Commissioner of Internal Revenue vs.

Fortune Tobacco Corporation

G.R. Nos. 167274-75, July 21, 2008
FACTS:
Fortune Tobacco is a manufacturer and producer of some cigarette brands. Prior to
January 1, 1997, its cigarette brands were subject to ad valorem tax but on January 1,
1997, R.A. No. 8240 took effect whereby a shift from the ad valorem tax (AVT) system to
the specific tax system was made and subjecting its cigarette brands to specific tax.
For the period covering January 1-31, 2000, Fortune Tobacco paid specific taxes on all
brands manufactured so it filed a claim for refund or tax credit of its overpaid excise tax
for the month of January 2000.

The Court of Tax Appeals (CTA) and the Court of Appeals, granted the tax refund or tax
credit representing specific taxes erroneously collected from its tobacco products.
However, the Commissioner of Internal Revenue reclaims the grant of tax refund.
Hence, this petition.

ISSUE:
Whether or not Fortune Tobacco is entitled to tax refund.
RULING:
Yes. Although tax refund partakes the nature of a tax exemption, this rule does not
apply to Fortune Tobacco’s claim. The parity between tax refund and tax exemption
exists only when the former is based either on a tax exemption statute or a tax refund
statute. In the present case, Fortune Tobacco’s claim for refund is premised on its
erroneous payment of the tax, or the government’s exaction in the absence of a law.
Tax exemption is granted by the legislature thus, the one who claims an exemption from
the burden of taxation must justify his claim by showing that the legislature intended to
exempt him by words too plain to be mistaken. In the same manner, a claim for tax
refund may also be based on statutes granting tax exemption or tax refund. In this case,
the rule of strict interpretation against the taxpayer is applicable as the claim for refund
partakes of the nature of an exemption.

However, tax refunds (or tax credits) are not founded principally on legislative grant but
on the legal principle of solutio indebiti, the government cannot unjustly enrich itself at
the expense of the taxpayers. Under the Tax Code, in recognition of the pervasive
quasi-contract principle, a claim for tax refund may be based on the following:
(a) erroneously or illegally assessed or collected internal revenue taxes;
(b) penalties imposed without authority; and
(c) any sum alleged to have been excessive or in any manner wrongfully collected.

COMMISSIONER OF INTERNAL REVENUE V. SM PRIME HOLDINGS, INC., G.R. NO. 183505, [FEBRUARY 26,
2010], 627 PHIL 581-605

FACTS: Respondents SM Prime Holdings, Inc. (SM Prime) and First Asia Realty Development Corporation
(First Asia) are domestic corporations duly organized and existing under the laws of the Republic of the
Philippines. Both are engaged in the business of operating cinema houses, among others.
Simply put, the issue in this case is whether the gross receipts derived by operators or proprietors of
cinema/theater houses from admission tickets are subject to VAT. AEIHaS

Petitioner’s Arguments

Petitioner argues that the enumeration of services subject to VAT in Section 108 of the NIRC is not
exhaustive because it covers all sales of services unless exempted by law. He claims that the CTA erred
in applying the rules on statutory construction and in using extrinsic aids in interpreting Section 108
because the provision is clear and unambiguous. Thus, he maintains that the exhibition of movies by
cinema operators or proprietors to the paying public, being a sale of service, is subject to VAT.

Respondents’ Arguments

Respondents, on the other hand, argue that a plain reading of Section 108 of the NIRC of 1997 shows
that the gross receipts of proprietors or operators of cinemas/theaters derived from public admission
are not among the services subject to VAT. Respondents insist that gross receipts from cinema/theater
admission tickets were never intended to be subject to any tax imposed by the national government.
According to them, the absence of gross receipts from cinema/theater admission tickets from the list of
services which are subject to the national amusement tax under Section 125 of the NIRC of 1997
reinforces this legislative intent. Respondents also highlight the fact that RMC No. 28-2001 on which the
deficiency assessments were based is an unpublished administrative ruling.

ISSUE: WON THE RESPONDENT IS SUBJECT TO VAT.

