availed itself of the tax amnesty
benefits granted under the Tax
Amnesty Law. Therefore, we no
longer see any need to further
discuss the issue of the deficiency
tax assessments. CS Garment is
now deemed to have been
absolved of its obligations and is
already immune from the payment
of taxes – including the assessed
deficiency in the payment of VAT,
DST, and income tax as affirmed
by the CTA en banc – as well as of
the additions thereto (e.g., interests
and surcharges). Furthermore, the
tax amnesty benefits include
immunity from "the appurtenant
civil, criminal, or administrative
penalties under the NIRC of 1997,
as amended, arising from the
failure to pay any and all internal
revenue taxes for taxable year
2005 and prior years."33
FIRST DIVISION an internal auditor, of Philamlife
and its other affiliates.1âwphi1.nêt
G.R. No. 125355 March 30,
2000 On January 24, 1992, the Bureau
of Internal Revenue (BIR) issued
COMMISSIONER OF INTERNAL an assessment to private
REVENUE, petitioner, respondent COMASERCO for
vs. deficiency value-added tax (VAT)
COURT OF APPEALS and amounting to P351,851.01, for
COMMONWEALTH taxable year 1988, computed as
MANAGEMENT AND SERVICES follows:
CORPORATION, respondents.
P1,679,155
PARDO, J.:
Taxable .00
What is before the Court is a sale/receipt =========
petition for review on certiorari of ===
the decision of the Court of 10% tax
Appeals,1 reversing that of the due 167,915.50
Court of Tax Appeals,2 which thereon
affirmed with modification the
decision of the Commissioner of 25%
41,978.88
Internal Revenue ruling that surcharge
Commonwealth Management and 20%
Services Corporation, is liable for interest per 125,936.63
value added tax for services to annum
clients during taxable year 1988.
Compromis
Commonwealth Management and e penalty
16,000.00
Services Corporation for late
(COMASERCO, for brevity), is a payment
corporation duly organized and
TOTAL
existing under the laws of the
AMOUNT P351,831.0
Philippines. It is an affiliate of 3
DUE AND 1
Philippine American Life Insurance
COLLECTI =========
Co. (Philamlife), organized by the
BLE ===
letter to perform collection,
consultative and other technical
services, including functioning as COMASERCO's annual corporate
income tax return ending
December 31, 1988 indicated a net
loss in its operations in the amount
of P6,077.00.
On February 10, 1992,
COMASERCO filed with the BIR, a
letter-protest objecting to the
latter's finding of deficiency VAT.
On August 20, 1992, the
Commissioner of Internal Revenue
sent a collection letter to
COMASERCO demanding
payment of the deficiency VAT.
On September 29, 1992,
COMASERCO filed with the Court
of Tax Appeals4 a petition for
review contesting the
Commissioner's assessment.
COMASERCO asserted that the
services it rendered to Philamlife
and its affiliates, relating to
collections, consultative and other
technical assistance, including
functioning as an internal auditor,
were on a "no-profit,
reimbursement-of-cost-only" basis.
It averred that it was not engaged
in the business of providing
services to Philamlife and its
affiliates. COMASERCO was
established to ensure operational
orderliness and administrative
efficiency of Philamlife and its
affiliates, and not in the sale of
services. COMASERCO stressed
that it was not profit-motivated, thus
not engaged in business. In fact, it
did not generate profit but suffered
a net loss in taxable year 1988.
COMASERCO averred that since it
was not engaged in business, it
was not liable to pay VAT.
On June 22, 1995, the Court of Tax
Appeals rendered decision in favor
of the Commissioner of Internal
Revenue, the dispositive portion of
which reads:
WHEREFORE, the decision
of the Commissioner of
Internal Revenue assessing
petitioner deficiency value-
added tax for the taxable
year 1988 is AFFIRMED with
slight modifications.
Accordingly, petitioner is
ordered to pay respondent
Commissioner of Internal
Revenue the amount of
P335,831.01 inclusive of the
25% surcharge and interest
plus 20% interest from
January 24, 1992 until fully
paid pursuant to Section 248
and 249 of the Tax Code.
The compromise penalty of
P16,000.00 imposed by the
respondent in her
assessment letter shall not
be included in the payment
as there was no compromise
agreement entered into
between petitioner and
respondent with respect to
the value-added tax
5
deficiency.
On July 26, 1995, respondent filed
with the Court of Appeals, a petition
for review of the decision of the
Court of Appeals.
After due proceedings, on May 13,
1996, the Court of Appeals
rendered decision reversing that of
the Court of Tax Appeals, the
dispositive portion of which reads:
WHEREFORE, in view of the
foregoing, judgment is
hereby rendered
REVERSING and SETTING
ASIDE the questioned
Decision promulgated on 22
June 1995. The assessment
for deficiency value-added
tax for the taxable year 1988
inclusive of surcharge,
interest and penalty charges
are ordered CANCELLED for
lack of legal and factual
basis. 6
The Court of Appeals anchored its
decision on the ratiocination in
another tax case involving the
same parties,7 where it was held
that COMASERCO was not liable
to pay fixed and contractor's tax for
services rendered to Philamlife and
its affiliates. The Court of Appeals,
in that case, reasoned that
COMASERCO was not engaged in
business of providing services to
Philamlife and its affiliates. In the
same manner, the Court of Appeals
held that COMASERCO was not
liable to pay VAT for it was not
engaged in the business of selling
services.
On July 16, 1996, the
Commissioner of Internal Revenue
filed with this Court a petition for
review on certiorari assailing the
decision of the Court of Appeals.
On August 7, 1996, we required
respondent COMASERCO to file
comment on the petition, and on
September 26, 1996,
COMASERCO complied with the
resolution.8
We give due course to the petition.
At issue in this case is whether
COMASERCO was engaged in the
sale of services, and thus liable to
pay VAT thereon.
Petitioner avers that to "engage in
business" and to "engage in the
sale of services" are two different
things. Petitioner maintains that the
services rendered by
COMASERCO to Philamlife and its
affiliates, for a fee or consideration,
are subject to VAT. VAT is a tax on
the value added by the
performance of the service. It is
immaterial whether profit is derived
from rendering the service.
We agree with the Commissioner.
Sec. 99 of the National Internal
Revenue Code of 1986, as
amended by Executive Order (E.
O.) No. 273 in 1988, provides that:
Sec. 99. Persons liable. —
Any person who, in the
course of trade or business,
sells, barters or exchanges
goods, renders services, or
engages in similar
transactions and any person
who, imports goods shall be
subject to the value-added
tax (VAT) imposed in
Sections 100 to 102 of this
Code. 9
COMASERCO contends that the
term "in the course of trade or
business" requires that the
"business" is carried on with a view
to profit or livelihood. It avers that
the activities of the entity must be
profit-oriented. COMASERCO
submits that it is not motivated by
profit, as defined by its primary
purpose in the articles of
incorporation, stating that it is
operating "only on reimbursement-
of-cost basis, without any profit."
Private respondent argues that
profit motive is material in
ascertaining who to tax for
purposes of determining liability for
VAT.
We disagree.
On May 28, 1994, Congress
enacted Republic Act No. 7716, the
Expanded VAT Law (EVAT),
amending among other sections,
Section 99 of the Tax Code. On
January 1, 1998, Republic Act
8424, the National Internal
Revenue Code of 1997, took effect.
The amended law provides that:
Sec. 105. Persons Liable. —
Any person who, in the
course of trade or business,
sells, barters, exchanges,
leases goods or properties,
renders services, and any
person who imports goods
shall be subject to the value-
added tax (VAT) imposed in
Sections 106 and 108 of this
Code.
The value-added tax is an
indirect tax and the amount of
tax may be shifted or passed
on to the buyer, transferee or
lessee of the goods,
properties or services. This
rule shall likewise apply to
existing sale or lease of
goods, properties or services
at the time of the effectivity of
Republic Act No. 7716.
The phrase "in the course of
trade or business" means the
regular conduct or pursuit of
a commercial or an economic
activity, including
transactions incidental
thereto, by any person
regardless of whether or not
the person engaged therein
 is a nonstock, nonprofit
organization (irrespective of
the disposition of its net
income and whether or not it
sells exclusively to members
of their guests), or
government entity.
The rule of regularity, to the
contrary notwithstanding,
services as defined in this
Code rendered in the
Philippines by nonresident
foreign persons shall be
considered as being
rendered in the course of
trade or business.
Contrary to COMASERCO's
contention the above provision
clarifies that even a non-
stock, non-profit, organization or
government entity, is liable to pay
VAT on the sale of goods or
services. VAT is a tax on
transactions, imposed at every
stage of the distribution process on
the sale, barter, exchange of goods
or property, and on the
performance of services, even in
the absence of profit attributable
thereto. The term "in the course of
trade or business" requires the
regular conduct or pursuit of a
commercial or an economic activity
regardless of whether or not the
entity is profit-oriented.
The definition of the term "in the
course of trade or business"
present law applies to all
transactions even to those made
prior to its enactment. Executive
Order No. 273 stated that any
person who, in the course of trade
or business, sells, barters or
exchanges goods and services,
was already liable to pay VAT. The
present law merely stresses that
even a nonstock, nonprofit
organization or government entity
is liable to pay VAT for the sale of
goods and services.
Sec. 108 of the National Internal
Revenue Code of 1997 10 defines
the phrase "sale of services" as the
"performance of all kinds of
services for others for a fee,
remuneration or consideration." It
includes "the supply of technical
advice, assistance or services
rendered in connection with
technical management or
administration of any scientific,
industrial or commercial
undertaking or project." 11
On February 5, 1998, the
Commissioner of Internal Revenue
issued BIR Ruling No. 010-
98 12 emphasizing that a domestic
corporation that provided technical,
research, management and
technical assistance to its affiliated
companies and received payments
on a reimbursement-of-cost basis,
without any intention of realizing
profit, was subject to VAT on
services rendered. In fact, even if
such corporation was organized
without any intention realizing
profit, any income or profit
generated by the entity in the
conduct of its activities was subject
to income tax.
Hence, it is immaterial whether the
primary purpose of a corporation
indicates that it receives payments
for services rendered to its affiliates
on a reimbursement-on-cost basis
only, without realizing profit, for
purposes of determining liability for
VAT on services rendered. As long
as the entity provides service for a
fee, remuneration or consideration,
then the service rendered is subject
to VAT.1awp++i1
At any rate, it is a rule that because
taxes are the lifeblood of the nation,
statutes that allow exemptions are
construed strictly against the
grantee and liberally in favor of the
government. Otherwise stated, any
exemption from the payment of a
tax must be clearly stated in the
language of the law; it cannot be
merely implied therefrom. 13 In the
case of VAT, Section 109, Republic
Act 8424 clearly enumerates the
transactions exempted from VAT.
The services rendered by
COMASERCO do not fall within the
exemptions.
Both the Commissioner of Internal
Revenue and the Court of Tax
Appeals correctly ruled that the
services rendered by
COMASERCO to Philamlife and its
affiliates are subject to VAT. As
pointed out by the Commissioner,
the performance of all kinds of
services for others for a fee,
remuneration or consideration is
considered as sale of services
subject to VAT. As the government
agency charged with the
enforcement of the law, the opinion
of the Commissioner of Internal
Revenue, in the absence of any
showing that it is plainly wrong, is
entitled to great weight. 14 Also, it
has been the long standing policy
and practice of this Court to respect
the conclusions of quasi-judicial
agencies, such as the Court of Tax
Appeals which, by the nature of its
functions, is dedicated exclusively
to the study and consideration of
tax cases and has necessarily
developed an expertise on the
subject, unless there has been an
abuse or improvident exercise of its
authority. 15
There is no merit to respondent's
contention that the Court of
Appeals' decision in CA-G.R. No.
34042, declaring the
COMASERCO as not engaged in
business and not liable for the
payment of fixed and percentage
taxes, binds petitioner. The issue in
CA-G.R. No. 34042 is different
from the present case, which
involves COMASERCO's liability
for VAT. As heretofore stated,
every person who sells, barters, or
exchanges goods and services, in
the course of trade or business, as
defined by law, is subject to VAT.

WHEREFORE, the Court GRANTS

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

No costs.

SO ORDERED.1âwphi1.nêt
THIRD DIVISION
[G.R. NO. 146984 : July 28,
2006]
COMMISSIONER OF
INTERNAL
REVENUE, Petitioner, v. MAG
SAYSAY LINES, INC.,
BALIWAG NAVIGATION,
INC., FIM LIMITED OF THE
MARDEN GROUP (HK) and
NATIONAL DEVELOPMENT
COMPANY, Respondents.
DECISION
TINGA, J.:
The issue in this present
petition is whether the sale by
the National Development
Company (NDC) of five (5) of
its vessels to the private
respondents is subject to
value-added tax (VAT) under
the National Internal Revenue
Code of 1986 (Tax Code) then
prevailing at the time of the
sale. The Court of Tax Appeals
(CTA) and the Court of Appeals
commonly ruled that the sale
is not subject to VAT. We
affirm, though on a more
unequivocal rationale than
that utilized by the rulings
under review. The fact that the
sale was not in the course of
the trade or business of NDC is
sufficient in itself to declare the
sale as outside the coverage of
VAT.
The facts are culled primarily
from the ruling of the CTA.
Pursuant to a government
program of privatization, NDC
decided to sell to private
enterprise all of its shares in its
wholly-owned subsidiary the
National Marine Corporation
(NMC). The NDC decided to
sell in one lot its NMC shares
and five (5) of its ships, which
are 3,700 DWT Tween-Decker,
"Kloeckner" type vessels.1 The
vessels were constructed for
the NDC between 1981 and
1984, then initially leased to
Luzon Stevedoring Company,
also its wholly-owned
subsidiary. Subsequently, the
vessels were transferred and
leased, on a bareboat basis, to
the NMC.2
The NMC shares and the
vessels were offered for public
bidding. Among the stipulated
terms and conditions for the
public auction was that the
winning bidder was to pay "a
value added tax of 10% on the
value of the vessels."3 On 3
June 1988, private respondent
Magsaysay Lines, Inc.
(Magsaysay Lines) offered to
buy the shares and the vessels
for P168,000,000.00. The bid
was made by Magsaysay Lines,
purportedly for a new
company still to be formed
composed of itself, Baliwag
Navigation, Inc., and FIM
Limited of the Marden Group
based in Hongkong
(collectively, private
respondents). The bid was
4
approved by the Committee on
Privatization, and a Notice of
Award dated 1 July 1988 was
issued to Magsaysay Lines.
On 28 September 1988, the
implementing Contract of Sale
was executed between NDC,
on one hand, and Magsaysay
Lines, Baliwag Navigation, and
FIM Limited, on the other.
Paragraph 11.02 of the
contract stipulated that
"[v]alue-added tax, if any,
shall be for the account of the
PURCHASER."5 Per
arrangement, an irrevocable
confirmed Letter of Credit
previously filed as bidders
bond was accepted by NDC as
security for the payment of
VAT, if any. By this time, a
formal request for a ruling on
whether or not the sale of the
vessels was subject to VAT had
already been filed with the
Bureau of Internal Revenue
(BIR) by the law firm of Sycip
Salazar Hernandez &
Gatmaitan, presumably in
behalf of private respondents.
Thus, the parties agreed that
should no favorable ruling be
received from the BIR, NDC
was authorized to draw on the
Letter of Credit upon written
demand the amount needed
for the payment of the VAT on
the stipulated due date, 20
December 1988.6
In January of 1989, private
respondents through counsel
received VAT Ruling No. 568-
88 dated 14 December 1988
from the BIR, holding that the
sale of the vessels was subject
to the 10% VAT. The ruling
cited the fact that NDC was a
VAT-registered enterprise, and
thus its "transactions incident
to its normal VAT registered
activity of leasing out personal
property including sale of its
own assets that are movable,
tangible objects which are
appropriable or transferable
are subject to the 10%
[VAT]."7
Private respondents moved for
the reconsideration of VAT
Ruling No. 568-88, as well as
VAT Ruling No. 395-88 (dated
18 August 1988), which made
a similar ruling on the sale of
the same vessels in response
to an inquiry from the
Chairman of the Senate Blue
Ribbon Committee. Their
motion was denied when the
BIR issued VAT Ruling Nos.
007-89 dated 24 February
1989, reiterating the earlier
VAT rulings. At this point, NDC
drew on the Letter of Credit to
pay for the VAT, and the
amount of P15,120,000.00 in
taxes was paid on 16 March
1989.
On 10 April 1989, private
respondents filed an Appeal
and Petition for Refund with
the CTA, followed by a
Supplemental Petition for
Review on 14 July 1989. They
prayed for the reversal of VAT
Rulings No. 395-88, 568-88
and 007-89, as well as the
refund of the VAT payment
made amounting
to P15,120,000.00. The
8
Commissioner of Internal
Revenue (CIR) opposed the
petition, first arguing that
private respondents were not
the real parties in interest as
they were not the transferors
or sellers as contemplated in
Sections 99 and 100 of the
then Tax Code. The CIR also
squarely defended the VAT
rulings holding the sale of the
vessels liable for VAT,
especially citing Section 3 of
Revenue Regulation No. 5-87
(R.R. No. 5-87), which
provided that "[VAT] is
imposed on any sale or
transactions 'deemed sale' of
taxable goods (including
capital goods, irrespective of
the date of acquisition)." The
CIR argued that the sale of the
vessels were among those
transactions "deemed sale," as
enumerated in Section 4 of
R.R. No. 5-87. It seems that
the CIR particularly
emphasized Section 4(E)(i) of
the Regulation, which
classified "change of
ownership of business" as a
circumstance that gave rise to
a transaction "deemed sale."
