BPI Leasing Corporation (BLC) v. CA, CTA, & 1.

Whether Revenue Regulation 19-86 is legislative or

CIR interpretative in character. – Legislative in character.
2003
2. Whether or not said revenue regulation should have
retroactive application. – NO.
Facts: BLC is a corporation engaged in the business of
leasing properties. Ruling:
[1]
For the calendar year 1986, BLC paid the CIR a total of The revenue regulation is legislative in nature.
P1,139,041.49 representing 4% "contractor’s percentage
tax" then imposed by Section 205 of the National Internal Administrative issuances may be distinguished according to
Revenue Code (NIRC), based on its gross rentals from their nature and substance: legislative and interpretative.
equipment leasing for the said year amounting to
P27,783,725.42.
Legislative rule Interpretative rule
is in the matter of is designed to provide
On November 10, 1986, the CIR issued Revenue Regulation
subordinate legislation, guidelines to the law which
19-86. Section 6.2 thereof provided that finance and
designed to implement a the administrative agency is
leasing companies registered under R.A. 5980 shall be
primary legislation by in charge of enforcing.
subject to gross receipt tax of 5%-3%-1% on actual
providing the details
income earned.
thereof.
This means that companies registered under R.A. 5980, such
In this case: The Court finds the questioned revenue
as BLC, are not liable for "contractor’s percentage tax"
regulation to be legislative in nature.
under Section 205 but are, instead, subject to "gross
receipts tax" under Section 260 (now Section 122) of the
Section 1 of Revenue Regulation 19-86 plainly states that it
NIRC.
was promulgated pursuant to Section 277 of the NIRC.
Since BLC had earlier paid the aforementioned "contractor’s
Section 277 (now Section 244) is an express grant of
percentage tax," it re-computed its tax liabilities under the
authority to the Secretary of Finance to promulgate all
"gross receipts tax" and arrived at the amount of
needful rules and regulations for the effective enforcement of
P361,924.44. 
the provisions of the NIRC.
BLC filed a claim for a refund with the CIR for the amount of
In Paper Industries Corporation of the Philippines v. CA, the
P777,117.05, representing the difference between the
Court recognized that the application of Section 277 calls for
P1,139,041.49 it had paid as "contractor’s percentage tax"
none other than the exercise of quasi-legislative or rule-
and P361,924.44 it should have paid for "gross receipts tax."
making authority.
Four days later, to stop the running of the prescriptive period
for refunds, BLC filed a petition for review with the CTA.
It cannot be disputed that Revenue Regulation 19-86 was
issued pursuant to the rule-making power of the Secretary of
CTA: It dismissed the petition and denied BLC’s claim of
Finance, thus making it legislative, and not interpretative as
refund. It held that Revenue Regulation 19-86, as amended,
alleged by BLC.
may only be applied prospectively such that it only covers all
leases written on or after January 1, 1987, as stated under
Contention: BLC contends that assuming the revenue
Section 7 of said revenue regulation:
regulation is legislative in nature, it is invalid for want of
due process as no prior notice, publication and public
Section 7. Effectivity. – These regulations shall
hearing attended the issuance thereof. To support its view,
take effect on January 1, 1987 and shall be
BLC cited CIR v. Fortune Tobacco, et al., wherein the Court
applicable to all leases written on or after the said
nullified a revenue memorandum circular which reclassified
date.
certain cigarettes and subjected them to a higher tax rate,
holding it invalid for lack of notice, publication and public
It ruled that since BLC’s rental income was all received prior
hearing.
to 1986, it follows that this was derived from lease
transactions prior to January 1, 1987, and hence, not covered
Held: The doctrine enunciated in Fortune Tobacco, and
by the revenue regulation. 
reiterated in CIR v. Michel J. Lhuillier Pawnshop, Inc., is that
when an administrative rule goes beyond merely providing
CA: It affirmed the decision of the CTA denying the claim for
for the means that can facilitate or render less cumbersome
tax refund by BLC.
the implementation of the law and substantially increases
the burden of those governed, it behooves the agency to
BLC’s contentions:
accord at least to those directly affected a chance to be heard
 The CA and the CTA erred in not ruling that Revenue
and, thereafter, to be duly informed, before the issuance is
Regulation 19-86 may be applied retroactively so as to
given the force and effect of law.
allow BLC’s claim for a refund of P777,117.05.
 Revenue Regulation 19-86 is legislative rather than
In Lhuillier and Fortune Tobacco, the Court invalidated the
interpretative in character and hence, should
revenue memoranda concerned because the same increased
retroact to the date of effectivity of the law it seeks
the tax liabilities of the affected taxpayers without affording
to interpret. 
them due process.
Respondents’ contention: The provision on the date of
In this case: Revenue Regulation 19-86 would be beneficial
effectivity of Revenue Regulation 19-86 is clear and
to the taxpayers as they are subjected to lesser taxes.
unequivocal, leaving no room for interpretation on its
Petitioner, in fact, is invoking Revenue Regulation 19-86 as
prospective application.
the very basis of its claim for refund. If it were invalid, then
petitioner all the more has no right to a refund.
Issues:
The Court upholds the validity of Revenue Regulation 19-86.

[2]
There is no indication that the revenue regulation may
operate retroactively.
Rule: The principle is well entrenched that statutes, including
administrative rules and regulations, operate prospectively
only, unless the legislative intent to the contrary is manifest
by express terms or by necessary implication.

In this case: There is no indication that the revenue

regulation may operate retroactively.

Furthermore, there is an express provision stating that it

"shall take effect on January 1, 1987," and that it "shall be
applicable to all leases written on or after the said date."

Being clear on its prospective application, it must be given its

literal meaning and applied without further interpretation.

Thus, BLC is not in a position to invoke the provisions of

Revenue Regulation 19-86 for lease rentals it received prior to
January 1, 1987.

Rule: It is also apt to add that tax refunds are in the nature
of tax exemptions. As such, these are regarded as in
derogation of sovereign authority and are to be strictly
construed against the person or entity claiming the
exemption.

The burden of proof is upon him who claims the exemption

and he must be able to justify his claim by the clearest grant
under Constitutional or statutory law, and he cannot be
permitted to rely upon vague implications. 

In this case: Nothing that BLC has raised justifies a tax

refund.