HELD: NO. It is the legislative intent not to impose VAT on persons already covered by the amusement
tax. This holds true even in the case of cinema/theater operators taxed under the LGC of 1991 precisely
because the VAT law was intended to replace the percentage tax on certain services. The mere fact that
they are taxed by the local government unit and not by the national government is immaterial. The Local
Tax Code, in transferring the power to tax gross receipts derived by cinema/theater operators or
proprietor from admission tickets to the local government, did not intend to treat cinema/theater
houses as a separate class. No distinction must, therefore, be made between the places of amusement
taxed by the national government and those taxed by the local government. EIAScH

To hold otherwise would impose an unreasonable burden on cinema/theater houses operators or

proprietors, who would be paying an additional 10% VAT on top of the 30% amusement tax imposed by
Section 140 of the LGC of 1991, or a total of 40% tax. Such imposition would result in injustice, as
persons taxed under the NIRC of 1997 would be in a better position than those taxed under the LGC of
1991. We need not belabor that a literal application of a law must be rejected if it will operate unjustly
or lead to absurd results. Thus, we are convinced that the legislature never intended to include
cinema/theater operators or proprietors in the coverage of VAT.

The repeal of the Local Tax Code by the LGC of 1991 is not a legal basis for the imposition of VAT on the
gross receipts of cinema/theater operators or proprietors derived from admission tickets. The removal
of the prohibition under the Local Tax Code did not grant nor restore to the national government the
power to impose amusement tax on cinema/theater operators or proprietors. Neither did it expand the
coverage of VAT. Since the imposition of a tax is a burden on the taxpayer, it cannot be presumed nor
can it be extended by implication. A law will not be construed as imposing a tax unless it does so clearly,
expressly, and unambiguously. As it is, the power to impose amusement tax on cinema/theater
operators or proprietors remains with the local government. IDSaTE

Revenue Memorandum Circular No. 28-2001 is invalid

Considering that there is no provision of law imposing VAT on the gross receipts of cinema/theater
operators or proprietors derived from admission tickets, RMC No. 28-2001 which imposes VAT on the
gross receipts from admission to cinema houses must be struck down. We cannot overemphasize that
RMCs must not override, supplant, or modify the law, but must remain consistent and in harmony with,
the law they seek to apply and implement.

In view of the foregoing, there is no need to discuss whether RMC No. 28-2001 complied with the
procedural due process for tax issuances as prescribed under RMC No. 20-86.

Rule on tax exemption does not apply

Moreover, contrary to the view of petitioner, respondents need not prove their entitlement to an
exemption from the coverage of VAT. The rule that tax exemptions should be construed strictly against
the taxpayer presupposes that the taxpayer is clearly subject to the tax being levied against him. The
reason is obvious: it is both illogical and impractical to determine who are exempted without first
determining who are covered by the provision. Thus, unless a statute imposes a tax clearly, expressly
and unambiguously, what applies is the equally well-settled rule that the imposition of a tax cannot be
presumed. In fact, in case of doubt, tax laws must be construed strictly against the government and in
favor of the taxpayer.
G.R. No. 155491 September 16, 2008

SMART COMMUNICATIONS, INC. vs. THE CITY OF DAVAO, represented Mayor DUTERTE, and
the SANGGUNIANG PANLUNGSOD

NACHURA, J.:

On March 27, 1992, Smart obtained its legislative franchise under R.A. No. 7294. Sec. 9 of said
law provides that ³The grantee, its successors or assigns shall be liable to pay the same taxes on
their real estate buildings and personal property, exclusive of' this franchise, as other persons or
corporations which are now or hereafter may be required by law to pay. In addition thereto, the
grantee, its successors or assigns shall pay a franchise tax equivalent to three percent (3%) of all
gross receipts of the business transacted under this franchise by the grantee, its successors or
assigns and the said percentage shall be in lieu of all taxes on this franchise or earnings thereof:
Provided, That the grantee, its successors or assigns shall continue to be liable for income taxes
payable under Title II of the National Internal Revenue Code pursuant to Section 2 of Executive
Order No. 72 unless the latter enactment is amended or repealed, in which case the amendment
or repeal shall be applicable thereto. The grantee shall file the return with and pay the tax due
thereon to the Commissioner of Internal Revenue or his duly authorized representative in
accordance with the National Internal Revenue Code and the return shall be subject to audit by
the Bureau of Internal Revenue. (Emphasis supplied.)´