In a Decision dated 27 April
1992, the CTA rejected the
CIR's arguments and granted
the petition.9 The CTA ruled
that the sale of a vessel was an
"isolated transaction," not
done in the ordinary course of
NDC's business, and was thus
not subject to VAT, which
under Section 99 of the Tax
Code, was applied only to
sales in the course of trade
or business. The CTA further
held that the sale of the
vessels could not be "deemed
sale," and thus subject to VAT,
as the transaction did not fall
under the enumeration of
transactions deemed sale as
listed either in Section 100(b)
of the Tax Code, or Section 4
of R.R. No. 5-87. Finally, the
CTA ruled that any case of
doubt should be resolved in
favor of private respondents
since Section 99 of the Tax
Code which implemented VAT
is not an exemption provision,
but a classification provision
which warranted the resolution
of doubts in favor of the
taxpayer.
The CIR appealed the CTA
Decision to the Court of
Appeals,10 which on 11 March
1997, rendered a Decision
reversing the CTA.11 While the
appellate court agreed that the
sale was an isolated
transaction, not made in the
course of NDC's regular trade
or business, it nonetheless
found that the transaction fell
within the classification of
those "deemed sale" under
R.R. No. 5-87, since the sale of
the vessels together with the
NMC shares brought about a
change of ownership in NMC.
The Court of Appeals also
applied the principle governing
tax exemptions that such
should be strictly construed
against the taxpayer, and
liberally in favor of the
government.12
However, the Court of Appeals
reversed itself upon
reconsidering the case,
through a Resolution dated 5
February 2001.13 This time,
the appellate court ruled that
the "change of ownership of
business" as contemplated in
R.R. No. 5-87 must be a
consequence of the
"retirement from or cessation
of business" by the owner of
the goods, as provided for in
Section 100 of the Tax Code.
The Court of Appeals also
agreed with the CTA that the
classification of transactions
"deemed sale" was a
classification statute, and not
an exemption statute, thus
warranting the resolution of
any doubt in favor of the
taxpayer.14
To the mind of the Court, the
arguments raised in the
present petition have already
been adequately discussed
and refuted in the rulings
assailed before us. Evidently,
the petition should be denied. collection of taxes on every
Yet the Court finds that Section level of consumption,18 yet
99 of the Tax Code is sufficient assuages the manufacturers or
reason for upholding the providers of goods and
refund of VAT payments, and services by enabling them to
the subsequent disquisitions pass on their respective VAT
by the lower courts on the liabilities to the next link of the
applicability of Section 100 of chain until finally the end
the Tax Code and Section 4 of consumer shoulders the entire
R.R. No. 5-87 are ultimately tax liability.
irrelevant.
Yet VAT is not a singular-
A brief reiteration of the basic minded tax on every
principles governing VAT is in transactional level. Its
order. VAT is ultimately a tax assessment bears direct
on consumption, even though relevance to the taxpayer's
it is assessed on many levels of role or link in the production
transactions on the basis of a chain. Hence, as affirmed by
fixed percentage.15 It is the Section 99 of the Tax Code and
end user of consumer goods or its subsequent
services which ultimately incarnations, the tax is levied
19

shoulders the tax, as the only on the sale, barter or

liability therefrom is passed on
to the end users by the
providers of these goods or
services16 who in turn may
credit their own VAT liability
(or input VAT) from the VAT
payments they receive from
the final consumer (or output
VAT).17 The final purchase by
the end consumer represents
the final link in a production
chain that itself involves
several transactions and
several acts of consumption.
The VAT system assures fiscal
adequacy through the
exchange of goods or services
by persons who engage in such
activities, in the course of
trade or business. These
transactions outside the
course of trade or business
may invariably contribute to
the production chain, but they
do so only as a matter of
accident or incident. As the
sales of goods or services do
not occur within the course of
trade or business, the
providers of such goods or
services would hardly, if at all,
have the opportunity to
appropriately credit any VAT
liability as against their own
accumulated VAT collections
since the accumulation of
output VAT arises in the first
place only through the
ordinary course of trade or
business.
That the sale of the vessels
was not in the ordinary course
of trade or business of NDC
was appreciated by both the
CTA and the Court of Appeals,
the latter doing so even in its
first decision which it
eventually reconsidered. We
20
cite with approval the CTA's
explanation on this point:
In Imperial v. Collector of
Internal Revenue, G.R. No.
L-7924, September 30, 1955
(97 Phil. 992), the term
"carrying on business" does
not mean the performance of a
single disconnected act, but
means conducting,
prosecuting and continuing
business by performing
progressively all the acts
normally incident thereof;
while "doing business"
conveys the idea of business
being done, not from time to
time, but all the time. [J.
Aranas, UPDATED NATIONAL
INTERNAL REVENUE CODE
(WITH ANNOTATIONS), p.
608-9 (1988)]. "Course of
business" is what is usually
done in the management of
trade or business. [Idmi v.
Weeks & Russel, 99 So. 761,
764, 135 Miss. 65, cited in
Words & Phrases, Vol. 10,
(1984)].
What is clear therefore, based
on the aforecited
jurisprudence, is that "course
of business" or "doing
business" connotes regularity
of activity. In the instant case,
the sale was an isolated
transaction. The sale which
was involuntary and made
pursuant to the declared policy
of Government for
privatization could no longer
be repeated or carried on with
regularity. It should be
emphasized that the normal
VAT-registered activity of NDC
is leasing personal property.21
This finding is confirmed by the
Revised Charter22 of the NDC
which bears no indication that
the NDC was created for the
primary purpose of selling real
property.23
The conclusion that the sale
was not in the course of trade
or business, which the CIR
does not dispute before this
Court,24 should have
definitively settled the matter.
Any sale, barter or exchange of
goods or services not in the
course of trade or
business is not subject to
VAT.
Section 100 of the Tax Code,
which is implemented by
Section 4(E)(i) of R.R. No. 5-
87 now relied upon by the CIR,
is captioned "Value-added tax
on sale of goods," and it
expressly states that "[t]here
shall be levied, assessed and
collected on every sale, barter
or exchange of goods, a value
added tax x x x." Section 100
should be read in light of
Section 99, which lays down
the general rule on which
persons are liable for VAT in
the first place and on what
transaction if at all. It may
even be noted that Section 99
is the very first provision in
Title IV of the Tax Code, the
Title that covers VAT in the
law. Before any portion of
Section 100, or the rest of the
law for that matter, may be
applied in order to subject a
transaction to VAT, it must first
be satisfied that the taxpayer
and transaction involved is
liable for VAT in the first place
under Section 99.
It would have been a different
matter if Section 100
purported to define the phrase
"in the course of trade or
business" as expressed in
Section 99. If that were so,
reference to Section 100 would
have been necessary as a
means of ascertaining whether
the sale of the vessels was "in
the course of trade or
business," and thus subject to
VAT. But that is not the case.
What Section 100 and Section
4(E)(i) of R.R. No. 5-87
elaborate on is not the
meaning of "in the course of
trade or business," but instead
the identification of the
transactions which may be
deemed as sale. It would
become necessary to ascertain
whether under those two
provisions the transaction may
be deemed a sale, only if it is
settled that the transaction
occurred in the course of trade
or business in the first place. If
the transaction transpired
outside the course of trade or
business, it would be irrelevant
for the purpose of determining
VAT liability whether the
transaction may be deemed
sale, since it anyway is not
subject to VAT.
Accordingly, the Court rules
that given the undisputed
finding that the transaction in
question was not made in the
course of trade or business of
the seller, NDC that is, the sale
is not subject to VAT pursuant
to Section 99 of the Tax Code,
no matter how the said sale
may hew to those transactions
deemed sale as defined under
Section 100.
date of such retirement or
cessation."25 Indeed, Section
4(E) of R.R. No. 5-87 expressly
characterizes the "change of
ownership of business" as only
a "circumstance" that attends
those transactions "deemed
sale," which are otherwise
stated in the same section.26
WHEREFORE, the petition is
DENIED. No costs.
SO ORDERED.

In any event, even if Section

100 or Section 4 of R.R. No. 5-
87 were to find application in
this case, the Court finds the
discussions offered on this
point by the CTA and the Court
of Appeals (in its subsequent
Resolution) essentially correct.
Section 4 (E)(i) of R.R. No. 5-
87 does classify as among the
transactions deemed sale
those involving "change of
ownership of business."
However, Section 4(E) of R.R.
No. 5-87, reflecting Section
100 of the Tax Code, clarifies
that such "change of
ownership" is only an
attending circumstance to
"retirement from or cessation
of business[,] with respect to
all goods on hand [as] of the
SECOND DIVISION
G.R. No. 193301 March
11, 2013
MINDANAO II GEOTHERMAL
PARTNERSHIP, Petitioner,
vs.
COMMISSIONER OF INTERNAL
REVENUE, Respondent.
x-----------------------x
G.R. No. 194637
MINDANAO I GEOTHERMAL
PARTNERSHIP, Petitioner,
vs.
COMMISSIONER OF INTERNAL
REVENUE, Respondent.
DECISION
CARPIO, J.:
G.R. No. 193301 is a petition for
review1 assailing the
2
Decision promulgated on 10
March 2010 as well as the
Resolution3 promulgated on 28
July 2010 by the Court of Tax
Appeals En Banc (CTA En Banc) in
CTA EB No. 513. The CTA En
Banc affirmed the 22 September
2008 Decision4 as well as the 26
June 2009 Amended Decision5 of
the First Division of the Court of
Tax Appeals (CTA First Division) in
CTA Case Nos. 7227, 7287, and
7317. The CTA First Division
denied Mindanao II Geothermal
Partnership’s (Mindanao II) claims
for refund or tax credit for the first
and second quarters of taxable
year 2003 for being filed out of time
(CTA Case Nos. 7227 and 7287).
The CTA First Division, however,
ordered the
Commissioner of Internal Revenue
(CIR) to refund or credit to
Mindanao II unutilized input value-
added tax (VAT) for the third and
fourth quarters of taxable year
2003 (CTA Case No. 7317).
G.R. No. 194637 is a petition for
review6 assailing the
7
Decision promulgated on 31 May
2010 as well as the Amended
Decision8 promulgated on 24
November 2010 by the CTA En
Banc in CTA EB Nos. 476 and 483.
In its Amended Decision, the CTA
En Banc reversed its 31 May 2010
Decision and granted the CIR’s
petition for review in CTA Case No.
476. The CTA En Banc denied
Mindanao I Geothermal
Partnership’s (Mindanao I) claims
for refund or tax credit for the first
(CTA Case No. 7228), second
(CTA Case No. 7286), third, and
fourth quarters (CTA Case No.
7318) of 2003.
Both Mindanao I and II are
partnerships registered with the
Securities and Exchange
Commission, value added
taxpayers registered with the
Bureau of Internal Revenue (BIR),
and Block Power Production
Facilities accredited by the
Department of Energy. Republic
Act No. 9136, or the Electric Power
Industry Reform Act of 2000
(EPIRA), effectively amended
Republic Act No. 8424, or the Tax
Reform Act of 1997 (1997 Tax
Code),9 when it decreed that sales
of power by generation companies
shall be subjected to a zero rate of
VAT.10 Pursuant to EPIRA,
Mindanao I and II filed with the CIR
claims for refund or tax credit of
accumulated unutilized and/or
excess input taxes due to VAT
zero-rated sales in 2003. Mindanao
I and II filed their claims in 2005.
G.R. No. 193301
Mindanao II v. CIR
The Facts
G.R. No. 193301 covers three CTA
First Division cases, CTA Case
Nos. 7227, 7287, and 7317, which
were consolidated as CTA EB No.
513. CTA Case Nos. 7227, 7287,
and 7317 claim a tax refund or
credit of Mindanao II’s alleged
excess or unutilized input taxes
due to VAT zero-rated sales. In
CTA Case No. 7227, Mindanao II
claims a tax refund or credit of
₱3,160,984.69 for the first quarter
of 2003. In CTA Case No. 7287,
Mindanao II claims a tax refund or
credit of ₱1,562,085.33 for the
second quarter of 2003. In CTA
Case No. 7317, Mindanao II claims
a tax refund or credit of
₱3,521,129.50 for the third and
fourth quarters of 2003.
The CTA First Division’s narration
of the pertinent facts is as follows:
xxxx
On March 11, 1997, [Mindanao II]
allegedly entered into a Built (sic)-
Operate-Transfer (BOT) contract
with the Philippine National Oil
Corporation – Energy
Development Company (PNOC-
EDC) for finance, engineering,
supply, installation, testing,
commissioning, operation, and
maintenance of a 48.25 megawatt
geothermal power plant, provided
that PNOC-EDC shall supply and
deliver steam to Mindanao II at no
cost. In turn, Mindanao II shall
convert the steam into electric
capacity and energy for PNOC-
EDC and shall deliver the same to
the National Power Corporation
(NPC) for and in behalf of PNOC-
EDC. Mindanao II alleges that its
sale of generated power and
delivery of electric capacity and
energy of Mindanao II to NPC for
and in behalf of PNOC-EDC is its
only revenue-generating activity
which is in the ambit of VAT zero-
rated sales under the EPIRA Law,
x x x.
 xxxx
Hence, the amendment of the
NIRC of 1997 modified the7287 VAT
rate applicable to sales of
generated power by generation7317
companies from ten (10%) percent
to zero (0%) percent.
7317
In the course of its operation,
Mindanao II makes domestic
purchases of goods and services
and accumulates therefrom
creditable input taxes. Pursuant to
the provisions of the National
Internal Revenue Code (NIRC),
Mindanao II alleges that it can use
its accumulated input tax credits to
offset its output tax liability.
Considering, however that its only
revenue-generating activity is VAT
zero-rated under RA No. 9136,
Mindanao II’s input tax credits
remain unutilized.
Thus, on the belief that its sales
qualify for VAT zero-rating,
Mindanao II adopted the VAT zero-
rating of the EPIRA in computing
for its VAT payable when it filed its
Quarterly VAT Returns on the
following dates:
CTA Case Period Date of Filing
No. Covered
Original Amendedmatter. The only difference lies with
(2003)
Return Return the taxable periods involved in
7227 1st Quarter April 23, July 3, each
2003 (sic),
April 1, 2004 &
October 22,
2004
2nd Quarter July 22, April 1, 2004
2003
3rd Quarter Oct. 27, April 1, 2004
2003
4th Quarter Jan. 26, April 1, 2204
2004
Considering that it has
accumulated unutilized creditable
input taxes from its only income-
generating activity, Mindanao II
filed an application for refund
and/or issuance of tax credit
certificate with the BIR’s Revenue
District Office at Kidapawan City on
April 13, 2005 for the four quarters
of 2003.
To date (September 22, 2008), the
application for refund by Mindanao
II remains unacted upon by the
CIR. Hence, these three petitions
filed on April 22, 2005 covering the
1st quarter of 2003; July 7, 2005 for
the 2nd quarter of 2003; and
September 9, 2005 for the 3rd and
4th quarters of 2003. At the
instance of Mindanao II, these
petitions were consolidated on
March 15, 2006 as they involve the
same parties and the same subject
2002petition.11
The Court of Tax Appeals’ Ruling: administrative and judicial claims,
Division and concluded that Mindanao II’s
administrative and judicial claims
In its 22 September 2008 were timely filed in compliance with
Decision,12 the CTA First Division this Court’s ruling in Atlas
found that Mindanao II satisfied the Consolidated Mining and
twin requirements for VAT zero Development Corporation v.
rating under EPIRA: (1) it is a Commissioner of Internal Revenue
generation company, and (2) it (Atlas).14 The CTA First Division
derived sales from power declared that the two-year
generation. The CTA First Division prescriptive period for filing a VAT
also stated that Mindanao II refund claim should not be counted
complied with five requirements to from the close of the quarter but
be entitled to a refund: from the date of the filing of the
VAT return. As ruled in Atlas, VAT
1. There must be zero-rated liability or entitlement to a refund
or effectively zero-rated can only be determined upon the
sales; filing of the quarterly VAT return.
2. That input taxes were
CTA Period Date Filing
incurred or paid;
Case Covered
Original Amended Administrative Judicia
3. That such input No. VAT (2003) Return Return Return Claim
payments are directly
7227 1st 23 April 1 April 13 April 2005 22 Apri
attributable to zero-rated
Quarter 2003 2004 2005
sales or effectively zero-rated
sales; 7287 2nd 22 July 1 April 13 April 2005 7 July
Quarter 2003 2004 2005
4. That the input VAT
payments were not applied7317 3rd 25 Oct. 1 April 13 April 2005 9 Sept.
against any output VATQuarter 2003 2004 2005
liability; and 7317 4th 26 Jan. 1 April 13 April 2005 9 Sept.
Quarter 2004 2004 200515
5. That the claim for refund
was filed within the two-year Thus, counting from 23 April 2003,
prescriptive period.13 22 July 2003, 25 October 2003,
and 26 January 2004, when
With respect to the fifth
Mindanao II filed its VAT returns, its
requirement, the CTA First Division
administrative claim filed on 13
tabulated the dates of filing of
April 2005 and judicial claims filed
Mindanao II’s return as well as its
on 22 April 2005, 7 July 2005, and
9 September 2005 were timely filed
in accordance with Atlas.
The CTA First Division found that
Mindanao II is entitled to a refund
in the modified amount of
₱7,703,957.79, after disallowing
₱522,059.91 from input VAT16 and
deducting ₱18,181.82 from
Mindanao II’s sale of a fully
depreciated ₱200,000.00 Nissan
Patrol. The input taxes amounting
to ₱522,059.91 were disallowed for
failure to meet invoicing
requirements, while the input VAT
on the sale of the Nissan Patrol
was reduced by ₱18,181.82
because the output VAT for the
sale was not included in the VAT
declarations.
The dispositive portion of the CTA
First Division’s 22 September 2008
Decision reads:
WHEREFORE, the Petition for
Review is hereby PARTIALLY
GRANTED. Accordingly, the CIR is
hereby ORDERED to REFUND or
to ISSUE A TAX CREDIT
CERTIFICATE in the modified
amount of SEVEN MILLION
SEVEN HUNDRED THREE
THOUSAND NINE HUNDRED
FIFTY SEVEN AND 79/100
PESOS (₱7,703,957.79)
representing its unutilized input
VAT for the four (4) quarters of the
taxable year 2003.
SO ORDERED.17
Mindanao II filed a motion for
partial reconsideration.18 It stated
that the sale of the fully depreciated
Nissan Patrol is a one-time
transaction and is not incidental to
its VAT zero-rated operations.
Moreover, the disallowed input
taxes substantially complied with
the requirements for refund or tax
credit.
The CIR also filed a motion for
partial reconsideration. It argued
that the judicial claims for the first
and second quarters of 2003 were
filed beyond the period allowed by
law, as stated in Section 112(A) of
the 1997 Tax Code. The CIR
further stated that Section 229 is a
general provision, and governs
cases not covered by Section
112(A). The CIR countered the
CTA First Division’s 22 September
2008 decision by citing this Court’s
ruling in Commisioner of Internal
Revenue v. Mirant Pagbilao
Corporation (Mirant),19 which
stated that unutilized input VAT
payments must be claimed within
two years reckoned from the close
of the taxable quarter when the
relevant sales were made
regardless of whether said tax was
paid.
The CTA First Division denied
Mindanao II’s motion for partial
reconsideration, found the CIR’s
motion for partial reconsideration
partly meritorious, and rendered an
Amended Decision20 on 26 June
2009. The CTA First Division stated
that the claim for refund or credit
with the BIR and the subsequent
appeal to the CTA must be filed
within the two-year period
prescribed under Section 229. The
two-year prescriptive period in
Section 229 was denominated as a
mandatory statute of limitations.
Therefore, Mindanao II’s claims for
refund for the first and second
quarters of 2003 had already
prescribed.
The CTA First Division found that
the records of Mindanao II’s case
are bereft of evidence that the sale
of the Nissan Patrol is not
incidental to Mindanao II’s VAT
zero-rated operations. Moreover,
Mindanao II’s submitted
documents failed to substantiate
the requisites for the refund or
credit claims.
The CTA First Division modified its
22 September 2008 Decision to
read as follows:
WHEREFORE, the Petition for
Review is hereby PARTIALLY
GRANTED. Accordingly, the CIR is
hereby ORDERED to REFUND or
to ISSUE A TAX CREDIT
CERTIFICATE to Mindanao II
Geothermal Partnership in the
modified amount of TWO MILLION
NINE HUNDRED EIGHTY
THOUSAND EIGHT HUNDRED
EIGHTY SEVEN AND 77/100
PESOS (₱2,980,887.77)
representing its unutilized input
VAT for the third and fourth
quarters of the taxable year 2003.
SO ORDERED.21
Mindanao II filed a Petition for
Review,22 docketed as CTA EB No.
513, before the CTA En Banc.
The Court of Tax Appeals’ Ruling:
En Banc
On 10 March 2010, the CTA En
Banc rendered its Decision23 in
CTA EB No. 513 and denied
Mindanao II’s petition. The CTA En
Banc ruled that (1) Section 112(A)
clearly provides that the reckoning
of the two-year prescriptive period
for filing the application for refund
or credit of input VAT attributable to
zero-rated sales or effectively zero-
rated sales shall be counted from
the close of the taxable quarter
when the sales were made; (2) the
Atlas and Mirant cases applied
different tax codes: Atlas applied
the 1977 Tax Code while Mirant
applied the 1997 Tax Code; (3) the
sale of the fully-depreciated Nissan
Patrol is incidental to Mindanao II’s
VAT zero-rated transactions
pursuant to Section 105; (4)
Mindanao II failed to comply with
the substantiation requirements
provided under Section 113(A) in
relation to Section 237 of the 1997
Tax Code as implemented by
Section 4.104-1, 4.104-5, and
4.108-1 of Revenue Regulation No.
7-95; and (5) the doctrine of
strictissimi juris on tax exemptions
cannot be relaxed in the present
case.
The dispositive portion of the CTA
En Banc’s 10 March 2010 Decision
reads:
WHEREFORE, on the basis of the
foregoing considerations, the
Petition for Review en banc is
DISMISSED for lack of merit.
Accordingly, the Decision dated
September 22, 2008 and the
Amended Decision dated June 26,
2009 issued by the First Division
are AFFIRMED.
SO ORDERED.24
The CTA En Banc issued a
Resolution25 on 28 July 2010
denying for lack of merit Mindanao
II’s Motion for
26
Reconsideration. The CTA En
Banc highlighted the following
bases of their previous ruling:
1. The Supreme Court has
long decided that the claim
for refund of unutilized input
VAT must be filed within two
(2) years after the close of the
taxable quarter when such
sales were made.
2. The Supreme Court is the
ultimate arbiter whose
decisions all other courts
should take bearings.
3. The words of the law are
clear, plain, and free from
ambiguity; hence, it must be
given its literal meaning and
applied without any
27
interpretation.
G.R. No. 194637
Mindanao I v. CIR
The Facts
G.R. No. 194637 covers two cases
consolidated by the CTA EB: CTA
EB Case Nos. 476 and 483. Both
CTA EB cases consolidate three
cases from the CTA Second
Division: CTA Case Nos. 7228,
7286, and 7318. CTA Case Nos.
7228, 7286, and 7318 claim a tax
refund or credit of Mindanao I’s
accumulated unutilized and/or
excess input taxes due to VAT
zero-rated sales. In CTA Case No.
7228, Mindanao I claims a tax
refund or credit of ₱3,893,566.14
for the first quarter of 2003. In CTA
Case No. 7286, Mindanao I claims
a tax refund or credit of
₱2,351,000.83 for the second
quarter of 2003. In CTA Case No.
7318, Mindanao I claims a tax
refund or credit of ₱7,940,727.83
for the third and fourth quarters of
2003.
Mindanao I is similarly situated as
Mindanao II. The CTA Second
Division’s narration of the pertinent
facts is as follows:
xxxx
In December 1994, Mindanao I
entered into a contract of Build-
Operate-Transfer (BOT) with the
Philippine National Oil Corporation
– Energy Development
Corporation (PNOC-EDC) for the
finance, design, construction,
testing, commissioning, operation,
maintenance and repair of a 47-
megawatt geothermal power plant.
Under the said BOT contract,
PNOC-EDC shall supply and
deliver steam to Mindanao I at no
cost. In turn, Mindanao I will
convert the steam into electric
capacity and energy for PNOC-
EDC and shall subsequently
supply and deliver the same to the
National Power Corporation (NPC),
for and in behalf of PNOC-EDC.
Mindanao I’s 47-megawatt
geothermal power plant project has
been accredited by the Department
of Energy (DOE) as a Private
Sector Generation Facility,
pursuant to the provision of
Executive Order No. 215, wherein
Certificate of Accreditation No. 95-
037 was issued.
On June 26, 2001, Republic Act
(R.A.) No. 9136 took effect, and the
relevant provisions of the National
Internal Revenue Code (NIRC) of
1997 were deemed modified. R.A.
No. 9136, also known as the
"Electric Power Industry Reform
Act of 2001 (EPIRA), was enacted
by Congress to ordain reforms in
the electric power industry,
highlighting, among others, the
importance of ensuring the
reliability, security and affordability
of the supply of electric power to
end users. Under the provisions of
this Republic Act and its
implementing rules and
regulations, the delivery and supply
of electric energy by generation
companies became VAT zero-
rated, which previously were
subject to ten percent (10%) VAT.
xxxx
The amendment of the NIRC of
1997 modified the VAT rate
applicable to sales of generated
power by generation companies
from ten (10%) percent to zero
percent (0%). Thus, Mindanao I
adopted the VAT zero-rating of the
EPIRA in computing for its VAT
payable when it filed its VAT
Returns, on the belief that its sales
qualify for VAT zero-rating.
Mindanao I reported its unutilized
or excess creditable input taxes in
its Quarterly VAT Returns for the
first, second, third, and fourth
quarters of taxable year 2003,
which were subsequently amended
and filed with the BIR.
On April 4, 2005, Mindanao I filed
with the BIR separate
administrative claims for the
issuance of tax credit certificate on
its alleged unutilized or excess
input taxes for taxable year 2003, in
the accumulated amount of
₱14,185, 294.80.
Alleging inaction on the part of CIR,
Mindanao I elevated its claims
before this Court on April 22, 2005,
July 7, 2005, and September 9,
2005 docketed as CTA Case Nos.
7228, 7286, and 7318,
respectively. However, on October
10, 2005, Mindanao I received a
copy of the letter dated September
30, 2003 (sic) of the BIR denying its
application for tax credit/refund.28
The Court of Tax Appeals’ Ruling:
Division
On 24 October 2008, the CTA
Second Division rendered its
Decision29 in CTA Case Nos. 7228,
7286, and 7318. The CTA Second
Division found that (1) pursuant to
Section 112(A), Mindanao I can
only claim 90.27% of the amount of
substantiated excess input VAT
because a portion was not reported
in its quarterly VAT returns; (2) out
of the ₱14,185,294.80 excess input
VAT applied for refund, only
₱11,657,447.14 can be considered
substantiated excess input VAT
due to disallowances by the
Independent Certified Public
Accountant, adjustment on the
disallowances per the CTA Second
Division’s further verification, and
additional disallowances per the
CTA Second Division’s further
verification;
(3) Mindanao I’s accumulated
excess input VAT for the second
quarter of 2003 that was carried
over to the third quarter of 2003 is
net of the claimed input VAT for the
first quarter of 2003, and the same
procedure was done for the
second, third, and fourth quarters
of 2003; and (4) Mindanao I’s
administrative claims were filed
within the two-year prescriptive
period reckoned from the
respective dates of filing of the
quarterly VAT returns.
The dispositive portion of the CTA
Second Division’s 24 October 2008
Decision reads:
WHEREFORE, premises
considered, the consolidated
Petitions for Review are hereby
PARTIALLY GRANTED.
Accordingly, the CIR is hereby
ORDERED TO ISSUE A TAX
CREDIT CERTIFICATE in favor of
Mindanao I in the reduced amount
of TEN MILLION FIVE HUNDRED
TWENTY THREE THOUSAND
ONE HUNDRED SEVENTY
SEVEN PESOS AND 53/100
(₱10,523,177.53) representing
Mindanao I’s unutilized input VAT
for the four quarters of the taxable
year 2003.
SO ORDERED.30
Mindanao I filed a motion for partial
reconsideration with motion for
Clarification31 on 11 November
2008. It claimed that the CTA
Second Division should not have
allocated proportionately Mindanao
I’s unutilized creditable input taxes
for the taxable year 2003, because
the proportionate allocation of the
amount of creditable taxes in
Section 112(A) applies only when
the creditable input taxes due
cannot be directly and entirely
attributed to any of the zero-rated
or effectively zero-rated sales.
Mindanao I claims that its
unreported collection is directly
attributable to its VAT zero-rated
sales. The CTA Second Division
denied Mindanao I’s motion and
maintained the proportionate
allocation because there was a
portion of the gross receipts that
was undeclared in Mindanao I’s
gross receipts.
The CIR also filed a motion for
partial reconsideration32 on 11
November 2008. It claimed that
Mindanao I failed to exhaust
administrative remedies before it
filed its petition for review. The CTA
Second Division denied the CIR’s
motion, and cited Atlas33 as the
basis for ruling that it is more
practical and reasonable to count
the two-year prescriptive period for
filing a claim for refund or credit of
input VAT on zero-rated sales from
the date of filing of the return and
payment of the tax due.
The dispositive portion of the CTA
Second Division’s 10 March 2009
Resolution reads:
WHEREFORE, premises
considered, the CIR’s Motion for
Partial Reconsideration and
Mindanao I’s Motion for Partial
Reconsideration with Motion for
Clarification are hereby DENIED
for lack of merit.
SO ORDERED.34
The Ruling of the Court of Tax
Appeals: En Banc
On 31 May 2010, the CTA En Banc
rendered its Decision35 in CTA EB
Case Nos. 476 and 483 and denied
the petitions filed by the CIR and
Mindanao I. The CTA En Banc
found no new matters which have
not yet been considered and
passed upon by the CTA Second
Division in its assailed decision and
resolution.
The dispositive portion of the CTA
En Banc’s 31 May 2010 Decision
reads:
WHEREFORE, premises
considered, the Petitions for
Review are hereby DISMISSED for
lack of merit. Accordingly, the
October 24, 2008 Decision and
March 10, 2009 Resolution of the
CTA Former Second Division in
CTA Case Nos. 7228, 7286, and
7318, entitled "Mindanao I Pursuant to Section 112(A) of
Geothermal Partnership vs.
Commissioner of Internal
Revenue" are hereby AFFIRMED
in toto.
SO ORDERED.36
Both the CIR and Mindanao I filed
Motions for Reconsideration of the
CTA En Banc’s 31 May 2010
Decision. In an Amended Decision
promulgated on 24 November
2010, the CTA En Banc agreed
with the CIR’s claim that Section
229 of the NIRC of 1997 is
inapplicable in light of this Court’s
ruling in Mirant. The CTA En Banc
also ruled that the procedure
prescribed under Section 112(D)
now 112(C)37 of the 1997 Tax Code
should be followed first before the
CTA En Banc can act on Mindanao
I’s claim. The CTA En Banc
reconsidered its 31 May 2010
Decision in light of this Court’s
ruling in Commissioner of Internal
Revenue v. Aichi Forging
Company of Asia, Inc. (Aichi).38
The pertinent portions of the CTA
En Banc’s 24 November 2010
Amended Decision read:
C.T.A. Case No. 7228:
(1) For calendar year 2003,
Mindanao I filed with the BIR
its Quarterly VAT Returns for
the First Quarter of 2003.
the NIRC of 1997, as
amended, Mindanao I has
two years from March 31,
2003 or until March 31, 2005
within which to file its
administrative claim for
refund;
(2) On April 4, 2005,
Mindanao I applied for an
administrative claim for
refund of unutilized input VAT
for the first quarter of taxable
year 2003 with the BIR,
which is beyond the two-year
prescriptive period
mentioned above.
C.T.A. Case No. 7286:
(1) For calendar year 2003,
Mindanao I filed with the BIR
its Quarterly VAT Returns for
the second quarter of 2003. elevated its claim for refund
Pursuant to to the CTA in Division;

Section 112(A) of the NIRC (5) However, on July 7, 2005,

of 1997, as amended, Mindanao I filed its Petition
Mindanao I has two years for Review with this Court,
from June 30, 2003, within docketed as CTA Case No.
which to file its administrative 7286, even before the 120-
claim for refund for the day period for the CIR to
second quarter of 2003, or decide the claim for refund
until June 30, 2005; had lapsed on August 2,
2005. The Petition for Review
(2) On April 4, 2005, was, therefore, prematurely
Mindanao I applied an filed and there was failure to
administrative claim for exhaust administrative
refund of unutilized input VAT remedies;
for the second quarter of
taxable year 2003 with the xxxx
BIR, which is within the two-
year prescriptive period, C.T.A. Case No. 7318:
provided under Section 112
(A) of the NIRC of 1997, as (1) For calendar year 2003,
amended; Mindanao I filed with the BIR
its Quarterly VAT Returns for
(3) The CIR has 120 days the third and fourth quarters
from April 4, 2005 of 2003. Pursuant to Section
(presumably the date 112(A) of the NIRC of 1997,
Mindanao I submitted the as amended, Mindanao I
supporting documents therefore, has two years from
together with the application September 30, 2003 and
for refund) or until August 2, December 31, 2003, or until
2005, to decide the September 30, 2005 and
administrative claim for December 31, 2005,
refund; respectively, within which to
file its administrative claim for
(4) Within 30 days from the the third and fourth quarters
lapse of the 120-day period of 2003;
or from August 3, 2005 to
September 1, 2005, (2) On April 4, 2005,
Mindanao I should have Mindanao I applied an
 administrative claim for
refund of unutilized input VAT
for the third and fourth
quarters of taxable year 2003
with the BIR, which is well
within the two-year
prescriptive period, provided
under Section 112(A) of the
NIRC of 1997, as amended;
(3) From April 4, 2005, which
is also presumably the date
Mindanao I submitted
supporting documents,
together with the aforesaid
application for refund, the
CIR has 120 days or until
August 2, 2005, to decide the
claim;
(4) Within thirty (30) days
from the lapse of the 120-day
period or from August 3,
2005 until September 1, 2005
Mindanao I should have
elevated its claim for refund
to the CTA;
(5) However, Mindanao I filed
its Petition for Review with
the CTA in Division only on
September 9, 2005, which is
8 days beyond the 30-day
period to appeal to the CTA.
Evidently, the Petition for Review
was filed way beyond the 30-day
prescribed period. Thus, the
Petition for Review should have
been dismissed for being filed late.