On January 1, 1992, the Local Government Code (R.A. No. 7160) took effect. Section 137, in
relation to Section 151 of R.A. No. 7160, allowed the imposition of franchise tax by the local
government units. R.A. No. 7716 or the VAT Law was enacted which specifically expressed under
Section 20, repealing provisions of all special laws (that includes the legislative franchise R.A. No.
7294, a special law) relative to the rate of franchise taxes. It also repealed, amended, or modified
all other laws, orders, issuances, rules and regulations, or parts thereof which are inconsistent
with it. It is in effect, rendered ineffective the ³in lieu of all taxes´ clause in R.A. No. 7294. Tax
Code of the City of Davao, Section 1, Article 10 thereof, provides: ³Notwithstanding any
exemption granted by any law or other special law, there is hereby imposed a tax on businesses
enjoying a franchise, at a rate of seventyfive percent (75%) of one percent (1%) of the gross
annual receipts for the preceding calendar year based on the income or receipts realized within
the territorial jurisdiction of Davao City.

Smart filed a special civil action for declaratory relief for the ascertainment of its rights and
obligations under the Tax Code of the City of Davao and contends that its telecenter in Davao
City is exempt from payment of franchise tax to the City, on the following grounds:

the issuance of its franchise under Republic Act (R.A.) No. 7294, subsequent to R.A. No. 7160
shows the clear legislative intent to exempt it from the provisions of R.A. 7160
 that the ³in lieu of all taxes´ clause in Section 9 of its franchise exempts it from all taxes, both
local and national, except the national franchise tax (now VAT), income tax, and real property tax
Section 137 of R.A. No. 7160 can only apply to exemptions already existing at the time of its
effectivity and not to future exemptions; not covered bec. The franchise was granted after the
effectivity of the LGC

the power of the City of Davao to impose a franchise tax is subject to statutory limitations such
as the ³in lieu of all taxes´ clause found in Section 9 of R.A. No. 7294; and only taxes it may be
made to bear under its franchise are the national franchise tax (now VAT), income tax, and real
property tax

exempt from the local franchise tax because the ³in lieu of taxes´ clause in its franchise does not
distinguish between national and local taxes. the imposition of franchise tax by the City of
Davao would amount to a violation of the constitutional provision against impairment of
contracts.

franchise is in the nature of a contract between the government and Smart. Respondent
invoked its power granted by the Constitution to local government units to create their own
sources of revenue. 9

RTC denied the petition on the ground that petitioner failed to prove that it is exempt from tax
applying strictissimi juris against the taxpayer and liberally in favor of the taxing authority. On
the issue of violation of the non-impairment clause of the Constitution, it cited Mactan Cebu
International Airport Authority v. Marcos and declared that the city¶s power to tax is based not
merely on a valid delegation of legislative power but on the direct authority granted to it by the
fundamental law. That while such power may be subject to restrictions or conditions imposed by
Congress, any such legislated limitation must be consistent with the basic policy of local
autonomy.

ISSUES:

Exemption from Franchise Tax under Section 9, RA 7294 which contains ³in lieu of taxes´ clause

³In lieu of taxes´ clause applies to national taxes or local taxes or both?