In recapitulation:
(1) C.T.A. Case No. 7228
Claim for the first quarter of
2003 had already prescribed
for having been filed beyond
the two-year prescriptive
period;
(2) C.T.A. Case No. 7286
Claim for the second quarter
of 2003 should be dismissed
for Mindanao I’s failure to
comply with a condition
precedent when it failed to
exhaust administrative
remedies by filing its Petition
for Review even before the
lapse of the 120-day period
for the CIR to decide the
administrative claim;
(3) C.T.A. Case No. 7318
Petition for Review was filed
beyond the 30-day
prescribed period to appeal
to the CTA.
xxxx
IN VIEW OF THE FOREGOING,
the Commissioner of Internal
Revenue’s Motion for
Reconsideration is hereby
GRANTED; Mindanao I’s Motion
for Partial Reconsideration is
hereby DENIED for lack of merit.
The May 31, 2010 Decision of this
Court En Banc is hereby
REVERSED.
Accordingly, the Petition for
Review of the Commissioner of
Internal Revenue in CTA EB No.
476 is hereby GRANTED and the
entire claim of Mindanao I
Geothermal Partnership for the
first, second, third and fourth
quarters of 2003 is hereby
DENIED.
SO ORDERED.39
The Issues
G.R. No. 193301
Mindanao II v. CIR
Mindanao II raised the following
grounds in its Petition for Review:
I. The Honorable Court of
Tax Appeals erred in holding
that the claim of Mindanao II
for the 1st and 2nd quarters
of year 2003 has already
prescribed pursuant to the
Mirant case.
A. The Atlas case and
Mirant case have
conflicting
interpretations of the
law as to the reckoning
date of the two year
prescriptive period for
filing claims for VAT
refund.
B. The Atlas case was
not and cannot be
superseded by the
Mirant case in light of
Section 4(3), Article VIII
of the 1987
Constitution.
C. The ruling of the
Mirant case, which
uses the close of the
taxable quarter when
the sales were made as
the reckoning date in
counting the two-year
prescriptive period
cannot be applied
retroactively in the case
of Mindanao II.
II. The Honorable Court of
Tax Appeals erred in
interpreting Section 105 of
the 1997 Tax Code, as
amended in that the sale of
the fully depreciated Nissan
Patrol is a one-time
transaction and is not
incidental to the VAT zero-
rated operation of Mindanao
II.
III. The Honorable Court of
Tax Appeals erred in denying
the amount disallowed by the
Independent Certified Public
Accountant as Mindanao II
substantially complied with
the requisites of the 1997 Tax
 Code, as amended, for I. The administrative claim
refund/tax credit. and judicial claim in CTA
Case No. 7228 were timely
A. The amount of filed pursuant to the case of
₱2,090.16 was brought Atlas Consolidated Mining
about by the timing and Development
difference in the Corporation vs.
recording of the foreign Commissioner of Internal
currency deposit Revenue, which was then the
transaction. controlling ruling at the time
of filing.
B. The amount of
₱2,752.00 arose from A. The recent ruling in
the out-of-pocket the Commissioner of
expenses reimbursed Internal Revenue vs.
to SGV & Company Mirant Pagbilao
which is substantially Corporation, which
suppoerted [sic] by an uses the end of the
official receipt. taxable quarter when
the sales were made as
C. The amount of the reckoning date in
₱487,355.93 was counting the two-year
unapplied and/or was prescriptive period,
not included in cannot be applied
Mindanao II’s claim for retroactively in the case
refund or tax credit for of Mindanao I.
the year 2004 subject
matter of CTA Case B. The Atlas case
No. 7507. promulgated by the
Third Division of this
IV. The doctrine of strictissimi Honorable Court on
juris on tax exemptions June 8, 2007 was not
should be relaxed in the and cannot be
present case.40 superseded by the
Mirant Pagbilao case
G.R. No. 194637 promulgated by the
Mindanao I v. CIR Second Division of this
Honorable Court on
Mindanao I raised the following
September 12, 2008 in
grounds in its Petition for Review:
light of the explicit
 provision of Section
4(3), Article VIII of the
1987 Constitution.
II. Likewise, the recent ruling
of this Honorable Court in
Commissioner of Internal
Revenue vs. Aichi Forging
Company of Asia, Inc.,
cannot be applied
retroactively to Mindanao I in
the present case.41
In a Resolution dated 14 December
2011,42 this Court resolved to
consolidate G.R. Nos. 193301 and
194637 to avoid conflicting rulings
in related cases.
The Court’s Ruling
Determination of Prescriptive
Period
G.R. Nos. 193301 and 194637 both
raise the question of the
determination of the prescriptive
period, or the interpretation of
Section 112 of the 1997 Tax Code,
in light of our rulings in Atlas and
Mirant.
Mindanao II’s unutilized input VAT
tax credit for the first and second
quarters of 2003, in the amounts of
₱3,160,984.69 and ₱1,562,085.33,
respectively, are covered by G.R.
No. 193301, while Mindanao I’s
unutilized input VAT tax credit for
the first, second, third, and fourth
quarters of 2003, in the amounts of
₱3,893,566.14, ₱2,351,000.83,
and ₱7,940,727.83, respectively,
are covered by G.R. No. 194637.
Section 112 of the 1997 Tax Code
The pertinent sections of the 1997
Tax Code, the law applicable at the
time of Mindanao II’s and
Mindanao I’s administrative and
judicial claims, provide:
SEC. 112. Refunds or Tax Credits
of Input Tax. -(A) Zero-rated or
Effectively Zero-rated Sales. - Any
VAT-registered person, whose
sales are zero-rated or effectively
zero-rated may, within two (2)
years after the close of the taxable
quarter when the sales were made,
apply for the issuance of a tax
credit certificate or refund of
creditable input tax due or paid
attributable to such sales, except
transitional input tax, to the extent
that such input tax has not been
applied against output tax:
Provided, however, That in the
case of zero-rated sales under
Section 106(A)(2)(a)(1), (2) and (B)
and Section 108 (B)(1) and (2), the
acceptable foreign currency
exchange proceeds thereof had
been duly accounted for in
accordance with the rules and
regulations of the Bangko Sentral
ng Pilipinas (BSP): Provided,
further, That where the taxpayer is
engaged in zero-rated or effectively
zero-rated sale and also in taxable
or exempt sale of goods or The relevant dates for G.R. No.
properties or services, and the 193301 (Mindanao II) are:
amount of creditable input tax due
or paid cannot CTAbe Period
directly and Close of Last day Actual date of Last da
entirely attributed to any
Case one of theby
covered quarter for filing filing for
transactions, itNo.
shall VAT
be allocated
Sales in when application application for filing cas
proportionately on the2003basis of the
and sales of tax tax refund/ with CTA4
volume of sales. amount were refund/tax credit with the
made credit CIR
xxxx certificate (administrative
with the claim)44
(D) Period within which Refund or CIR
Tax Credit of Input Taxes shall be
Made. - In proper7227 1st Quarter,
cases, the 31 March 31 March 13 April 2005 12
₱3,160,984.69
Commissioner shall grant a refund 2003 2005 Septembe
or issue the tax credit certificate for 2005
creditable input7287taxes2ndwithin one
Quarter, 30 June 30 June 13 April 2005 12
hundred twenty (120) ₱1,562,085.33
days from the 2003 2005 Septembe
date of submission of complete 2005
documents in support of the
application filed7317 3rd and with
in accordance 4th 30 30 13 April 2005 12
Subsections (A) and (B) Quarters,
hereof. September September Septembe
₱3,521,129.50 2003 2005 2005
In case of full or partial denial of the 31 2 January
claim for tax refund or tax credit, or December 2006
the failure on the part of the 2003 (31
Commissioner to act on the December
application within the period 2005 being
prescribed above, the taxpayer a
affected may, within thirty (30) days Saturday)
from the receipt of the decision
denying the claim or after the
The relevant dates for G.R. No.
expiration of the one hundred
194637 (Minadanao I) are:
twenty day-period, appeal the
decision or the unacted claim with
CTA Period Close of Last day Actual date of Last da
the Court of Tax Appeals.
Case covered by quarter for filing filing for
No. VAT
x x x x 43 (Underscoring Sales in
supplied) when application application for filing cas
2003 and sales of tax tax refund/ with CTA4
amount refund/tax credit with the
 were credit CIR v. San Roque Power Corporation,
(judicial
made certificate (administrative Taganitoclaim)Mining Corporation v.
with the claim)46 Commissioner of Internal
CIR Revenue, and Philex Mining
Corporation v. Commissioner of
Quarter, 31 March 31 March 4 April 2005 1 Internal Revenue
22 April
(San Roque):48
,566.14 2003 2005 September 2005
2005
Clearly, San Roque failed to
Quarter, 30 June 30 June 4 April 2005 1 comply with 7 theJuly
120-day waiting
,000.83 2003 2005 period, the
September time expressly given by
2005
law to the Commissioner to decide
2005
whether to grant or deny San
30 30 4 April 2005 1 Roque’s 9application for tax refund
4th September September September
or credit.September
It is indisputable that
rs, 2003 2005 2005 2005
compliance with the 120-day
,727.83 waiting period is mandatory and
31 2 January
December 2006 jurisdictional. The waiting period,
2003 (31 originally fixed at 60 days only, was
December part of the provisions of the first
2005 being VAT law, Executive Order No. 273,
a which took effect on 1 January
Saturday) 1988. The waiting period was
extended to 120 days effective 1
When Mindanao II and Mindanao I January 1998 under RA 8424 or
filed their respective administrative the Tax Reform Act of 1997. Thus,
and judicial claims in 2005, neither the waiting period has been in our
Atlas nor Mirant has been statute books for more than fifteen
promulgated. Atlas was (15) years before San Roque filed
promulgated on 8 June 2007, while its judicial claim.
Mirant was promulgated on 12
Failure to comply with the 120-day
September 2008. It is therefore
waiting period violates a mandatory
misleading to state that Atlas was
provision of law. It violates the
the controlling doctrine at the time
doctrine of exhaustion of
of filing of the claims. The 1997 Tax
administrative remedies and
Code, which took effect on 1
renders the petition premature and
January 1998, was the applicable
thus without a cause of action, with
law at the time of filing of the claims
the effect that the CTA does not
in issue. As this Court explained in
acquire jurisdiction over the
the recent consolidated cases of
taxpayer’s petition. Philippine
Commissioner of Internal Revenue
jurisprudence is replete with cases
upholding and reiterating these
doctrinal principles.
The charter of the CTA expressly
provides that its jurisdiction is to
review on appeal "decisions of the
Commissioner of Internal Revenue
in cases involving x x x refunds of
internal revenue taxes." When a
taxpayer prematurely files a judicial
claim for tax refund or credit with
the CTA without waiting for the
decision of the Commissioner,
there is no "decision" of the
Commissioner to review and thus
the CTA as a court of special
jurisdiction has no jurisdiction over
the appeal. The charter of the CTA
also expressly provides that if the
Commissioner fails to decide within
"a specific period" required by law,
such "inaction shall be deemed a
denial" of the application for tax
refund or credit. It is the
Commissioner’s decision, or
inaction "deemed a denial," that the
taxpayer can take to the CTA for
review. Without a decision or an
"inaction x x x deemed a denial" of
the Commissioner, the CTA has no
jurisdiction over a petition for
review.
San Roque’s failure to comply with
the 120-day mandatory period
renders its petition for review with
the CTA void. Article 5 of the Civil
Code provides, "Acts executed
against provisions of mandatory or
prohibitory laws shall be void,
except when the law itself
authorizes their validity." San
Roque’s void petition for review
cannot be legitimized by the CTA or
this Court because Article 5 of the
Civil Code states that such void
petition cannot be legitimized
"except when the law itself
authorizes its validity." There is no
law authorizing the petition’s
validity.
It is hornbook doctrine that a
person committing a void act
contrary to a mandatory provision
of law cannot claim or acquire any
right from his void act. A right
cannot spring in favor of a person
from his own void or illegal act. This
doctrine is repeated in Article 2254
of the Civil Code, which states, "No
vested or acquired right can arise
from acts or omissions which are
against the law or which infringe
upon the rights of others." For
violating a mandatory provision of
law in filing its petition with the
CTA, San Roque cannot claim any
right arising from such void petition.
Thus, San Roque’s petition with the
CTA is a mere scrap of paper.
This Court cannot brush aside the
grave issue of the mandatory and
jurisdictional nature of the 120-day
period just because the
Commissioner merely asserts that
the case was prematurely filed with
the CTA and does not question the
entitlement of San Roque to the
refund. The mere fact that a
taxpayer has undisputed excess
input VAT, or that the tax was
admittedly illegally, erroneously or
excessively collected from him,
does not entitle him as a matter of
right to a tax refund or credit. Strict
compliance with the mandatory
and jurisdictional conditions
prescribed by law to claim such tax
refund or credit is essential and
necessary for such claim to
prosper. Well-settled is the rule that
tax refunds or credits, just like tax
exemptions, are strictly construed
against the taxpayer.
The burden is on the taxpayer to
show that he has strictly complied
with the conditions for the grant of
the tax refund or credit.
This Court cannot disregard
mandatory and jurisdictional
conditions mandated by law simply
because the Commissioner chose
not to contest the numerical
correctness of the claim for tax
refund or credit of the taxpayer.
Non-compliance with mandatory
periods, non-observance of
prescriptive periods, and non-
adherence to exhaustion of
administrative remedies bar a
taxpayer’s claim for tax refund or
credit, whether or not the
Commissioner questions the
numerical correctness of the claim
of the taxpayer. This Court should
not establish the precedent that
non-compliance with mandatory
and jurisdictional conditions can be
excused if the claim is otherwise
meritorious, particularly in claims
for tax refunds or credit. Such
precedent will render meaningless
compliance with mandatory and
jurisdictional requirements, for then
every tax refund case will have to
be decided on the numerical
correctness of the amounts
claimed, regardless of non-
compliance with mandatory and
jurisdictional conditions.
San Roque cannot also claim being
misled, misguided or confused by
the Atlas doctrine because San
Roque filed its petition for review
with the CTA more than four years
before Atlas was promulgated. The
Atlas doctrine did not exist at the
time San Roque failed to comply
with the 120-day period. Thus, San
Roque cannot invoke the Atlas
doctrine as an excuse for its failure
to wait for the 120-day period to
lapse. In any event, the Atlas
doctrine merely stated that the two-
year prescriptive period should be
counted from the date of payment
of the output VAT, not from the
close of the taxable quarter when
the sales involving the input VAT
were made. The Atlas doctrine
does not interpret, expressly or
impliedly, the 120+30 day
49
periods. (Emphases in the
original; citations omitted)
Prescriptive Period for
the Filing of Administrative Claims
In determining whether the
administrative claims of Mindanao I
and Mindanao II for 2003 have
prescribed, we see no need to rely
on either Atlas or Mirant. Section
112(A) of the 1997 Tax Code is
clear: "Any VAT-registered person,
whose sales are zero-rated or
effectively zero-rated may, within
two (2) years after the close of the
taxable quarter when the sales
were made, apply for the issuance
of a tax credit certificate or refund
of creditable input tax due or paid
attributable to such sales x x x."
We rule on Mindanao I and II’s
administrative claims for the first,
second, third, and fourth quarters
of 2003 as follows:
(1) The last day for filing an
application for tax refund or
credit with the CIR for the first
quarter of 2003 was on 31
March 2005. Mindanao II
filed its administrative claim
before the CIR on 13 April
2005, while Mindanao I filed
its administrative claim
before the CIR on 4 April
2005. Both claims have
prescribed, pursuant to
Section 112(A) of the 1997
Tax Code.
(2) The last day for filing an
application for tax refund or
credit with the CIR for the
second quarter of 2003 was
on 30 June 2005. Mindanao
II filed its administrative claim
before the CIR on 13 April
2005, while Mindanao I filed
its administrative claim
before the CIR on 4 April
2005. Both claims were filed
on time, pursuant to Section
112(A) of the 1997 Tax Code.
(3) The last day for filing an
application for tax refund or
credit with the CIR for the
third quarter of 2003 was on
30 September 2005.
Mindanao II filed its
administrative claim before
the CIR on 13 April 2005,
while Mindanao I filed its
administrative claim before
the CIR on 4 April 2005. Both
claims were filed on time,
pursuant to Section 112(A) of
the 1997 Tax Code.
(4) The last day for filing an
application for tax refund or
credit with the CIR for the
fourth quarter of 2003 was on
2 January 2006. Mindanao II
filed its administrative claim
before the CIR on 13 April
2005, while Mindanao I filed
its administrative claim
before the CIR on 4 April
2005. Both claims were filed
 on time, pursuant to Section
112(A) of the 1997 Tax Code.
Prescriptive Period for
the Filing of Judicial Claims
In determining whether the claims
for the second, third and fourth
quarters of 2003 have been
properly appealed, we still see no
need to refer to either Atlas or
Mirant, or even to Section 229 of
the 1997 Tax Code. The second
paragraph of Section 112(C) of the
1997 Tax Code is clear: "In case of
full or partial denial of the claim for
tax refund or tax credit, or the
failure on the part of the
Commissioner to act on the
application within the period
prescribed above, the taxpayer
affected may, within thirty (30) days
from the receipt of the decision
denying the claim or after the
expiration of the one hundred
twenty day-period, appeal the
decision or the unacted claim with
the Court of Tax Appeals."
The mandatory and jurisdictional
nature of the 120+30 day periods
was explained in San Roque:
At the time San Roque filed its
petition for review with the CTA, the
120+30 day mandatory periods
were already in the law. Section
112(C) expressly grants the
Commissioner 120 days within
which to decide the taxpayer’s
claim. The law is clear, plain, and
unequivocal: "x x x the
Commissioner shall grant a refund
or issue the tax credit certificate for
creditable input taxes within one
hundred twenty (120) days from the
date of submission of complete
documents." Following the verba
legis doctrine, this law must be
applied exactly as worded since it
is clear, plain, and unequivocal.
The taxpayer cannot simply file a
petition with the CTA without
waiting for the Commissioner’s
decision within the 120-day
mandatory and jurisdictional
period. The CTA will have no
jurisdiction because there will be no
"decision" or "deemed a denial"
decision of the Commissioner for
the CTA to review. In San Roque’s
case, it filed its petition with the
CTA a mere 13 days after it filed its
administrative claim with the
Commissioner. Indisputably, San
Roque knowingly violated the
mandatory 120-day period, and it
cannot blame anyone but itself.
Section 112(C) also expressly
grants the taxpayer a 30-day period
to appeal to the CTA the decision
or inaction of the Commissioner,
thus:
x x x the taxpayer affected may,
within thirty (30) days from the
receipt of the decision denying the
claim or after the expiration of the
one hundred twenty day-period,
appeal the decision or the unacted
claim with the Court of Tax
Appeals. (Emphasis supplied)
This law is clear, plain, and
unequivocal. Following the well-
settled verba legis doctrine, this law
should be applied exactly as
worded since it is clear, plain, and
unequivocal. As this law states, the
taxpayer may, if he wishes, appeal
the decision of the Commissioner
to the CTA within 30 days from
receipt of the Commissioner’s
decision, or if the Commissioner
does not act on the taxpayer’s
claim within the 120-day period, the
taxpayer may appeal to the CTA
within 30 days from the expiration
of the 120-day period.
xxxx
There are three compelling
reasons why the 30-day period
need not necessarily fall within the
two-year prescriptive period, as
long as the administrative claim is
filed within the two-year
prescriptive period.
First, Section 112(A) clearly,
plainly, and unequivocally provides
that the taxpayer "may, within two
(2) years after the close of the
taxable quarter when the sales
were made, apply for the issuance
of a tax credit certificate or refund
of the creditable input tax due or
paid to such sales." In short, the
law states that the taxpayer may
apply with the Commissioner for a
refund or credit "within two (2)
years," which means at anytime
within two years. Thus, the
application for refund or credit may
be filed by the taxpayer with the
Commissioner on the last day of
the two-year prescriptive period
and it will still strictly comply with
the law. The two-year prescriptive
period is a grace period in favor of
the taxpayer and he can avail of the
full period before his right to apply
for a tax refund or credit is barred
by prescription.
Second, Section 112(C) provides
that the Commissioner shall decide
the application for refund or credit
"within one hundred twenty (120)
days from the date of submission of
complete documents in support of
the application filed in accordance
with Subsection (A)." The
reference in Section 112(C) of the
submission of documents "in
support of the application filed in
accordance with Subsection A"
means that the application in
Section 112(A) is the
administrative claim that the
Commissioner must decide within
the 120-day period. In short, the
two-year prescriptive period in
Section 112(A) refers to the period
within which the taxpayer can file
an administrative claim for tax
refund or credit. Stated otherwise,
the two-year prescriptive period
does not refer to the filing of the
judicial claim with the CTA but to
the filing of the administrative claim
with the Commissioner. As held in
Aichi, the "phrase ‘within two years
x x x apply for the issuance of a tax
credit or refund’ refers to
applications for refund/credit with
the CIR and not to appeals made to
the CTA."
Third, if the 30-day period, or any
part of it, is required to fall within
the two-year prescriptive period
(equivalent to 730 days), then the
taxpayer must file his
administrative claim for refund or
credit within the first 610 days of
the two-year prescriptive period.
Otherwise, the filing of the
administrative claim beyond the
first 610 days will result in the
appeal to the CTA being filed
beyond the two-year prescriptive
period. Thus, if the taxpayer files
his administrative claim on the
611th day, the Commissioner, with
his 120-day period, will have until
the 731st day to decide the claim. If
the Commissioner decides only on
the 731st day, or does not decide
at all, the taxpayer can no longer
file his judicial claim with the CTA
because the two-year prescriptive
period (equivalent to 730 days) has
lapsed. The 30-day period granted
by law to the taxpayer to file an
appeal before the CTA becomes
utterly useless, even if the taxpayer
complied with the law by filing his
administrative claim within the two-
year prescriptive period.
The theory that the 30-day period
must fall within the two-year
prescriptive period adds a
condition that is not found in the
law. It results in truncating 120
days from the 730 days that the law
grants the taxpayer for filing his
administrative claim with the
Commissioner. This Court cannot
interpret a law to defeat, wholly or
even partly, a remedy that the law
expressly grants in clear, plain, and
unequivocal language.
Section 112(A) and (C) must be
interpreted according to its clear,
plain, and unequivocal language.
The taxpayer can file his
administrative claim for refund or
credit at anytime within the two-
year prescriptive period. If he files
his claim on the last day of the two-
year prescriptive
period, his claim is still filed on time.
The Commissioner will have 120
days from such filing to decide the
claim. If the Commissioner decides
the claim on the 120th day, or does
not decide it on that day, the
taxpayer still has 30 days to file his
judicial claim with the CTA. This is
not only the plain meaning but also
the only logical interpretation of
Section 112(A) and
50
(C). (Emphases in the original;
citations omitted)
In San Roque, this Court ruled that
"all taxpayers can rely on BIR
Ruling No. DA-489-03 from the
time of its issuance on 10
December 2003 up to its reversal in
Aichi on 6 October 2010, where this
Court held that the 120+30 day
periods are mandatory and
jurisdictional."51 We shall discuss
later the effect of San Roque’s
recognition of BIR Ruling No. DA-
489-03 on claims filed between 10
December 2003 and 6 October
2010. Mindanao I and II filed their
claims within this period.
We rule on Mindanao I and II’s
judicial claims for the second, third,
and fourth quarters of 2003 as
follows:
G.R. No. 193301
Mindanao II v. CIR
Mindanao II filed its administrative
claims for the second, third, and
fourth quarters of 2003 on 13 April
2005. Counting 120 days after filing
of the administrative claim with the
CIR (11 August 2005) and 30 days
after the CIR’s denial by inaction,
the last day for filing a judicial claim
with the CTA for the second, third,
and fourth quarters of 2003 was on
12 September 2005. However, the
judicial claim cannot be filed earlier
than 11 August 2005, which is the
expiration of the 120-day period for
the Commissioner to act on the
claim.
(1) Mindanao II filed its
judicial claim for the second
quarter of 2003 before the
CTA on 7 July 2005, before
the expiration of the 120-day
period. Pursuant to Section
112(C) of the 1997 Tax
Code, Mindanao II’s judicial
claim for the second quarter
of 2003 was prematurely
filed.
However, pursuant to San
Roque’s recognition of the
effect of BIR Ruling No. DA-
489-03, we rule that
Mindanao II’s judicial claim
for the second quarter of
2003 qualifies under the
exception to the strict
application of the 120+30 day
periods.
(2) Mindanao II filed its
judicial claim for the third
quarter of 2003 before the
CTA on 9 September 2005.
Mindanao II’s judicial claim
for the third quarter of 2003
was thus filed on time,
pursuant to Section 112(C) of
the 1997 Tax Code.
(3) Mindanao II filed its
judicial claim for the fourth
quarter of 2003 before the
CTA on 9 September 2005.
Mindanao II’s judicial claim
for the fourth quarter of 2003
was thus filed on time,
 pursuant to Section 112(C) of
the 1997 Tax Code.
G.R. No. 194637
Mindanao I v. CIR
Mindanao I filed its administrative
claims for the second, third, and
fourth quarters of 2003 on 4 April
2005. Counting 120 days after filing
of the administrative claim with the
CIR (2 August 2005) and 30 days
after the CIR’s denial by
inaction,52 the last day for filing a
judicial claim with the CTA for the
second, third, and fourth quarters
of 2003 was on 1 September 2005.
However, the judicial claim cannot
be filed earlier than 2 August 2005,
which is the expiration of the 120-
day period for the Commissioner to
act on the claim.
(1) Mindanao I filed its judicial
claim for the second quarter
of 2003 before the CTA on 7
July 2005, before the
expiration of the 120-day
period. Pursuant to Section
112(C) of the 1997 Tax
Code, Mindanao I’s judicial
claim for the second quarter
of 2003 was prematurely
filed. However, pursuant to
San Roque’s recognition of
the effect of BIR Ruling No.
DA-489-03, we rule that
Mindanao I’s judicial claim for
the second quarter of 2003
qualifies under the exception
to the strict application of the
120+30 day periods.
(2) Mindanao I filed its judicial
claim for the third quarter of
2003 before the CTA on 9
September 2005. Mindanao
I’s judicial claim for the third
quarter of 2003 was thus filed
after the prescriptive period,
pursuant to Section 112(C) of
the 1997 Tax Code.
(3) Mindanao I filed its judicial
claim for the fourth quarter of
2003 before the CTA on 9
September 2005. Mindanao
I’s judicial claim for the fourth
quarter of 2003 was thus filed
after the prescriptive period,
pursuant to Section 112(C) of
the 1997 Tax Code.
San Roque: Recognition of BIR
Ruling No. DA-489-03
In the consolidated cases of San
Roque, the Court En
53
Banc examined and ruled on the
different claims for tax refund or
credit of three different companies.
In San Roque, we reiterated that
"following the verba legis doctrine,
Section 112(C) must be applied
exactly as worded since it is clear,
plain, and unequivocal. The
taxpayer cannot simply file a
petition with the CTA without
waiting for the Commissioner’s
decision within the 120-day
mandatory and jurisdictional
period. The CTA will have no
jurisdiction because there will be no
‘decision’ or ‘deemed a denial
decision’ of the Commissioner for
the CTA to review."
Notwithstanding a strict
construction of any claim for tax
exemption or refund, the Court in
San Roque recognized that BIR
Ruling No. DA-489-03 constitutes
equitable estoppel54 in favor of
taxpayers. BIR Ruling No. DA-489-
03 expressly states that the
"taxpayer-claimant need not wait
for the lapse of the 120-day period
before it could seek judicial relief
with the CTA by way of Petition for
Review." This Court discussed BIR
Ruling No. DA-489-03 and its effect
on taxpayers, thus:
Taxpayers should not be
prejudiced by an erroneous
interpretation by the
Commissioner, particularly on a
difficult question of law. The
abandonment of the Atlas doctrine
by Mirant and Aichi is proof that the
reckoning of the prescriptive
periods for input VAT tax refund or
credit is a difficult question of law.
The abandonment of the Atlas
doctrine did not result in Atlas, or
other taxpayers similarly situated,
being made to return the tax refund
or credit they received or could
have received under Atlas prior to
its abandonment. This Court is
applying Mirant and Aichi
prospectively. Absent fraud, bad
faith or misrepresentation, the
reversal by this Court of a general
interpretative rule issued by the
Commissioner, like the reversal of
a specific BIR ruling under Section
246, should also apply
prospectively. x x x.
xxxx
Thus, the only issue is whether BIR
Ruling No. DA-489-03 is a general
interpretative rule applicable to all
taxpayers or a specific ruling
applicable only to a particular
taxpayer.
BIR Ruling No. DA-489-03 is a
general interpretative rule because
it was a response to a query made,
not by a particular taxpayer, but by
a government agency tasked with
processing tax refunds and credits,
that is, the One Stop Shop Inter-
Agency Tax Credit and Drawback
Center of the Department of
Finance. This government agency
is also the addressee, or the entity
responded to, in BIR Ruling No.
DA-489-03. Thus, while this
government agency mentions in its
query to the Commissioner the
administrative claim of Lazi Bay
Resources Development, Inc., the
agency was in fact asking the
Commissioner what to do in cases
like the tax claim of Lazi Bay
Resources Development, Inc.,
 where the taxpayer did1st
not wait for
Quarter, Filed late -- Deny, pursua
the lapse of the 120-day period.
2003 Section 112(A)
1997 Tax Code
Clearly, BIR Ruling No. DA-489-03
2nd
is a general interpretative Quarter,
rule. Filed on time Prematurely Grant, pursua
Thus, all taxpayers can2003
rely on BIR filed BIR Ruling No
Ruling No. DA-489-03 from the 489-03
time of its issuance 3rd onQuarter,
10 Filed on time Filed on time Grant, pursua
December 2003 up to2003 its reversal Section 112(C)
by this Court in Aichi on 6 October 1997 Tax Code
2010, where this Court held that the
120+30 day periods are 4th Quarter, Filed on time
mandatory Filed on time Grant, pursua
and jurisdictional. 2003 Section 112(C)
1997 Tax Code
xxxx
G.R. No. 194637
Taganito, however, filed its judicial Mindanao I v. CIR
claim with the CTA on 14 February
2007, after the issuance of BIR Administrative Judicial Claim Action on Claim
Ruling No. DA-489-03 on 10 Claim
December 2003. Truly, Taganito
1stits judicial
can claim that in filing Quarter, Filed late -- Deny, pursua
2003 waiting
claim prematurely without Section 112(A)
for the 120-day period to expire, it 1997 Tax Code
was misled by BIR Ruling
2nd No.Quarter,
DA- Filed on time Prematurely Grant, pursua
489-03. Thus, Taganito 2003can claim filed BIR Ruling No
the benefit of BIR Ruling No. DA- 489-03
489-03, which shields the filing of
its judicial claim from3rd Quarter,
the vice of Filed on time Filed late Grant, pursua
2003
prematurity. (Emphasis in the Section 112(C)
original) 1997 Tax Code
4th Quarter, Filed on time Filed late Grant, pursua
Summary of Administrative
2003 and Section 112(C)
Judicial Claims 1997 Tax Code
G.R. No. 193301
Summary of Rules on Prescriptive
Mindanao II v. CIR
Periods Involving VAT
Administrative Judicial Claim Action onWe
Claim
summarize the rules on the
Claim determination of the prescriptive
period for filing a tax refund or
credit of unutilized input VAT as
provided in Section 112 of the 1997
Tax Code, as follows:
(1) An administrative claim
must be filed with the CIR
within two years after the
close of the taxable quarter
when the zero-rated or
effectively zero-rated sales
were made.
(2) The CIR has 120 days
from the date of submission
of complete documents in
support of the administrative
claim within which to decide
whether to grant a refund or
issue a tax credit certificate.
The 120-day period may
extend beyond the two-year
period from the filing of the
administrative claim if the
claim is filed in the later part
of the two-year period. If the
120-day period expires
without any decision from the
CIR, then the administrative
claim may be considered to
be denied by inaction.
(3) A judicial claim must be
filed with the CTA within 30
days from the receipt of the
CIR’s decision denying the
administrative claim or from
the expiration of the 120-day
period without any action
from the CIR.
(4) All taxpayers, however,
can rely on BIR Ruling No.
DA-489-03 from the time of
its issuance on 10 December
2003 up to its reversal by this
Court in Aichi on 6 October
2010, as an exception to the
mandatory and jurisdictional
120+30 day periods.
"Incidental" Transaction
Mindanao II asserts that the sale of
a fully depreciated Nissan Patrol is
not an incidental transaction in the
course of its business; hence, it is
an isolated transaction that should
not have been subject to 10% VAT.
Section 105 of the 1997 Tax Code
does not support Mindanao II’s
position:
SEC. 105. Persons Liable. - Any
person who, in the course of trade
or business, sells barters,
exchanges, leases goods or
properties, renders services, and
any person who imports goods
shall be subject to the value-added
tax (VAT) imposed in Sections 106
to 108 of this Code.
The value-added tax is an indirect
tax and the amount of tax may be
shifted or passed on to the buyer,
transferee or lessee of the goods,
properties or services. This rule
shall likewise apply to existing
contracts of sale or lease of goods,
properties or services at the time of
the effectivity of Republic Act No.
7716.
The phrase "in the course of trade
or business" means the regular
conduct or pursuit of a commercial
or an economic activity, including
transactions incidental thereto, by
any person regardless of whether
or not the person engaged therein
is a nonstock, nonprofit private
organization (irrespective of the
disposition of its net income and
whether or not it sells exclusively to
members or their guests), or
government entity.
The rule of regularity, to the
contrary notwithstanding, services
as defined in this Code rendered in
the Philippines by nonresident
foreign persons shall be
considered as being rendered in
the course of trade or business.
(Emphasis supplied)
Mindanao II relies on
Commissioner of Internal Revenue
v. Magsaysay Lines, Inc.
55
(Magsaysay) and Imperial v.
Collector of Internal Revenue
(Imperial)56 to justify its position.
Magsaysay, decided under the
NIRC of 1986, involved the sale of
vessels of the National
Development Company (NDC) to
Magsaysay Lines, Inc. We ruled
that the sale of vessels was not in
the course of NDC’s trade or
business as it was involuntary and
made pursuant to the
Government’s policy for
privatization. Magsaysay, in
quoting from the CTA’s decision,
imputed upon Imperial the
definition of "carrying on business."
Imperial, however, is an unreported
case that merely stated that "‘to
engage’ is to embark in a business
or to employ oneself therein."57
Mindanao II’s sale of the Nissan
Patrol is said to be an isolated
transaction.1âwphi1 However, it
does not follow that an isolated
transaction cannot be an incidental
transaction for purposes of VAT
liability. Indeed, a reading of
Section 105 of the 1997 Tax Code
would show that a transaction "in
the course of trade or business"
includes "transactions incidental
thereto."