Violation to the Constitutional prohibition against ³impairment of contracts´

HELD: Petition is denied. proviso in the first paragraph of Section 9, Smart's franchise states
that the grantee shall "continue to be liable for income taxes payable under Title II of the
National Internal Revenue Code. " second paragraph of Section 9, speaks of tax returns filed and
taxes paid to the "Commissioner of Internal Revenue or his duly authorized representative in
accordance with the National Internal Revenue Code. " same paragraph, declares that the tax
returns "shall be subject to audit by the Bureau of Internal Revenue. " If Congress intended the
"in lieu of all taxes" clause in Smart's franchise to also apply to local taxes, Congress would have
expressly mentioned the exemption from municipal and provincial taxes. It should be noted that
the ³in lieu of all taxes´ clause in R. A. No. 7294 has become functus officio with the abolition of
the franchise tax on telecommunications companies. Currently, Smart along with other
telecommunications companies pays the uniform 10% value-added tax. The VAT on sale of
services of telephone franchise grantees is equivalent to 10% of gross receipts derived from the
sale or exchange of services, as provided in R.A. No. 7716, as amended by the Expanded Value
Added Tax Law (R.A. No. 8241). On the burden of grant to Tax exemptions: Tax exemptions are
never presumed and are strictly construed against the taxpayer and liberally in favor of the
taxing authority. They can only be given force when the grant is clear and categorical. If the
intention of the legislature is open to doubt, then the intention of the legislature must be
resolved in favor of the State. On impairment of contracts: There is no violation of Article III,
Section 10 of the 1987 Philippine Constitution. The franchise of Smart does not expressly
provide for exemption from local taxes. Absent the express provision on such exemption under
the franchise, we are constrained to rule against it. Due to this ambiguity in the law, the doubt
must be resolved against the grant of tax exemption. Contract Clause has never been thought as
a limitation on the exercise of the State¶s power of taxation save only where a tax exemption
has been granted for a valid consideration. On ³In lieu of all taxes³ Clause in RA 7294: R.A. No.
7294 is not definite in granting exemption to Smart from local taxation. Section 9 of R.A. No.
7294 imposes on Smart a franchise tax equivalent to three percent (3%) of all gross receipts of
the business transacted under the franchise and the said percentage shall be in lieu of all taxes
on the franchise or earnings thereof. R.A. No 7294 does not expressly provide what kind of taxes
Smart is exempted from. It is not clear whether the ³in lieu of all taxes´ provision in the franchise
of Smart would include exemption from local or national taxation. What is clear is that Smart
shall pay franchise tax equivalent to three percent (3%) of all gross receipts of the business
transacted under its franchise. But whether the franchise tax exemption would include
exemption from exactions by both the local and the national government is not unequivocal. In
this case, the doubt must be resolved in favor of the City of Davao. The ³in lieu of all taxes´
clause applies only to national internal revenue taxes and not to local taxes. It is clear that the
³in lieu of all taxes´ clause apply only to taxes under the NIRC and not to local taxes. It is not
even applied to income tax, as shown in the provision itself, to wit

Gulf Air v CIR

Facts:
1. GF is a PH branch of Gulf Air Company organized under Bahrain laws
2. GF availed of the ff and paid over 11M tax
a. Voluntary Assessment Program of the BIR under RR 8-2001
i. for its 1999 and 2000 Income Tax
ii. Documentary Stamp Tax
iii. Percentage Tax for the third quarter of 2000
iv. Refund of percentage taxes for the first, second and fourth quarters of 2000
3. A letter of authority was issued by the BIR authorizing its revenue officers to examine GFs books of accounts and
other records to verify its claim.
4. After submission of docs and conferences with the BIR, GF was assessed of deficiency percentage tax amounting
to over 32M and the refund of percentage tax was not granted
5. After receiving the formal letter of demand, GF filed a protest for the assessment and reiterated its request for
reconsideration on the denial of its claim for refund
6. OIC of Large Taxpayers Service of the BIR denied protest for lack of factula basis
7. GF filed a petition for review with the CTA.
8. CTA 2nd division dismissed the petition, asked GF to pay over 41M
a. RR No. 6-66 was the applicable rule providing that gross receipts should be computed based on the cost of the
single one-way fare as approved by the Civil Aeronautics Board (CAB)
b. GF failed to include in its gross receipts the special commissions on passengers and cargo
c. RR No. 15-2002, allowing the use of the net net rate in determining the gross receipts, could not be given any or
a retroactive effect.
9. CTA en Bacn affirmed 2nd div decision ruling that RR 6-66 is applicable since assessement covers 1st, 2nd, 4th
quarter of 2000 and percentage tax returns were filed in Oct 2011
10. GF questions the validity of Revenue Regulations No. 6-66
a. claiming that it is not a correct interpretation of Section 118(A) of the NIRC
b. insisting that the gross receipts should be based on the "net net" amount the amount actually received, derived,
collected, and realized by the petitioner from passengers, cargo and excess baggage.
c. the CAB approved fares are merely notional and not reflective of the actual revenue or receipts derived by it
from its business as an international air carrier.
d. Revenue Regulations No. 6-66 has been validated by the issuance of Revenue Regulations No. 15-2002 which
expressly superseded the former.