Mindanao II’s business is to
convert the steam supplied to it by
PNOC-EDC into electricity and to
deliver the electricity to NPC. In the
course of its business, Mindanao II
bought and eventually sold a
Nissan Patrol. Prior to the sale, the
Nissan Patrol was part of Mindanao
II’s property, plant, and equipment.
Therefore, the sale of the Nissan
Patrol is an incidental transaction
made in the course of Mindanao II’s
business which should be liable for
VAT.
Substantiation Requirements 2010, are AFFIRMED with
MODIFICATION.
Mindanao II claims that the CTA’s
disallowance of a total amount of For G.R. No. 193301, the claim of
₱492,198.09 is improper as it has Mindanao II Geothermal
substantially complied with the Partnership for the first quarter of
substantiation requirements of 2003 is DENIED while its claims for
Section 113(A)58 in relation to the second, third, and fourth
Section 23759 of the 1997 Tax quarters of 2003 are GRANTED.
Code, as implemented by Section For G.R. No. 19463 7, the claims of
4.104-1, 4.104-5 and 4.108-1 of Mindanao I Geothermal
Revenue Regulation No. 7-95.60 Partnership for the first, third, and
fourth quarters of 2003 are
We are constrained to state that DENIED while its claim for the
Mindanao II’s compliance with the second quarter of 2003 is
substantiation requirements is a GRANTED.
finding of fact. The CTA En Banc
evaluated the records of the case SO ORDERED.
and found that the transactions in
question are purchases for
services and that Mindanao II failed
to comply with the substantiation
requirements. We affirm the CTA
En Banc’s finding of fact, which in
turn affirmed the finding of the CTA
First Division. We see no reason to
overturn their findings.

WHEREFORE, we PARTIALLY
GRANT the petitions. The Decision
of the Court of Tax Appeals En
Bane in CT A EB No. 513
promulgated on 10 March 2010, as
well as the Resolution promulgated
on 28 July 2010, and the Decision
of the Court of Tax Appeals En
Bane in CTA EB Nos. 476 and 483
promulgated on 31 May 2010, as
well as the Amended Decision
promulgated on 24 November
SECOND DIVISION
[G.R. NO. 151135 : July 2,
2004]
CONTEX
CORPORATION, Petitioner, v
. HON. COMMISSIONER OF
INTERNAL
REVENUE, Respondent.
DECISION
QUISUMBING, J.:
For review is the
Decision dated September 3,
1 except for the preferential tax
2001, of the Court of Appeals,
in CA-G.R. SP No. 62823,
which reversed and set aside
the decision2 dated October
13, 2000, of the Court of Tax
Appeals (CTA) .The CTA had
ordered the Commissioner of
Internal Revenue (CIR) to
refund the sum
of P683,061.90 to petitioner
as erroneously paid input
value-added tax (VAT) or in
the alternative, to issue a tax
credit certificate for said
amount.Petitioner also assails
the appellate courts
Resolution, dated December
3 petitioner the 10% VAT on the
19, 2001, denying the motion
for reconsideration.
Petitioner is a domestic
corporation engaged in the
business of manufacturing
hospital textiles and garments
and other hospital supplies for
export.Petitioners place of
business is at the Subic Bay
Freeport Zone (SBFZ) .It is
duly registered with the Subic
Bay Metropolitan Authority
(SBMA) as a Subic Bay
Freeport Enterprise, pursuant
to the provisions of Republic
Act No. 7227.4 As an SBMA-
registered firm, petitioner is
exempt from all local and
national internal revenue taxes
provided for in Section 12
(c)5 of Rep. Act No.
7227.Petitioner also registered
with the Bureau of Internal
Revenue (BIR) as a non-VAT
taxpayer under Certificate of
Registration RDO Control No.
95-180-000133.
From January 1, 1997 to
December 31, 1998, petitioner
purchased various supplies
and materials necessary in the
conduct of its manufacturing
business.The suppliers of
these goods shifted unto
purchased items, which led the
petitioner to pay input taxes in
the amounts of P539,411.88
and P504,057.49 for 1997 and
1998, respectively.6 ςrνll
Acting on the belief that it was
exempt from all national and
local taxes, including VAT,
pursuant to Rep. Act No. 7227,
petitioner filed two
applications for tax refund or
tax credit of the VAT it paid.Mr.
Edilberto Carlos, revenue
district officer of BIR RDO No.
19, denied the first application
letter, dated December 29,
1998.
Unfazed by the denial,
petitioner on May 4, 1999, filed
another application for tax
refund/credit, this time
directly with Atty. Alberto
Pagabao, the regional director
of BIR Revenue Region No.
4.The second letter sought a
refund or issuance of a tax
credit certificate in the amount
of P1,108,307.72,
representing erroneously paid
input VAT for the period
January 1, 1997 to November
30, 1998.
When no response was
forthcoming from the BIR
Regional Director, petitioner
then elevated the matter to
the Court of Tax Appeals, in a
Petition for Review docketed
as CTA Case No.
5895.Petitioner stressed that
Section 112(A)7 if read in
relation to Section 106(A) (2)
(a)8 of the National Internal
Revenue Code, as amended
and Section 12(b)9 and (c) of
Rep. Act No. 7227 would show
that it was not liable in any
way for any value-added tax.
In opposing the claim for tax
refund or tax credit, the BIR
asked the CTA to apply the rule
that claims for refund are
strictly construed against the
taxpayer. Since petitioner
failed to establish both its right
to a tax refund or tax credit
and its compliance with the
rules on tax refund as provided
for in Sections 20410 and
22911 of the Tax Code, its
claim should be denied,
according to the BIR.
On October 13, 2000, the CTA
decided CTA Case No. 5895 as
follows:ςηαñrοblεš νιr†υαl lαω
lιbrαrÿ
WHEREFORE, in view of the
foregoing, the Petition for
Review is hereby PARTIALLY
GRANTED.Respondent is
hereby ORDERED to REFUND
or in the alternative to ISSUE
A TAX CREDIT CERTIFICATE in
favor of Petitioner the sum
of P683,061.90, representing
erroneously paid input VAT.
SO ORDERED.12 ςrνll
In granting a partial refund,
the CTA ruled that petitioner
misread Sections 106(A) (2)
(a) and 112(A) of the Tax
Code.The tax court stressed
that these provisions apply
only to those entities
registered as VAT taxpayers
whose sales are zero-
rated.Petitioner does not fall
under this category, since it is
a non-VAT taxpayer as
evidenced by the Certificate of
Registration RDO Control No.
95-180-000133 issued by RDO
Rosemarie Ragasa of BIR RDO
No. 18 of the Subic Bay
Freeport Zone and thus it is
exempt from VAT, pursuant to
Rep. Act No. 7227, said the
CTA.
Nonetheless, the CTA held that
the petitioner is exempt from
the imposition of input VAT on
its purchases of supplies and
materials. It pointed out that
under Section 12(c) of Rep.
Act No. 7227 and the
Implementing Rules and
Regulations of the Bases
Conversion and Development
Act of 1992, all that petitioner
is required to pay as a SBFZ-
registered enterprise is a 5%
preferential tax.
The CTA also disallowed all
refunds of input VAT paid by
the petitioner prior to June 29,
1997 for being barred by the
two-year prescriptive period
under Section 229 of the Tax
Code.The tax court also limited
the refund only to the input
VAT paid by the petitioner on
the supplies and materials
directly used by the petitioner
in the manufacture of its
goods.It struck down all claims
for input VAT paid on
maintenance, office supplies,
freight charges, and all
materials and supplies shipped
or delivered to the petitioners
Makati and Pasay City offices.
Respondent CIR then filed a
petition, docketed as CA-G.R.
SP No. 62823, for review of the
CTA decision by the Court of
Appeals.Respondent
maintained that the exemption
of Contex Corp. under Rep. Act
No. 7227 was limited only to
direct taxes and not to indirect
taxes such as the input
component of the VAT.The
Commissioner pointed out that
from its very nature, the
value-added tax is a burden
passed on by a VAT registered
person to the end users;
hence, the direct liability for
the tax lies with the suppliers
and not Contex.
Finding merit in the CIRs
arguments, the appellate court
decided CA-G.R. SP No. 62823
in his favor,
thus:ςηαñrοblεš νιr†υαl lαω lιb
rαrÿ
WHEREFORE, premises
considered, the appealed
decision is hereby REVERSED
AND SET ASIDE.Contexs claim
for refund of erroneously paid
taxes is DENIED accordingly.
SO ORDERED.13 ςrνll
In reversing the CTA, the Court
of Appeals held that the
exemption from duties and
taxes on the importation of
raw materials, capital, and
equipment of SBFZ-registered
enterprises under Rep. Act No.
7227 and its implementing
rules covers only the VAT
imposable under Section 107
of the [Tax Code], which is a
direct liability of the importer,
and in no way includes the
value-added tax of the seller-
exporter the burden of which
was passed on to the importer
as an additional costs of the
goods.14 This was because the
exemption granted by Rep. Act
No. 7227 relates to the act of
importation and Section
107 of
15
the Tax Code
specifically imposes the VAT on
importations.The appellate
court applied the principle that
tax exemptions are strictly
construed against the
taxpayer. The Court of Appeals
pointed out that under the
implementing rules of Rep. Act
No. 7227, the exemption of
SBFZ-registered enterprises
from internal revenue taxes is
qualified as pertaining only to
those for which they may be
directly liable.It then stated
that apparently, the legislative
intent behind Rep. Act No.
7227 was to grant exemptions
only to direct taxes, which
SBFZ-registered enterprise
may be liable for and only in
connection with their
importation of raw materials,
capital, and equipment as well
as the sale of their goods and
services.
Petitioner timely moved for
reconsideration of the Court of
Appeals decision, but the
motion was denied.
Hence, the instant petition
raising as issues for our
resolution the
following:ςηαñrοblεš νιr†υαl lα
ω lιbrαrÿ
A.WHETHER OR NOT THE
EXEMPTION FROM ALL LOCAL
AND NATIONAL INTERNAL
REVENUE TAXES PROVIDED IN
REPUBLIC ACT NO. 7227
COVERS THE VALUE ADDED
TAX PAID BY PETITIONER, A
SUBIC BAY FREEPORT
ENTERPRISE ON ITS
PURCHASES OF SUPPLIES AND
MATERIALS.
B.WHETHER OR NOT THE
COURT OF TAX APPEALS
CORRECTLY HELD THAT
PETITIONER IS ENTITLED TO A
TAX CREDIT OR REFUND OF
THE VAT PAID ON ITS
PURCHASES OF SUPPLIES AND
RAW MATERIALS FOR THE
YEARS 1997 AND 1998.16 ςrνll
Simply stated, we shall resolve
now the issues concerning:(1)
the correctness of the finding
of the Court of Appeals that the
VAT exemption embodied in
Rep. Act No. 7227 does not
apply to petitioner as a
purchaser; and (2) the
entitlement of the petitioner to
a tax refund on its purchases
of supplies and raw materials
for 1997 and 1998.
On the first issue, petitioner
argues that the appellate
courts restrictive
interpretation of petitioners
VAT exemption as limited to
those covered by Section 107
of the Tax Code is erroneous
and devoid of legal basis.It
contends that the provisions of
Rep. Act No. 7227 clearly and
unambiguously mandate that
no local and national taxes
shall be imposed upon SBFZ-
registered firms and hence,
said law should govern the
case.Petitioner calls our
attention to regulations issued
by both the SBMA and BIR
clearly and categorically
providing that the tax
exemption provided for by
Rep. Act No. 7227 includes
exemption from the imposition
of VAT on purchases of
supplies and materials.
The respondent takes the
diametrically opposite view
that while Rep. Act No. 7227
does grant tax exemptions,
such grant is not all-
encompassing but is limited
only to those taxes for which a
SBFZ-registered business may
be directly liable.Hence, SBFZ
locators are not relieved from
the indirect taxes that may be
shifted to them by a VAT-
registered seller.
At this juncture, it must be
stressed that the VAT is an
indirect tax.As such, the
amount of tax paid on the
goods, properties or services
bought, transferred, or leased
may be shifted or passed on by
the seller, transferor, or lessor
to the buyer, transferee or
lessee.17 Unlike a direct tax,
such as the income tax, which
primarily taxes an individuals
ability to pay based on his
income or net wealth, an
indirect tax, such as the VAT,
is a tax on consumption of
goods, services, or certain
transactions involving the
same.The VAT, thus, forms a
substantial portion of
consumer expenditures.
Further, in indirect taxation,
there is a need to distinguish
between the liability for the tax
and the burden of the tax.As
earlier pointed out, the
amount of tax paid may be
shifted or passed on by the
seller to the buyer. What is
transferred in such instances is
not the liability for the tax, but
the tax burden.In adding or
including the VAT due to the
selling price, the seller remains
the person primarily and
legally liable for the payment
of the tax.What is shifted only
to the intermediate buyer and
ultimately to the final
purchaser is the burden of the
tax.18 Stated differently, a
seller who is directly and
legally liable for payment of an
indirect tax, such as the VAT
on goods or services is not
necessarily the person who
ultimately bears the burden of
the same tax.It is the final
purchaser or consumer of such
goods or services who,
although not directly and
legally liable for the payment
thereof, ultimately bears the
burden of the tax.19 ςrνll
Exemptions from VAT are
granted by express provision
of the Tax Code or special
laws.Under VAT, the
transaction can have
preferential treatment in the
following
ways:ςηαñrοblεš νιr†υαl lαω lι
brαrÿ
(a) VAT Exemption.An
exemption means that the sale
of goods or properties and/or
services and the use or lease
of properties is not subject to
VAT (output tax) and the seller
is not allowed any tax credit on
VAT (input tax) previously
paid.20 This is a case wherein
the VAT is removed at the
exempt stage (i.e., at the point
of the sale, barter or exchange
of the goods or properties).
The person making the exempt
sale of goods, properties or
services shall not bill any
output tax to his customers
because the said transaction is
not subject to VAT.On the
other hand, a VAT-registered
purchaser of VAT-exempt
goods/properties or services
which are exempt from VAT is
not entitled to any input tax on
such purchase despite the
issuance of a VAT invoice or
receipt.21 ςrνll
(b) Zero-rated Sales.These are
sales by VAT-registered
persons which are subject to
0% rate, meaning the tax
burden is not passed on to the
purchaser. A zero-rated sale
by a VAT-registered person,
which is a taxable transaction
for VAT purposes, shall not
result in any output
tax.However, the input tax on
his purchases of goods,
properties or services related
to such zero-rated sale shall be
available as tax credit or
refund in accordance with
these regulations.22 ςrνll
Under Zero-rating, all VAT is
removed from the zero-rated
goods, activity or firm.In
contrast, exemption only
removes the VAT at the
exempt stage, and it will
actually increase, rather than
reduce the total taxes paid by
the exempt firms business or
non-retail customers.It is for
this reason that a sharp
distinction must be made
between zero-rating and
exemption in designating a
value-added tax.23 ςrνll
Apropos, the petitioners claim
to VAT exemption in the
instant case for its purchases
of supplies and raw materials
is founded mainly on Section
12 (b) and (c) of Rep. Act No.
7227, which basically exempts
them from all national and
local internal revenue taxes,
including VAT and Section 4
(A) (a) of BIR Revenue
Regulations No. 1-95.24 ςrνll
On this point, petitioner rightly
claims that it is indeed VAT-
Exempt and this fact is not
controverted by the
respondent.In fact, petitioner
is registered as a NON-VAT
taxpayer per Certificate of
Registration25 issued by the
BIR.As such, it is exempt from
VAT on all its sales and
importations of goods and
services.
Petitioners claim, however, for
exemption from VAT for its
purchases of supplies and raw
materials is incongruous with
its claim that it is VAT-Exempt,
for only VAT-Registered
entities can claim Input VAT
Credit/Refund.
The point of contention here is
whether or not the petitioner
may claim a refund on the
Input VAT erroneously passed
on to it by its suppliers.
While it is true that the
petitioner should not have
been liable for the VAT
inadvertently passed on to it
by its supplier since such is a
zero-rated sale on the part of
the supplier, the petitioner is
not the proper party to claim
such VAT refund.
Section 4.100-2 of BIRs
Revenue Regulations 7-95, as
amended, or the Consolidated
Value-Added Tax
Regulations provide:ςηαñrοblε
š νιr†υαl lαω lιbrαrÿ
Sec. 4.100-2.Zero-rated
Sales.A zero-rated sale by a
VAT-registered person, which
is a taxable transaction for VAT
purposes, shall not result in
any output tax.However, the
input tax on his purchases of
goods, properties or services
related to such zero-rated sale
shall be available as tax credit
or refund in accordance with
these regulations.
The following sales by VAT-
registered persons shall be
subject to
0%:ςηαñrοblεš νιr†υαl lαω lιbr
αrÿ
(a) Export Sales
Export Sales shall mean
.. .
(5) Those considered export
sales under Articles 23 and 77
of Executive Order No. 226,
otherwise known as the
Omnibus Investments Code of
1987, and other special laws,
e.g. Republic Act No. 7227,
otherwise known as the Bases
Conversion and Development
Act of 1992.
.. .
(c) Sales to persons or entities
whose exemption under
special laws, e.g. R.A. No.
7227 duly registered and
accredited enterprises with
Subic Bay Metropolitan
Authority (SBMA) and Clark
Development Authority (CDA),
R. A. No. 7916, Philippine
Economic Zone Authority
(PEZA), or international
agreements, e.g. Asian
Development Bank (ADB),
International Rice Research
Institute (IRRI), etc. to which
the Philippines is a signatory
effectively subject such sales
to zero-rate.
Since the transaction is
deemed a zero-rated sale,
petitioners supplier may claim
an Input VAT credit with no
corresponding Output VAT
liability. Congruently, no
Output VAT may be passed on
to the petitioner.
On the second issue, it may
not be amiss to re-emphasize
that the petitioner is registered
as a NON-VAT taxpayer and
thus, is exempt from VAT.As
an exempt VAT taxpayer, it is
not allowed any tax credit on
VAT (input tax) previously
paid.In fine, even if we are to
assume that exemption from
the burden of VAT on
petitioners purchases did
exist, petitioner is still not
entitled to any tax credit or
refund on the input tax
previously paid as petitioner is
an exempt VAT taxpayer.
Rather, it is the petitioners
suppliers who are the proper
parties to claim the tax credit
and accordingly refund the
petitioner of the VAT
erroneously passed on to the
latter.
Accordingly, we find that the
Court of Appeals did not
commit any reversible error of
law in holding that petitioners
VAT exemption under Rep. Act
No. 7227 is limited to the VAT
on which it is directly liable as
a seller and hence, it cannot
claim any refund or exemption
for any input VAT it paid, if
any, on its purchases of raw
materials and supplies.
WHEREFORE, the petition is
DENIEDfor lack of merit.The
Decision dated September 3,
2001, of the Court of Appeals
in CA-G.R. SP No. 62823, as
well as its Resolution of
December 19, 2001 are
AFFIRMED.No pronouncement
as to costs.
SO ORDERED.
THIRD DIVISION did not err in ruling that it is entitled
to such refund or credit.
G.R. No. 153866 February
11, 2005 The Case

COMMISSIONER OF INTERNAL Before us is a Petition for

REVENUE, petitioner,
vs.
SEAGATE TECHNOLOGY
(PHILIPPINES), respondent.
DECISION
PANGANIBAN, J.:
Business companies registered in
and operating from the Special
Economic Zone in Naga, Cebu --
like herein respondent
are entities exempt from all internal
revenue taxes and the
implementing rules relevant
thereto, including the value-added
taxes or VAT. Although export
sales are not deemed
exempt transactions, they are
nonetheless zero-rated. Hence, in
the present case, the distinction
between exempt entities and
exempt transactions has little
significance, because the net result
is that the taxpayer is not liable for
the VAT. Respondent, a VAT-
registered enterprise, has complied
with all requisites for claiming a tax
refund of or credit for the input VAT
it paid on capital goods it
purchased. Thus, the Court of Tax
Appeals and the Court of Appeals
Review1 under Rule 45 of the Rules
of Court, seeking to set aside the
May 27, 2002 Decision2 of the
Court of Appeals (CA) in CA-GR
SP No. 66093. The decretal portion
of the Decision reads as follows:
"WHEREFORE, foregoing
premises considered, the petition
for review is DENIED for lack of
merit."3
-- The Facts
The CA quoted the facts narrated
by the Court of Tax Appeals (CTA),
as follows:
"As jointly stipulated by the parties,
the pertinent facts x x x involved in
this case are as follows:
1. [Respondent] is a resident
foreign corporation duly registered
with the Securities and Exchange
Commission to do business in the
Philippines, with principal office
address at the new Cebu Township
One, Special Economic Zone,
Barangay Cantao-an, Naga, Cebu;
2. [Petitioner] is sued in his official
capacity, having been duly
appointed and empowered to
perform the duties of his office,
including, among others, the duty
to act and approve claims for
refund or tax credit;
3. [Respondent] is registered with
the Philippine Export Zone
Authority (PEZA) and has been
issued PEZA Certificate No. 97-
044 pursuant to Presidential
Decree No. 66, as amended, to
engage in the manufacture of
recording components primarily
used in computers for export. Such
registration was made on 6 June
1997;
4. [Respondent] is VAT [(Value
Added Tax)]-registered entity as
evidenced by VAT Registration
Certification No. 97-083-000600-V
issued on 2 April 1997;
5. VAT returns for the period 1 April
1998 to 30 June 1999 have been
filed by [respondent];
6. An administrative claim for
refund of VAT input taxes in the
amount of P28,369,226.38 with
supporting documents (inclusive of
the P12,267,981.04 VAT input
taxes subject of this Petition for
Review), was filed on 4 October
1999 with Revenue District Office
No. 83, Talisay Cebu;
7. No final action has been
received by [respondent] from
[petitioner] on [respondent’s] claim
for VAT refund.
"The administrative claim for refund
by the [respondent] on October 4,
1999 was not acted upon by the
[petitioner] prompting the
[respondent] to elevate the case to
[the CTA] on July 21, 2000 by way
of Petition for Review in order to toll
the running of the two-year
prescriptive period.
"For his part, [petitioner] x x x
raised the following Special and
Affirmative Defenses, to wit:
1. [Respondent’s] alleged claim for
tax refund/credit is subject to
administrative routinary
investigation/examination by
[petitioner’s] Bureau;
2. Since ‘taxes are presumed to
have been collected in accordance
with laws and regulations,’ the
[respondent] has the burden of
proof that the taxes sought to be
refunded were erroneously or
illegally collected x x x;
3. In Citibank, N.A. vs. Court of
Appeals, 280 SCRA 459 (1997),
the Supreme Court ruled that:
"A claimant has the burden of proof
to establish the factual basis of his
or her claim for tax credit/refund."
4. Claims for tax refund/tax credit
are construed in ‘strictissimi juris’
against the taxpayer. This is due to
the fact that claims for refund/credit
[partake of] the nature of an
exemption from tax. Thus, it is
incumbent upon the [respondent]
to prove that it is indeed entitled to
the refund/credit sought. Failure on
the part of the [respondent] to
prove the same is fatal to its claim
for tax credit. He who claims
exemption must be able to justify
his claim by the clearest grant of
organic or statutory law. An
exemption from the common
burden cannot be permitted to exist
upon vague implications;
5. Granting, without admitting, that
[respondent] is a Philippine
Economic Zone Authority (PEZA)
registered Ecozone Enterprise,
then its business is not subject to
VAT pursuant to Section 24 of
Republic Act No. ([RA]) 7916 in
relation to Section 103 of the Tax
Code, as amended. As
[respondent’s] business is not
subject to VAT, the capital goods
and services it alleged to have
purchased are considered not used
in VAT taxable business. As such,
[respondent] is not entitled to
refund of input taxes on such
capital goods pursuant to Section
4.106.1 of Revenue Regulations
No. ([RR])7-95, and of input taxes
on services pursuant to Section
4.103 of said regulations.
6. [Respondent] must show
compliance with the provisions of
Section 204 (C) and 229 of the
1997 Tax Code on filing of a written
claim for refund within two (2) years
from the date of payment of tax.’
"On July 19, 2001, the Tax Court
rendered a decision granting the
claim for refund."4
Ruling of the Court of Appeals
The CA affirmed the Decision of the
CTA granting the claim for refund
or issuance of a tax credit
certificate (TCC) in favor of
respondent in the reduced amount
of P12,122,922.66. This sum
represented the unutilized but
substantiated input VAT paid on
capital goods purchased for the
period covering April 1, 1998 to
June 30, 1999.
The appellate court reasoned that
respondent had availed itself only
of the fiscal incentives under
Executive Order No. (EO) 226
(otherwise known as the Omnibus
Investment Code of 1987), not of
those under both Presidential
Decree No. (PD) 66, as amended,
and Section 24 of RA 7916.
Respondent was, therefore,
considered exempt only from the
payment of income tax when it
opted for the income tax holiday in
lieu of the 5 percent preferential tax
on gross income earned. As a VAT-
registered entity, though, it was still
subject to the payment of other
national internal revenue taxes, like
the VAT.
Moreover, the CA held that neither No doubt, as a PEZA-registered
Section 109 of the Tax Code nor enterprise within a special
7
Sections 4.106-1 and 4.103-1 of economic zone, respondent is
RR 7-95 were applicable. Having entitled to the fiscal incentives and
paid the input VAT on the capital benefits8 provided for in either PD
goods it purchased, respondent 669 or EO 226.10 It shall, moreover,
correctly filed the administrative enjoy all privileges, benefits,
and judicial claims for its refund advantages or exemptions under
within the two-year prescriptive both Republic Act Nos. (RA)
period. Such payments were -- to 722711 and 7844.12
the extent of the refundable value -
- duly supported by VAT invoices or Preferential Tax Treatment Under
official receipts, and were not yet Special Laws
offset against any output VAT
liability. If it avails itself of PD 66,
notwithstanding the provisions of
Hence this Petition.5 other laws to the contrary,
respondent shall not be subject to
Sole Issue internal revenue laws and
regulations for raw materials,
Petitioner submits this sole issue supplies, articles, equipment,
for our consideration: machineries, spare parts and
wares, except those prohibited by
"Whether or not respondent is law, brought into the zone to be
entitled to the refund or issuance of stored, broken up, repacked,
Tax Credit Certificate in the amount assembled, installed, sorted,
of P12,122,922.66 representing cleaned, graded or otherwise
alleged unutilized input VAT paid processed, manipulated,
on capital goods purchased for the manufactured, mixed or used
period April 1, 1998 to June 30, directly or indirectly in such
1999."6 activities.13 Even so, respondent
would enjoy a net-operating loss
The Court’s Ruling carry over; accelerated
depreciation; foreign exchange and
The Petition is unmeritorious.
financial assistance; and
Sole Issue: exemption from export taxes, local
taxes and licenses.14
Entitlement of a VAT-Registered
PEZA Enterprise to a Refund of or Comparatively, the same
Credit for Input VAT exemption from internal revenue
laws and regulations applies if EO
22615 is chosen. Under this law,
respondent shall further be entitled
to an income tax holiday; additional
deduction for labor expense;
simplification of customs
procedure; unrestricted use of
consigned equipment; access to a
bonded manufacturing warehouse
system; privileges for foreign
nationals employed; tax credits on
domestic capital equipment, as
well as for taxes and duties on raw
materials; and exemption from
contractors’ taxes, wharfage dues,
taxes and duties on imported
capital equipment and spare parts,
export taxes, duties, imposts and
fees,16 local taxes and licenses,
and real property taxes.17
A privilege available to respondent
under the provision in RA 7227 on
tax and duty-free importation of raw
materials, capital and equipment18 -
- is, ipso facto, also accorded to the
zone19 under RA 7916.
Furthermore, the latter law --
notwithstanding other existing
laws, rules and regulations to the
contrary -- extends20 to that zone
the provision stating that no local or
national taxes shall be imposed
therein.21 No exchange control
policy shall be applied; and free
markets for foreign exchange, gold,
securities and future shall be
allowed and maintained.22 Banking
and finance shall also be liberalized
under minimum Bangko Sentral
regulation with the establishment of
foreign currency depository units of
local commercial banks and
offshore banking units of foreign
banks.23
In the same vein, respondent
benefits under RA 7844 from
negotiable tax credits24 for locally-
produced materials used as inputs.
Aside from the other incentives
possibly already granted to it by the
Board of Investments, it also enjoys
preferential credit facilities25 and
exemption from PD 1853.26
From the above-cited laws, it is
immediately clear that petitioner
enjoys preferential tax
27
treatment. It is not subject to
internal revenue laws and
regulations and is even entitled to
tax credits. The VAT on capital
goods is an internal revenue tax
from which petitioner as an entity is
exempt. Although
the transactions involving such tax
are not exempt, petitioner as a
VAT-registered person,28 however,
is entitled to their credits.
Nature of the VAT and the Tax
Credit Method
Viewed broadly, the VAT is a
uniform tax ranging, at present,
from 0 percent to 10 percent levied
on every importation of goods,
whether or not in the course of
trade or business, or imposed on
each sale, barter, exchange or
lease of goods or properties or on
each rendition of services in the
course of trade or business29 as
they pass along the production and
distribution chain, the tax being
limited only to the value added30 to
such goods, properties or services
by the seller, transferor or
lessor.31 It is an indirect tax that
may be shifted or passed on to the
buyer, transferee or lessee of the
goods, properties or services.32 As
such, it should be understood not in
the context of the person or entity
that is primarily, directly and legally
liable for its payment, but in terms
of its nature as a tax on
consumption.33 In either case,
though, the same conclusion is
arrived at.
The law34 that originally imposed
the VAT in the country, as well as
the subsequent amendments of
that law, has been drawn from
the tax credit method.35 Such
method adopted the mechanics
and self-enforcement features of
the VAT as first implemented and
practiced in Europe and
subsequently adopted in New
Zealand and Canada.36 Under the
present method that relies on
invoices, an entity can credit
against or subtract from the VAT
charged on its sales or outputs the
VAT paid on its purchases, inputs
and imports.37
If at the end of a taxable quarter the
output taxes38 charged by a
seller39 are equal to the input
taxes40 passed on by the suppliers,
no payment is required. It is when
the output taxes exceed the input
taxes that the excess has to be
paid.41 If, however, the input taxes
exceed the output taxes, the
excess shall be carried over to the
succeeding quarter or
42
quarters. Should the input taxes
result from zero-rated or effectively
zero-rated transactions or from the
acquisition of capital goods,43 any
excess over the output taxes shall
instead be refunded44 to the
taxpayer or credited45 against other
internal revenue taxes.46
Zero-Rated and Effectively Zero-
Rated Transactions
Although both are taxable and
similar in effect, zero-rated
transactions differ from effectively
zero-rated transactions as to their
source.
Zero-rated transactions generally
refer to the export sale of goods
and supply of services.47 The tax
rate is set at zero.48 When applied
to the tax base, such rate obviously
results in no tax chargeable against
the purchaser. The seller of such
transactions charges no output
tax,49 but can claim a refund of or a
tax credit certificate for the VAT
previously charged by suppliers.
Effectively zero-rated transactions,
however, refer to the sale of
goods50 or supply of services51 to
persons or entities whose
exemption under special laws or
international agreements to which
the Philippines is a signatory
effectively subjects such
52
transactions to a zero rate. Again,
as applied to the tax base, such
rate does not yield any tax
chargeable against the purchaser.
The seller who charges zero output
tax on such transactions can also
claim a refund of or a tax credit
certificate for the VAT previously
charged by suppliers.
Zero Rating and Exemption
In terms of the VAT computation,
zero rating and exemption are the
same, but the extent of relief that
results from either one of them is
not.
Applying the destination
53
principle to the exportation of
goods, automatic zero rating54 is
primarily intended to be enjoyed by
the seller who is directly and legally
liable for the VAT, making such
seller internationally competitive by
allowing the refund or credit of input
taxes that are attributable to export
sales.55 Effective zero rating, on the
contrary, is intended to benefit the
purchaser who, not being directly
and legally liable for the payment of
the VAT, will ultimately bear the
burden of the tax shifted by the
suppliers.
In both instances of zero rating,
there is total relief for the
purchaser from the burden of the
tax.56 But in an exemption there is
only partial relief,57 because the
purchaser is not allowed any tax
refund of or credit for input taxes
paid.58
Exempt Transaction >and Exempt
Party
The object of exemption from the
VAT may either be the transaction
itself or any of the parties to the
transaction.59
An exempt transaction, on the one
hand, involves goods or services
which, by their nature, are
specifically listed in and expressly
exempted from the VAT under the
Tax Code, without regard to the tax
status -- VAT-exempt or not -- of
the party to
60
the transaction. Indeed, such
transaction is not subject to the
VAT, but the seller is not allowed
any tax refund of or credit for any
input taxes paid.
An exempt party, on the other
hand, is a person or entity granted
VAT exemption under the Tax
Code, a special law or an
international agreement to which
the Philippines is a signatory, and
by virtue of which its taxable
transactions become exempt from
the VAT.61 Such party is also not
subject to the VAT, but may be
allowed a tax refund of or credit for
input taxes paid, depending on its
registration as a VAT or non-VAT
taxpayer.
As mentioned earlier, the VAT is a
tax on consumption, the amount of
which may be shifted or passed on
by the seller to the purchaser of the
goods, properties or
62
services. While the liability is
imposed on one person,
the burden may be passed on to
another. Therefore, if a special law
merely exempts a party as a seller
from its direct liability for payment
of the VAT, but does not relieve the
same party as a purchaser from its
indirect burden of the VAT shifted
to it by its VAT-registered suppliers,
the purchase transaction is not
exempt. Applying this principle to
the case at bar, the purchase
transactions entered into by
respondent are not VAT-exempt.
Special laws may certainly exempt
transactions from the
63
VAT. However, the Tax Code
provides that those falling under
PD 66 are not. PD 66 is the
precursor of RA 7916 -- the special
law under which respondent was
registered. The
purchase transactions it entered
into are, therefore, not VAT-
exempt. These are subject to the
VAT; respondent is required to
register.
Its sales transactions, however, will
either be zero-rated or taxed at the
standard rate of 10
64
percent, depending again on the
application of the destination
65
principle.
If respondent enters into such sales
transactions with a purchaser --
usually in a foreign country -- for
use or consumption outside the
Philippines, these shall be subject
to 0 percent.66 If entered into with a
purchaser for use or consumption
in the Philippines, then these shall
be subject to 10 percent,67 unless
the purchaser is exempt from the
indirect burden of the VAT, in which
case it shall also be zero-rated.