Issues:
1. W/ RR No. 6-66 or RR No. 15-2000 is the applicable law

Ruling:
1. There is no doubt that prior to the issuance of Revenue Regulations No. 15-2002 which became effective on
October 26, 2002, the prevailing rule then for the purpose of computing common carriers tax was Revenue
Regulations No. 6-66.
a. While the petitioners interpretation has been vindicated by the new rules which compute gross revenues based
on the actual amount received by the airline company as reflected on the plane ticket, this does not change the
fact that during the relevant taxable period involved in this case, it was Revenue Regulations No. 6-66 that was
in effect.
b. because tax laws, including rules and regulations, operate prospectively unless otherwise legislatively intended
by express terms or by necessary implication.
c. RR promulgated by the Secretary of Finance, who has been granted the authority to do so by Section 244 of the
NIRC, "deserve to be given weight and respect by the courts in view of the rule-making authority given to those
who formulate them and their specific expertise in their
respective fields." The Court cannot be compelled to set aside its decisions, unless there is a finding that the
questioned decision is not supported by substantial evidence or there is a showing of abuse or improvident
exercise of authority.
d. Tax refunds partake the nature of tax exemptions which are a derogation of the power of taxation of the State.
Consequently, they are construed strictly against a taxpayer and liberally in favor of the State. Regrettably, the
petitioner in the case at bench failed to unequivocally prove that it is entitled to a refund.

San Pablo Manufacturing Corporation vs. CIR [G.R. No. 147749. June 22, 2006]

15

AUG

Ponente: CORONA, J.

FACTS:

San Pablo Manufacturing Corporation (SPMC) is a domestic corporation engaged in the business of
milling, manufacturing and exporting of coconut oil and other allied products. It was assessed and
ordered to pay by the Commissioner of Internal Revenue miller’s tax and manufacturer’s sales tax,
among other deficiency taxes, for taxable year 1987 particularly on SPMC’s sales of crude oil to United
Coconut Chemicals, Inc. (UNICHEM) while the deficiency sales tax was applied on its sales of corn and
edible oil as manufactured products. SPMC opposed the assessments. The Commissioner denied its
protest. SPMC appealed the denial of its protest to the Court of Tax Appeals (CTA) by way of a petition
for review. docketed as CTA Case No. 5423. It insists on the liberal application of the rules because, on
the merits of the petition, SPMC was not liable for the 3% miller’s tax. It maintains that the crude oil
which it sold to UNICHEM was actually exported by UNICHEM as an ingredient of fatty acid and
glycerine, hence, not subject to miller’s tax pursuant to Section 168 of the 1987 Tax Code. Since
UNICHEM, the buyer of SPMC’s milled products, subsequently exported said products, SPMC should be
exempted from the miller’s tax.

ISSUE:

Whether or not SPMC’s sale of crude coconut oil to UNICHEM was subject to the 3% miller’s task.

HELD:

NO. Petition was denied.

RATIO:

The language of the exempting clause of Section 168 of the 1987 Tax Code was clear. The tax exemption
applied only to the exportation of rope, coconut oil, palm oil, copra by-products and dessicated
coconuts, whether in their original state or as an ingredient or part of any manufactured article or
products, by the proprietor or operator of the factory or by the miller himself.

Where the law enumerates the subject or condition upon which it applies, it is to be construed as
excluding from its effects all those not expressly mentioned. Expressio unius est exclusio alterius.
Anything that is not included in the enumeration is excluded therefrom and a meaning that does not
appear nor is intended or reflected in the very language of the statute cannot be placed therein. The
rule proceeds from the premise that the legislature would not have made specific enumerations in a
statute if it had the intention not to restrict its meaning and confine its terms to those expressly
mentioned.

The rule of expressio unius est exclusio alterius is a canon of restrictive interpretation. Its application in
this case is consistent with the construction of tax exemptions in strictissimi juris against the taxpayer.
To allow SPMC’s claim for tax exemption will violate these established principles and unduly derogate
sovereign authority.

PELIZLOY REALTY CORPORATION, represented herein by its President, GREGORY K. LOY,

Petitioner, vs. THE PROVINCE OF BENGUET, Respondent.

G.R. No. 183137, 10 April 2013.

LEONEN, J.:

Petitioner Pelizloy Realty Corporation owns Palm Grove Resort in Tuba, Benguet, which has facilities like
swimming pools, a spa and function halls.

In 2005, the Provincial Board of Benguet approved its Revenue Code of 2005. Section 59, the tax
ordinance levied a 10% amusement tax on gross receipts from admissions to "resorts, swimming pools,
bath houses, hot springs and tourist spots."

Pelizloy's posits that amusement tax is an ultra vires act. Thus, it filed an appeal/petition before the
Secretary of Justice. Upon the Secretary’s failure to decide on the appeal within sixty days, Pelizloy filed a
Petition for Declaratory Relief and Injunction before the RTC.

Pelizloy argued that the imposition was in violation of the limitation on the taxing powers of local
government units under Section 133 (i) of the Local Government Code, which provides that the exercise
of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of
percentage or value-added tax (VAT) on sales, barters or exchanges or similar transactions on goods or
services except as otherwise provided.

The Province of Benguet assailed the that the phrase ‘other places of amusement’ in Section 140 (a) of
the LGC encompasses resorts, swimming pools, bath houses, hot springs, and tourist spots since Article
131 (b) of the LGC defines "amusement" as "pleasurable diversion and entertainment synonymous to
relaxation, avocation, pastime, or fun."

RTC rendered a Decision assailed Decision dismissing the Petition for Declaratory Relief and Injunction
for lack of merit. Procedurally, the RTC ruled that Declaratory Relief was a proper remedy. However, it
gave credence to the Province of Benguet's assertion that resorts, swimming pools, bath houses, hot
springs, and tourist spots are encompassed by the phrase ‘other places of amusement’ in Section 140 of
the LGC.

ISSUE:  W/N provinces are authorized to impose amusement taxes on admission fees to resorts,
swimming pools, bath houses, hot springs, and tourist spots for being "amusement places" under the
LGC.

RULING: NO.

Amusement taxes are percentage taxes. However, provinces are not barred from levying amusement
taxes even if amusement taxes are a form of percentage taxes. The levying of percentage taxes is
prohibited "except as otherwise provided" by the LGC. Section 140 provides such exception.

Section 140 expressly allows for the imposition by provinces of amusement taxes on "the proprietors,
lessees, or operators of theaters, cinemas, concert halls, circuses, boxing stadia, and other places of
amusement."

However, resorts, swimming pools, bath houses, hot springs, and tourist spots are not among those
places expressly mentioned by Section 140 of the LGC as being subject to amusement taxes. Thus, the
determination of whether amusement taxes may be levied on admissions to these places hinges on
whether the phrase ‘other places of amusement’ encompasses resorts, swimming pools, bath houses, hot
springs, and tourist spots.

Under the principle of ejusdem generis, "where a general word or phrase follows an enumeration of
particular and specific words of the same class or where the latter follow the former, the general word or
phrase is to be construed to include, or to be restricted to persons, things or cases akin to, resembling, or
of the same kind or class as those specifically mentioned."

Section 131 (c) of the LGC already provides a clear definition: "Amusement Places" include theaters,
cinemas, concert halls, circuses and other places of amusement where one seeks admission to entertain
oneself by seeing or viewing the show or performances.

As defined in The New Oxford American Dictionary, ‘show’ means "a spectacle or display of something,
typically an impressive one"; while ‘performance’ means "an act of staging or presenting a play, a concert,
or other form of entertainment." As such, the ordinary definitions of the words ‘show’ and ‘performance’
denote not only visual engagement (i.e., the seeing or viewing of things) but also active doing (e.g.,
displaying, staging or presenting) such that actions are manifested to, and (correspondingly) perceived by
an audience.

Considering these, it is clear that resorts, swimming pools, bath houses, hot springs and tourist spots
cannot be considered venues primarily "where one seeks admission to entertain oneself by seeing or
viewing the show or performances". While it is true that they may be venues where people are visually
engaged, they are not primarily venues for their proprietors or operators to actively display, stage or
present shows and/or performances.