Since the purchases of respondent
are not exempt from the VAT, the
rate to be applied is zero. Its
exemption under both PD 66 and
RA 7916 effectively subjects such
transactions to a zero
68
rate, because the ecozone within
which it is registered is managed
and operated by the PEZA as
a separate customs territory.69 This
means that in such zone is created
the legal fiction of foreign
territory.70 Under the cross-border
principle71 of the VAT system being
enforced by the Bureau of Internal
Revenue (BIR),72 no VAT shall be
imposed to form part of the cost of
goods destined for consumption
outside of the territorial border of
the taxing authority. If exports of
goods and services from the
Philippines to a foreign country are
free of the VAT,73 then the same
rule holds for such exports from the
national territory -- except
specifically declared areas -- to an
ecozone.
Sales made by a VAT-registered
person in the customs territory to a
PEZA-registered entity are
considered exports to a foreign
country; conversely, sales by a
PEZA-registered entity to a VAT-
registered person in the customs
territory are deemed imports from a
foreign country.74 An ecozone --
indubitably a geographical territory
of the Philippines -- is, however,
regarded in law as foreign
soil.75 This legal fiction is necessary
to give meaningful effect to the
policies of the special law creating
the zone.76 If respondent is located
in an export processing
77
zone within that ecozone, sales to
the export processing zone, even
without being actually exported,
shall in fact be viewed
as constructively exported under
EO 226.78 Considered as export
sales,79 such purchase
transactions by respondent would
indeed be subject to a zero rate.80
Tax Exemptions Broad and
Express
Applying the special laws we have
earlier discussed, respondent as
an entity is exempt from internal
revenue laws and regulations.
This exemption covers both direct
and indirect taxes, stemming from
the very nature of the VAT as a tax
on consumption, for which the
direct liability is imposed on one
person but the indirect burden is
passed on to another. Respondent,
as an exempt entity, can neither be
directly charged for the VAT on its
sales nor indirectly made to bear,
as added cost to such sales, the
equivalent VAT on its
purchases. Ubi lex non distinguit,
nec nos distinguere debemus.
Where the law does not distinguish,
we ought not to distinguish.
Moreover, the exemption is both
express and pervasive for the
following reasons:
First, RA 7916 states that "no
taxes, local and national, shall be
imposed on business
establishments operating within the
ecozone."81 Since this law does not
exclude the VAT from the
prohibition, it is deemed
included. Exceptio firmat regulam
in casibus non exceptis. An
exception confirms the rule in
cases not excepted; that is, a thing
not being excepted must be
regarded as coming within the
purview of the general rule.
Moreover, even though the VAT is
not imposed on the entity but on the
transaction, it may still be passed
on and, therefore, indirectly
imposed on the same entity -- a
patent circumvention of the law.
That no VAT shall be imposed
directly upon business
establishments operating within the
ecozone under RA 7916 also
means that no VAT may be passed
on and imposed indirectly. Quando
aliquid prohibetur ex directo
prohibetur et per obliquum. When
anything is prohibited directly, it is
also prohibited indirectly.
Second, when RA 8748 was
enacted to amend RA 7916, the
same prohibition applied, except
for real property taxes that
presently are imposed on land
owned by developers.82 This
similar and repeated prohibition is
an unambiguous ratification of the
law’s intent in not imposing local or
national taxes on business
enterprises within the ecozone.
Third, foreign and domestic
merchandise, raw materials,
equipment and the like "shall not be
subject to x x x internal revenue
laws and regulations" under PD
6683 -- the original charter of PEZA
(then EPZA) that was later
amended by RA 7916.84 No
provisions in the latter law modify
such exemption.
Although this exemption puts the
government at an initial
disadvantage, the reduced tax
collection ultimately redounds to
the benefit of the national economy
by enticing more business
investments and creating more
employment opportunities.85
Fourth, even the rules
implementing the PEZA law clearly
reiterate that merchandise --
except those prohibited by law --
"shall not be subject to x x x internal
revenue laws and regulations x x
x"86 if brought to the ecozone’s
restricted area87 for manufacturing
by registered export
88
enterprises, of which respondent
is one. These rules also apply to all
enterprises registered with the
EPZA prior to the effectivity of such
rules.89
Fifth, export processing zone
enterprises registered90 with the
Board of Investments (BOI) under
EO 226 patently enjoy exemption
from national internal revenue
taxes on imported capital
equipment reasonably needed and
exclusively used for the
91
manufacture of their products; on
required supplies and spare part for
consigned equipment;92 and on
foreign and domestic merchandise,
raw materials, equipment and the
like -- except those prohibited by
law -- brought into the zone for
manufacturing.93 In addition, they
are given credits for the value of the
national internal revenue taxes
imposed on domestic capital
equipment also reasonably needed
and exclusively used for the
manufacture of their products,94 as
well as for the value of such taxes
imposed on domestic raw materials
and supplies that are used in the
manufacture of their export
products and that form part
thereof.95
Sixth, the exemption from local and
national taxes granted under RA
722796 are ipso facto accorded to
ecozones.97 In case of doubt,
conflicts with respect to such tax
exemption privilege shall be
resolved in favor of the ecozone.98
And seventh, the tax credits under
RA 7844 -- given for imported raw
materials primarily used in the
production of export goods,99 and
for locally produced raw materials,
capital equipment and spare parts
used by exporters of non-traditional
products100 -- shall also be
continuously enjoyed by similar
exporters within the
101
ecozone. Indeed, the latter
exporters are likewise entitled to
such tax exemptions and credits.
Tax Refund as Tax Exemption
To be sure, statutes that grant tax
exemptions are
construed strictissimi
juris102 against the taxpayer103 and
liberally in favor of the taxing
authority.104
Tax refunds are in the nature of
such exemptions.105 Accordingly,
the claimants of those refunds bear
the burden of proving the factual
basis of their claims;106 and of
showing, by words too plain to be
mistaken, that the legislature
intended to exempt them.107 In the
present case, all the cited legal
provisions are teeming with life with
respect to the grant of tax
exemptions too vivid to pass
unnoticed. In addition, respondent
easily meets the challenge.
Respondent, which as an entity is
exempt, is different from its
transactions which are not exempt.
The end result, however, is that it is
not subject to the VAT. The non-
taxability of transactions that are
otherwise taxable is merely a
necessary incident to the tax
exemption conferred by law upon it
as an entity, not upon the
transactions
themselves.108 Nonetheless, its
exemption as an entity and the
non-exemption of its transactions
lead to the same result for the
following considerations:
First, the contemporaneous and of accelerating the
112
construction of our tax laws by BIR development of the country."
authorities who are called upon to
execute or administer such RA 7916, as amended by RA 8748,
laws109 will have to be adopted. declared that by creating the PEZA
Their prior tax issuances have held and integrating the special
inconsistent positions brought economic zones, "the government
about by their probable failure to shall actively encourage, promote,
comprehend and fully appreciate induce and accelerate a sound and
the nature of the VAT as a tax on balanced industrial, economic and
consumption and the application of social development of the country x
the destination x x through the establishment,
principle.110 Revenue among others, of special economic
Memorandum Circular No. (RMC) zones x x x that shall effectively
74-99, however, now clearly and attract legitimate and productive
correctly provides that any VAT- foreign investments."113
registered supplier’s sale of goods,
property or services from the Under EO 226, the "State shall
customs territory to any registered encourage x x x foreign
enterprise operating in the ecozone investments in industry x x x which
-- regardless of the class or type of shall x x x meet the tests of
the latter’s PEZA registration -- is international competitiveness[,]
legally entitled to a zero rate.111 accelerate development of less
developed regions of the country[,]
Second, the policies of the law and result in increased volume and
should prevail. Ratio legis est value of exports for the
114
anima. The reason for the law is its economy." Fiscal incentives that
very soul. are cost-efficient and simple to
administer shall be devised and
In PD 66, the urgent creation of the extended to significant projects "to
EPZA which preceded the PEZA, compensate for market
as well as the establishment of imperfections, to reward
export processing zones, seeks "to performance contributing to
115
encourage and promote foreign economic development," and "to
commerce as a means of x x x stimulate the establishment and
strengthening our export trade and assist initial operations of the
foreign exchange position, of enterprise."116
hastening industrialization, of
reducing domestic unemployment, Wisely accorded to ecozones
created under RA 7916117 was the
government’s policy -- spelled out specific and selective in the pricing
earlier in RA 7227 -- of converting of particular goods or services.127
into alternative productive
118
uses the former military All these statutory policies are
reservations and their congruent to the constitutional
119
extensions, as well as of mandates of providing incentives to
providing them incentives120 to needed investments,128 as well as
enhance the benefits that would be of promoting the preferential use of
derived from them121 in promoting domestic materials and locally
economic and social produced goods and adopting
development. 122 measures to help make these
competitive.129 Tax credits for
Finally, under RA 7844, the State domestic inputs strengthen
declares the need "to evolve export backward linkages. Rightly so, "the
development into a national rule of law and the existence of
effort"123 in order to win credible and efficient public
international markets. By providing institutions are essential
many export and tax prerequisites for sustainable
124
incentives, the State is able to economic development."130
drive home the point that exporting
is indeed "the key to national VAT Registration, Not Application
survival and the means through for Effective Zero Rating,
which the economic goals of Indispensable to VAT Refund
increased employment and
enhanced incomes can most Registration is an indispensable
expeditiously be achieved."125 requirement under our VAT
law.131 Petitioner alleges that
The Tax Code itself seeks to respondent did register for VAT
"promote sustainable economic purposes with the appropriate
growth x x x; x x x increase Revenue District Office. However,
economic activity; and x x x create it is now too late in the day for
a robust environment for business petitioner to challenge the VAT-
to enable firms to compete better in registered status of respondent,
the regional as well as the global given the latter’s prior
market."126 After all, international representation before the lower
competitiveness requires courts and the mode of appeal
economic and tax incentives to taken by petitioner before this
lower the cost of goods produced Court.
for export. State actions that affect
global competition need to be
The PEZA law, which carried over
the provisions of the EPZA law, is
clear in exempting from internal
revenue laws and regulations the
equipment -- including capital
goods -- that registered enterprises
will use, directly or indirectly, in
manufacturing.132 EO 226 even
reiterates this privilege among the
incentives it gives to such
enterprises.133 Petitioner merely
asserts that by virtue of the PEZA
registration alone of respondent,
the latter is not subject to the VAT.
Consequently, the capital goods
and services respondent has
purchased are not considered used
in the VAT business, and no VAT
refund or credit is due.134 This is a
non sequitur. By the VAT’s very
nature as a tax on consumption,
the capital goods and services
respondent has purchased are
subject to the VAT, although at
zero rate. Registration does not
determine taxability under the VAT
law.
Moreover, the facts have already
been determined by the lower
courts. Having failed to present
evidence to support its contentions
against the income tax
holiday privilege of
135
respondent, petitioner is deemed
to have conceded. It is a cardinal
rule that "issues and arguments not
adequately and seriously brought
below cannot be raised for the first
time on appeal."136 This is a "matter
of procedure"137 and a "question of
fairness."138 Failure to assert
"within a reasonable time warrants
a presumption that the party
entitled to assert it either has
abandoned or declined to assert
it."139
The BIR regulations additionally
requiring an approved prior
application for effective zero
rating140 cannot prevail over the
clear VAT nature of respondent’s
transactions. The scope of such
regulations is not "within the
statutory authority x x x granted by
the legislature.141
First, a mere administrative
issuance, like a BIR regulation,
cannot amend the law; the former
cannot purport to do any more than
interpret the latter.142 The courts
will not countenance one that
overrides the statute it seeks to
apply and implement.143
Other than the general registration
of a taxpayer the VAT status of
which is aptly determined, no
provision under our VAT law
requires an additional application
to be made for such taxpayer’s
transactions to be considered
effectively zero-rated. An
effectively zero-rated transaction
does not and cannot become
exempt simply because an
application therefor was not made
or, if made, was denied. To allow
the additional requirement is to give
unfettered discretion to those
officials or agents who, without fluid
consideration, are bent on denying
a valid application. Moreover, the
State can never be estopped by the
omissions, mistakes or errors of its
officials or agents.144
Second, grantia argumenti that
such an application is required by
law, there is still the presumption of
regularity in the performance of
official duty.145 Respondent’s
registration carries with it the
presumption that, in the absence of
contradictory evidence, an
application for effective zero rating
was also filed and approval thereof
given. Besides, it is also presumed
that the law has been obeyed146 by
both the administrative officials and
the applicant.
Third, even though such an
application was not made, all the
special laws we have tackled
exempt respondent not only from
internal revenue laws but also from
the regulations issued pursuant
thereto. Leniency in the
implementation of the VAT in
ecozones is an imperative,
precisely to spur economic growth
in the country and attain global
competitiveness as envisioned in
those laws.
A VAT-registered status, as well as
compliance with the invoicing
requirements,147 is sufficient for the
effective zero rating of the
transactions of a taxpayer. The
nature of its business and
transactions can easily be perused
from, as already clearly indicated
in, its VAT registration papers and
photocopied documents attached
thereto. Hence, its transactions
cannot be exempted by its mere
failure to apply for their effective
zero rating. Otherwise, their VAT
exemption would be determined,
not by their nature, but by the
taxpayer’s negligence -- a result
not at all contemplated.
Administrative convenience cannot
thwart legislative mandate.
Tax Refund or Credit in Order
Having determined that
respondent’s purchase
transactions are subject to a zero
VAT rate, the tax refund or credit is
in order.
As correctly held by both the CA
and the Tax Court, respondent had
chosen the fiscal incentives in EO
226 over those in RA 7916 and PD
66. It opted for the income tax
holiday regime instead of the 5
percent preferential tax regime.
The latter scheme is not a
perfunctory aftermath of a simple
registration under the PEZA
law,148 for EO 226149 also has
provisions to contend with. These
two regimes are in fact
incompatible and cannot be availed
of simultaneously by the same
entity. While EO 226 merely
exempts it from income taxes, the
PEZA law exempts it from all taxes.
Therefore, respondent can be
considered exempt, not from the
VAT, but only from the payment of
income tax for a certain number of
years, depending on its registration
as a pioneer or a non-pioneer
enterprise. Besides, the remittance
of the aforesaid 5 percent of gross
income earned in lieu of local and
national taxes imposable upon
business establishments within the
ecozone cannot outrightly
determine a VAT exemption. Being
subject to VAT, payments
erroneously collected thereon may
then be refunded or credited.
Even if it is argued that respondent
is subject to the 5 and have not been offset against
percent preferential tax regime in
RA 7916, Section 24 thereof does
not preclude the VAT. One can,
therefore, counterargue that such
provision merely exempts
respondent from taxes imposed on
business. To repeat, the VAT is a
tax imposed on consumption, not
on business. Although respondent
as an entity is exempt, the
transactions it enters into are not
necessarily so. The VAT payments
made in excess of the zero rate that
is imposable may certainly be
refunded or credited.
Compliance with All Requisites for
VAT Refund or Credit
As further enunciated by the Tax
Court, respondent complied with all
the requisites for claiming a VAT
refund or credit.150
First, respondent is a VAT-
registered entity. This fact alone
distinguishes the present case
from Contex, in which this Court
held that the petitioner therein was
registered as a non-VAT
151
taxpayer. Hence, for being
merely VAT-exempt, the petitioner
in that case cannot claim any VAT
refund or credit.
Second, the input taxes paid on the
capital goods of respondent are
duly supported by VAT invoices
any output taxes. Although
enterprises registered with the BOI
after December 31, 1994 would no
longer enjoy the tax credit
incentives on domestic capital
equipment -- as provided for under
Article 39(d), Title III, Book I of EO
226152 -- starting January 1, 1996,
respondent would still have the
same benefit under a general and
express exemption contained in
both Article 77(1), Book VI of EO
226; and Section 12, paragraph 2
(c) of RA 7227, extended to the
ecozones by RA 7916.
There was a very clear intent on the
part of our legislators, not only to
exempt investors in ecozones from
national and local taxes, but also to
grant them tax credits. This fact
was revealed by the sponsorship
speeches in Congress during the
second reading of House Bill No.
14295, which later became RA
7916, as shown below:
"MR. RECTO. x x x Some of the
incentives that this bill provides are
exemption from national and local
taxes; x x x tax credit for locally-
sourced inputs x x x."
xxxxxxxxx
"MR. DEL MAR. x x x To advance
its cause in encouraging
investments and creating an
environment conducive for
investors, the bill offers incentives
such as the exemption from local
and national taxes, x x x tax credits
for locally sourced inputs x x x."153
And third, no question as to either
the filing of such claims within the
prescriptive period or the validity of
the VAT returns has been raised.
Even if such a question were
raised, the tax exemption under all
the special laws cited above is
broad enough to cover even the
enforcement of internal revenue
laws, including prescription.154
Summary
To summarize, special laws
expressly grant preferential tax
treatment to business
establishments registered and
operating within an ecozone, which
by law is considered as a separate
customs territory. As such,
respondent is exempt from all
internal revenue taxes, including
the VAT, and regulations pertaining
thereto. It has opted for the income
tax holiday regime, instead of the 5
percent preferential tax regime. As
a matter of law and procedure, its
registration status entitling it to
such tax holiday can no longer be
questioned. Its sales transactions
intended for export may not be
exempt, but like its purchase
transactions, they are zero-rated.
No prior application for the effective
zero rating of its transactions is
necessary. Being VAT-registered
and having satisfactorily complied
with all the requisites for claiming a
tax refund of or credit for the input
VAT paid on capital goods
purchased, respondent is entitled
to such VAT refund or credit.
WHEREFORE, the Petition
is DENIED and the
Decision AFFIRMED. No
pronouncement as to costs.
SO ORDERED.